It's no coincidence that the term "vulture fund" conjures up a negative and distasteful image--and certainly the media coverage vulture funds receive more often than not aligns with that connotation. But because these funds are called vulture funds much more frequently than their less offensive moniker -- emerging market debt funds -- it is worthwhile to look into how and why they have come to be known as "vultures."
The Financial Times' global fund managment industry blog, FTfmblog, recently featured a post explaining the hows and whys...
"...Some, including 110 UK MPs who signed an early day motion and a bevy of members of the US Congress, find the activities of these vulture funds distasteful. But any good environmentalist would advise against removing a lifeform from an ecosystem without careful consideration of the knock-on effects throughout the food chain.
Many find vultures themselves distasteful, but erase these important scavengers from their ecosystem and you’re left with one stinking, rotting mess. Ditto in the financial world.
Few institutional investors would be willing to invest in a long-term asset without the back-up of a secondary market to offload that position should circumstances dictate. Remove the vulture funds that provide a degree of secondary market liquidity and you are reducing the pool of primary purchasers.
As a result, the very nations politicians are endeavouring to protect would simply end up having to pay higher interest to borrow on the international markets in the first place.
The law of unintended consequences has a tendency to rise above human laws. The efforts of well-intentioned politicians could well backfire and make the lives of the developing world’s huddled masses even grimmer still."
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