Vulture funds have their uses
Sir, – Vulture funds provide a valuable public service.
When a borrower stops making payments on a loan, the cost to the bank of keeping the loan increases dramatically. Instead of keeping it, the bank can sell the bad loan at a discount. They lose in the short run because they get back less than they lent but are better off overall. This is where a vulture fund steps in.
When a vulture fund buys a loan from a bank who reaps the benefits? Nurses. Yes, really.
Pension funds investing on behalf of nurses, not to mention teachers, police officers, firemen and all manner of government employees around the world invest in vulture funds. And it’s not just semi-State pensions that choose these types of investments.
In fact, since 1997 allocation to alternative investments such as vulture funds has increased from 4 per cent to 25 per cent of global pension assets.
Pension managers choose these types of investments because, following a recession, vulture fund returns are typically strongest early in the recovery phase, meaning they should help the value of the people’s pensions recover quicker.
Loans go bad because life happens, jobs are lost, health setbacks and bereavements occur.
There is fault with bank that lend more than borrowers can afford and the foreclosures which result can be tragic. And there are certainly examples of vulture funds acting unscrupulously.
However, for the most part, by buying defaulted loans, vulture funds enable banks to clean up their balance sheets, while helping to secure the retirement of millions regular people in the process. – Yours, etc,