Vulture Fund – Definition & Meaning

A vulture fund is a type of investment fund or hedge fund that specializes in buying the debt of distressed companies or countries at a deep discount, with the expectation of making a large profit by either restructuring the debt or by buying the distressed assets at a steep discount. The term “vulture” refers to the opportunistic nature of these funds, which often seek to profit from the financial distress of others.

Vulture funds typically invest in bonds, loans, or other debt securities that have been defaulted on or are in danger of default. They may also invest in the equity of distressed companies, as well as in the assets of companies or countries undergoing restructuring or bankruptcy. The goal of vulture funds is to make a profit by either restructuring the debt or assets to make them more valuable, or by holding onto the assets until market conditions improve and they can be sold for a higher price.

Critics of vulture funds argue that they can exacerbate financial distress by buying up the debt of struggling countries or companies at a discount, and then demanding full repayment at a later date, which can put a strain on the country or company’s finances. Supporters, on the other hand, argue that vulture funds can provide a valuable service by restructuring or liquidating distressed assets, and that they can help to promote market efficiency by forcing companies and countries to restructure their finances.

Vulture funds have been subject of many controversies, particularly in the developing countries, as they are often seen as taking advantage of the weak legal and regulatory environment in these countries and using the courts to extract payment from struggling nations. In response to these controversies, some countries have sought to limit the ability of vulture funds to purchase their debt and to sue for full repayment.