Oct. 30 (Bloomberg) -- London's investment bankers and hedge-fund managers may earn a record 8.8 billion pounds ($16.7 billion) in bonuses this year, more than Iceland's gross domestic product, according to the Centre for Economics and Business Research Ltd.

Bonuses in London's financial district, known as the City, are increasing as mergers and acquisitions reached a record this year and buyout firms are raising bigger funds than ever. The payments may climb 18 percent from 7.4 billion pounds in 2005, CEBR said.

``Looking forward, City bonuses are likely'' to rise, though at a slower growth rate, as private-equity firms and hedge funds ``find their U.S. home markets saturated and are increasingly looking for opportunities on this side of the pond,'' Jonathan Said, senior economist at CEBR in London, said in an interview.

Man Group Plc, the world's largest hedge-fund company, more than tripled inflows in the first quarter and buyout firms have raised more than $160 billion for new funds this year, according to Private Equity Intelligence Ltd. Total earnings for the top five U.S. securities firms, including Morgan Stanley and Merrill Lynch & Co., through the first nine months was $21.4 billion, surpassing the full-year record of $20.4 billion in 2005.

Million-Pound Bonuses

About 4,200 people working for financial services and law firms in London may each receive a bonus of more than 1 million pounds, up from about 3,000 people a year earlier, CEBR said.

``This shows the extent to which big banks and fund companies are trying to win talent over,'' Said said.

Investment bankers have advised on a record $2.82 trillion of takeovers worldwide this year, with 49 percent of those acquisitions involving a European company, according to data compiled by Bloomberg. The 12-member AMEX Broker/Dealer Index, which includes Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., has gained 19 percent this year.

The number of hedge-fund managers, corporate lawyers, bankers, accountants and others working in the financial industry in London may have increased to a record 335,000 this year from 324,000 in 2005, CEBR said. Accounting firms and other non-financial services companies in the City are adding the most employees, according to the group.

CEBR said it uses mergers and acquisitions data and the value of transactions on the stock exchange as a basis for the bonus forecast.

To contact the reporter on this story: Julia Werdigier in London Jwerdigier@bloomberg.net

Last Updated: October 30, 2006 05:54 EST