Back
If professional investors missed this
webWritten in November 2022 following the FTX collapse, this post is relevant to discussions of EA funding concentration, institutional trust, and due diligence practices within the broader AI safety and EA funding ecosystem.
Metadata
Importance: 38/100blog postcommentary
Summary
Jeff Kaufman analyzes the FTX collapse and its implications for the effective altruism community, arguing that while professional investors missing the fraud partially excuses EA, the EA community had far more at stake and thus bore greater responsibility for due diligence. The post distinguishes between EA's situation and that of institutional investors like Sequoia, noting that EA was uniquely dependent on FTX funding and had reputational and mission-critical exposure that investors did not.
Key Points
- •Dismissing FTX as 'obviously fraudulent' based on surface red flags (crypto, young founders, offshore location) is not well-supported.
- •The 'professional investors missed it too' defense has merit but lets EA off too easily given EA's unique exposure.
- •FTX Future Fund represented a disproportionate share of EA funding, unlike FTX's small share of any institutional investor's portfolio.
- •Institutional investors can afford to lose individual bets; EA's mission-critical dependence on FTX created asymmetric risk.
- •EA faced reputational and ethical risks beyond financial loss, including entanglement with a potentially fraudulent actor.
Cited by 1 page
| Page | Type | Quality |
|---|---|---|
| FTX Future Fund | Organization | 60.0 |
Cached Content Preview
HTTP 200Fetched Apr 9, 20266 KB
If Professional Investors Missed This...
Jeff Kaufman
Posts
RSS
◂◂RSS
Contact
If Professional Investors Missed This...
November 16th, 2022
ea , money
One of the largest cryptocurrency exchanges, FTX , recently
imploded after apparently
transferring customer funds to cover losses at their affiliated hedge
fund. Matt Levine has good
coverage , especially his recent post on their
balance sheet . Normally a crypto exchange going bust isn't
something I'd pay that much attention to, aside from sympathy for its
customers, but its Future
Fund was one of the largest funders in effective altruism (EA).
One reaction I've seen in several places, mostly outside EA, is
something like, "this was obviously a fraud from the start, look at
all the red flags, how could EAs have been so credulous?" I think
this is mostly wrong: the red flags they cite (size of FTX's claimed
profits, located in the Bahamas, involved in crypto, relatively young
founders, etc.) are not actually strong indicators here. Cause for
scrutiny, sure, but short of anything obviously wrong.
The opposite reaction, which I've also seen in several places, mostly
within EA, is more like, "how could we have caught this when serious
insitutional investors with hundreds of millions of dollars on the
line missed it?" FTX had raised about
$2B in external funding, including ~$200M from Sequoia , ~$100M from SoftBank , and ~$100M from the Ontario Teacher's Pension Plan . I
think this argument does have some truth in it: this is part of why
I'm ok dismissing the "obvious fraud" view of the previous paragraph.
But I also think this lets EA off too easily.
The issue is, we had a lot more on the line than their investors did.
Their worst case was that their investments would go to zero and they
would have mild public embarrassment at having funded something that
turned out so poorly. A strategy of making a lot of risky bets can do
well, especially if spending more time investigating each opportunity
trades off against making more investments or means that they
sometimes lose the best opportunities to competitor funds. Half of
their investments could fail and they could still come out ahead if the other
half did well enough. Sequoia wrote
after , "We are in the business of taking risk. Some investments
will surprise to the upside, and some will surprise to the downside."
This was not our situation:
The money FTX planned to donate represented a far greater portion
of the EA "portfolio" than FTX did for these institutional investors,
The FTX Future Fund was probably the biggest source of EA funding
after Open
Philanthropy , and was ramping up very quickly.
This bankruptcy means that many organizations now suddenly have
much less money than they expected: the FTX Future Fund's committed
grants won't be paid out, and the moral and legal
status of past grants is unclear. [1] Institutional investors were not
... (truncated, 6 KB total)Resource ID:
5fdc8c6e5cb72278 | Stable ID: MjA0MzM0Yj