VULTURE FUNDS
Vulture funds are the type of hedge funds that invest funds in non-performing companies by buying their bonds or securities in the secondary market at deep discounts and maturity, redeeming them at par or in case of insolvency, by taking legal action to recover the debt which, in turn, gives them the highest returns compared to investing in normal risk securities.
Strategies for vulture funds
This involves many strategies. Some of them are:
- Research on companies on the verge of bankruptcy.
- Research on the essential assets of the company that can give them long-term and high profits for the vulture fund.
- Analysis to find out whether investing in the business on the verge of loss will yield profits.
- Obtain information on loans and fixed income securities from the company on the verge of bankruptcy.
- Go to the bank to buy debt securities or fixed income securities in the secondary market at the discounted price.
- Approach the company to liquidate the stock or sell the critical asset to collect the debt and realize the profit.
- Vulture fund invests their funds into highly profitable at the same time highly risky securities or properties, some of them are as under:
- The real estate market and properties, as the market are highly volatile but highly profitable.
- Equity shares of the companies which provide the high returns.
- They also invest in the banks to purchase the loss assets.
- The funds can also invest in companies that are on the edge of bankruptcy with the assets which give long term benefits.
- The funds also invest in securities of lossmaking companies in developing countries.
Investments
This involves many strategies. Some of them are:
Advantages
- It provides higher returns.
- It can earn a good profit with a lower investment.
- Equity shares of the companies which provide the high returns.
- Vulture fund management can influence the market.
- The investment and actions for recovery are legally recognized.
- Solve the financial problems of banks or investors who invested in the loss company and purchase all debt at a time.
A vulture fund is the type of fund that invests money in the securities of companies that are close to bankruptcy due to a massive loss. It recognizes these companies through research and invests in companies whose assets have a present value. the fund first tries to settle with the companies if the company is unable to pay, then the fund will either sell the asset or take legal action for recovery.
The two countries, Argentina and the Democratic Republic of Congo, have recently faced the legal problem of a vulture fund due to the inability to pay government bonds. Vulture funds typically invest in higher risk stocks to earn higher profits. This is the part of hedge funds, but the scope of hedge funds is wider. The most crucial point of the vulture fund is that the whole process is legal.
