This is everywhere. For reference, former FTXer and OpenAIer raised $225m into a hedge fund structure, went long and short, and reportedly peaked at $40bn of value; leverage bit hard this week and they sold their entire-ish portfolio to Citadel at $10bn. (Which, I imagine was very likely aiming at this outcome in their trading in the last few weeks).
Not reported anywhere -- was additional money raised in to the fund, and what is the LP basis? The story might be: wunderkind 40x+ed his first hedge fund and sold it to Citadel, or it might be: wunderkind raised $20bn and turned it into $10bn fast trading against Citadel.
"The fund had gained about 270% after fees this year through May. At that point, it was up more than 1,000% after fees since inception. It had ballooned to well over $20 billion under management, reaching the size of other well-known hedge funds that took decades to build."
So, down 67% in July but that was after already being up more than 1000% from the beginning up through May.
> "Research boutique Citrini posted some commentary on the potential developments at Situational Awareness on X Thursday. The post sought to downplay the gravity of the situation and opined that investors are likely to give Aschenbrenner the benefit of the doubt. “To put that into perspective, if you invested $100M with SALP at inception and wiped out ninety percent in July, your investment would be worth $230M,” said Citrini."
He claims 80% ytd profits, and there are speculations that Citadel got their whole public portfolio, so the remaining 10-15b are all private (and marked in unknown way) including ~5b in Anthropic, those who invested early in the year probably still in green (assuming there is liquidity for other private investments, which probably there is given it's AI stuff)
Quite the funny headline. It initially made me think that someone had come up with some sort of quantitative measure of the situational awareness of traders, and was claiming that there was an increase in traders making dumb trades that misread the situation or something.
Ironically, I would describe this selloff as an increase in situational awareness.
> Aschenbrenner party blamed short sellers who targeted the firm’s positions for exacerbating the fund’s losses, the letter said. The letter compared Situational’s experience to a bank run.
4 years ago, it was SBF blaming Changpeng Zhao for shorting FTT and triggering a run on FTX.
Now another EA has followed the path of making a lot of money relatively quickly and losing it just as fast, using the exact same arguments for why it happened.
An inexperienced portfolio manager that’s never seen a down tech market in his life has created a massively leveraged position on frothy assets in a bubble and the bubble is looking ill. What could possibly go wrong.
Many of these AI plays are massively entangled and leveraged. It all looks good until it doesn’t and when there’s a hiccup things unravel quickly and exponentially. I fully expect in the next 12 months we’re going to see some rather spectacular investment implosions with folks losing their shirts. Get your popcorn ready.
> Despite the July losses, Situational Awareness remains up about 80% on the year and holds a portfolio of investments in private companies including Anthropic.
80% return (YTD) is the type of performance for which many hedge fund managers would sacrifice their first born.
He played his cards well given the incentives. Most investors wouldn't tolerate such recklessness, and accordingly, most funds have to operate under strict risk management or they don't get funded. PMs at multi managers are only allowed about 5-8% drawdowns.
Leopold's public visibility gave him access to dumb money whales who allowed him to personally profit off the variance by collecting bonuses when times were good, leaving the investors with the bag when the blow up happens. These investors got lucky that there were still gains after the margin call. Being up 80% after such a large drawdown is bad performance on a risk adjusted basis and is not distinguishable from chance due to the magnitude of the variance.
Deja-vu from dot-com. The tech-wreck had similar hedge-fund road-kill. Munder net-net fund comes to mind. A lot of hubris and leverage on a thesis that is not proven, and liquidity matters. Data-center debt will likely see similar debris in the next several years.
Equally interesting to me is how Citadel made up a rumor about the FED raising rates at this weeks FOMC meeting causing a historic selloff in AI stocks which then allowed them to pick up Situational Awareness on the cheap.
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[ 0.24 ms ] story [ 9.1 ms ] threadNot reported anywhere -- was additional money raised in to the fund, and what is the LP basis? The story might be: wunderkind 40x+ed his first hedge fund and sold it to Citadel, or it might be: wunderkind raised $20bn and turned it into $10bn fast trading against Citadel.
Inquiring minds want to know!
"The fund had gained about 270% after fees this year through May. At that point, it was up more than 1,000% after fees since inception. It had ballooned to well over $20 billion under management, reaching the size of other well-known hedge funds that took decades to build."
So, down 67% in July but that was after already being up more than 1000% from the beginning up through May.
https://www.marketwatch.com/story/pioneering-ai-hedge-fund-w...
> "Research boutique Citrini posted some commentary on the potential developments at Situational Awareness on X Thursday. The post sought to downplay the gravity of the situation and opined that investors are likely to give Aschenbrenner the benefit of the doubt. “To put that into perspective, if you invested $100M with SALP at inception and wiped out ninety percent in July, your investment would be worth $230M,” said Citrini."
Martin Shkreli breaks down the collapse of Situational Awareness - https://news.ycombinator.com/item?id=49119380
Edit: added context
Ironically, I would describe this selloff as an increase in situational awareness.
Spectacular blowup and a lesson on leverage, but let's not miss this line.
4 years ago, it was SBF blaming Changpeng Zhao for shorting FTT and triggering a run on FTX.
Now another EA has followed the path of making a lot of money relatively quickly and losing it just as fast, using the exact same arguments for why it happened.
His thesis was correct. The problem is, his thesis was measured in years if not decades when his funding was measured in days and hours.
Many of these AI plays are massively entangled and leveraged. It all looks good until it doesn’t and when there’s a hiccup things unravel quickly and exponentially. I fully expect in the next 12 months we’re going to see some rather spectacular investment implosions with folks losing their shirts. Get your popcorn ready.
> Despite the July losses, Situational Awareness remains up about 80% on the year and holds a portfolio of investments in private companies including Anthropic.
80% return (YTD) is the type of performance for which many hedge fund managers would sacrifice their first born.
Leopold's public visibility gave him access to dumb money whales who allowed him to personally profit off the variance by collecting bonuses when times were good, leaving the investors with the bag when the blow up happens. These investors got lucky that there were still gains after the margin call. Being up 80% after such a large drawdown is bad performance on a risk adjusted basis and is not distinguishable from chance due to the magnitude of the variance.