Several well-known bond private equity funds have recently experienced sudden setbacks in performance due to volatility in Vanke bonds and overall weakness in the bond market. Some individual star private equity funds have even seen significant declines.
According to data from a third-party institution, a Shanghai-based billion-yuan bond private equity fund has seen a sharp drop in the net asset value of multiple products recently. One product established in May this year experienced a decrease of over 5% within two weeks, with accumulated losses exceeding 2%. Another medium-sized bond private equity fund based in Beijing has seen continuous declines in product net asset value for three weeks, turning from positive to negative returns over the past six months. This significant volatility is in stark contrast to the past positioning of products as “stable and low volatility.”
Reported by “Securities China” on December 12th (Friday), sources within the industry revealed that this situation is not isolated. The performance volatility of some bond private equity products may be related to Vanke bonds. Since late November, Vanke bonds have undergone significant adjustments, with some varieties experiencing declines of over 70%. Following market news on December 10th, Vanke bonds saw a temporary rebound, but on December 11th, they fell again, with “21 Vanke 06” dropping by over 18% and other varieties such as “21 Vanke 04,” “23 Vanke 01,” “22 Vanke 02,” “21 Vanke 02,” “22 Vanke 04,” and “22 Vanke 06” also seeing declines of over 10%.
“21 Vanke 06” is a shorthand for a bond issued by Vanke Corporation in 2021.
He Jinlong, the General Manager of UP Investment, stated that the direct trigger for the recent performance setbacks in some bond private equity funds in the market is partly due to news related to public offering fee regulations, as well as factors such as the Vanke extension event. These factors, coupled with the continuous net redemptions of public offering funds, have further exacerbated the performance setbacks of some bond private equity funds. The underlying reasons and macro background are the yield scarcity in a low-interest rate environment, which has compressed the operational space for traditional bond strategies. To pursue returns, some fund managers have chosen to lower credit quality. However, this can lead to significant setbacks once risks and sentiment emerge.
He Jinlong cited data indicating that among the newly registered private equity funds this year, bond strategies only account for about 4%, showing a clear trend of marginalization and insufficient incremental funds for bond strategies. Taking all these factors into account, some bond private equity funds have experienced significant setbacks in performance.
A senior bond private equity professional noted that in the current market environment, fixed income strategies overall are in a relatively challenging phase. The ten-year government bond yield has mostly fluctuated within a narrow range of 1.6% to 1.9%, with the risk-free rate at historically low levels. The interest rate bond lacks sufficient downward space, making it difficult for traders to profit from frequent arbitrage. Credit spreads are also compressed at low levels, diminishing the cost-effectiveness of the traditional strategy of “extending duration and lowering credit quality” to achieve excess returns. Pure bond products in the medium to long term have only slightly outperformed the risk-free rate so far this year, creating a disparity with many investors’ past expectations of “steady growth with an offensive edge.”