Morningstar to rate funds of hedge funds

Morningstar Inc. of Chicago is taking its research of the hedge fund industry to the next level with plans to categorize and rate the 3,500 funds of hedge funds in its database. The firm already categorizes by investment style and applies star ratings to the 5,000 individual hedge funds in its database. The new effort would apply the same analysis to funds of funds by the end of the year, according to Ryan Tagal, direct of hedge funds at Morningstar. “Until now, the funds of funds have been a single category in one big amorphous blob,” he said. “That’s part of the reason investors have a hard time distinguishing one fund of funds from another.” Mr. Tagal said the fund of funds universe will likely be divided into six to nine categories. The hedge funds are divided into 17 categories.