Rating Agencies Create Hedge Fund Criteria

Standard & Poor's, Morningstar and Moody's are all developing wide-ranging credit and risk ratings in hedge funds and their managers, according to the Financial Times.

The $1.2 trillion hedge fund business has started to attract investments from conservative investors such as pension funds. To accomplish this they convinced investors that the perception that hedge funds are a risky investment is not valid.

The hedge fund world has increased pressure for more transparency and U.S. regulators want more information about hedge funds to be made available to investors. The Securities and Exchange Commission is reconsidering the best way to police hedge funds after a federal court threw out an SEC rule mandating funds to register with it.

S&P is developing an inclusive set of ratings criteria that are expected to be launched by the end of this year. Moody's and Morningstar are working on similar products. S&P said it would incorporate all aspects of operational risk, and performance to the extent that is affects liquidity.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.