Aug 26: Regulation is playing a significant role in fund structuring for private equity fund managers as concerns about regulatory fragmentation grow, new research* from Ocorian, a leading U.S. and global asset services provider, shows.
Regulatory fragmentation is shaping fund structures
The study, which surveyed private equity fund managers across the U.S. and Europe, who collectively manage $3.511 trillion in AUM, found North America is regarded as posing the greatest regulatory complexity ahead of Europe, despite recent relaxation of rules in the U.S. covering climate and ESG disclosures.
Ocorian’s study across key U.S. markets, the UK, Switzerland, Germany, Italy, Spain, Poland, Sweden and Bulgaria, found more than three out of four (77%) said regulatory considerations are a significant but manageable factor in determining fund structures, while 7% said they are a primary structuring constraint.
Respondents identified regulatory fragmentation as one of the most underestimated risks facing the market, ahead of operational scale and resilience. Nearly half (44%) believe the market is underestimating risks from regulatory fragmentation compared with 38% saying the same about operational scale and resilience.
Just 15% questioned believe investor concentration risk is underestimated and only 4% say the same about liquidity risks.
North America is seen as the most complex market
But surprisingly more than half (55%) believe North America currently poses the greatest regulatory complexity for their business despite recent changes. That compares with 38% who say Europe is more challenging. Just 2% say complexity is broadly similar across all regions.
Nearly half (46%) say they have avoided or found it challenging to structure funds due to regulatory complexity in Europe excluding the UK, while 55% have avoided Latin America and 18% have avoided the UK itself.
Rebecca Thorpe, Global Head of Regulatory Consulting at Ocorian, said: “Regulation plays a significant role in fund structuring and there is genuine concern about the risks of regulatory fragmentation being underestimated across the global market.
“Regulation to some extent influences where private equity fund managers launch funds, and there is evidence that firms are avoiding certain regions or finding it hard to structure funds in those regions. That makes it surprising that North America is seen as more complex for regulation than other regions despite recent changes, possibly reflecting the focus by U.S. authorities on transparency and valuations.
“Fund managers increasingly need expert support across different markets and jurisdictions to adapt to different regulatory regimes and practices.”