The Situation at Situational Awareness

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Leopold Aschenbrenner** (0:08)
Basically, the thing this investment firm will be, will be a brain trust on AI. It's going to be all about situational awareness.

**Sarah Holder** (0:14)
This is Leopold Aschenbrenner in June 2024
Aschenbrenner is about 22 years old here. He's just left a job at OpenAI and published an essay series laying out his predictions for how AI will transform society. He's telling his friend, the podcaster Dorkesh Patel, about a new investment fund he's starting, that's going to go all in on the technology.

**Leopold Aschenbrenner** (0:38)
We're going to have the best situational awareness in the business. We're going to have way more situational business than any of the people who manage money in New York.

**Sarah Holder** (0:45)
Situational awareness is what Aschenbrenner had called his essay series. It's also what he names his hedge fund.
Both are built around the same simple thesis. He believes AI is about to get a lot more powerful. That will reach AGI or artificial general intelligence by as early as 2027 He also believes that the company's building AI infrastructure are about to get a lot more valuable.

**Leopold Aschenbrenner** (1:11)
I think this investment firm is going to just be betting on AGI, betting on AGI and superintelligence before the decade is out, taking that seriously, making the bets you would make if you took that seriously. So I think if that's wrong, firm is not going to do that well.

**Sarah Holder** (1:24)
But he tells Patel he plans on doing well.

**Leopold Aschenbrenner** (1:27)
Obviously, not blowing up is task number one and two or whatever.

**Sarah Holder** (1:32)
Over the next two years, situational awareness did extremely well.
In the first half of this year, it posted returns of over 400 percent. By the beginning of last month, it had an estimated $45 billion in assets. What is it about this 24-year-old that was so intriguing to investors? Why do they trust him with all this money?

**Katherine Burton** (1:55)
I think it's just because of what he wrote.

**Sarah Holder** (1:57)
That's Katherine Burton, who covers hedge funds for Bloomberg.

**Katherine Burton** (2:00)
He clearly had no investment training at all, and clearly no risk management training at all. So I think it was just that they thought he saw something about the future and AI that they said, sure, why not throw a few bucks his way?

**Sarah Holder** (2:18)
Katherine has been tracking the rise of Ashenbrenner's Fund and its unceremonious fall. Because last week, situational awareness blew up.

**SPEAKER_5** (2:30)
And in the insane volatility that we've seen the last month, he was on the wrong side of things.

**Hema Parmar** (2:35)
We are seeing the pain really flow through the space.

**Leopold Aschenbrenner** (2:37)
We had a pullback in AI and a lot of people got hurt.

**Sarah Holder** (2:41)
By the end of July, the fund's $45 billion in assets had shrunk to an estimated $10 billion.
It was a stunning reversal of fortune, brought on by the hedge fund's strategy of using a lot of borrowed money to make big bets. In other words, situational awareness was over-leveraged, says Bloomberg's hedge fund reporter Hema Parmar.

**Hema Parmar** (3:06)
So there's a lot of layers of risk bundled up, and leverage is especially concerning because it just magnifies everything.

**Sarah Holder** (3:18)
I'm Sarah Holder, and this is the Big Take from Bloomberg News. Today on the show, the rise and fall and bailout of situational awareness. What it means for investors, and whether the fund is a bellwether for the AI trade or a high-risk outlier.
Katherine Burton and Hema Parmar, thanks for joining us. Kathy, what's the situational awareness secret sauce? What's supposed to set Leopold Aschenbrenner's fund apart from other hedge funds in the space?

**Katherine Burton** (3:54)
The knowledge of which companies would succeed because of AI and which would fail because of AI. I think he sold it on that he knew he could figure out which companies were going to be the winners and which were going to be the losers.

**Hema Parmar** (4:06)
He also had quite significant private positions in AI-focused companies as well too.

**Katherine Burton** (4:11)
And the returns. Then people started seeing the returns. That's the real thing. They saw that he was up a few hundred percent the first year and at the peak this year, up about 400 and some odd percent.

**Hema Parmar** (4:22)
Wow.

**Sarah Holder** (4:23)
So what kinds of investors get involved in the beginning?

**Hema Parmar** (4:26)
Yeah, so it's interesting because with traditional hedge funds, we typically see pensions, endowments, foundations, those sorts of institutions. This firm, Situational Awareness, gathered their capital from less likely individuals. So not the traditional big institutions that writes sizable checks, but rather a lot of founders and individuals. So founders of private companies like Stripe or founder of a hedge fund, D1 Capital, Dan Sondheim was an investor according to the Wall Street Journal's report. So we see a lot more Silicon Valley types of investors writing checks than say a sovereign wealth fund.