Hedge Funds Plummet Amid AI-Related Stock Collapse

Hedge funds have experienced their worst underperformance against the S&P 500 in more than two decades, according to Goldman Sachs. The bank's strategists noted that the Hedge Fund VIP list of most popular long positions suffered its worst one-month underperformance against the index in over 20 years.

The decline was largely attributed to the collapse of AI-related stocks in July, with funds trimming their positions in semiconductors and mega-caps. The bank added that hedge fund performance has swung sharply with the AI trade during the last few months.

One notable example is Situational Awareness, a fund run by Leopold Aschenbrenner that ballooned to $45 billion in assets before collapsing to around $10 billion after a sharp selloff in AI-related stocks forced it to unwind its leveraged positions. The fund ultimately sold its public equity holdings to Citadel at a discount.

JPMorgan CEO Jamie Dimon has sounded the alarm on high levels of leverage across financial markets, warning that it could cause disruption in the future. He noted that margin debt is at an all-time high and cautioned that such leverage can lead to broader volatility in the market.