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Situational Awareness down 67% in July in AI stock rout

wsj.com

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Re: Situational Awareness down 67% in July in AI stock rout

#171

Post by mrandish »

vessenes wrote: post #3

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…

Per another WSJ article: https://www.wsj.com/finance/leopold-aschenbrenner-situationa...

"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.

https://www.marketwatch.com/story/pioneering-ai-hedge-fund-w...

> "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."

Re: Situational Awareness down 67% in July in AI stock rout

#172

Post by energy123 »

jvsg_ wrote: post #162
energy123 wrote: post #77

Earlier quoted context omitted.

That's a meme conspiracy theory on twitter that nobody in the industry takes seriously.

Please educate me what exactly is the conspiracy theory here. Are you saying it is beneath Citadel to play this trick?

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.

Re: Situational Awareness down 67% in July in AI stock rout

#173

Post by mrandish »

andy_ppp wrote: post #120
tyre wrote: post #104

Earlier quoted context omitted.

You’re talking about the same fund. 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.

“isn’t worthless” is still to be decided IMO. Until you can sell it it defines worthless!

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."

Re: Situational Awareness down 67% in July in AI stock rout

#174

Post by mrandish »

changoplatanero wrote: post #4
vessenes wrote: post #3

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…

Say more about how citadel made this happen with their trading?

Per a different WSJ article: https://www.wsj.com/finance/leopold-aschenbrenner-situationa...

> "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"

Re: Situational Awareness down 67% in July in AI stock rout

#175

Post by mrandish »

moralestapia wrote: post #43
vessenes wrote: post #3

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…

Wow, so, he narrowly avoided prison while at FTX, then went to work for Scam Altman, now does "investment funds" (a classic trope). The guy really really really wants to end up in prison, lol.

> he narrowly avoided prison while at FTX

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.

Re: Situational Awareness down 67% in July in AI stock rout

#176

Post by rullelito »

bonesss wrote: post #143
mr_toad wrote: post #126

Earlier quoted context omitted.

It’s an odd kind of bubble that slowly deflates over the course of a year.

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 c…

> 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..

(do people not follow world events?)

Re: Situational Awareness down 67% in July in AI stock rout

#177

Post by [deleted] »

bormaj wrote: post #152
sakopov wrote: post #109

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.

Any source on this? Market data was already implying a hike by year end and the Fed held steady so not sure what the takeaway is here

[deleted]

Re: Situational Awareness down 67% in July in AI stock rout

#178

Post by ymolodtsov »

bagacrap wrote: post #165
ymolodtsov wrote: post #64

Earlier quoted context omitted.

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.

It's not just liquidity. Price discovery helps everyone. The earlier the correct price is discovered, the less we're all screwed when the bubble pops. I think they're rewarded too well for the function they serve but whaddya gonna do.

I mean, most of them underperform S&P, at least after fees.

Re: Situational Awareness down 67% in July in AI stock rout

#179

Post by ymolodtsov »

bagacrap wrote: post #134
ymolodtsov wrote: post #62

I like how Matt Levine formulated it. His thesis was correct. The problem is, his thesis was measured in years if not decades when his funding was measured in days and hours.

I mean that's always the case... we all know that stocks in general are going to be up 30 years from now. But we don't all leverage up 400%.

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.

Re: Situational Awareness down 67% in July in AI stock rout

#180

Post by energy123 »

bagacrap wrote: post #166
energy123 wrote: post #103

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…

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.
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