Jane Street took a $15 billion hit in July from its exposure to AI-focused hedge fund Situational Awareness and other tech stocks battered by the market selloff, according to two people familiar with the matter and a note seen by Reuters. The loss marked the trading firm's first negative month of trading revenue since 2016.
Despite the setback, Jane Street has generated trading revenue of more than $40 billion year to date, one of the sources said. That already exceeds the $39.6 billion the firm brought in for all of last year.
Situational Awareness, run by former OpenAI researcher Leopold Aschenbrenner, offloaded the bulk of its stock portfolio in a fire sale to Ken Griffin's Citadel last month. The sale followed an AI selloff that triggered margin calls at the firm. Jane Street counts Situational Awareness among its investments.
What went wrong in July
In a note to employees on Friday, Jane Street executives acknowledged July was a "bad month" for the firm, blaming the drawdown at Situational for contributing to its poor performance.
"We have an investment in Situational Awareness, an externally managed AI-focused hedge fund, that became large by performing well in the first half of the year. They had a large drawdown that left our stake about flat on the year, but still up over the entire period we have been invested," the note said.
Hedging offered limited protection. "We generally worry most about sharp drawdowns, and buy puts that would help in those scenarios. The losses in AI stocks were relatively spread out throughout the month, so those short-term hedges provided little help," the note added.
The firm also lost money on long positions in non-AI stocks in Asia, many of which had led markets earlier in the year. "AI-exposed stocks were down a lot during July, several of the largest memory and semiconductor stocks were down around 50%," Jane Street said.
Stepping back from risk
Jane Street's revenue is down roughly 25% from its peak at the end of June, the firm said. That decline has direct consequences for how much risk it is willing to take on now.
"Despite the large year to date increase in trading capital, the recency of these losses has caused us to locally be more selective about risk," the note said.
Jane Street closed a significant portion of risk in the specific areas where it lost money in July and pulled back on risk-taking in other strategies. "Our positions currently seem appropriate for our present risk tolerance," the firm said. "Market volumes have been strong, and we've continued to make improvements to our short time horizon strategies, that trading seems more profitable than ever."
The firm, which has about 3,500 employees and no outside capital, provides market liquidity across ETFs, equities, bonds, options, commodities, and currencies on more than 200 trading venues worldwide. Its capital structure lets it hold larger positions through periods when such bets pay off.
Why this matters for finance professionals
The July losses at Jane Street underline how quickly AI-driven trades can unwind even at firms with sophisticated risk management. For finance professionals, the lesson from the disclosure is twofold: first, a concentration in any single theme - even one with strong fundamentals - leaves portfolios exposed when a selloff hits; second, hedges designed for sharp moves don't always work when declines stretch out over weeks. The same overhang of AI exposure that hurt Jane Street's position pushed several prominent hedge funds toward heavy drawdowns in August, so the impact is still rippling through markets.
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