March 21, 2013 11:00 pm

EU seeks cap on fund managers’ bonuses

An overwhelming majority of European lawmakers voted in favour of capping fund managers’ bonuses on Thursday.

It comes a day after the EU agreed to limit bankers’ pay and highlights the growing determination of European politicians to crack down on perceived excesses in the financial sector.

Sven Giegold, a prominent German member of the European parliament, said the new rules were an important step forwards “towards ending the gambler mentality in the investment fund sector”.

The action, which is likely to take months before it is enshrined in law and could face opposition from member states, will force fund managers to restrict themselves to a 1:1 ratio of bonus to salary.

Investors and analysts warned the move was counter-productive, saying that it would put up fixed costs and lead to job cuts.

One senior executive at a big listed UK group said: “This is bad policy. There are unintended consequences as fixed pay will rise. This will lead to job cuts as the only way to reduce fixed costs will be to rationalise.”

Jon Terry, a partner in PwC’s reward team, said: “This will fundamentally change the way asset managers are paid. Asset managers are now facing the toughest pay rules across the whole of the financial services sector.”

The crackdown focuses on regulated funds called Undertakings for Collective Investments in Transferable Securities (Ucits), one of the most popular investment products in Europe. There were 34,979 of these funds, with an outstanding value of €6.36tn under management at the end of January, according to Lipper, the data provider.

They are essentially funds for retail investors that can be marketed across Europe. They often account for about half of the funds under management of the biggest groups.

Mr Giegold said: “This crucial provision will help strengthen investor protection and reduce risky speculation. It will also complement the recently adopted EU rules capping bankers’ bonuses, ensuring these rules cannot be circumvented and providing for a level playing field.”

Although most MEPs are in favour of introducing some restrictions on fund managers’ remuneration schemes, a few argued that they should not be compared to bankers.

The Socialists, the Democrats, the Greens and the European People’s Party all voted in favour of the caps, while the Liberals voted against.

EU rules to limit bank bonuses were give a final seal of approval 24 hours earlier by member states and the European parliament with only minor tweaks to appease the UK, home to the bloc’s biggest financial industry.

Negotiators kept in place the centrepiece of the new rules: a limit on bank bonuses of no more than the amount of the employee’s salary. The one-to-one ratio can be doubled with the approval of a supermajority of shareholders.

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