U.K. Softens Blow Of Hedge-Fund Pay Rules

Sep 11 2013 | 2:18pm ET

Europe's new hedge-fund pay rules will not hit London firms as hard as feared under draft proposals from the U.K. Financial Conduct Authority.

The regulator plans to allow hedge funds with between £500 million and £1.5 billion to opt out of the restrictions, which strictly limit cash bonuses, requiring that at least half of compensation come in the form of fund units—and with long deferral periods.

Larger firms may also be able to escape the rules by showing that they have a simple organizational structure, operate in only one territory, employ non-exotic strategies or have straightforward governance.

The FCA will consult with the alternative investments industry—which the Financial Times says is pleased with the proposals—and won't publish final guidelines until the end of the year. That will mean new pay rules, if they actually affect anyone, won't come into force until the spring of 2016.

"The industry sentiment is that the FCA is taking a pragmatic and flexible approach in the consultation, and this is probably as good an outcome as the industry could have hoped for," Indos Financial's Bill Prew told the FT.

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