Citadel founder Ken Griffin has disclosed details of how the firm managed assets acquired from Situational Awareness, revealing that over 80% of the original portfolio's risk has been eliminated through more than 100 block trades valued at over $4 billion. Griffin shared this information in a client letter on Friday, marking the first detailed account of the transaction since the takeover was confirmed.

Griffin stated that negotiations with Situational Awareness began on July 29, just one day before reports surfaced that the hedge fund was forced to liquidate its public stock positions following significant losses. Citadel was subsequently confirmed as the buyer of those assets. The letter emphasized the critical role played by banking and prime brokerage teams from both sides, which enabled the rapid execution of such a large-scale transaction.

The acquisition was followed by immediate risk management measures. Citadel swiftly unwound positions through more than 100 block trades, disposing of assets worth over $4 billion and reducing the original portfolio's overall risk exposure by more than 80%. This process highlighted the firm's execution capabilities in handling complex, high-volume asset transfers under challenging market conditions.

Citadel's flagship multistrategy fund, the Wellington Fund, delivered a 5.94% return in July, marking its best monthly performance since 2022. This result came amid significant volatility in AI-related trades, which had been the core focus of Situational Awareness's investment strategy.

Situational Awareness, founded by 25-year-old Leopold Aschenbrenner, had built its investment thesis on the belief that AI would fundamentally reshape the global economy and society. The fund employed a concentrated long-short strategy, heavily investing in AI-related stocks while shorting software companies, betting that traditional software business models would be disrupted by AI technology.

This highly concentrated approach suffered severe setbacks in June and July. Despite relatively stable major index performance during the period, several AI stocks in the fund's portfolio experienced dramatic declines. Names like Sandisk (SNDK.US) and Bloom Energy (BE.US) fell more than 50% at one point. Meanwhile, shorted software stocks rebounded, with Adobe (ADBE.US) recovering, causing losses on both sides of the trade.

The simultaneous losses on long and short positions triggered margin calls, forcing Situational Awareness to liquidate assets and exit its public market positions entirely. Citadel emerged as the major buyer of these assets during the period of maximum market stress.

Ironically, the AI trade rebounded shortly after Situational Awareness's forced selling and Citadel's acquisition. The timing of the massive liquidation appears to have marked the bottom of the AI stock correction that began in June. This rebound improved the market environment for the acquired assets, though Griffin's disclosure shows Citadel did not simply hold the portfolio long-term.

The transaction demonstrates Citadel's ability to execute large, complex trades and manage risk effectively under pressure. It also underscores the vulnerabilities of highly concentrated investment strategies, as evidenced by Situational Awareness's forced exit after losing on both its AI longs and software shorts. Citadel's flagship fund subsequently achieved its best monthly performance since 2022, reflecting the firm's successful navigation of the volatile period.