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On 2026-07-31 @edsuh praised the fund’s survival and called out VCs for gloating…

2026-07-31 · 18:29 UTC ·@edsuh ·3 min read

Brief

Situational/SALP nearly collapsed but survived after a rapid, leverage-driven unwind described in posts on 2026-07-31. The fund produced a 439% return by June 30 (turning $100 into $539) then plunged 67% to $178 by July 28; despite that drawdown it remained about +80% YTD. Reports (WSJ) put leverage at 4–5×, meaning $539 of equity supported roughly $2.16–$2.70k of positions, so market moves (SanDisk −37%, Bloom Energy −31% and short losses) caused outsized equity losses and prompted margin calls from banks that had lent billions. Attempts to raise capital failed to stop predatory selling pressure, so the manager sold most of the public book in one block to Citadel at >10% discount, closed shorts, eliminated leverage, and kept a ~ $3.5B Anthropic stake. The author criticizes VC gloating and argues surviving such events can produce stronger, battle-tested firms—citing Citadel’s GFC recovery as precedent.

Why it matters

On 2026-07-31 @edsuh praised the fund’s survival and called out VCs for gloating, arguing leveraged positions are normal and often required to generate outsized public-market returns.

Key details

  • By June 30 the fund was up 439% (turning $100 of capital into $539); by July 28 it suffered a 67% drawdown to $178, yet remained roughly +80% year-to-date after the drawdown.
  • Situational/SALP was reportedly leveraged 4–5× (WSJ), so $539 of equity supported about $2,156–$2,695 of positions; a $361 loss equaled 67% of equity but only ~13–17% of leveraged exposure, while major longs (SanDisk −37%, Bloom Energy −31%) and short losses amplified the hit and triggered margin calls from banks that had lent billions.
  • To meet margin calls the fund tried to raise capital, then sold most of its public stock book in a single block to Citadel at a >10% discount, closed all shorts, eliminated leverage, and retained its roughly $3.5B Anthropic stake plus a much smaller fully paid public portfolio; author frames this as a survivable, potentially strengthening ‘trial by fire’ (citing Citadel’s GFC experience when flagship funds were down 55%).
Source evidence

Glad to see him survive & live to fight another day.

There have been an obnoxious number of posts from VCs who have no idea how hedge funds operate, gloating at the alleged demise of this firm. Leveraged positions are totally normal in public markets. In fact, it's near impossible to generate outsized returns in most public strategies without leverage. In volatile markets, positions can very quickly move against you, exacerbated by other firms that deliberately will try to move all your positions against you at once.

Yes, in retrospect I'm sure they will firm up some of their risk management procedures. But these kind of situations, which are often fatal, can lead to much stronger, battle tested firms that endure if they survive. Citadel itself was battle tested during the GFC, when its flagship funds were down 55%. Everyone said it would die. It did not, and became the dominant firm it is today in large part because of how it learned and evolved from that trial by fire.

Being up 80% YTD even after a 67% drawdown is ridiculously good. Would love to see the VCs taking shots compare their fund performance.

Sheel Mohnot (@pitdesi)

I see people asking why you have to liquidate when you’re up 80%? And how do you fall 67% in one month when the positions aren’t down that much?

Liquidity and leverage.

Think of the fund like this:

• You start the year with $100 of investor capital.
• By June 30, a 439% return turns it into $539.
• By July 28, a 67% drawdown reduces it to $178.

btw this example ignores inflows and outflows. Disclosures suggest they were relatively small, but newer investors didn’t earn the full 439% return.

How could it fall so quickly?
• Situational was leveraged 4–5× (WSJ) So $539 may have supported approximately $2,156–$2,695 of positions, plus options.
• A $361 loss is 67% of the fund’s capital, but only 13–17% of its leveraged exposure.

SanDisk fell about 37%, Bloom Energy 31%, other major longs declined sharply, and some software stocks the fund was short rose against it. With leverage, those gains and losses were multiplied.

Then came the margin calls.

The banks had lent SALP billions against its portfolio. As the positions fell, the fund’s equity (which is what the banks are lending off of), collapsed, so the banks demanded additional collateral.

He tried to raise more capital to meet the calls on Weds, and sold shares to do so earlier this week... But selling gradually was becoming dangerous. Other traders knew its positions, bet against them and made them harder to sell without pushing prices down further.

So SALP sold the vast majority of its public stock portfolio to Citadel in one block at a discount of more than 10% and used the proceeds to repay its lenders, closed every short and eliminated all leverage.

It kept its roughly $3.5B Anthropic stake, its other private investments and a much smaller, fully paid public portfolio.

So the fund wasn’t liquidated because it was down for the year, it was still up approximately 80%.

It had to liquidate most of the public book because its current liquid collateral was no longer sufficient to safely support the money it had borrowed.

I saw some interview on here from Steve Cohen where he said said, “Leverage, concentration and illiquidity are the three things that can kill you.” Situational appears to have checked all three boxes!

FWIW I would totally invest in Leopold's Fund now.

— https://nitter.net/pitdesi/status/2083241564164563042#m