With Situational Awareness AI deal, Citadel's Griffin rides to the rescue again

By Svea Herbst-Bayliss, Manya Saini and Anirban Sen

July 31 (Reuters) - When rival hedge funds face catastrophic losses, billionaire investor Ken Griffin has a habit of identifying opportunities and showing up with a checkbook.

Citadel's founder this week reprised his role as one of Wall Street's rescue buyers, stepping in to salvage California hedge fund Situational Awareness as it ‌buckled under souring bets on artificial intelligence stocks.

Amid market rumblings that at least one firm was in trouble, Griffin, 57, assembled his top lieutenants to investigate, according to five people ‌with knowledge of the matter.

By Wednesday morning, Citadel executives had reached out to Situational Awareness, and Griffin spoke directly with Leopold Aschenbrenner, the fund's young founder and a former OpenAI researcher.

Together with Citadel co-Chief Investment Officer Pablo Salame, Chief Operating Officer Gerald ​Beeson, Perry Vais, its head of equity quantitative research, and Chief Legal Officer Shawn Fagan, Griffin pulled an all-nighter to analyze the trading book positions of Situational Awareness and how liquid the bets were, the sources said.

After a selloff in AI stocks, the Situational Awareness portfolio lost 67% of its value in July, and the fund was forced to unwind most of its $16 billion public equities book. By Thursday, Citadel had bought a chunk of its book.

"We let you down," Aschenbrenner wrote to his investors in a letter seen by Reuters.

Word spread quickly on Wall Street that Citadel, one of the world's largest hedge funds which prides itself on ‌disciplined risk-taking and seizing market opportunities, had stepped in.

"There are only a ⁠few firms that could take down this much risk," said one investor familiar with the deal who was not authorized to speak publicly.

Reuters could not ascertain how much money Citadel had made on the deal, although many AI stocks in the portfolio have risen since.

Representatives for Citadel and Situational Awareness declined to comment.

A ⁠DECADES-OLD PLAYBOOK

For Griffin, who began trading from his Harvard University dormitory some four decades ago and now oversees $71 billion in assets, it is a playbook that stretches back decades.

"During market stress, the collective judgment of our business leaders, risk managers and portfolio managers enables us to capitalize on market opportunities when others, who depend on simplistic stop-loss approaches, cannot," Griffin wrote in a 2023 letter to investors seen by Reuters.

When energy company Enron filed for what was ​then ​the largest bankruptcy in U.S. history in 2001, Griffin chartered a jet that same day, dispatching top Citadel executives ​to interview nearly all of the energy traders and analysts who had worked ‌there, the Financial Times reported last month and one of the sources confirmed.