Steady she goes

Leopold Aschenbrenner’s Situational Awareness is the latest high-profile victim in the hedge fund world. After spectacular gains, the fund suffered a severe drawdown as leverage, falling prices and deteriorating liquidity combined.

In a recent article, Adrian Reid reviewed 62 hedge fund failures between 2005 and 2026. Only 21% were primarily caused by fraud or mismarking. The other 79% resulted from genuine investment and structural failures: excessive leverage, concentration, poor liquidity, misunderstood correlations, counterparty risk and complexity.

Fraud makes the headlines, but weak risk construction is often the greater danger. Positions that appear diversified in normal markets can suddenly move together when volatility rises, while leverage can force investors to sell at precisely the wrong moment.

At ECP, most client capital is managed through transparent, plain-vanilla strategies. We keep concentration under control, maintain strong risk oversight and use leverage very sparingly.

Many of our clients are entrepreneurs who have already taken significant risks while building their businesses. Their invested wealth should compound steadily over time. We may miss the most spectacular returns in an exuberant year, but the objective is to win over the long term.