Vulture fund can be defined as the pool of the investor money that is used to make investments in the form of securities from concerned issuers for example issuers that issue bonds.
Example of the Vulture Fund
In order to understand the concept of vulture fund lets have an example of a company that deals with the ready to eat edible snacks. The company fells a victim to a food poisoning scandal due to which all the credibility of the company has been lost. The company has lost its 75 percent of customers and the prices of its stock fall about 90 percent of their original value. The entire market thinks that company will not be able to recover. However there is another asset left with the company that is its patent packaging that can be licensed and can be used in other industries. Vulture fund ABC knows the value of the patent and believes that company will be able to resurrect or it will be able to pay the interests as well as capital after the sale of patent if in any case bankrpetucy occurs so the vulture fund will purchase high yield bonds in the dying company.
Another intelligent task done by the vulture funds is that they purchase debt of the different companies from the bank. For example if a bank XYZ has lend a certain amount to a company and want to sell debt off the books the bank may sell that debt to a vulture fund company in the same way as the credit companies sell the customer debt to the collecting agencies.
Importance of Vulture fund
Vulture fund is the last hope for the financially dying companies and this will help the vulture fund companies to pick off the last meat from the carcass to enjoy a quirky and big fat profit.
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