Proposed Bill in United Kingdom Would Restrict Investments by Hedge Funds in Sovereign Debt

A strategy employed by certain hedge funds involves the purchase of heavily discounted, sometimes defaulted, sovereign debt, followed by legal action seeking the face value of that debt.  The present political climate is not perceived as favorable for hedge funds that employ this strategy, as evidenced by the epithet “vulture funds” often used to describe them.  According to sources interviewed by the Hedge Fund Law Report, legislation restricting investment activities relating to sovereign debt may be passed in the U.K in the coming months.  On May 6, 2009, Sally Keeble, a Labour Party Member of the U.K. Parliament, introduced a bill that would severely limit the recovery, within the courts of the U.K., on the defaulted sovereign debt of developing countries.  We discuss the legal considerations in connection with a sovereign debt strategy generally, and Keeble’s bill specifically.

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