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."

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…