VC and mid-market PE firms are increasingly concerned about regulatory issues with particular worries about their impact on investment, new research from Ocorian shows, despite the apparent pivot away from regulation by enforcement by US regulators.
Around 83% predict the level of regulation in their markets will increase over the next two years with no one questioned expecting regulation to ease, the study with senior US and Canadian executives at mid-market private equity and venture capital firms responsible for $335.25bn assets under management found.
Nearly nine out of 10 (88%) expect regulatory scrutiny of valuation processes to increase over the next two years and 16% say auditors are already applying more scrutiny and pushback on fund valuations. A further 55% say auditors are asking slightly more questions.
Concern about regulation is making firms more cautious about investments, the research by Ocorian, which provides regulatory and compliance support, fund administration and valuation services to private equity, venture capital, and institutional investors globally, shows. Around 80% say they believe VC and private equity companies are becoming more cautious due to compliance and regulatory concerns.
That is feeding through to demands on the time of senior executives, with more than four out of five (85%) questioned saying they expect senior executives to spend more time dealing with regulatory and compliance issues over the next two years.
Its also having an impact on VC and PE firms’ ability to pursue investment opportunities or even operate in some jurisdictions with 78% saying they expect regulatory risks that could limit investments or geographical expansion to rise over the next two years.
Nearly half (49%) meanwhile, say regulatory issues have meant they have avoided or found it challenging to structure operations in the Middle East and Hong Kong while 44% say the same about the European Union excluding the UK.
However, only one in six (16%) say regulatory complexity is the primary deciding factor when setting up a fund or investment structure although a further 74% say it is one of several important considerations.
