Hedgies to face EU pay curbs

THERE was growing anger in London&rsquo;s hedge fund community last night, after it emerged that the European Union plans to treat funds like banks by forcing them to defer up to 60 per cent of managers&rsquo; variable pay.<br /><br />According to a draft version of the Alternative Investment Fund Managers (AIFM) directive seen by City A.M., hedge fund managers should have 40 per cent of their variable remuneration deferred for &ldquo;at least three years&rdquo;.<br /><br />And in cases where the variable remuneration is of &ldquo;a particularly high amount&rdquo;, then 60 per cent should be deferred, the directive says.<br /><br />The restrictions on variable income will come as a major blow to hedge fund managers, who normally earn a basic salary as low as &pound;40,000. The vast majority of their pay comes from a performance fee that is typically 20 per cent of profits.<br /><br />Sources close to the drafting of the directive say that Sweden, which currently holds the rotating presidency of the EU, requested that tough rules on pay be included.<br /><br />Several hedge fund managers told City A.M. that the rules were ill-thought out and had been designed to regulate pay at banks.<br /><br />One pointed to a rule that would force funds to publish the remuneration details of every staff member that was paid more than the average earned by the fund&rsquo;s board of directors.<br /><br />He said: &ldquo;Board directors of hedge funds earn about &pound;7,000. Everyone here &ndash; even staff on minimum wage &ndash; gets paid more than that.&rdquo;<br /><br />He added that the rule &ndash; which will also apply to the private equity industry &ndash; had clearly been written with banks in mind, to show which bankers earn more than their chairman and chief executive.<br /><br />News of the plans come hot on the heels of an announcement by BlueCrest Capital &ndash; one of London&rsquo;s biggest hedge funds &ndash; which has said it is moving a large part of its operation to Geneva due to concerns over regulatory interference.