STRASBOURG, France (Reuters) - European lawmakers called on Wednesday for rules to limit the cash bonus paid to fund managers, but shied away from demanding the strict bonus caps that they pushed through for bankers earlier this year.
Instead, the parliament suggested fund managers should get a higher proportion of their bonuses in shares in the fund as well as deferring part of the payment, reforms that received a cool response from investors in funds.
"This is a dark day for investor protection," said Sven Giegold, a German member of parliament who had fought an increasingly lonely campaign for a strict limit on fund manager bonuses.
"A comprehensive change of the culture in the financial industry has been forestalled," he said.
The vote in parliament on Wednesday sets the scene for talks with EU countries. Both sides must agree before any such rules for fund managers are introduced across the European Union's 28 member states.
The new milder rules, once agreed, will affect the managers of mutual funds, which have about 6 trillion euros ($7.8 trillion) under management. They won't apply to hedge funds or private equity.
Many in Europe blamed the global financial crisis on a bonus-driven banking culture that rewarded reckless risk-taking.
But legislators were reluctant to rule so strictly on fund managers, whose role as guardian of pension funds is seen as posing far less threat to financial stability.
"I do not think it is appropriate to roll out the same bonus cap across all financial services legislation," said Sharon Bowles, a British member of parliament.
The Investment Management Association, representing asset managers running more than 4 trillion pounds ($6 trillion)in funds, welcomed the parliament's proposals for multi-year deferral of windfalls for managers, enabling a clawback of payouts if investments turn sour.
But some investors said the parliament had missed a chance to demand rules on setting performance fees, for example.
"The real issue regarding fund manager bonuses is one of conflict of interests which are widespread ... and it is surprising that governments and regulators have not stepped in," said Alan Miller, founder of London-based investment boutique SCM Private.
Others joined Miller in calls for greater clarity about what fund managers are charging their customers.
"We support a reduction in the level of variable pay, principally because there is no convincing evidence that performance pay works for the benefit of shareholders," a spokesman for lobby group PIRC, said.
But he warned that "simply deferring awards, or paying more in shares, doesn't address these underlying problems".
The lawmakers also called for the creation of a depository which would oversee investor payments to the fund and act as custodian of its assets.
($1 = 0.6592 British pounds)
Reporting By John O'Donnell in Brussels and Sinead Cruise in London; editing by Adrian Croft/Ruth Pitchford