Hedge fund portfolio managers who have been placed on two-year non-compete clauses are now seeing their payouts reduced as the industry shifts toward stricter terms, according to recruiters and industry sources.
Non-Compete Terms Tighten
Historically, portfolio managers leaving a hedge fund could expect to receive full compensation during a non-compete period, often lasting up to two years. However, recent changes have seen firms cutting these payments, sometimes by as much as 50%, according to a report by Financial News London.
“The days of getting paid in full for two years of gardening leave are over,” said one senior hedge fund recruiter. “Firms are now much more aggressive in negotiating down non-compete payments, especially for managers who are not top performers.”
Impact on Portfolio Managers
The shift is affecting both junior and senior portfolio managers, though the most severe cuts are being applied to those with weaker performance records. The recruiter added that some managers are now being offered only 60% of their base salary during the non-compete period, down from the previous standard of 100%.
Another industry source noted that the change is partly driven by increased regulatory scrutiny of non-compete clauses, as well as a desire by hedge funds to reduce costs. “Firms are looking at every line item, and non-compete payments are an easy target,” the source said.
Industry-Wide Trend
The trend is not limited to a single firm but appears to be spreading across the hedge fund industry. Several major funds have revised their employment contracts to include lower non-compete payouts, according to the report.
One consequence of the change is that portfolio managers may be less willing to leave their current positions, as the financial safety net of a full non-compete payment is no longer guaranteed. This could lead to reduced mobility in the talent market, the recruiter said.
