GoKawiilis a reporter who writes about tech, money, and human behavior. She joined The Verge in 2014 as science editor. Previously, she was a reporter at Bloomberg.
I am not by any means an expert at finance but I think I do now have some advice for people who are: Do not name your hedge fund anything that will be hilarious if it blows up. Don’t use a name like “Long-Term Capital Management,” or “Amaranth Advisors” (named for the floral symbol for immortality). Certainly do not call yourself “Situational Awareness,” which might as well just be “Hubris, Inc.”
Anyway, Situational Awareness, the hedge fund started by a 24-year-old former OpenAI employee that focuses on artificial intelligence bets, has sold most or all, depending on who’s reporting, of its entire public stock portfolio to Ken Griffin’s Citadel after several bad weeks for AI stocks, and that’s the situation we are all now aware of. You may recall earlier this week I noted the market had gotten particularly nervous about AI risk; as it turns out, we have discovered one firm that was swimming without a bathing suit.
How bad is it? Well, according to CNBC, the fund was worth $45 billion at the start of July. It is now worth $10 billion, after the sale of assets to Griffin. The previous record-holder on all-time trading losses was Archegos Capital Management, which lost $8 billion in ten days in 2021, according to The Wall Street Journal. If these numbers hold, Situational Awareness’ AI bets lost three times as much.
Every detail of this disaster is funnier than the last. Situational Awareness had a staff of eight, of whom four were investment professionals. “The fund’s largest holdings at the end of the first quarter included Nebius Group, Sandisk, Micron and CoreWeave, according to filings,” CNBC wrote. “All four of those stocks are down more than 35 percent this month.” I expect we will hear more in the coming days, especially from the Wall Street professionals who were on the other side of these jokers’ trades.
“Basically, this investment firm will be kind of like a brain trust on AI.”
How did we get here? Situational Awareness LP was named for a series of facile essays about machine intelligence published by the improbably-named Leopold Aschenbrenner, the 24-year-old mastermind of the hedge fund. “We are building machines that can think and reason,” he writes, betraying that he has no idea what thinking could possibly mean. “By 2025/26, these machines will outpace many college graduates. By the end of the decade, they will be smarter than you or I; we will have superintelligence, in the true sense of the word. Along the way, national security forces not seen in half a century will be unleashed, and before long, The Project will be on. If we’re lucky, we’ll be in an all-out race with the CCP; if we’re unlucky, an all-out war.”
There is a part of me that wants to go line-by-line to dunk on every claim here, beginning with the very first sentence, “You can see the future first in San Francisco,” but I am going to stifle the impulse. The essays are the theoretical underpinnings of the hedge fund. The upshot is that artificial general intelligence is real (lol) and will arrive in 2027 (lmao). So the entire point of the hedge fund was to dump as much money as possible into AI stocks and then get very, very rich.
“Basically, this investment firm will be kind of like a brain trust on AI,” Aschenbrenner told Dwarkesh Patel in a four-hour podcast interview, the preferred intellectual medium of the Silicon Valley elite. “We’re going to have way more situational awareness than any of the people who manage money in New York. We’re definitely going to do great on investing, but it’s the same sort of situational awareness that is going to be important for understanding what’s happening, being a voice of reason publicly, and being able to be in a position to advise.”
Why would these purportedly serious people buy in on a 24-year-old’s very first hedge fund?
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