Situational Awareness: The Full Story of Leopold's Collapse

**Josh** (0:00)
I can't believe we're filming this episode. The poster child of Silicon Valley Investing, Leopold Aschenbrenner, has kind of been dethroned. Like, the dude got wrecked. As to set some context, 20 days ago, there's this kid in the mid-20s, Leopold Aschenbrenner, we filmed many episodes about him. He was running the best performing hedge fund on Earth. It was up 1600%. He ran it up from a few hundred million dollars to 45 billion dollars, and then the market learned two things. One, that he was on leverage, and two, that he was getting closer to his liquidation prices. So what does the market do? It hunted those positions and got him liquidated only for one man to come in and swoop up the entire position of his fund in one single transaction. Now, as I understand it, Youjaz, every single one of his public positions is closed. It's gone.

**Ejaaz** (0:43)
It's gone. It's gone.

**Josh** (0:45)
Over night, it happened so fast.

**Ejaaz** (0:46)
This is unbelievable. Yeah. I think it's important to set some context, who on Earth is this guy and how all of this unraveled. We're going to get into all of that on this show. But on your point of leverage, Josh, it wasn't just like any amount of leverage. This guy was 4X levered on the entire fund.

**Josh** (1:04)
4X is crazy.

**Ejaaz** (1:06)
The nominal value that he was levered at was $100 billion. Do you know how much money you need to borrow to be levered to $100 billion on a $45 billion book? It is just absolutely insane.

**Josh** (1:17)
A lot more than it should have been.

**Ejaaz** (1:19)
Way more than it should have been.
Who on Earth is Leopold Aschenbrenner? I'm sure you've heard this name, but just a brief recap. Leopold Aschenbrenner was the wee age of 23 years old. This was two years ago in 2024, when he left or rather got fired from OpenAI on the super alignment AI research team, and he decided to write a 165-page essay on what he thought the next decade of AI is going to look like. Turns out he's the only guy that was bang on with every single one of his predictions. People loved the essay so much that he raised a fund, a small amount of around $225 million. Over the course of two years, he rode that up 1,600 percent to the tune of $45 billion. Now, it is one of the most impressive runs of any investor, but the fact that he did it at the age that he had with no zero trading experience, by the way, is just phenomenal. And the fund was based on two main pieces. Number one, that the physical AI infrastructure was going to be one of the best investment opportunities out there. Compute, GPUs, memory, all those kinds of things. He was very early on the trade. He called the trend very early. The second thesis is, applications, software. He was going to be short. He didn't believe that companies like Microsoft or whatever, their software was going to be worth anything in a world where AI models can just absorb all of those things. That was the sure bet. But things started to unwind around six weeks ago when his thesis that had held strong for two years started to waver. Markets started to recede. There was the global war that was happening. There was a few oversupplies happening in terms of funding.
Things started to go a little wry.

**Josh** (2:59)
Yeah, it was messy. I'd say it took about 20 days to go from absolute legend fully liquidated. This happened very rapidly.
It was marked in a way by that July 10th ringing of the bell of SK Hynex. This was this huge IPO moment where everyone was very excited. It very much marked that top tick in terms of where the market was for Leopold in particular. That was early July. You could think July 10th is when it started. We're now sitting here August 3rd recording this. You'll be listening to this August 4th. In this month, a lot kind of happened.
It starts with the memory trade. We know Leopold is very risk on with the memory trade, so much so that he was using, like you mentioned, four times leverage. Just a brief explainer for those who don't understand leverage. At four times leverage, a roughly 17% move against your portfolio erases about two-thirds of the equity. So for every one dollar you put down of money, you borrow three more, you control four dollars of stock.

**Ejaaz** (3:56)
Down like 25%, I think he wipes the entire book, like you're done. It's just a 25% move.