Having driven a hedge fund into the ground is no impediment to raising money on Wall Street these days. Just ask John Meriwether, who was at the helm of Long Term Capital Management when it imploded nearly a decade ago and is now running the aptly named hedge fund—JWM Partners. More recently, there's Brian Hunter, the 32-year-old Canadian trader, who's wrong-way bets on natural gas prices led to last September's flameout at Amaranth Advisors. He's raising money for a new fund called Solengo Capital Advisors.
Now you can add Robert "Bo" Collins, founder of the now-defunct MotherRock energy-trading fund, to the list of once high-flying managers looking for a second act.
Collins, a former president of the New York Mercantile Exchange (NMX), and some of his MotherRock colleagues have raised tens of millions of dollars from a single investor for a venture called 1618 Group, say three sources close to the situation. The firm will start out managing money for this unnamed investor by trading energy contracts and investing in energy-related private equity deals.
There's speculation Collins could be looking to raise money from other investors, but for now, people close to the Texas native say there are no plans to turn 1618 Group into a hedge fund. Collins, who incorporated 1618 Group last November—just three months after MotherRock, the one-time $450 million fund, shut its doors—isn't commenting.
MotherRock, which launched in 2005 with just $7.5 million, managed to quickly raise money because of Collins' reputation on Wall Street and because of its 24% return during its first year. One of the big investors in MotherRock was ABN-Amro (ABN), the Dutch-based bank that is in the middle of a takeover tug-of-war involving Barclays (BCS) and the Royal Bank of Scotland (see BusinessWeek.com, 4/25/07, "Can the Scots Spoil Barclays' ABN Deal?").
But things quickly unraveled at the fund, which lost more than half its value over a three-month stretch beginning in May, 2006. MotherRock collapsed after making a series of ill-fated and highly leveraged bets on the volatile natural gas market.
No one knew it at the time, but the rapid meltdown of MotherRock was a blueprint for the even bigger implosion about to come at Amaranth. By September, the decimation of MotherRock, which had offices in New York and Houston, was complete, with the fund telling investors they should not expect to get any of their original investment back. The demise of MotherRock was a blow to Collins—who was the head of the energy trading desk at the oil and gas pipeline company El Paso (EP) before becoming president of the NYMEX from 2001 to 2004—and to his reputation.
Money in the Streets
But these days, past failure is no obstacle to raising money from investors. In the first quarter of this year, hedge funds took in about $60 billion in new money—nearly half as much money as the hedge fund industry took in all of last year, according to Hedge Fund Research. Hedge funds are on track to raise a record amount of money this year, even though the vast majority of funds posted returns in 2006 that lagged the Standard & Poor's 500 index. Private equity funds also are having no problem raising money from institutional investors, and that's fueling the leveraged buyout craze.
Texas Pacific Group founding partner David Bonderman, speaking at a recent conference sponsored by the Milken Institute, seemed almost dumbstruck by the ease with which private equity firms like TPG can raise money. Said Bonderman: "Money is gushing in the streets." Given that situation, it's not surprising that Collins and Hunter—the former Amaranth trader—are able to raise money even after losing so much of it for their investors just a few months ago (see BusinessWeek.com, 4/25/07, "The New Predators' Ball").
For now, not much is known about Collins' new venture. The outfit doesn't yet have a working Web site, although it did register for an Internet address last November. The New York-based firm is supposed to open for business in a few weeks at an undisclosed mid-Manhattan address. A person familiar with the venture says that 1618 Group is named for a mathematical formula called the "golden ratio," which is numerically expressed as 1.618. The golden ratio, sometimes known as the "divine proportion," was developed by the Greeks, who believed it to be the most aesthetically pleasing way for designing rectangular shapes.
It goes without saying that 1618 Group's big-moneyed investor is betting that Collins will have a golden touch this time around.