What is a vulture fund?
As the name suggests, vulture funds prey on the weak. They buy distressed securities in failing or near-bankrupt companies, or even debt-ridden countries, for bargain prices and accept a considerably high risk for potentially very high returns. In effect, they attempt to profit from another's debt.
Where have you heard about vulture funds?
Vulture funds often make the news for profiting from sovereign debt crises. For example, vulture funds bought Argentina's debt during the country's financial crisis in 2001-2002. They have since controversially rejected any terms for restructuring the debt; instead suing the country for full repayment and causing it to go into default.
What you need to know about vulture funds...
Vulture funds are really just a type of hedge fund or private equity fund. Though widely used, it's not a term a fund would use itself. Instead it is a derogatory term used to refer to particular hedge funds that actively seek out companies or countries in financial distress.
The goal of vulture funds is to get the maximum possible gain on their investment, rather than act in the best interests of the debtor. For this reason, the debtor is often left in a worse state. Vulture funds, for example, may buy a struggling company's debt and then force that company to repay their debt even though they may be better off declaring bankruptcy.
Find out more about vulture funds...
Vulture funds look to invest in distressed securities. Find out more about these high risk but potentially high return investments.