In July, Jane Street faced a loss of $15 billion largely due to its investments in the AI-focused hedge fund Situational Awareness, along with various tech stocks affected by the market downturn, according to sources familiar with the situation and a memo reviewed by Reuters.
Despite this setback, the firm has reportedly earned over $40 billion in trading revenue so far this year, significantly outperforming major banks and competitors in the market, as noted by one of the sources.
Situational Awareness, led by Leopold Aschenbrenner—previously an OpenAI researcher dubbed the “Nostradamus of AI”—was adversely impacted by a significant drop in AI stock prices in July, which led to margin calls and a considerable reduction in its stock holdings during a fire sale to Citadel, owned by billionaire Ken Griffin.
Jane Street is among the investors in Situational Awareness.
In a memo to employees on Friday, Jane Street executives acknowledged that July was a challenging month, attributing part of the downturn to the poor performance of Situational Awareness.
“We hold an investment in Situational Awareness, which is an externally managed hedge fund concentrating on AI and has seen growth after favorable results in the first half of the year. However, due to notable drawdowns, our stake has remained largely unchanged this year but has been increasing over the investment duration,” the memo stated, as seen by Reuters.
The company also incurred losses from its long positions in various Asian non-AI stocks, many of which had previously excelled earlier in the year.
According to Jane Street, “the same portfolios that performed well in the second quarter almost lost money.” The firm pointed out that AI-related stocks saw significant declines in July, with top memory and semiconductor shares dropping by roughly 50%.
In light of these challenges, Jane Street expressed a move towards being “more selective” regarding risk, indicating that it has “eliminated a significant portion of the risk in specific areas where we experienced losses in July and also tempered risk-taking in other strategies.”
Jane Street was unavailable for comment.
