What are vulture funds and who owns them?
A vulture is a bird of prey that feeds mainly on carrion. A term that also serves as a statement of intent when it comes to defining a type of investment fund that acquires debt from companies or states on the verge of bankruptcy. Laura Bunyol, 11Onze agent, explains the origin of vulture funds and who is behind them.
Vulture funds are high-risk investment funds that aim to buy public and private debt securities of companies or countries whose solvency has been seriously compromised. Unlike the scavenger birds that give them their name, these funds do not perform an essential and beneficial sanitary task, quite the contrary, in fact, they have been labelled as modern usury and a threat to human rights.
Their business model is based on buying assets at the lowest possible price and, in the short or medium term, selling them to other investors for high returns. So far, it all seems a perfectly normal and logical investment concept. But from whom are these assets bought at such a good price? And who pays the consequences?
When malpractice is legal
As Bunyol explains, “in 2008 the state created the ‘bad bank, FROB, to absorb the banks’ deteriorated assets”, that is, the state bought the banks’ toxic assets with public money, and then sold them at a bargain price, between 20% and 30% of their nominal value, to the so-called vulture funds.
On the other hand, in the midst of the Spanish real estate crisis, vulture funds focused on buying up banks’ mortgage loans en masse. After pressuring debtors who could not assume the debt, these funds proceeded to denounce and subsequently initiate the foreclosure process.
A practice that was not always possible because many of these real estate assets were council flats that could not be converted. Therefore, the managers of these funds opted to change the rental contracts “to double the original price of the rents”, suffocating the tenants, says the 11Onze agent.
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