Key Takeaways
- • From 1 January 2027, UK employees will gain unfair-dismissal protection after six months of employment, down from two years under current law, and the cap on compensatory awards for ordinary unfair dismissal (currently the lower of one year's base salary or £123,543) will be abolished.
- • Simmons & Simmons lawyers expect hedge fund firms to scrutinise hiring decisions more closely and to conduct greater due diligence on candidates' track records, risk-taking and team dynamics before they join.
- • Exits of underperforming staff with over six months' service are set to become significantly more expensive, according to Vicky Wickremeratne of Simmons & Simmons.
- • The UK hosts 57 of the top 500 global hedge funds by assets under management, according to a June report from Alternative Fund Insight, and hedge funds employ tens of thousands of staff in the country, per research from AIMA.
- • Separately, UK Finance and Oliver Wyman warned that the UK risks having its £290bn financial services industry governed by infrastructure set elsewhere if it lags in developing tokenisation infrastructure.
Summary
Upcoming changes to UK employment law are expected to draw greater scrutiny to hiring and performance management across the country's hedge fund industry, according to legal and recruitment experts. From 1 January 2027, all employees will be protected from unfair dismissal once they have completed six months of employment, instead of the two years required under current law. The compensatory award for ordinary unfair dismissal, currently capped at the lower of one year's base salary or a statutory limit of £123,543, will also be abolished. The changes are expected to have the greatest effect on the hedge fund sector, which is known for paying tens of millions of dollars to portfolio managers amid a growing talent war.
Elizabeth Wake, of counsel at Simmons & Simmons, described the change as "the biggest change in employment law in decades" and said the firm anticipates greater scrutiny not only of hiring decisions, where managers may take fewer risks on speculative hires, but also of employee performance against expectations during the first six months of employment. Vicky Wickremeratne, a partner in Simmons' employment, pensions and incentives practice in London, said firms may enhance due-diligence processes to improve the quality of hires. She also warned that exits will become more expensive, noting that even the most straightforward exits of employees with over six months' service are set to become significantly more costly.
Colin McGhee, founder and managing director of hedge fund recruitment firm Paragon Alpha, said hedge funds will become more careful up front, with more referencing and due diligence on candidates' actual track records, risk-taking, team dynamics, and contracts and expectations before hiring. McGhee expects firms to set clear performance expectations, risk parameters and behavioural standards from day one, and to closely monitor how new portfolio managers settle in, including whether they deploy capital as discussed, operate within agreed risk limits, build the right team and translate their investment process onto the new platform. He noted that this does not necessarily mean managers must generate immediate returns.
The UK remains a major hedge fund hub, with 57 of the top 500 global hedge funds by assets under management, according to a June report by data and intelligence platform Alternative Fund Insight. Research from the Alternative Investment Management Association found that hedge funds employ tens of thousands of staff in the UK.
In a separate development, UK Finance, the banking industry body, issued a joint report with Oliver Wyman warning that the UK risks being governed overseas in digital asset innovation. The report calls on policymakers to move quickly to build tokenisation infrastructure, which converts traditional financial assets such as government bonds and cash into tradable digital tokens, warning that "the challenge is now the execution – the ecosystem will form regardless" and that if the ecosystem anchors in New York, Frankfurt or Singapore, the UK's £290bn industry will operate on infrastructure designed and priced elsewhere.
Elizabeth Wake, of counsel at Simmons & Simmons, described the change as "the biggest change in employment law in decades" and said the firm anticipates greater scrutiny not only of hiring decisions, where managers may take fewer risks on speculative hires, but also of employee performance against expectations during the first six months of employment. Vicky Wickremeratne, a partner in Simmons' employment, pensions and incentives practice in London, said firms may enhance due-diligence processes to improve the quality of hires. She also warned that exits will become more expensive, noting that even the most straightforward exits of employees with over six months' service are set to become significantly more costly.
Colin McGhee, founder and managing director of hedge fund recruitment firm Paragon Alpha, said hedge funds will become more careful up front, with more referencing and due diligence on candidates' actual track records, risk-taking, team dynamics, and contracts and expectations before hiring. McGhee expects firms to set clear performance expectations, risk parameters and behavioural standards from day one, and to closely monitor how new portfolio managers settle in, including whether they deploy capital as discussed, operate within agreed risk limits, build the right team and translate their investment process onto the new platform. He noted that this does not necessarily mean managers must generate immediate returns.
The UK remains a major hedge fund hub, with 57 of the top 500 global hedge funds by assets under management, according to a June report by data and intelligence platform Alternative Fund Insight. Research from the Alternative Investment Management Association found that hedge funds employ tens of thousands of staff in the UK.
In a separate development, UK Finance, the banking industry body, issued a joint report with Oliver Wyman warning that the UK risks being governed overseas in digital asset innovation. The report calls on policymakers to move quickly to build tokenisation infrastructure, which converts traditional financial assets such as government bonds and cash into tradable digital tokens, warning that "the challenge is now the execution – the ecosystem will form regardless" and that if the ecosystem anchors in New York, Frankfurt or Singapore, the UK's £290bn industry will operate on infrastructure designed and priced elsewhere.
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