(Bloomberg) — A spate of well-known hedge funds reported steep losses in July as AI shares tumbled, most notably forcing the highly leveraged Situational Awareness to sell most of its stock portfolio at a deep discount to Ken Griffin’s Citadel.
Situational Awareness plunged 67% last month, and the fund offloaded most of its public equities book to meet margin calls. Investor concerns over the sustainability of massive corporate spending on AI also weighed on the sector.
Other funds didn’t incur such steep losses, but the month marked a notable reversal for trades that had, until this spring, been working very well for investors.
Hedge funds had historically high exposure to momentum trades, crowded long bets and equity market returns, according to research firm PivotalPath. The firm’s index that tracks hedge funds trading technology, media and telecom stocks fell 10% last month alone, the most of all the firm’s benchmarks.
Until June, such trades compounded at roughly 25% annually over the past three years, PivotalPath founder Jon Caplis said. In July, all three plunged steeply.
“When those same trends reverse this fast, the gap in risk taking between managers can become obvious,” he said.
Whale Rock Capital Management’s flagship tech-focused hedge fund fell 21.7% in July, erasing about half of its gains for the year, according to a person familiar with the matter. The AI-focused hedge fund run by Altimeter Capital Management tumbled 11% last month.
For those and other hedge funds, the losses marked a sharp contrast to the earlier wins from their tech-focused bets. As a result, some are still up significantly for the year, underscoring the strength of AI gains during the first half. Whale Rock has returned 35.1% through July, even after last month’s rout, while Altimeter is up 34% for the year.
Other big hedge funds posted smaller declines. Tech-focused Tiger Global Management’s long/short equity hedge fund lost 4.8% in July, bringing its gains for the year down to 9.4%. Its crossover fund, which invests in public and private companies, fell 2.7% last month but is still up 18.9% for the year.
Viking Global Investors’ hedge fund, which has little AI exposure, lost just 0.2% in July and is now up 2.5% for the year.
Elsewhere, multistrategy hedge fund giants including Millennium Management and Balyasny Asset Management also reported losses last month.
Millennium fell 2.1%, paring gains at the $92 billion investment giant to 8.2% for this year. Balyasny, which declined 1.5% in the month, trimmed gains so far this year to 1.2%; while Verition Fund Management was down 1.1%, putting returns this year at 4.5%.
But the stock rout also presented opportunities — most notably for Citadel. The multistrategy hedge fund, known for scooping up distressed assets at a discount, managed to buy the AI-focused firm’s portfolio at 10% off, Bloomberg News previously reported.
As a result, Citadel’s flagship fund climbed 5.9% in July as Griffin’s firm became one of the few winners from the turmoil at Situational Awareness. The deal provided instant gains for the Wellington fund, which had only risen 0.45% for the year until the last week of July.
The transaction helped push Citadel’s year-to-date gains to 12% and had the knock-on effect of calming investor jitters about more widespread selling of AI assets, erasing some of the month’s earlier losses in the sector.
The firms declined to comment on the performance.
This is how hedge funds fared in July:
More stories like this are available on bloomberg.com
