Yet the fund, Situational Awareness, remains up about 80% this year after a spectacular run before the sell-off. The thesis did not break first. The financing did. <\/p>\n
The timing carries an eerie Wall Street echo. <\/p>\n
Bespoke Investment Group mapped the Nasdaq’s performance<\/a> after the launches of Netscape in 1994 and ChatGPT in 2022. The two technology booms followed a remarkably similar path through their first several years \u2014 and the Situational Awareness unwind arrived near the same point at which Long-Term Capital Management<\/a> nearly failed in 1998. <\/p>\n The critical difference is that Situational Awareness never posed anything close to LTCM’s systemic threat. The resemblance is more basic. <\/p>\n Brilliant people found a powerful idea. They concentrated their bets. Then leverage put the clock in charge. <\/p>\n Aschenbrenner saw the scale of the AI build-out early. His prescient 2024 white paper, “Situational Awareness: The Decade Ahead,” traced the exponential growth in computing power and followed those trend lines deep into the future. <\/p>\n “American big business is gearing up to pour trillions of dollars into a long-unseen mobilization of American industrial might,” he wrote. <\/p>\n With each new data center, power deal, and record capital-spending plan, that forecast looks less radical. The AI investment boom is already redirecting corporate cash<\/a> toward chips, servers, networking gear, and electricity. <\/p>\n But an investment horizon measured in years collided with financing that could be challenged in days. <\/p>\n Leverage allows an investor to borrow money and control a larger portfolio. When the assets rise, the borrowed money magnifies the gains. <\/p>\n The mechanism runs just as fast in reverse. <\/p>\n Falling positions reduce the value of the assets backing the loans. Lenders may demand more cash or a smaller portfolio. That can force the investor to sell liquid holdings quickly, whether or not the original thesis has changed. <\/p>\n Situational Awareness said rapidly falling positions and fading market liquidity made it increasingly difficult to keep the portfolio within its risk limits. Aschenbrenner compared the dynamic to a bank run, with each sign of vulnerability creating more vulnerability. <\/p>\n The fund ultimately sold most of its public equity portfolio and eliminated leverage<\/a>. It retained private investments, including its Anthropic stake. <\/p>\n The portfolio did not necessarily sell what Aschenbrenner liked least. It sold what could be turned into cash fastest. <\/p>\n Public stocks trade all day and carry a constantly changing market price. Private holdings can be harder to sell, but they also do not provide lenders with the same immediate route to cash. When the pressure rises, liquidity can decide what stays and what goes. <\/p>\n Wall Street has seen this movie before, even if the starring asset keeps changing. <\/p>\n A brief history of Wall Street’s leverage blowups <\/p>\n A concentrated position falls. Borrowed money accelerates the losses. Cash demands arrive. The investor loses control of the exit. <\/p>\n Different markets. Same trap. <\/p>\n That is also why the brutal cost of leverage<\/a> extends beyond hedge funds. A leveraged ETF, margin account, or options position can impose the same mismatch between the investor’s timeline and the market’s. <\/p>\n Aschenbrenner’s AI thesis may still prove right. Removing leverage gives the fund more time to find out. <\/p>\n But Wall Street does not award extra time for intelligence. <\/p>\n A long-term thesis can wait. A lender will not. <\/p>\n Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at jaredblikre@yahooinc.com<\/a>. <\/p>\n<\/a> Bespoke Investment Group, Yahoo Finance <\/p>\n
<\/a> Yahoo Finance <\/p>\n
<\/a> Yahoo Finance <\/p>\n