North American fund managers say regulation is biggest obstacle to successful fundraising in Europe and new funds must have an ESG focus

• Ocorian study reveals that North American fund managers list the European regulatory environment (49%) as the biggest obstacle to successful fund raising in Europe, followed by issues around reporting (38%), liquidity profile (37%) and corporate governance (37%)

• Almost all (97%) North American fund managers think it will become harder to launch new funds in Europe unless they have a strong ESG focus

New research * from Ocorian, a global leader in fund services, corporate and trust services, capital markets, and regulatory and compliance shows that North American fund managers say the regulatory environment is the biggest obstacle to successful fundraising in Europe, with European ESG regulation in particular being a deterrent.

Ocorian’s study with private equity, private debt, real estate, venture capital and infrastructure fund management executives in the US and Canada responsible for $1.591 trillion assets under management found the top three biggest challenges to successful fundraising in Europe was the regulatory environment (49%), followed by issues around reporting (38%) and joint third was the liquidity profile (37%) and corporate governance requirements (37%).

Top challenges listed by North American fund managers to successful fund raising or fund launches in Europe

Ocorian’s study shows that European ESG regulation, in particular, is proving to be a problem in the eyes of North American fund managers. Almost all (99%) say European ESG regulation is a deterrent to North American alternative fund managers trying to raise capital in Europe. Of these, over a third (36%) say it’s a huge deterrent.

Similarly, almost all (97%) of North American fund managers say it will become harder to launch new funds in Europe unless they have a strong ESG focus. Of these, more than one in ten (11%) strongly agree with this view.

These views are having an impact on the types of European investors who are interested in new fund raising by North American fund managers over the next 12 months. Of those surveyed, 77% say they predict an increase in the level of new fundraising by North American fund managers among private banks, followed by 76% expecting an increase from pension funds. This is followed by insurers (69%) and wealth managers (67%) respectively.

Forecasted changes in new fundraising by North American fund managers across European investor types over the next 12 months

Ed O’Bree, Partner at Ocorian’s Bovill Newgate, said: “It’s also surprising that more of the firms surveyed don’t highlight the challenges of ESG although it may be that ‘regulatory environment’ may have been seen as a blanket term to include the recent ESG regulatory updates.

“The UK rules are easier to follow and less burdensome. The US rules are that and some again. The ‘regulate less’ lobby seems to be winning in the US, and in fact, some states have gone further still to the extent that if any fund manager is seeking to exclude hydrocarbon from its stocks then that can be challenged in court. You have to pursue the financial best interests of your clients. So, indeed, in this light, I’m surprised the North American fund managers questioned in the survey don’t see the EU focus on ESG as even more of a worry.”

Abi Reilly, Funds Practice Lead at Ocorian’s Bovill Newgate remarked: "Uncertainty breeds stasis. In the US, fiduciary duty reigns supreme, rendering ESG almost a taboo term due to its divisive nature. State-level legislation empowers some – like Montana – to reject it outright, signalling a political stance against its adoption. We’ve been told by our US regulatory colleagues that ESG has become a non-term – people have stopped using it because it causes such a dramatic reaction.

“The landscape is marred by frustration and nervousness about liability. The EU SFDR's Article 8 has become a catch-all for anything from impactful to barely considered strategies. Investors crave and need clarity, yet find themselves drowning in ambiguity. Looming anti-greenwashing rules[1] in the UK add to the unease – how much leeway will this give litigators and regulators? Uncertainty isn’t good for business.

“The UK's SDR regime adds another layer of complexity, the formerly single market now has a widening divide; Brexit initially led to mirroring EU regulations, but divergence is now apparent. The FCA has stated that a light green focus is not enough – there needs to be a sustainability objective, when marketing a fund, terminology must be precise and with no ambiguity.

“Investors can’t be sure about the true sustainability of their investments. Amidst this chaos, performance suffers, begging the question: planet or purse? You can see how this is truly off-putting to North American fund managers and their investors. Can profit and purpose ever truly be reconciled, or are we destined for murky waters with potential hidden litigious risk meaning the wealth of North America may simply refuse to dive in?"

About Bovill Newgate, an Ocorian company

Bovill-Newgate is an Ocorian company and specialist financial services regulatory consultancy with a global offering across the UK, the Channel Islands, Singapore, Hong Kong, Mauritius, and the Americas. The firm helps its clients meet complex and evolving regulatory obligations, providing certainty and peace of mind. Its clients are firms of every size across the financial services sector. Bovill Newgate supports its clients in managing regulatory change and dealing with regulatory scrutiny. Providing advice on regulatory change and preventing financial crime, applications to regulators, building or enhancing regulatory frameworks, conducting compliance investigations or diagnostics, training and fulfilling prescribed roles Bovill Newgate have experts based across all the world’s key financial centres who operate globally, acting as one team.

About Ocorian Fund Services

Ocorian’s fund services team delivers operational excellence across fund administration, AIFM, depositary and accounting services to the world’s largest financial institutions along with dynamic start-up fund managers and boutique houses. Its team of over 300 funds specialists work across all major asset classes of alternative investment funds such as private equity, real estate, infrastructure, debt and venture capital, whilst its specialist Islamic Finance team is a leading provider of Sharia-compliant investment structures.

*Ocorian commissioned independent research company PureProfile to conduct research with 100 senior executives at alternative fund managers focusing on private equity, private debt, real estate, venture capital and infrastructure in the US and Canada collectively responsible for $1.591 trillion assets under management during April 2024