The Japan earthquake took big chunks out of the profits of many, but it was also suspected to have fully crushed some of the smaller Japanese funds.
Today it’s evident that the earthquake destroyed one fund almost to the point of no return: Gaia Capital, run by former Goldman Sachs man Kenichiro Nishi, a convertible bonds trader (he was Goldman’s head proprietary convertible bond trader; he managed a $2 billion convertible bond portfolio).
The fund had to liquidate its entire book after the earthquake, the fund wrote to investors recently, according to Reuters‘ copy of the letter:
“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. As a result, the fund incurred heavy losses that were beyond our expectations and we had to unwind all positions in the portfolio.”
Following the liquidation, the fund had a special redemption day in March. The damage: over 1/3 of investors pulled their money. The fund reportedly had over $150 million AUM before the earthquake; its assets shrunk to $32.65 million at end-April from $92.06 million at end-March.
It had performed well in the past, too – the fund returned 36.1% in 2009 and 21.7% in 2010 with only two negative months in the two years, according to Reuters. (Reuters has a good analysis of what might’ve went wrong.)
Note: The fund’s chief risk officer might be Eiichiro Sugita, formerly Goldman’s lead technologist who developed and ran an algo trading engine for Japanese and Asian equities markets. Nishi hired Sugita when he began the fund in 2006. He’s currently listed as the fund’s COO.
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