Hedgies to face EU pay curbs
THERE was growing anger in London’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’ variable pay.
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 “at least three years”.
And in cases where the variable remuneration is of “a particularly high amount”, then 60 per cent should be deferred, the directive says.
The restrictions on variable income will come as a major blow to hedge fund managers, who normally earn a basic salary as low as £40,000. The vast majority of their pay comes from a performance fee that is typically 20 per cent of profits.
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.
Several hedge fund managers told City A.M. that the rules were ill-thought out and had been designed to regulate pay at banks.
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’s board of directors.
He said: “Board directors of hedge funds earn about £7,000. Everyone here – even staff on minimum wage – gets paid more than that.”
He added that the rule – which will also apply to the private equity industry – had clearly been written with banks in mind, to show which bankers earn more than their chairman and chief executive.
News of the plans come hot on the heels of an announcement by BlueCrest Capital – one of London’s biggest hedge funds – which has said it is moving a large part of its operation to Geneva due to concerns over regulatory interference.