Hedge fund managers can potentially take a crumb of comfort that the decision on whether or not they will be eligible for inclusion in the EU’s tough new rules governing remuneration might be taken at a national rather than pan-European level. Certainly for those national groups and associations that have successfully engaged with the local regulator may have cause to feel a smidgen of justification, but I doubt anyone’s getting carried away. Nor will anyone be rushing to cancel those flights to Geneva, just yet…
But amidst all the rankling that this ruling and the AIFM Directive, which will to some extent also regulate remuneration, have caused, there is a growing sense that the new rules are not quite joined up. For example, let us say that in Germany and France the decision is taken to include large hedge funds in the banking bonus rules, leaving smaller hedge fund remuneration regulation to the Directive. This potentially creates a number of iniquities if, say, in London the decision is taken to exclude large hedge funds from the banking rules (and thus far the FSA seems to be suggesting that only bankers’ pay needs curbs).
Suddenly, given that the remuneration rules in the AIFM Directive may well be less draconian than those outlined in the new EU bank pay regulations, London could look attractive again, at least to those hedge fund groups that manage bespoke segregated accounts as well as funds.
On top of this geographic inequality, could such implementation also increase the size bias? The hedge fund world is already seeing the big groups getting bigger – will this accelerate that phenomena? And if so, could the larger of the smaller groups suddenly make a dash for segregated assets – and if so, what are the consequences?
As with any threatened new regulation, there are lots of questions, and the answers will only become clear as the rules are put into practice. But what is clear is that there is a genuine and deep-rooted lack of understanding of hedge funds at the heart of this regulation, and that whilst some may see this as a victory, albeit just one small one, there is still a very long way to go.