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Alexandru Chistruga: Vulture funds' theoretical and practical aspects


Abstract: Financial crises are a normal occurrence in all economies, despite the fact that they can be extremely damaging. Because of this cyclicality, players have emerged in the market trying to identify strategies and methods to profit from the financial crises faced by states. Vulture funds, a type of investment fund that falls under the umbrella of hedge funds, are also included among them. Due to the way they operate, vulture funds have the potential to generate returns that are greater than 1000% of the initial investment. One of their tactics entails purchasing distressed sovereign debt at a discount on the secondary market, declining to take part in their restructuring, and bringing legal action to enforce the debt and related interests, one of the consequences being the worsening of the debtors' circumstances. Even though some of their actions might be considered immoral, there are rarely any legal restrictions on the unjustified profits that vulture funds can receive. However Belgium recently passed a law to combat the activities of "vulture" funds.

Keywords: vulture funds; sovereign debt; tactics;


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