North American alternative fund managers are increasingly wary of European regulations, with 91% perceiving the European market as over-regulated. Of these, 61% found the level of regulation so burdensome that it became a barrier to entry, while 30% agreed there was too much regulation but did not find it prohibitive. Just 4% said it was not over-regulated and 5% were unsure. This sentiment stems from an Ocorian involving 100 senior executives from private equity, private debt, real estate, venture capital and infrastructure fund managers in the United States and Canada, who collectively manage $1.6trn in assets.

Published on 5 September 2024, Ocorian found that almost all respondents (99%) viewed the current European Union regulations as complex when compared to those in their home jurisdictions. Of these, 37% went further, describing the regulations as “extremely complex.” Additionally, more than two-thirds (69%) of North American fund managers expect it will become harder to navigate EU regulations over the next two years, with 9% strongly agreeing with this projection. Only 29% of those surveyed disagreed, believing the regulatory environment would not become more challenging.

When looking to the future, 79% of the fund managers surveyed anticipated further regulatory changes in the next two to three years. More than one in ten (11%) expected these changes to be significant, while 19% predicted the regulatory environment would remain stable. Over a longer horizon, 76% of respondents believed the overall level of regulation in the European fund management sector would rise over the next five years, with 10% foreseeing a significant increase. Conversely, 23% expected regulations to remain unchanged.

Despite their concerns, 99% of North American fund managers felt confident that their organisations were “good” or “excellent” at meeting EU regulatory requirements. However, the complexity of regulations has led many to be cautious about entering the European market, with nearly two-thirds (61%) admitting that the regulatory environment was off-putting both for themselves and their investors. Only 4% of respondents felt that Europe was not over-regulated.

The survey also revealed specific concerns around upcoming European regulations. The introduction of the Digital operational resilience act (Dora), set to take effect on 17 January 2025, was the top concern for 60% of fund managers. Other key worries included increasing barriers to entry (41%), the payment services directive (PSD3), anti-money laundering regulations (31%) and new rules surrounding artificial intelligence (28%). Environmental, social and governance regulations also featured prominently, with 29% citing concerns around diversity and inclusion, and 18% pointing to transparency-related issues.

Ocorian also noted a divide in strategy when it comes to setting up new funds in Europe. Just over half (52%) of North American fund managers preferred to establish onshore funds, while 48% would opt for offshore locations, reflecting the uncertainty and challenges posed by European regulations.

Thomas Fahl, global head of AIFM at Ocorian, noted that while North American fund managers are generally eager to raise capital in Europe, many are cautious about the region’s complex regulatory framework. He stated in the firm’s report, “Our 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.”