I don't understand the point of this piece. There is nothing breaking or remotely interesting which we didn't already know.
Mind you I don't particularly care about Aschenbrenner or his fund but it feels to me like typical journalists reporting on hindsight without any sort of skin in the game. "Hhm, how could you be so dumb so as to trust your money to a 22 year old".
Peter Thiel did the same with Zuck and like him or hate him he did pretty well.
If you want to show how smart you are hash your predictions, post them publicly with a commitment to reveal by a certain date and then show the world how this was so obvious in hindsight.
>> What, then, to make of Situational Awareness’s plunge? ...Mr Aschenbrenner was hardly alone in such bets; over 80% of fund managers responding to Bank of America’s latest monthly survey named “long global semiconductors” as the most crowded trade. The big worry is that this trade’s whiplash-inducing reversal will have set other investment firms teetering, too.
If Citadel hadn't stepped in, Situational Awareness may have had to fire sell tens of billions of dollars of assets. Assets others have leveraged positions in. That, in turn, could have triggered margin calls and a potential credit or even bank crisis.
Is this firm big enough to cause a financial crisis on its own? Has the leverage situation gotten so dire? Is this just postponing the inevitable at this point?
> Is this firm big enough to cause a financial crisis on its own?
I'm still trying to figure out what their gross and net positions were. But taking reported figures at face value, yes, $45bn is more than enough to start a credit crisis, particularly if everyone is crowded into a small set of leveraged positions that begin fire selling.
Devil is in the details of what Citadel paid for its positions, whether there are any performance tails/clawbacks, how and when the GP charges fees, et cetera.
Aschenbrenner is almost certainly up. I'd be surprised if his median LP is breaking even.
yeah, especially given that the bulk of that is supposedly Anthropic which is just paper gains that could evaporate when traded publicly. everyone's a genius in a bull market, my fund is up 145% ytd after the big 50% drawdown this June.
The same goes for all reporting on YouTube. Many publishers jumpers the gun without looking at context.
It's also interesting that Citadel is mentioned everywhere as the buyer, as if it's strange that a huge market maker firm would be involved in a large forced sale.
Seems the fund also has Anthropic shares, so it's not like their entire portfolio got margin called.
"Citadel" is a name that makes headlines, for better or worse. Ken Griffin hasn't exactly lived his life in such a way as to avoid the limelight. But you're right, this is just the sort of thing that Citadel and similar firms do once in a while, when the opportunity arises.
(Spicier claim: When Citadel bailed out Melvin at the hype of the GME craze, that was also just business as usual, not a conspiracy as the redditors believed.)
Another way to parse it when they put "Citadel" in their headlines, is that they're trying to communicate to knowledgeable investors that there's no need to panic. The book is in experienced hands now, with enough capitalization to weather any further attacks, and the contagion probably won't spread.
Do you have a credible source specifically claiming this? I want to know whose data they're looking at. (Specifically, I want to unpack how they're marking their private positions.)
> Oversee: to be in charge of how an amount of money is invested or spent
No. "Oversee" can refer to the gross or net position. If I raise $10bn and use that to buy $100bn in assets, I absolutely control and thus oversee the latter.
> The mystery is what on earth his investors were thinking. Perhaps they weren’t. In which case, that would be more worrying than anything about Situational Awareness’s humbling.
I think this piece is pointing out two things:
That this bubble still has a long way to deflate if it is indeed deflating. The numbers involved truly are spectacular and unwinding could be catastrophic.
That there is a lot of blind faith in the market in unsubstantiated predictions - like AGI this decade (or indeed AGI at all based on LLMs), and a lot of follower behaviour among investors chasing the latest trade.
why does involvement with EA imply being ethically challenged? i’m personally not involved, but on its face it seems better than not doing any kind of charitable work.
> why does involvement with EA imply being ethically challenged?
Because almost everyone prominent in the movement has had some combination of lack of judgment and morals. There various terms for rationally pursuing philanthropy; associating with effective altruism involves embracing its ideas, people and culture.
I think the central finding in EA is donating money while earning good is better than donating time directly for charity. To me it seems correct but controversial for many people(likely because you are maximizing your personal income)
> the central finding in EA is donating money while earning good is better than donating time directly for charity
EA has many tenets, some of make sense per se, but collectively–particulalry when taking into account that EA isn't just an idea but a movement of people with a distinct culture and track record–probably do more harm than good.
Well, for one, the frequency of its members committing mass fraud.
Like, if a church preaches kindness and love but its preachers and members are constantly out there murdering people, it's a bit silly to point to the text alone when evaluating the organisation.
Going to need a good source for that crowd having done more good than the frauds of even just their most-notorious members.
Masquerading as an altruist to justify massive management fees for running a fund of concentrated, leveraged positions is one of the oldest lipsticks on financial pigs.
As per the article, he formed a trading company without any background in investing, and once his investments tanked, he sold the stocks for pennies on the dollar to a financial firm, leaving investors holding the bag while pocketing trading fees associated with a $45B USD portfolio.
No, but to most people the only exposure they've had to the term "Effective Altruism" (if they've even heard of the it) is morality-washing personal greed that never quite seems to get past the "accumulation" or "self-serving boondoggle" stages.
As a brand it's tainted. You might argue unfairly, but that's never mattered in "public brand perception" before.
Sam Bankman-Fried is an effective altruist (or was anyways, not sure what he is after they denounced him). The list of effective altruists reads like a who's who of scummy people.
This is a joke of an article. It shows a few incidental deaths while ignoring the total number of saved lives due to EA. It literally points to ~2 incidental deaths while Give Well saves ~300k lives. Its remarkably ignorant.
Is there a word for this kind of fallacy? Cherry picking sounds too Reddit-coded.
Effective Altruism is one of those things that sounds smart on the surface, but in practice is a yellow flag. The fact that he started the club is a red flag.
In short, Effective Altruism says you don't engage in charity until you have sufficient means to actually make a difference. Basically, you leverage capitalism to accumulate enough wealth to actually be able to solve a big problem, then you go all in on solving that problem. Sounds great right?
In the real world these people never accumulate enough wealth to actually start solving problems. Even when they become billionaires. In practice it is a convenient excuse to act like the most depraved capitalist while still pretending to sit on the high horse and talk down to people who simply try to help with the means available to them.
I have a lot of problems with Aschenbrenner and the "Rationalist" community as a whole, but this is not a factually correct characterization of Effective Altruism.
In practice, it can be used as a fully-general counterargument to supporting most charities, since decisively and completely solving problems in this space is rare. It’s harder to split a problem into component parts than it is to throw up one’s hands and say, “well, this isn’t tractable.”
You are right to ask. Nothing in this story, or any of the other reporting would indicate a lack of basic ethics.
What the story indicates is more like a set of character flaws. Hubris, and a belief that since he is so smart at one aspect of running the fund, picking the stocks, that he's automatically good enough at the other parts, like risk management. This is a blind spot, but not a crime.
I'm no big fan of EA and do agree that EA can be a "yellow flag" for worse stuff, as some have commented here. But more commonly, it's an indicator for some of these sorts of flaws. A fetishization of the quantitative model without a practical sense for real world tactics and experience, or something along those lines.
(And then sometimes they use it to justify actual crimes. But that is where SA diverges sharply from FTX, and we should be super clear about that distinction. This was an error and a setback, not a crime.)
> Good for Mr Aschenbrenner for chancing his arm. The mystery is what on earth his investors were thinking. Perhaps they weren’t. In which case, that would be more worrying than anything about Situational Awareness’s humbling.
The Economist should change its name to The Populist with this type of screed.
Here's the reality:
1. Lots of money is invested willy-nilly for all sorts of reasons (or no reason at all) in all sorts of dubious and poorly-managed vehicles.
2. Except for the profile of the fund manager and that this was AI, this failure wasn't all that special. The seed capital for the fund is reported to have been around $225 million and it was highly leveraged on top of significant gains so there's a whole class of LPs who probably aren't even going to lose anything on this. It's the people who put capital in more recently who are going to lose.
3. The people who will lose money investing in this fund are the type of people who have a full wardrobe. It's going to be a very long time before they "lose their shirts".
>> people who will lose money investing in this fund are the type of people who have a full wardrobe
If Citadel hadn't bailed him out, Situational Awareness very likely could have triggered a cascade of fire sales. That would not only hurt ordinary investors' positions, it could have also triggered a credit or even banking crisis (depending on how the margin loans are held).
A big, leveraged, concentrated fund blowing up isn't novel. But it's the traditional way to start a recession.
> If Citadel hadn't bailed him out, Situational Awareness very likely could have triggered a cascade of fire sales.
Citadel didn't bail him out/rescue him. This was a distressed purchase, made at auction. Citadel believes it will eventually make money on the book, which was only around $16 billion.
If Citadel and Millennium (the other bidder) hadn't stepped in, the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks. Probably the best and easiest collateral to deal with. And the exposure was split across three of the most highly capitalized banks (BofA, Goldman and JPMorgan) and they were already managing the wind-down when Citadel stepped in opportunistically.
If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily.
> Citadel didn't bail him out/rescue him. This was a distressed purchase, made at auction. Citadel believes it will eventually make money on the book, which was only around $16 billion
...you're describing a bail-out. The LTCM lenders and Fed in the financial crisis made money on their books. They were still extending liquidity.
> the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks
Yes. By fire selling. Which triggers, in turn, further margin calls and potential failures.
I'm not saying it's a certainty. But claiming there is limited financial risk from any $10+ billion leveraged meltdown is absurd.
> If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily
Private markets move slowly. That gives time to mop up messes. Crises metastasize when they hit public instruments precisely because that's where the most volume, leverage and potential for panic live.
But there was no "close call". His fund was not systemically important. It was mostly public equity investments in some of the largest names in the market that were highly leveraged.
Mind you I don't particularly care about Aschenbrenner or his fund but it feels to me like typical journalists reporting on hindsight without any sort of skin in the game. "Hhm, how could you be so dumb so as to trust your money to a 22 year old".
Peter Thiel did the same with Zuck and like him or hate him he did pretty well.
If you want to show how smart you are hash your predictions, post them publicly with a commitment to reveal by a certain date and then show the world how this was so obvious in hindsight.
>> What, then, to make of Situational Awareness’s plunge? ...Mr Aschenbrenner was hardly alone in such bets; over 80% of fund managers responding to Bank of America’s latest monthly survey named “long global semiconductors” as the most crowded trade. The big worry is that this trade’s whiplash-inducing reversal will have set other investment firms teetering, too.
If Citadel hadn't stepped in, Situational Awareness may have had to fire sell tens of billions of dollars of assets. Assets others have leveraged positions in. That, in turn, could have triggered margin calls and a potential credit or even bank crisis.
I'm still trying to figure out what their gross and net positions were. But taking reported figures at face value, yes, $45bn is more than enough to start a credit crisis, particularly if everyone is crowded into a small set of leveraged positions that begin fire selling.
The piece is published in a weekly magazine. It may include some interesting things that nobody knew one week ago.
> which posted a loss of 67% in July
So it's still up 44% this year? The article notes this, but seems unnecessarily adversarial against an investor who is still wildly successful.
Devil is in the details of what Citadel paid for its positions, whether there are any performance tails/clawbacks, how and when the GP charges fees, et cetera.
Aschenbrenner is almost certainly up. I'd be surprised if his median LP is breaking even.
It's also interesting that Citadel is mentioned everywhere as the buyer, as if it's strange that a huge market maker firm would be involved in a large forced sale.
Seems the fund also has Anthropic shares, so it's not like their entire portfolio got margin called.
(Spicier claim: When Citadel bailed out Melvin at the hype of the GME craze, that was also just business as usual, not a conspiracy as the redditors believed.)
Another way to parse it when they put "Citadel" in their headlines, is that they're trying to communicate to knowledgeable investors that there's no need to panic. The book is in experienced hands now, with enough capitalization to weather any further attacks, and the contagion probably won't spread.
Does anyone know if this refers to AUM or the gross size of his positions after leverage?
The leverage was 4x or 5x of that and highly concentrated. Citadel bought $16 billion public portfolio with 10% discount.
Do you have a credible source specifically claiming this? I want to know whose data they're looking at. (Specifically, I want to unpack how they're marking their private positions.)
Oversee: to be in charge of how an amount of money is invested or spent.
No. "Oversee" can refer to the gross or net position. If I raise $10bn and use that to buy $100bn in assets, I absolutely control and thus oversee the latter.
I think this piece is pointing out two things:
That this bubble still has a long way to deflate if it is indeed deflating. The numbers involved truly are spectacular and unwinding could be catastrophic.
That there is a lot of blind faith in the market in unsubstantiated predictions - like AGI this decade (or indeed AGI at all based on LLMs), and a lot of follower behaviour among investors chasing the latest trade.
> While at Columbia, he co-founded the university's effective altruism (EA) chapter.[5]
Just another smart, yet ethically challenged, individual. Nothing to see here.
Because almost everyone prominent in the movement has had some combination of lack of judgment and morals. There various terms for rationally pursuing philanthropy; associating with effective altruism involves embracing its ideas, people and culture.
EA has many tenets, some of make sense per se, but collectively–particulalry when taking into account that EA isn't just an idea but a movement of people with a distinct culture and track record–probably do more harm than good.
Well, for one, the frequency of its members committing mass fraud.
Like, if a church preaches kindness and love but its preachers and members are constantly out there murdering people, it's a bit silly to point to the text alone when evaluating the organisation.
Going to need a good source for that crowd having done more good than the frauds of even just their most-notorious members.
Masquerading as an altruist to justify massive management fees for running a fund of concentrated, leveraged positions is one of the oldest lipsticks on financial pigs.
And it does not come cheap. Someone who says "I will not work for Facebook" is taking a stand at the expense of significant personal gain.
[1] https://en.wikipedia.org/wiki/Effective_altruism
As a brand it's tainted. You might argue unfairly, but that's never mattered in "public brand perception" before.
https://www.wired.com/story/deaths-of-effective-altruism/
This is a joke of an article. It shows a few incidental deaths while ignoring the total number of saved lives due to EA. It literally points to ~2 incidental deaths while Give Well saves ~300k lives. Its remarkably ignorant.
Is there a word for this kind of fallacy? Cherry picking sounds too Reddit-coded.
In short, Effective Altruism says you don't engage in charity until you have sufficient means to actually make a difference. Basically, you leverage capitalism to accumulate enough wealth to actually be able to solve a big problem, then you go all in on solving that problem. Sounds great right?
In the real world these people never accumulate enough wealth to actually start solving problems. Even when they become billionaires. In practice it is a convenient excuse to act like the most depraved capitalist while still pretending to sit on the high horse and talk down to people who simply try to help with the means available to them.
In practice, it can be used as a fully-general counterargument to supporting most charities, since decisively and completely solving problems in this space is rare. It’s harder to split a problem into component parts than it is to throw up one’s hands and say, “well, this isn’t tractable.”
https://www.youtube.com/watch?v=rQZWMmINqxo
https://www.youtube.com/watch?v=S54GrXDjokg
https://www.thephilosopher1923.org/post/a-mirror-for-tech-br...
https://www.persuasion.community/p/the-problem-with-effectiv...
What the story indicates is more like a set of character flaws. Hubris, and a belief that since he is so smart at one aspect of running the fund, picking the stocks, that he's automatically good enough at the other parts, like risk management. This is a blind spot, but not a crime.
I'm no big fan of EA and do agree that EA can be a "yellow flag" for worse stuff, as some have commented here. But more commonly, it's an indicator for some of these sorts of flaws. A fetishization of the quantitative model without a practical sense for real world tactics and experience, or something along those lines.
(And then sometimes they use it to justify actual crimes. But that is where SA diverges sharply from FTX, and we should be super clear about that distinction. This was an error and a setback, not a crime.)
The Economist should change its name to The Populist with this type of screed.
Here's the reality:
1. Lots of money is invested willy-nilly for all sorts of reasons (or no reason at all) in all sorts of dubious and poorly-managed vehicles.
2. Except for the profile of the fund manager and that this was AI, this failure wasn't all that special. The seed capital for the fund is reported to have been around $225 million and it was highly leveraged on top of significant gains so there's a whole class of LPs who probably aren't even going to lose anything on this. It's the people who put capital in more recently who are going to lose.
3. The people who will lose money investing in this fund are the type of people who have a full wardrobe. It's going to be a very long time before they "lose their shirts".
>> people who will lose money investing in this fund are the type of people who have a full wardrobe
If Citadel hadn't bailed him out, Situational Awareness very likely could have triggered a cascade of fire sales. That would not only hurt ordinary investors' positions, it could have also triggered a credit or even banking crisis (depending on how the margin loans are held).
A big, leveraged, concentrated fund blowing up isn't novel. But it's the traditional way to start a recession.
Citadel didn't bail him out/rescue him. This was a distressed purchase, made at auction. Citadel believes it will eventually make money on the book, which was only around $16 billion.
If Citadel and Millennium (the other bidder) hadn't stepped in, the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks. Probably the best and easiest collateral to deal with. And the exposure was split across three of the most highly capitalized banks (BofA, Goldman and JPMorgan) and they were already managing the wind-down when Citadel stepped in opportunistically.
If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily.
...you're describing a bail-out. The LTCM lenders and Fed in the financial crisis made money on their books. They were still extending liquidity.
> the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks
Yes. By fire selling. Which triggers, in turn, further margin calls and potential failures.
I'm not saying it's a certainty. But claiming there is limited financial risk from any $10+ billion leveraged meltdown is absurd.
> If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily
Private markets move slowly. That gives time to mop up messes. Crises metastasize when they hit public instruments precisely because that's where the most volume, leverage and potential for panic live.