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Hedge Fund Bonus Restrictions

Hedge Fund Bonus Restrictions

Hedge Funds in London Seek to Avoid Bonus Regulations

Hedge funds in London may succeed in avoiding bonus restrictions. The new regulations that would limit the bonuses for bank executives, and under one interpretation this has been taken to apply to hedge funds' performance fees. But the Financial Services Authority has left a window for escaping the restrictions if the firms can show that it should not apply to them, and hedge funds may have a good case for avoiding the restrictions.
The proposals call for at least 40% of a bonus to be deferred over a period of at least three years for certain delineated staff. At least 60% must be deferred when the bonus is more than £500,000 ($795,176).

The problem with the proposed rules is that the restrictions could be interpreted to apply to hedge fund managers’ performance fees; the prime source of remuneration for the asset class.

The rules being studied by the FSA are meant to comply with a pan-European mandate to throttle back a pay culture where banks and other financial institutions were perceived as tying bonuses to short-term share price increases.

The FSA has said that firms could be freed of bonus restrictions if they can explain to the regulator how it should not apply to them. Source

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