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Investors question the rating agencies

The huge growth in the number of European corporates of varying credit quality tapping the capital markets has led to massive demand for ratings. The ratings agencies are staffing up to meet this challenge. But there remains a question mark over the value of the service they provide, especially in high yield, the most credit-intensive area of all.

Agnes de Petigny

It is a rare investor who is willing to be seen openly criticizing the job that rating agencies do. Despite fund managers' private grumbles - about the shortcomings, the mistakes, the frustrations - the relationship is still too important to jeopardize. Behind closed doors, however, it is a different story.

"Rating agencies have no predictive capabilities whatsoever," says one European high-yield portfolio manager - asking, in exasperation: "Why do people still tolerate them? Why do they use them?"

At the other end of the scale, an investor who professes to value rating agencies can manage no bigger compliment than this when asked about how forward thinking they are: "They can be quite slow, but for the big credits they're generally not too far behind."

A decade ago there were fewer than 50 companies in Europe with ratings.

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