The SDIC Silver Futures Securities Investment Fund (LOF), the only LOF in China primarily investing in silver futures, experienced its fifth consecutive trading limit down on February 6th. Amidst extreme volatility in the silver market, collective complaints regarding the fund have surged to over 20,000 cases. The controversy stems from an unusual net asset value adjustment made by SDIC UBS Fund Management Company on February 2nd.
The fund's net value saw a historic single-day decline of 31.5%, turning potential redemptions into losses for many investors. The fund primarily invests in silver futures contracts listed on the Shanghai Futures Exchange. Silver prices had been rallying sharply this year, with COMEX silver futures briefly surpassing $120 per ounce. Consequently, the fund's returns surged, reaching over 265% for the past year as of January 29th, just before the recent price swing.
A price divergence emerged between domestic and international markets due to the ±17% daily price limit on Shanghai silver futures. This caused the fund's estimated NAV to lag significantly, attracting speculative capital that drove the secondary market trading price to a premium as high as 64.26% over the NAV. To curb speculation, the fund company repeatedly suspended trading and imposed purchase limits, yet the fund's size still ballooned by over RMB 10 billion compared to the third quarter of 2025.
On January 30th, the fund was suspended from trading for the entire day, while the international silver market experienced a massive sell-off, with COMEX silver plunging from over $120 to around $74 per ounce. When trading resumed on February 2nd (Monday), the fund opened limit-down. Many investors rushed to redeem their shares based on the NAV before the 3:00 PM cutoff. However, the NAV updated by SDIC UBS that evening showed figures of 2.2494 yuan and 2.2290 yuan for the A and C share classes, respectively. This represented a devastating 31.5% drop from the previous NAVs of 3.2838 yuan and 3.2542 yuan on January 30th, marking the largest single-day decline in the history of publicly offered funds in China.
One investor, Mr. Wang, expressed anger over the fund company's rule change: "I thought funds could only fall a maximum of 10%. I redeemed based on that estimated value at the close, only to find out the NAV had dropped 31.5% later." Another retail investor, Ms. Zhang, who had traded the fund several times, commented on social media, "Following the usual valuation practice, I would have made a small profit upon redemption. Instead, I ended up with a loss. I wouldn't have redeemed that day if I had known." Notably, after settlement, some redeemers even faced large debit balances payable to third-party platforms.
Investors have raised two primary concerns: the validity of the临时 adjusted valuation method and the lack of prior notice. On February 3rd, SDIC UBS explained that the true value of the fund's underlying assets—Shanghai silver futures—is determined by international prices. They argued that during an "epic" silver crash, the domestic price limit acted as a "dam," preventing the settlement price from reflecting the actual decline. Maintaining the inflated NAV would mask real risks and mislead investors, potentially allowing early redeemers to exit at artificially high prices, unfairly transferring the risk of value regression to remaining holders. The company stated the revaluation using international benchmarks was necessary to "strive for a fair reflection of the asset's true value and avoid unfair treatment of investors."
Regarding the lack of advance notice before the market close on February 2nd, SDIC UBS cited three reasons: final international prices are typically set after 3:00 PM Beijing Time, making accurate pricing impossible beforehand; uncertainty about whether domestic futures would break the limit-down and regain liquidity during the day, which might have negated the need for adjustment; and a desire to avoid panic, fearing that an intraday announcement could be misinterpreted as a severe liquidity crisis, triggering irrational redemption runs. They stated that announcing after finalizing the plan is standard industry practice.
Investors appear unconvinced by this explanation, with many initiating rights protection efforts online. Collective complaints on one platform have exceeded 20,000. Mr. Wang questioned why the NAV wasn't aligned with international prices during the rally but was adjusted for the crash without prior disclosure, leading to unexpected heavy losses. He suggested the fund company may be liable for untimely information disclosure.
An industry source in Shanghai noted that fund managers are permitted to adjust valuation methods when significant market changes prevent a fair reflection of asset value, as per the Fund Law. However, the retroactive application of this adjustment to trades executed before the announcement remains contentious.
Dong Yizhi, a lawyer at Shanghai Zhengce Law Firm, pointed out that regulations require managers to promptly disclose information significantly impacting holder interests or fund price. By announcing after market close, the fund company deprived investors making redemption, subscription, or secondary market trades that day of crucial information, forcing them to bear the consequences of a new valuation based on old expectations, effectively stripping them of informed choice. In his view, decisions made after the market close on day T should only affect the NAV from T+1 onwards, not alter the results of T-day transactions.
On February 5th, inquiries were made to SDIC UBS regarding the thresholds for valuation adjustments and disclosure protocols for exceptional circumstances. No response had been received by the time of publication.
Industry insiders believe several issues in SDIC UBS's handling were avoidable. Firstly, the market volatility didn't suddenly occur on Monday; the manager had ample time over the weekend to assess the severe price divergence and could have issued a preliminary announcement on Saturday or Sunday if planning a valuation logic change. Secondly, just as trading was suspended during price surges, it could also have been halted during the crash. Freezing subscriptions and redemptions for the day would have allowed time for NAV recalculation and prevented investors from acting blindly under information asymmetry. Thirdly, the fund's custodian bank, Bank of China, should have objectively questioned or warned about the compliance and risks of this change, rather than simply executing the manager's instructions.
Expert Dong Yizhi advised severely affected investors to monitor regulatory actions by bodies like the China Securities Regulatory Commission against the fund manager and custodian. Based on the outcomes, the fund contract, and relevant laws, investors could file lawsuits claiming damages, holding the manager accountable for disclosure violations.
In response to investor demands, SDIC UBS issued a new announcement on February 6th. The company stated it upholds principles of lawful disclosure, will actively address investor concerns, and strives to mitigate the impact of the valuation adjustment while protecting investor rights. They have established a task force to develop a plan supporting investors in resolving disputes through channels like mediation and arbitration, with details to be announced later. The company affirmed its commitment to supporting effective dispute resolution and safeguarding investor合法权益.
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