The Vulture Fund Concept, in brief

I can’t find the link now, but I’d read recently in either one of the newspapers or one of the three billion websites I go through daily that Vulture Funds are looking at opportunities in India. The article made it sound as if this is a bad thing, and I’m not too sure if thats the case.

Here’s what Wikipedia has to say on Vulture Funds:

A vulture fund is a financial organization that specializes in buying securities in distressed environments, such as high-yield bonds in or near default, or equities that are in or near bankruptcy.

As the name suggests, these funds are metaphorically like circling vultures patiently waiting to pick over the remains of a rapidly weakening debtor.

Vulture funds target not only companies but also whole countries. In the recent case of Argentina, for example, vulture funds bought up a large part of the public debt at very low prices (sometimes only 20% of their nominal value), and then attempted to cash them when the Argentine economic crisis exploded in 2002. A single vulture fund run by Kenneth B. Dart, heir to the Dart Container fortune, claimed 700 million USD in a lawsuit against the government of Argentina.

Not all Vulture funds are bad: almost a year ago, I was told about the PATF TEP Fund, which, conceptually, I found very interesting. I think it qualifies as a Vulture Fund, but I could be wrong.

Suppose someone needs to exit an insurance policy: the no-claim bonus is lost and an exit load has to be paid. The insurance company also loses out on a regular, otherwise assured ,investment. The Insurance company informs the PATF TEP Fund, which, for a lower (or no) exit load, offers the customer his money back. The Fund then pays for the entire duration of the policy, and collects the returns and the no-claim bonus. Everyone benefits. The money for paying off the original insurer comes from those who invest in the fund.

On the face of it, returns may not be as attractive as those for mutual funds, but this looks like a less volatile investment, and can be a part of a diversified portfolio. I’m not sure of the risks involved, though, or even if there are other, similar products.

Note: The above post is based on hearsay and hence could be incorrect. I don’t endorse any Vulture Fund or the PATF TEP Fund. Its up to you, in consultation with your financial advisors, to make your decisions; Financial consultancy is not my area of expertise.

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1 Comment

  1. My name is Marvin Morris and I think Kenneth Dart is just stepping up to the plate where society and Our Government has failed. I am suing the People’s Republic of China for defaulted bonds and Our President isn’t helping me at all. In 1987 the Prime Minister of Great Britain Margaret Thatcher demanded that China settle this debt before they could operate on their stock exchange. That is a leader for the people but what does our Government Officials do? Nothing. The are running Scare of the PRC. Hank Paulson is in China this week acting like a scared punk. His statements concerning the tariffs on China’ Imports are Let’s Be Patient! Don’t Try To Force Them! Since our Government has sold us down the river who else can we depend on but each other. Wall St. has sold out to China. Do you think they care about all the factory jobs we have lost to China?
    They allowed China to buy Aslum for all their thievery acts. Their latest ploy is their devaluation of their yuan. Major Corporations are closing or building factories in China and India. So wher does are help come from but each other or God. The Kenneth Dart’s of the world please continue to help the underdog. I would love to discuss my case with Mr. Dart or others like him. I have over $1 Billion USD of these defaulted bonds. Call or Email to discuss this issue. or 302-344-8368
    Congress does support us redeeming this debt with the PRC.

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