From Puerto Rico to the Dublin Docklands, Vulture funds and debt in Ireland and the Global South

27 March 2017 by Debt and Development Coalition Ireland

Vulture funds have become familiar to those concerned with debt justice over recent decades. Because of their speculative strategies and negative impacts on sovereign debt restructuring, they have come to symbolize the highly unequal and unjust nature of sovereign debt. Initially a subject of concern for those concerned about financial justice in the global south, in the last few years, vulture funds have been circling Europe. In Ireland, they have become major investors in real estate and owners of huge amounts of property and land in Dublin and across the country. While the funds in question are not household names, the important role they play should not be underestimated.

Vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
are typically hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. or private equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. firms who invest in distressed debt. Two types of speculation vulture funds engage in – on sovereign debt Sovereign debt Government debts or debts guaranteed by the government. and on real estate – involve different strategies and tactics. When investing in sovereign debt vulture funds pursue a ‘litigious’ strategy, aggressively using the courts and legal action against debtor nations. By contrast, investment in real estate and debt linked to real estate centres on using control over debt to squeeze underlying assets for maximum profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. . What both approaches share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. is their focus on distressed debt; when loans go bad they create particular opportunities to achieve super-normal profits. This means that economic crisis becomes the natural hunting ground for vulture funds. This report examines how speculative investment in distressed debt works and looks at some of the companies involved, tracing the links between Ireland’s ‘property give away’ and the predatory practices of vulture funds in the global south. It analyses the economics and politics of distressed debt as a particular form of financial speculation and raises wider questions about the power of the financial system and the role of debt in our economies and societies.The report tries to document the negative social impacts and risks associated with the buying up of bad debt by global financial firms.

Despite the problems and risks associated with this kind of investment the Irish government has whole-heartedly embraced vulture funds. Indeed the latter’s aggressive entry into the Irish market could not have occurred without two major public financial institutions: the Irish Banking Resolution Corporation (IBRC) and the National Asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). Management Agency (NAMA). Both these institutions were established in response to the Irish financial crisis, and yet by facilitating the arrival of vulture funds they have contributed to reproducing and reinforcing systemic risks.

The report is structured as follows: it begins by introducing vulture funds and the markets in which they operate. It then described the role of vulture funds in sovereign debt crises in the global south. The report goes on to explore their role in real estate investment in Ireland in the wake of the financial crisis, the risks this gives rise to and the role of the Irish government and public institutions in making it possible. The report concludes with an analysis of the significance of vulture funds and distressed debt investment in the wider context of global financialization and the systemic risks at stake here, and
advances a number of recommendations.

Please sign CADTM’s International Call to Support and Internationalize the Belgian Law on Vulture Funds

Other articles in English by Debt and Development Coalition Ireland (2)



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