Fund managers fearful bonus cap will squeeze capital requirements

Michael Bow
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FUND managers yesterday voiced concerns that EU plans to cap bonuses will drive up fixed costs and force them to hold more regulatory capital, threatening smaller fund managers.

Plans being hatched in Europe will introduce a cap to limit fund manager bonuses to one or two times salary. The move to force variable bonus pay into a fixed salary cost is likely to increase the amount of regulatory capital fund managers have to hold, hitting smaller boutique money managers.

Somerset Capital Management chief executive Dominic Johnson, whose firm runs about $2.3bn (£1.5bn) and has 30 staff, said: “The key point against a bonus cap is that people will raise the fixed costs of salary. It’s actually anti-competitive, it will drive out these small businesses. It’s very dangerous for the market.”

The amount of capital that fund managers are required to hold is directly linked to their fixed cost base, at around a quarter of costs.

Increasing it would up the amount of money required to be held back, eating into cash flows.

The chief executive of another small fund manager said: “My concern is that if you move your business onto a very high fixed cost base and the market comes off, it has a significant impact on revenues. No business would survive with a big increase in fixed salaries,”

However, managing director of Miton Group Gervais Williams said big bonuses were likely to become smaller, as they were a primarily feature of the credit boom.