The recent volatility in China Vanke Co.,Ltd. bonds and broader bond market weakness have triggered abrupt performance drawdowns for several prominent bond-focused private equity funds, with some star players even ranking among the worst performers.
The industry continues to closely monitor Vanke's upcoming repayment arrangements. Facing the new market environment, many bond private equity managers are actively adapting by enhancing operational precision to build competitive advantages.
**Star Bond Funds See Sudden Drawdowns** Third-party data reveals multiple well-known bond private equity products suffering sharp recent declines. One mid-sized Beijing-based bond private equity fund saw net values drop for three consecutive weeks, with half-year returns turning negative.
A Shanghai-based bond private equity firm managing over 10 billion yuan reported cliff-like drops across several products. A fund launched in May 2023 has already lost more than 2%, with a 5% drawdown in just two weeks—a stark contrast to the manager's historically stable performance.
Industry sources indicate such cases aren't isolated, with some bond private equity fluctuations linked to Vanke bonds. Since late November, Vanke bonds have undergone significant adjustments, with certain series plunging over 70%. While rebounding briefly on December 10 following market rumors, prices fell again on December 11—"21 Vanke 06" dropped over 18%, while "21 Vanke 04", "23 Vanke 01", "22 Vanke 02", "21 Vanke 02", "22 Vanke 04", and "22 Vanke 06" all declined over 10%.
He Jinlong, General Manager of Youmeili Investment, attributes the drawdowns to triggers including new public fund fee regulations and Vanke's extension rumors, compounded by ongoing public fund redemptions. The deeper cause lies in yield scarcity under low-interest conditions, compressing traditional bond strategy margins. Some managers' pursuit of returns through credit quality compromises has left them vulnerable to sudden risk events.
"With equities and other assets outperforming, pure bond strategies' appeal has diminished. Bond strategies accounted for just 4% of newly registered private funds this year, reflecting clear marginalization and insufficient incremental capital—all contributing to major drawdowns," He noted.
**Fixed Income Strategies Under Pressure** Industry veterans describe 2023 as particularly challenging for fixed income: The 10-year government bond yield oscillated narrowly between 1.6%-1.9%, leaving limited room for rate-driven gains, while compressed credit spreads reduced the appeal of traditional duration/quality trade-offs. Year-to-date returns for medium/long-term pure bond products barely exceeded risk-free rates, falling short of investors' "stable yet progressive" expectations.
However, some view recent bond market turbulence as isolated credit events. Despite Vanke's mixed-ownership background, its liquidity pressures and asset structure differ fundamentally from core central state-owned developers. Overgeneralization risks misjudging the entire SOE property credit chain. While near-term valuation volatility and liquidity contraction may hit secondary trading—especially for weaker second-tier SOEs—long-term investors could find rare value in fundamentally sound central SOE developers if spreads widen further.
**Industry Adapts to New Realities** He Jinlong advises managers to reassess holdings, avoid overconcentration, enhance liquidity analysis, and conduct rigorous stress tests. With pure bond yields declining, adjusting return expectations is crucial—chasing targets via reckless credit/duration extensions risks liquidity disasters.
More critically, managers should shift from pure bond strategies toward multi-strategy approaches: Incorporating bond ETFs for liquidity and trading-enhanced strategies can build lower-volatility portfolios. The focus must evolve from simplistic yield-chasing to professional strategy customization and disciplined risk control.
Industry leaders emphasize that fixed income's "breakthrough" lies not in isolated tactics but in operational paradigm shifts. "Fixed income-plus" approaches are gaining traction—blending convertibles, REITs, and selective equities within bond-anchored portfolios to diversify return sources beyond single-rate or credit cycles.
Future competitiveness will hinge on two pillars: delivering attractive, compoundable "fixed income foundations" amid low yields, and skillfully layering multi-asset/multi-strategy enhancements atop these foundations through clear risk budgeting and investor education. The sector's ongoing transformation from "pure fixed income managers" to "asset allocators" will reshape the industry landscape long-term.
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