S&P To Rank Hedge Funds By Risk

Top-tier ratings agency Standard & Poor’s plans to begin tracking the operational risk of hedge funds, according to Reuters.

The service, which would likely be launched early next year, is being designed in response to requests from customers, according to S&P Director Charles Davidson. The product would also respond to increasing concerns about whether funds expose investors to risk beyond investment risk due to business shortcomings.

“Most hedge funds fail for operational reasons rather than for poor investment decisions,” said Paul Roth, an attorney at Schulte, Roth & Zabel, a New York firm that specializes in advising hedge funds.

“The industry doesn’t need any more black eyes,” said Sol Waksman, president of Barclay Trading Group. Such a service could help investors foresee and sidestep fund company blow-ups, he added, although he warned investors should not rely solely on ratings, and must pay close attention to other indicators.

Other ratings companies such as Morningstar have been moving into researching hedge funds, while S&P competitor Moody’s has likewise expanded its services beyond traditional credit ratings. 

S&P’s new product would rate due diligence policies, back office operations, risk management, liquidity and leverage of hedge funds. 

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.