Hedge Funds To Be Subject To EU Bonus Rules

Jul 1 2010 | 2:03pm ET

Hedge fund managers may have dodged the European Union’s controversial proposed alternative investment rules for the time being, but they won’t dodge the tough bonus restrictions included in that directive.

EU fund managers will be subject to new compensation and bonus rules expected to be approved by the European Parliament next week, as most firms—those owned by insurance companies are notably excepted—will be considered credit institutions under the bank pay rules.

Under the proposal, no more than half a hedge fund manager’s total compensation can be paid out as a bonus. What’s more, only 30% of bonuses can come in the form of cash, and at least 40% must be deferred for a period of years.

How, exactly, hedge funds are to meet the second requirement is unclear. Banks will be forced to pay out the bulk of their bonuses in stock, but most hedge fund managers are not publicly-listed.


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