This fund returned 47% in its first 6m and over 400% prior to the downturn.
I don't understand how the investors didn't realize this was going to blow up. Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper.
When something is inevitable and there is a large enough position, this makes adversarial attacks likely. Every small drop causes an amplified amount of pain to the investor which causes them to liquidate positions furthering the decline. SA doesn't have the history or relationships yet to endure margin calls.
I don't see the edge these companies have when they're just going long a very particular position, namely anything related to AI. Long term value in finance is made in a couple of ways. For instance, relationships & being able to source deals (lots of PE firms), short term trading infrastructure and knowledge (Renaissance), capital and clout to make favorable deals (Buffet), etc. Even then the skills are fleeting as employees leave taking knowledge and companies raise money to compete.
Buying Nvidia on leverage is not a long term strategy. Especially when all your investments are common stock and obvious.
> Buying Nvidia on leverage is not a long term strategy.
The whole country of South Korea is long SK Hynix and Samsung, with insane level of leverage. That won’t be a happy ending. People talk about past bubbles as if it was a good thing long term, but that will be millions of people losing their savings, homes, decades of austerity for countries to recover
>Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper.
Definitely not true, looking at their last 13f (filed in may 2026) their top3 holdings were BE, SNDK and CRWV which had 1y returns of 1,500%, 2,000% and 500% at the time of the filing. They accounted together for 15% of the fund (plus an unknown amount of exposure through options). These tickers show up in the 2 and 3 previous filings so they had exposure to some of that run up, and looking at the filings further back they had some very concentrated exposure to INTC in a half year period where the stock went up about 200%
Sure, but 15% of your portfolio going up by 1000% isn't going to give you an overall 400%+ YTD return, which is where SALP was before this drop, and obviously it is no secret that they were highly leveraged.
Aschenbrenner obviously understood diversification, but was overconfident and greedy and used leverage to boost returns. He was lucky that Citadel saw fit to step in and buy their portfolio rather than having to dump it into the market which would likely have been far worse.
I was answering his point that 400% returns are impossible without leverage, and my argument was that they were in the right stocks at the right time to achieve those kinds of returns without leverage. Since a lot of their portfolio is/was options without strikes or durations listed and the exact dates of their buys/sells is unknown it's not possible (AFAIK) to reconstruct their P&L exactly but it seems plausible to me that, given the stocks they were concentrated in and the quarters they start reporting those positions, that they could have gotten 400% returns in a year without leverage. If I were an LP reading their filings saying that (for example) they held 25% of the fund in Intel during a half year period where it went up 200%, plus some other similar holdings, resulting in overall 400% returns I wouldn't automatically conclude they were levered.
Sure if you buy one stock and it goes up 1k percent it's possible. But that's unrealistic and being that concentrated is unacceptable for a fund.
Any sophisticated investor that read that a fund they were invested in a single name would be upset. Unless it's a special vehicle or they're activist and have a position for some strategic purpose. But just to let such a large percentage of your fund on a single name stock is insane.
I'll also add that options are essentially leverage. Leverage doesn't have to be borrowing it's just describing what $1 price change does to your position. You can buy at the money calls for 3-12% of the stock price. And they move up slightly less than $1 if stock goes up, so you're essentially getting 10-20x leverage. And if they're not above the strike price at expiration they're worthless
I don't have anything to say about their concentration beyond that if you read their early 13Fs (ex https://13f.info/13f/000204572425000006-situational-awarenes...) they were in fact "that concentrated" which is why it's plausible they got 100s of % returns without leverage.
Re options being leverage - everything you said is true but unfortunately the public filings dont have strikes or durations so it's not possible to say whether they bought short dated otms with 0.05 delta or leaps with close to 1 delta or something in between.
Or perhaps this was more of an attempt to lock in some profits while still riding it higher? It seems most of his puts were in the chip stocks while his portfolio was more focused on "next phase" datacenter/infra stocks.
They had very large put positions on stock that they had very small long stock positions in, I think they were net short in almost everything they held puts on (except the smh etf put which I guess is an attempt to cancel out sector beta)
> Returns like that are not asymmetrical and can only be produced with leverage
That's not generally true. There are sometimes highly asymmetrical strategies driven by market inefficiences that are not widely known. They're not easy to find though.
The problem wasn't just a decline in the stocks - obviously you expect a rocky ride in stocks that are up manyfold in a short period of the time, and Aschenbrenner certainly seems to have had the conviction not to sell early.
The problem was leverage - the decline in these stocks seems to have resulted in margin calls that he could not meet, resulting in forced selling. There was a very brief story that he was looking to raise additional funds, but within 24 hours he had sold much of it to Citadel instead, and for time being now holds an entirely unleveraged stock-only portfolio.
>This fund returned 47% in its first 6m and over 400% prior to the downturn.
>Returns like that are not asymmetrical and can only be produced with leverage
This is simply untrue. Just because the path to doing so is much more clear in hindsight doesn't mean it wasn't possible.
Sandisk is still up 110.82% in the last 6 months, and that's after a drawdown that's now approaching 50% from peak. Over the last year, they're up 2730%, and again, this is after the drawdown. Zero leverage.
The skill in the stock market, and the value of any kind of investment fund, is producing good returns over an actual long-term period. YOLO-ing once before imploding in one of the biggest bull markets ever can be done by any gambling degenerate out there.
True, but he is still, even after this, up 80% YTD, so not a total implosion.
No doubt he has learnt a valuable lesson.
Many famous investors, such as George Soros, have had huge losses at some point in their career, but have taken in in their stride and still done well. If you are taking big swings then sometimes you will have big misses.
I don't disagree at all with what you're saying, but it has nothing to do with what I said, which is strictly a refutation of the assertion that it's only possible to achieve a 47% return in 6 months or 400%+ return in ~2 years with leverage.
That's not at all what I said. What I said had nothing to do with the mechanics driving broader market behavior.
What I said was strictly a refutation of the assertion that it's only possible to achieve a 47% return in 6 months or 400%+ return in ~2 years with leverage. That's a demonstrably false assertion.
If you bought Sandisk, $SNDK, not options but the actual underlying equity, with no margin, just fully purchased the position with cash, you're up 110% if you bought six months ago (down from over 200%, but 110% in 6 months is still enormous), and you're up over 2700% if you bought a year ago.
Just to jump in: Citadel buying this portfolio says nothing about how Citadel feels about the stocks. It's the bread and butter of large HFT hedge funds; if you see someone that has to sell stock, you leverage the fact that you can buy all of it to get a discount versus the asset value. Reports are saying that Citadel was able to buy the portfolio for ~10% under the market value, all at once. That's a no-brainer because you both get a discount and avoid driving the price down by buying small pieces over the course of a week.;
If I were a betting man, I'd bet that Citadel was also selling to Situation Awareness while they were on the way up. At some point, SA had juiced their stock prices so much that no "rational" investors (those that have a view of the stock based on some amount of fundamentals) would be on the other side of the trade. It's retail investors, bandwagon investors, and Citadel-caliber funds. This situation (over-leveraged company blows up due to some volatility) happens all the time in commodities trading, which is where Citadel started.
Everyone in the markets was talking about SA for the last week and shorting or covering anything they had that overlapped. I am fairly confident that Citadel was net short a good chunk of the stocks they bought from SA (and long a SA's shorts).
Contrary to popular belief these people know what they are doing.
I'm assuming that Citadel LLC (the hedge fund) will be able to sell these stocks for a profit, not least because Ken Griffin also owns Citadel Securities which is market maker in most of them, even if he probably can't sell directly to them.
OTOH, perhaps there was also a self-serving element of avoiding market contagion that could have occurred if SALP had instead been forced to sell into the market.
They might not have known it was SA specifically. That being said, they definitely knew a large fund with leverage was buying these stocks. The mechanism here (and I'm not an expert) is:
1. SA wants to buy stock with leverage. You do that through a major bank via total return swaps. Essentially, SA pays X% of the value on $100 of stock (for 4x leverage you'd pay $25) plus an ongoing financing fee (call it 5% a year), then you get the return/loss on that $100 of stock. SA was in these agreements with JPMorgan and Goldman Sachs.
2. The bank, because they don't want to actually hold that risk, goes out and buys $100 of stock.
3. Citadel and others see JPMorgan buying lots and lots of this stock. That's confusing, because normally JPMorgan wouldn't be making a huge directional bet on a stock. They deduce that a large fund is buying the stock.
4. Citadel starts widening their spread (the difference between what they'll buy a stock for and what they'll sell it for). They hedge some of this as best they can, or temporarily live with the risk.
5. SA, the highly leveraged fund buying volatile stocks, inevitably blows up because volatile stocks swing around in price. A dip causes margin calls.
6. JPMorgan or Goldman need to sell the stock fast, because SA is close to dipping below their required margin (i.e. SA paid $25 for $100 in stock exposure, the stock drops to $90, JPMorgan asks for more money because the stock went down by too much).
7. Citadel offers to buy all of the stock from JPMorgan. Because they're doing it in one big block, JPMorgan doesn't lose money selling on the open market (once you start selling, each successive sale is for less money because there are more people selling than buying). Citadel is compensated for this by getting a discount to the asset value (the stock is worth $90, Citadel gets to buy it for $81).
So Citadel didn't do anything to "set up" SA. But because they're hyper-aware of market dynamics, they would have known that someone is going to need to sell stock if the market takes a turn on these names.
I generally agree with you but given your comments, you might enjoy some additional details... Or please challenge me if you think I am wrong.
I've been paying for order-level data feeds on stocks and one thing you'll find is that a lot of the 'sensitive' trades will be anonymized or broken down in different ways to obfuscate who is trading. Citadel would still be able to see there's a surprising level of interest in a certain stock but might not be able to deduce it's one actor. A broker working for SA should know they need to do this, as it helps the broker do better via commissions, etc. too.
My understanding is that Citadel negotiated directly with SA to buy the book, so the final trades were likely taking place outside of the formal market feeds.
the last step, #7, is that fully automated or is this humans calling humans? I imagine everything before then is quite automated, and are thus happening very quickly, so I'm curious if the last piece possible being manual has the potential to blow the whole thing up by being too slow.
It's humans from other banks/funds bidding on the block of stock. As far as timing, for this situation it's basically overnight for regulatory and price reasons. Regulatory because there are legal margin requirements for levered positions and you can't handle the price going much lower, and price because if you had to sell this on the open market you'd keep selling shares for less and less.
So JPMorgan/Goldman prepare all the info on the book and start calling institutional investors after the market closes. The funds and banks prepare bids, there's some negotiation, and the block is finalized before trading opens the next day.
Speed does matter, but you're only calling investors you know "can" close the deal (i.e. they'll have enough capital to buy it all that day/night). So it's more of a price question than a speed one at that point?
And really, nobody wants the downward spiral of a fire sale in the tech sector. Someone will make money on that chaos, but it's a lot of risk when you can lock in a discount with the block trade.
I think the collapse of SA is very simple (as long as I'm not wrong about it of course hehe).
SA weren't geniuses, they weren't sophisticated. They just did the same thing everyone else did, all in on semi-conductor, AI and memory positions. They got great returns because 1) everyone got great returns and 2) they were leveraged through their ears. In fact, not only they weren't geniuses, they were pretty bad at risk management, so bad that the first mild drawdown triggered margin calls on their over-leveraged bets and they couldn't cover them.
TLDR: SA didn't have alpha, they just looked good through over-leveraged beta and got caught
Even in the optimistic case where SA did have alpha, the position sizing was way out of whack. Based on the volatility of the stocks they were buying, the Kelly Criterion meant you'd need to expect a 900% annual return on the stock before leverage to justify being 4x levered.
What guys like Leopold either don't understand or understand but ignore is that being right directionally and being right on market timing are two different skillsets. When you've juiced a stock by 800%, the existence of alpha pales in comparison to your vulnerability to the stock market.
This article is stating the obvious that is written in many different places (except the ETF angle) while sounding like its some kind of expert being ignored. I would presume AI is afoot.
Stopped writing the comment, went and clicked the logo, yup a personalized AI reporting service.
Author here. There is absolutely no AI used in any of the writing I do. We use AI to track news and better understand global and economic developments.
Michael Burry's substack answers this in his articles over the last week. It's along the lines of there are a number of market players that are taking on similar position in the market. These market players use leverage. Because of how many players there are, and the different levels of leverage involved, if the market goes against these crowded strategies there tends to be a sharp unwind against these funds. People know this dynamic exist, and so when the unwind slows down they jump right back in there as the forced selling stops and re-levering occurs again.
It's a good reminder that there are many ways you might interpret Citadel's intervention...from everything I've read, it seems that everyone wants to believe this is a bullish position on AI.
The public book went to 0 and LPs lost everything. The 80% number is a result of blending the Anthropic stake (+620% YTD, 25% of NAV) and the public book (-100%, 75% of NAV) = +80% YTD
This fund returned 47% in its first 6m and over 400% prior to the downturn.
I don't understand how the investors didn't realize this was going to blow up. Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper.
When something is inevitable and there is a large enough position, this makes adversarial attacks likely. Every small drop causes an amplified amount of pain to the investor which causes them to liquidate positions furthering the decline. SA doesn't have the history or relationships yet to endure margin calls.
I don't see the edge these companies have when they're just going long a very particular position, namely anything related to AI. Long term value in finance is made in a couple of ways. For instance, relationships & being able to source deals (lots of PE firms), short term trading infrastructure and knowledge (Renaissance), capital and clout to make favorable deals (Buffet), etc. Even then the skills are fleeting as employees leave taking knowledge and companies raise money to compete.
Buying Nvidia on leverage is not a long term strategy. Especially when all your investments are common stock and obvious.
> Buying Nvidia on leverage is not a long term strategy.
The whole country of South Korea is long SK Hynix and Samsung, with insane level of leverage. That won’t be a happy ending. People talk about past bubbles as if it was a good thing long term, but that will be millions of people losing their savings, homes, decades of austerity for countries to recover
>Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper.
Definitely not true, looking at their last 13f (filed in may 2026) their top3 holdings were BE, SNDK and CRWV which had 1y returns of 1,500%, 2,000% and 500% at the time of the filing. They accounted together for 15% of the fund (plus an unknown amount of exposure through options). These tickers show up in the 2 and 3 previous filings so they had exposure to some of that run up, and looking at the filings further back they had some very concentrated exposure to INTC in a half year period where the stock went up about 200%
Sure, but 15% of your portfolio going up by 1000% isn't going to give you an overall 400%+ YTD return, which is where SALP was before this drop, and obviously it is no secret that they were highly leveraged.
Aschenbrenner obviously understood diversification, but was overconfident and greedy and used leverage to boost returns. He was lucky that Citadel saw fit to step in and buy their portfolio rather than having to dump it into the market which would likely have been far worse.
I was answering his point that 400% returns are impossible without leverage, and my argument was that they were in the right stocks at the right time to achieve those kinds of returns without leverage. Since a lot of their portfolio is/was options without strikes or durations listed and the exact dates of their buys/sells is unknown it's not possible (AFAIK) to reconstruct their P&L exactly but it seems plausible to me that, given the stocks they were concentrated in and the quarters they start reporting those positions, that they could have gotten 400% returns in a year without leverage. If I were an LP reading their filings saying that (for example) they held 25% of the fund in Intel during a half year period where it went up 200%, plus some other similar holdings, resulting in overall 400% returns I wouldn't automatically conclude they were levered.
Sure if you buy one stock and it goes up 1k percent it's possible. But that's unrealistic and being that concentrated is unacceptable for a fund.
Any sophisticated investor that read that a fund they were invested in a single name would be upset. Unless it's a special vehicle or they're activist and have a position for some strategic purpose. But just to let such a large percentage of your fund on a single name stock is insane.
I'll also add that options are essentially leverage. Leverage doesn't have to be borrowing it's just describing what $1 price change does to your position. You can buy at the money calls for 3-12% of the stock price. And they move up slightly less than $1 if stock goes up, so you're essentially getting 10-20x leverage. And if they're not above the strike price at expiration they're worthless
I don't have anything to say about their concentration beyond that if you read their early 13Fs (ex https://13f.info/13f/000204572425000006-situational-awarenes...) they were in fact "that concentrated" which is why it's plausible they got 100s of % returns without leverage. Re options being leverage - everything you said is true but unfortunately the public filings dont have strikes or durations so it's not possible to say whether they bought short dated otms with 0.05 delta or leaps with close to 1 delta or something in between.
Aschenbrenner is 25 years old. How many market upsets has he seen in his adult life?
Looking at their 13f filing (filed in may 2026), they had $8 billion of leveraged put options.
Interesting - I guess at least some attempt at hedging given that they held puts in some of the same stocks they were long on.
https://whalewisdom.com/filer/situational-awareness-lp
Or perhaps this was more of an attempt to lock in some profits while still riding it higher? It seems most of his puts were in the chip stocks while his portfolio was more focused on "next phase" datacenter/infra stocks.
They had very large put positions on stock that they had very small long stock positions in, I think they were net short in almost everything they held puts on (except the smh etf put which I guess is an attempt to cancel out sector beta)
[dead]
They thought it was gonna be different this time.
> Returns like that are not asymmetrical and can only be produced with leverage
That's not generally true. There are sometimes highly asymmetrical strategies driven by market inefficiences that are not widely known. They're not easy to find though.
hindsight is easy. imagine apple and amazon stock holders thinking the same and selling when stock went up 100% after ipo
The problem wasn't just a decline in the stocks - obviously you expect a rocky ride in stocks that are up manyfold in a short period of the time, and Aschenbrenner certainly seems to have had the conviction not to sell early.
The problem was leverage - the decline in these stocks seems to have resulted in margin calls that he could not meet, resulting in forced selling. There was a very brief story that he was looking to raise additional funds, but within 24 hours he had sold much of it to Citadel instead, and for time being now holds an entirely unleveraged stock-only portfolio.
https://www.businessinsider.com/leopold-aschenbrenners-lette...
> > imagine apple and amazon stock holders thinking the same and selling when stock went up 100% after ipo
In the case of Amazon they'd have had the opportunity to buy at 97% discount compared to ATH
>This fund returned 47% in its first 6m and over 400% prior to the downturn.
>Returns like that are not asymmetrical and can only be produced with leverage
This is simply untrue. Just because the path to doing so is much more clear in hindsight doesn't mean it wasn't possible.
Sandisk is still up 110.82% in the last 6 months, and that's after a drawdown that's now approaching 50% from peak. Over the last year, they're up 2730%, and again, this is after the drawdown. Zero leverage.
The skill in the stock market, and the value of any kind of investment fund, is producing good returns over an actual long-term period. YOLO-ing once before imploding in one of the biggest bull markets ever can be done by any gambling degenerate out there.
True, but he is still, even after this, up 80% YTD, so not a total implosion.
No doubt he has learnt a valuable lesson.
Many famous investors, such as George Soros, have had huge losses at some point in their career, but have taken in in their stride and still done well. If you are taking big swings then sometimes you will have big misses.
I don't disagree at all with what you're saying, but it has nothing to do with what I said, which is strictly a refutation of the assertion that it's only possible to achieve a 47% return in 6 months or 400%+ return in ~2 years with leverage.
Uhhh.. you think this isn't driven by options trading? Which is, by definition, leverage.
That's not at all what I said. What I said had nothing to do with the mechanics driving broader market behavior.
What I said was strictly a refutation of the assertion that it's only possible to achieve a 47% return in 6 months or 400%+ return in ~2 years with leverage. That's a demonstrably false assertion.
If you bought Sandisk, $SNDK, not options but the actual underlying equity, with no margin, just fully purchased the position with cash, you're up 110% if you bought six months ago (down from over 200%, but 110% in 6 months is still enormous), and you're up over 2700% if you bought a year ago.
Just to jump in: Citadel buying this portfolio says nothing about how Citadel feels about the stocks. It's the bread and butter of large HFT hedge funds; if you see someone that has to sell stock, you leverage the fact that you can buy all of it to get a discount versus the asset value. Reports are saying that Citadel was able to buy the portfolio for ~10% under the market value, all at once. That's a no-brainer because you both get a discount and avoid driving the price down by buying small pieces over the course of a week.;
If I were a betting man, I'd bet that Citadel was also selling to Situation Awareness while they were on the way up. At some point, SA had juiced their stock prices so much that no "rational" investors (those that have a view of the stock based on some amount of fundamentals) would be on the other side of the trade. It's retail investors, bandwagon investors, and Citadel-caliber funds. This situation (over-leveraged company blows up due to some volatility) happens all the time in commodities trading, which is where Citadel started.
Everyone in the markets was talking about SA for the last week and shorting or covering anything they had that overlapped. I am fairly confident that Citadel was net short a good chunk of the stocks they bought from SA (and long a SA's shorts).
Contrary to popular belief these people know what they are doing.
I'm assuming that Citadel LLC (the hedge fund) will be able to sell these stocks for a profit, not least because Ken Griffin also owns Citadel Securities which is market maker in most of them, even if he probably can't sell directly to them.
OTOH, perhaps there was also a self-serving element of avoiding market contagion that could have occurred if SALP had instead been forced to sell into the market.
Do you believe this might have been Citadel grooming SA to implode like that?
They might not have known it was SA specifically. That being said, they definitely knew a large fund with leverage was buying these stocks. The mechanism here (and I'm not an expert) is:
1. SA wants to buy stock with leverage. You do that through a major bank via total return swaps. Essentially, SA pays X% of the value on $100 of stock (for 4x leverage you'd pay $25) plus an ongoing financing fee (call it 5% a year), then you get the return/loss on that $100 of stock. SA was in these agreements with JPMorgan and Goldman Sachs.
2. The bank, because they don't want to actually hold that risk, goes out and buys $100 of stock.
3. Citadel and others see JPMorgan buying lots and lots of this stock. That's confusing, because normally JPMorgan wouldn't be making a huge directional bet on a stock. They deduce that a large fund is buying the stock.
4. Citadel starts widening their spread (the difference between what they'll buy a stock for and what they'll sell it for). They hedge some of this as best they can, or temporarily live with the risk.
5. SA, the highly leveraged fund buying volatile stocks, inevitably blows up because volatile stocks swing around in price. A dip causes margin calls.
6. JPMorgan or Goldman need to sell the stock fast, because SA is close to dipping below their required margin (i.e. SA paid $25 for $100 in stock exposure, the stock drops to $90, JPMorgan asks for more money because the stock went down by too much).
7. Citadel offers to buy all of the stock from JPMorgan. Because they're doing it in one big block, JPMorgan doesn't lose money selling on the open market (once you start selling, each successive sale is for less money because there are more people selling than buying). Citadel is compensated for this by getting a discount to the asset value (the stock is worth $90, Citadel gets to buy it for $81).
So Citadel didn't do anything to "set up" SA. But because they're hyper-aware of market dynamics, they would have known that someone is going to need to sell stock if the market takes a turn on these names.
I generally agree with you but given your comments, you might enjoy some additional details... Or please challenge me if you think I am wrong.
I've been paying for order-level data feeds on stocks and one thing you'll find is that a lot of the 'sensitive' trades will be anonymized or broken down in different ways to obfuscate who is trading. Citadel would still be able to see there's a surprising level of interest in a certain stock but might not be able to deduce it's one actor. A broker working for SA should know they need to do this, as it helps the broker do better via commissions, etc. too.
My understanding is that Citadel negotiated directly with SA to buy the book, so the final trades were likely taking place outside of the formal market feeds.
the last step, #7, is that fully automated or is this humans calling humans? I imagine everything before then is quite automated, and are thus happening very quickly, so I'm curious if the last piece possible being manual has the potential to blow the whole thing up by being too slow.
It's humans from other banks/funds bidding on the block of stock. As far as timing, for this situation it's basically overnight for regulatory and price reasons. Regulatory because there are legal margin requirements for levered positions and you can't handle the price going much lower, and price because if you had to sell this on the open market you'd keep selling shares for less and less.
So JPMorgan/Goldman prepare all the info on the book and start calling institutional investors after the market closes. The funds and banks prepare bids, there's some negotiation, and the block is finalized before trading opens the next day.
Speed does matter, but you're only calling investors you know "can" close the deal (i.e. they'll have enough capital to buy it all that day/night). So it's more of a price question than a speed one at that point?
And really, nobody wants the downward spiral of a fire sale in the tech sector. Someone will make money on that chaos, but it's a lot of risk when you can lock in a discount with the block trade.
SA likely didnt lever up with Citadel, it did so via prime brokers which are the big banks (MS, GS, JPM, CS, and/or DB)
"The forces that destroyed SA were also what generated its 4×+ return"...yes, that is what levrage means? And it goes both ways.
The interesting part what this article states: SA was essentialy a thematic ETF without any hedging to buffer downside, and got margin called.
I think the collapse of SA is very simple (as long as I'm not wrong about it of course hehe).
SA weren't geniuses, they weren't sophisticated. They just did the same thing everyone else did, all in on semi-conductor, AI and memory positions. They got great returns because 1) everyone got great returns and 2) they were leveraged through their ears. In fact, not only they weren't geniuses, they were pretty bad at risk management, so bad that the first mild drawdown triggered margin calls on their over-leveraged bets and they couldn't cover them.
TLDR: SA didn't have alpha, they just looked good through over-leveraged beta and got caught
Even in the optimistic case where SA did have alpha, the position sizing was way out of whack. Based on the volatility of the stocks they were buying, the Kelly Criterion meant you'd need to expect a 900% annual return on the stock before leverage to justify being 4x levered.
What guys like Leopold either don't understand or understand but ignore is that being right directionally and being right on market timing are two different skillsets. When you've juiced a stock by 800%, the existence of alpha pales in comparison to your vulnerability to the stock market.
They were the alpha. Leopold called the boom in 2025 and returned 200% in 2025.
He unfortunately got caught with his pants down.
I mean, so many people also went in on the boom, that's why it's a boom. Leopold somehow got it 100% right and _still_ managed to go bust
Shoot, I called the boom in 2020 and returned 700% over the last six years. Where’s my fund? :P
That was just leveraged beta.
[dead]
This article is stating the obvious that is written in many different places (except the ETF angle) while sounding like its some kind of expert being ignored. I would presume AI is afoot.
Stopped writing the comment, went and clicked the logo, yup a personalized AI reporting service.
Author here. There is absolutely no AI used in any of the writing I do. We use AI to track news and better understand global and economic developments.
How does it actually work under the hood?
Michael Burry's substack answers this in his articles over the last week. It's along the lines of there are a number of market players that are taking on similar position in the market. These market players use leverage. Because of how many players there are, and the different levels of leverage involved, if the market goes against these crowded strategies there tends to be a sharp unwind against these funds. People know this dynamic exist, and so when the unwind slows down they jump right back in there as the forced selling stops and re-levering occurs again.
You'll have to clarify -- do you mean the fund, or our hypothesis on reflexivity and the value of AI assets?
How does what work?
"Impending"? Has anyone looked at the Business section, lately?
My first thought as well. My second was the lack of situational awareness.
They could have named the company "Irony", but that would have required situational awareness.
I mean VIX is decreasing currently
It's a good reminder that there are many ways you might interpret Citadel's intervention...from everything I've read, it seems that everyone wants to believe this is a bullish position on AI.
cathy’s ARK was also a hot genius moment in a bull market, now it’s another average option
All comments here are written as if Situational Awareness blew up, but it seems like it didn't and is up 80% YTD https://nitter.net/tbpn/status/2083226453509030285
All the stuff that it was forced to sell to Citadel is also up ~10%-30% since the sale
The public book went to 0 and LPs lost everything. The 80% number is a result of blending the Anthropic stake (+620% YTD, 25% of NAV) and the public book (-100%, 75% of NAV) = +80% YTD
> All the stuff that it was forced to sell to Citadel is also up ~10%-30% since the sale
and Citidel took it all at a multiple billion dollar discount to the prior close