Fitch Releases Investment Manager and Alternative Funds Criteria

According to a press release, the “Investment Manager and Alternative Funds Criteria” is a global sector-specific criteria report that will be used in rating investment managers and alternative funds and debt issued by investment managers and their funds.     

The key rating factors cited in the Investment Manager and Alternative Funds criteria include:     

• industry profile and operating environment
• company profile and risk management
• financial profile
• management strategy and corporate governance, and
• ownership, support, and group factors.     
  

Fitch said this criteria report replaces “Ratings Considerations for North American Investment Managers,” dated July 21, 2006, and “Assigning Credit Ratings to Hedge Funds” dated April 17, 2006.      

Broadened Scope

In addition, according to the announcement, this criteria report broadens the scope of previous criteria to apply to investment managers globally—and includes alternative investment managers, such as business development companies (BDCs), private equity, real estate or hedge fund managers as well as “entities that employ hybrid investment strategies that may cross over several investment types or strategies.” It has also expanded the scope of alternative funds to include hedge funds and other pooled funds that may issue debt and that are not covered under other criteria. Both traditional investment managers discussed in “Ratings Consideration for North American Investment Managers” and hedge funds discussed in ‘Assigning Credit Ratings to Hedge Funds’ are assessed in this new criteria report, according to Fitch.      

However, Fitch stated that this criteria report does not include the rating of money-market funds and other closed-end funds (such as bond funds), which it says is covered under separate criteria—and the report also excludes Fitch’s Asset Management ratings, which are a separate and distinct set of ratings that provide an operational risk assessment addressed by Fitch’s criteria research report from June 2009 on ‘Reviewing and Rating Asset Managers,’ according to the firm.  
The announcement states that this report falls under Fitch’s master criteria for financial institutions, the “Global Financial Institutions Criteria” dated December 29, 2009, and that there are “no substantial changes in Fitch’s approach to rating investment managers, hedge funds, and BDCs, though the expansion in scope to include other alternative investment managers and alternative funds is a major change.”