A spate of well-known hedge funds reported steep losses in July as AI shares tumbled, most notably forcing the highly leveraged Situational Awareness to sell most of its stock portfolio at a deep discount to Ken Griffin’s Citadel.
Situational Awareness plunged 67% last month, and the fund offloaded most of its public equities book to meet margin calls. Investor concerns over the sustainability of massive corporate spending on AI also weighed on the sector.
Hedge funds had historically high exposure to momentum trades, crowded long bets and equity market returns, according to research firm PivotalPath. The firm’s index that tracks hedge funds trading technology, media and telecom stocks fell 10% last month alone, the most of all the firm’s benchmarks.
Until June, such trades compounded at roughly 25% annually over the past three years, PivotalPath founder Jon Caplis said. In July, all three plunged steeply.
“When those same trends reverse this fast, the gap in risk taking between managers can become obvious,” he said.