It's the compensation, stupid.
UBS O’Connor LLC, the $6bn hedge-fund unit that sits within the Global Asset Management division of UBS and employs around 90 traders, risks upheaval as senior front office staff seek to defect after a clampdown on cash bonuses, two people with direct knowledge of the situation said.
Bloomberg reports that traders are contacting other hedge funds and recruiters after UBS moved them to a pay structure used throughout the firm, said the people, who requested anonymity because their plans to leave aren’t public.
That resulted in immediate cash bonuses falling by 50% $1.06m, and some deferred pay being tied to five-year UBS bonds rather than reinvested in O’Connor funds, the people said.
The potential defections show the struggles the biggest banks may face in retaining top traders at internal hedge funds amid shareholder and regulatory pressure on pay and rules that limit how much of a firm’s capital can be invested in the funds.
'This structure is analogous to working within a bank', said Ilana Weinstein, chief executive officer of New York-based search firm IDW Group LLC. 'But what’s the likeness of O’Connor ? It’s a hedge fund, and this structure is not competitive with working at another hedge fund'.
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