Pay curbs to hit hedge funds and private equity

LONDON (Reuters) - Hedge funds, private equity houses and asset managers who thought they had escaped the European clampdown on pay inflicted on their banking peers are now facing the same restrictions, consultancy PwC said on Thursday.

After largely escaping controls put in place by Britain's Financial Services Authority and European regulators on pay, managers now face rules on how and when bonuses are paid and more pay disclosure, according to the latest consultation paper on the Alternative Investment Fund Managers Directive (AIFMD), PwC said.

The AIFMD paper, published last week, targets asset managers, extending the reach of regulations made in Europe's Capital Requirements Directive, which referred only to "financial institutions" and which many managers thought they could avoid, Wright said.

"The rules will mean sweeping changes to the pay policies and practices of many asset management firms. Many thought they'd escaped the brunt of banking pay regulations, but they're coming back to bite," said Tim Wright, reward director at PwC.

Under earlier rules from the FSA, many asset managers fell into the most leniently treated group, while most private equity houses were exempt.

Most managers will now ultimately face much tougher rules, PwC said.

The new measures in the AIFMD -- a controversial piece of legislation that raised hackles when first proposed in the wake of the credit crisis -- require firms to pay at least half of bonuses in stock and defer between 40 and 60 percent of variable pay for around three to five years.

Firms will also have to disclose total pay for a financial year and a breakdown for key staff.

"Disclosure goes against the grain of the asset management industry, with information on pay seen as highly market sensitive," Wright said.

The Directive, which is targeted at funds both based in and marketed in Europe, could also encourage firms outside the EU to rethink targeting investors in the continent, Wright added.

The EU watchdog the European Securities and Markets Authority will implement the rules.

Asset managers have until September to respond to the directive, while AIFMD remuneration regulations will come into effect from the summer of 2013.

(Reporting by Tommy Wilkes; Editing by Laurence Fletcher and Will Waterman)