Morning Coffee: How hedge fund traders’ whisper network caught Leopold Aschenbrenner. Investment banks have AI leaderboards too

The proverb holds that three people can keep a secret, as long as two of them are dead. In the world of hedge fund trading, though, even the survivor would probably not be able to resist mentioning it in a Bloomberg chat or over evening drinks with one of their sell side contacts. There are very few people in the world who  love gossip more than traders do; it’s a job in which information is currency, and it’s a currency that only has value if it’s passed on. It’s also a profession in which the secret of success is often the ability to make accurate deductions about someone else’s information. A really skilled trader can work out if you’re long or short the market from the way you say “good morning”.

So if you want to keep a secret, don’t tell a trader, is usually good advice. But if you’re in the position that Leopold Aschenbrenner’s Situational Awareness fund was in at the end of last month, that’s not really an option. Reducing your leverage means that you have to sell stock, and in order to do that, you need counterparties.

As one family office manager put it, “It felt like he was being hunted”. Everyone knew the kind of stocks that Aschenbrenner invested in, not least because he wrote long blog posts explaining his thesis. He had also entered into leverage transactions across the Street, so everyone knew that too. When the AI and semiconductor sectors went into a brief downturn, Situational started buying put options, in unusual volumes, which is just the sort of thing that gets tongues wagging.

It didn’t take long for the news that there was a substantial “overhang” from a large investor to spread across the market. And from that point onward, the secret was out.  Aschenbrenner apparently talked to a number of investors about the possibility of taking over his positions, but of course this just means telling more traders. By the time Citadel were ready to make an offer for the entire portfolio, at a 10% discount, they would most likely have been pretty perfectly informed and more than able to price and manage the risk that they were taking on.

This sounds like a cautionary tale, but arguably, Situational and its clients benefited from the extremely efficient nature of the whisper network. Citadel was able to move quickly, which meant that they didn’t have to sell their stake in Anthropic, which was the only alternative way of raising cash, and which would have involved losing a prized asset at a much bigger discount. Apparently, Ken Griffin even got thanked in the toasts at Aschenbrenner’s wedding.

And that’s one of the most important things about traders’ gossip. It’s actually quite rare for traders to deal in confidential information. What they are very good at, is talking bluntly and honestly about facts which are in the public domain, but which have nasty consequences that other people don’t want to face up to. And they are also very good at putting two and two together. So although you might not want to tell a trader your secrets, they might know them already.

Elsewhere, summer interns in London are using a lot of AI. One intern at a US bank said that interns were sent a ranking of which teams were using AI the most via email. Lessons may not have been learned from Uber, which burned through its entire yearly AI budget in four months after using a similar leaderboard for individual AI usage.

Juniors at one major London bank have instead been told that they should “use AI for everything except for emails”. Apparently some of them didn’t quite get that right, not only sending out AI-generated emails, but including some of the prompt text when they did so.

At several banks, the interns have been instructed to give training courses to senior bankers on AI use, which some described as like “teaching parents to use a phone”. That might not have endeared them to the bankers (who are generally supposed to be the ones doing the teaching); patronising a managing director, and getting a reputation as someone who sends emails beginning “come up with a plausible excuse why the model isn’t working” is surely not the way to begin a career.

Meanwhile…

EY has taken a different approach to introducing AI into internship programmes – it’s launching “Career Residency” programs to employ graduates part-time while they complete their education, to reflect the way in which entry level work in the consultancy business has changed. (Business Insider)

It’s a small country with some very good engineering universities, and it was one of the first places to develop an electricity grid based on wind and renewables, which means that the spot price tends to be very volatile. That’s why commodities trading firms and multistrategy hedge funds love to hire Danish quants, with Qube and Balyasny among the latest to open up offices there. (Financial News)

Mark Walter of Guggenheim Partners is under federal investigation. Details are slim, but if it ends up with tighter regulation of the investments of insurance firms, the collateral damage could make a lot of private credit business models considerably less convenient. (WSJ)

Sir Chris Hohn’s TCI has made a big credit investment in Italian hotel real estate, with exposure to properties in Venice, Capri, Lake Como and Ibiza. There will presumably be quite a bit of competition among the analysts to do the due diligence on these assets. (FT)

Dymon Asia has been one of the biggest hiring growth stories in hedge funds this year, and this is only likely to continue as it has got a $1bn sovereign wealth fund mandate and is on course to be double the size it was expecting by the end of the year. (Bloomberg)

Dip a teaspoon into a cup of coffee, then take it out – that’s the kind of gap that most bankers leave when they retire. Since this is psychologically intolerable to admit, goodbye messages tend to be overlong assertions of continued relevance. (FT)

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