The Hedge Fund Playbook Is Getting an AI Rewrite

4 min read.

Author

Midas AI
August 11, 2025

Billions are rushing into AI native managers whose technical edge is informing bets across chips, power, and select startups, and early returns are outpacing traditional benchmarks.

A new class of hedge funds is building around deep technical expertise in artificial intelligence, and the money is following fast. Situational Awareness, a San Francisco firm founded by 23 year old former OpenAI researcher Leopold Aschenbrenner, now manages more than 1.5 billion dollars. The firm gained 47 percent after fees in the first half of the year, compared with about 6 percent for the S and P 500 including dividends and roughly 7 percent for an index of tech hedge funds compiled by PivotalPath.

A Brain Trust Approach to Investing

Aschenbrenner has pitched the firm as a brain trust on AI, saying it will have way more situational awareness than people who manage money in New York. Many of its investors have locked up capital for years, and the firm has recruited Carl Shulman, who previously worked at Peter Thiel’s macro hedge fund, as director of research. Backers include Patrick and John Collison, Daniel Gross, and Nat Friedman, with Graham Duncan as an adviser.

They are not alone. Value Aligned Research Advisors launched an AI focused hedge fund in March that has amassed about 1 billion dollars in assets, and the firm also manages about 2 billion dollars in other AI focused strategies. Founded by former quants Ben Hoskin and David Field, VAR’s investors have included the philanthropic foundation of Dustin Moskovitz, according to regulatory filings reviewed by Old Well Labs.

Veteran platforms are entering the fray as well. Steve Cohen tapped Eric Sanchez at Point72 Asset Management to start Turion, which was planned to receive 150 million dollars of Cohen’s own money and now manages more than 2 billion dollars. Turion is up about 11 percent this year through July after gaining about 7 percent in July.

Mapping the Full AI Economy

What unites these managers is an investment map that looks less like classic tech stock picking and more like a full stack view of the AI economy. Situational Awareness is betting on global stocks that stand to benefit from the development of AI technology, alongside a few startup stakes including Anthropic, and it plans to offset those with smaller short bets on industries that could get left behind.

Across the group, the opportunity set spans semiconductors, infrastructure, and power companies tied to AI development, and AI software and hardware. That lens has pulled once sleepy corners of the market into the spotlight. Vistra, a power producer that supplies electricity to AI data centers, was a top three US position for both Situational Awareness and VAR Advisors as of March 31, according to securities filings.

The private markets are being wired into this thesis too. Atreides Management and Valor Equity Partners launched a venture capital fund earlier this year to make investments in privately held AI companies and startups, raising millions from investors including Oman’s sovereign wealth fund. Each firm separately invested in xAI. Meanwhile, Sean Ma took over M37 Management and is fundraising for a hedge fund focused on AI software and hardware.

The reach of AI narratives into public and private markets has also proved the flip side of enthusiasm. The market swoon that followed the January release of DeepSeek’s advanced low cost language model from China showed how quickly perceived AI winners can see valuations wobble when a new model shifts assumptions on capability and price.

A Structural Shift in Who Defines Opportunity

The surge of capital into AI native funds is not just a performance chase. It is a structural shift in who gets to define the opportunity. These firms are staffing research benches with people who can parse model releases, data center power constraints, and chip road maps, then translate that into positions across equities and private stakes.

They are building portfolios that connect infrastructure like electricity and compute to application layer companies, and they are pairing those longs with targeted shorts in businesses that may struggle in an AI driven economy. The early results, lockups, and high profile backers suggest allocators are willing to underwrite that model.

Implications for Founders and Investors

For founders, developers, and operators, the implication is clear. The center of gravity is moving toward managers with real AI fluency, and that fluency is being expressed in concrete wagers on semiconductors, power producers, infrastructure providers, and a small set of startups. Traditional benchmarks have lagged the best early performers, and veteran hedge funds are retooling to compete. If your capital plan or portfolio still treats AI as a sidecar, you risk missing the next leg of market leadership.

Talent and capital are sprinting toward AI native funds. The firms with the most situational awareness on AI are already shaping returns and capital flows. Miss this shift and your portfolio may look analog by comparison.

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