Morningstar to rate hedge funds

Morningstar Inc. has taken another step into the alternative investments space by expanding its star-rating system to hedge funds. In addition to the new rating system, which begins today, Morningstar introduced a Morningstar 1000 Index and 17 indexes based on the company’s hedge fund categories. The star ratings, which range from one to five stars, will be based on risk-adjusted returns. Morningstar’s database includes approximately 7,700 hedge funds and funds of hedge funds. In order for a hedge fund to qualify for a rating it must have at least 38 months worth of consecutive performance data. According to the company’s announcement today, it is expected that 1,800 of the 4,400 individual hedge funds in the Morningstar database are eligible to receive a rating. Funds of hedge funds will not be rated by Morningstar. “We want to make researching hedge funds a more transparent process,” said John Rekenthaler, vice president of research. “Our new ratings and indexes will allow qualified investors, advisers and institutions to better evaluate and compare hedge funds to their peers.”