BIS warns of systemic risks from leveraged hedge funds after Situational Awareness near-collapse

A hedge fund named after a concept in AI safety nearly became a case study in financial danger. The Bank for International Settlements pointed to the near-collapse of Situational Awareness, the AI-focused fund founded by former OpenAI researcher Leopold Aschenbrenner, as a textbook example of what happens when leverage meets concentration risk in volatile markets. The BIS issued its warning on September 14, 2026, roughly six weeks after the fund’s portfolio cratered by 67% during a brutal selloff in AI and semiconductor stocks. At its peak, Situational Awareness managed approximately $45 billion in assets. By the time the dust settled, that figure had shrunk to around $10 billion. How a $45 billion fund almost vaporized Situational Awareness launched in 2024 with a thesis that was, at the time, hard to argue with: go long on AI infrastructure and semiconductor companies, and go long aggressively. The fund ran concentrated positions with roughly 4x leverage, meaning every dollar of investor capital was backing four dollars of market exposure. When AI-related equities broadly turned south in July 2026, that leverage transformed a painful drawdown into a near-death experience. Major p...