The $45 billion blowup

Warren Buffett once joked, “My partner Charlie says there are only three ways a smart person can go broke: liquor, ladies, and leverage.” This week, 24-year-old Leopold Aschenbrenner learned that lesson the hard way.

Aschenbrenner has been nothing short of a prodigy. He enrolled at Columbia University at 15, graduated as valedictorian, and later joined OpenAI as a researcher before being fired over allegations that he improperly shared confidential information in 2024.

Shortly after, he launched his hedge fund Situational Awareness, despite having no professional investing experience. The fund took its name from his viral essay arguing that AI would spark one of the biggest investment booms in history—and that he wanted to build a fund to capture it.

The strategy worked. At its peak earlier this month, Situational Awareness reportedly managed roughly $45 billion in assets and had generated returns of more than 2,000% since launch.

Then it all came tumbling down. The fund was reportedly running leverage of up to 400% in its massive bets on AI, leaving it highly exposed when tech stocks began selling off. As losses mounted and margin calls rolled in, Aschenbrenner was forced into a fire sale, dumping stakes in companies like SK Hynix, Bloom Energy, and CoreWeave. Much of the portfolio ultimately landed in the hands of Ken Griffin’s Citadel.

The plot thickens

Now comes the interesting part: Whether it was on purpose or not, Griffin helped create the very conditions that made Situational Awareness’s collapse inevitable.

On July 24, Aschenbrenner sent a letter to investors seeking fresh capital and offering to sell pieces of his portfolio—a sign that the fund was under pressure as tech stocks sank. Three days later, Citadel Securities shocked markets by reversing its recent position and calling for a Fed rate hike, arguing that it would bolster Kevin Warsh’s independence and inflation-fighting credibility. The thought of a surprise hike spurred on a sharper downturn in tech stocks, further undermining Situational Awareness’s...situation.

By the way, all of this unfolded as Aschenbrenner prepares to marry Anthropic’s chief of staff, Avital Balwit, this weekend. Nobody wants to get margin-called while walking down the aisle, so Aschenbrenner held an emergency overnight auction to unload his portfolio—and wouldn’t you know it, Griffin was there to pick up the pieces, acquiring billions of dollars’ worth of AI stocks for pennies on the dollar.

Conveniently, many of the same AI names Aschenbrenner sold to Griffin rallied the very next day as momentum stocks logged their biggest one-day gain since December 2000, after the Fed did not, in fact, decide to hike interest rates.

The road ahead

It’s not over for Situational Awareness just yet. In a letter to investors, Aschenbrenner said the fund is still up roughly 80% this year, even after the historic blowup. He still manages about $10 billion in assets and continues to hold several private investments, including Anthropic.

“My core promise to you is that we will not waste the opportunity to learn from these events,” Aschenbrenner wrote.

Let’s just hope Situational Awareness is a little more situationally aware from now on.—SY