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Vulture funds definition

What would you expect the vulture funds definition to be? Well as with the animal after which its name, a vulture fund is a pretty clear metaphor that’s used to describe distressed securities funds.
    Getty - Pedro Armestre

Distressed securities funds

Most investors like to know that the firm they’re putting their money into is doing well but will do better in the future. Most investors therefore look for firms who are progressing and improving but ones that are undervalued. They want to know that their money is safe and that it has a good chance of multiplying with time. The opposite is true with distressed securities funds.

Vulture funds

These are hedge funds or private equities that always invest in debts considered to be very weak or very close to imminent default, hence the word “distressed”. It’s a pretty awful practice really which is why the slang term vulture fund was invented because investors in these ventures make profit by purchasing debt at a discount price and then suing the debtor for the full value. The debtors can be individuals or companies, so vulture funds put people out of work and push individuals out of their homes.

Successful business

Distressed securities funds have a lot of success because the investors buy at a low enough price that they can afford to lose out if the debtor can’t pay. Firms often make settlements with their debtors in order to save time or to make sure that their trading names aren’t dragged into court. That’s not a concern with this sort of investor so they have more success at recovering the full amount owed.

In the UK

Thankfully regulations in the UK prevent this sort of practice. Legislation brought into place in 2010 remove the ability of vulture funds to use the UK court system to enforce contested debts.

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