Hedge Fund Bonus Rules Has Industry Worried

Aug 13 2012 | 1:22pm ET

Less than a year before strict new pay rules for European hedge funds come into force, the industry is still unsure of how exactly they will be affected—and are fearing the worst.

The European Securities and Markets Authority in June told national financial regulators that it expects bonus restrictions already imposed on banks to be extended to hedge funds. ESMA's guidance suggests that hedge funds would have to defer between 40% and 60% of bonuses over several years, and that at least half of bonuses would have to be paid in equity-linked instruments related to the fund.

"The prospect of clawback is really alien to this industry," PricewaterhouseCoopers' Jon Terry told the Financial Times. "And some of the deferral rules would be virtually impossible for many hedge funds."

Worse still, the deferral rules could create "a very real tax problem" for British hedge funds, Sigma Partnership's Joe Seet told the FT. The U.K. taxes bonuses at the time they are awarded, making it "entirely possible that the tax due exceed the initial cash portion paid."

"Pay is one of the things this industry has got right," one hedge fund manager complained to the newspaper. "We only make money if our clients are making even more money."


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Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.

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