Todd Edgar's 50% BarCap package was unsustainable, but don't assume you will ever achieve anything better at a hedge fund

Poor Todd Edgar. Poor Todd Edgar's team. In 2009 all 5 of them joined BarCap for what was reputedly a 30m two year package comprised of:

- 15m in salaries, bonuses and deferred stock

- A share of up to 50% of their profits

At the time, it looked like a great deal, both for them and for BarCap.

In 2008 Edgar himself allegedly made a profit of 60m for his previous employer (JPMorgan). What's 30m for an entire team when one of its members makes double that in profits?

Predictably, it didn't turn out that way. As we noted yesterday, BarCap has dispensed with the services of Todd et al. They are apparently off to set up a hedge fund.

This is being taken as an indication that a) banks can't afford top traders any more. B) BarCap isn't what it used to be.

This may be true. But it's also worth bearing in mind that a hedge fund may not be the perfect panacea Todd's team's financial woes.

The coming AIFMD hedge fund pay rules

As various publications have noted recently, European compensation legislation is looming large for hedge funds in London.

So far, most hedge funds in the UK have been able to evade all EU regulations on mandatory deferred compensation on the basis of proportionality (most of them are so-called 'Tier four' firms to whom the rules only apply very loosely under the FSA's implementation). However, once the Alternative Investment Fund Managers Directive comes into force in 2013, lawyers say evasion won't be nearly as easy.

"Whether the AIFMD will have similar proportionality tier ratings remains to be seen," says Sam Whitaker, a lawyer at Shearman & Sterling, ominously - meaning that if it doesn't, the rules will apply to all hedge funds, big or small.

If the full force of the AIFMD rules hits London based hedge funds, they'll be obliged to defer 60% of compensation for three to five years, just like banks are (for their risk-taking code staff).

Yes, it may be possible to get around this by designating high-earning employees owners of the fund, but another lawyer questions the viability of this move.

"There are always going to be very highly paid traders who aren't owners of the business," he says "You can structure their pay by giving them ownership shares and a partnership interest in the business, but a line will be drawn. It won't be possible to pretend someone is a partner when they are really just an employee."

The AIFMD rules will be implemented in less than 24 months' time. In the meantime, the head of one hedge fund-focused search firm says deferrals are already manifesting themselves in her sector.

"Hedge funds didn't use to defer, but now they do," she says. "Traders and money managers can still get formula driven pay deals of up to 50% of profits for teams," she adds. "But on the distribution side compensation is becoming more discretionary."

Conclusion: Banks don't pay big cash percentages of profits. Nor do hedge funds. That era is past. Even for Todd.