North American Fund Managers are Frustrated by EU Regulations

North American fund managers are frustrated by EU regulations, new research from global leader in fund administration, capital markets, corporate, and fiduciary services Ocorian has revealed.

Many fund managers have expressed concerns that the European market is becoming so heavily regulated that it risks deterring future investment.

Ocorian’s study, which surveyed private equity, private debt, real estate, venture capital, and infrastructure fund managers across the US and Canada – collectively responsible for managing $1.591 trillion in assets – found that 99% consider current EU regulations more complex than those in their home markets. Over a third (37%) described these regulations as “extremely complex.”

The majority of respondents (79%) expect the European regulatory landscape to evolve over the next two to three years, with 11% predicting a dramatic increase in regulatory complexity. Only 19% believe the situation will remain unchanged. Looking further ahead, more than three-quarters (76%) anticipate an increase in overall regulation within the European fund management sector over the next five years, with one in ten expecting a significant rise in complexity. Just under a quarter (23%) predict stability in the level of regulation.

Despite these challenges, the vast majority (99%) of North American fund managers rated their organisations as either “good” or “excellent” at complying with European regulations. However, nine in ten (91%) indicated that both they and their investors view the European market as over-regulated, with 61% saying the burden of regulation is off-putting. A further 30% agreed that there is too much regulation, though they do not see it as an outright barrier to entry. Just 4% of respondents felt that Europe is not over-regulated, while 5% were unsure.

Looking to the future, more than two-thirds (69%) of respondents expect it will become more difficult for North American managers to navigate European regulations in the next two years, with 9% strongly agreeing. In contrast, 15% strongly disagreed, suggesting they do not foresee an increase in difficulty.

When asked to identify their top concerns regarding European regulations, the upcoming introduction of the Digital Operational Resilience Act (DORA) in January 2025 was cited by 60% of respondents as the primary issue. Other major concerns included increasing barriers to entry (41%) and the Payment Services Directive (PSD3). Further regulatory challenges identified were anti-money laundering regulations (31%), new frameworks for artificial intelligence (28%), and ESG regulations, with diversity and inclusion (29%) and transparency (18%) emerging as key issues.

Ocorian’s research also highlighted a division in preference when it comes to fund managers choosing onshore or offshore locations for setting up new funds in Europe. Just over half (52%) of respondents indicated they would opt for onshore locations, while 48% preferred offshore.

Thomas Fahl, Ocorian’s Global Head of AIFM, commented: “North American alternative fund managers are generally optimistic about raising capital in Europe and are eager to tap into new investment opportunities. However, our research shows that many are concerned about the complex regulatory landscape in Europe – both in terms of overarching EU regulations and the legal nuances that exist between European countries. It would be a shame if some managers were deterred from even discussing potential opportunities due to the perception of these regulations.”

Fahl added: “We encourage fund managers to engage in conversations with us. While the regulations may seem complex, with the right expertise and support, fund managers can access the European market without falling foul of legal or regulatory requirements.”

Ed O’Bree, Partner at Bovill Newgate, remarked: “It’s intriguing that 61% of those who feel Europe is over-regulated also find it off-putting, yet they continue to invest and consider themselves adept at managing these requirements. It suggests that while they are keen to raise capital, they may find further expansion within Europe less appealing. I’d speculate that for many North American companies, challenges like French employment law may be just as off-putting as financial regulations.”

O’Bree continued: “I’m not surprised that 91% felt Europe is over-regulated – in fact, I’m more surprised by the 9% who don’t share that view. I suspect fund managers from both America and Asia would echo these sentiments. While more regulation is beneficial for our industry, there is certainly a lot to contend with.”