The Garrulous Jay – Icarus Or Phoenix?

One thing we know about developments in Artificial Intelligence is that they happen at speed. If any additional evidence for this were needed the rise and fall of Leopold Aschenbrenner’s hedge fund, Situational Awareness LP, provides it.

It took Neil Woodford, founder of his eponymous fund management house, 32 years to build up and then blow up the Woodford Equity Income fund.

Leopold Aschenbrenner achieved the same feat in approximately 24 months.

The lessons that can be derived from this meteoric rise and fall are as old as investing itself, but Situational Awareness is not dead yet and this story may have further to run.

In sport there is a saying that “if you’re good enough you’re old enough”, and this certainly seems to have been applied to the young Leopold by his backers.

He started studying at Columbia University in his mid-teens, graduating in 2019 at just 19. Thereafter he had a stint working at the FTX Future Fund, resigning the day FTX filed for bankruptcy, and then at Chat GPT owner OpenAI. The reasons for his departure from OpenAI are unclear, with several sources alleging he leaked information to external researchers.

Relieved of his duties at OpenAI, 24 year-old Aschenbrenner wrote the essay that cemented his reputation as “The Nostradamus of AI”… Situational Awareness: The Decade Ahead was published in June 2024. Setting out a future in which AI achieves superintelligence, it flags both the risks and opportunities posed by the technology.

Roughly three months later Leopold’s hedge fund was up and running, with $200 million backing from a number of high-profile Silicon Valley investors and entrepreneurs.

One thing we know about developments in Artificial Intelligence is that they happen at speed. If any additional evidence for this were needed the rise and fall of Leopold Aschenbrenner’s hedge fund, Situational Awareness LP, provides it. It took Neil Woodford, founder of his eponymous fund management house, 32 years to build up and then blow up the Woodford Equity Income fund. Leopold Aschenbrenner achieved the same feat in approximately 24 months. The lessons that can be derived from this meteoric rise and fall are as old as investing itself, but Situational Awareness is not dead yet and this story may have further to run. In sport there is a saying that “if you’re good enough you’re old enough”, and this certainly seems to have been applied to the young Leopold by his backers. He started studying at Columbia University in his mid-teens, graduating in 2019 at just 19. Thereafter he had a stint working at the FTX Future Fund, resigning the day FTX filed for bankruptcy, and then at Chat GPT owner OpenAI. The reasons for his departure from OpenAI are unclear, with several sources alleging he leaked information to external researchers. Relieved of his duties at OpenAI, 24 year-old Aschenbrenner wrote the essay that cemented his reputation as “The Nostradamus of AI”… Situational Awareness: The Decade Ahead was published in June 2024. Setting out a future in which AI achieves superintelligence, it flags both the risks and opportunities posed by the technology. Roughly three months later Leopold’s hedge fund was up and running, with $200 million backing from a number of high-profile Silicon Valley investors and entrepreneurs.What happened next was remarkable.Aschenbrenner’s highly focused strategy of backing and shorting the perceived winners and losers from the AI revolution respectively saw his fund’s assets under management grow to $45 billion by July this year.And then the music stopped…The market correction in semiconductor and AI stocks, combined with a rally in some of Situational Awareness’s short positions, saw the fund plummet. This triggered cash calls from the lenders who had advanced money to Aschenbrenner to allow him to super-charge his returns.As a result, he was forced to fire-sell the fund’s entire portfolio of publicly listed holdings at a 10% discount. The total value of the fund fell to $10 billion.With hindsight, there are more red flags in this story than you might see in Tiananmen Square on National Day: •    A fund manager with no previous experience •    An apparent lack of oversight or challenge •    A highly concentrated portfolio •    A lack of sectoral diversification •    Holdings in illiquid unlisted investments •    High leverage •    Ego •    A questionable fund name.While these are the warning signals we should never ignore, I cannot help but wonder if there is another chapter to be written in the Situational Awareness story.Aschenbrenner is still in business, with $10 billion under management. Had it not been for the July blow-up this would still be seen as remarkable. Furthermore, his investors are still sitting on significant gains. There are also reports he has been making further investments and soliciting for fresh capital in Silicon Valley.Perhaps, then, more Phoenix than Icarus.