It’s the same story every time.
That makes it not only less interesting for me, but less than interesting, which is to say I’d be inclined to skip it altogether were it not for the fact that it has some explanatory value vis-à-vis recent price action and specifically the momentum unwind.
“It” in this case is Situational Awareness, an equity hedge fund which started July with an impressive $45 billion in assets and ended the month with considerably less — around $10 billion, reports suggest. (“We let you down this month,” as the fund’s manager put it, in a letter to investors.)
By now, you’ve probably read at least one theatricalized version of this ostensibly dramatic tale. If not, I’ll save you the trouble: Whiz kid was too smart for his own good when it came to managing a leveraged equity book. That’s really the long and the short of it, pun both fully-intended and not.
Needless to say, market history’s replete with examples of very smart people blowing up because their leveraged bets went wrong-way. I dare say that’s the story of nearly every high-profile blowup.
The dates, the names and the specifics of the plot vary whenever this otherwise generic tale’s repurposed for a new cycle — or for a new “season,” if you like. This season, which you can binge in its entirety on CNBC, WSJ and Bloomberg, revolves around Leopold Aschenbrenner.
Aschenbrenner is, of course, the third-generation inheritor of the world’s largest sauerkraut empire. He served as Chairman of the Imperial Pickled Cabbage Consortium until this week’s bad press cost him that coveted, albeit mostly ceremonial, role.
I’m just kidding. But dammit, that’s who any “Leopold Aschenbrenner” should be, right? I mean, if I see that name on a bag of pretzels, I’m buying them. Because those are pretzels I can trust.
Whoever Leopold Aschenbrenner should be, he’s actually a twentysomething former OpenAI researcher who parlayed a 2024 paper on the future of artificial intelligence into a multi-billion-dollar hedge fund named for that paper. He had no prior experience managing money. (I know, I know: “What could possibly go wrong?” Again, and notwithstanding the specifics, this story’s almost too generic to be worth recounting.)
Investors love a prodigy and they love the AI trade even more. In Aschenbrenner’s Situational Awareness fund, they got both. So he got their money, which he used to bet big on AI infrastructure names and short companies and sectors vulnerable to AI disruption. It worked, he bet bigger, it kept working, he added leverage, it worked some more and then, one day early this month, it stopped working.
The figure above’s an overly-stylized, extremely general representation of what went wrong. It’s “for illustrative purposes only,” so to speak.
When Aschenbrenner’s trades moved against him, the good folks at Goldman, JPMorgan and other Street prime desks — where he probably thought he had a lot of friends, God bless him — ceased being cordial. Aschenbrenner reached out to other banks to gauge their interest in financing his trades to no avail. In the meantime, the market continued to move against him, triggering margin calls.
It was surely obvious to everyone involved (if not to most market participants) that Situational Awareness’s de-leveraging was gas on the fire for a painful momentum unwind which engulfed everyone from Aschenbrenner to quants in China, including a fund managed by DeepSeek founder Liang Wenfeng. A chaotic unwind of Aschenbrenner’s fund was in no one’s interests, so Wall Street got to work finding a buyer for Situational Awareness’s assets.
The “situation” was so desperate mid-week that Aschenbrenner reportedly agreed to sell a prized $3.5 billion stake in Anthropic to a Sequoia-led investor group, but according to The Wall Street Journal, he “had an apparent change of heart by Thursday morning and backed out.”
In the end, it was Ken Griffin who saved Aschenbrenner. Following what Bloomberg described as an hours-long phone call, Citadel effectively bailed Aschenbrenner out in a deal that handed Griffin large positions in publicly-traded stocks while allowing Situational Awareness to “keep all its private companies,” including the Anthropic stake.
Presumably, a lot of what Griffin got were semi stocks. They, um, rose sharply on Thursday, when the SOX scored its best session since Donald Trump’s famous tariff “pause” on April 9, 2025. South Korea’s benchmark, which is 50% SK Hynix and Samsung, rose an absurd 18% on Friday. (Go figure, right? “Watch and learn, grasshopper,” Griffin chuckled.)
One obvious question asks whether there are more Aschenbrenners out there. And how many of them people like Ken can plausibly bail out.
But — and this brings us full circle — the story of Situational Awareness is at heart a familiar tale of what happens when genius marries leverage.
Speaking of matrimony, Aschenbrenner’s reportedly getting hitched this very weekend. The lucky bride: Avital Balwit, chief of staff to Anthropic CEO Dario Amodei.
I wish a scenario could be written based on that “hours phone call”.
It can be and will be, I bet.
lol @ the sauerkraut empire riff
That’s the best part of the article. By far. To be honest, I was on the fence about whether to write this up at all until that joke occurred to me while I was jogging this morning.
The pretzel joke was also funny. “Aschenbrenner’s Sweet Deli Mustard” is another brand I would trust.
Right? This guy could’ve made millions in the artisanal German snack business. Everything could be under the “Prussia’s Finest” umbrella.
I ran this past AI and here is what I got:
“Aschenbrenner’s Authentic Bavarian Style Sweet Deli Mustard appears to be a rare, highly regional, or discontinued specialty product, as there is currently no active retail or manufacturer listing for this specific brand online. . . .”
Apparently it almost exists!
“A Pretzel You Can Trust” sounds like a viable post-retirement endeavor for me as a resident of PA, the nation’s purported snack capital. (Having said that, do not instrinctively trust a name like Middleswarth, PA’s “artisanal” potato chip producer. They are objectively awful and I’d rather eat shards of Pringles).
But best of luck to Mr. Aschenbrenner. I am not familiar with his betrothed, but at a glance she resembles Elizabeth Holmes in vibe and appearance. That should work out ok.
I want to watch the Netflix series…..
love to hear best man speech
I’d like to think in another life, I could’ve been that prodigy that uses leverage to blow up a portfolio worth tens of billions of dollars, but blowing up my own portfolio will have to suffice.
Speaking of which, I do think SOX will creep back up. Calls on SOXL can’t lose.
An interesting sidenote is in your mention of the prime brokers. Unless things have changed, the prime brokers do not speak to one another about how much leverage they are providing to a given hedge fund. Meaning that the “risk management” tools they are using to determine how much ammo they can give to a specific customer is pretty much useless if the markets turn against the fund. The collapse of Lehman revealed quite a few examples of this.
we definitely need more “altruism” in today’s world…
I’m reading “More Money than God” and this is s classic tale of ‘reslly smart people with a lot of leverage.”
In the coming week the Treasury and Yen intervention may lower the water level and we may see who else has been swimming naked.