Will Leopold Aschenbrenner rise from the ashes?
Leopold Aschenbrenner is not broken - and last weekend he published a letter to investors.
Here is the full letter:
Dear partners,
We disappointed you this month.
We came much closer to permanent impairment of the fund's capital than is acceptable to us. Although we ultimately found a solution that protected the fund and you as investors, our goal in managing the fund is not to reach such a situation at all.
Volatility is the price of long-term investment returns.
Over the past two years, we have achieved exceptional results, despite periods of sharp declines. But our fund must be structured to absorb losses and continue fighting even the day after.
I see it as a personal mission to ensure we draw all necessary lessons from this event.
Here's how things stand today: our investment portfolio experienced a significant decline during July, further exacerbated by extreme fluctuations in our core positions last week.
Many artificial intelligence stocks lost half their value or more, and simultaneously, the long/short strategy that had been in our favor sharply reversed.
One could say this month was exceptionally unusual, but we set a higher standard for ourselves, regardless of market conditions.
As these movements intensified, we began to see increasing negative trading activity in stocks publicly associated with our fund. This dynamic is essentially similar to a 'bank run': vulnerability creates more vulnerability.
We acted to keep the portfolio within our defined risk limits, but as positions moved rapidly against us and market liquidity dried up, this task became increasingly difficult.
On Wednesday night and Thursday morning, we took dramatic steps to protect investors' (LPs) capital.
We sold part of the public portfolio in a block trade, completely eliminated leverage in the fund, and prevented further losses.
All short positions were closed, and all financing against the investment portfolio was canceled.
Today, we manage a fully funded public portfolio (fully paid stocks and options positions), without using margin and without the risk of margin calls or forced liquidation of positions.
This step restored stability to the fund and allowed us to preserve our private investments. I take full responsibility for everything that transpired.
It is important to clarify: this month was indeed expected to be very painful in terms of the fund's performance. When AI stocks fall sharply, even as companies' business and technological data continue to improve, it is natural for our fund to absorb significant declines.
We accept volatility as part of the game.
But it must never jeopardize the fund's very existence.
The fund was not closed, not liquidated, and did not become a private-only fund.
We continue to operate exactly as we did before – as a hybrid fund investing in both public markets and private investments.
However, in the near future, we will manage the public portfolio without leverage, implementing the lessons we have learned.
And most importantly – we did what was necessary to continue fighting tomorrow.
In the coming weeks, I will focus on implementing the necessary changes across all areas of the fund – from investment management, through the risk management team, to increasing the level of control throughout the organization – so that we emerge from this event stronger and more resilient.
I believe artificial intelligence will continue to increase market volatility in the coming years.
The recent events have left very costly scars, but I am committed to ensuring they become immensely valuable lessons – both for the organization and for me personally.
My main promise to you is that we will not waste the opportunity to learn from these events.
Regarding the investment portfolio itself: we are very optimistic about the opportunities currently available in the market. The business fundamentals of companies continue to strengthen and accelerate, precisely as stock prices have fallen significantly.
Thank you for your patience and trust in us.
Almost all of my personal capital is invested in the fund alongside you, and I intend to work tirelessly to prove that the events of the past month have made me a smarter and stronger investor.
Next week, I will be available for individual calls with each of you to answer all questions and discuss all the topics mentioned.
As of interim update: fund performance month-to-date (MTD), unaudited: -67% fund performance year-to-date (YTD): +80%
Final figures will be published as part of the official report.
Additionally, next week we will hold a group investor call, where we will share further details. Sincerely,
Leopold Aschenbrenner The market will follow him closely - will Aschenbrenner become the phoenix of Wall Street,
or will he enter the history books as the boy devoured by wolves?