Fitch Launches Fund of Hedge Fund Manager Ratings

Date: Tuesday, April 1, 2008
Author: Fitch Ratings.com

Fitch Ratings-London/New York/Paris-31 March 2008: Fitch Ratings today launches fund of hedge fund (FoHF) manager ratings, which will provide an independent, professional assessment of fund of hedge fund manager capabilities. The rating criteria are detailed in a report, "Reviewing and Rating Fund of Hedge Fund Manager," published today on www.fitchratings.com.

As with all its manager ratings, Fitch will issue FoHF manager ratings to provide an independent assessment of manager capabilities with particular focus on the specialized resources, expertise, decision-making, risk management and portfolio management processes needed to provide effective FoHF management. The approach is founded on the framework used by the agency to rate managers in various contexts (e.g. fixed income, equity, balanced, real estate, CDOs) while also incorporating factors and rating definitions that reflect the specifics of hedge fund multi-management.

Recent growth in fund of hedge funds has been accompanied by a marked increase in the number of organizations offering fund of hedge fund investment products. The varying performance records of these organizations and the continuing evolution of the hedge fund industry fuel the need for greater scrutiny of fund of hedge fund managers.

Fitch's asset manager ratings process is based on defined quantitative and qualitative criteria to measure the manager's current qualifications and prospective capabilities. This multi-criteria approach provides an objective aggregation of the rating factors into five distinct groupings that allow better recognition of an organization's strengths and weaknesses. These groupings are:

- Company and Staffing
- Fund/Manager Selection
- Portfolio and Risk Management
- Investment Administration
- Technology

The rating methodology facilitates the consistent application of criteria while minimizing subjective variations in scoring qualitative characteristics. This will be accomplished through the use of a scoring guide that defines all possible scores for each factor within the scorecard. A five step rating scale will be used ('FoHFM1' - 'FoHFM5') with 'FoHFM1' being the highest rating. Each rating factor will be scored on a scale of 1 to 5 with one being the best. Each factor is assigned a relative weight within the grouping of factors to generate an overall group score. These group scores will be assigned relative weights in determining the overall rating.

To achieve increased transparency of its ratings decisions, Fitch will publish the scores attained by the rated asset manager for each group of criteria factors listed above.

Announcements will be published by Fitch for FoHF manager ratings and accompanied by reports on the respective asset management organizations. Each report will profile the rated organization, its personnel and operations, and summarize Fitch's assessment of the organization's asset management capabilities. The reports will be available on Fitch's website at www.fitchratings.com.

Contacts: Said Rafat, New York, Tel: +1 212 908 0337; Aymeric Poizot, Paris, +33 1 44 29 92 76; Amit Mathur, London, +44 20 7682 7339.

Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22; Hannah Warrington, London, Tel: +44 (0) 207 417 6298.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.