Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting Club
PRO
LivestreamMenuLeopold Aschenbrenner isn’t the only hedge fund manager who had a bad July. While his firm’s reported $35 billion in losses may have been the most extreme casualty of the recent tech sell-off, they were part of a much larger trend in the industry. Excluding Aschenbrenner’s Situational Awareness, technology-focused hedge funds lost 10.2% of their value in July, making it the worst month on record for the category, according to a Thursday note from JPMorgan, citing data from Pivot Path. More diversified, multi-strategy hedge funds lost 2.3% during the month, which would be their fourth-worst episode ever, behind the onset of the 2020 pandemic, the 2008 financial crisis and the bursting of the dot-com bubble in 2000. The losses could mean that hedge funds have limited capacity to lever back up and support the current rally, which took off a week ago following the July rout. If funds reduce their risk profiles, and if the prime brokerages that lend them money pull back on their lending, the hedge fund capacity for technology investment could become “structurally more limited going forward,” Nikolaos Panigirtzoglou at JPMorgan wrote to clients. This would put the onus on retail investors to push the rally forward, according to the firm. “The tech trade would become over the longer term even more dependent on retail investors and thus more susceptible to the swings emanating from leveraged ETFs, retail option buying and retail margin accounts,” Panigirtzoglou wrote. The current rally was kicked off last week by earnings from hyperscalers that substantiated huge capital expenditures with boosted returns on investment. It follows a dismal July , in which increased competition from China on frontier AI algorithms, more circular financing deals, and concerns about overvaluation in the booming memory chip sector weighed on confidence in the AI buildout. Hedge fund deleveraging, profit-taking and a massive momentum unwind drove the sell-off last month. The iShares MSCI USA Momentum Factor ETF (MTUM) fell 12.6% in July; the Roundhill Memory ETF (DRAM) lost almost 32%; the VanEck Semiconductor ETF (SMH) dropped nearly 18%; and the iShares Semiconductor ETF (SOXX) tumbled 21%. Top common stock holdings of Situational Awareness in the first quarter included some recently pummeled names within semiconductors and AI, including Sandisk , which was down more than 46% in July. The Sandisk rout continued on Thursday, with shares last down about 5% as revenue guidance appeared to disappoint traders. Also in the portfolio were Bloom Energy , which fell 32% in July; Nebius , which slid 31%; CoreWeave , which lost around 28%; and SharonAI holdings, which plummeted 43%. Ken Griffin’s hedge fund Citadel has reportedly snapped up many of Situational Awareness’s assets at a discount following the collapse. Citadel posted big gains across its major funds in July, helped by a recovery in risk assets.
About The Author
