Tuesday, July 8, 2008

Declawing the vultures

Last week, I noted the feature story in Conde Nast Portfolio on "vulture" funds. The story, while not directly critical of funds like Elliott Management, is far from objective. From the artwork showing a vulture preying on Africa to several obvious omissions about how funds that buy defaulted foreign debt operate, the story stereotypes hedge funds and does little to ask the nuanced questions that would be required by a serious examination of "vulture" strategies.

Fortunately, Felix Salmon, who blogs for Portfolio, rebuts the story at Portfolio.com. Too bad, though, that the important clarifications Salmon makes are much harder to find on the Web site than the original, inflammatory article.

The rebuttal includes the following facts, none of which were part of the print story:
- The difference between the moneys awarded by the courts and what is actually collected is vast
- Going to court is often the last step in a process that includes direct negotiation with governments for payment
- Collecting any payments involves a lot of time and resources, meaning that profits can be slim, without even accounting for the tremendous uncertainty involved

One would have hoped that two writers for the same publication could have collaborated on this topic. The reult would have been a more balanced and insightful piece. Fact is, though, that rarely happens, particularly when the topic involves hedge funds.

Another defense of "vulture" funds by Salmon can be found here.

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