Did you know that UK hedge fund managers a.k.a alternative investment fund managers (AIFMs) are required to establish, implement and maintain remuneration policies for code staff?
Their remuneration policies must promote sound and effective risk management, and must not encourage risk-taking that is inconsistent with the risk profile of the AIFM, or the alternative investment funds (AIFs) that they manage.
So who are code staff?
Code staff comprise those staff whose activities have a material impact on the risk profiles of the AIFMs or the AIFs that the AIFM manages. This includes senior management, risk-takers, control functions, and any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk-takers.
What is remuneration?
Remuneration is defined in the Glossary to the Handbook as any form of remuneration, including salaries, discretionary pension benefits, and benefits of any kind. The principles of the Code apply to remuneration of any type received by the AIFM, or given to the AIF directly, including carried interest or the transfer of shares made to the benefit of AIFM staff.
The key features of the Code
The relevant FCA rules are contained in SYSC 19B. The Code requires AIFMs to draw up remuneration policies that meet the requirements of the Code. In drawing up a policy, AIFMs should address the following issues adequately:
- AIFM Remuneration Principle 1 — Risk Management AIFMs must ensure that their remuneration policy is consistent with, and promotes, sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profiles of the instrument constituting the fund of the AIFs they manage.
- AIFM Remuneration Principle 2 — Supporting Business Strategy, Objectives, Values and Interests, and Avoiding Conflicts of Interest The remuneration policy must be in line with the business strategy, objectives, values and interests of the AIFM and the AIFs it manages, or the investors of such AIFs, and includes measures to avoid conflicts of interest.
- AIFM Remuneration…