UK hedge fund maintains pay limit as fund drops almost 20%
London hedge fund manager Polygon Investment Management is understood to be maintaining a cap on its partners' basic salary at about £100,000 (€126,136), allowing them to draw any extra only from fund performance. Its flagship hedge fund is down about 19% this year.
Polygon's partners' basic pay was to be limited to around £80,000 in 2006, and they could only take more if funds performed well. It is believed the partners have not increased this limit materially since then, according to a person familiar with the matter.
The London firm's three directors are founders Paddy Dear, Reade Griffith and Alex Jackson. It runs a number of investment strategies including its main Polygon fund, which has the flexibility to invest in various asset classes including currencies, fixed-income and interest rate instruments.
The flagship fund has lost about 19% this year to September, according to documents seen by Financial News. The company has imposed restrictions on how much investors in its flagship can withdraw at any one redemption date, according to the source.
Polygon declined to comment.
Hedge funds have long trumpeted the concept of performance fees, taking 20% of profits largely for manager bonuses, meaning that key employees receive large pay packages only if their products do well. This creates a true alignment of managers' and investors' interests. However, limitations as extreme as Polygon's are rare.
A survey by data provider Eurekahedge last month found that just one in 10 hedge funds is currently receiving performance fees from their funds, raising questions about whether their business model is robust enough to survive the current downturn. Nine out of every 10 of the 4,000 hedge funds surveyed globally were performing insufficiently well to beat their “high-water mark” – the level at which they can charge performance fees, equivalent to a fifth of returns.
At the end of 2006, during the period encompassed by Polygon's latest financial statements recently filed at Companies House, the firm managed more than $5bn (€3.7bn). This figure is now believed to be about $4.5bn. Polygon Investment Management made £17m profit after tax in the 12 months to November 30 last year, compared to £7m the year before.
Last year was good to multi-strategy hedge funds, which made 16.5% on average, according to data provider Eurekahedge, however this year they were up only 1.7% to July 31, according to Eurekahedge, while peer Hedge Fund Research said they lost 6.8% in September, leaving them down 11.3% this year.
--write to dwalker@efinancialnews.com
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