By Svea Herbst-Bayliss and Nell Mackenzie
NEW YORK/LONDON, Aug 5 (Reuters) - Hedge fund Citadel's three large portfolios boasted gains last month even as many industry rivals suffered losses, amid a technology stock selloff fuelled by worries about artificial intelligence spending.
The firm's flagship Wellington fund gained 6% in July, leaving it up 12% for the year, while its tactical trading fund, which is a mix of long/short equities and quantitative strategies, gained 11%, leaving it up 27% for the year to date,
an investor said.
Its stock-focused equities fund climbed 14.2% and is now also up 27% for the year.
The numbers were released to investors less than a week after Citadel purchased AI stocks from hedge fund Situational Awareness, which had shocked Wall Street with triple-digit returns earlier this year but then faced margin calls as some AI stocks skidded lower.
Many other hedge funds that bet big on chip makers and other AI stocks suffered alongside Situational Awareness last month, with some of their losses swelling to the double-digit range, Reuters previously reported.
INTEREST IN HEDGE FUND ALLOCATION STAYS HIGH
News that Citadel, which invests some $71 billion in assets for clients, stepped in last week to buy some of the Situational Awareness positions at a discount of more than 10%, helped stabilize the market on the last two trading days of July, investors said.
As chatter about Situational Awareness' troubles spread last week, Millennium Management, another large hedge fund, had also approached the firm with offers to buy some positions, a person familiar with the matter said.
But Situational Awareness, whose founder Leopold Aschenbrenner had no previous money management experience before launching his AI-focused investment fund, selected Citadel to take over the positions and inked a deal on Thursday after Citadel founder Ken Griffin and top lieutenants worked through the night to structure the package, sources familiar with the matter said.
Despite the meltdown and many firms' big losses, Barclays reported on Wednesday that a recent survey showed that interest in hedge fund allocation remains at its highest level in years.
The bank's second-half 2026 Hedge Fund Outlook Survey found that investors, especially pension funds, plan to continue to allocate to hedge funds. Interest in quantitative strategies ranks at its highest level since 2020, the survey said.
Yet investors also acknowledged that market vulnerability as well as hedge funds' use of borrowed money to try and increase returns is a main theme in the investment process. Funds' investments in AI and AI adoption, particularly how AI will be integrated into the investment process, also rank as big themes for investors, the survey said.
(Reporting by Svea Herbst-Bayliss and Nell Mackenzie; Editing by Louise Heavens and David Holmes)
