Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are developing criteria to evaluate the soundness of hedge funds in response to appeals for transparency from investors and regulators as inflows surge.
Systems are being developed to appraise hedge funds and will be ready to use by the end of the year, according to separate statements from the ratings companies. Sorin Capital Management, a hedge fund manager based in New York, was rated OQ1- on Monday – within the highest ranking group – in the first hedge fund rating by Moody’s.
“These ratings are on the manager as opposed to the fund itself,” Kathryn Kerle, vice president at Moody’s, said by telephone. Moody’s will not rate the creditworthiness of hedge funds or the effectiveness of an investment strategy, she said.
Hedge funds had assets of $1.2 trillion at the end of June, after attracting $42.1 billion during the second quarter, the highest quarterlyinflows since at least 2003, according to Hedge Fund Research in Chicago. Many institutional investors, including several public pension funds, are increasing their allocations for such alternative investments.
Hedge funds are loosely regulated investment pools designed for wealthy investors and institutions. They seek to make money in both rising and falling markets and often take more risks than conventional funds.
