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Hedge Fund Ratings not a Substitute for Due Diligence

Date: Thursday, September 7, 2006
Author: Londonstockexchange.com

Standard & Poor's decision to start rating hedge funds has been welcomed as "generally a good thing" by an asset management company, although it has warned that there is no substitute for due diligence.

Although hedge funds may have a mysterious image in the eyes of the wider public, F&C Asset Management claims that they are "transparent" to investment professionals, while there is a "wide variety" of companies offering services to help with due diligence on the part of hedge funds.

A mixture of robust investment processes, risk monitoring and due diligence may be beneficial in encouraging investment returns according to the company, which deals with funds of hedge funds.

Francois Barthelemy, partner of F&C Partners, remarked: "S&P's move is generally a good thing, but at F&C we have made a conscious choice of not using any outsourced services because we believe it is unwise to take short cuts."

"Just like a strong credit rating on a company doesn't guarantee a strong share price in the future, a rating system for hedge funds is unlikely to replace detailed ongoing reviews," he added.

Last month, Joop Wijn, the Dutch minister for the economy, said that hedge funds were behaving like locusts after some funds voiced opinions proposing that a supermarket group they had invested in be broken up.

However, F&C Asset Management, however, defended the conduct of hedge funds, arguing that they had a right to be critical of poor management as they had the interests of their investors to protect.