Let me explain what happened.
The best-performing fund of the year disappeared due to its own debt.
Leopold Aschenbrenner. A former OpenAI researcher famous for his paper "Situational Awareness" on the future of AI. His fund, named after himself, had achieved a 439% return so far this year. Assets under management had ballooned to $45 billion.
What made him famous was a very straightforward bet: buy AI "hardware" and sell AI "software." Specifically, he held long positions in semiconductor manufacturers like SK Hynix while shorting software stocks like Adobe. In other words, he was trying to profit from both sides of his prediction that "chips go up, software goes down."
And it actually worked, being called the best trade of the year.
However, he wasn't playing with only his own money. He used leverage to inflate his positions to about four times his own capital. This is leverage. While you're winning, profits are quadrupled. The moment you're wrong, losses strike with the same multiplier.
In mid-July, this betting strategy backfired completely.
The semiconductor stocks he bought fell by more than 30% in two weeks. Adobe, which he had shorted, went up instead of down. In other words, he lost on both the long and short sides simultaneously. This is the worst-case scenario.
On July 24, in a letter to investors, he described this crash as a "buying opportunity" and sought additional funds. Unfortunately, the money didn't arrive in time.
On July 28, Bloomberg reported that Citadel Securities was predicting a Fed rate hike that the market hadn't priced in. Panic ensued. AI stocks, already down 30%, collapsed further.
Then came Thursday morning, July 30. Three prime brokers—Bank of America, Goldman Sachs, and JPMorgan—issued margin calls simultaneously that morning. Prime brokers are the securities firms that lend money to funds, and a margin call is a demand to "add more collateral because it's insufficient." Think of it as the same mechanism as a margin call in a retail brokerage account. If you can't provide it, your positions are forcibly liquidated. With three companies acting at once, there was no room for negotiation.
On the same day, the Wall Street Journal reported shocking news: Citadel, led by Ken Griffin, had bought his entire stock portfolio. And at a significant discount.
To put it simply, Ken Griffin's market-making arm predicted the interest rate shock, and a few days later, when the fire sale began, Ken Griffin's hedge fund took the assets home.
No one has proven there was intent yet. Still, I think this timing is far too deliberate.
He didn't lose because of his market view. He lost because of the amount of debt. Even if your direction is correct, if your stamina to endure runs out first, your return becomes zero. Using leverage is the act of personally cutting down the time you have to reach the right answer. This event will likely be passed down as a lesson in history.
I post articles like this in my online community for US stock investors, "Snatchan Community"! I also disclose all real-time trades and individual stock analyses there, so if you're interested, please take a look (it's free for one week now 🔥).
That's all for this time. Thank you!!
