A proposed amendment to the European Commission's Alternative Investment Fund Management Directive would restrict pay for European Union-based hedge fund and private equity managers, according to a document released today by the European Council.
The European Council's proposed amendment is a key step in the revising the original draft, which has been heavily criticized by managers and pension funds alike since it was unveiled earlier this year.
The European Council wants alternative managers to follow principles that promote “sound and effective risk management and (do) not encourage risk-taking that exceeds the level of tolerated risk” of either the firms or the funds they manage. The proposed amendment does not specify a set limit.
However, the council recommended that any remuneration based on performance should be set in “a multiyear framework appropriate to the life cycle of the (alternative fund) managed” to ensure that rewards are based on longer-term performance. At least 40% of the variable remuneration component — which could include performance-linked pay — should be deferred over a period of three years or more and be “correctly aligned with the nature of the business, its risks and the activities of the member of staff,” according to the proposed amendment.
In a separate statement, the Alternative Investment Management Association disagreed with the remuneration proposal.
“It appears to be based on the formula for banking remuneration and our concern is that there are elements which are inappropriate for the asset management industry,” Florence Lombard, executive director of AIMA, said in the prepared statement.
“Our industry has not been consulted on this and is structured differently in terms of remuneration to that of the banking industry,” according to Ms. Lombard.
If the directive is approved following revisions in 2010, it will become effective in 2012.