JPMorgan cut off Situational Awareness lending after AI losses

JPMorgan Chase cut off its lending activity for Leopold Aschenbrenner’s hedge fund Situational Awareness after the wunderkind investor suffered the largest loss in the history of the hedge fund industry.

Aschenbrenner, who is in his mid-twenties, was the star investor of the AI boom before tens of billions of dollars in losses forced him to sell a large chunk of his portfolio and cut back on leverage.

JPMorgan was one of the primary lenders to Situational Awareness through the bank’s prime brokerage business. After the losses, the bank notified Aschenbrenner’s fund that it would end their lending relationship, according to people familiar with the matter.

JPMorgan and Situational Awareness declined to comment.

Aschenbrenner and Situational Awareness have recently begun working with specialist brokerage Clear Street, according to people familiar with the matter, as he begins rebuilding a portfolio of aggressive bets on technology companies.

Hedge funds commonly rely on brokers to execute bespoke derivatives trades and provide financing for trades. Clear Street declined to comment.

Morgan Stanley has had discussions with Situational Awareness since the fund launched but never opened a banking relationship, according to people familiar with the matter. Morgan Stanley declined to comment.

Situational Awareness averted a near collapse this summer by offloading most of its public-market positions to Ken Griffin’s hedge fund Citadel, but the young financier vowed to his investors that he would attempt a comeback.

After the sale, Aschenbrenner said he would “fight another day” and “learn the necessary lessons” from the market sell-off that led to a 67 per cent plunge in the fund’s assets in July. Situational Awareness was still up 80 per cent this year, he told investors in a letter at the end of that month.

Now, Aschenbrenner is rebuilding large trading positions in technology stocks such as semiconductor manufacturers AMD, Intel, SK Hynix and Sandisk and AI start-ups including CoreWeave, according to people familiar with the matter. His efforts have been bolstered by new Wall Street relationships, such as Clear Street.

While well known in the hedge fund world as a tech-focused brokerage, Clear Street is far smaller than broking rivals such as JPMorgan. Situational Awareness has also had banking relationships with Goldman Sachs and Citigroup.

Aschenbrenner told investors in July that Situational Awareness was “continuing to operate as a hybrid public-private fund as before” but would “manage our public book on a fully paid-for basis while we draw the lessons from these developments”.

Using fully paid options reduces the risks a fund takes on because it can only lose the money it has already paid to open the trade.

Situational Awareness in recent days has placed large new bets using so-called “flex options”, according to people familiar with the matter. These specialised options trades, which allow traders to customise the terms of the contract, can only be made through large brokerages.

The trades show that Situational Awareness has paid small premiums to make bets on these companies, which give Aschenbrenner a magnified exposure to the potential gains of his holdings due to the leverage embedded within the contracts.

Some prime brokers who have been in discussions with Situational Awareness told the FT that Aschenbrenner had said he would use far less leverage than before as he reboots the fund.