7/30/26 -6.5%

The collapse of the hedge fund Situational Awareness LP highlights the dangers of excessive leverage and concentrated bets in the volatile AI infrastructure sector. The fund’s downfall, triggered by a 4x leverage ratio and illiquid holdings in companies like Anthropic, serves as a stark reminder of the risks inherent in aggressive long-only strategies. Market participants are currently navigating significant volatility fueled by massive CapEx spending from hyperscalers like Microsoft, Amazon, and Meta. Success in these markets requires rigorous position sizing, as demonstrated by the Kelly Criterion, which advocates for small, consistent trades to survive inevitable drawdowns. Institutional giants like Citadel and Millennium are actively positioning themselves to absorb assets from distressed funds, reinforcing a Darwinian landscape where liquidity and risk management dictate long-term survival over speculative growth.