Gaia Shaken By Losses, Redemptions After Japan Quake

May 31 2011 | 11:31am ET

Hedge fund Gaia Capital Management is on life support after seeing nearly 80% of its assets evaporate in the wake of the Japanese earthquake, tsunami and nuclear crisis.

Tokyo-based Gaia, helmed by former Goldman Sachs trader Kenichiro Nishi, lost 44% in the weeks after the March 11 catastrophe. Those losses, combined with some US$60 million in redemptions, left Gaia with just US$32.65 million at the end of last month, Reuters reports, down from more than US$150 million prior to the earthquake.

Gaia liquidated the holdings of its J-Multi Strategy Fund at the bottom of the market, giving investors an opportunity to redeem at end of March.

"The earthquake and the deterioration of the situation at the nuclear power plant that led to radiation leaks, both the index and volatility broke sharply out of their expected ranges on the 14th and 15th," the firm wrote in a letter to investors in March. "As a result, the fund incurred heavy losses that were beyond our expectations and we had to unwind all positions in the portfolio."

Gaia, which returned 36.1% in 2009 and 21.7% last year, edged up last month, adding 1.4% to cut its year-to-date loss to 42%.

"The situation in March highlighted several issues that we will have to address in the future, including our response to events that occur outside the financial markets (tail risk management), overconfidence in liquidity in the index futures/option market, etc.," the firm pledged.

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