The bank terminated prime brokerage services after historic July losses at Situational Awareness.
JPMorgan Chase has terminated its prime brokerage lending relationship with Situational Awareness, a hedge fund run by Leopold Aschenbrenner. The Financial Times reported that the move cuts off key leverage for the fund following record-setting losses during a sharp July sell-off in artificial intelligence stocks.
Situational Awareness suffered the largest dollar loss in hedge fund industry history, shedding 67% of its assets in July. The fund averted a total collapse by offloading most of its public market positions to Ken Griffin's Citadel, leaving it up 80% on the year at the end of July.
The retreat by Wall Street's largest bank highlights heightened scrutiny toward aggressive AI-focused strategies. Morgan Stanley held early discussions with the fund after its launch but ultimately declined to establish a banking relationship. Aschenbrenner has now turned to boutique prime broker Clear Street to regain market access.
In an investor letter, Aschenbrenner outlined plans to curb leverage by using customized flex options on semiconductor and infrastructure firms. These holdings include AMD, Intel, SK Hynix, SanDisk, and CoreWeave, which allow directional market exposure while capping downside risk to pre-paid premiums.
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