A cap on banker’s bonuses could have “disastrous” implications for the alternative investment market (AIM) and hedge funds in the UK, according to chief executive of Twenty Recruitment group Paul Marsden.

Last week members of the European Parliament voted 625-28 in favour of the new rules which ensure that from next year, bankers will only be able to get part of their yearly bonuses in cash up front, with the other 70% held back and paid out if the company performs well.

Marsden says the move will have little impact on the investment banking hiring environment but could be disastrous for the alternative investment market.  

“It was always going to happen,” says Marsden, whose firm has a specialist financial services division recruiting in London, Europe, Asia and New York.  

“It was pretty obvious that the legislation was going to tie bonuses to risk - so banks will now have to defer between 40% and 60% of bonuses for between three and five years and only 50% of immediate bonus can be paid in cash – the rest will be paid in shares linked to the institution’s performance.  

“It is still not clear if the law will be applied strictly to hedge funds and other alternative investment funds but if it is then it could be disastrous. London is the European hub for the hedge fund and private equity sectors but it’s also very mobile, so could easily relocate to offshore locations such as Singapore or Switzerland.  

“My gut feel is that the FSA will be mindful of the fact that the Alternative Investment Fund Directive is in the offing and so will apply the rules in line with that directive.”