SDIC Silver LOF Incident Ignites Social Media Outcry

The SDIC Silver LOF incident has recently sparked heated discussions on social media platforms.

On February 15, just before the Chinese New Year holiday, SDIC Fund Management announced a compensation plan for investors affected by a net asset value (NAV) adjustment for its Silver LOF product. The plan features a tiered structure: investors with losses under 1,000 yuan will receive full compensation, while those with larger losses will receive progressively lower compensation ratios.

This announcement triggered a wave of online criticism, with many labeling it a strategy of "compensation based on complaints."

The compensation plan appears to consider two key factors. First, SDIC Fund's parent company, Sdic Capital Co.,Ltd. (600061), disclosed that potential financial losses from the incident would be less than 5% of its 2024 audited net profit. Given Sdic Capital's 2024 net profit of 2.694 billion yuan and its 31% stake in SDIC Fund, the compensation amount payable by the fund manager is estimated to be below 431 million yuan—exceeding SDIC Fund's own 2024 net profit of 376 million yuan. This suggests the compensation plan was designed within the company's financial capacity.

Second, SDIC Fund noted that over 90% of affected investors incurred losses below 1,000 yuan. While this reflects the fund's commitment to protecting smaller investors—aligning with the "public welfare" nature of mutual funds—it has been criticized online as a strategic move.

Online complaints range from accusations of inadequate compensation to claims of investor exploitation. However, from a professional standpoint, the NAV adjustment announced on February 2 was a necessary measure to maintain fair valuation, as global silver futures had fallen over 30% during that period. The compensation plan itself was introduced as a gesture of goodwill toward investor sentiment.

Interestingly, the Silver LOF's NAV has since recovered, reaching 2.5221 by the latest update, compared to 2.2494 on February 2. This raises questions about the rationality of the sell-off and subsequent complaints.

Regarding responsibility, the core issue lies in market rules: while COMEX silver futures fell 31.5% between January 30 and February 2, Shanghai Futures Exchange silver contracts fell only about 18% due to daily price limits. Without the NAV adjustment, earlier redeemers would have unfairly shifted losses to remaining investors. While SDIC Fund could have communicated earlier, operational procedures and exchange confirmations reasonably delayed the announcement.

The compensation targets only those impacted by the NAV adjustment on February 2. Investors who held through the period were not disadvantaged, as the adjustment aimed to protect them from bearing redeemers' losses. Meanwhile, secondary market traders were excluded because LOF funds trade independently on exchanges, driven by market dynamics rather than NAV.

Ultimately, SDIC Fund's NAV adjustment was legally compliant. The compensation, though financially significant for the firm, reflects a growing industry emphasis on investor experience—a tangible step toward higher-quality development in China's mutual fund sector.

Despite the controversy, the incident highlights the industry's willingness to prioritize investor trust over short-term profits, demonstrating a long-term, trust-based approach that benefits ordinary investors.