Vulture Investors

A “vulture fund” is an investment company, often a hedge fund, that specializes in purchasing the debt of troubled companies and sovereign nations. To call such investors “vultures” is pejorative, which is why they are also called “distressed debt investors.” This entry focuses on distressed debt investors who are active in the sovereign debt markets.

When a borrower nation encounters financial difficulties, the market begins to anticipate that it will default—that is, fail to make interest and principal payments in full and on time. As this likelihood becomes more apparent, a vulture fund buys the distressed debt on the open market, hoping to hold the cheaply acquired assets and eventually secure a profit by inducing the debtor nation to settle its liabilities. The investment horizon can ...