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Mind you I don't particularly care about Aschenbrenner or his fund but it feels to me like typical journalists reporting on hindsight without any sort of skin in the game. "Hhm, how could you be so dumb so as to trust your money to a 22 year old".
Peter Thiel did the same with Zuck and like him or hate him he did pretty well.
If you want to show how smart you are hash your predictions, post them publicly with a commitment to reveal by a certain date and then show the world how this was so obvious in hindsight.
>> What, then, to make of Situational Awareness’s plunge? ...Mr Aschenbrenner was hardly alone in such bets; over 80% of fund managers responding to Bank of America’s latest monthly survey named “long global semiconductors” as the most crowded trade. The big worry is that this trade’s whiplash-inducing reversal will have set other investment firms teetering, too.
If Citadel hadn't stepped in, Situational Awareness may have had to fire sell tens of billions of dollars of assets. Assets others have leveraged positions in. That, in turn, could have triggered margin calls and a potential credit or even bank crisis.
I'm still trying to figure out what their gross and net positions were. But taking reported figures at face value, yes, $45bn is more than enough to start a credit crisis, particularly if everyone is crowded into a small set of leveraged positions that begin fire selling.
The piece is published in a weekly magazine. It may include some interesting things that nobody knew one week ago.
> which posted a loss of 67% in July
So it's still up 44% this year? The article notes this, but seems unnecessarily adversarial against an investor who is still wildly successful.
Devil is in the details of what Citadel paid for its positions, whether there are any performance tails/clawbacks, how and when the GP charges fees, et cetera.
Aschenbrenner is almost certainly up. I'd be surprised if his median LP is breaking even.
It's also interesting that Citadel is mentioned everywhere as the buyer, as if it's strange that a huge market maker firm would be involved in a large forced sale.
Seems the fund also has Anthropic shares, so it's not like their entire portfolio got margin called.
(Spicier claim: When Citadel bailed out Melvin at the hype of the GME craze, that was also just business as usual, not a conspiracy as the redditors believed.)
Another way to parse it when they put "Citadel" in their headlines, is that they're trying to communicate to knowledgeable investors that there's no need to panic. The book is in experienced hands now, with enough capitalization to weather any further attacks, and the contagion probably won't spread.
Does anyone know if this refers to AUM or the gross size of his positions after leverage?
The leverage was 4x or 5x of that and highly concentrated. Citadel bought $16 billion public portfolio with 10% discount.
Do you have a credible source specifically claiming this? I want to know whose data they're looking at. (Specifically, I want to unpack how they're marking their private positions.)
Oversee: to be in charge of how an amount of money is invested or spent.
No. "Oversee" can refer to the gross or net position. If I raise $10bn and use that to buy $100bn in assets, I absolutely control and thus oversee the latter.
I think this piece is pointing out two things:
That this bubble still has a long way to deflate if it is indeed deflating. The numbers involved truly are spectacular and unwinding could be catastrophic.
That there is a lot of blind faith in the market in unsubstantiated predictions - like AGI this decade (or indeed AGI at all based on LLMs), and a lot of follower behaviour among investors chasing the latest trade.
> While at Columbia, he co-founded the university's effective altruism (EA) chapter.[5]
Just another smart, yet ethically challenged, individual. Nothing to see here.
Because almost everyone prominent in the movement has had some combination of lack of judgment and morals. There various terms for rationally pursuing philanthropy; associating with effective altruism involves embracing its ideas, people and culture.
[1] https://en.wikipedia.org/wiki/Effective_altruism
In short, Effective Altruism says you don't engage in charity until you have sufficient means to actually make a difference. Basically, you leverage capitalism to accumulate enough wealth to actually be able to solve a big problem, then you go all in on solving that problem. Sounds great right?
In the real world these people never accumulate enough wealth to actually start solving problems. Even when they become billionaires. In practice it is a convenient excuse to act like the most depraved capitalist while still pretending to sit on the high horse and talk down to people who simply try to help with the means available to them.
What the story indicates is more like a set of character flaws. Hubris, and a belief that since he is so smart at one aspect of running the fund, picking the stocks, that he's automatically good enough at the other parts, like risk management. This is a blind spot, but not a crime.
I'm no big fan of EA and do agree that EA can be a "yellow flag" for worse stuff, as some have commented here. But more commonly, it's an indicator for these sorts of character traits. A fetishization of the quantitative model without a practical sense for real world tactics and experience, or something along those lines.
(And then sometimes they use it to justify actual crimes. But that is where SA diverges sharply from FTX, and we should be super clear about that distinction. This was an error and a setback, not a crime.)
The Economist should change its name to The Populist with this type of screed.
Here's the reality:
1. Lots of money is invested willy-nilly for all sorts of reasons (or no reason at all) in all sorts of dubious and poorly-managed vehicles.
2. Except for the profile of the fund manager and that this was AI, this failure wasn't all that special. The seed capital for the fund is reported to have been around $225 million and it was highly leveraged on top of significant gains so there's a whole class of LPs who probably aren't even going to lose anything on this. It's the people who put capital in more recently who are going to lose.
3. The people who will lose money investing in this fund are the type of people who have a full wardrobe. It's going to be a very long time before they "lose their shirts".
>> people who will lose money investing in this fund are the type of people who have a full wardrobe
If Citadel hadn't bailed him out, Situational Awareness very likely could have triggered a cascade of fire sales. That would not only hurt ordinary investors' positions, it could have also triggered a credit or even banking crisis (depending on how the margin loans are held).
A big, leveraged, concentrated fund blowing up isn't novel. But it's the traditional way to start a recession.
Citadel didn't bail him out/rescue him. This was a distressed purchase, made at auction. Citadel believes it will eventually make money on the book, which was only around $16 billion.
If Citadel and Millennium (the other bidder) hadn't stepped in, the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks. Probably the best and easiest collateral to deal with. And the exposure was split across three of the most highly capitalized banks (BofA, Goldman and JPMorgan) and they were already managing the wind-down when Citadel stepped in opportunistically.
If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily.
...you're describing a bail-out. The LTCM lenders and Fed in the financial crisis made money on their books. They were still extending liquidity.
> the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks
Yes. By fire selling. Which triggers, in turn, further margin calls and potential failures.
I'm not saying it's a certainty. But claiming there is limited financial risk from any $10+ billion leveraged meltdown is absurd.
> If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily
Private markets move slowly. That gives time to mop up messes. Crises metastasize when they hit public instruments precisely because that's where the most volume, leverage and potential for panic live.