Aschenbrenner’s AI Fund Collapse Is Just The Beginning
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What is the main topic discussed in this episode?
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Money market's bad.
If money is evil, then that building is hell. The show goes on! Get back in there and watch the show! Show! Welcome to Prof G Markets. I'm Ed Elson. It is August 4th. Let's check in on yesterday's market vitals. The major indices climbed after President Trump called off an attack and Iran indicated Hormuz negotiations are making progress. The Dow closed at a record high and Amazon reached a $3 trillion valuation for the first time. Meanwhile, Brent crude fell. the yield on 10-year treasuries declined, and finally, the Japanese yen climbed after the US joined Tokyo to support it. More on that later. Okay, what else is happening? For months, investors have been asking how the AI boom might end, and last week, they got a glimpse.
24-year-old Leopold Aschenbrenner's fund Situational Awareness sent a letter to investors on July 24th reporting a 439% net return for the first half of the year. In a postscript, Aschenbrenner wrote that it was, quote, a particularly good time to add funds, but just six days later, the fund had lost roughly $35 billion in assets, plunging from a peak of $45 billion to around $10 billion, and... Ashton Brown was forced to unwind his entire public stock portfolio in a fire sale that ended up going to Ken Griffin's Citadel. Investors are reading this story as a warning sign for the increasingly debt-fueled AI boom. Situational awareness reportedly used as much as 400% leverage to amplify its bets on AI infrastructure.
That helped the firm return more than 1000% since its inception. But when those bets went south, the same leverage accelerated the losses and forced the fund into liquidation. We wanted to talk to someone who manages a fund and who has spent years thinking about leverage and market structure. So we're going to discuss this with Michael Green, Chief Strategist and Portfolio Manager for Simplify Asset Management and author of the Yes, I Give a Fig substack. Michael, thank you so much for joining us. Let's just start with your initial reactions to the implosion of situational awareness. How did this happen? What can we learn from it?
You know, the quick answer is that when you look at somebody who is engaged in the behaviors that Leo has, there's really no mechanism for him to have learned not to do this. And so he had a very strong thesis. He expressed it with the extraordinary use of leverage.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:01–16:46
2
What triggered the rapid collapse of Leopold Aschenbrenner’s Situational Awareness fund?
16:46–20:37
3
How did extreme leverage (up to 400%) amplify gains and losses at Situational Awareness?
20:37–26:54
4
Why did forced deleveraging create a cascade that liquidated the fund so quickly?
26:54–34:01
5
How are leveraged ETFs changing volatility and flows in the semiconductor (semi) sector?
34:01–37:41
Speakers
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