AIFMD sets out requirements for remuneration policies for senior management, risk takers and staff in control functions.

AIFMD sets out requirements for remuneration policies for key AIF staff.

The Alternative Investment Fund Managers Directive (AIFMD) and its accompanying regulation, supplemented by guidelines issued by European Securities & Markets Authority (ESMA), set out detailed requirements for remuneration policies for senior management, risk takers and staff in control functions. All persons that can exert material influence on the alternative investment fund managers (AIFMs) or alternative investment funds (AIFs) must be included in the remuneration policies.  For example, sales persons, individual traders and trading desks.

In summary, the requirements are that:

  • the policy should discourage risk-taking which is inconsistent with the risk profile or fund rules of the AIF managed.
  • the assessment of performance should be set in a multi-year framework appropriate to the life-cycle of the AIF managed and the payment of any performance-related component should be spread over a period taking into account the redemption policy of the AIF managed and the investment risks.
  • the fixed and variable components of remuneration should be appropriately balanced and at least 50 percent of any variable remuneration.
  • at least 40 percent of variable remuneration is deferred for a minimum of 3 to 5 years.
  • AIFMs that are significant in terms of size of assets should have a remuneration committee.

The requirements apply to external AIFMs, or to the managing body of internally managed AIFs, and identified staff.  Also, AIFMs must ensure that delegated entities performing portfolio management or risk management are subject to regulatory requirements on remuneration that are equally as effective as those applicable under the ESMA guidelines, and that contractual arrangements are in place to ensure this.

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