Where the Vultures Gather

Where the Vultures Gather

What is vulture investing?

Turkey Vulture landing. Photo: Don DeBold. Source: Wikipedia

Vulture investing is a way to profit from poor management. A vulture fund typically invests the debt of troubled firms, then seeks to convert that debt into equity. They can also invest in distressed sovereign debt, then use the courts to bring actions against the issuer to force some kind of recovery.

The phrase “vulture capital” was originally coined as a derogatory term, meant to criticize investors who profit from someone else’s financial difficulties – in the same way that vultures live off dead bodies. But the legal actions that these firms bring also bring accountability into the financial system. Often they unveil corruption or other financial shenanigans. In this way, they are like their real-life counterparts.

Scavengers serve an important role in every ecosystem. They clean up carcasses and animal remains, and appear immune to the pathogens that multiply in dead bodies. Without their strong digestive systems, carrion would become a breeding ground for all kinds of diseases. Their strong sense of smell – rare among birds – allows them to locate and dispose of corpses that would otherwise generate problems. Not surprisingly, they have few predators.

In the same way, vulture funds have an important economic function, sniffing out and cleaning up financial pathogens. Recently, vulture funds have been in the news because they’ve invested in the sovereign debt of Argentina and Puerto Rico. Without their activities, investors would be at the mercy of managers and elected leaders who often take advantage of the fact that most people don’t have the resources to force a creditor to pay.

Photo: Dori. Source: Wikipedia

Turkey vultures and vulture investors each serve a critical role: cleansing the system of pathogens that might otherwise infect healthy members of their communities. They’re not my cup of tea, but in their own way, they can be quite attractive.

Douglas R. Tengdin, CFA

By |2017-07-17T12:21:17-04:00June 19th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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