After a 67% plunge, AI investment star Aschenbrenner is back in the market, betting on SK Hynix, AMD, and more.

Situational Awareness, a hedge fund that rose to prominence during the AI boom, suffered the largest single loss in hedge fund history this summer. It is rebuilding its portfolio by expanding new brokerage relationships, with its bets still pointing towards the technology and AI sectors.

According to media reports on Friday, citing sources familiar with the matter, Leopold Aschenbrenner's hedge fund, Situational Awareness, has returned to the options market, purchasing hundreds of millions of dollars worth of options between late last week and early this week.

At the same time, Situational Awareness has partnered with professional brokerage Clear Street to rebuild its aggressive tech stock betting portfolio.

In July of this year, Aschenbrenner's fund assets shrank by 67% in a single month due to a sharp decline in the AI sector, reportedly setting a record for losses in the hedge fund industry. At that time, Situational Awareness narrowly avoided a collapse by selling most of its public market positions to Ken Griffin's Citadel.

The targets involved in this portfolio restructuring cover several core companies in the semiconductor and AI infrastructure sectors, including SK Hynix, SanDisk, AMD, Bloom Energy, and Oracle. Whether Aschenbrenner has raised new funds for public market investments remains unclear.

narrowly avoided a collapse and promised a comeback.

Situational Awareness gained prominence during the AI boom, and Aschenbrenner has become one of the most prominent technology investors in the industry.

However, the sharp correction in the AI sector this summer pushed the fund into danger – reportedly, the fund lost tens of billions of dollars and ultimately had to drastically reduce leverage and sell off a large number of holdings.

To weather the crisis, Situational Awareness sold most of its public market positions to Citadel. While this allowed the fund to survive, it also signaled the end of a phase of its previously aggressive strategy.

In a letter to investors at the end of July, Aschenbrenner stated that he would "find another day" and promised to "learn the necessary lessons." He also informed investors that despite the significant setbacks, the fund had still accumulated a gain of approximately 80% this year. He further stated that the fund would "continue to operate as a hybrid public-private fund," but public market investments would be "managed on a fully paid-up basis."

Shift to lower leverage and adopt customized options instruments

The strategy for rebuilding positions this time differs from past aggressive approaches. According to sources, Situational Awareness has recently been making extensive use of so-called "flex options"—derivatives with highly customizable contract terms that can only be executed through large brokers.

Options trading using the "fully paid-up" model means that the fund's maximum loss is limited to the option premium already paid, and it will not incur excess losses due to additional margin calls. This approach is more conservative in terms of risk exposure control than the previous practice of using heavy leverage.

According to several prime brokers who have been in contact with Situational Awareness, Aschenbrenner has made it clear that he will significantly reduce leverage levels during the fund's restart. However, through the leverage inherent in options contracts, he can still maintain a large exposure to the potential upside of his holdings.

Clear Street fills financing execution needs by bringing in a new broker.

Regarding brokerage resources, Situational Awareness has begun to expand new partnerships.

According to sources familiar with the matter, the fund recently partnered with Clear Street, a brokerage firm known in the hedge fund world for its focus on the technology sector, but much smaller in size than industry giants such as Goldman Sachs, JPMorgan Chase, and Citigroup, which have previously worked with Situational Awareness.

Hedge funds typically rely on brokers to execute customized derivatives trades and provide financing, and flexible options themselves require large brokers to execute trades. This relationship with Clear Street is seen as a significant step for Aschenbrenner in reshaping his Wall Street network.

Risk Warning and DisclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.