With close attention being paid to the ability of fund of hedge funds managers to pick underlying funds that continue to prosper in more volatile market conditions, investors are increasingly exami
With close attention being paid to the ability of fund of hedge funds managers to pick underlying funds that continue to prosper in more volatile market conditions, investors are increasingly examining the processes used by fund of funds managers and the capabilities of their operational structures as well as their investment skills.
The extension of Standard & Poor’s fund management ratings to the fund of hedge funds sector reflects the growing demand worldwide for alternative products among a wider range of investors, the increasing use of funds of funds to reduce the risk of hedge fund investment through diversification, and moves by national regulators to permit the sale of funds of hedge fund products to retail investors.
Standard & Poor’s Fund of Hedge Funds Ratings draw on the global reputation of the fund management rating process but reflect the different characteristics of the funds. For example, S&P does not evaluate the performance of funds of hedge funds against a peer group because of the difficulty of comparing like with like. Instead, the analysis focuses on the ability of managers to achieve the targets they promise investors.
Following the award of a rating, funds of hedge funds are monitored quarterly for performance, operational changes and any other developments – such as significant changes in fund size or portfolio orientation – that might affect the manager’s ability to deliver performance in terms of the fund’s objectives.