Fund managers could face bonus cap

Fund managers are facing a push by European Parliament to limit their bonuses, hours after Britain failed to water down planned EU banking pay rules that are set to take effect from 2015.

The parliament’s vote to cap bonuses in the asset-management industry could affect two- thirds of senior fund managers in the UK, US funds in Europe and hedge funds open to small investors.

The assembly's economic and monetary affairs committee voted in favour of a ban on managers of EU-regulated mutual funds, known as UCITS, from receiving bonuses greater than their fixed pay.

Bonuses should not exceed base salaries for managers of mutual funds regulated by the European Union, known as UCITS, European lawmakers in the economic and monetary affairs committee voted yesterday.

The rules would cover €5 trillion of assets in UCITS, which include funds managed outside Europe and some linked to hedge- fund strategies such as John Paulson's New York-based Paulson and Co. and Och-Ziff Capital Management Group.

"If the final rules are even close to what has been agreed today, then this will fundamentally change the way asset managers are paid," said PricewaterhouseCoopers partner Jon Terry.

European policy makers are pressing for tougher rules on fund managers to eliminate what German lawmaker Sven Giegold called the industry's "gambler mentality."

Fund managers will respond by increasing fixed salaries, moving overseas and pulling products from Europe if they can't dilute the rules, industry lobby groups said.

Managers' "base salary will increase, they will relocate to another country or move completely away from any type of EU bank or fund manager," said Morgan McKinley operations director for financial services Hakan Enver.

"Financial-services organizations may also become more savvy in the way they remunerate their high-earning employees", he added.

The committee's proposal sets the stage for a vote by the full European Parliament before negotiations with national diplomats can start.

Reuters/Bloomberg