What to do about "vulture funds"? UNCTAD event highlights challenges ahead

11 December 2015

A high-level UNCTAD Roundtable recently brought together over 70 participants and experts at the United Nations headquarters in New York to discuss the role played by non-cooperative funds (so-called vulture funds) in sovereign debt markets and debt restructurings.

The event was organized against a background of on-going international debates on the role of distressed-debt investment funds commonly described as '"vulture funds' funds" in the international financial system. Participants from the private and public sectors, as well as from civil society and academia, weighted the pros and cons of vulture fund activities in sovereign debt markets and contemplated potential solutions to recognized problems.

Speakers in the first round of discussions included Charles Blitzer(Blitzer Consulting), Jack Blum (Center for International Policy), Lee Buchheit (Cleary Gottlieb Steen & Hamilton), Elena Duggar (Moody's), Anna Gelpern (Georgetown University), Jacques-Alexandre Genet (Archipel), Archbishop Roberto Gonzales Nieves (Puerto Rico), Robert Howse (NYU), Eric Lecompte (Jubilee USA), Bokosi Fanwell Kenala (Afrodad), Sebastiàn Soler (Attorney), and Mark Roland Thomas (World Bank).

Divergent views were expressed on the urgency of addressing aggressive litigation strategies by "vulture funds" against sovereign debtors. While some held that sovereign debt restructuring generally proceed smoothly, others pointed to the devastating social and economic impacts of "vulture funds" activities in debt-distressed developing economies.

Archbishop Nieves in particular issued an impassioned call for a fast solution to Puerto Rico's financial crisis that he referred to as a "very real humanitarian crisis".

As well as the problems of Puerto Rico, the experiences of Argentina and Greece received ample attention. Other issues discussed included problems in inter-creditor equity and transparency in secondary trading transactions involving distressed debt investors.

UNCTAD event on vluture funds

A second round of discussion focused on potential solutions to problems and issues identified in the first round. Speakers included Nikita Aggarwal (IMF), Jane Brauer (BoFa Merrill Lynch), Robert A. Cohen (Dechert), Tom Ferguson (UMB), Hans Humes (Greylock Capital), Odette Lienau (Cornell), Domenico Lombardi (CIGI), Jurgen Kaiser (Jubilee Germany), Steven Kargman (Kargman Associates), José Antonio Ocampo (Columbia University), and Rodrigo Olivares-Caminal (Queen Mary).

International bankcruptcy laws, while considered by some an urgent necessity in their own right, were generally regarded as too broad a brush for effectively limiting the collateral damage arising from the activities of "vulture funds" in developing economies. Speakers instead suggested an array of more specific avenues to regulation.

Some argued that an enhanced market-based approach that focused on ex-ante contractual provisions to impede the activities of "vulture funds" in sovereign bond markets would be most effective.

Others stressed the need to address questions of the comprehensiveness and impartiality of sovereign debt restructurings at national and international levels through legal and institutional approaches.

Flexible solutions were also proposed in the form of establishing acceptable practices at the international level and creating a pool of governments supporting and abiding by these.

All participants agreed on the urgent importance of continuing the debate and to work towards feasible remedies, in particular in view of the increased likelihood of sovereign defaults and debt distress in developing countries in the near future.

The need to create and maintain the conditions for constructive dialogue between creditors and sovereign borrowers was repeatedly stressed.

Participants strongly welcomed the opportunity provided by UNCTAD in this regard, and urged UNCTAD to continue to provide a forum for dialogue to deliver balanced solutions in line with sustainable development goals.