Little to No Situational Awareness… With ZERO Risk Management
We now know just what was driving the violent sell-off in the AI-trade.
Leopold Aschenbrenner.
If you’re not familiar with that name, buckle up, because what follows is one of the more absurd things in the history of finance.
Leopold Aschenbrenner is a 25-year-old hedge fund manager. How he became a hedge fund manager is almost as absurd as the impact he recently had on the markets.
To be clear, Leopold has ZERO background in finance, fund management, or investing. He is a math genius, who graduated at the top of his class in Columbia at the age of 19. He then went to work for Sam Bankman-Fried at the now bankrupt, scandalous FTX. He left prior to FTX imploding and went to work at OpenAI as a researcher.
While there, Leopold penned a 165-page article called “Situational Awareness: The Decade Ahead” about the AI revolution. The article went viral and established Leopold as a kind of AI visionary. So much so that he was able to launch a hedge fund, Situational Awareness, with $250 million in backing from insiders at various AI-related firms.
How much you believe in what came after this is a good litmus test for how gullible you are.
The official narrative is that Leopold, despite having zero background in finance, investing, asset management, or anything related to the markets managed to become the greatest investor of all time, growing the fund from $250 million to ~$45 billion within the span of 18 months.
Let’s provide some context here.
Some of the smartest people in the world have devoted their ENTIRE lives to mastering the markets. Warren Buffett began investing when he was in his teens. Ken Griffen famously installed a satellite dish on the roof of his college dorm room to access real-time stock quotes in the 1980s. Carl Icahn literally paid his way through Princeton with profits from poker games.
And on and on.
There are hedge funds and financial institutions that spend BILLIONS of dollars trying to outperform the markets. These groups recruit geniuses from all over the world, paying them hundreds of millions of dollars to design models, trade, etc.
NONE of them have EVER managed to match what Leopold accomplished in the span of 18 months. Even John Paulson who famously made BILLIONS of dollars by trading securities that Goldman Sachs LITERALLY designed for him to profit from the Great Financial Crisis didn’t produce anywhere near the returns Leopold generated.
The idea that a 24-year-old, with NO background in the markets, single-handedly managed to outperform ALL these people despite the latter having more experience, more robust infrastructure, and more resources is absurd. This is akin to a kid who didn’t play basketball in high school or college, walking on to an NBA team and becoming the top scorer in the league in the span of 18 months.
Again, how much you believe in this narrative is a great litmus test for how gullible you are.
What’s far more likely is that Leopold used his network of Silicon Valley insider friends/ AI-firm connections to make some extremely “timely” trades while using an insane amount of leverage. Case in point, his girlfriend (now wife) served as the Chief of Staff at Anthropic, a private AI company that Leopold’s fund took a stake in back in February 2025, when the company was valued at $65 billion. Within 15 months, the company was valued at $965 BILLION.
I’m sure Leopold and his girlfriend were extra careful not to discuss any insider information throughout that time! Similarly, I’m sure Leopold made sure to not talk to any of his contacts working in the upper echelons of the AI space while he grew his fund from $250 million to $45 billion in the span of 18 months.
Fast forward to July 2026, and Leopold, despite being the “greatest investor of all time,” with a better understanding of AI than anyone else in the world, blew up his entire fund in the span of six weeks, wiping out 100% of his fund’s public holdings.
We now know that Leopold was using 400% leverage (meaning he borrowed $4 for every $1 in capital he had), which I believe adds credence to my hypothesis that he was making EXTREMELY “timely” trades based on his connections, NOT some kind of super-human understanding of the markets.
Consider this, if you’re using 400% leverage, you only need a position to move 20% against you to be insolvent. The bulk of Leopold’s fund holdings were AI-bottleneck names like Bloom Energy (his single largest position) that frequently moved 10% in a single day. Heck, in May 2026 alone BE moved 20% on a near weekly basis!
You ONLY use that much leverage in companies that are that volatile if you have an INSANE amount of confidence in the position.
Remember, when you borrow money from the likes of Goldman Sachs and JP Morgan Chase, those lenders aren’t content to watch you wipe out your capital. The minute your position drops even 5% they’re calling you to check in or potentially issuing a margin call (demanding their money back).
All of this came crashing down when the AI-bottleneck/ momentum trade began a steep correction in early July. Leopold blew up in spectacular fashion wiping out his fund’s entire publicly traded portfolio (the fund also had a few investments in privately held firms, e.g. Anthropic).
Yes, the “Greatest Investor of All Time” took his investors to ZERO. Ken Griffin, a genuine investment genius who has been trading the markets for decades, swooped in to buy Leopold’s ENTIRE public book as a single block.
Snide comments aside, we now know why the AI-bottleneck trade blew up in spectacular fashion starting in early July. A highly leveraged $45 BILLION fund, run by someone who apparently had ZERO risk management in place despite being a mathematical genius, was in the process of blowing up, and was liquidating its holdings. And given that the entire AI-bottleneck segment of the market was dominated by “hot money” or momentum traders, these liquidations resulted in a panic that saw the investment herd stampede for the exits.
To be clear, the AI-bottleneck trade was overextended and overbought going into this situation. At its recent peak, the Momentum ETF (MTUM) was 10% above its 10-week moving average (the same as the 50-day moving average) and 25% above its 40-WMA the same as the 200-DMA).
Having said that, I don’t think the sell-off would have been anywhere near as violent had it not been for Leopold’s forced selling. By way of context, the sell-off in momentum stocks in July 2026 was the worst ever by some measures, with the Morgan Stanley Tech Momentum Index 17-day rate of change down -35%, the worst reading in its 27-year history (this includes the Tech Crash of 2000-2001).,
How bad was the selling?
Retail (mom and pop) investors unloaded over $7 BILLION in tech stock holdings in a single week. This selling DWARFED that of the Iran conflict of 2026, the Tariff Tantrum of 2025 and even the pandemic crash!
Put simply, the Situational Awareness fund appears to have not had much “situational awareness” of market dynamics. It certainly had ZERO risk management in place... which again is odd given Leopold's alleged mathematic talents. However, the strangest thing of all is the fact that so many people continue pushing the narrative that Leopold is some kind of super genius investor who just got unlucky while using an INSANE amount of leverage (or even more absurd, that Ken Griffin’s firm pushed a phony narrative that the Fed would RAISE rates in July, just so Leopold’s fund would blow up and Ken could buy Leopold’s holdings on the cheap).
Again, the official narrative is that a 24-year-old (he’s now 25) with ZERO background in the markets, but with a TON of insider contacts at AI firms, was the greatest investor of all time who managed to turn $250 million into $45 billion in the span of 18 months by investing SOLELY in AI-related firms using his skill and talent.
If you believe that story... I have a bridge to sell you.
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research