European Bonus Curbs Would Hit Hedge Funds With UCITS Products

Mar 22 2013 | 1:42pm ET

European plans to extend tough new bank bonus curbs to the assets management industry, including hedge funds that manage UCITS-complaint funds.

A European Parliament committee has proposed new rules that would cap most money managers' bonuses at the level of their salary. The proposal, which still faces a vote by the full parliament and then talks with European Union member states, would cover two-thirds of senior managers, and would cover not only those in the EU, but those in the U.S. and other countries who pedal their wares in the 27-member bloc.

Hedge funds, by and large, would be exempt from the new rules, except for those who manage UCITS funds. UCITS funds account for only about 5% of the global hedge fund industry's assets, but include funds run by the likes of Och-Ziff Capital Management, Paulson & Co. and Winton Capital Management.

Hedge fund bonuses are regulated by the new Alternative Investment Fund Managers Directive, which requires substantial portions of payouts to be deferred and paid in securities linked to a manager's funds.

As with the bank-bonus limits, there are already warnings that the asset-management bonus limits will be ineffective and detrimental to the EU.

"Base salary will increase, they will relocate to another country or move completely away from any type of EU bank or fund manager," Hakan Enver of recruiter Morgan McKinley told Bloomberg News.

Others aren't sure it will be quite as bad as it looks.

"There's a better chance of getting this diluted because Parliament is more divided on fund manager pay than it is on the issue of bankers' pay," the Investment Management Association's Irving Henry said. "Banks are seen as for more political and toxic."


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