The largest hedge fund trade group plans to meet with U.K. regulators about proposed rules on pay, saying British firms don’t “encourage the reckless and short- termist behavior the bonus culture has created elsewhere.”
The Alternative Investment Management Association, whose members include fund-of-hedge-funds firm Fauchier Partners and Man Group Plc, the biggest publicly traded hedge-fund firm, said in a statement today it will meet with members of the Financial Services Authority’s remuneration team to discuss its concerns.
“Hedge funds, unlike many large financial institutions, have not sought or received any public bailouts,” said Andrew Baker, chief executive officer of London-based AIMA. “We would hope that if these provisions were to be applied to hedge fund managers it would be on a proportionate basis.”
The FSA on July 29 proposed expanding the number of firms covered by bonus and compensation rules to 2,500 from 27. That expansion would require banks, building societies and hedge funds to comply with European Union legislation. Prior FSA rules had only applied to the country’s largest lenders.
Regulators worldwide have been scrutinizing executive compensation after it was blamed for excessive risk-taking that contributed to the worst financial crisis since World War II. EU governments agreed on June 30 that directors of banks who received public money will be forced to justify their bonuses and lenders will have to report to regulators the number of people earning more than 1 million euros ($1.3 million).
Hedge Fund Fees
Hedge funds, loosely regulated pools of money, often charge a 2 percent management and 20 percent performance fee.
Hedge funds lost an average 19 percent in 2008, the worst returns since Chicago-based Hedge Fund Research started tracking data in 1990. While the industry rebounded 20 percent last year, almost half of the 2,000 funds that make up the HFRI Fund Weighted Composite Index ended the first quarter of 2010 below their high-water mark, or peak net asset value, meaning they can’t charge investors performance fees.
“Performance fees help to align the interests of manager and investor,” the AIMA’s Baker said. “And they do not reward failure, which was another criticism of the bonus culture at large financial institutions.”
Rachel O’Hare, a spokeswoman for the FSA, declined to comment. The FSA asked for comments by Oct. 8 on proposed rules that would take effect Jan. 1.