Groups Urge Buy Side to Reduce Reliance on Rating Agencies

Although calling for improved disclosures from rating agencies and issuers to provide adequate information for investors to perform their own risk analysis, the guidelines say that the ultimate responsibility should always lie with investors.

"As an investor, you have to satisfy yourself that what you buy is correct for you," says Nathan Douglas, an IMA advisor on prudential regulation, adding that caveat emptor always applies.

According to the guidelines, asset managers should understand that credit ratings are not a complete indication of risk, and may be derived using imperfect methodologies. The guidelines also advise against using ratings as part of a fund's investment mandate, suggesting that firms instead adopt other tools to define maximum levels of portfolio credit risk.