Fund Manager Pay Curbs Seen Unlikely With FCA Lauding Incentives
Fund managers are entitled to be paid millions of pounds if they’re delivering high returns for investors, the U.K. markets regulator said, the first sign it won’t seek to impose wage caps on the industry.
“What that person gets paid, if it’s 17 million, 7 million or 27 million, if investors’ long-term savings needs are met by that, and that’s better than they could get elsewhere from a person who’s paid a million pounds a year, then for investors, that’s a good thing overall,” Will Amos, the head of investment-management supervision at the Financial Conduct Authority, said in an interview in London. “We’d be comfortable with that.”
Regulators around the world have introduced measures to rein in bankers’ pay after risky bets by traders and executives were blamed in part for causing the 2008 collapse of Lehman Brothers Holdings Inc. While some members of the European Parliament sought to impose bank-style bonus limits on fund managers in July last year, the measure failed by a margin of seven votes out of 695 cast amid concern the step would drive up fixed costs and hurt returns.
Pay for fund managers is covered by a less restrictive set of European Union guidelines. The European Securities and Markets Authority said in February last year that bonuses for risk-taking employees should be withheld for a period of time to align managers’ interests with the long-term performance of their fund.
Compensation is “something that we constantly look to keep under review, but it’s different to banks because they’re not taking on balance-sheet risk,” Amos said. “It’s not necessarily just the lowest cost is right for each and every investor, and that’s what you take through the idea of how much you pay people.”
Michael Platt, the London-based co-founder and chief executive officer of hedge fund BlueCrest Capital Management LLP, is worth $1.3 billion and his wealth increased $138.7 million this year, the Bloomberg Billionaires’ Index showed.
Prudential Plc (PRU), the U.K.’s largest insurer, paid an employee at its asset management arm M&G 17.4 million pounds ($29 million) in salary and bonuses last year, more than any board member.
London’s fund managers earn an average $251,000 in pay and bonuses, $111,000 more than their counterparts in Paris and $59,000 more than at Zurich-based investment firms, according to compensation data provider Emolument. Bonuses are highest in London -- as much as three times more than in Zurich.
The discrepancy in pay and a crackdown on risk is one of the reasons some traders have left investment banks to join the hedge-fund industry. A Barclays Plc (BARC) trading team is leaving this year to start a quantitative investment firm, taking 60 employees with it. Fortress Investment Group LLC (FIG), the U.S. private-equity and hedge-fund manager, hired traders from Citigroup Inc. (C), Royal Bank of Scotland Plc, UBS AG (UBSN) and Deutsche Bank AG earlier this year.
While the asset-management industry didn’t see “any enormous problems like we’ve seen in other sectors,” the regulator’s focus is to spot any issues that could pose a systemic threat in a future crisis, Amos said.
The Financial Stability Board, which brings together regulators and central bankers from the Group of 20 nations, is reviewing whether investment funds that manage more than $100 billion in assets may be labeled too big to fail.
“We don’t know what future stress scenarios are going to look like,” Amos said. “There’s a big risk as a regulator to just look at what’s happened in the past and assume that’s what will happen in the future.”
Amos became the head of supervision for wholesale banking and investment management in April last year. The division oversees investment banks, fund managers and hedge funds. He was previously head of retail enforcement at the regulator, and prior to that, an economist at the Bank of England, according to the FCA.
To contact the editors responsible for this story: Mark Bentley at firstname.lastname@example.org Jon Menon