Increasing number of Hedge Funds going into municipal debt

May 8
1:12 PM 2013

In the last twenty years, specialized private equity firms have lorded corporate bankruptcies, being called 'vultures' and at the same time infusing capital for these distressed companies.

These same funds are now circling another opening in the distressed market and these are the financially handicapped cities and counties. One of these is the city of Detroit.

The increased interest in municipal indebtedness comes after these hedge funds are seeking other options to infuse their money. Corporate bankruptcies have come and gone, especially in light of the current program of low interest rates from the Federal Reserve. 

Going into municipal corporations though presents different issues as the fianncial and political limitations together with the public service requirements may put a damper on the future revenues. Another problem is that municipal corporations cannot go into liquidation.

Despite the risks and the issues, many funds are alresdy putting in hundreds of millions of dollars for the promised high yields in these cash strapped governments.

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