The Hedge Fund Ratings Game Has Begun

Just a couple of weeks after Standard & Poor’s announced with great fanfare it would have hedge fund rating system by year’s end, Moody’s Investors Services has sneaked in with Sorin Capital Management as its first publicized- and willing --subject.

Just a couple of weeks after Standard & Poor’s announced with great fanfare it would have hedge fund rating system by year’s end, Moody’s Investors Services has sneaked in with Sorin Capital Management as its first publicized- and willing --subject. “There’s definitely a strong desire from investor to understand an assess our operational quality,” Sorin CEO Jim Higgins, an alum of Bear Stearns who found the firm two years ago, told The Wall Street Journal. Rather than focusing on a hedge fund’s debt or returns, Moody rates how well the New York-based firm is running its business; in other words, its “operational risk.” The process that resulted in Sorin’s OQ1-minus, which according to The WSJ, is one notch below Moody’s highest rating on a 1-5 scale, lasted a few months with numerous meetings and phone calls, and Higgins said, those discussions included some sensitive information that he hopes Moody’s will handle with care. Sorin’s and other future ratings will be available only to accredited investors on the service’s Web site. The WSJ says as an incentive to be rated, Moody’s is giving fund managers a sneak preview of their rating before going through the entire process. While that may attract more hedge funds, reports the paper, it may result in a small number of low-rated firms. Moody’s, which hopes to sign on another 20 by year’s end says it rated another hedge fund earlier this summer, but that firm wished to remain unnamed. Also, the service would not disclose how much it charges for the privilege of being rated.