November 2015        

Vulture funds: Multi-headed dogs of the dead!

Nicola Lawlor

We have heard a lot about Cerberus in recent times in relation to NAMA and IBRC and the purchase of “distressed assets” and housing and commercial developments, particular to do with Project Eagle in the North of Ireland.
     Cerberus describes itself as a private investment firm that has “excelled at distressed investing since our inception and have built a highly regarded reputation for our focus on deep value.” It manages about $25 billion in assets and yet employs only about 150 people. This is the type of “investor” the Irish government tries to court, protect, and promote.
     One of the reasons that Cerberus is such a big player is its political weight. A former vice-president of the United States, Dan Quayle, is chairman of Cerberus Global Investments; he was vice-president with George Bush senior in the late 1980s and early 90s. And a former secretary of the US Treasury, John Snow, is the firm’s chairman.
     The Cerberus we knew before recent revelations was a figure in Greek myth, a multi-headed dog that guarded the underworld, Hades. Cerberus was a hellish creature, with several heads, sometimes depicted with a serpent’s tails and sometimes with a venomous tongue. These clever private investors must have been trying to tell us something when they chose their name.
     Cerberus has about ten companies in Ireland, which have bought more than €19 billion worth of loans in Europe, the bulk of which have been in Ireland, from Ulster Bank, IBRC, and NAMA. Only in October the chairman of NAMA, Frank Daly, announced that Cerberus was the preferred bidder for €6¼ billion worth of small non-performing loans known as Project Arrow.
     Almost half these small loans are residential. It is not clear yet whether these are rental or owner-occupied homes; but we do know that Cerberus are and will be vicious in their treatment of residents if it means adding value to their acquisition. In the middle of a housing and homelessness crisis, to allow the world’s largest property company, NAMA, to continue to sell homes is shocking.
     Mick Wallace TD is right to call this a scandal, and right to point the finger directly at the Taoiseach, who is ultimately responsible for NAMA.
     Vulture funds are private equity funds or securities funds that specialise in buying what are known as “distressed assets” cheaply when a market is depressed and sucking as much profits out of them as they can. Sometimes they sell them, sometimes they strip them, sometimes they withhold them from the market to allow inflation to provide them with their return; but rest assured that the decision they make will be based purely on maximising their return.
     While Cerberus may be a hell dog, it also fits the bill of a vulture fund.

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