Hedge Fund Reader : Traditional Lenders criticize lending practices of Hedge Funds

July 27, 2005

Traditional Lenders criticize lending practices of Hedge Funds

Traditional lenders such as banks and other Wall Street firms are threatened by the Hedge funds’ lending practices. They accuse the hedge funds of adapting their own rules for lending money to clients, by amending loan agreements. They feel that such changes may look attractive at first glance but companies borrowing money from them may in fact become bankrupt. This lending option is generally taken up by cash-strapped firms who find the lending terms of hedge funds quite enticing. Hedge Funds however defend themselves by saying that their standards help the borrowers to adopt financial discipline and responsibility. Hedge Funds are also charged with offering loans and hedge against such loans by shorting the stocks and bonds of their borrowing companies. This can lead to a distress situation for the borrowing company. This attitude of the hedge funds seems to denote the callous approach of the hedge funds towards the health of the borrowing companies. Hedgeco.net reports:

“Many hedge funds firms entered into the private equity arena. Critics also charge that some hedge funds offer loans and hedge against such loans by shorting the stocks and bonds of their borrowing companies.”

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July 27, 2005 in Emerging Markets | Permalink