Fitch Ratings has begun rating fund of hedge fund (FoHF) managers.

The rating agency says that, as with all its manager ratings, Fitch will issue FoHF manager ratings to provide an independent assessment of manager capabilities with particular focus on the specialized resources, expertise, decision-making, risk management and portfolio management processes needed to provide effective management of these sorts of funds.

The ratings approach is founded on the framework used by the agency to rate managers in various contexts (e.g. fixed income, equity, balanced, real estate, CDOs) while also incorporating factors and rating definitions that reflect the specifics of hedge fund multi-management.

Recent growth in fund of hedge funds has been accompanied by a marked increase in the number of organizations offering fund of hedge fund investment products. The varying performance records of these organizations and the continuing evolution of the hedge fund industry fuel the need for greater scrutiny of fund of hedge fund managers, it says.