Wall Street has a remarkably short memory when it comes to money-management disasters. Upended a hedge fund? No problem. Had a hand in a blowup that led to a Federal Reserve bailout? No sweat. Put it on your vitae. Given all the money sloshing around, investors seem almost eager these days to bankroll portfolio managers with less-than-stellar track records. Eric Rosenfeld, co-founder of Long-Term Capital Management, and two of his former colleagues are starting a quantitative-focused hedge fund, according to a report by Bloomberg. Remember LTCM? Founded in part by John Meriwether and a spate of Nobel prize-winning quants, LTCM required a $3.5 billion bailout from Wall Street in 1998 after its currency bets turned sour. The New York Federal Reserve Bank, fearing the hedge fund's demise might send the stock market into a tailspin, orchestrated the loans. Rosenfeld has shaken off the stigma of the nine-year-old debacle to raise Quantitative Alternatives, based in Rye Brook, N.Y., and is said to be hiring traders to do pretty much the same thing he did at LTCM. Rosenfeld isn't the only fund manager turning the scarlet letter of investment missteps into a badge of honor. And these days you don't even have to wait a decade to get back in the game. As first reported on TheStreet.com, less than a year after taking down hedge fund Amaranth Advisors on wrong-way gas bets, Brian Hunter has hung his own hedge fund shingle, raising somewhere on the order of $800 million. Hunter has named his fund operation Solengo Capital and brought on board some of his partners at Amaranth, including fellow trader Shane Lee.
Not to be outdone, Bo Collins -- the founder of hedge fund MotherRock, who also slipped up on natural gas bets -- is putting together an investment vehicle of his own, according to reports. Even former execs at Refco, which went down two years ago amid allegations that CEO Phil Bennett had hidden millions of dollars in losses, are finding new digs. Dennis A. Klejna, Refco's one-time general counsel, has turned up at U.K. hedge fund Man Financial as its senior vice president and chief compliance counsel. With all the cash being thrown at private equity firms and hedge funds, investors almost seem to be saying, "the bigger the blowup, the better." Created hard-to-parse special purpose entities and named them after characters from George Lucas' Star Wars trilogy? That just means you're an innovator. This trend bodes well for David Lee, who is tied to BMO Financial's ( BMO) natural gas crisis, where the Toronto-based bank reported that it could post losses of $315 million or worse. Although collapses of late haven't fed widespread calamity, market participants are still wary of an eventual overarching crisis. "The abuses that we have seen with Amaranth and LTCM could occur again," says Steven Weddle, director of alternative investments at ING Investment Management in New York, "if effective risk management is not used throughout the entire investment process."