The hedge fund Situational Awareness, once a standout name in the AI investment wave, is rebuilding its portfolio through new brokerage relationships after suffering one of the largest single losses in hedge fund history this summer. The renewed bets remain firmly pointed at the technology and AI sectors.

According to informed sources cited in media reports on Friday, Leopold Aschenbrenner's Situational Awareness has returned to the options market, accumulating several hundred million dollars worth of options from late last week into the beginning of this week. In tandem with this move, the fund has established a partnership with specialized brokerage Clear Street, using it as a foundation to reconstruct an aggressive portfolio of tech stock positions.

Back in July, Aschenbrenner's fund saw its assets plummet by 67% in a single month as the AI sector suffered a sharp downturn, with the scale of losses reportedly setting a historic record for the hedge fund industry. At that time, Situational Awareness narrowly avoided a complete collapse by selling off most of its public market positions to Ken Griffin's Citadel.

The newly reconstructed positions span several core companies in the semiconductor and AI infrastructure space, including SK hynix, SanDisk, Advanced Micro Devices (AMD), Bloom Energy Corp, and Oracle. Whether Aschenbrenner has successfully raised fresh capital for public market investments remains unclear at this stage.

A Narrow Escape and a Promise to Bounce Back

Situational Awareness had previously risen to prominence during the AI frenzy, with Aschenbrenner becoming one of the most closely watched technology investors in the industry. However, the significant correction in the AI sector this summer pushed the fund to the brink—reported losses were said to total tens of billions of dollars, ultimately forcing a substantial reduction in leverage and the liquidation of a large portion of its holdings.

To weather the crisis, Situational Awareness sold most of its public market positions to Citadel, a move that ensured the fund's survival but also signaled the temporary end of its previous aggressive strategy. In a letter to investors at the end of July, Aschenbrenner stated his intention to "seek another day to fight," while promising to "draw the necessary lessons." He also informed investors that despite the severe setback, the fund was still up roughly 80% year-to-date. He added that the fund would "continue to operate as a hybrid of public and private," but public market investments would be "managed on a fully paid basis."

Shift to Lower Leverage and Custom Options Tools

The strategy behind this portfolio reconstruction differs notably from the aggressive approach of the past. According to insiders, Situational Awareness has recently made heavy use of so-called "flex options"—highly customizable derivative instruments that can only be executed through major brokerages. The fully paid model for options trading means the fund's maximum loss is capped at the premium already paid, protecting it from excess losses triggered by margin calls. This approach is far more conservative in risk exposure compared to the heavy leverage deployed previously.

Several prime brokers that have engaged with Situational Awareness revealed that Aschenbrenner has made it clear he intends to significantly reduce leverage levels as the fund restarts. However, through the embedded leverage inherent in options contracts, he can still maintain amplified upside exposure to the potential gains of the underlying holdings.

New Brokerage Partnership, Clear Street Fills Financing and Execution Needs

On the brokerage front, Situational Awareness has begun to expand its network of partnerships. According to informed sources, the fund has recently started working with Clear Street—a brokerage known in hedge fund circles for its focus on the tech sector, though it is considerably smaller than the industry giants like Goldman Sachs, JPMorgan, and Citigroup that Situational Awareness previously dealt with.

Hedge funds typically rely on brokerages to execute bespoke derivatives trades and provide financing support, and flex options themselves require execution through major brokerages by design. This new relationship with Clear Street is being viewed externally as a significant step in Aschenbrenner's effort to rebuild his network within the Wall Street ecosystem.