North American fund managers are being deterred from European domiciled funds due to “complex” regulations, according to a survey by Ocorian.
Ocorian found that 99% of those surveyed view current EU regulations as complex in comparison to the fund regime in the US. Over a third said the regulations are “extremely complex”.
The research encompassed answers from private equity, private debt, venture capital and infrastructure fund management executives in the US and Canada responsible for $1.6trn assets under management.
Despite the complexity, 99% said their organisation is either ‘good’ or ‘excellent’ at meeting European regulatory requirements.
However, 91% said that they and their investors believe the market is already over-regulated, with 61% of those regarding the level of regulation as so high that it is off-putting. 30% argued that while there may be too much regulation, it is not a barrier to entry.
Just 4% believe the market is not over-regulated.
See also: Government scraps ‘political gimmick’ UK ISA plans
Looking ahead, 69% agreed that it will become “much harder” for North American fund managers to navigate European regulatory complexities over the next two years, and 9% strongly agreed.
Meanwhile, 14% slightly disagree and 15% strongly disagree, and don’t believe it will become harder over the next two years.
Thomas Fahl, global head of AIFM at Ocorian, said: “Alternative fund managers in North America are generally very positive about raising capital in Europe and are keen to capitalise on the ability to open up new investment opportunities.
“However, our new research reveals that many are concerned about what they see as complex levels of regulations in Europe – both in EU regulations as a whole as well as navigating the legal and regulatory nuances between European countries. We feel it would be a shame that some managers are put off by the whole idea that they don’t even talk to us about the solutions we can provide and the opportunities in the market.
“We’d strongly encourage that conversation as even though regulation can be complex, with the right skill, expertise and support, fund managers can reap the benefits of Europe without falling foul of any legal or regulatory requirements.”
See also: LGIM’s Rees: How bonds play into magnificent seven ‘FOMO’
Ed O’Bree, partner at regulatory consultancy Bovill Newgate, added: “It’s curious that 61% of the 91% who say it’s already over-regulated find this off-putting when they are still investing and see themselves as good at this.
“Perhaps it plays into their choices around methods of distribution – they’re happy to raise capital but doing anything more significant is off-putting. I’d speculate that for most North American companies French employment legislation is potentially even more off-putting – perhaps they’re thinking of this as much as the financial services rules.
“It’s of absolutely no surprise that 91% felt that the European market is over regulated, in fact I’d say that I’m astonished at the 9% who didn’t feel that and I would wager that if you were to ask American and Asian fund managers, they would say the same. More regulation is clearly good for our business, we won’t complain, but there is a lot of it.”
Ocorian also asked North American fund managers for their top three concerns in relation to EU regulation. Overall, the introduction of DORA (Digital Operational Resiliency Act), was highlighted as the largest concern, selected by 60% of respondents. The regulation comes into effect on 17 January 2025.
This was followed by increasing barriers to entry, highlighted by 41%, and PSD3 (Payment Service Directive).
Other European regulation concerns included new anti-money laundering regulations, and a regime for artificial intelligence.
Concerns around ESG regulations were also high, with 29% citing concerns around diversity and inclusion regulations and 18% citing worries about transparency.
