(Bloomberg) -- A California hedge fund run by a Pacific Investment Management Co. veteran gained 10-fold in March, rewarding investors who bought its “tail risk” protection against a market collapse.

LongTail Alpha’s OneTail Hedgehog Fund II had a return on invested premium of 929% last month as the S&P 500 dropped more than 12%, according to an April 3 letter to clients obtained by Bloomberg. Including client cash held in reserve, the fund returned 157% in March and 400% since its inception Feb. 1. A spokesman for LongTail Alpha declined to comment on the letter or its contents.

The eye-popping returns show how well such insurance-like vehicles can perform at times of stress in financial markets. As volatility soars and liquidity disappears, the options these funds hold dramatically appreciate in value, providing a hedge against the declining value of stocks. However, such investments generally lose money when stocks are rising and volatility is low, one of the main reasons they aren’t more popular.

“Last month we saw what I believe were the most illiquid markets across all asset classes in my 30-year career as a derivatives markets investor,” Vineer Bhansali, who founded LongTail Alpha in 2015 after 16 years at Pimco, wrote in the letter.

Tail-risk hedging is a small industry that includes Newport Beach, California-based LongTail Alpha and Universa Investments, a Miami-based firm advised by Nassim Taleb, the former options trader who wrote the 2007 bestseller “The Black Swan.” Universa reported to clients earlier this week that its March return was 3,612%.

The California State Teachers Retirement System, America’s largest pension fund, bought tail-risk protection from both firms but closed out its hedge with Universa just weeks before the market meltdown in mid-March. As a result, it missed out on a windfall of more than $1 billion. Calpers, as the fund is known, kept the LongTail Alpha position until the end of the month, long enough to receive a payout of several hundred million dollars, according to people with knowledge of the decisions.

A second LongTail Alpha fund that tries to insure against tail-risk events while also generating a consistently positive return, TwoTail Alpha Offshore, gained 64.8% in March and 45% in the first three months of the year.

“With markets still fragile, and corporate funding costs and spreads widening substantially, we do not believe that conditions are quite safe to extend too far on the risk spectrum just yet,” Bhansali wrote.

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