The use of leverage in public markets means financial distress, like margin calls, forces an immediate collapse. In contrast, venture-backed startups lack this leverage, allowing them to burn down equity slowly over years by cutting costs, creating a much longer and less correlated unwinding process.
The fund's failure wasn't because its AI thesis was wrong, but because its strategy embraced extreme volatility (150%). The mathematical "variance drag" and risk of ruin were so high that failure was roughly a 50/50 probability from the start, regardless of the underlying market thesis.
Limited Partners in hyper-volatile funds may not be making a naive bet. For them, a "go giga long" strategy represents a small, calculated part of a much larger, diversified portfolio. The extreme risk and return profile is the desired product, not a flaw to be managed.
The Ferrari Luce EV meeting its sales target is likely not a sign of organic demand. It reflects loyal collectors purchasing a less-desired model to improve their standing with dealerships, thereby gaining access to future, highly-coveted limited edition cars—a common dynamic in Veblen goods markets.
The Situational Awareness fund collapse shows a correct long-term thesis (AI infrastructure build-out) can fail. When a fund is highly leveraged and concentrated, short-term macroeconomic jitters around interest rates or geopolitical events can force liquidation before the thesis can play out.