Europe’s bonus clampdown hits two-thirds of fund managers

‘Bonus Culture’

About two-thirds of senior employees who make investment decisions affecting the risk position of a fund receive total pay of more than twice their salary, PwC said.

Cash bonuses and deferred pay are “many multiples” of what European fund managers make in salaries, said Stephen Cahill, head of compensation and benefits for Deloitte LLP in London. “The culture that has been built up for many years is a bonus culture, and it gives companies flexibility to manage costs so when times are good they can pay a lot and when times are bad they pay less.”

The rules would apply to any employee working for a European fund-management firm and managers of funds sold in Europe, the London-based Investment Management Association said. Although hedge funds are mostly regulated by the Alternative Investment Fund Managers Directive, which isn’t affected, those that sell UCITS products would have to abide by the regulations, according to the European Fund and Asset Management Association.

Hedge Funds

A spokesman for New York-based Och-Ziff declined to comment on the proposal, while Armel Leslie, a Paulson & Co. spokesman, didn’t respond to messages seeking comment.

About 5% of the hedge-fund industry’s $2.3 trillion is structured within UCITS, which stands for Undertakings for Collective Investment in Transferrable Securities, according to Hedge Fund Intelligence, a London-based data provider. The biggest UCITS using a hedge-fund strategy is a $1.8 billion product sold by Deutsche Bank AG tied to investments made by Winton Capital Management LLC.

This complicated structure for UCITS is common, making it difficult to determine whose pay may be affected by a potential EU bonus cap. Spokesmen for London-based Winton and Deutsche Bank declined to comment.

Dominic Tonner, a London spokesman for the hedge-fund lobby group Alternative Investment Management Association, declined to comment on the implications of the EU vote. A spokesman for the U.K. Treasury also declined to comment.

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