The SDIC Silver LOF fund experienced a dramatic 31.5% plunge on February 5th, marking a record-breaking single-day decline and sparking controversy over its valuation methodology. The fund hit its daily downside limit at the opening, extending its losing streak to four consecutive trading days.
The turmoil began three days earlier on February 2nd, when international silver prices suffered a historic collapse. This triggered a 31.5% single-day crash in the SDIC Silver LOF's net asset value, with the per-unit NAV dropping sharply from 3.2838 yuan to 2.2494 yuan - the largest single-day decline ever recorded for a public fund in China. The unexpected valuation shock left hundreds of thousands of investors facing losses far beyond their expectations.
The SDIC Silver LOF has experienced a rollercoaster ride over the past month, plummeting from peak to trough. Since 2025, silver futures prices have shown sustained strength, driving significant increases in domestic investor demand for silver asset allocation. Against this backdrop, as the only public fund tracking China's primary silver futures contract, the SDIC Silver LOF became a scarce investment channel. By the end of the fourth quarter of 2025, the fund's total assets had rapidly climbed to a record high of 18.944 billion yuan.
Market frenzy peaked in December 2025, when the primary silver futures contract on the Shanghai Futures Exchange surged by 53%. Meanwhile, limited availability of the fund's over-the-counter shares due to purchase restrictions drove substantial speculative and arbitrage capital into the secondary market, pushing up trading prices. An illusion of quick profits spread through social media, with a T+2 arbitrage strategy involving subscription, transfer, and sale gaining popularity when premium rates exceeded 30%. Consequently, the premium rate between the fund's market price and its NAV soared to over 60%, attracting numerous retail investors to participate in arbitrage activities.
Between January 30th and 31st, international precious metals markets experienced an epic selloff. Gold recorded its largest single-day drop since 1980, while silver established a new record for intraday declines. Spot gold plunged from a high of $5,400 per ounce to a low of $4,682, with maximum intraday losses exceeding 12%, marking the most severe correction since the early 1980s. Spot silver crashed dramatically from $110 per ounce to $74.31, experiencing intraday declines as deep as 36% - the largest single-day drop in history.
Unlike international markets that have no price limits, China's silver futures are subject to ±17% daily trading bands. When international prices collapsed dramatically, domestic futures prices couldn't fully and promptly reflect this volatility due to regulatory constraints, creating a price transmission breakdown that planted the seeds for the subsequent fund NAV crisis.
The fund manager faced a complex dilemma. Under normal valuation methods, the fund should reference domestic futures prices, but these prices could no longer fairly represent the asset's true value in international markets. Continuing to use distorted domestic prices for valuation would result in an artificially inflated NAV, while allowing redemptions at inflated values would potentially transfer losses to remaining investors, exacerbating fairness concerns.
Controversy erupted on the evening of February 2nd when SDIC Credit Suisse Fund Management issued an announcement at 10 PM that ignited market debate. The announcement stated that the fund's valuation method would be adjusted effective immediately, switching the reference benchmark from domestic silver futures prices to international market prices including the London Bullion Market Association's silver spot afternoon fixing price.
The core issue lies in the "retroactive adjustment with post-facto announcement" approach. The announcement was released after all daily trading had concluded, yet the valuation adjustment was applied retroactively to all subscription and redemption transactions that same day. The fund company provided three explanations: first, referenced international market prices aren't finalized until after 3 PM Beijing time; second, intraday uncertainty existed regarding whether domestic futures would break through their downside limits; third, concerns that intraday announcements might be misinterpreted as liquidity crises, potentially triggering irrational panic redemptions.
From a compliance perspective, this operation had contractual and regulatory basis. According to guidelines for securities investment fund valuation business and fund contract provisions, when significant changes in primary markets make original valuation methods unable to fairly reflect asset values, fund managers can adopt more reasonable valuation techniques after fulfilling necessary procedures. However, compliance doesn't necessarily equate to procedural reasonableness or sufficient investor protection.
Market analysts note that from a trading fairness perspective, the manager's retroactive adjustment approach has merit. With international silver prices falling 36% in a single day, domestic prices should theoretically decline synchronously. However, constrained by ±17% daily limits, domestic prices could fall only about 20% maximum that day, requiring remaining declines to occur over subsequent sessions. Investors redeeming at -20% prices would effectively bear less than their fair share of losses, transferring these losses to remaining investors and creating greater unfairness.
Investing in global assets like silver and gold inherently involves risks from time differences, price delays, and varying market mechanisms. International precious metals markets trade nearly 24 hours without price limits, meaning investors must passively absorb impacts during domestic market closures or when price restrictions apply during extreme volatility.
Currently, numerous investors have reportedly filed complaints with regulators through phone calls and emails, accusing SDIC Credit Suisse Fund Management of "suspected fraud and market manipulation." The trust crisis surrounding the SDIC Silver Fund appears unlikely to resolve quickly. Some investors describe the post-facto rule change as severely damaging corporate credibility, comparing it to "the dealer changing rules and demanding money back after players have won." Many previously non-complaining investors indicate this incident prompted their first actions to protect their rights, questioning "if small investors don't stand up for themselves, who will take us seriously?"
This incident exposes inherent structural flaws in the SDIC Silver LOF as a cross-border, cross-market financial instrument. The fundamental contradiction lies in the fund primarily investing in domestic silver futures contracts subject to price limits, while needing to reference international market prices without such restrictions during extreme conditions. This design functions normally under stable conditions but creates massive "valuation gaps" when extreme divergence occurs between domestic and international markets.
Furthermore, the fund essentially represents a high-position index tracking tool. According to its prospectus, the fund must maintain silver futures contract values between 90% and 110% of its NAV. While this ensures close tracking, it severely limits the manager's ability to substantially reduce positions or use derivatives for active risk hedging during extreme markets. The deeper issue involves the "single-product dilemma." As the market's only such product, the SDIC Silver LOF lacks comparable counterparts and mature response experience, leaving both managers and investors underprepared for extreme scenarios.
From SDIC Credit Suisse Fund Management's overall business perspective, this controversial product represents an extremely small portion. The company's total fund assets reach 255.01 billion yuan, primarily comprising money market funds (102.379 billion yuan) and bond funds (97.479 billion yuan), together accounting for nearly 80% of assets. The alternative investment category containing the silver LOF totals 18.944 billion yuan, representing less than 0.1% of the company's total assets.
The company's investment research team demonstrates substantial experience, with 32 fund managers averaging 6.22 years of tenure - above industry averages. The silver LOF's manager Zhao Jian boasts over 12 years of experience managing 21.1 billion yuan in products. However, traditional investment research and risk control experience appears inadequate when dealing with structurally unique, complex risk transmission pathways characteristic of cross-border commodity LOFs.
The SDIC Silver LOF incident serves as a warning for the fund industry regarding product innovation and risk management. It highlights how product scarcity itself can amplify speculation and risks when domestic market instrument options remain relatively limited. Multiple market analysts suggest that with more diverse silver investment tools available, concentration risks and premium speculation might be better distributed and contained.
For such special fund products involving cross-border exposure and derivative linkages, the industry needs reexamination and improvement of product design standards, valuation guidance, and contingency plans for extreme scenarios. Experts recommend establishing preset "automatic trigger conditions" and "buffer mechanisms" for valuation method switches in fund contracts, such as activating multi-source price verification or temporary adjustment factors when price deviations exceed certain thresholds, accompanied by intraday investor notifications.
Looking forward, this incident may prompt regulators and the industry to adopt more cautious approaches toward approving and developing commodity futures public funds. Related product designs, valuation methods, contingency plans for extreme conditions, and investor suitability management will likely face stricter scrutiny and more comprehensive requirements.
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