Situational Awareness (the hedge unhedged fund) has imploded. It seems much of their gains were from overleveraging their trades, which has then caused them to, in some readings, undergo the largest absolute short-term fund loss in history (over $10B in a few weeks).
They certainly lost a lot of money in July and by being forced to sell, but per the WSJ Aschenbrenner wrote that the fund is still up 80% on the year.
The fund doesn’t seem to be closing, and it looks like they weren’t forced to sell their stake in Anthropic, so it’s not clear to me how much of a failure or a success the project as a whole is so far.
Their gains were from leveraged directional bets and their losses were from leveraged directional bets. Seems they were margin called, so their liquidity was squeezed—poor risk management. It seems that they have learned from this and are now using “fully paid for” derivatives, so presumably call options whose premium they can afford. Hedge funds are not necessarily hedged, but eg long/short equity hedge funds are (while macro hedge funds can have all kinds of unhedged macro bets on.)
Sadly it appears that adjacency to EA correlates with poor risk management, I’m wondering whether this is somewhat structural (beyond eg the age group…)
The article ends by saying: “It still holds a big chunk of harder-to-sell positions in privately held companies such as Anthropic. It remains to be seen if those companies will live up to their lofty valuations if and when they hit the public markets.”
I wonder if this means that the fund did not get wiped out completely—otherwise Citadel (who bought all of their publicly traded stock positions) would have also taken their Anthropic shares?
To this community’s credit, much of the discussion of his paper and career plans was skeptical. I think Aschenbrenner is a useful template for the kind of person that we need to have our guards up around, for a future where large sums of money enter the movement through the Third Wave.
I don’t think he was working in bad faith, and probably didn’t have bad intentions. However, it is objectively nuts to put a 24-year-old with no experience in charge of a $50B hedge fund. This is very different from giving a 24-year-old a $100k/year charity or EA Funds project. We should not assume that clear skills and intelligence in one domain should ever cleanly map to others.
We should also have learned the lesson from FTX that an inexperienced person speaking with confidence, or dazzling people with technical prowess, is much more likely to simply be inexperienced than a child prodigy. You are not immune to the Dunning-Kruger effect.
If I may speculate, both of these seem to have roots in some of the broader psychological flaws underpinning the ratsphere and the valley more broadly—namely, that intelligence is a fixed, general attribute, and that precociousness is overlooked only because traditional power structures are trying to protect themselves. These are not necessarily or always untrue, but some parts of the community who notice that these are not generally accepted ideas overreact, and overindex on them.
There will be more Aschenbrenners approaching this community in the future, and we should welcome them—but we shouldn’t hand them the controls right away just because they dazzle us.
(P.S. I notice that Leopold’s CV also includes ‘Fund Manager, FTX Future Fund’)
it is objectively nuts to put a 24-year-old with no experience in charge of a $50B hedge fund
That would indeed be nuts, but I think that’s also clearly not what happened. My understanding is that he founded the fund himself, and he initially raised $100-200 million from a bunch of non-EA investors. See https://www.forourposterity.com/
Thanks to their spectacular returns they had a lot more assets under management, but my sense is that this is from normal investors who buy into the “AI is going to be big” thesis and were trying to make a profit.
I also found this article interesting, as well as the fact that Bloom Energy, IREN, Nebius, SanDisk, Micron, CoreWeave, and so on are up 10% to 30% since Wednesday
I don’t think the difference between $100m and $50B is that substantial for my point. Even though they are two orders of magnitude apart, I think the limit on how much money you should trust with someone who has no prior experience managing money is lower than that.
They seem to have made a lot of money by investing in his fund, even after this week, so I find it hard to criticize them for it
Aschenbrenner didn’t launch the fund alone, his cofounder Carl Shulman had previous experience managing money
We don’t know the rest of their portfolio and how situational awareness fits into that (e.g. maybe it’s partially a small hedge against AI making Stripe worthless, or who knows)
However, it is objectively nuts to put a 24-year-old with no experience in charge of a $50B hedge fund.
? It is his fund. He started it.
I feel with the FTX and rat culture reflection, you are reading into the situation too much.
The losses, as you pointed out, happened due to highly leveraged bets. He didn’t expect memory stocks to bleed as much as they did. Besides, it is possible that the fund will survive because his core thesis has paid off exceptionally well so far. He also has a rumored $5B equity stake in a certain large AI company.
Tough time for Situational Awareness LP, but I hope they make it!
His creditors supplied the money—it is their judgement I’m questioning.
The losses, as you pointed out, happened due to highly leveraged bets. He didn’t expect memory stocks to bleed as much as they did.
This is disqualifying if you are running a hedge fund. It’s literally in the name—you are supposed to hedge your positions in order to prevent an unexpected situation from tanking the whole fund.
Besides, it is possible that the fund will survive because his core thesis has paid off exceptionally well so far
We don’t judge funds by whether they don’t go bankrupt, we judge them by their performance against a market index over a long period of time. Even if the positions are net up by 2× or so, this is not particularly impressive in and of itself over a short period, because of survivorship bias. If you make a bunch of stupidly leveraged bets on different sectors, one of them is likely to pay off very well, but not for long, and not through downturns.
The AI sector has monotonically gone up since the release of ChatGPT—any overleveraged investor in this space would be likely to produce incredible gains. If one’s fund gets obliterated at the first market downturn because one was overleveraged, all this proves is that you managed your fund badly, not that you’re some kind of savant genius market whisperer.
(c.f. anything written about Cathie Wood in 2022—a lot of it has aged very poorly)
you are supposed to hedge your positions in order to prevent an unexpected situation from tanking the whole fund
It’s my understanding that this hasn’t been the definition of a hedge fund for some time (ChatGPT agrees). I’m assume that the investors knew that Situational Awareness was not a hedge fund in the sense you’re describing one.
Of course, it might still be possible that investors weren’t aware of the amount of risks the fund was taking on.
Apparently, even $1 invested into Situational Awareness LP 6 months ago is worth $1.78 now. Totally possible he is not a savant whisperer and had enough knowledge and connections to make great bets, but the bets are still paying off. Time will tell if their hedging strategy is actually sound or just lucky.
But I don’t think this is comparable to FTX or contains any lessons for the EA community. Is Situational Awareness LP an EA venture? I could be wrong but I don’t think so. I have always thought of it as “oh I guess Aschenbrenner is doing his own thing, cool.”
It seems prudent that banks were quick to margin call him, they probably tightened this kind of stuff after archegos. They still had net assets, so this was early enough.
Situational Awareness (the
hedgeunhedged fund) has imploded. It seems much of their gains were from overleveraging their trades, which has then caused them to, in some readings, undergo the largest absolute short-term fund loss in history (over $10B in a few weeks).They certainly lost a lot of money in July and by being forced to sell, but per the WSJ Aschenbrenner wrote that the fund is still up 80% on the year.
The fund doesn’t seem to be closing, and it looks like they weren’t forced to sell their stake in Anthropic, so it’s not clear to me how much of a failure or a success the project as a whole is so far.
See also this from the Financial Times.
Edit: see also this tweet claiming to be the full letter Aschenbrenner sent to his LPs last night.
Their gains were from leveraged directional bets and their losses were from leveraged directional bets. Seems they were margin called, so their liquidity was squeezed—poor risk management. It seems that they have learned from this and are now using “fully paid for” derivatives, so presumably call options whose premium they can afford.
Hedge funds are not necessarily hedged, but eg long/short equity hedge funds are (while macro hedge funds can have all kinds of unhedged macro bets on.)
Sadly it appears that adjacency to EA correlates with poor risk management, I’m wondering whether this is somewhat structural (beyond eg the age group…)
The article ends by saying: “It still holds a big chunk of harder-to-sell positions in privately held companies such as Anthropic. It remains to be seen if those companies will live up to their lofty valuations if and when they hit the public markets.” I wonder if this means that the fund did not get wiped out completely—otherwise Citadel (who bought all of their publicly traded stock positions) would have also taken their Anthropic shares?
To this community’s credit, much of the discussion of his paper and career plans was skeptical. I think Aschenbrenner is a useful template for the kind of person that we need to have our guards up around, for a future where large sums of money enter the movement through the Third Wave.
I don’t think he was working in bad faith, and probably didn’t have bad intentions. However, it is objectively nuts to put a 24-year-old with no experience in charge of a $50B hedge fund. This is very different from giving a 24-year-old a $100k/year charity or EA Funds project. We should not assume that clear skills and intelligence in one domain should ever cleanly map to others.
We should also have learned the lesson from FTX that an inexperienced person speaking with confidence, or dazzling people with technical prowess, is much more likely to simply be inexperienced than a child prodigy. You are not immune to the Dunning-Kruger effect.
If I may speculate, both of these seem to have roots in some of the broader psychological flaws underpinning the ratsphere and the valley more broadly—namely, that intelligence is a fixed, general attribute, and that precociousness is overlooked only because traditional power structures are trying to protect themselves. These are not necessarily or always untrue, but some parts of the community who notice that these are not generally accepted ideas overreact, and overindex on them.
There will be more Aschenbrenners approaching this community in the future, and we should welcome them—but we shouldn’t hand them the controls right away just because they dazzle us.
(P.S. I notice that Leopold’s CV also includes ‘Fund Manager, FTX Future Fund’)
That would indeed be nuts, but I think that’s also clearly not what happened. My understanding is that he founded the fund himself, and he initially raised $100-200 million from a bunch of non-EA investors. See https://www.forourposterity.com/
Thanks to their spectacular returns they had a lot more assets under management, but my sense is that this is from normal investors who buy into the “AI is going to be big” thesis and were trying to make a profit.
I also found this article interesting, as well as the fact that Bloom Energy, IREN, Nebius, SanDisk, Micron, CoreWeave, and so on are up 10% to 30% since Wednesday
I don’t think the difference between $100m and $50B is that substantial for my point. Even though they are two orders of magnitude apart, I think the limit on how much money you should trust with someone who has no prior experience managing money is lower than that.
They seem to have made a lot of money by investing in his fund, even after this week, so I find it hard to criticize them for it
Aschenbrenner didn’t launch the fund alone, his cofounder Carl Shulman had previous experience managing money
We don’t know the rest of their portfolio and how situational awareness fits into that (e.g. maybe it’s partially a small hedge against AI making Stripe worthless, or who knows)
? It is his fund. He started it.
I feel with the FTX and rat culture reflection, you are reading into the situation too much.
The losses, as you pointed out, happened due to highly leveraged bets. He didn’t expect memory stocks to bleed as much as they did. Besides, it is possible that the fund will survive because his core thesis has paid off exceptionally well so far. He also has a rumored $5B equity stake in a certain large AI company.
Tough time for Situational Awareness LP, but I hope they make it!
His creditors supplied the money—it is their judgement I’m questioning.
This is disqualifying if you are running a hedge fund. It’s literally in the name—you are supposed to hedge your positions in order to prevent an unexpected situation from tanking the whole fund.
We don’t judge funds by whether they don’t go bankrupt, we judge them by their performance against a market index over a long period of time. Even if the positions are net up by 2× or so, this is not particularly impressive in and of itself over a short period, because of survivorship bias. If you make a bunch of stupidly leveraged bets on different sectors, one of them is likely to pay off very well, but not for long, and not through downturns.
The AI sector has monotonically gone up since the release of ChatGPT—any overleveraged investor in this space would be likely to produce incredible gains. If one’s fund gets obliterated at the first market downturn because one was overleveraged, all this proves is that you managed your fund badly, not that you’re some kind of savant genius market whisperer.
(c.f. anything written about Cathie Wood in 2022—a lot of it has aged very poorly)
It’s my understanding that this hasn’t been the definition of a hedge fund for some time (ChatGPT agrees). I’m assume that the investors knew that Situational Awareness was not a hedge fund in the sense you’re describing one.
Of course, it might still be possible that investors weren’t aware of the amount of risks the fund was taking on.
Yeah this has indeed never really been the definition of a hedge fund. Only a subset of hedge funds are approximately point-in-time market neutral.
I made claude do some quick maths:
Apparently, even $1 invested into Situational Awareness LP 6 months ago is worth $1.78 now. Totally possible he is not a savant whisperer and had enough knowledge and connections to make great bets, but the bets are still paying off. Time will tell if their hedging strategy is actually sound or just lucky.
But I don’t think this is comparable to FTX or contains any lessons for the EA community. Is Situational Awareness LP an EA venture? I could be wrong but I don’t think so. I have always thought of it as “oh I guess Aschenbrenner is doing his own thing, cool.”
It seems prudent that banks were quick to margin call him, they probably tightened this kind of stuff after archegos. They still had net assets, so this was early enough.