Investors flee ex-GS trader's Japan hedge fund

The GAIA J-Multi Strategy Fund, which used to be one of the larger Japan-focused hedge funds in Asia and was launched by Kenichiro Nishi, saw a 44 percent plunge in March returns as the devastating earthquake triggered panic selling in markets and forced the fund to unwind all its positions.

Its assets shrunk to $32.65 million at end-April from $92.06 million at end-March, according to the fund's investor letter. The fund managed more than $150 million before the earthquake, five sources said.

Japan's benchmark Nikkei share index .N225 was down about 5.6 percent from March 11 till the end of April. That included a 16 percent tumble between March 14 and 15.

The fund suffered major losses in volatility-based derivatives strategies in March, the letter showed.

Following "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," Gaia Capital wrote 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," it said.

Nishi, who worked for Goldman Sachs between 1997 and 2003, managed about $2 billion in a Japanese convertible bond portfolio and about $3 billion for DKR Oasis before starting his Japan focused fund, according a report by AsiaHedge in 2006.