New EU Regulations to Cut Hedge Fund Managers’ Bonuses

March 3, 2013 James Heinsman Hedge Fund News

Hedge fund managers in London can expect some cuts in their yearly bonuses as well as their upfront pay scales when some new European Union rules go into effect.

The Alternative Investment Fund Managers Directive is the EU’s effort to bring the take home pay of hedge fund managers back down into the atmosphere, rather than escaping into the stratosphere of high income wages. The directive dictates that from 40 to 60 percent of a manager’s bonus must be deferred, and a maximum of 50 percent will be allowed to be paid in cash. The remaining reimbursement for services rendered will have to be made up of units of their fund, or its equivalent.

There is some lack of clarity about how the new rules will actually apply. The way taxes and dividends will be treated is still not completely understood.

"It is potentially a massive concern if it all goes horribly wrong. But it is not yet clear (what might happen)," said one industry executive, who chose to withhold his identity due to the sensitivities around hedge fund remuneration.
 

Alternative Investment Fund Managers Directive, European Union,

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