Vulture Funds

Author:Poornimah Devi Sookun
Pages:7-12
CHAPTER 1
Vulture Funds
We particularly condemn the perversity where vulture funds purchase debt
at a reduced price and make a profit from suing the debtor countr y to
recover the full amount owed – a morally outrageous outcome.
Gordon Brown, speaking as UK Chancellor of the
Exchequer, at the United Nations in 20022
The term ‘vulture fund’ describes how private investment firms and hedge funds prey
on poor countries on the brink of debt relief – like vultures waiting to swoop down
on a rotting carcase. This chapter defines vulture funds and their origins. It examines
their culture and the legitimacy of their operations, to show why so many people
condemn them.
1.1 What is a vulture fund?
Vulture funds are commercial creditors which buy up the debts of poor countries at
a cheap rate and then sue them to secure a high return, which is the sole reason for
their investment. Vulture funds have become increasingly retrogressive since they
began impeding the progress of debt relief in many heavily indebted poor countries.
Market practitioners would probably prefer to describe the funds as ‘distressed debt
investors’ and would regard the vul ture metaphor as too harsh. However, in 2002
Gordon Brown (then UK Chancellor of the Exchequer and subsequently Prime
Minister), speaking at the UN, described vulture funds as perverse and immoral. The
reason for this is their shrewdness when it comes to profiting from the problems of
a sovereign government.
The IMF has defined vulture funds as companies which buy the debt of poor nations
cheaply when it is about to be written off and then sue for the full value of the debt
plus interest – which may be t en times what they paid for it.3The key characteris-
tics of a vulture fund are:
7

To continue reading

Request your trial