NEW YORK, September 12 — JPMorgan Chase has cut off its lending relationship with the hedge fund Situational Awareness after the fund lost money on artificial-intelligence-related trades, according to people familiar with the matter. The move, first reported by the Financial Times, is an unusually public rupture between the largest US bank by assets and an investment firm built around the AI boom. JPMorgan declined to comment.
The fund could not immediately be reached for comment.
What happened
Situational Awareness had borrowed from JPMorgan’s prime brokerage unit to amplify its positions in AI-linked equities. When those positions moved against the fund, the bank moved to cut its exposure — a standard risk-management response for a prime broker whose client’s collateral is deteriorating. The Financial Times reported that JPMorgan’s decision followed a period of losses at the fund that eroded its capital.
The exact size of the losses was not disclosed. The fund did not disclose its assets under management.
The bottom line: prime brokers can pull back fast when they perceive risk, and that can force funds to unwind positions at unfavorable prices.
Why the prime brokerage matters
Prime brokerage lending is a core business for JPMorgan, which has been the world’s largest prime broker by revenue for several years, according to industry surveys. Its clients include many of the largest and most sophisticated hedge funds, and the unit generates billions of dollars in annual revenue. Terminating a client relationship is rare but not unprecedented, particularly when a fund’s losses threaten the value of the collateral backing its loans.
JPMorgan’s prime brokerage business sits inside its Corporate & Investment Bank, which reported revenue of $48.8 billion in 2023. The bank’s total assets stood at $3.9 trillion as of the end of 2023.
JPMorgan is led by chairman and CEO Jamie Dimon.
The AI trade under scrutiny
The episode underscores growing scrutiny of the financial system’s exposure to the AI trade, which has driven a substantial portion of US equity market gains since 2023. The so-called Magnificent Seven technology stocks — Nvidia, Microsoft, Alphabet, Amazon, Meta, Apple and Tesla — have accounted for a disproportionate share of the S&P 500’s returns, and hedge funds have piled into related positions. When those trades unwind, the ripple effects can reach the banks that finance them.
Dimon has used his annual shareholder letters to caution that AI, while transformative, could also introduce new vulnerabilities. The bank has invested heavily in AI itself, rolling out large language model tools to employees and using the technology for fraud detection and trading.
It has also maintained strict risk limits on its prime brokerage book. The AI trade has been a major driver of hedge fund returns, with many funds posting double-digit gains in 2023 and 2024 on the back of technology stocks. But volatility in AI shares in 2025 has tested those positions.
Regulators, including the Federal Reserve and the Securities and Exchange Commission, have been monitoring leverage in the hedge fund industry, though they have not singled out AI-related positions. The fund’s name, Situational Awareness, is a reference to a concept in AI safety research, and its founder has publicly argued that AI will produce both enormous investment opportunities and significant dislocations.
What to watch
The bank’s decision was reported on Thursday, and it is unclear whether other lenders will follow suit. Investors will note whether the rupture stays contained to one fund or signals a broader retreat by prime brokers from AI-linked exposure. The fund’s losses and the bank’s action are the latest sign that the AI investment boom, while lucrative, carries real risks for those who finance it.
