Yesterday we noted that calls for Nick Maounis to be banned—or at least shunned—from the capital markets after the collapse of his hedge fund, Amaranth, might be a little overwrought. The losses suffered by Amaranth were large, and many investors lost money, but more rational investors will want to ask whether this indicated some fundamental flaw with the way Maounis was running Amaranth’s investments rather than whether some abstract concept of justice will be violated if Maounis succeeds in launching a new hedge fund.

As a friend of DealBreaker’s said yesterday, “Are we in this to make money or dole out punishments? Cause if it’s the latter, there’s a long, long line of deserving parties and we’d better get started early.”

What’s more, it’s important to keep in mind that while Amaranth’s losses were large, so was Amaranth. The whole hedge fund industry is large. A more relevant measure of Amaranth’s losses is not the absolute dollars lost but the percentage of funds under management lost. According to someone familiar with the situation at Amaranth, its funds were down somewhere around 55 to 65 per cent when the decision was made to wind down. This was in a year when many funds made sub-par gains. And by shutting down operations when it did, Amaranth missed out on the fourth quarter in which many funds made up for earlier losses or paltry gains.

Historically, Amaranth’s funds under management relative losses are not enitrely unprecedented. Everyone remembers the Long-Term Capital Management debacle. But what about D.E. Shaw? Losses there in 1998 are said by some to have been, percentage wise, close to those Amaranth suffered. What’s more, D.E. Shaw’s losses wreaked havoc with one of it’s biggest investors, Bank of America. The bank was forced to disclose $372 million in trading losses, and saw its stock price plummet. (Amaranth's banking partners seem to have been far less scorched by its losses.)Today, D.E. Shaw is one of the most admired hedge funds in the industry.

But shouldn’t there be some sort of probationary period for Maounis? Some time where he’s benched, forced to sit on the sidelines? Before answer that, consider that this might result in real opportunity costs. Maounis presumably has quantitative investment models that, despite the natural gas blow-up, are still otherwise functional. But these things have sell-by dates, and won’t last forever. It seems odd that investors be forced to surrender the possible gains from investing with Maounis because a quick return offends our sense of propriety.

As we mentioned yesterday, the best test for whether it is too soon for Maounis to return will be the market. Investors are the referees here, and they are the ones who will decide whether Maounis deserves a yellow card for Amaranth’s losses.