ESMA said the rules will apply to managers of alternative investment funds (AIFs) including hedge funds, private equity funds and real estate funds. They will also cover non-EU AIFMs who market funds to EU investors following a transitional period.
The regulator said AIFMs will be asked to introduce “sound and prudent remuneration policies” and “organisational structures which avoid conflicts of interest that may lead to excessive risk taking”.
It believes stronger governance of how fund managers are paid will ultimately lead to improved investor protection.
Steven Maijoor, ESMA chair, said: “These guidelines will help promote prudent risk-taking by fund managers and help align the interests of both fund managers and investors. Making sure that these provisions on pay are applied in a common and consistent way is key to increasing investor protection and ensuring a level-playing-field in the alternative fund sector across the EU.”
The guidelines build on those set out by the Alternative Investment Fund Managers Directive (AIFMD) and further clarify its provisions.
ESMA said it had co-operated with the European Banking Authority in developing its guidelines to ensure alignment of guidance on remuneration policies across financial sectors.
Specifically ESMA said the governing body of each AIFM has to ensure sound and prudent remuneration policies and structures exist and are not circumvented. AIFMs should also be able to demonstrate the criteria staff hit in order to be selected for remuneration packages.
The guidelines will apply from 22 July 2013 subject to the transitional provisions of the AIFMD.
