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.
I strongly suspect it's closer to the latter; CNBC says they had to sell rapidly to meet margin requirements and it couldn't be confirmed if they actually succeeded. Suggests there was a lot more than $250m in collateral on the line.
"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."
They were open about their gains. It was the margin calls and illiquidity that got them, not going negative. Some of their assets, like Anthropic stock, isn’t worthless, it’s just illiquid.
WSJ earlier reported that SA had a deal Wednesday night to sell their Anthropic stake to Citadel for $10B in cash but on Thursday morning backed out and decided to instead sell public equitities in their portfolio at what was reported as "a more than 10% discount."
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)
Firms like citadel will run crowding analytics, who owns what, at what leverage and rough margin trigger points. Over simplifying but they could be shorting the longs and going long on the shorts. Everyone generally knew situational was heavily levered.
To be clear, I'm not claiming Citadel created double digit drops in SK Hynix / Samsung. I am saying that as market vol hits, vol traders might choose to make it worse. And when word hits the street someone has a liquidity position, prop traders WILL come and pressure. SA's filings were clear how concentrated they were, and this was known. In this case, Citadel (hedge fund) bought, while I imagine Citadel Securities would have been doing this (speculated upon) trading. We'll know more when the filings come out though. I'll be curious what of the portfolio they kept and what they worked / rolled in the market
It really sounds like market manipulation... But oh well it is the biggest boys doing it so it can't be that illegal... Free markets and everything for them right?
Im not a trader but my understanding was that some traders at Citadel heard a rumor these guys were exposed, which gave Citadel an advantage because they knew they would have to liquidate? That doesnt sound like market manipulation to me, just trading with all the information you have
Situational Awareness filed a 13F that lists a hedge fund’s long and short positions with the SEC. It’s public information, forcing an overleveraged fund to liquidate by pressuring the instruments they’re exposed to is not market manipulation, leverage cuts both ways and all of the people/institutions involved are professional/sophisticated investors
There's something amusingly circular about these conversations, because clearly laypeople like me and the person you responding to are saying "that sounds like it shouldn't be allowed" and the invariable responses are always "it is allowed!"
The comment literally says it: "it can't be that illegal"
You make it sound like a conspiracy theory but it's just rational behaviour.
Large amount of leverage / shorting / concentrated bets in a single stock => increase probability of large swings in that stock's price => bigger risk of sudden market moves => bigger risk to market makers => market makers limit their exposure.
> "Over the past week, traders at major hedge funds and other firms began sharing information about Situational’s exposure, with some placing short bets against its top holdings, hoping to profit as Aschenbrenner sold his positions to raise cash, according to two people close to the situation.
The short bets by the rivals weighed on Situational’s portfolio. Meanwhile, tech shares like SK Hynix were sliding. Over the three trading days ending Tuesday of this week, hedge funds reduced their positions at a scale not seen in three years, according to Goldman Sachs."
Having created (or at least amplified), the short squeeze on SA's position "Citadel executives reached out to Aschenbrenner, saying that the firm could be helpful if he needed ways to raise cash."
> "Aschenbrenner partially blamed short sellers who targeted the firm’s positions for exacerbating the fund’s losses"
The cause and effect don't make sense because Citadel putting out such an opinion moves the entire market by only a few basis points which barely impacts what you're saying they're trying to impact. It's one of those narratives that sounds good because it's "Citadel" in both cases, which makes it go viral on social media among people who don't know what they're talking about, but it isn't coherent.
Apparently, he worked in charitable giving at FTX and had nothing to do with the shady investments. He was never charged and there's no sign he was even investigated. Beyond SBF, only a handful of people were in on the scam and charged.
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.
A barometer of the mania and one for the history books. A 23 year old wunder-kind publishes a 156 page prophesy with a catchy title which was lapped up by the silicon valley elite and funded to the tune of 10s of Billions. And, not sticking to his lane, the wunder-kind enters the finance world thinking his brilliance translates there too, and he was promptly taken to the woodshed by the wall street sharks.
Wall Street eats these types for breakfast and then moves onto another meal for lunch. Once more sophisticated players smelled blood in the water they just had a field day here. There are many more setups out there like this and there’s a whole army of folks just salivating for when they can blow up more AI over-leveraged financial nukes inexperienced and FOMOed investors have assembled.
> leveraged financial nukes inexperienced and FOMOed investors have assembled
A lot of debris waiting to happen in data-center debt for sure. The next several years are going to be interesting with more of these type of blowups. This is a canary in the ai-wreck coalmine.
Sibling comment says "diversify", and I tend to agree. I've seen some shit, man. 2000 dot bomb, 2008, bumps along the way. 2000, I was in tech stocks like everyone else, lost a bunch. 2008, learned my lesson and was much more diversified. Lost some money, but not nearly as much as others. It was amazing watching, say, the S&P crater while our portfolio..just didn't. It just went down a fair chunk, and came back later (and probably didn't come back as much as it did for those that held on to their equities).
Diversification is a smoothing function. You won't get as much upside holding 25-30% bonds, but your portfolio won't suffer as much on the downside. If you're young and not ready for boring old-people investments like bonds, at least limit your tech stock exposure. Go buy boring utilities or something, maybe Berkshire Hathaway B shares.
One other advantage to diversification that I hear very little about is this: if you have to sell in a down market, you can sell your bonds and hold on to your equities in the hopes they'll bounce back. Regardless, you're not held to selling depreciated assets like equities, you can sell the bonds which are boring, but probably actually went up while everything else turns to shit.
A side effect of keeping a stock/bond asset allocation is that when the stocks tank you'll naturally be overweight on bonds, so you can sell bonds to buy stocks (the dip).
I mean yeah, diversify we must but idk anyone who had a retail portfolio that didn't eat shit in 2008 so it isn't real obvious where the bomb shelter is.
Stay market diversified and you will be fine in the long run. The AI bubble popping will be painful for all in the short term but a blip on the radar in the long term.
These hedge funds get wound up in complicated, leveraged, illiquid layered stacks of (often private) investment vehicles that go from highly profitable to financial nuke overnight. Thats how they just get wiped out while everyone else just has a bad day.
Ironically the whole point of “hedge” in hedge fund is for this to NOT happen but we’re seeing increasingly inexperienced players like here just building a financial nuke and then acting all surprised when it lights off.
> 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.
>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.
I would be very interested to know what he did with the management and performance fees (and how much they were) he gathered over the last 3 years. Just the perf fees from 2025 are probably enough to set him up for life. If he reinvested not so great.
> I would be very interested to know what he did with the management and performance fees
I mean, I'm pretty sure he pocketed the money and got richer. Most hedge fund compensation structure has always (ironically, I'd add, given the name "hedge" fund) incentivized volatility over long term performance.
He had to liquidate everything that’s liquid and is left, seemingly, with some iffy-looking things that have paper returns but are broadly illiquid. Thats a disaster for a fund no matter how you slice it.
>Now another EA has followed the path of making a lot of money relatively quickly and losing it just as fast
let's be clear here - he didn't actually "lose" a ton of money. he was up 439% net in the first half of 2026.
his issue was getting margin called due to being short on software (which went up) and long on AI infra (which went down) - getting margin called != losing money.
> let's be clear here - he didn't actually "lose" a ton of money. he was up 439% net in the first half of 2026.
He's down 67% on the month. He most certainly lost alot of money.
He'll be fine and i think he'll be successful at raising more money, and he's still up on the year as far as I've been told by LP's, but he sure did lose alot of money this month.
Aren’t month over month gains and losses aren’t particularly surprising nor noteworthy when you’re operating a leveraged fund? Shouldn’t one expect higher volatility, but also higher returns?
yes, monthly returns are expected to be volatile for a fund like this.
No in that, no LP wants 2/3rd down months. That kind of swing is insane.
That' means any LP that invested in the past 3 moths is completely wiped out, as in their full investment into the fund is at zero.
Now most LP's are probably investors for 6 months or more so they'll be ok.
What I'd be worried about is that if its true that he liquidated his entire public portfolio and only holds privates, where are the returns going to come from when anthropic is currently valued at what it is likely to go public at, and where is investor liquidity going to come from when they want to redeem.
He looks like he's turning his fund into a venture capital fund, which might be for the best given that he seems good at that and poor at running a hedge fund that invest in public securities.
Yes he lost a ton of money. He went from being up as much as you said to up only 80% and getting liquidated at that point. If it weren’t for Citadel stepping in to buy his investments who knows how much worse it could have gotten.
The only thing you can argue is realized vs unrealized.
Sounds like someone took huge risks, incurred huge losses, and thought they were entitled to always win. It honestly feels good seeing these folks get knocked down a peg.
You’re missing the core story which is that they don’t have a returns crisis they have a liquidity crisis. Finds don’t blow up because they have bad returns. Funds implode because they have no cash to cover their calls and other needs for cash.
Nothing I wrote implies that I don't understand that distinction. What I'm saying is that despite this implosion he is still up ytd, so this liquidity crisis shouldn't be interpreted as him/his fund going bankrupt as many seem to want to read it.
But that's not what they want to see. They want to see that AI is a savior for all. The psychosis of what AI is, especially in these comment walls, is unfortunately and spectacularly real.
Anyone who's done any amount of investment can see this through the lens of history and I'm right there with you. This is the Lehman Brothers stage of the game and SA could be that "one". But Bro, we're still up 80%! - even WSB isn't filled with this level of ignorance.
A fund went up 400% by making a few highly leveraged, concentrated bets. The market moved against its leveraged positions and it was forced to quickly sell to a rival fund, at only an 80% profit.
Nothing about that is meaningfully the same as Lehman Brothers other than the most superficial aspect of "A financial thing went down fast"
Honestly I have no idea what you are even replying to. My comment was essentially "The fund bet big and lost, but don't read it as him going bankrupt" as I saw many people interpret it that way.
I find the emotional charge in your message quite strange, and the "psychosis" might be you projecting something.
Well micron is up 165% on the year so he could have just bought a single stock and done a lot better. The point being that you wouldn't consider someone a genius if they did that, just lucky.
Not sure why anyone thought he was a brilliant investor to begin, as there's always going to be at least one investor of all the millions out there who makes a radical bet and is up 1000%, just like powerball has winners.
It was specific stocks and then he shorter some others very presciently. He was still up 80% after the collapse, you don't get that in 6 months with S&P 500.
I really don't like this guy, seriously he's a shark (he's probably right, but what a jerk): "If you know somebody has to liquidate, the best thing you have to do, unfortunately, sadly, Darwinian is to go sell all the positions you have in common, then start shorting everything they have. It accelerates the downfall as quickly as you can." of course then he says 'It's nothing I would ever do...'
If there's any purpose in hedge funds as a structure it's that they provide liquidity for the market. So it's in everyone's best interest to let them do price discovery against each other.
Using leverage has risks that you're supposed to understand before you do it.
It's not a free lunch, unless you're putting the sharks' interest ahead of yours. Or clueless, which was the case here, as L.A. is not a trader and has no business running a fund.
Too bad for the people that were overleveraged? I don’t see why, they assumed too much risk and lost. This isn’t a WSB guy blowing up, it’s a collection of capital from sophisticated investors that understand the risks.
Martin was convicted on three counts of securities fraud. The TL;DR is he was shilling a successful fund while sitting on massive losses. A Madoff kinda thing.
This has nothing to do with what people actually hate him for, and for which he was not convicted, because extracting money from a captive clientele is exactly what the US healthcare system is designed to do.
Why do you think that just sharing a link to an earlier HN post means 'promoting' someone? I referenced the HN post because I found that it's less about Martin Shkreli himself and more about a quality conversation with good analysis about the inner workings of 'Hedge fund' world and market dynamics.
If you've a better source, share it; I'll have a look and might use that one in the future. Otherwise, if you can't contribute in a constructive manner, stop making baseless comments about others intention without understanding them first.
He's an absolute ghoul, and to see sibling comments praising him breaks my heart. Yeah, he "did his time", but he also took advantage of sick people for immense profit. You don't get a pass for that.
He's a person that has told the whole world who he is, and some people, especially temporarily embarrassed billionaires on this platform, love him for his unmasked self.
I don't understand why this thing is called a hedge fund. Usually, a hedge fund makes many non-correlated bets across many markets (commodities, stocks, bonds, public and private markets).
This guy made exactly one bet, which is that AI would eat software (long AI hardware stocks, short Adobe etc), leveraged it to the tits, and kept adding more leverage even as the trade moved in his favor.
Where is the "hedge"? Normally we just call this a "fund".
I found a tweet purporting to show the letter that Leopold sent to his LPs - it looks pretty thoughtful and doesn't sound as bad as some news sources seem to be portraying.
I don't see how this is a response to my riposte. Of course he's going to try to reassure his investors so they don't take back what's left of their money. It's skillfully written to reassure people who were foolish enough to trust someone with zero investing experience, I guess. It is really a lot of words to describe getting margin called.
> honest about the numbers
His books are not public but I would bet my house that the numbers in the letter are carefully chosen to deceive. He reportedly started with 225M and gained 1500% or thereabouts, I.e. 16x. That gets you to 3.6B. But the assets were 45B at their peak. So then we have something like 40B other investment dollars coming in after he got famous. Two thirds of that he proceeded to set on fire. I don't know who would believe he's somehow still "up" YTD and worth leaving their money with. If anything this whole ordeal is an amazing advertisement for Ken Griffin.
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.
Yes, he combined one good bet with the ability to charm dumb whales. (Actually this sounds like a lot of startup founders.) And I'm sure he thinks it's still a good bet, but he has no idea what risk management even is. In his letter to investors, he swears he learned his lesson, but I wonder whether that lesson regards leverage, or more broadly hubris.
A lesson learned would be a commitment to quantify the allowed risk as a proportion of VaR or some equivalent approach that holds his fund to account as an investment mandate. Or a promise that he will do something like this in the coming weeks. The lack of specificity of the commitment keeps me sceptical, but time will tell.
Lesson learned would be to hire professionals to do the investing, while he sticks to whatever he actually knows, if anything. (At this point, mainly sweet talking investors, it seems.)
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.
I'm pretty sure that's time weighted return that's being quoted, and not dollar weighted. What that means is that after he was up 400%, he accepted a lot more external investment. Then he lost 67%. So many/most investors lost a lot of money. "Time weighted" tracks a single dollar invested on January 1 while "dollar weighted" describes whether he actually "created" or "destroyed" value for his clients overall.
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.
To be honest, if that's even true, they've done us all a service. Leverage is the biggest driver of investing bubbles and bubbles hurt all investors (401ks) and even the economy in the sense that they create huge capital dislocations. Like the fact that all software engineers are being forced to work on something marketable as AI.
> Situational’s gains earlier in the year were so large that, even including July’s losses, the fund remains up about 80% on the year, the letter said.
To my speculative thinking the downslope of this LLM hype bubble might be different shaped because of the underlying assets and geopolitical situation.
Securing data center land, contracts, water rights, and execution capacity doesn’t seem like a terrible position to have in a digital, cloud, ML, crypto, and ‘prediction’ heavy future. Especially for the big players who are also cloud providers who might capture big chunks of secondary growth even if they fail in their LLM effort (and ditch the hardware?).
The LLM stuff seems very over priced, but also Ukraine is making a million or whatever drones a year all with a need for ML-powered planning, routing, and terminal guidance. Elons space data centres seem kinda dumb, but in a world where Palantir needs to be tightly in the loop for orbital or near-orbital operations, or autonomous orbital defence... The worse things get in those ways the stronger the long-term positioning of the cloud giants to build or capture critical defence operations and associated spending.
We’ve learned Skynet as AGI won’t come from the tech, so the bubble gasses out. But Skynet as Skynets military is here, now, and the AI/cloud providers own key logistical elements, so the bubble loses gas slowly.
> The LLM stuff seems very over priced, but also Ukraine is making a million or whatever drones a year all with a need for ML-powered planning, routing, and terminal guidance
I bet Ukraine would love getting more entangled and dependent on a treacherous USA and the entities it controls from t
The White House..
The only AI-only stocks you will find are Oracle and Space-X. Microsoft, Meta and Alphabet are all reasonably diversified companies that can possibly take the loses without breaking.
The thing about this bubble is that everything publicly accessible is already a step or two removed from it. All the growing, and all the current popping are happening on those rich-people funds the article is about.
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.
Well, effectively that is kinda what it is saying, although it's the situational awareness of one particular trader it's referring to. The situational awareness of Citadel who scooped up their portfolio at fire sale prices seems quite good!
I would definitely be interested in seeing someone come up with some kind of “situational awareness” index, to evaluate how much the market actually knows about what it’s investing in.
> 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.
Believe it or not, you are legally bound to act in the interests of shareholders.
Though you cannot be pardoned from civil stuff, and the options to actually prosecute are pretty slim, so I doubt it.
Though, even if this is just tongue-in-cheek, you can literally buy a pardon in America right now with just a little bit a money into the pockets of the Trump family, in case you didn't get the joke (that the US government is literally pro-corruption right now).
I say this with absolutely no evidence and only stating it as a hypothetical. But as an example it would be plausible that insider trading was involved.