Vulture Investing

Vultures play an important role in nature, though it’s one that strikes many as revolting. So it is in finance. In times of crisis, vulture investors swoop in to buy the cheapest, most troubled assets, giving desperate sellers an opportunity to exit. The investors get a chance to profit — from other peoples’ disasters. Few would begrudge the billions that hedge funds have earned for taking the risk of purchasing Lehman Brothers debt after the company’s bankruptcy in 2008. But the aggressive measures vultures have taken to recover money owed by struggling governments, including an epic battle over Argentina’s debt, have prompted concerns about the power of these investors to disrupt economies.

Goldman Sachs Group Inc. came under fire in Venezuela in May after its asset-management unit bought bonds, at a steep discount, issued in 2014 by the state oil company, a purchase opposition lawmakers said bolstered embattled President Nicolas Maduro. Critics dubbed them “hunger bonds” because Maduro has been cutting imports of food and medicine to conserve cash and continue bond payments. It took Argentina 15 years to settle a dispute with a group of creditors who, after the nation’s 2001 default, refused to accept new securities worth about a third of the original value. The holdout bondholders were led by Paul Singer, head of the $27 billion hedge fund Elliott Management. Argentina went into default again in 2014, after the U.S. Supreme Court let stand lower court rulings requiring it to pay Singer’s group $1.6 billion in full and to not pay creditors who had accepted the marked-down bonds until then. Under the government of President Mauricio Macri, Argentina negotiated an agreement in 2016 to pay 75 percent of principal and interest on full claims. Amid Greece’s financial troubles in 2015, vulture investors bought its distressed government bonds, betting correctly that the country would reach a deal with its creditors to avoid default.