The FSA has published a discussion paper on the implementation of the Alternative Investment Fund Managers directive.
It doesn’t say much.
“One of the things that really does stick out, is how little detail there is,” says Mike Newall, a partner at Norton Rose. “We are expecting a lot more information.”
Most notably, the FSA doesn’t appear to have made any progress with the remuneration code for hedge funds and private equity funds. The new paper simply states that: “Work on the detailed guidelines for the remuneration provisions has not yet commenced, so at this stage it is not possible to comment substantively on those guidelines or their implementation.”
And yet, there is some remuneration-related content. Most interestingly, the FSA intends to make hedge funds release very detailed information about their compensation. It says the “minimum package” of information in each annual report, will need to include:
“...the total amount of remuneration for the relevant financial year, split into fixed and variable remuneration, paid by the AIFM to its staff, and number of beneficiaries, and, where relevant, carried interest paid by the AIF."
as well as:
"...the aggregate amount of remuneration broken down by senior management and members of staff of the AIFM whose actions have a material impact on the risk profile of the AIF.”
Needless to say, this information is going to make it a lot easier to work out who’s earning what at London-based hedge funds in future.
Lawyers say strict remuneration rules akin to those imposed on banks (a mandatory deferral of 60% of bonuses for compensation for Code staff, restrictions on buyouts and limits on guaranteed bonuses) are still likely to be imposed on hedge funds at some point.
“I would be surprised if there are substantial differences between the hedge fund remuneration rules and the FSA’s broader remuneration guidelines,” says Sam Whitaker, of law firm Shearman & Sterling’s executive compensation and employee benefits practice. "However, it's still too early to tell."
More promisingly, the FSA's new discussion paper makes it clear that any new remuneration rules will be applied to hedge funds according to the FSA’s tenets of ‘proportionality.’ These divide organizations into four tiers, with those in the fourth tier being largely left alone. Smaller hedge funds may therefore escape the new rules relatively unscathed. However, it still looks like they will be obliged to publish details of their compensation. And this may cause a few issues, with investors as well as champions of pay equality: a new study suggests that between 1998 and 2010, hedge funds kept 98% of the profits they generated in fees.