On July 24, Leopold Aschenbrenner sent investors a letter touting returns of 439% for the year through June and 1,551% since inception.
The selloff hammering his fund, he wrote, made it a “particularly good time to add funds.”
Six days later Situational Awareness had surrendered the bulk of its public stock portfolio to Ken Griffin’s Citadel in an overnight deal, according to the Financial Times.
The extent of the damage emerged Thursday, when Situational Awareness told investors it had lost roughly 67% in July, according to The Wall Street Journal.
The speed of the reversal was particularly brutal for a manager who said before launching the fund that "not blowing up" was "task number one and two."
Two investors told the FT the letter had reassured them.
By Wednesday, investors were complaining that they could not reach the fund. “Leopold just stopped taking calls,” one said.
The Intel Tell
The market may have sniffed out the trouble before investors did. When Intel (NASDAQ:INTC) reported strong earnings July 23, the stock surprisingly fell, and speculation mounted that someone was dumping shares into the print.
That seller was reportedly Aschenbrenner, scrambling to recover losses. “He had the illusion of still being in control,” one person told the FT. “He didn’t have control at all.”
The pressure had been building for longer than investors realized. At least one prime broker had placed Situational Awareness on a watch list because of its concentrated and volatile AI portfolio, the FT reported.
The lender had demanded additional margin several times over the previous year, including during the fund’s final week.
Former hedge fund manager Martin Shkreli, speaking on TBPN Thursday, said the leverage left little room for recovery. “He sort of had to blow up,” he said. “There was no other ending, sadly.”
Shkreli also explained how the brutal math of 4x leverage left the fund vulnerable to a forced unwind, and gave rival traders an opportunity to accelerate it.
A Deal by Dawn
Aschenbrenner reportedly called investors offering ad hoc deals, with different terms presented to different people.
Multiple investors told the FT that Aschenbrenner explored selling some or all of the fund’s Anthropic stake at a premium to its last reported valuation.
The fund went as far as agreeing late Wednesday to sell $3.5 billion of Anthropic stock to a group led by Greenoaks and Sequoia Capital, according to The Wall Street Journal, before backing out Thursday morning.
That same night, Aschenbrenner was on the phone with Griffin. Citadel beat out Millennium and Jane Street, which had invested in the fund and was itself facing losses, and emerged with a deal shortly after dawn.
What Remains
Polymarket traders pushed the odds of the AI bubble bursting by year-end from 18% to 27% Thursday as news of the fund’s forced unwind broke. The move quickly reversed, with the contract back near 19% Friday.
Situational Awareness retained its private stakes and a small unlevered stock portfolio.
But one person involved in the negotiations told the FT that the larger question was why investors and lenders had entrusted so much money and leverage to an inexperienced manager with so little infrastructure.
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