Alts. Bonuses Unaffected By New EU Fund Rules

Feb 26 2014 | 11:54am ET

Alternative investments managers have again escaped tough new compensation rules in Europe.

The European Union and its member states have agreed to new bonus rules for mutual fund managers. But the limits will not apply to hedge funds or private equity firms, although both may face curbs in the future.

If so—and if the mutual fund rules are to be extended to them—alternative investment managers will at least face less draconian rules than those imposed on banks, which are barred from paying bonuses larger than an employee's annual salary. But the mutual fund rules still require a three-year deferral of at least 40% of bonuses, and that half of cash bonuses be invested in a manager's fund.

"We want to ensure that responsible remuneration policies are in place across the financial sector and that there are no loopholes for risky and dangerous trading practices," Arlene McCarthy, a member of the European Parliament from the U.K., said. "The new rules will bring funds in line with EU banker bonus rules, as there will be no guaranteed bonuses for fund managers and 40% of bonuses must be deferred."

A formal deal on mutual fund pay is expected within weeks, after which EU member states will have 18 months to implement the rules.


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