Fitch Increases Fund of Hedge Fund Scrutiny

In response to scrutiny over its ratings of instruments tied to subprime mortgages, Fitch Ratings has increased its own scrutiny over fund of hedge fund managers, warning that many such funds may not be able to meet redemption requirements if their risks are not closely monitored.

“Investors' commitment is being challenged by the current market environment and disappointing fund of hedge fund performance when compared to stated investment objectives,” the agency said.

If investors liquidate their money from these funds, the manager could penalize the interests of the remaining investors, ultimately changing the risk profile, strategy allocation, diversification and performance of the fund of hedge fund.