A vulture fund is hedge funds, private equity funds or troubled debt funds, which invest in debts that are considered very weak or default, known as depressed securities. Investors in profit funds by buying debt at a discount on the secondary market and then using various methods to get an amount greater than the purchase price. Debtors include companies, countries, and individuals.
Carrot-funded funds have been successful in bringing in actions of attachment and recovery to sovereign borrowing governments, usually settling with them before realizing the attachment to forced sales. Settlements are usually done with discounts in hard currency or locally or in the form of new debt issuance. In one instance involving Peru, such seizure threatens payments to other creditors of sovereign obligers.
Video Vulture fund
Histori
State debt collection is rare until 1950 when the immunity of government sovereignty has begun to be limited. This trend evolved from the long history of the failure of state sovereignty to commercial creditors with impunity. Thus, state debt collection actions began in the 1950s. One example is the freezing of the Brazilian gold reserves held by the Federal Reserve.
Investments in state debt with the intention to recover are also limited due to the laws of champerty and maintenance and by the fact that most of the state debt is syndicated. Under the Champerty Doctrines, it is illegal in Britain and the United States to buy debt with the sole purpose of debating it. The difference is made that if debt is bought to affect recovery or facilitate investment, the doctrine is not a bar. Most jurisdictions have now abolished this doctrine as archaic.
Similarly, the state debt paid to commercial creditors in the late 1980s was principally held by bank syndicates. This is the result of the petrodollars crisis of the 1970s when oil revenues were recycled into bank loans. Debt syndication among banks makes recovery impractical, as litigation funds should buy all the syndicate holders or the risk of having a litigation result attached under the clause in the loan agreement.
As the 1980s expanded, debt rescheduling efforts in Latin America created many new and easy-to-trade instruments such as Brady bonds that brought new players to markets, including banks and hedge funds. The original creditors then wrote down their positions and sold the debt to the secondary market, which is a market of banks and investment funds focused on discount purchases to achieve market return on their investment.
In this process, much debt is repurchased and converted into local currency by sovereign state publishers in an official debt conversion program designed to attract investment, and in large debt-ridden countries through World Bank-funded repurchases. The result is the old syndicate is broken down and many unreconstructed "tail" syndicates are available for purchase at a discount exceeding 80% of the face value. Such prices encourage funds to invest in recovery actions, which would not make financial sense because of their length and cost.
Maps Vulture fund
Corporate finance law and theory
Businesses that require more capital than their founders may increase because personal contact is made possible by legal methods to attract investors to buy part of the business. The owner will invest capital and acquire ordinary shares or equity in exchange for investing cash or other property such as machinery, factories, warehouses, patents or other interests. Then the owner will raise additional capital by borrowing from the lender in the capital market by selling the bonds. In corporate law, the owner of this bond comes first for repayment so that if there is not enough funds to pay the bondholders, the shareholders are erased. The bondholders stepped into the shoes of former shareholders. The shareholders do not have anything because they, the owners, can not fully pay all contract promises, or loans. So like a bank (borrower) who has lent money to a home buyer (the pemaggap) takes over security (home) when mortgage payments are not made (ie foreclosure), the bondholder takes over the business from a former owner (shareholder) when the company falls into bankruptcy. Thus, when the shareholders can not pay the bondholders, in principle, the bondholders become new shareholders. But in practice, it's more complicated.
In the financial markets, bonds of troubled public companies trade in a manner similar to the general stock of solvent companies.
Viewpoint
The term "vulture fund"
The term "vulture fund" is a metaphor used to compare this particular hedge fund with the behavior of vultures "eyeing" borrowers in financial difficulty by purchasing the now-cheap credit in the secondary market to make large monetary gains, in many cases leaving the debtor in a state worse. This term is often used to criticize strategically favorable funds from debtors who are in financial difficulty, and thus are often considered insulting. But financiers who deal with vultures' funds argue that "their lawsuits force accountability for national loans, without which credit markets will shrink, and that their pursuit of unpaid commercial debt reveals public corruption." The related term is "investment vulture", in which certain shares in a bankrupt company are bought in anticipation of successful asset divestment or reorganization.
This term has gained wide acceptance from governments, newspapers, academics and international organizations such as the World Bank, Group 77, Organization of American States and Council on Foreign Relations, among others.
Legislation
In 2009, bipartisan legislation in the US Congress was introduced to prevent Vulture's funds from gains on debt default by limiting the amount of profit that the secondary creditor can win through litigation based on the debt. The Stop Vulner Funds Act was introduced, but not authorized, in the United States. A nonprofit financial reform organization, Jubilee USA Network, supports a law that mentions the impact of vulture funds on poor countries. Similar laws passed in England, Belgium, Jersey, Isle of Man, Australia. The state of Guernsey is debating the law in 2012.
International financial institutions
The International Monetary Fund and the World Bank note that Vulture funds jeopardize the profits made by debt relief to the poorest countries. "Banks have sent over $ 40 billion to pay off debts to these 30 countries... thanks to this, countries like Ghana can provide microcredit to farmers, build classrooms for their children, and fund water projects and sanitation for the poor, "writes World Bank Vice President Danny Leipziger in 2007." However, the activity of the carcass funds threatens to undermine such efforts... the strategy adopted by vagrant funds diverts much-needed debt relief from the state - the poorest country on earth and into the bank accounts of the rich. "
International government and non-governmental organizations
The demand for vulture funds that blocked payments to other creditors to Argentina was denounced by the Organization of American States, with the exception of the United States and Canada. The G77 China also criticized the fund and stated: "Some recent instances of action by vulture funds before an international tribunal demonstrate their highly speculative nature, which pose a danger to all future debt exchange processes, for developing countries and for developing countries as well."
The US-based Council on Foreign Relations questioned the US Supreme Court for refusing Argentina's appeal in its legal dispute with so-called vulture funds. The organization claims that it makes it "more difficult for countries to free themselves from excessive debt burdens" and "very bad for international capital markets", and is a major blow to national sovereignty. The organization described Thomas Grie's verdict against Argentina in favor of vulture funds as "punishing innocent people" and "changing the natural order of debt on his head".
United Kingdom
In 2002, the British Chancellor (and then Prime Minister) Gordon Brown told the United Nations that when vulture funds bought debts at cheaper rates, and benefited from prosecuting the debtor country to recover the full amount of debt, the result was "morally embarrassing ". Legislation passed in 2010 eliminates the ability of vulture funds to use UK courts to enforce contested debts.
The United Nations
On September 9, 2014, the UN General Assembly voted to support a new bankruptcy process for sovereign nations, which would encourage debt restructuring by issuing so-called "vascular funds" from the process. The voting was 124-11 in favor, with 41 abstentions. The United States voted against the act.
ireland
In October 2016, the Irish State closed the tax loophole that the depressed US funds (labeled "vulture funds" in Irish media), suggested by the IFSC tax law firm (eg Matheson), had been exploited to avoid Irish tax (capital gains, withholding taxes and VAT/duties) over over EUR80bn of troubled Irish assets. The affair caused a national scandal in Ireland and caused a public reaction to the activities of depressed US debt funds, and especially when it was discovered that they had used a children's charity controlled by tax-law firms to cover their share of 110 SPV tax vehicles.
See also
- Matheson (law firm)
- Ireland as a tax haven
References
External links
- Creating Morality on Dana Vulture (The Corrected Story), Christopher Faille, Senior Financial Correspondent, Hedgeworld News, Monday, February 4, 2008
- Depressed Debt Back to Floods FTfm, July 30, 2007
- The Serebral Fund
- African Action Campaign to Stop Vulture Funds US
- Jubilee's Campaign Action on vulture fund
- Investopedia: vulture fund
- Should States like Argentina Declare Theirself Bankrupt ?, by Anne Krueger
- Economic Vulture Fund -Ft.com
- August 2003, Manmohan Singh, IMF Working Paper WP/03/161; "Recovery Rate of Depressed Debt - Empirical Evidence from Chapter 11 Filing, International Litigation, and Debt Restructuring"
- Investigative Journalist Greg Palast Tracking Vulture Funds that Predate African Debt - video report by Democracy Now!
Source of the article : Wikipedia
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