00:00Can we just discuss how we even got here, how we got to a place where a 24-year-old
00:05had such a hold not only in the money he managed,
00:08but maybe the entirety of the market, that the machinations of situational awareness seemed to have been enough to cause
00:14rallying and selling at this point.
00:17And this is what we were just discussing, Danny.
00:18There are echoes of some things that are really new and part of this new modern financial markets ecosystem,
00:24and some things that are just as old as time.
00:26You have a 24-year-old who's gone through, after graduating from Columbia University as a 19-year-old,
00:33through the FTX world, the world of Sam Bankman-Fried, through OpenAI and had to be fired from there,
00:38and there was a contentious departure from OpenAI, to becoming the Nostradamus of AI,
00:44suddenly hailed as a know-it-all in the AI world.
00:47And then you have a situation where you have a hedge fund titan rising out of Silicon Valley.
00:52How often does that happen?
00:53That is all brand new, and that is all tied to this great giant AI trade that we've been in
00:57and we will be in for the foreseeable future.
01:00But the other parts, when you think about the fact that it was a concentrated book and lots of leverage,
01:05that's been a story for a very, very long time.
01:08The images that flash through your mind are Bill Huang, LTCM.
01:12Go back over a century, and you have Jesse Livermore from before the Great Depression.
01:16So these things have been standard parts of the financial markets.
01:20These stories repeat themselves every few years, and that's what seems to be happening.
01:25He had built up, Leopold had built up a great following with his picks.
01:29Every stock that he touched seemed to be moving higher, and as the markets turned,
01:34it left him in a precarious position because of the reliance on leverage.
01:37There's a cyclicality to this.
01:39I imagine there will be a lot of investors kind of looking at this, wondering what happened here.
01:42So you lay out his biography so masterfully here.
01:45But I would think that maybe if you were an alumni of the FTX world, as you put it,
01:48there might be some stink on you, but there might be people who want to have some aversion to doing
01:51business with you.
01:52I said this at the top of the show before it began.
01:55How does a guy of this age, with this experience, amass the amount of money and investment that he did?
02:00How rare is that, and what does that tell us just about the general marketplace here that he was able
02:05to do that?
02:05But then everything in today's marketplace is rare and unprecedented and something we haven't seen before, right?
02:10Here is someone who, like, how many AI native, AI-educated natives exist out there?
02:15You won't find them in the crowd that's 40-plus.
02:17It is the younger folks who will be doing that, and this is someone who sort of started out in
02:21the open AI world,
02:22is lived in that circle, lived in that group.
02:25He's getting married to the chief of staff at Anthropic this weekend.
02:28So you know that these are folks who have been embedded in the growth of this AI world,
02:33and people are trying to tease out where it goes.
02:35And if you go back to the fact that he wrote that big 2024 post about title,
02:40Situational Awareness, that laid out the bull case for AI.
02:43It wasn't just about investing in the frontier model.
02:46It was talking about building out the AI infrastructure and the data needs and the compute needs and the power
02:51needs,
02:51and that was reflected in some of his picks when you go from SK Hynix to CoreWeave to SanDisk and
02:56Bloom Energy.
02:57So broadly, it made sense.
03:00It's the financial machinations that ended up not making sense for him,
03:03and that's why he was sort of in this situation where now it seems clearly badly bruised,
03:08not necessarily beaten, because you have to remember he emerges out of that,
03:12still in the vicinity of roughly $10 billion in assets, maybe a little bit more.
03:16After this rabid run of headlines over the last 24 hours, here's a hedge fund that's still up roughly 80
03:22% year-to-date.
03:24That's called one of the best performing hedge funds of the year, if you ignore the last 24 hours.
03:27It was another kind of sub-stack success story reminding me of the post that he, I mean, that's how
03:31he made his name.
03:32Yeah, I mean, it's a powerful medium, and I mean, for what it's worth, a lot of the stocks he
03:37owns,
03:38according to the last filing, which I know isn't since the end of the first quarter of March, are selling
03:41off yet again.
03:42But if you just kind of track the stories about him in this market, I think it's a really interesting
03:46exercise,
03:47because you have the story of his huge returns, and at the same time, you're having this huge run-up
03:51in things like memory stocks applied to AI.
03:53And as the market starts turning, you see things start to snowball, and I wonder how much of that is
03:59looking at that portfolio
04:00and saying, this kid is about to get some margin calls. He's very, very leveraged. I'm going to sell my
04:05holdings and get out in front.
04:06I just wonder how much of the market dynamic is dominated by hedge funds behaving that way, and pod shops,
04:13what name you, situational awareness itself.
04:16How much of that is pushing around what we're seeing day-to-day?
04:20Vulnerability begets vulnerability.
04:21This had all the hallmarks of a classic bank run.
04:24These are not points that I'm making.
04:26These are things that Leopold wrote in a letter sent to investors late last night.
04:30So clearly, they seem to feel there were many people in the market who were positioned against them,
04:35and that sort of amplified their problem.
04:38That certainly was the case.
04:39But on the other hand, you can also make the argument the only reason he was up so much,
04:44270% through late May, potentially in the range of more than 400% through late May,
04:48was for the same reason. The stocks that he was betting on, that everyone was following him on,
04:54was also going up for the same reason. So you could have expected this to happen.
04:57He's on the phone with Sequoia. He's going hat in hand to banks within a half-mile radius of where
05:02we're sitting today.
05:03How did he end up in touch with Ken Griffin?
05:05What do we know about the way in which they got in touch and why Griffin was interested in this?
05:09Again, in terms of absolute granular detail, we still don't know a whole lot.
05:13But it is clear that going into Wednesday night, this was an all-hands-on-deck moment.
05:17They were trying to figure out what is the best way to raise money.
05:20Remember, so far, we haven't heard of any banks having suffered losses.
05:23This is very different from what happened with Archegos and Bill Huang in 2021,
05:27which basically wiped out Credit Suisse if you had to extrapolate what happened there.
05:31In this case, the banks haven't lost money.
05:32The sense we are getting when we talk to bankers and his various primes is,
05:36in the last several months, they had been tightening their margin requirements.
05:40They had excess cash from him that they could call on, and that's what they did.
05:44They didn't lose money, but it still meant that situational awareness.
05:47The firm had to raise money to meet these calls, and they were looking at all options,
05:51potentially selling their private stake, potentially selling a good chunk of their anthropic stake,
05:55which has gone up in value so much.
05:57But ultimately, the deciders sell a big chunk of their public equity portfolio
06:01because they got the right kind of bid.
06:03We know Millennium was looking at it.
06:05Jane Street was looking at it.
06:06But at the end of the day, it was Ken Griffin's Citadel that came through.
06:09And this is not a first-time play for Ken Griffin and Citadel.
06:13They did it back before the financial crisis with Amaranth,
06:16with So Wood Capital, that distressed credit fund back in July 2007.
06:20We saw shades of that during the Melvin Capital disaster.
06:23So this is a tried-and-tested strategy for Citadel.
06:26It seems to work really well for them.
06:28And in this case, it might have actually helped what was looking like a mediocre July for them
06:33turned into something much better.
06:35I just hope Leopold has a good wedding planner,
06:37because I'm in and doing no work getting ready for this weekend.
06:40One thing you can be certain of is he won't have to skimp on the shrimp cocktail.
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