04/28/2010

K2 to Staffers: Reinvest Half of Your Bonuses

Even as assets under management continue to grow at an impressive clip, K2 Advisors has told its portfolio managers and other key staffers that they must reinvest a larger portion of their bonuses.

The $8.7 billion fund-of-funds manager now requires investment staffers to sink 50% of their bonuses into one or more of the firm's vehicles, up from 33% in the past. Staff members will regain access to their money after three years.

The Stamford, Conn., firm increased the reinvestment requirement so that the financial interests of its staffers are better aligned with those of its investors. It's also a way for K2 to retain staff, since it locks up more of their compensation.

While some observers called K2's maneuver "harsh," others said it was a natural extension of the firm's business model. "Some funds of funds are growing and putting their money back into the business," one market player said. "Then there are others that are a cash machine, an ATM, and they take the money out."

K2's general counsel, Michael Andersen, left the firm this month, though his departure apparently was unrelated to the new bonus policy. His destination is unknown, but he appears to have left on good terms. The firm already has lined up a possible replacement and expects to fill the position within two weeks.

Founded in 1994 by Tiger Management alumnus David Saunders, K2 is one of the few multi-manager firms that has managed to raise significant amounts of capital during the financial crisis. Net inflows totaled $900 million in 2008 and $750 million last year. About 90% of the firm's assets under management are from institutional investors. It's unclear how much K2 has raised so far this year, but an SEC filing disclosed $440.6 million of capital raised from a single investor on April 12.

Private equity firm TA Associates of Boston has held a minority stake in K2 since 2007.

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