AI’s wunderkind is taken to the woodshed
The rise of AI has been swift and powerful.
As a result, there have been few cautionary tales, unlike in previous booms including the cable, shale and subprime bubbles that yielded Gary Winnick of Global Crossing, Chesapeake Energy’s Aubrey McClendon and Angelo Mozilo, the bronzed architect of subprime lender Countrywide Financial.
Now the rise and rise of AI has a poster child of the excesses creeping into what may be the hottest trade ever.
Leopold Aschenbrenner, a 24-year-old with no trading experience, over the past two years created a more than $20bn hedge fund sensation by loading up on AI bets.
His firm, called Situational Awareness, was up more than 400 per cent during the first six months of this year alone. Traders happily bid up each new position he revealed.
But on Wednesday, Aschenbrenner’s hot streak quickly ended as his fund, facing growing pressure from prime brokers and investors, sold off the majority of its public equity positions in a fire sale.
Ken Griffin’s hedge fund Citadel beat out rivals Millennium Management and Jane Street to buy a significant portion of Situational Awareness’s public stock holdings, which were once estimated at $16bn.
The rescue deal ranks among the largest and swiftest stock transactions in Wall Street history.
The transaction left Aschenbrenner with a slice of public stock holdings and takes in private companies such as Anthropic, the FT reveals in a deep dive into a 24-hour race involving titans of Wall Street.
After matriculating to Columbia University as a teenager, Aschenbrenner worked for the FTX Future Fund, the philanthropic arm of Sam Bankman-Fried’s empire before it collapsed in late 2022.
He later joined OpenAI’s “Superalignment” team before being fired over an alleged leak.
In 2024, he wrote a 165-page treatise on how AI would dramatically reshape society in the coming years, titled “Situational Awareness”. He capitalised on his newfound fame that year by raising a hedge fund with backing from former GitHub chief executive Nat Friedman and venture capitalist Peter Thiel. It quickly took off.
This July trouble began. Some of the hedge fund’s biggest positions appeared to be collapsing. The fund at one point held hundreds of millions of dollars in Bloom Energy and Sandisk, which both fell sharply.
Aschenbrenner wrote a letter to investors last week amid the AI market rout, in which he rattled off its wild returns — 439 per cent for the year, 1,551 per cent since its founding — and then gave a hint that trouble was brewing.
While he said the firm had not been “immune” to the recent tech sell-off, he suggested that August 1 could be a great time to invest to take advantage of the “tremendously exciting” AI advances ahead.
As the situation worsened, trading giants began to explore deals to buy chunks of Situational Awareness’s portfolio.
Then Citadel, and its billionaire founder Griffin, entered the frame. He was “heavily involved” in the negotiations and at the final hour agreed to buy a significant portion of Situational Awareness’s public equity holdings.
“The real question is how did anyone invest so much money, and then lend so much money, to a [24-year-old] kid with no personal experience and no infrastructure,” said a person involved in the negotiations.