Hedgies blast EU bonus law as ridiculous
LONDON’S hedge funds community slammed forthcoming European rules on bonuses as “absolutely ridiculous” yesterday as it transpired asset managers will be caught up in the crackdown on bankers’ pay.
The European Union confirmed investment firms, as defined under the Markets in Financial Instruments Directive (MiFiD), will fall under the scope of its tough restrictions on bonuses. According to plans to be approved by the European parliament next week, the cash portion of a reward will be capped at between 20 and 30 per cent, with two thirds of the overall amount staggered over three to five years. At least half the upfront element will need to be in shares or other performance-linked securities which can be clawed back.
Hedge funds had expected to be included in the legislation, but were taken aback at being bundled together with banks on remuneration. An industry source said it was “absolutely ridiculous” to expect asset managers to pay traders in shares when many hedge funds were privately held, with no shares in circulation.
Hedge fund managers are also unsure as to how the bonus rules will overlap with pay guidelines set out by the Alternative Investment Fund Managers (AIFM) directive, which is still being argued over in Europe.
The Alternative Investment Management Association, which acts on behalf of hedge funds, re-circulated its statement from November. It said: “Our concern is that [the bonus clampdown] contains elements which are inappropriate for the asset management industry… It treats hedge fund manager performance fees in a similar way to banking bonuses when they are in fact completely different.”
Stuart Fraser of the City of London Corporation denounced the EU’s move as “extremely restrictive”. He added: “I am deeply concerned about the potential for hedge funds and asset managers – who have repeatedly been found to have played little or no role in the global financial crisis – to be caught up in this legislation and overwhelmed with red tape.”
The UK, which is home to 80 per cent of Europe’s hedge funds, would be hit harder than other countries in the region, Fraser said.