Fund managers have recently avoided a much-discussed pay-cap on bonuses, which the EU implemented for bank-owned investment managers. But hedge fund managers can’t breathe a sigh of relief quite yet, as restrictions on the manner and timing of their pay under new regulations coming into force on Monday are to be expected.

The Alternative Investment Fund Managers Directive regulations will require managers to comply with minimum capital levels and disclosures to investors and regulators, as well as limit the amount of any cash bonus to 50 per cent of the total.

The AIFMD is the European Union's attempt to help protect investors from risk and investment fraud, said Gareth Murphy, a former JP Morgan hedge fund manager and one of the authors behind the directive.

Murphy currently heads the markets division at the Irish central bank and, as chairman of the committee dealing with investment management at the EU watchdog ESMA, he helps frame regulation for funds with €8 trillion in assets under management.

Critics in the industry have suggested that the new rules could increase systemic risk by driving some funds outside the EU, where they can trade with less scrutiny.

However, Murphy argues that AIFMD will encourage managers to invest in EU as they qualify for a "passport" allowing them to sell funds in every member state.

"Firms have applied to us for AIFM authorisations and some of them are looking to get up and running as quickly as possible," he said to Reuters.

"These are the headline names in the asset management space. I am sure we will see a new surge of applications within the new world," Murphy added.

Now, the key concern is whether any EU states opt out of some or all of the remuneration guidelines.

Malta, which competes with Luxembourg and Ireland as a hub for international funds, recently said it would not apply the remuneration rules to managers based outside the EU who work for hedge funds inside it.

Similarly, the UK financial regulator has indicated that it is still to decide whether or not to comply with the remuneration guidelines.

In related news, a survey recently revealed that a large majority of the European alternative investment industry is unprepared for the implementation of AIFMD, having not taken any actions to prepare for the new regulations.