Why Hedge Funds Lost $35 Billion in a Month: The July 2026 AI Stock Crash Explained

Macro overlay. The ongoing Iran war pushed crude oil prices higher, adding a second shock that upset broader markets and exacerbated risk-off sentiment .

Key Fund-Level Losses

Forced Liquidation: How Situational Awareness Collapsed

The most dramatic casualty was Leopold Aschenbrenner's Situational Awareness fund, which went from managing roughly $45 billion to about $10 billion in a single month . A historic momentum reversal triggered losses on both sides of its portfolio — both its concentrated AI long bets and its hedges failed — which set off margin calls and compulsory sales . The fund sold the bulk of its stock portfolio to Ken Griffin's Citadel this week and unwound most of its public equities portfolio . Aschenbrenner told investors the fund "came closer to permanent capital impairment than is acceptable" .

Broader Market Fallout

The damage extended far beyond individual funds.

Record pace of tech selling. Goldman Sachs' prime brokerage desk reported that hedge funds were net sellers of US tech stocks in six of the eight weeks leading up to the crash, with the selling accelerating in July .

Structural market shift. JPMorgan strategists warned that hedge funds suffered "structural" losses and may permanently reduce their tech exposure, leaving the technology trade more dependent on retail investors and more volatile going forward .

Asia equity hedge funds hit hardest. Goldman Sachs prime brokers said July was the worst month for regional stockpickers on record, with Asia-focused long-short funds down 18.6% on average .

Global hedge fund gains erased. Global hedge funds gave up almost 3% of their 2026 gains in July due to tech trade unwinding, though they remain up about 8% year-to-date across all strategies . Technology-only funds, however, suffered much deeper damage.