400% Leverage: The Fall of an Investment Prodigy

By the age of 25, Leopold Aschenbrenner had managed to establish a hedge fund managing assets worth $45 billion, lose $35 billion, sell assets from the hedge fund at a discount to Ken Griffin, and get married. Who is the child prodigy who starred on the world's biggest websites over the weekend, and why is Ken Griffin buying assets from him?

A little over two years ago, Aschenbrenner founded a hedge fund specializing in artificial intelligence investments and called it Situational Awareness, without having any experience in investments.

Aschenbrenner founded the fund "with a few hundred million dollars," and the selection of stocks in the fund alongside the flow of funds into it led its asset volume to approach the scale of veteran and esteemed funds in the market — Bill Ackman's Pershing Square and Dan Loeb's Third Point. At the beginning of July, according to estimates, the fund's asset volume had already jumped to $45 billion.

According to the fund's holdings report, in the first quarter of the year, it held shares in companies Intel, Coreweave, Sandisk, TSMC, and others, with Put options on some of them. Its quarterly updates generate great interest among investors, and in May, for example, it became known that it had acquired holdings in T1 Energy, and in response, the stock jumped by 23% on huge volume.

So far, the fund has published relatively little about its investment strategy, but in general, it focused on companies expected to benefit from the expansion of artificial intelligence infrastructure. Instead of focusing only on artificial intelligence model developers, the fund's investments reflected a broader thesis: the growth of the field will require massive expansion of the infrastructure around it. The fund also made private investments, including a holding in Anthropic.

Leopold Aschenbrenner

• Personal: 25 years old, born in Germany, resides in San Francisco

• Professional: Investor and manager of the hedge fund Situational Awareness, which at its peak managed about $45 billion

• Something else: In 2024, he was fired from OpenAI. Married to Avital Blewit, Chief of Staff at Anthropic

The strategy yielded strong returns at the beginning: according to reports, the fund rose this year until the end of May by about 270% after fees. The sharp turnaround illustrated both the profit potential and the risk in concentrated bets around one market segment.

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The Big Fall

Over the weekend, the fund's inconceivable growth came to an end: its value was cut sharply, and it was forced to sell significant parts of its public investment portfolio. The reason for this was the sharp decline in stocks related to artificial intelligence, which raised questions about the sector's ability to justify its high valuation levels.

Following the decline in chip stocks in July, some of which lost over 10%, the value of the fund's investment portfolio was cut by about 67% according to estimates. In response, it raised money to meet the requirements of its lenders, which according to CNBC include Bank of America, Goldman Sachs, and JPMorgan.

To raise the money, the fund was forced to sell most of its public stock portfolio to Ken Griffin's Citadel following demands for additional collateral.

In a letter to investors that arrived after the sale, Aschenbrenner committed to "drawing the necessary lessons from this experience." Despite the sharp loss in July, according to quotes in the media from those close to the company, the fund still shows a positive return of about 80% since the beginning of the year and has maintained its expensive holding in Anthropic.

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And then Ken Griffin arrived

"In one moment, the fund was forced to sell billions of dollars of technology investments, as nervous banks began demanding more and more collateral. And then billionaire Ken Griffin arrived," they described it in Bloomberg.

Ken Griffin is the founder and manager of the hedge fund Citadel, which manages assets worth about $71 billion. Unlike Aschenbrenner, who came from the research field and this is the first time he is managing investments, Griffin has four decades of experience on Wall Street.

In Reuters, they recalled a letter he sent to investors a few years ago in which he wrote that "in times of market stress, our judgment allows us to exploit opportunities that others, who depend on simplistic stop-loss approaches, cannot exploit." They recalled other opportunistic acquisitions by Citadel, among others in 2007, a hedge fund named Sowood that was hit by the global financial crisis sold part of its portfolio to Citadel.

Now, Griffin's fund has acquired a stake in Situational Awareness's AI investments at a discount. When the news of the asset sale reached the market, the stocks jumped. Previously, there was fear regarding the fund's need to sell stocks in a hurry to meet its collateral, which would have pressured stock prices over time. The sale to Citadel, a strong entity that knows the stocks and the market well, calmed investors.

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The child prodigy from Columbia

Aschenbrenner, who was born in Germany to doctor parents, arrived at Columbia University when he was only 15 years old, earned a degree in economics, mathematics, and statistics, and very quickly joined the university's debate team. He was a co-founder of the "Effective Altruism" group at Columbia, which was based on a philosophical movement that Sam Bankman-Fried is also identified with and which argues that there is value in accumulating great capital, when the goal is improving the lives of all humanity. In 2021, Aschenbrenner finished his studies as the class valedictorian, when he was only 19 years old.

The child prodigy who previously worked at OpenAI published, shortly before founding the fund, an extensive 165-page article that positioned him as a kind of prophet for the AI era. He even claimed that he was one of the few people in the world who see the future clearly. Aschenbrenner called that same article "Situational Awareness," which also became the name of the fund he founded.

In an article published two months ago in the Wall Street Journal, it was written that his forecast for the future of AI created a "cult of fans" who followed him on social networks, and the fund's performance expanded his fan club to investors on Wall Street as well.

On the other hand, Aschenbrenner's critics noted that the jump in his fund was more luck than skill, and in retrospect, after the collapse, they noted that it was not a complete surprise, given reports that its leverage reached up to 400%.

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What will happen now?

For many investors, the last year was a bet that artificial intelligence is not only a world-changing technology but also an engine for huge profits. The collapse of Situational Awareness illustrated how dangerous this bet can be when it is too leveraged and concentrated.

Citadel, for its part, took advantage in this case of an opportunity that arose in its path and is benefiting from assets purchased at a discount, as it likely sees potential for profit in them later on.

What about the future of Situational Awareness? In Bloomberg, they believe that "when the dust settles, it seems that Aschenbrenner is expected to emerge only bruised," and they remind that he still manages one of the largest hedge funds in the world.

In the Wall Street Journal, they noted that all this chaos happened just before Aschenbrenner's wedding, and they told that he and his then-fiancée, Avital Blewit, Chief of Staff at Anthropic, planned a wedding ceremony at a Tuscan-style villa in Northern California, and before that, holding panels and meetings for discussions on ideas.