September 15, 2010, 7:29 am
With financial authorities moving closer deciding how they will control remuneration at thousands of hedge funds in Great Britain, an industry association is lobbying to contain the new regulations to what it deems “appropriate” levels.
The Financial Services Authority, under the impetus of a new European Union directive, is currently in consultation with market participants over the ultimate implementation of the pay law.
The agency’s feedback period will close October 8, with a decision set to be issued in November, as officials attempt to gauge how provisions in the new regulation should be applied to financial firms according to their size, complexity and risk types.
The Alternative Investment Management Association, which has almost 1,200 corporate members worldwide, said Tuesday that it would be meeting with the regulatory agency to push for “an appropriate and proportionate regime.”
“The original justification by global leaders for action on remuneration was that a ‘bonus culture’ at large, systemically-important financial institutions had incentivised reckless and short-termist behavior, increasing systemic risk, and creating financial instability,” said Andrew Martin, chief executive of the organization.
“Given that the F.S.A. itself does not believe any individual hedge funds are large enough to pose a systemic risk to financial stability and given that hedge funds — unlike many large financial institutions — have not sought or received any public bail-outs, we would hope that if these provisions were to be applied to hedge fund managers it would be on a proportionate basis.”
The European directive, known as Capital Requirements and Bonuses Package, or CRD3, in July expanded the pay oversight of the F.S.A. from 27 large financial firms to 2,500, with the swelling ranks including hedge funds large and small.
The agency has yet to decide just how to apply new rules on a case by case basis to radically different types of financial firms, ranging from huge investment banks to private equity, hedge and real estate funds of varying sizes.
The expansion of its purview, intended to prevent a flight from banks, also threatens small funds with the equivalent of a “nuclear bomb,” one person in the industry said.
Provisions that require risk-takers to defer bonuses for years, and take them in shares rather than cash, would be unwieldy, impractical and potentially lethal to a small fund, as many hedge fund workers depend so heavily on their performance fees for yearly income.
–Chris V. Nicholson
From The New York Times published on September 15, 2010, 7:29 am
