MOODY’S Investors Service, the ratings agency, is to begin rating hedge funds for a minimum price of $25,000 (£13,000) per report.

Kevin Gains, a senior analyst involved in the new ratings service, said that Moody’s had been inundated with calls from hedge fund managers seeking a rating report, which grades hedge funds from “excellent” to “poor”.

Moody’s considers their “operational risk” — that is the risk of the hedge fund collapsing. Investors have been looking for ways to assess risk on hedge funds, in the wake of the recent collapses of Bayou Management and Wood River Capital Management. A poor rating, OP5, by Moody’s would indicate that the hedge fund has an “inadequate valuation process” and that “compliance risk may be high” or that “risk reporting may be lacking or absent.” An excellent rating, OQ1, would indicate that funds have a “very strong valuation process tailored to their investment strategy”.

The service so far has rated just one hedge fund company — Sorin Capital Management, based in New York. Funds are not rated according to their performance. Sorin was given the second-highest rating.

The ratings company will do background checks on the individual managers, as well as looking at the back-office administration.

Mr Gains said that because of the minimum charge of the service it was aimed at the larger hedge funds, with more than $80 million under management. He said: “We won’t make any unsolicited analysis of hedge funds.”

He said that hedge fund companies that were given a low rating by Moody’s could opt to keep the rating private until they had worked on their problems. “We will give an indicative rating, and companies can opt to proceed to get a full rating or not,” he said.

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