It’s not clear to me Situational Awareness made any mistakes. Their returns are high enough (due to leverage) that they can recover from a 50% drawdown within months. The question is whether it’s 50% or 95% and whether anyone will invest with them again.
I agree the general thesis is still good and they should accept occasional 50% drawdowns and it’s not clear (and we’ll likely know more in the future). But this kind of urgent forced liquidation is substantial evidence of poor risk management, I think; I expect with better planning they could have handled the situation better.
If you’re not giving a lot of attention to risk management, I think it’s easy to say, “Look, our investments are up 200% this year! Think of how much more we could’ve made if we’d used even more leverage!”
It’s not clear to me Situational Awareness made any mistakes. Their returns are high enough (due to leverage) that they can recover from a 50% drawdown within months. The question is whether it’s 50% or 95% and whether anyone will invest with them again.
I agree the general thesis is still good and they should accept occasional 50% drawdowns and it’s not clear (and we’ll likely know more in the future). But this kind of urgent forced liquidation is substantial evidence of poor risk management, I think; I expect with better planning they could have handled the situation better.
They are reportedly up 80% this year even after this loss. This is a better return than any hedge fund listed in this list of best performing hedge funds for 2025, though I’m a bit unclear what a fair reference class is.
Personally, I’m astounded that they apparently kept their leverage at 3X? As the stocks went up, I simply would not have taken out more loans.
If you’re not giving a lot of attention to risk management, I think it’s easy to say, “Look, our investments are up 200% this year! Think of how much more we could’ve made if we’d used even more leverage!”