[Federal Register Volume 87, Number 33 (Thursday, February 17, 2022)]
[Proposed Rules]
[Pages 9106-9235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01976]



[[Page 9105]]

Vol. 87

Thursday,

No. 33

February 17, 2022

Part II





Securities and Exchange Commission





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17 CFR Parts 275 and 279





Amendments to Form PF To Require Current Reporting and Amend Reporting 
Requirements for Large Private Equity Advisers and Large Liquidity Fund 
Advisers; Proposed Rule

  Federal Register / Vol. 87, No. 33 / Thursday, February 17, 2022 / 
Proposed Rules  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-5950; File No. S7-01-22]
RIN 3235-AM75


Amendments to Form PF To Require Current Reporting and Amend 
Reporting Requirements for Large Private Equity Advisers and Large 
Liquidity Fund Advisers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is proposing to amend Form PF, the confidential 
reporting form for certain SEC-registered investment advisers to 
private funds to require current reporting upon the occurrence of key 
events. The proposed amendments also would decrease the reporting 
threshold for large private equity advisers and require these advisers 
to provide additional information to the SEC about the private equity 
funds they advise. Finally, we are proposing to amend requirements 
concerning how large liquidity advisers report information about the 
liquidity funds they advise. The proposed amendments are designed to 
enhance the Financial Stability Oversight Council's (``FSOC'') ability 
to monitor systemic risk as well as bolster the SEC's regulatory 
oversight of private fund advisers and investor protection efforts.

DATES: Comments should be received on or before March 21, 2022.

ADDRESSES: Comments may be submitted by any of the following methods.

Electronic Comments

     Use the Commission's internet comment forms (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include 
File Number S7-01-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, U.S. 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-01-22. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
website (https://www.sec.gov/rules/proposed.shtml). Comments also are 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Operating 
conditions may limit access to the Commission's Public Reference Room. 
All comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the Commission's website. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Alexis Palascak, Lawrence Pace, Samuel 
K. Thomas, Senior Counsels; Michael C. Neus, Senior Special Counsel; or 
Melissa Gainor, Assistant Director at (202) 551-6787 or 
[email protected], Investment Adviser Regulation Office, Division of 
Investment Management, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The SEC is requesting public comment on the 
following under the Investment Advisers Act of 1940 [15 U.S.C. 80b] 
(``Advisers Act'').\1\
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the 
Advisers Act, or any section of the Advisers Act, we are referring 
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we 
refer to rules under the Advisers Act, or any section of these 
rules, we are referring to title 17, part 275 of the Code of Federal 
Regulations [17 CFR 275], in which these rules are published.
    \2\ Form PF was adopted in 2011 as required by the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010. Pub. L. 111-
203, 124 Stat. 1376 (2010). See Reporting by Investment Advisers to 
Private Funds and Certain Commodity Pool Operators and Commodity 
Trading Advisors on Form PF, Advisers Act Release No. 3308 (Oct. 31, 
2011), [76 FR 71128 (Nov. 16, 2011)] (``2011 Form PF Adopting 
Release'') at section I. In 2014, the Commission amended Form PF 
section 3 in connection with certain money market fund reforms. See 
Money Market Fund Reform; Amendments to Form PF, Advisers Act 
Release No. 3879 (July 23, 2014), [79 FR 47736] (Aug. 14, 2014) 
(``2014 Form PF Amending Release''). Form PF is a joint form between 
the Commission and the Commodity Futures Trading Commission 
(``CFTC'') only with respect to sections 1 and 2 of the Form; 
sections 3 and 4, which we propose to amend, were adopted only by 
the Commission. Current Form PF section 5, request for temporary 
hardship exemption, would become new section 7 and new sections 5 
and 6 are proposed only by the Commission.

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         Commission  reference                     CFR citation
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Form PF................................  17 CFR 279.9.
Rule 204(b)-1..........................  17 CFR 275.204(b)-1.
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Table of Contents

I. Introduction
II. Discussion
    A. Current Reporting for Large Hedge Fund Advisers and Advisers 
to Private Equity Funds
    1. Large Hedge Fund Adviser Current Reporting on Qualifying 
Hedge Funds
    2. Private Fund Adviser Current Reporting on Private Equity 
Funds
    3. Filing Fees and Format for Reporting
    B. Large Private Equity Adviser Reporting
    1. Reduction in Large Private Equity Adviser Reporting Threshold
    2. Large Private Equity Adviser Reporting
    C. Large Liquidity Fund Adviser Reporting
III. Economic Analysis
    A. Introduction
    B. Economic Baseline and Affected Parties
    1. Economic Baseline
    2. Affected Parties
    C. Benefits and Costs
    1. Benefits
    2. Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives
    F. Request for Comment
IV. Paperwork Reduction Act
    A. Purpose and Use of the Information Collection
    B. Confidentiality
    C. Burden Estimates
    1. Proposed Form PF Requirements by Respondent
    2. Annual Hour Burden Estimates
    3. Annual Monetized Time Burden Estimates
    4. Annual External Cost Burden Estimates
    5. Summary of Estimates and Change in Burden
    D. Request for Comments

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V. Regulatory Flexibility Act Certification
VI. Consideration of Impact on the Economy
VII. Statutory Authority

I. Introduction

    The Commission is proposing to amend Form PF, the form that certain 
investment advisers registered with the Commission use to report 
confidential information about the private funds that they advise.\2\ 
The proposed amendments are designed to enhance FSOC's monitoring and 
assessment of systemic risk and to provide additional information for 
FSOC's use in determining whether and how to deploy its regulatory 
tools. The proposed amendments also are designed to collect additional 
data for the Commission's use in its regulatory programs, including 
examinations, investigations and investor protection efforts relating 
to private fund advisers.
    Form PF provides the Commission and FSOC with important information 
about the basic operations and strategies of private funds and has 
helped establish a baseline picture of the private fund industry for 
use in assessing systemic risk.\3\ We now have almost a decade of 
experience analyzing the information collected on Form PF. In that 
time, the private fund industry has grown in size and evolved in terms 
of business practices, complexity of fund structures, and investment 
strategies and exposures.\4\ Based on this experience and in light of 
these changes, the Commission and FSOC have identified significant 
information gaps and situations where more granular and timely 
information would improve our understanding of the private fund 
industry and the potential systemic risk within it, and improve our 
ability to protect investors.\5\
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    \3\ Advisers Act section 202(a)(29) defines the term ``private 
fund'' as an issuer that would be an investment company, as defined 
in section 3 of the Investment Company Act of 1940 (``Investment 
Company Act''), but for sections 3(c)(1) or 3(c)(7) of that Act. 
Section 3(c)(1) of the Investment Company Act provides an exclusion 
from the definition of ``investment company'' for any issuer whose 
outstanding securities (other than short-term paper) are 
beneficially owned by not more than one hundred persons (or, in the 
case of a qualifying venture capital fund, 250 persons) and which is 
not making and does not presently propose to make a public offering 
of its securities. Section 3(c)(7) of the Investment Company Act 
provides an exclusion from the definition of ``investment company'' 
for any issuer, the outstanding securities of which are owned 
exclusively by persons who, at the time of acquisition of such 
securities, are qualified purchasers, and which is not making and 
does not at that time propose to make a public offering of such 
securities. The term ``qualified purchaser'' is defined in section 
2(a)(51) of the Investment Company Act. Since Form PF's adoption 
Commission staff have used Form PF statistics to inform our 
regulatory programs and establish census type information regarding 
the private fund industry. See SEC 2020 Annual Staff Report Relating 
to the Use of Form PF Data (Nov. 2020), available at https://www.sec.gov/files/2020-pf-report-to-congress.pdf. Staff reports, 
statistics, and other staff documents (including those cited herein) 
represent the views of Commission staff and are not a rule, 
regulation, or statement of the Commission. The Commission has 
neither approved nor disapproved the content of these documents and, 
like all staff statements, they have no legal force or effect, do 
not alter or amend applicable law, and create no new or additional 
obligations for any person. The Commission has expressed no view 
regarding the analysis, findings, or conclusions contained therein.
    \4\ The value of private fund net assets reported on Form PF has 
more than doubled, growing from $5 trillion in 2013 to $11 trillion 
by the end of 2020, while the number of private funds reported on 
the form has increased by nearly 70 percent in that time period. 
Unless otherwise noted, the private funds statistics used in this 
Release are from the Private Funds Statistics Fourth Quarter 2020. 
Any comparisons to earlier periods are from the private funds 
statistics from that period, all of which are available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. SEC 
staff began publishing the private fund statistics in 2015, 
including data from 2013. Therefore, many comparisons in this 
Release discuss the eight year span from the beginning of 2013 
through the end of 2020. Some discussion in this Release compares 
data from a six year span, from the beginning of 2015 through the 
end of 2020, because the SEC staff began publishing that particular 
data in 2016.
    \5\ We are proposing these amendments, in part, pursuant to our 
authority under section 204(b) of the Advisers Act, which gives the 
Commission the authority to establish certain reporting and 
recordkeeping requirements for advisers to private funds and 
provides that the records and reports of any private fund to which 
an investment adviser registered with the Commission provides 
investment advice are deemed to be the records and reports of the 
investment adviser.
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    First, we are proposing new current reporting by large hedge fund 
advisers \6\ regarding their qualifying hedge funds \7\ and by private 
equity advisers upon the occurrence of certain key events. Most private 
fund advisers report general information on Form PF, such as the types 
of private funds advised (e.g., hedge funds, private equity funds, or 
liquidity funds), fund size, use of borrowings and derivatives, 
strategy, and types of investors. Certain larger private fund advisers 
report more detailed information on the qualifying hedge funds, the 
liquidity funds and the private equity funds that they advise.\8\ In 
its current form, however, Form PF does not require current reporting 
of information from advisers whose funds are facing stress that could 
result in investor harm or potentially create systemic risk. Advisers 
file Form PF months after their quarter and year ends, depending on 
their size and the type of funds they advise. This means that during 
fast moving market events, Form PF data is often stale.\9\
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    \6\ See infra footnote 8.
    \7\ A qualifying hedge fund is defined in Form PF as ``any hedge 
fund that has a net asset value (individually or in combination with 
fund any feeder funds, parallel funds and/or dependent parallel 
managed accounts) of at least $500 million as of the last day of any 
month in the fiscal quarter immediately preceding your most recently 
completed fiscal quarter.''
    \8\ In particular, three types of ``Large Private Fund 
Advisers'' must complete certain additional sections of the current 
Form PF: (1) Any adviser having at least $1.5 billion in regulatory 
assets under management attributable to hedge funds as of the end of 
any month in the prior fiscal quarter (``large hedge fund 
advisers''); (2) any adviser managing a liquidity fund and having at 
least $1 billion in combined regulatory assets under management 
attributable to liquidity funds and registered money market funds as 
of the end of any month in the prior fiscal quarter (``large 
liquidity fund advisers''); and (3) any adviser having at least $2 
billion in regulatory assets under management attributable to 
private equity funds as of the last day of the adviser's most 
recently completed fiscal year (``large private equity adviser''). 
Under the proposal, we would lower the threshold for large private 
equity advisers to $1.5 billion.
    \9\ Instruction 9 to Form PF directs large hedge fund advisers 
file within 60 calendar days of their first, second and third fiscal 
quarters. Large liquidity fund advisers file within 15 calendar days 
of their first, second and third fiscal quarters. All other advisers 
file their annual updates within 120 calendar days after their 
fiscal year ends.
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    The SEC's experiences with recent market events like the March 2020 
COVID-19 turmoil and the January 2021 market volatility in certain 
stocks, have highlighted the importance of receiving current 
information from market participants during fast moving market 
events.\10\ We believe current reporting upon the occurrence of certain 
key events on Form PF would facilitate a regulatory response if 
appropriate and potentially mitigate the impact on investors and 
systemic risk. Current reports also would allow the Commission and FSOC 
to identify patterns among similarly situated funds that could indicate 
broader systemic implications or investor protection concerns. 
Therefore, we are proposing to require large hedge fund advisers and 
private equity advisers to report information within one day upon the 
occurrence of events that indicate significant stress or otherwise 
serve as signals of potential systemic risk implications, as well as 
potential areas for inquiry designed to prevent investor harm.
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    \10\ See SEC Staff Report on U.S. Credit Markets: 
Interconnectedness and the Effects of the COVID-19 Economic Shock 
(Oct. 4, 2020) (report of the SEC Division of Economic and Risk 
Analysis regarding market stress during the COVID-19 shock of March 
2020), available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf (noting that in March 2020 hedge funds 
were one of the principal sellers of U.S. Treasury futures with 
potential implications for the varying stresses in, the cash, 
futures, and repo markets). See also Staff Report on Equity and 
Options Market Structure Conditions in Early 2021 (Oct. 14, 2021), 
available at https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf (noting significant 
participation of institutional investors, including hedge funds, in 
the market for Gamestop Corp shares).

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[[Page 9108]]

    Second, we are proposing to decrease the threshold for reporting as 
a large private equity adviser \11\ and to require additional 
information from these advisers. The private equity space has grown 
substantially since Form PF was initially adopted. There were 6,910 
funds with $1.60 trillion in gross assets in first quarter of 2013 and 
15,584 funds with $4.71 trillion in gross assets in the fourth quarter 
of 2020.\12\ In addition, given the increased demand for exposure to 
private equity among institutional investors, private equity advisers 
have expanded the breadth of their investment strategies and the types 
of offerings, including a significant increase in private credit 
strategies, which raises questions regarding lending practices that 
could raise systemic risk concerns.\13\
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    \11\ See supra footnote 8.
    \12\ Division of Investment Management, Private Fund Statistics 
(Aug. 21, 2021), available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \13\ See Jessica Hamlin, Private Equity Funds Fuel Growth in 
Private Credit, Institutional Investor (Nov. 10, 2020), available at 
https://www.institutionalinvestor.com/article/b1vdhdbryr7dkp/Private-Equity-Funds-Fuel-Growth-in-Private-Credit.
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    Given the growth in the private equity industry over the past 11 
years, coupled with an increase in the number of advisers with 
aggregate private equity assets under management below $2 billion, we 
are proposing to reduce the threshold for reporting as a large private 
equity adviser from $2 billion to $1.5 billion in private equity fund 
assets under management.\14\ Lowering this threshold would enable the 
Commission and FSOC to receive reporting from a similar proportion of 
the U.S. private equity industry based on committed capital as we did 
when Form PF was initially adopted. We believe reducing the threshold 
in this manner would provide a robust data set to help identify 
potential investor protection issues and monitor for systemic risk, 
while also minimizing burdens for smaller advisers.
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    \14\ Calculated based on the amount of private equity fund 
assets under management as of the last day of the adviser's most 
recently completed fiscal year.
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    Additionally, we are proposing to amend section 4 of Form PF to 
gather more detailed information from large private equity advisers. 
The information regarding the activities of private equity funds, 
certain of their portfolio companies and the creditors involved in 
financing private equity transactions is important to the assessment of 
systemic risk. We are proposing tailored amendments to section 4 to 
gather more information from large private equity advisers regarding 
fund strategies, use of leverage and portfolio company financings, 
controlled portfolio companies (``CPCs'') and CPC borrowings, fund 
investments in different levels of a single portfolio company's capital 
structure, and portfolio company restructurings or recapitalizations. 
We believe this reporting would provide useful empirical data to FSOC 
with which it may analyze the extent to which the activities of private 
equity funds or their advisers pose systemic risk and provide the 
Commission with targeted information for use in its regulatory program 
for the protection of investors.
    Finally, we are proposing to require large liquidity fund advisers 
to report substantially the same information that money market funds 
would report on Form N-MFP, as we propose to amend it.\15\ As discussed 
more fully in our release to amend Form N-MFP, we are proposing 
amendments to improve money market funds' resiliency and transparency. 
Together, Form N-MFP and Form PF are designed to provide a complete 
picture of the short-term financing markets in which money market funds 
and liquidity funds both invest.\16\ The proposed amendments to Form PF 
are designed to enhance the Commission and FSOC's ability to assess 
short-term financing markets and facilitate our oversight of those 
markets and their participants. This, in turn, is designed to enhance 
investor protection efforts and systemic risk assessment.
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    \15\ See Money Market Fund Reforms, Investment Company Act 
Release No. 34441 (Dec. 15, 2021) (``Money Market Fund Proposing 
Release'').
    \16\ See 2014 Form PF Amending Release, supra footnote 2.
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    We consulted with FSOC to gain input on this proposal, and to help 
ensure that Form PF continues to provide FSOC with information it can 
use to assess systemic risk in light of changes in the private fund 
industry over the past decade, while also serving to enhance the 
Commission's investor protection efforts going forward.

II. Discussion

A. Current Reporting for Large Hedge Fund Advisers and Advisers to 
Private Equity Funds

    In order to receive more timely information about certain events 
that may signal distress at qualifying hedge funds and private equity 
funds or market instability we are proposing new current reporting 
section 5 for large hedge fund advisers and new current reporting 
section 6 for private equity advisers.\17\ Currently, large hedge fund 
advisers file Form PF quarterly while private equity advisers file 
annually. This means that during fast moving events that could have 
systemic risk implications or negatively impact investors, Form PF data 
is often stale. The proposed current reporting requirements would 
provide important, current information to the Commission and FSOC to 
facilitate timely assessment of the causes of the reporting event, the 
potential impact on investors and the financial system, and any 
potential regulatory responses.\18\ The current reports would also 
enhance our analysis of other information the Commission already 
collects across funds and other market participants allowing the 
Commission and FSOC to identify patterns that may present systemic risk 
or that could result in investor harm.\19\ For example, information 
regarding a margin default at a large qualifying hedge fund would 
inform our understanding of data on market trading conditions and other 
information shared with other market participants, including securities 
exchanges.
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    \17\ We are also proposing, in connection with the proposed 
addition of new section 5 and section 6 for current reporting, to 
make conforming changes to rule 204(b)-1 under the Advisers Act to 
re-designate current section 5, which includes instructions for 
requesting a temporary hardship exemption, as section 7.
    \18\ We propose to define ``reporting event'' in the Form PF 
Glossary to include any event that triggers the requirement to 
complete and file a current report pursuant to the items in sections 
5 and 6.
    \19\ We propose to define ``current report'' in the Form PF 
Glossary to include a report provided pursuant to the items in 
sections 5 and 6.
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    Advisers would file current reports for reporting events within one 
business day of the occurrence of a reporting event.\20\ We believe 
this emphasizes the Commission's and FSOC's need for timely information 
while allowing advisers one business day to evaluate and obtain the 
necessary data to confirm the existence of a filing event, and file the 
current report. For example, if an adviser determined that a reporting 
event occurred on Monday, they would have to file a current report by 
the close of business on Tuesday. Advisers should consider filing a 
current report as soon as possible following such an event. Advisers 
also would be able to file an amendment to a previously filed current 
report to correct information

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that was not accurate at the time of filing.\21\
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    \20\ We propose to amend Instructions 1, 3, 9, and 12 of the 
general instructions to reflect this new obligation for large hedge 
fund advisers and private equity advisers. Specifically, we propose 
to amend Instruction 3 to identify the new sections 5 and 6 and 
Instruction 9 to address the timing of filing the proposed current 
reports.
    \21\ Current Instruction 16 explains that an adviser is not 
required to update information that it believes in good faith 
properly responded to Form PF on the date of filing even if that 
information is subsequently revised for purposes of the adviser's 
recordkeeping, risk management or investor reporting (such as 
estimates that are refined after completion of a subsequent audit).
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    We request comments on the addition of current reporting to Form 
PF:
    1. Should we amend Form PF to include current reporting in sections 
5 and 6 as proposed? If not, what alternatives would provide the 
Commission with timely information regarding events that could signal 
distress or financial stability risks or potential investor harm?
    2. We have proposed Sections 5 and 6 as separate reporting sections 
on Form PF. Should we instead require current reporting as its own 
form?
    3. Is the proposed one business day reporting window appropriate 
for current reports? Should the notification be on the same day as the 
event? Are there challenges associated with providing these current 
reports within one business day? Is one business day sufficient time to 
eliminate or significantly reduce false positive reports? Would 
advisers need more than one business day to gather and confirm the 
required information for certain current reports? If so, should we 
require advisers to file a current report within two business days, 
three business days or some longer period? Would different time limits 
for different current reports, tailored to the potential seriousness of 
the event or the level of burden in collecting the information be more 
appropriate? Would different time limits for different current reports 
potentially cause confusion?
    4. Should we require advisers to file a current report based on a 
number of calendar days instead of business days?
    5. Should we define ``business day'' for sections 5 and 6? If so, 
how? For example, should we define the term to include any day other 
than a Saturday, Sunday, or Federal or market holiday for purposes of 
sections 5 and 6?
    6. In addition to filing the current report, are there some events 
for which advisers should be required to notify the Commission via 
email or a phone call on a more immediate basis on the same day the 
event occurred?
    7. Would proposed section 6 disproportionally impact or create an 
undue burden for smaller private equity advisers, i.e., those with 
private equity fund assets under management of between $150 million and 
$1.5 billion? If so, how should we modify this reporting requirement?
1. Large Hedge Fund Adviser Current Reporting on Qualifying Hedge Funds
    We propose to add a new section 5 to Form PF, which would require 
large hedge fund advisers to file a current report within one business 
day of the occurrence of one of several reporting events at a 
qualifying hedge fund that they advise. As discussed below, the 
reporting events include extraordinary investment losses, certain 
margin events, counterparty defaults, material changes in prime broker 
relationships, changes in unencumbered cash, operations events, and 
certain events associated with redemptions. We have designed the 
reporting events to indicate significant stress at a fund that could 
harm investors or signal risk in the broader financial system. For 
example, large investment losses or a margin default involving one 
large highly levered hedge fund may have systemic risk implications. 
Counterparties could react by increasing margin requirements or 
limiting borrowing, or investors may withdraw, and these responses 
could amplify the fund's stress by forcing additional asset sales. 
Similarly, reports of large investment losses at multiple qualifying 
hedge funds (even if not the largest or most levered) may indicate 
market stress that could have systemic effects. Current reports would 
be especially useful during periods of market volatility and stress, 
when the Commission and FSOC are actively ascertaining the affected 
funds, gathering information to assess systemic risk, and determining 
whether and how to respond in a timely manner.
    The proposed reporting events incorporate objective tests to allow 
advisers to determine whether a report must be filed. We designed and 
tailored the reporting events to decrease reporting burden and to allow 
advisers to use frameworks that we understand many large hedge fund 
advisers already maintain to assess and manage risk actively. A number 
of the items include quantifiable threshold percentage tests calibrated 
to trigger reporting for events that we believe are likely indicative 
of severe stress at a fund or may have broader implications for 
systemic risk. We considered varying levels of thresholds and believe 
that the proposed thresholds would trigger reporting for relevant 
stress events for which we seek timely information while minimizing the 
potential for false positives and multiple unnecessary current reports. 
In addition, we considered a number of temporal periods over which to 
measure certain stress events before arriving at measurement windows 
that we believe are appropriate to trigger reporting for precipitous, 
but sustained stress events. In our experience these time frames, in 
some instances applied over rolling periods, are calibrated to capture 
serious stress events and mitigate the potential for reporting for 
short-lived fund stresses or events caused by relatively routine market 
volatility.
    To supplement the objective triggers, several of the items include 
check boxes that would provide additional context and obviate the need 
for advisers to provide narrative responses during periods of stress 
under time pressure. We designed the checkboxes to incorporate 
descriptions of circumstances that we believe provide important context 
to events that would allow the Commission and FSOC to review and 
analyze the current reports and screen false positives (i.e., incidents 
that trigger the proposed current reporting requirement but do not 
actually raise significant risks) during periods in which they may be 
actively evaluating fast-moving market events.
    Proposed section 5 would contain Items A through K. Section 5, Item 
A would require advisers to identify themselves and the reporting fund, 
including providing the reporting fund's name, private fund 
identification number, NFA identification number (if any), and LEI (if 
any).\22\ Section 5, Items B through J would set forth the reporting 
events and the applicable reporting requirements for each event. 
Section 5, Item K would serve as an optional repository for explanatory 
notes that the large hedge fund adviser could provide to improve 
understanding of any information reported in response to the other 
section 5 items. The following sections discuss each reporting event.
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    \22\ Section 5, Item A would also require identifying 
information on the reporting fund's adviser, including the adviser's 
full legal name, SEC 801-Number, NFA ID Number (if any), large 
trader ID (if any), and large trader ID suffix (if any), as well as 
the name and contact information of the authorized representative of 
the adviser and any related person who is signing the current 
report.
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a. Extraordinary Investment Losses
    Proposed current reporting Item B would require large hedge fund 
advisers, whose advised qualifying hedge funds experience extraordinary 
losses within a short period of time, to provide a current report 
describing the losses. Reporting for proposed Item B would be triggered 
by a loss equal to or greater than 20 percent of a fund's most recent 
net asset value over a rolling 10 business day period. This reporting 
event would capture, for example, a situation where the fund's most 
recent

[[Page 9110]]

net asset value is $1 billion and the fund loses $20 million per 
business day for consecutive 10 business days. It would also capture a 
loss of $200 million in one business day as the rolling 10 day period 
is backward looking. We designed the proposed threshold to capture a 
significant loss at the reporting fund over a relatively short rolling 
period as well as a precipitous loss without capturing immaterial 
losses that may not be indicative of stress at the fund.
    In our experience, losses of 20 percent or more of a fund's most 
recent net asset value during this period could indicate significant 
stress at the fund or the markets in which the fund participates that 
could raise investor protection and systemic risk concerns warranting 
prompt reporting. For example, these losses could signal a precipitous 
liquidation or broader market instability that could lead to secondary 
effects, including greater margin and collateral requirements, 
financing costs for the fund, and the potential for large investor 
redemptions. Notice of large losses could provide notice to the 
Commission and FSOC of potential fund or market issues in advance of 
the occurrence of more downstream consequences, such as sharp margin 
increases, defaults, or fund liquidation. Also, funds in serious stress 
may be in the process of deleveraging, exiting certain strategies, or 
liquidating securities in a declining market with implications for both 
fund investors and systemic risk. Moreover, large, sharp, and sustained 
losses suffered by one fund within this short period may signal concern 
for similarly situated funds, allowing the Commission and FSOC to 
analyze the scale and scope of the event and whether additional funds 
that may have similar investments, market positions, or financing 
profiles are at risk.
    Under this reporting event, the fund's losses would be compared to 
its ``most recent net asset value,'' which we propose to define as ``as 
of the data reporting date at the end of the reporting fund's most 
recent reporting period,'' which typically would be the most recent 
update to the fund's routine quarterly or annual Form PF filing.\23\ We 
understand that some funds calculate a daily mark to market value for 
certain assets in their portfolios and that using a current daily mark 
to market value for this reporting event may be feasible and provide a 
more current and accurate picture of a fund's losses. However, given 
that some funds do not calculate a daily net asset value, we believe 
that requiring that the losses be based on the most recent net asset 
value reported on Form PF would ease burdens for some advisers while 
still providing the Commission and FSOC with timely information about 
investment losses that may indicate significant stress at a fund. We 
acknowledge that this approach could result in a lag between the net 
asset value date and a calculation date for purposes of this reporting 
event, during which market movements could significantly affect values. 
This could potentially result in over-reporting in instances where the 
fund assets have appreciated substantially in the intervening period 
since the last reporting date and under-reporting when the fund assets 
have significantly depreciated in value since the last reporting date. 
However, we propose this approach because we believe the proposed 
limited reporting requirements discussed below, combined with the 
option to add explanatory notes to its current report to explain the 
circumstances of the loss, mitigate these concerns.
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    \23\ See proposed Form PF Glossary.
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    Under proposed Item B, an adviser must file the following 
information: (1) the dates of the 10 business day period over which the 
loss occurred and (2) the dollar amount of the loss. If the loss were 
to continue past the initial 10 day period, advisers would not file 
another current report until the next 10 business day loss period 
beginning on or after the end date stated in the adviser's initial Item 
B current report.\24\ This proposed information would allow the 
Commission and FSOC to understand the scale of the loss and its 
potential effects both to investors in the reporting fund as well as 
the broader financial markets, particularly if current reports are 
filed by multiple advisers.
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    \24\ If the fund experiences a 20 percent loss the adviser would 
not report a second time until the fund had experienced a second 
loss of an additional 20 percent of the fund's most recent net asset 
value over a second rolling 10-day period to begin on or after the 
end date stated in the adviser's initial Item B current report.
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    We request comment on the proposed current reporting item for 
extraordinary investment losses:
    8. Would extraordinary losses raise investor protection or systemic 
risk concerns such that the Commission and FSOC should be notified 
within one business day? Should the notification be on the same day as 
the event? Should it be longer? For example, should we require advisers 
to file a current report within two business days, three business days 
or some longer period?
    9. As currently formulated, is the trigger for reporting 
extraordinary losses likely to provide us with an early warning of 
hedge fund or industry stress and potential systemic risk implications? 
Would proposed Item B capture extraordinary losses that are not 
indicative of fund or market stress? Would reporting on Item B be 
burdensome to operationalize, particularly its use of a measure of the 
reporting fund's extraordinary losses over a rolling 10 business day 
period? Are large hedge fund advisers able to apply the extraordinary 
loss trigger using their existing metrics?
    10. Should the scale of losses be compared to the reporting fund's 
most recent net asset value as proposed? Is this approach a reasonable 
measure of whether investment losses are ``extraordinary'' for purposes 
of the current reporting requirement? Would this approach ease burdens 
on reporting advisers or do large hedge fund advisers calculate the 
fund's net asset value on each business day? Do large hedge fund 
advisers calculate a different fund value that might be used instead of 
net asset value for measuring extraordinary losses? If so, what other 
measures would be practicable for reporting these advisers, while also 
achieving our goal to identify extraordinary investment losses that may 
have systemic risk implications or result in investor harm? For 
example, should we require large hedge fund advisers to measure 
extraordinary losses based on a daily mark to market calculation 
(estimated or actual) for the portion of a qualifying hedge fund's 
portfolio invested in marketable securities (a ``daily mark to market 
calculation'')? If losses are measured using a daily mark to market 
calculation for a portfolio of marketable securities, should we limit 
the application of this reporting event to qualifying hedge funds that 
hold at least a threshold value of their portfolios in marketable 
securities, e.g., the lesser of $150 million or 50 percent of net asset 
value or another threshold? How would large hedge fund advisers 
calculate losses for purposes of this reporting event? Does the ability 
to add explanatory notes in Item K help mitigate concerns of using the 
most recent net asset value reported on Form PF?
    11. Is a 20 percent loss measured against the fund's most recently 
reported net asset value an amount that could raise investor protection 
or systemic risk concerns such that the Commission and FSOC should be 
notified within one business day? Should the threshold amount be higher 
(e.g., 50 percent threshold) or lower (e.g., 10 percent threshold)? If 
this reporting event were to measure losses using a daily mark to 
market calculation for a portfolio of marketable securities,

[[Page 9111]]

should extraordinary losses instead be measured against a percent of 
the value of the portfolio's marketable securities?
    12. Would the use of rolling periods increase the likelihood that 
we capture the types of extraordinary losses that could cause investor 
harm or systemic risk? Is a ten-business day period appropriate? Should 
it be longer or shorter? Should we use trading days or calendar days 
instead of business days? If so, how should we define ``trading days'' 
and should our definition allow large hedge fund advisers to determine 
what is a trading day by reference to the exchanges and markets on 
which the fund's portfolio holdings are trading? Would monitoring 
losses over the rolling periods be overly burdensome?
    13. Should we require funds to file multiple Item B current reports 
if they suffer 20 percent losses over multiple 10 business day periods 
during a quarterly update period? Is it likely that funds would report 
losses of this type multiple times a quarter? Would additional reports 
be duplicative? Alternatively, should we require advisers to file only 
one Item B current report per quarterly period?
    14. Should we require a reporting event that measures investment 
losses over a period (e.g., a 10-day or 20-day rolling period) against 
the volatility of the fund's returns? We understand that losses that 
are large compared to a hedge fund's historic volatility of returns may 
signal significant stress. Could this type of reporting event be a 
useful signal of extraordinary losses that may have systemic risk 
implications? If so, how should we require hedge funds to measure 
volatility of returns? Should we require funds to calculate the monthly 
volatility of a daily mark to market calculation for this purpose? 
Would doing so be burdensome to operationalize? Should we limit the 
application of a reporting event that measures investment losses 
against volatility of returns to qualifying hedge funds that hold at 
least a threshold value of their portfolios in marketable securities, 
e.g., the lesser of $150 million or 50 percent of net asset value, or 
another threshold?
    15. Are there other reporting events that would be indicative of 
the types of extraordinary losses that could cause investor harm or 
systemic risk that we should include in addition to or instead of the 
proposed Item B current report?
    16. Should we require additional or different information in 
response to this item? In other current reporting items outlined below, 
we provide checkboxes for advisers to provide additional context to the 
reporting event. Should we provide checkboxes for advisers to describe 
the circumstances of the loss, or are the reasons for an extraordinary 
loss so variable as to avoid easy categorization? If we were to provide 
checkboxes what should they be?
b. Significant Margin and Default Events
    Proposed Section 5 Items C through E would require current 
reporting of significant margin and default events that occur at 
qualifying hedge funds advised by large hedge fund advisers or at their 
counterparties. In our experience, significant increases in margin, 
inability to meet a margin call, margin default, and default of a 
counterparty are strong indicators of fund and potential market stress. 
Each of the triggers and underlying thresholds is calibrated to 
identify stress at a fund that may signal the potential for precipitous 
liquidations or broader market instability that may affect similarly 
situated funds, or markets in which the fund invests.
    Proposed current reporting Item C would require advisers to report 
significant increases in the reporting fund's requirements for margin, 
collateral, or an equivalent (collectively referred to as 
``margin'').\25\ If the reporting fund has experienced a cumulative 
increase in margin of more than 20 percent of the reporting fund's most 
recent net asset value over a rolling 10 business day period, Item C 
would require the adviser to file certain information within one 
business day.\26\ We believe that a 20 percent increase to a fund's 
margin requirements over a 10 business day period is large enough and 
precipitous enough to signal potential significant stress at the fund, 
at its counterparties, or in the broader market while limiting the 
potential for reporting in the case of routine margin increases. Sudden 
and significant margin increases can have critical effects on funds 
that may be operating with large amounts of leverage and could serve as 
precursors to defaults at fund counterparties and eventual liquidation. 
Large, sustained margin increases also may effectively signal that 
counterparties are concerned about a fund's portfolio positions and may 
signal the potential for future margin increases from the fund's other 
counterparties. A large margin increase of this type may also serve as 
a potential early indicator for broader market stress for similarly 
situated funds that may help inform the Commission or FSOC of potential 
implications for investor harm or systemic risk and allow them to 
respond quickly to developing market events.
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    \25\ An equivalent is any other type of payment or value 
understood to serve the same purposes as margin or collateral.
    \26\ As noted above, measures derived from ``most recent net 
asset value'' are backward-looking to the most recently filed 
routine quarterly or annual filing and could result in a lag between 
the net asset value date and a calculation date for purposes of this 
reporting event, during which market movements could significantly 
affect values. This could result in over-reporting and under-
reporting, but we believe that this approach would simplify 
monitoring and reporting by advisers. In addition, the option for an 
adviser to add explanatory notes to its current report to explain 
the circumstances of the loss mitigate these concerns.
---------------------------------------------------------------------------

    The adviser would report (a) the dates of the 10 business day 
period over which the increase occurred; (b) the cumulative dollar 
amount of the increase; and (c) the identity of the counterparty or 
counterparties requiring the increase(s). If the increases in margin 
were to continue past the initial 10 day period, advisers would not 
file another current report until on or after the next 10 business day 
period beginning on or after the end date stated in the adviser's 
initial Item C current report.\27\ In circumstances where multiple 
counterparties are involved, advisers would list the all the 
counterparties who increased margin requirements. In addition, the 
adviser would use check boxes to describe the circumstances of the 
margin increase.\28\ These include: (1) Exchange requirements or known 
regulatory action affecting one or more counterparties; (2) one or more 
counterparties independently increasing the reporting fund's margin 
requirements; (3) the reporting fund establishing a new relationship or 
new business with one or more counterparties; (4) new investment 
positions, investment approach or strategy and/or portfolio turnover of 
the reporting fund; (5) a deteriorating position or positions in the 
reporting fund's portfolio or other credit trigger under applicable 
counterparty agreements; and/or (6) a reason ``other'' than those 
outlined. We believe that this proposed information would provide 
useful context regarding the margin increase and allow for an 
assessment of the scale of the potential issue and related risks. We 
believe this information would both better enable the Commission and 
FSOC to screen false positives for margin increases (i.e., incidents 
that trigger the proposed

[[Page 9112]]

current reporting requirement but do not actually raise significant 
risks) and assess significant margin events.
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    \27\ If the fund experiences a 20 percent increase to a fund's 
margin requirements that continues past the initial 10 day period, 
the adviser would not report a second time until the fund had 
experienced a second margin increase of an additional 20 percent of 
the fund's most recent net asset value over a second rolling 10 day 
period beginning at or after the end date stated in the adviser's 
initial Item C current report.
    \28\ Proposed Form PF section 5, Item C, Question 11.
---------------------------------------------------------------------------

    Proposed current reporting Item D would require advisers to report 
a fund's margin default or inability to meet a call for margin, 
collateral, or an equivalent (taking into account any contractually 
agreed cure period).\29\ We believe a current report is necessary to 
capture these events because funds that are in margin default or that 
are unable to meet a call for margin are at risk of potentially 
triggering the liquidation of their positions at their counterparties. 
This presents serious risks to the fund's investors, its 
counterparties, and potentially the broader financial system. The 
proposed amendments would require advisers to file a current report in 
these circumstances, including in situations where there is a dispute 
with regard to the margin call to avoid delays in reporting. However, 
advisers would not be required to file a current report in situations 
where there is a dispute in the amount and appropriateness of a margin 
call, provided the reporting fund has sufficient assets to meet the 
greatest of the disputed amount. We believe that according this 
flexibility allows funds and advisers that are capable of meeting a 
margin call time to respond to and resolve a margin dispute with their 
counterparties.
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    \29\ In situations where there is a contractually agreed upon 
cure period an adviser would not be required to file an Item D 
current report until the expiration of the cure period, unless the 
fund would not expect to be able to meet the margin call during such 
cure period.
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    Under the proposal, the adviser would report for each separate 
counterparty for which this occurred: (a) The date the adviser 
determines or is notified that a reporting fund is in margin default or 
will be unable to meet a margin call with respect to a counterparty; 
(b) the dollar amount of the margin, collateral or equivalent involved; 
and (c) the legal name and LEI (if any) of the counterparty. In 
addition, the adviser would check any applicable check boxes that would 
describe the adviser's current understanding of the circumstances of 
the adviser's default or its determination that the fund will be unable 
to meet a call for increased margin.\30\ These include: (1) An increase 
in margin requirements by the counterparty; (2) losses in the value of 
the reporting fund's portfolio or other credit trigger under the 
applicable counterparty agreement; (3) a default or settlement failure 
of a counterparty; or (4) a reason ``other'' than those outlined. We 
believe that these check boxes would enable the Commission's staff and 
FSOC to identify and evaluate the circumstances underlying the 
inability to meet a call for margin and formulate any necessary 
response in a timely manner. If the fund was unable to meet margin or 
defaulted with multiple counterparties on the same day, the adviser 
would file one current report on Item D broken out with details for 
each counterparty.
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    \30\ Proposed Form PF section 5, Item D, Question 15.
---------------------------------------------------------------------------

    Proposed current reporting Item E, ``Counterparty Default,'' would 
require an adviser to report a margin default by a counterparty. 
Defaults by counterparties can have serious implications for the funds 
with which they transact, the fund's investors, and the broader market. 
A current report of a counterparty default would help the Commission 
and FSOC identify funds or market participants that may be affected by 
a counterparty's default and analyze whether there are broader 
implications for systemic risk. A current report would be triggered if 
a counterparty to the reporting fund (1) does not meet a call for 
margin or has failed to make any other payment, in the time and form 
contractually required (taking into account any contractually agreed 
cure period); and (2) the amount involved is greater than 5 percent of 
the most recent net asset value of the reporting fund.\31\ While we are 
not proposing a minimum threshold for reporting on a qualifying hedge 
fund's margin default given the potential implications of such a 
default, we believe it is appropriate to set a threshold for 
counterparty defaults that could affect a sizeable percentage of the 
fund's net asset value. We believe that 5 percent of the most recent 
net asset value of the reporting fund is an appropriate threshold in 
this regard because counterparty defaults of this size could have 
systemic waterfall effects, triggering forced-selling by the fund and 
raising potential risks for other hedge funds that may transact with 
the same counterparty.\32\ Moreover, the 5 percent threshold is a 
figure we have used in Form PF to measure and collect information 
regarding sizable exposures to creditors or counterparties.\33\ In 
addition, we believe setting the threshold for counterparty defaults at 
5 percent of the most recent net asset value would limit the reports 
for de minimis or superficial defaults that may be the result of a 
short-lived operational error.
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    \31\ As noted above, measures derived from ``most recent net 
asset value'' are backward-looking to the most recently filed 
routine quarterly, or annual filing and could result in a lag 
between the net asset value date and a calculation date for purposes 
of this reporting event, during which market movements could 
significantly affect values. This could result in over-reporting and 
under-reporting, but we believe that this approach would simplify 
monitoring and reporting by advisers. In addition, the option to add 
explanatory notes to its current report to explain the circumstances 
of the loss mitigate these concerns.
    \32\ See Financial Stability Oversight Council, ``Update on 
Review of Asset Management Products and Activities,'' p. 15-18, 
April 2016, available at https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf (noting that large highly interconnected 
counterparties play a role in whether hedge fund activities have 
financial stability implications).
    \33\ See current question 47 of Form PF: Identify each creditor, 
if any, to which the reporting fund owed an amount in respect of 
borrowings equal to or greater than 5 percent of the reporting 
fund's net asset value as of the data reporting date. For each such 
creditor, provide the amount owed to that creditor.
---------------------------------------------------------------------------

    Item E would require the adviser to report: (a) The date of the 
default; (b) the dollar amount of the default; and (c) the legal name 
and LEI (if any) of the counterparty. In the event that multiple 
counterparties to the fund default on the same day, Item E would allow 
an adviser to file a single current report broken out with details for 
each counterparty default. In the event that counterparties to the fund 
default on different days, the adviser would file a separate Item E 
current report for each counterparty default that occurred. We did not 
provide checkboxes for Item E because we believe that advisers to the 
funds are unlikely to have complete information regarding their 
counterparty's default and the responses would likely be speculative.
    We request comment on the proposed current reports for margin and 
default events:
    17. As currently formulated, is the trigger for reporting margin 
increases likely to provide an indicator of hedge fund or industry 
stress and systemic risk? Would proposed Item C capture margin 
increases that are not indicative of fund or market stress? Would 
reporting on Item C be burdensome to operationalize, particularly its 
use of a measure of the reporting fund's increase in margin over a 
rolling 10 business day period? Should we ask advisers to report the 
dollar value of margin, collateral or an equivalent on the first and 
last day of the 10 day period in Item C? Would this information be more 
or less burdensome than reporting the amount of increase as currently 
proposed?
    18. Should the margin increase be compared to the reporting fund's 
most recent net asset value as proposed? Or, as with extraordinary 
losses, are there other measurements, such as a daily mark to market 
value, we could use to

[[Page 9113]]

identify the types of margin increases that could cause investor harm 
or systemic risk?
    19. Should we tie reporting on margin increases to an amount 
reported on Form PF as of the end of the last reporting period (e.g., 
total margin, collateral or other equivalent reported in Q43(a) and 
(b))?
    20. Is a 20 percent margin increase measured against the fund's 
most recently reported net asset value an amount that could raise 
investor protection or systemic risk concerns such that the Commission 
and FSOC should be notified within one business day? Should the 
threshold amount be higher (e.g., 50 percent threshold) or lower (e.g., 
10 percent threshold)?
    21. Do the proposed check boxes provide proper context to events 
captured by Item C? Should we remove any of the check boxes, or add 
additional check boxes to improve our understanding of potential 
responses to Item C? For example, should we also add a check box for an 
operational issue (including the potential failure of a service 
provider) that could lead to an inability to meet a margin call?
    22. Should we ask advisers to identify the amount of margin 
increase for each counterparty in Item C? Would reporting of this 
dollar amount better inform our understanding of fund stress? Would 
determining and reporting this figure be burdensome to advisers? Would 
knowing the amount of margin increase provide appreciable insight into 
risks to the fund's counterparties?
    23. In circumstances where multiple counterparties are involved in 
the margin increase, should advisers list the top three (or different 
number of) counterparties, based on the dollar amount of the cumulative 
increase required by each counterparty instead of all the 
counterparties that increased margin as we propose? Would listing all 
the counterparties that may have raised margin in such an event be 
burdensome?
    24. We understand that increases in margin may be subject to 
extensive negotiation and/or dispute among counterparties so it may be 
difficult for the adviser to determine the point at which the fund is 
unable to meet a margin call and required to file in accordance with 
Item D. Does Item D as currently written provide sufficiently objective 
criteria for when advisers must file a current report? Are there more 
objective criteria that we could provide that would be equally useful?
    25. Item D would be triggered if the adviser determines that the 
reporting fund is in default or will be unable to meet a call for 
increased margin, collateral, or an equivalent, including in situations 
where there is a dispute with regard to the margin call. Is that 
appropriate or should we include a carve-out or checkbox for situations 
where the margin call, collateral, or equivalent is in dispute? Should 
Item D be triggered without taking into account any contractually 
agreed cure period to provide more timely information regarding 
potential systemic risk or would this approach create too many false 
positives?
    26. Is notice of default an easily ascertainable event for advisers 
to identify or are there nuances to default provisions or certain 
industry practices that may make this reporting event difficult to 
implement in practice?
    27. Do the proposed check boxes provide proper context to events 
captured by Item D? Should we remove any of the check boxes, or add 
additional check boxes to improve our understanding of potential 
responses to Item D?
    28. Items C and D involve events that could be triggered by a fund 
experiencing stress with the potential to be triggered at the same time 
or in rapid succession. Are there concerns about the timing of filing 
reports for these related items? We believe Item C could serve as 
indicator of the potential for events outlined in Item D. Are we 
correct in this belief? Should we ask these related questions in a 
different way so as to receive notice of a potential upcoming default? 
Would a default event be likely to trigger both of these current 
reports, and if so, would it be burdensome to file current reports for 
each of these items in such a situation?
    29. Are the triggers for reporting on Item E, including the 5 
percent net asset value threshold, indicative of potential systemic 
risk or investor protection concerns? Should that threshold be higher 
or lower? Would a threshold for reporting on an adviser's default in 
Item D be appropriate? If so, should that threshold also be 5 percent 
of the reporting fund's net asset value? Or should that threshold be 
higher or lower?
    30. We did not provide checkboxes for Item E because we believe 
that advisers to the funds are unlikely to have complete information 
regarding their counterparty's default and the responses would likely 
be speculative. Are we correct in this belief? If not, what checkboxes 
should we include to improve our understanding of potential responses 
to Item E?
    31. For each of the current reports in Items in C, D, and E, should 
we request the principal place of business address and the country 
where we request to identify the counterparty? Or, should the legal 
name and LEI be sufficient to identify counterparties?
c. Material Change in Relationship With Prime Broker
    Proposed section 5, Item F would require the adviser to report a 
material change in the relationship between the reporting fund and a 
prime broker. We believe that material changes in a reporting fund's 
prime brokerage relationships may signal that the fund or the brokers 
with whom the fund transacts are experiencing stress and may be subject 
to an increased risk of default or in the case of the reporting fund, 
potential liquidation. Such events would include material changes to 
the fund's ability to trade or an outright termination of the prime 
brokerage relationship for default or breach of the prime brokerage 
agreement. A prime broker that is no longer willing to provide services 
to a fund client may be apprehensive of a fund's investment positions 
or trading practices and may consider the fund to be an unacceptable 
risk as a counterparty. Therefore, material changes to such 
relationships may indicate potential stress at the fund that may have 
implications for investor harm and broader systemic risk concerns.
    Proposed Item F would require the adviser to provide the date of 
the material change and the legal name and LEI (if any) of the prime 
broker involved. An adviser also would check any applicable boxes that 
describe the circumstances relating to the material change, including 
whether the change involved: (1) Material trading limits or investment 
restrictions on the reporting fund, including requests to reduce 
positions, or unwind positions completely; and (2) whether the prime 
brokerage relationship was terminated and by which party.\34\ We 
request comment on the proposed current report in section 5, Item F:
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    \34\ Proposed Form PF section 5, Item F, Question 21.
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    32. Are material changes to a prime brokerage relationship 
indicative of fund stress or potential systemic risk? Are the 
circumstances described in the checkboxes sufficient to provide us with 
detail on the change in the relationship? Should we add an ``other'' 
check box? Should we add or delete check boxes? Should we request the 
principal place of business address of the prime broker? Or, should the 
legal name and LEI be sufficient to identify the prime broker?
    33. We would require reporting of only material changes in a 
reporting

[[Page 9114]]

fund's relationship with a prime broker. Will it be challenging to 
determine whether a change is material? Should we provide additional 
guidance? Should we require funds that add a new prime broker to report 
the new relationship, or is the addition of a new prime broker not 
useful from a risk evaluation perspective? Should we require that all 
changes in a reporting fund's relationship with a prime broker 
reported?
    34. We understand that many large funds have prime brokerage 
agreements that include termination events that have net asset value 
triggers. Are we correct in this understanding? Should we tie current 
reporting in proposed Item F to the net asset value trigger provision 
in a fund's prime brokerage agreement? If so, how? Should we provide a 
checkbox asking whether a net asset value trigger has been breached?
    35. Should we expand the proposed Item F reporting event to include 
broker-dealer counterparties and not just prime brokers? Would this 
provide us with a more complete picture of the fund's relationship with 
broker-dealer counterparties? Would such a current report be burdensome 
to track across multiple counterparties?
d. Changes in Unencumbered Cash
    Proposed section 5, Item G would require the adviser to report a 
significant decline in holdings of unencumbered cash. A current report 
for changes in unencumbered cash would be triggered if the value of the 
reporting fund's unencumbered cash declines by more than 20 percent of 
the reporting fund's most recent net asset value over a rolling 10 
business day period.\35\ In order to report significant changes in 
unencumbered cash, advisers would need to calculate a daily 
unencumbered cash figure using the same methodology they use to 
calculate question 33 on the current Form PF.\36\ We believe that a 
precipitous decline in unencumbered cash within a short time window may 
indicate potential stress on the fund and its ability to access cash 
affecting the fund's financing and its relationships with 
counterparties, which may raise concerns of investor harm and systemic 
risk. In our experience, funds and fund counterparties use unencumbered 
cash figures as an indicator of a fund's overall health as it has 
implications, among other things, for the fund's ability to allocate 
investments, satisfy redemptions, and meet margin calls.
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    \35\ As noted above, measures derived from ``most recent net 
asset value'' are backward-looking to the most recently filed 
routine Form PF quarterly or annual filing and could result in a lag 
between the net asset value date and a calculation date for purposes 
of this reporting event, during which market movements could 
significantly affect values. This could result in over-reporting or 
under-reporting, but we believe that this approach would simplify 
monitoring and reporting by advisers. In addition, the option for an 
adviser to add explanatory notes to its current report to explain 
the circumstances of the loss mitigate these concerns.
    \36\ See question 33 of current Form PF requiring the value of 
the reporting fund's unencumbered cash.
---------------------------------------------------------------------------

    If this trigger is met, the adviser would report the last day of 
the rolling 10 business day period during which the unencumbered cash 
declined and the dollar amount of the unencumbered cash on the last day 
of the period. If the decrease in unencumbered cash were to continue 
past the initial 10 day period, advisers would not file another current 
report until the next 10 business day period beginning on or after the 
end date stated in the adviser's initial Item G report.\37\ Item G 
would also include explanatory checkboxes for the adviser to provide 
additional information concerning its current understanding of the 
facts and circumstances around the change in unencumbered cash. These 
checkboxes include whether (1) the change is attributable to redemption 
activity for the fund; (2) the change is attributable to new investment 
positions, strategy and/or portfolio turnover; (3) the change is a 
related to losses in the value of the fund's portfolio; (4) the change 
is related to a margin call; or (5) the change was caused by a reason 
``other'' than those outlined.\38\ These checkboxes would provide 
relevant information regarding the changes in the fund's unencumbered 
cash allowing Commission and FSOC to begin to evaluate the event.
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    \37\ If the fund experiences a 20 percent decline in 
unencumbered cash that continues past the initial 10-day period, the 
adviser would not report a second time until the fund had 
experienced a second decline in unencumbered cash of an additional 
20 percent of the fund's most recent net asset value over a second 
rolling 10-day period beginning at or after the end date stated in 
the adviser's initial Item G current report.
    \38\ Proposed Form PF section 5, Item G, Question 23.
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    We request comment on the proposed current report in section 5, 
Item G:
    36. Is a current report for a decline in unencumbered cash likely 
to capture changes in unencumbered cash that are indicative of fund or 
market stress? Is the trigger, including the daily calculation of 
unencumbered cash, burdensome to operationalize? Is it common for 
advisers to track an unencumbered cash figure on a daily basis?
    37. Should we require reporting when the value of the reporting 
fund's unencumbered cash declines by more than 20 percent of the fund's 
most recent net asset value over a rolling 10 day business period as 
proposed? Is 20 percent too high or too low? Is a rolling 10 business 
day period appropriate or should we change the length of the period? As 
with other reporting events that use the reporting fund's most recent 
net asset value, are there other metrics we should use for purposes of 
a reporting trigger for a decline in unencumbered cash?
    38. Do the proposed check boxes provide proper context to events 
captured by Item G? Should we remove any of the check boxes, or add 
additional check boxes to improve our understanding of potential 
responses to Item G? Why or why not?
    39. Are there other similar types of triggers that may signal 
stress that could be incorporated into Item G? For example, should we 
include a significant increase or decrease in borrowing by the 
reporting fund as a reporting event? For this purpose, would a 20 
percent increase or decrease in borrowing measured against the most 
recently reported net asset value be an appropriate measure? What other 
approach could we use to identify a change in the amount of borrowing 
that might signal potential stress occurring at a fund?
e. Operations Events
    Proposed section 5, Item H would require the adviser to report when 
the adviser or reporting fund experiences a ``significant disruption or 
degradation'' of the reporting fund's ``key operations,'' whether as a 
result of an event at the reporting fund, the adviser, or other service 
provider to the reporting fund. Key operations means, for this purpose, 
operations necessary for (1) the investment, trading, valuation, 
reporting, and risk management of the reporting fund; as well as (2) 
the operation of the reporting fund in accordance with the Federal 
securities laws and regulations.\39\ When evaluating a reporting fund's 
key operations that are reasonably measurable, a ``significant 
disruption or degradation'' means a 20 percent disruption or 
degradation of normal volume or capacity. For example, Item H would 
require reporting of cybersecurity event that disrupted the trading 
volume of a reporting fund by 20 percent of its normal capacity. It 
also would require reporting in cases where an adviser's ability to 
value the fund's assets is significantly disrupted or

[[Page 9115]]

degraded, for example, in connection with operational issues at a 
service provider. As another example, events such as a severe weather 
event causing wide-spread power outages that significantly disrupt or 
degrade key operations also would require reporting. We understand that 
many large hedge fund advisers have sophisticated back office 
operations or already engage service providers that would be reasonably 
able to measure whether an event has impaired their key operation 
beyond a 20 percent threshold. We believe that an operations event 
involving a qualifying hedge fund could have systemic risk implications 
if the fund is not able to trade as a result of such an event.\40\ In 
addition, notice of operations events from multiple advisers could 
provide an early indicator of market-wide operations events to both the 
Commission and FSOC. Such events could include a service provider 
outage that may affect the ability of multiple funds to trade, leading 
to negative implications for those funds' investors and broader 
systemic risks.
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    \39\ See Form PF Glossary (proposed definitions of ``significant 
disruption and degradation'' and ``key operations'').
    \40\ We recognize that the SEC currently does not require 
registered investment advisers and registered investment companies 
to report operational events. We are also considering recommending 
that the Commission propose rules to enhance fund and investment 
adviser disclosures and governance relating to cybersecurity risks. 
See Securities and Exchange Commission, Agency Rule List (Fall 
2021), available at Agency Rule List--Fall 2021 (reginfo.gov).
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    Item H would require the date of the operations event (or an 
estimate of when it occurred), and the date the operations event was 
discovered. Proposed Item H would also require the adviser to provide 
additional information concerning its current understanding of the 
circumstances relating to the operations event and its impact on the 
normal operations of the reporting fund using checkboxes.\41\ These 
include whether: (1) The event occurred at a service provider,\42\ (2) 
the event occurred at a reporting fund or reporting fund adviser or a 
related person; (3) the event is related to a natural disaster or other 
force majeure event, or (4) an unlisted ``other'' event occurred. In 
addition, proposed Item H would require an adviser to indicate whether 
it has initiated a business continuity plan relating to the operations 
of the adviser or reporting fund as we believe this may provide 
additional appropriate context to the operations event.
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    \41\ Proposed Form PF section 5, Item H, Questions 26 through 
28.
    \42\ If the event occurred at a service provider, an adviser 
also must report the legal name of the service provider; the service 
provider's LEI, if any; and the types of services provided by the 
service provider.
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    Proposed Item H also requires the adviser to check a box to 
describe its current understanding of the impact of the operations 
event on the normal operations of the reporting fund, including whether 
the event resulted in the disruption or degradation of: (1) Trading of 
portfolio assets; (2) the valuation of portfolio assets; (3) the 
management of the reporting fund's investment risk; (4) the ability to 
comply with applicable laws, rules, and regulations; or (5) any 
``other'' type of operational impact than those outlined and may be 
further explained in Item K Explanatory Notes. We believe that these 
explanatory checkboxes would provide appropriate context to current 
reports filed for operations events allowing the Commission and FSOC to 
evaluate quickly the potential level of risk to funds, advisers, and 
their service providers.
    We request comment on the proposed current report in section 5, 
Item H:
    40. Will this proposed reporting requirement provide us with notice 
of operations events that may have serious implications for the fund, 
its investors, and financial stability?
    41. Does the definition of ``operations event'' provide a clear, 
objective trigger for reporting? Would advisers be able to assess this 
during an operations event? We proposed a principles-based approach for 
reporting of an operations event that is a ``significant'' disruption 
or degradation of the adviser's operations and for operations that are 
reasonably measurable, we would view a 20 percent disruption of 
degradation of normal volume or capacity as ``significant.'' Are we 
correct that certain disruptions may not be quantifiable? Do commenters 
agree that a 20 percent disruption or degradation of normal volume or 
capacity indicates that an event is ``significant?'' Should the 
reporting event include a time frame to measure a 20 percent disruption 
or degradation? If so, what time frame? Should it be over one business 
day or over one month? Do advisers' compliance programs typically 
include benchmarks that could be used to measure a 20 percent 
disruption or degradation? Are there other potential approaches for an 
operational events trigger?
    42. Are we correct in our understanding that many large hedge fund 
advisers maintain sophisticated back office operations or already 
engage service providers that would be reasonably able to measure 
whether an event has impaired their key operation beyond a 20 percent 
threshold? Are there any other objective measures gathered by advisers 
or their service providers that could be utilized as a trigger for this 
reporting event?
    43. Will the checkboxes provided to describe the circumstances of 
the ``operations event'' provide us with sufficient detail regarding 
the operational issue and its potential severity? Should we amend, add, 
or remove any of the check boxes? Is the check box for force majeure 
events appropriate, or does it have the potential to cause numerous 
notifications during certain widely applicable disaster events like a 
pandemic or large hurricane?
    44. Should we require an adviser to indicate whether the operations 
event is caused by a service provider and require the adviser to 
provide information regarding the service provider, as proposed? Should 
we define the term ``service provider'' for these purposes? Should we 
require reporting only for those service providers listed in Form ADV, 
Schedule D for the private fund? Are there some operations events that 
could be caused by a third party that is not a service provider to the 
reporting fund or adviser? If so, should we require an adviser to 
provide information regarding such a third party?
    45. Should we define ``key operations'' as proposed? Are there any 
activities that we should add or delete from the definition? For 
example, should key operations also include the operation of the 
reporting fund in accordance with major contractual commitments to the 
reporting fund's investors and/or counterparties? For example, should 
it be considered a significant disruption or degradation of key 
operations if an issue at a service provider degrades the fund's 
ability to measure its positions or communicate certain information to 
counterparties pursuant to contractual notice terms?
    46. As an alternative to defining ``operations event'', should we 
require current reporting by advisers whenever they initiate a business 
continuity plan? Would the initiation of a business continuity plan be 
a simpler trigger to apply? Would the initiation of a business 
continuity plan as a reporting event result in too many current reports 
about events that could not lead to investor harm or systemic risk? 
Would it miss important operations events that could lead to investor 
harm or systemic risk? Should we be concerned that advisers might delay 
initiating a business continuity plan so as to avoid reporting?
    47. Should we require an adviser to indicate whether it has 
initiated a business continuity plan relating to the

[[Page 9116]]

operations of the adviser or reporting fund, as proposed? Does the 
initiation of such a plan provide the Commission with indications of 
potential stress at the fund or its adviser?
f. Withdrawals and Redemptions
    We believe large redemption requests, suspensions of withdrawals/
redemptions, material restrictions on withdrawals/redemptions, and an 
inability to satisfy redemptions are significant signals of potential 
stress at a qualifying hedge fund.\43\ Qualifying hedge funds under 
stress or in periods of volatility may have difficulty selling certain 
assets in an orderly manner to meet large redemption requests. In such 
a situation, hedge funds could fall back on more extraordinary 
liquidity management measures to mitigate redemption difficulties and 
the potential for forced asset sales.\44\ While advisers currently are 
required to provide certain reporting regarding redemptions for 
qualifying hedge funds on a quarterly basis, we are proposing current 
reporting Items I and J to provide more detailed and timely information 
to the Commission and FSOC indicating the potential for investor harm, 
forced selling in liquidations, or broader systemic risk.\45\
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    \43\ We understand that many funds place quarterly restrictions 
on the timing and size of investor's redemptions.
    \44\ See Financial Stability Oversight Council, Update on Review 
of Asset Management Products and Activities (Apr. 2016), available 
at https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf.
    \45\ See Form PF question 61 regarding restrictions on 
withdrawals and redemptions by investors in the reporting fund.
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    Proposed section 5, Item I would require an adviser to report if 
the adviser receives cumulative requests for redemption exceeding 50 
percent of the most recent net asset value (after netting against 
subscriptions and other contributions from investors received and 
contractually committed).\46\ We believe that the obligation to redeem 
sizable redemption requests of 50 percent or more of a reporting fund's 
most recent net asset value, despite pre-existing gates or limitations, 
may present significant risks to the fund and increases the risk that 
it may be forced to liquidate assets (potentially at lower prices), 
disproportionately penalizing non-redeeming investors, and potentially 
impacting markets more broadly. In the staff's experience, funds that 
receive withdrawal requests for half or more of their assets in the 
period between routine quarterly reports on Form PF may be subject to 
increased selling and liquidity pressures that could be particularly 
harmful to investors with potential broader market implications, 
especially if the fund is invested in more illiquid assets. Timely 
notice of such events would allow the Commission and FSOC to analyze 
the potential implications for the fund's investors and systemic risk.
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    \46\ As with the proposed use of ``most recent net asset value'' 
in other circumstances described above, this measure could result in 
over-reporting or under-reporting, but we believe that a simple to 
determine measure would ease the monitoring and reporting burden for 
advisers. In addition, the option for an adviser to add explanatory 
notes to its current report to explain the circumstances surrounding 
the redemptions mitigates these concerns.
---------------------------------------------------------------------------

    Under proposed Item I, an adviser would report: (a) The date on 
which the net redemption requests exceeded 50 percent of the most 
recent net asset value; (b) the net value of redemptions paid from the 
reporting fund between the last data reporting date (the end of the 
most recently reported fiscal quarter on Form PF) and the date of the 
current report; (c) the percentage of the fund's net asset value the 
redemption requests represent; and (d) whether the adviser has notified 
the investors that the reporting fund will liquidate.
    Proposed section 5, Item J would require an adviser to report if a 
qualifying hedge fund is unable to satisfy redemptions or suspends 
redemptions for more than 5 consecutive business days. We believe that 
this report would help the Commission and FSOC to identify stress at a 
reporting fund and evaluate the effects of these circumstances on fund 
investors and the markets more broadly. We also believe that this 
reporting could provide a potential early warning of the fund's 
liquidation and potentially allow the Commission or FSOC to analyze or 
respond to any perceived harm to investors or systemic risks on an 
expedited basis before they worsen. The 5 consecutive day period is 
designed to limit reporting of temporary redemption suspensions that we 
believe have less of an impact on investors or the broader market. 
Under proposed Item J, the adviser would report: (a) The date the 
reporting fund was unable to pay redemption requests or suspended 
redemptions; (b) the percentage of redemptions requested and not yet 
paid; and (c) whether the adviser has notified the investors that the 
reporting fund will liquidate.
    We request comment on the proposed current report in section 5, 
Items I and J:
    48. For proposed Item I, our goal is to be notified when the 
adviser receives requests for substantial redemptions because they may 
result in significant transaction costs and forced selling by a fund, 
all of which can cause harm to investors and contribute to systemic 
risk. Does Item I, as currently formulated, capture such events?
    49. Should we ask different, additional questions, or provide 
checkboxes to gather additional context and timely information on large 
redemptions? What should such checkboxes describe?
    50. Is the 50 percent of most recent net asset value threshold 
trigger for substantial redemptions proposed in Item I appropriately 
tailored to capture large scale liquidations? Should it be higher or 
lower or over a different time period? We understand that some 
investors may submit a redemption request each quarter to preserve 
their flexibility as a matter of course. For example, a fund of funds 
may submit a redemption request to its underlying funds so that it can 
match any redemptions it receives from its investors. The fund of funds 
then may rescind the redemption requests that they do not need so that 
their initial redemption requests appear overstated. How should the 
reporting event take these types of redemption requests into account? 
Should we allow reporting funds to exclude certain redemption requests? 
If so, how should we cabin such an exclusion?
    51. Would proposed Item J provide the information we seek regarding 
a reporting fund's inability to pay redemptions or its suspension of 
redemptions? The 5 consecutive day period is designed to limit 
reporting of temporary redemption suspensions that we believe have less 
of an impact on investors or the broader market. Is the 5 consecutive 
business day period for inability to satisfy or the suspension of 
redemptions appropriate for capturing significant constraints on 
investor liquidity or stress at the fund? Should the period be longer 
or shorter?
    52. Should we ask different, additional questions, or provide 
checkboxes about why an adviser was unable to pay redemptions or why 
redemptions were suspended? If so, what should they be?
g. Explanatory Notes
    Proposed Item K would allow an adviser to provide a narrative 
response if it believes that additional information would be helpful in 
current report(s). We believe that current reports can sometimes 
benefit from additional context so that the Commission and FSOC can 
effectively evaluate them for both our investor protection mission and 
FSOC's monitoring of systemic risk. This approach is consistent with 
other

[[Page 9117]]

current reports filed with the Commission, where registrants have 
requested the flexibility to provide additional narrative information 
relating to circumstances surrounding the current report.\47\
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    \47\ See Part H of Form N-RN.
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    We request comment on the proposed current report in section 5, 
Item K:
    53. Should we provide the option for a narrative response? Are 
advisers likely to use the space to provide additional context to a 
filed current event?
    54. Should we require advisers to provide a narrative response in 
Item K when they check ``other'' in describing a key event?
    55. Other current reporting forms require follow up reports for 
certain events.\48\ Should we require follow up reports for any of the 
current reporting events in section 5? For example, should we require 
an adviser to file a follow up report if it learns additional material 
information regarding the reported event that is responsive to a 
proposed question? Should we require advisers to periodically file 
follow-up reports (e.g., every 5 business days, every 30 business days) 
until the event has been resolved? Should we instead permit advisers to 
voluntarily file follow-up current reports? As another alternative, 
should we require advisers to report information regarding the 
resolution of the event as part of its next regular report on Form PF?
---------------------------------------------------------------------------

    \48\ 17 CFR 274.223 (Form N-Liquid or Form N-RN) and 17 CFR 
274.222 (Form N-CR).
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    56. Should advisers to funds that are not qualifying hedge funds 
have to respond to any or all of the current reporting items? For 
example, should we require all advisers that file Form PF to file a 
current report in connection with an operations event? Should certain 
current reporting events only be required of the largest hedge funds? 
If so, what asset thresholds would be appropriate and for which items?
2. Private Fund Adviser Current Reporting on Private Equity Funds
    Similar to the current reporting in proposed section 5 for large 
hedge fund advisers, we are also proposing to require all advisers to 
private equity funds to file a current report within one business day 
of a reporting event. The reporting events include: (1) Execution of an 
adviser-led secondary transaction, (2) implementation of a general 
partner or limited partner clawback, and (3) removal of a fund's 
general partner, termination of a fund's investment period, or 
termination of a fund. As noted above, private equity fund advisers 
file their annual updates within 120 calendar days after their fiscal 
year ends, which leads to significant delays in reporting and staleness 
of certain information. We believe that more current reporting of the 
proposed information would improve the Commission's and FSOC's ability 
to monitor systemic risk by providing information on certain events 
(including potential trends affecting multiple private equity funds) 
that could significantly affect both investors and markets more 
broadly, and also enhance our investor protection efforts. Because 
reporting of these events is designed to enhance our timely oversight 
of these advisers, we propose to require current reporting on a limited 
number of events by all advisers to private equity funds that file Form 
PF. Furthermore, we believe that growth in the private equity industry 
since the adoption of Form PF further supports the proposed current 
reporting requirements, given that both the number of investors 
invested in private equity funds has increased and the industry's 
impact on markets generally has become more pronounced.\49\ We believe 
that both of these developments merit more timely risk-based monitoring 
and oversight by the Commission and FSOC given the potential 
consequences for an ever increasing pool of private equity investors as 
well as financial markets broadly.
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    \49\ Since 2013, the number of private equity funds has more 
than doubled from under 7,000 to nearly 16,000, private equity fund 
gross assets have tripled from $1.6 trillion to $4.7 trillion, and 
private equity fund net assets have also nearly tripled, increasing 
from $1.5 trillion to $4.2 trillion. See Private Funds Statistics, 
supra footnote 4.
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    Proposed section 6 would contain Items A through E. Item A would 
require advisers to identify themselves and the reporting fund, 
including providing the reporting fund's name, private fund 
identification number, NFA identification number (if any), and LEI (if 
any).\50\ Items B through D would set forth the three reporting events 
and the applicable reporting requirements. Item E would serve as an 
optional item for advisers to provide any explanatory notes they 
believe would be helpful to the Commission's and FSOC's understanding 
of information reported in section 6. The following sections discuss 
each reporting event in turn.
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    \50\ Section 6, Item A would also require identifying 
information on the reporting fund's adviser, including the adviser's 
full legal name, SEC 801-Number, NFA ID Number (if any), large 
trader ID (if any), and large trader ID suffix (if any), as well as 
the name and contact information of the authorized representative of 
the adviser and any related person who is signing the current 
report. See Section 6, Item A.
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a. Adviser-Led Secondary Transactions
    Proposed section 6 Item B would require reporting upon the 
completion of an adviser-led secondary transaction. This proposed 
reporting would include the transaction completion date and a brief 
description of the transaction. We propose to define ``adviser-led 
secondary transaction'' as any transaction initiated by the adviser or 
any of its related persons \51\ that offers private fund investors the 
choice to: (1) Sell all or a portion of their interests in the private 
fund; or (2) convert or exchange all or a portion of their interests in 
the private fund for interests in another vehicle advised by the 
adviser or any of its related persons.\52\ Under the proposal, 
transactions would only be subject to reporting if they are initiated 
by a private equity fund's adviser or a related person of the 
adviser.\53\ We understand that these transactions have become 
increasingly common in the private equity space and may present 
conflicts of interest that merit timely reporting and monitoring given 
that these conflicts, particularly those that arise because the adviser 
(or its related person) is on both sides of the transaction in an 
adviser-led secondary transaction with potentially different economic 
incentives, have the potential to negatively impact investors. To the 
extent that an increase in adviser-led secondary transactions also 
indicates an inability to sell portfolio companies (or to sell those 
companies at existing valuations) through more traditional exit 
avenues, transactions of this nature could be a leading indicator of a 
declining market, a situation that also merits timely monitoring to 
identify potential consequences for both investors as well as markets 
more broadly from a systemic risk perspective. This proposed 
requirement would provide the Commission and FSOC with data regarding 
the frequency and circumstances surrounding these transactions allowing 
the Commission and FSOC to assess market trends better and assess both 
potential market impacts as well as potential conflicts of interest 
associated with these transactions.
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    \51\ See Form PF Glossary (definition of ``related person'').
    \52\ See Form PF Glossary (proposed definition of ``adviser-led 
secondary transaction'').
    \53\ Whether a transaction is initiated by the adviser or its 
related persons requires a facts and circumstances analysis. 
However, we would generally not view a transaction to be initiated 
by the adviser or one of its related persons to the extent the 
adviser or one of its related persons, at the unsolicited request of 
an investor, participates in the secondary sale of such investor's 
fund interest.

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[[Page 9118]]

    We request comment on the proposed current report in section 6, 
Item B:
    57. The purpose of this proposed reporting event is to identify an 
adviser-led secondary transaction that merits monitoring on a timelier 
basis than possible with an annual report on Form PF. Does the 
reporting event accomplish this purpose? Why or why not? If not, how 
should we modify the language? Should the rule use an alternative 
trigger? Alternatively, do these types of transactions not merit such 
monitoring?
    58. Is the proposed definition of ``adviser-led secondary 
transaction'' appropriate and clear? If not, how could the definition 
be clarified? Should it be modified or eliminated? Is the proposed 
definition too broad or too narrow? Should we provide additional 
guidance?
    59. Should we define or provide guidance on the term 
``transaction'' in the definition of ``adviser-led secondary 
transaction''? If so, how should ``transaction'' be defined? Should we 
reference the various types of adviser-led secondary transactions in 
the definition? Why or why not? The proposed definition of ``adviser-
led secondary transaction'' includes transactions initiated by the 
adviser's related persons. Should we exclude transactions initiated by 
some or all of the adviser's related persons from the proposed 
definition?
b. General Partner or Limited Partner Clawback
    Proposed section 6 Item C would require reporting upon the 
implementation of a general partner clawback. This proposed reporting 
would include the effective date of the clawback and the reason for the 
clawback.\54\ We would define ``general partner clawback'' as any 
obligation of the general partner, its related persons, or their 
respective owners or interest holders to restore or otherwise return 
performance-based compensation to the fund pursuant to the fund's 
governing agreements.\55\
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    \54\ As proposed section 6, Item C pertains to both general 
partner clawbacks and limited partner clawbacks, the item also 
requires filers to specify the type of clawback implemented (i.e., 
whether it is a general partner clawback or limited partner 
clawback). See Section 6, Item C.
    \55\ See Form PF Glossary (proposed definition of ``general 
partner clawback''). Under the proposal we would define 
``performance-based compensation'' as any allocation, payment, or 
distribution of capital based on the fund's (or its portfolio 
investments') capital gains and/or capital appreciation. This 
definition would include cash or non-cash compensation, including 
in-kind allocations, payments, or distributions of performance-based 
compensation. See also Form PF Glossary (proposed definitions of 
``performance-based compensation'' and ``portfolio investments'').
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    For example, if the general partner of a fund is entitled to 
performance-based compensation equaling 20 percent of the fund's 
profits over the life of the fund and the fund distributes such 
compensation to the general partner periodically based on the 
profitability of the fund at the time of distribution, the general 
partner may have received distributions of performance-based 
compensation over the life of the fund in excess of 20 percent of the 
fund's aggregate profits. In this situation, under the fund's governing 
documents, the fund's general partner would be required to return the 
excess performance-based compensation it received to the fund. 
Specifically, reporting would be required when the general partner is 
required to return to the fund performance-based compensation in excess 
of the amount it was ultimately entitled to receive under the fund's 
governing documents.
    The widespread implementation of general partner clawbacks may be a 
sign of a deteriorating market environment, which may have systemic 
risk implications. For example, given that the implementation of 
general partner clawbacks by private equity funds is typically rare, if 
many funds are implementing general partner clawbacks at the same time, 
this could be indicative of the early stages of a distressed credit 
environment or cycle, and timely reporting received could help the 
Commission and FSOC identify particular markets, sectors or funds on 
which such a declining market environment could have an outsized 
impact, and which may merit additional monitoring given the potential 
consequence for both investors and financial market stability.
    In addition, we propose to require reporting when an adviser 
implements a limited partner clawback (or clawbacks) in excess of an 
aggregate amount equal to 10 percent of a fund's aggregate capital 
commitments. We would define ``limited partner clawback,'' sometimes 
referred to as a limited partner ``giveback,'' as an obligation of a 
fund's investors to return all or any portion of a distribution made by 
the fund to satisfy a liability, obligation, or expense of the fund 
pursuant to the fund's governing agreements.\56\ We believe requiring 
the proposed minimum threshold is appropriate because we believe a 
clawback of this magnitude would be associated with an event that could 
have a significant negative impact on a fund's investors and, if a 
pattern emerges among multiple private equity advisers, could indicate 
financial stability concerns.
---------------------------------------------------------------------------

    \56\ See Form PF Glossary (proposed definition of ``limited 
partner clawback'').
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    Limited partner clawbacks of this magnitude also could signal that 
a fund is under stress or is anticipating being under stress. For 
example, a limited partner clawback (or clawbacks) in an aggregate 
amount of more than 10 percent of a private equity fund's aggregate 
capital commitments might suggest that the fund is planning for a 
material event (e.g., substantial litigation or legal judgment) that 
could negatively impact investors and we believe that such potential 
impact merits prompt reporting to allow for more timely risked-based 
monitoring.
    We request comment on the proposed current report in section 6, 
Item C:
    60. Do the proposed reporting events based on implementation of a 
general partner and/or limited partner clawback capture events that 
could signal that a fund or the market more generally is under stress 
or subject to an event that merits prompt reporting? Why or why not? If 
not, how should we modify this reporting event or what alternative 
reporting event would you suggest?
    61. Are the proposed definitions of ``general partner clawback,'' 
``performance-based compensation,'' and ``limited partner clawback'' 
appropriate and clear? If not, how should the definitions be clarified? 
Should they be modified or eliminated? Are the proposed definitions too 
broad or too narrow? Should we provide additional guidance?
    62. With respect to the limited partner clawback reporting event, 
is the proposed minimum reporting threshold, i.e., a clawback (or 
clawbacks) in excess of an aggregate amount equal to 10 percent of a 
fund's aggregate capital commitments, appropriate? Why or why not? If 
not, should the threshold be higher or lower and why? Would the 
proposed limited partner clawback reporting event cause advisers to 
hold more investment proceeds as reserves and delay distributions to 
investors, rather than distributing proceeds to investors more quickly? 
Why or why not?
    63. We recognize that certain fund agreements require the adviser 
to perform interim clawback calculations during the life of the fund. 
For example, the adviser may be required to determine whether the 
general partner would be subject to a clawback on the first anniversary 
of the termination of the investment period. Should such ``interim'' 
clawbacks be subject to the current reporting requirement, as proposed? 
Do they present the same monitoring needs as end-of-life clawbacks?

[[Page 9119]]

c. Removal of General Partner, Termination of the Investment Period or 
Termination of a Fund
    Proposed section 6 Item D would require an adviser to report when a 
fund receives notification that fund investors have: (1) Removed the 
adviser or an affiliate as the general partner or similar control 
person of a fund, (2) elected to terminate the fund's investment 
period, or (3) elected to terminate the fund, in each case as 
contemplated by the fund documents. Proposed Item D would require 
reporting on the effective date of the applicable removal event and a 
description of such removal event.
    We believe that events of this nature are rare, and accordingly, 
current reporting would also be rare. However, we believe these events 
could provide an indication of market deterioration and also raise 
investor protection issues, including potential conflicts of interest, 
and merit the Commission's and FSOC's timely monitoring. For example, 
each of these triggers could lead to the liquidation of the fund 
earlier than anticipated, which could present risks to investors and 
potentially certain markets in which the fund assets were invested. 
This proposed current reporting event would provide the Commission and 
FSOC with timely notification of this event (of which we might 
otherwise be unaware at the time it is initiated), and allow for 
evaluation given the potential consequences of the event.
    We request comment on the proposed current report in section 6, 
Item D:
    64. Does the proposed reporting event based on the removal of a 
fund's general partner, termination of a fund's investment period, or 
termination of a fund raise investor protection and systemic risk 
concerns that merit timely monitoring? Why or why not? If not, how 
should we modify this reporting event or what alternative reporting 
event would you suggest? Is the use of the term ``termination'' in the 
reporting event clear on its face or should it be defined? Why or why 
not?
    65. Are there other reporting events, in addition to the ones that 
we have proposed in section 6, that you believe would provide the 
Commission and FSOC with information that would enhance our ability to 
protect private equity fund investors and monitor the private equity 
industry? If so, what are they? For example, should we have a reporting 
event in connection with the departure of a senior member (e.g., 
partner, executive officer, etc.) of a fund's general partner, e.g., a 
key person event?
    66. Should we add a ``for cause'' requirement to this reporting 
event (i.e., typically defined in a fund's governing documents as the 
general partner or its principals engaging in gross negligence, willful 
misconduct, fraud, or violations of applicable law)? Should we narrow 
the reporting event to only cover ``for cause'' events?
d. Explanatory Notes
    Similar to proposed section 5 Item K and for the same reasons, 
proposed section 6 Item E would allow an adviser to provide a narrative 
response if it believes that additional information would be helpful in 
explaining the circumstances of their current report(s).
    We request comment on the proposed current report in section 6, 
Item E:
    67. Should we provide the option for a narrative response? Are 
advisers likely to use the space to provide additional context to a 
filed current event?
    68. As noted above, other current reporting forms require follow up 
reports for certain events. Should we require follow up reports for any 
of the reporting events in section 6? For example, should we require an 
adviser to file a follow up report if it learns additional material 
information regarding the reported event that is responsive to a 
proposed question?
3. Filing Fees and Format for Reporting
    We propose to require advisers to file current reports through the 
same non-public filing system they use to file the rest of Form PF, the 
Private Fund Reporting Depository (``PFRD'').\57\ Large hedge fund 
advisers and all private equity advisers would file current reports on 
section 5 and section 6 of Form PF, respectively, and would not file 
any other sections of Form PF at the time a current report is filed. 
This requirement is designed to facilitate reporting of clear and 
timely information in an efficient manner. Under the proposed rule, 
advisers filing current reports on either section 5 or 6 would be 
required to pay to the operator of the Form PF filing system fees that 
have been approved by the SEC. The SEC in a separate action would 
approve filing fees that reflect the reasonable costs associated with 
the filings and the establishment and maintenance of the filing 
system.\58\ Advisers also would be able to amend their current report 
if they discover that information they filed was not accurate at the 
time of filing.\59\
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    \57\ See proposed Instruction 12. See also rule 17 CFR 
275.204(b)-1.
    \58\ See section 204(c) of the Advisers Act.
    \59\ Consistent with the current instructions for other types of 
Form PF filings, large hedge fund advisers and private equity 
advisers would not be required to update information that they 
believe in good faith properly responded to Form PF on the date of 
filing even if that information is subsequently revised for purposes 
of recordkeeping, risk management or investor reporting (such as 
estimates that are refined after completion of a subsequent audit). 
This proposed requirement is designed to provide advisers with a way 
to correct current reports, just as all advisers can correct other 
types of Form PF filings. See Instruction 16.
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    69. Should advisers file current reports through PFRD as proposed? 
Alternatively, is there another filing system (e.g., IARD, EDGAR) that 
would be more appropriate? Should we instead allow advisers to file 
current reports via secure email? Would that be less burdensome for 
advisers experiencing an operations event?
    70. Should there be filing fees associated with filing a current 
report on Form PF? Considering the expeditious reporting deadlines and 
the nature of the current reporting events, would filing fees prevent a 
timely filing of a current report?
    71. Under the proposal, filers may request a temporary hardship 
exemption pursuant to rule 204(b)-1(f) for a current report. Should we 
instead require advisers to notify the Commission via email or phone 
call if they are experiencing a temporary hardship and as a result 
cannot file their current report? Alternatively, should we instead 
prohibit advisers from requesting a temporary hardship exemption 
pursuant to rule 204(b)-1(f) for a current report given the importance 
of timely reporting?

B. Large Private Equity Adviser Reporting

    We also propose to amend section 4 of Form PF, which requires 
reporting by large private equity advisers to: (1) Lower the reporting 
threshold from $2 billion to $1.5 billion in private equity fund assets 
under management, and (2) add new questions designed to enhance our 
understanding of certain practices of private equity advisers and amend 
certain existing questions to improve data collection.\60\
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    \60\ Under the proposal, Item B would also be split into three 
new items to be designated new Item B ``Certain information 
regarding the reporting fund,'' new Item C ``Reporting fund and 
controlled portfolio company financing,'' and new Item D ``Portfolio 
company investment exposures.''
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1. Reduction in Large Private Equity Adviser Reporting Threshold
    Currently, a private fund adviser must complete section 4 of Form 
PF if it had at least $2 billion in private equity fund assets under 
management as of the end of its most recently completed fiscal year 
(``large private equity adviser'').\61\

[[Page 9120]]

Section 4 of the Form requires additional information regarding the 
private equity funds these advisers manage, which are tailored to focus 
on relevant areas of financial activity that have the potential to 
raise systemic concerns. When Form PF was originally adopted in 2011, 
the $2 billion reporting threshold captured 75 percent of the U.S. 
private equity industry based on committed capital.\62\ Today, this 
threshold only captures about 67 percent of the U.S. private equity 
industry.\63\ We therefore propose to lower this threshold to $1.5 
billion in order to continue to capture about 75 percent of the U.S. 
private equity industry based on committed capital.\64\ We believe the 
proposed reduction is important so that Form PF continues to capture 
and provide robust data on a sizable portion of the private equity 
industry. The proposed threshold reduction is designed so that the 
group of advisers filing Form PF as large private equity advisers would 
continue to represent a substantial portion of private equity industry 
assets. Having a robust data set for analysis is important for both 
identifying potential investor protection issues as well as for 
monitoring systemic risk. We think that the proposed new threshold 
strikes an appropriate balance between obtaining information regarding 
a significant portion of the private equity industry for analysis while 
continuing to minimize the burden imposed on smaller advisers.
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    \61\ See Instruction 3 to Form PF.
    \62\ See 2011 Form PF Adopting Release, supra footnote 2, at 32.
    \63\ Based on data reported on Form PF and Form ADV.
    \64\ As under the current instructions to Form PF, an adviser 
would determine whether it meets the threshold and qualifies as a 
large private equity adviser based solely on the assets under 
management attributable to private equity funds.
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    We request comment on the proposed change to the reporting 
threshold:
    72. Should the Commission reduce the reporting threshold for large 
private equity advisers as proposed? Why or why not? If not, should the 
reporting threshold be kept constant, increased, or decreased further? 
If the threshold should be changed, what do you believe is the 
appropriate threshold and why?
    73. Would the proposed reduction in the large private equity 
adviser reporting threshold create an undue burden on advisers that 
will newly be required to complete section 4 (i.e., those with between 
$1.5 billion and $2 billion in private equity fund assets under 
management)? If so, why?
    74. Does the change in reporting threshold for filing as a large 
private equity adviser accurately capture the information needed to 
monitor for systemic risk? Why or why not?
2. Large Private Equity Adviser Reporting
    Private Equity Fund Investment Strategies. We propose to add 
Question 68 to Section 4 to collect information about private equity 
fund investment strategies.\65\ Form PF does not currently collect data 
on private equity fund strategies. Given the growth in the industry 
since adoption of Form PF and the current diversity of strategies 
employed by private equity funds, we believe that it is important that 
we begin collecting this information. Different strategies carry 
different types and levels of risk for the markets and financial 
stability. We believe that reporting on investment strategies would 
allow the Commission and FSOC to understand and monitor better the 
potential market and systemic risks presented by the different 
strategies to both markets and investors. For example, a shift in 
private equity assets towards riskier strategies could provide valuable 
information about emerging systemic risks. Similarly, as noted above, 
this information would also allow the Commission and FSOC to assess 
better private equity funds' increasing role in providing credit to 
companies.
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    \65\ For purposes of this proposed question, private equity fund 
investment strategies would include private credit (and associated 
sub-strategies such as distressed debt, senior debt, special 
situations, etc.), private equity (and associated sub-strategies 
such as early stage, buyout, growth, etc.), real estate, annuity and 
life insurance policies, litigation finance, digital assets, general 
partner stakes investing, and other. In connection with this 
proposed question, we also propose to add two new terms to the Form 
PF Glossary of Terms for ``digital assets'' and ``general partner 
stakes investing.'' See Form PF Glossary of Terms.
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    The proposed question would be structured similar to Question 20, 
which collects information about hedge fund strategies, but tailored to 
private equity funds (i.e., the strategies would represent common 
strategies employed by private equity funds). The proposal would 
require advisers to choose from a mutually exclusive list of strategies 
by percent of deployed capital even if the categories do not precisely 
match the characterization of the reporting fund's strategies. If a 
reporting fund engages in multiple strategies, the adviser would 
provide a good faith estimate of the percentage the reporting fund's 
deployed capital represented by each strategy.
    Proposed Question 68 also would include an ``other'' category for 
advisers to select in cases where a reporting fund's strategy is not 
listed, but an adviser selecting ``other'' in response to this question 
must explain why. This proposed requirement is designed to improve data 
quality by providing context to an adviser's selection of the ``other'' 
category. It also is designed to help ensure that advisers are not 
selecting the ``other'' category when they should be reporting 
information in a different strategy category. Proposed Question 68 is 
designed to allow FSOC to filter data for targeted analysis, monitor 
trends in the private equity industry, analyze potential system risk, 
and to support the Commission's oversight of the private equity 
industry and investor protection efforts.
    We request comment on proposed Question 68:
    75. Should Form PF require large private equity advisers to report 
investment strategies for the private equity funds they advise as 
proposed?
    76. Should we collect strategy information for all advisers to 
private equity funds and not just large private equity advisers? Why or 
why not? Would collecting this data be overly burdensome for smaller 
private equity advisers? If so, what should be the threshold cutoff for 
such reporting (e.g., $500 million in private equity assets under 
management)?
    77. Should Question 68, as proposed, provide that the strategy 
options are mutually exclusive and direct advisers to not report the 
same assets under multiple strategies? Why or why not? Alternatively, 
should Form PF allow advisers to report the same assets under multiple 
strategies? Would this approach better identify the reporting fund's 
strategies?
    78. Should Form PF require more granular strategy information than 
proposed? Why or why not? If so, please provide examples of more 
granular categories or sub-categories that should be included.
    79. Should Question 68 require more, fewer, or different 
categories? Are there other strategies that are important for tracking 
and assessing systemic risk or for the protection of investors? If so, 
please provide examples of desired changes in the strategy categories.
    80. With respect to private credit strategies, should we 
consolidate some of the private credit categories? For example, are 
``Private Credit--Junior/Subordinated Debt,'' ``Private Credit--
Mezzanine Financing,'' ``Private Credit--Senior Debt,'' and Private 
Credit--Senior Subordinated Debt'' each considered a subset of the 
category ``Private Credit--Direct Lending/Mid Market Lending''? If so, 
should we only have a ``Private Credit--Direct Lending/Mid Market 
Lending'' category and

[[Page 9121]]

remove the other four sub-categories? Why or why not? Furthermore, 
should ``Private Credit--Direct Lending/Mid Market Lending'' be changed 
to ``Private Credit--Direct Lending'' to capture direct lending to 
large corporations? Why or why not?
    81. Should Question 68 include an ``other'' category, as proposed? 
If advisers select the ``other'' category, should Form PF require them 
to explain the selection, as proposed? Should Form PF require the 
adviser to include more, less, or different information in the 
explanation? Would this proposed change improve data quality by 
providing context to the adviser's selection of the ``other'' category? 
Would this proposed change help us ensure that advisers are not 
misreporting information in the ``other'' category when they should be 
reporting information in a different category? Is there a better way to 
meet these objectives? Should Form PF require advisers to provide 
explanations for any other categories besides the ``other'' category, 
as proposed?
    82. Should we define ``digital assets'' and ``general partner 
stakes investing'' as proposed or are other alternative definitions 
more suitable?
    Restructuring/recapitalization of a portfolio company. We propose 
to add Question 70 to Section 4 to obtain additional information 
regarding restructurings or recapitalizations of the reporting fund's 
portfolio companies. Specifically, we propose to require an adviser to 
indicate whether a portfolio company was restructured or recapitalized 
following the reporting fund's investment period, and if so, to provide 
the name of the portfolio company and the effective date of the 
restructuring.\66\ For example, a fund that holds portfolio company 
equity that has become worthless might restructure its equity interest 
into a note or loan with a different valuation. While we understand 
that private equity funds routinely engage in these practices during 
the investment period, we believe that when these activities happen 
post-investment period, it would tell the Commission and FSOC more 
about the current market environment and would allow FSOC to monitor 
these activities for systemic risk analysis and assist us with our 
risk-based exam program.
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    \66\ Proposed Question 70.
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    We request comment on proposed Question 70:
    83. Should Form PF require advisers to report on restructuring or 
recapitalizations of a portfolio company as proposed? Why or why not?
    84. Would the proposed reporting tell us more about the current 
market environment or potential systemic risk?
    85. Would it be overly burdensome for advisers to report this 
information? Why or why not? If so, are there alternative ways for us 
to collect this data that would be less burdensome? Please provide 
examples.
    86. As drafted, is this question appropriate in scope? Should we 
carve out certain types of recapitalizations or restructurings? Should 
certain types of funds not be required to report this information based 
on their investment strategy or underlying holdings?
    Investments in different levels of a single portfolio company's 
capital structure by related funds. We propose to add Question 71 to 
require reporting on investments in different levels of a single 
portfolio company's capital structure by funds advised by an adviser or 
a related person. Specifically, the adviser would indicate whether the 
reporting fund held an investment in one class, series or type of 
securities (e.g., debt, equity, etc.) of a portfolio company while 
another fund advised by the adviser or its related persons concurrently 
held an investment in a different class, series or type of securities 
(e.g., debt, equity, etc.) of the same portfolio company, and if so, to 
provide the name of the portfolio company and a description of the 
class, series or type of securities held.\67\ This can create a 
conflict of interest for the adviser that could be important for the 
Commission to monitor. For example, if a portfolio company suffers 
financial distress, there may be a conflict between the funds' 
interests given that the company may not be able to satisfy the claims 
all of classes of creditors. In such a circumstance, the adviser's 
decisions may have the effect of benefiting one fund over another fund. 
The purpose of this question would be to identify circumstances where 
multiple reported funds advised by the same adviser have exposure to 
the same portfolio company, which would allow us to better understand 
and monitor market trends regarding this practice and enhance our 
investor protection efforts.\68\
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    \67\ Proposed Question 71.
    \68\ For example, an adviser may have two advised funds invested 
in different classes of a portfolio company's capital structure, 
with one fund managing outside capital while the other manages 
primarily internal capital of the adviser's owners/employees.
---------------------------------------------------------------------------

    We request comment on proposed Question 71:
    87. Should Form PF require advisers to report on investments in a 
different class, series or type of securities (e.g., debt, equity, 
etc.) of a single portfolio company's capital structure? Why or why 
not? Do you believe that this information would be useful in monitoring 
exposures that present risks to investors, the markets, and financial 
stability? Why or why not? If not, how would you modify this question 
or what alternatives would you suggest to identify potential conflicts 
of this nature?
    88. Should we expand the proposed question to capture all funds of 
the same adviser or related persons (including those not reported on 
Form PF) or separately managed accounts or other clients that hold 
investments in different levels of a single portfolio company's capital 
structure? Why or why not?
    89. Current Question 79 of Form PF \69\ requires an adviser to 
report on whether it or any of its related persons (other than the 
reporting fund) invest in any companies that are portfolio companies of 
the reporting fund. Would proposed Question 71 provide additional 
insight into these investments? In connection with this change, should 
we add a threshold for responding to current Question 79 (e.g., greater 
than 10 percent of gross asset value) to reduce the burden on advisers 
in responding to this question? Alternatively, should we amend current 
Question 79 to require the adviser to report additional information 
regarding the related persons' investments?
---------------------------------------------------------------------------

    \69\ We would redesignate Question 79 as Question 87.
---------------------------------------------------------------------------

    Fund-level borrowings. The proposal would add Question 72 to 
require advisers to report whether a reporting private equity fund 
borrows or has the ability to borrow at the fund-level as an 
alternative or complement to the financing of portfolio companies. We 
understand that many funds use fund-level financing for this 
alternative or complementary financing purpose. If a fund engages in 
fund-level borrowing, the proposal would require the adviser to provide 
(1) information on each borrowing or other cash financing available to 
the fund, (2) the total dollar amount available, and (3) the average 
amount borrowed over the reporting period.\70\ This new question is 
designed to collect data that the Commission believes would provide 
valuable insight into how private equity funds obtain leverage, thereby 
giving the Commission and FSOC a better understanding of a reporting 
fund's risk profile.
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    \70\ Proposed Question 72.
---------------------------------------------------------------------------

    Fund-level leverage generally causes a fund to make larger, less 
frequent capital calls. Such practice has the

[[Page 9122]]

potential to cause liquidity concerns for investors that may not have 
occurred had the adviser made smaller, more frequent capital calls. 
This concern is exacerbated for investors with commitments to multiple 
private equity funds because advisers may call capital simultaneously--
particularly when liquidity is generally constrained across the 
market--resulting in investors receiving large, concurrent capital 
calls. This may increase the likelihood of potential defaults by 
investors. We believe that this information would enhance the 
Commission's and FSOC's ability to monitor systemic risk posed by such 
potential defaults.
    We request comment on proposed Question 72:
    90. Should Form PF require advisers to report on private equity 
fund borrowings as proposed? Why or why not? Do you believe that this 
question as proposed would be useful in identifying and monitoring 
potential systemic risk associated with private equity fund leverage? 
Why or why not? If not, how would you modify this question or what 
alternatives would you suggest?
    91. Should we collect additional data beyond the type of borrowing 
or financing, dollar amount available, and average amount borrowed as 
proposed? If so, what additional data should we collect and why?
    92. Are the categories for ``type of financing'' in proposed 
Question 72 appropriate or should there be more, fewer or different 
categories? If there should be more or different categories, what 
additional or different categories do you suggest?
    Financing of portfolio companies. We propose to add Question 74 to 
require an adviser to report whether it or any of its related persons 
provide financing or otherwise extend credit to any portfolio company 
in which the reporting fund invests and to quantify the value of such 
financing or other extension of credit.\71\ This proposed question 
would provide additional information on these financing arrangements 
and identify possible conflicts of interest that may arise that would 
help us focus our risk-based exam program, and could also alert us to 
industry financing trends that could affect systemic risk concerns. For 
example, if a reporting fund's portfolio companies are unable to obtain 
credit from traditional sources, advisers (and their related persons) 
may be more likely to lend to these companies, especially if a 
portfolio company is in distress. We believe these types of financing 
could be an early indicator of a market downturn.
---------------------------------------------------------------------------

    \71\ Proposed Question 74.
---------------------------------------------------------------------------

    We request comment on proposed Question 74:
    93. Should Form PF require advisers to report on whether a 
reporting private equity fund or any of its related persons provide 
financing to a reporting fund's portfolio companies? Why or why not? Do 
you believe that this question as proposed would be useful for the 
purpose stated above? Why or why not? If not, how would you modify this 
question or what alternatives would you suggest? Please be specific.
    Floating rate borrowings of controlled portfolio companies (CPCs). 
The proposal would add Question 82 to require advisers to report what 
percentage of the aggregate borrowings of a reporting private equity 
fund's CPCs is at a floating rate rather than a fixed rate.\72\ This 
proposed requirement would provide additional information on the risk 
profiles of CPCs, and help the Commission and FSOC better monitor fund 
level and portfolio level risk profiles for systemic risk purposes, as 
elevated CPC leverage could signal default risk, particularly if 
financings are at a floating versus fixed rate. More specifically, we 
believe that floating rate borrowings carry different and potentially 
greater risks than fixed rate borrowings, given that companies that 
issue floating rate debt take on the added risk that rates will move 
higher, which would increase the amount they must pay to creditors, a 
situation that can put added stress on a company.
---------------------------------------------------------------------------

    \72\ Proposed Question 82.
---------------------------------------------------------------------------

    We request comment on proposed Question 82:
    94. Should Form PF require advisers to report on floating rate 
borrowings of CPCs as proposed? Why or why not? Do you believe limiting 
reporting to floating rate (versus fixed rate) borrowings is 
appropriate given the purpose of the proposed question? Why or why not? 
If not, how would you modify this question (e.g., should we also 
require reporting on fixed rate borrowings)?
    CPCs owned by private equity funds. The proposal would add Question 
67 to require an adviser to report how many CPCs a reporting private 
equity fund owns.\73\ We believe collecting this information would help 
to provide insight into a fund's concentration risk and strategy, as it 
pertains to the interconnectedness of private equity funds and their 
portfolio companies, which is important for assessing systemic risk in 
the industry generally.
---------------------------------------------------------------------------

    \73\ Proposed Question 67.
---------------------------------------------------------------------------

    We request comment on proposed Question 67:
    95. Would collecting the number of a fund's CPCs help to provide 
insight into a fund's concentration risk and strategy? Why or why not? 
If not, what alternatives or information would provide better insight?
    Events of default, bridge financing to controlled portfolio 
companies, and geographic breakdown of investments. We propose to amend 
three existing questions in section 4. First, we propose to amend 
current Question 74 to require advisers to provide more granular 
information about the nature of reported events of default, such as 
whether it is a payment default of the private equity fund, a payment 
default of a CPC, or a default relating to a failure to uphold terms 
under the applicable borrowing agreement (other than a failure to make 
regularly scheduled payments).\74\ We believe this more detailed 
information would help the Commission and FSOC better assess the impact 
of default events to both investors and markets more generally and may 
indicate emerging potential systemic risks.
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    \74\ We would redesignate Question 74 as Question 83.
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    Second, we propose to amend current Question 75, which requires 
reporting on the identity of the institutions providing bridge 
financing to the adviser's CPCs and the amount of such financing, to 
add additional counterparty identifying information (i.e., LEI (if any) 
and if the counterparty is affiliated with a major financial 
institution, the name of the financial institution).\75\ We believe 
that the proposed changes would not be burdensome for advisers given 
that this information is readily available to advisers, and would 
provide globally standardized identification information about 
counterparty entities reported in this question that would enhance the 
Commission's and FSOC's ability to analyze exposure data for purposes 
of assessing systemic risk.
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    \75\ We would redesignate Question 75 as Question 84.
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    Third, we propose to amend current Question 78, which requires 
reporting on the geographical breakdown of investments by private 
equity funds, by moving away from reporting based on a static group of 
regions and countries and towards identifying a private equity fund's 
greatest country exposures based a percent of net asset value.\76\ The 
proposed changes to Question 78 would improve the usefulness of data 
collected, as reporting is currently limited to exposure by region with 
additional reporting on a limited number of countries of interest. For

[[Page 9123]]

example, information obtained from Question 78 could provide insight 
into whether a critical mass of private equity funds have investments 
concentrated in a country that is experiencing significant political 
instability or a natural disaster, which could be important for 
systemic risk assessments. We have found the current reporting approach 
lacks precision because the regions are not uniformly defined and 
although countries of interest change over time, the form is not 
dynamic in this regard. The proposal would require advisers to report 
all countries (by ISO country code \77\) to which a reporting fund has 
exposure of 10 percent or more of its net asset value. We believe the 
proposed exposure threshold represents significant county exposure, 
while balancing the burden that the question would create for advisers. 
Advisers would have to follow Instruction 15 for purposes of 
calculating the information in the proposal, including reporting the 
exposure in U.S. dollars which would improve data comparability across 
funds. Advisers also would categorize investments based on 
concentrations of risk and economic exposure. We would also remove 
regional level reporting because we would now be able to analyze 
regional exposure using the country level information.
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    \76\ We would redesignate Question 78 as Question 69.
    \77\ This is similar to reporting on Form N-PORT and will 
improve the comparability of data between Form PF and Form N-PORT.
---------------------------------------------------------------------------

    We request comment on the proposed amendments to current Questions 
74, 75 and 78:
    96. Should current Questions 74, 75 and 78 be amended as proposed? 
Why or why not?
    97. Are the more granular default questions that we are proposing 
to include in amended current Question 74 appropriate? Why or why not? 
Alternatively, should there be more, fewer or different questions? If 
there should be more or different questions, what additional or 
different questions do you suggest?
    98. Do you agree that the additional information that we propose to 
require in amended current Question 75 would not be overly burdensome 
for advisers to report? Why or why not? Do you believe that requiring 
advisers to report a counterparty's LEI in this question would serve 
our purpose of better identifying counterparties for purposes of 
analysis? Why or why not? Are there alternative identifiers that you 
suggest we include? If so, what are they?
    99. Do you agree with the proposed reporting threshold in amended 
current Question 78 (i.e., country exposure of 10 percent or more of 
net asset value) for reporting on the geographical breakdown of 
investments? Should the threshold be higher or lower?

C. Large Liquidity Fund Adviser Reporting

    Section 3 requires large liquidity fund advisers to disclose 
information about the liquidity funds they advise. The proposal would 
revise how large liquidity fund advisers report operational information 
and assets, as well as portfolio, financing, and investor information. 
The proposal also would add a new item concerning the disposition of 
portfolio securities. The proposed changes are designed to help us see 
a more complete picture of the short-term financing markets in which 
liquidity funds invest, and in turn, enhance the Commission's and 
FSOC's ability to assess short-term financing markets and facilitate 
our oversight of those markets and their participants.\78\ The proposed 
changes also are designed to improve data quality and comparability and 
make certain categories in section 3 more consistent with the 
categories the Board of Governors of the Federal Reserve System 
(``Federal Reserve Board'') uses in its reports and analysis. Together, 
the proposed amendments are designed to enhance investor protection 
efforts and systemic risk assessment.
---------------------------------------------------------------------------

    \78\ We have proposed similar amendments to Form N-MFP. See 
Money Market Fund Proposing Release, supra footnote 15. The proposed 
amendments to Form N-MFP would provide new information about money 
market fund shareholders and the disposition of non-maturing 
portfolio investments, as well as enhance reporting accuracy and 
consistency, increase the frequency of certain data points, and 
improve identifying information.
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    Operational information. We propose to revise how advisers report 
operational information about their liquidity funds.\79\ Liquidity 
funds that seek to maintain a stable price per share may be susceptible 
to runs, which could cause systemic risk. Currently, Questions 52 and 
53 require advisers to report whether the liquidity fund uses certain 
methodologies to compute its net asset value. These questions were 
designed to help determine how the fund might try to maintain a stable 
net asset value.\80\ We propose to replace current Questions 52 and 53 
with a requirement for advisers to report the information more 
directly, by requiring advisers to report whether the liquidity fund 
seeks to maintain a stable price per share and, if so, to provide the 
price it seeks to maintain.\81\ This proposed approach is designed to 
help the Commission and FSOC identify liquidity funds that seek to 
maintain a stable price per share, and therefore, may be susceptible to 
runs, which could cause systemic risk.
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    \79\ Form PF, section 3, Item A.
    \80\ See Reporting by Investment Advisers to Private Funds and 
Certain Commodity Pool Operators and Commodity Trading Advisors on 
Form PF, Release No. 3145 (Jan. 26, 2011) [76 FR 8068 (Feb. 11, 
2011)], at n.133 and accompanying text (discussing proposed 
Questions 43 and 44, which currently are Questions 52 and 53).
    \81\ Proposed Question 52.
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    We also propose to remove current Question 54, which requires 
advisers to report whether the liquidity fund has a policy of complying 
with certain provisions of rule 2a-7. We can use portfolio information 
we collect in section 3, Item E, to determine whether the liquidity 
fund is complying with rule 2a-7, regardless of whether it has a policy 
or not.
    Assets and portfolio information. We propose to require advisers to 
report cash separately from other categories when reporting assets and 
portfolio information concerning repo collateral.\82\ Section 3 already 
requires advisers to report all liquidity fund assets and repo 
collateral, including cash. However, because there is no distinct 
category for cash, it is unclear what category advisers should use to 
report it. Therefore, this proposed change is designed to improve data 
quality and comparability, and help ensure data is reported in the 
correct category.
---------------------------------------------------------------------------

    \82\ See current Questions 55 and 63(g), which we would 
redesignate as Questions 53 and 63(h), respectively.
---------------------------------------------------------------------------

    We are proposing to revise further how advisers report liquidity 
fund assets. We propose to require advisers to provide the total gross 
subscriptions (including dividend reinvestments) and total gross 
redemptions for each month of the reporting period.\83\ This proposed 
requirement is designed to help explain changes in net asset value 
during the reporting period, such as whether net asset value changes 
are due to subscriptions, redemptions, or changes in the value of the 
reporting fund's holdings. This level of detail is designed to help 
ensure accurate reporting and inform the Commission and FSOC of trends 
across large liquidity funds and short-term financing markets, 
generally. We also propose to clarify that the term ``weekly liquid 
assets'' includes ``daily liquid assets.'' \84\ This clarification is 
designed to improve data quality and comparability, based on our 
experience with Form PF.
---------------------------------------------------------------------------

    \83\ Proposed Question 54. As discussed, we would remove current 
Question 54, concerning the liquidity fund's policy of complying 
with certain provisions of rule 2a-7.
    \84\ See Form PF Glossary of Terms.
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    We are proposing to revise further how advisers would report 
liquidity

[[Page 9124]]

fund portfolio information.\85\ As a general matter, the proposed more 
granular requirements are designed to enhance reporting accuracy and 
data comparability, as well as enhance our and FSOC's data analysis, as 
described below. We propose to add instructions directing advisers to 
provide information separately for the initial acquisition of each 
security the liquidity fund holds and any subsequent acquisitions. This 
instruction is designed to facilitate the Commission and FSOC's ability 
to analyze other information we propose to require about each security, 
including acquisition information: The trade date and the yield, as of 
the trade date. These proposed requirements also would facilitate 
understanding regarding how long a liquidity fund has held a position 
and the maturity of the position when the liquidity fund first acquired 
it. Accordingly, this level of detail is designed to help us understand 
the liquidity fund's portfolio turnover during normal and stressed 
markets, which is designed to enhance systemic risk assessment. In 
connection with these proposed amendments, we would remove the 
requirement for advisers to report the coupon when reporting the title 
of the issue, because the yield would provide us with that information.
---------------------------------------------------------------------------

    \85\ Question 63.
---------------------------------------------------------------------------

    We also propose to require advisers to report additional 
identifying information about each portfolio security, including the 
name of the counterparty of a repo.\86\ Currently, section 3 requires 
advisers to name the issuer. However, for repos, it is not clear 
whether advisers should report the name of the counterparty of the 
repo, the name of the clearing agency (in the case of centrally cleared 
repos), or both. Therefore, this proposed amendment is designed to 
improve data quality and comparability, based on our experience with 
Form PF. If an adviser reports an ``other unique identifier,'' the 
proposal would require the advisers to describe the identifier. These 
proposed changes are designed to help the Commission and FSOC identify 
the security and compare Form PF data with other data sets that use 
these identifiers. When advisers select the category of investments 
that most closely identifies the security, we propose to revise the 
categories so advisers would distinguish between U.S. Government agency 
debt categorized as (1) a coupon-paying note and (2) a no-coupon paying 
note.\87\ This proposed amendment is designed to provide more granular 
information about U.S. Government agency debt, so the Commission and 
FSOC can filter data for more robust analysis.
---------------------------------------------------------------------------

    \86\ Question 63(a) through (f).
    \87\ Question 63(g).
---------------------------------------------------------------------------

    For reporting portfolio information about repos, the proposal would 
no longer allow advisers to aggregate certain information if multiple 
securities of an issuer are subject to a repo.\88\ This proposed 
amendment is designed to provide us with more complete information 
about the repo market. We also propose to require advisers to provide 
clearing information for repos to inform the Commission and FSOC about 
liquidity fund activity in various segments of the market.\89\ 
Together, the proposed amendments are designed to improve the 
Commission's and FSOC's understanding of the role of liquidity funds in 
providing liquidity to the repo markets and enhance the Commission's 
and FSOC's ability to conduct analysis of stress events in the funding 
markets.
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    \88\ Question 63(h).
    \89\ Question 63(h).
---------------------------------------------------------------------------

    Financing information. We propose to revise how advisers report 
financing information by requiring advisers to indicate whether a 
creditor is based in the United States and whether it is a ``U.S. 
depository institution,'' rather than a ``U.S. financial institution,'' 
as section 3 currently provides.\90\ This proposed amendment is 
designed to make the categories in section 3 more consistent with the 
categories the Federal Reserve Board uses in its reports and analysis, 
to enhance systemic risk assessment.\91\ The proposal would not require 
advisers to distinguish between non-U.S. creditors that are depository 
institutions and those that are not. We understand that it would be 
difficult for filers to make this distinction, which could result in 
inconsistent data and less robust analysis.
---------------------------------------------------------------------------

    \90\ See current Question 56, which we would redesignate as 
Question 55. Form PF would define ``U.S. depository institution'' as 
any U.S. domiciled depository institution, including any of the 
following: (1) A depository institution chartered in the United 
States, including any federally-chartered or state-chartered bank, 
savings bank, cooperative bank, savings and loan association, or an 
international banking facility established by a depositary 
institution chartered in the United States; (2) banking offices 
established in the United States by a financial institution that is 
not organized or chartered in the United States, including a branch 
or agency located in the United States and engaged in banking not 
incorporated separately from its financial institution parent, 
United States subsidiaries established to engage in international 
business, and international banking facilities; (3) any bank 
chartered in any of the following United States affiliated areas: 
U.S. territories of American Samoa, Guam, and the U.S. Virgin 
Islands; the Commonwealth of the Northern Mariana Islands; the 
Commonwealth of Puerto Rico; the Republic of the Marshall Islands; 
the Federated States of Micronesia; and the Trust Territory of the 
Pacific Islands (Palau); or (4) a credit union (including a natural 
person or corporate credit union). Form PF defines ``U.S. financial 
institution'' as any of the following: (1) A financial institution 
chartered in the United States (whether federally-chartered or 
state-chartered); (2) a financial institution that is separately 
incorporated or otherwise organized in the United States but has a 
parent that is a financial institution chartered outside the United 
States; or (3) a branch or agency that resides outside the United 
States but has a parent that is a financial institution chartered in 
the United States.
    \91\ The Chairman of the Federal Reserve Board is a member of 
FSOC.
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    Investor information. We propose to revise how advisers report 
investor information.\92\ We propose to add a new question requiring 
advisers to report whether the liquidity fund is established as a cash 
management vehicle for other funds or accounts that the adviser or the 
adviser's affiliates manage that are not cash management vehicles.\93\ 
This proposed amendment is designed to distinguish between liquidity 
funds that are offered as a separate investment strategy versus those 
that are maintained to support other investment strategies, which would 
help us assess whether assets are shifting from registered money market 
funds to unregistered products, such as liquidity funds, and better 
understand the risks associated with assets shifting to unregistered 
products.
---------------------------------------------------------------------------

    \92\ Form PF, section 3, Item D.
    \93\ Proposed Question 58. We would redesignate current Question 
58 to Question 57.
---------------------------------------------------------------------------

    We also propose to revise how advisers report beneficial ownership 
information.\94\ Instead of requiring advisers to simply report how 
many investors beneficially own five percent or more of the liquidity 
fund's equity, section 3 would require advisers to provide the 
following information for each investor that beneficially owns five 
percent or more of the reporting fund's equity: (1) The type of 
investor and (2) the percent of the reporting fund's equity owned by 
the investor.\95\ This information is designed to help inform the 
Commission and FSOC of the liquidity and redemption risks of liquidity 
funds, because different types of investors may pose different types of 
redemption risks. For example, if a market event results in a certain 
type of investor exercising redemption rights, liquidity funds with a 
homogenous investor base composed of that type of investor could face 
greater redemption risks, which could raise systemic risk implications, 
as compared to liquidity funds with a more diversified investor base.
---------------------------------------------------------------------------

    \94\ Question 59(b).
    \95\ Question 59.
---------------------------------------------------------------------------

    Disposition of portfolio securities. We propose to require advisers 
to report information about the disposition of portfolio securities for 
each of the three

[[Page 9125]]

months in the quarter. To effectuate this, the proposal would add new 
Item F (Disposition of Portfolio Securities) to section 3.\96\ Under 
the proposal, advisers would report information about the portfolio 
securities that the liquidity fund sold or disposed of during the 
reporting period (not including portfolio securities that the fund held 
until maturity). Advisers would report the amount as well as the 
category of investment.\97\ This proposed amendment is designed to 
inform the Commission and FSOC of liquidity funds' liquidity 
management, as well as their secondary market activities in normal and 
stress periods, to enhance systemic risk assessment. It also is 
designed to help provide data about how liquidity funds' selling 
activity relates to broader trends in short-term funding markets to aid 
the Commission's investor protection efforts and FSOC's systemic risk 
analysis.
---------------------------------------------------------------------------

    \96\ We would redesignate current Item F as Item G (Parallel 
Money Market Funds).
    \97\ We propose to include the following categories of 
investment: U.S. Treasury Debt; U.S. Government Agency Debt (if 
categorized as coupon-paying notes); U.S. Government Agency Debt (if 
categorized as no-coupon-discount notes); Non-U.S. Sovereign, Sub-
Sovereign and Supra-National debt; Certificate of Deposit; Non-
Negotiable Time Deposit; Variable Rate Demand Note; Other Municipal 
Security; Asset Backed Commercial Paper; Other Asset Backed 
Securities; U.S. Treasury Repo, if collateralized only by U.S. 
Treasuries (including Strips) and cash; U.S. Government Agency Repo, 
collateralized only by U.S. Government Agency securities, U.S. 
Treasuries, and cash; Other Repo, if any collateral falls outside 
Treasury, Government Agency and cash; Insurance Company Funding 
Agreement; Investment Company; Financial Company Commercial Paper; 
Non-Financial Company Commercial Paper; or Tender Option Bond. If 
Other Instrument, advisers would include a brief description, as is 
currently required.
---------------------------------------------------------------------------

    Weighted average maturity and weighted average life. Large 
liquidity fund advisers report information in section 3 about the 
liquidity fund's ``WAM,'' or weighted average maturity and ``WAL,'' or 
the weighted average life. Generally, WAM and WAL are calculations of 
the average maturities of all securities in a portfolio, weighted by 
each security's percentage of net assets. These calculations help 
determine risk in a portfolio, because a longer WAM and WAL may 
increase a fund's exposure to interest rate risks. Form PF's definition 
of ``WAM'' and ``WAL'' instruct advisers to calculate them using 
provisions of rule 2a-7. We propose to revise the Form PF glossary 
definition of ``WAM'' and ``WAL'' to include an instruction to 
calculate them with the dollar-weighted average based on the percentage 
of each security's market value in the portfolio.\98\ This proposed 
change is designed to help ensure advisers calculate WAM and WAL, which 
can indicate potential risk in the market, using a consistent approach. 
We believe the proposed amendment would improve data quality and 
comparability, which in turn could enhance investor protection efforts 
and systemic risk assessment.
---------------------------------------------------------------------------

    \98\ See Form PF Glossary of Terms.
---------------------------------------------------------------------------

    We request comment on the proposed amendments to Section 3 of Form 
PF:
    100. Would the proposed amendments improve data quality and 
comparability? Is there a better way to achieve these objectives?
    101. Would the proposed amendments provide a better picture of the 
reporting fund's operations, assets, portfolio, financing, and investor 
information? Is there alternative or additional information we should 
require? Is there a less burdensome way to obtain the information?
    102. Would the proposed amendments help the Commission and FSOC see 
a more complete picture of the short-term financing markets in which 
liquidity funds invest? Would the proposed amendments enhance our and 
FSOC's ability to assess short-term financing markets, their systemic 
risk, and facilitate our oversight of those markets and their 
participants? Is there a better way to meet these objectives?
    103. Should section 3 be more or less consistent with Form N-MFP 
and rule 2a-7? Why or why not?
    104. Should we add, remove, or revise any categories for any 
questions in section 3? Why or why not? Should we add cash as a 
category for certain questions in section 3, as proposed? Why or why 
not?
    105. Should section 3 require more, less, or different identifying 
information? Currently, Form PF provides that in the case of a 
financial institution, if a legal entity identifier has not been 
assigned, then advisers must provide the RSSD ID assigned by the 
National Information Center of the Federal Reserve Board, if any.\99\ 
Should we require advisers to report the RSSD ID, if they have one, as 
a separate line item from LEI for securities, financial institutions, 
or any others that section 3 should identify? How burdensome would it 
be to obtain an RSSD ID?
---------------------------------------------------------------------------

    \99\ See the definition of ``LEI'' in the Form PF Glossary of 
Terms.
---------------------------------------------------------------------------

    106. Should we revise how advisers report whether the liquidity 
fund seeks to maintain a stable price per share, as proposed? Would the 
proposed requirement help the Commission and FSOC identify liquidity 
funds that could be more susceptible to runs? Would the proposed 
requirements make data for liquidity funds and money market funds more 
comparable, and in turn, help FSOC assess systemic risk across the 
types of funds? Is there a better way to meet these objectives? Should 
section 3 require advisers to report any additional information 
concerning maintaining a stable price per share? For example, should 
section 3 require advisers to report the degree of rounding to maintain 
a stable price per share, and if so, how? Should we remove current 
Questions 52 and 53, concerning whether the liquidity fund uses certain 
methodologies to compute its net asset value?
    107. Should we remove current Question 54, concerning whether the 
liquidity fund has a policy of complying with the risk limiting 
conditions of rule 2a-7, as proposed? Could we determine whether the 
liquidity fund is complying with the risk limiting conditions of rule 
2a-7 using the portfolio information in section 3?
    108. Should we amend how advisers report assets, as proposed? Would 
the proposed amendments allow us to use comparable data for liquidity 
funds and registered money market funds so we can analyze data across 
the types of funds? Would the proposed amendments improve data quality 
and comparability? Is there a better way to meet these objectives?
    109. Section 3 currently requires advisers to report the 7-day 
gross yield of the liquidity fund. Should section 3 also require 
advisers to report the 7-day net yield of the liquidity fund? Would 
this requirement enhance systemic risk assessment or investor 
protection?
    110. Should we amend how advisers report portfolio information, as 
proposed? Would the proposed amendments improve data quality and 
comparability? Would the proposed amendments help us and FSOC identify 
the security and allow the Commission and FSOC to compare Form PF data 
with other data sets that use certain identifiers? Would the proposed 
amendments provide us and FSOC with more granular information to help 
us filter data for more robust analysis, such as filtering data 
concerning U.S. Government agency debt categorized as (1) a coupon-
paying note and (2) a no-coupon paying note? Would the proposed 
amendments help the Commission and FSOC understand the liquidity fund's 
portfolio turnover during normal and stressed markets? Would the 
proposed amendments provide the Commission and FSOC with a more 
complete information about repos? Would the proposed amendments help 
inform us and FSOC of liquidity fund activity in various

[[Page 9126]]

market segments? Is there a better way to meet these objectives? Should 
we remove the requirement for advisers to report the coupon when 
reporting the title of the issue? Would the yield provide that 
information?
    111. Section 3 requires advisers to report information concerning 
ratings assigned by credit rating agencies, when reporting portfolio 
information. Currently, if a rating assigned by a credit rating agency 
played a substantial role in the liquidity fund's or reporting fund's 
evaluation of the quality, maturity, or liquidity of the security, 
advisers must provide the name of each credit rating agency and the 
rating each assigned to the security. How often does the credit rating 
agency play a substantial role in the reporting fund's or its adviser's 
evaluation of the quality, maturity, or liquidity of the security? 
Please provide supportive data. Should section 3 continue to require 
advisers to report this type of information?
    112. Would advisers find it difficult to distinguish between non-
U.S. creditors that are depository institutions and those that are not 
depository institutions? Should proposed Question 55 (currently 
Question 56) be more or less consistent with Form PF section 1, 
Question 12, which requires all advisers to provide a breakdown showing 
whether a creditor is based in the United States and whether it is a 
U.S. financial institution? \100\
---------------------------------------------------------------------------

    \100\ As discussed, we would redesignate Question 56 to Question 
55. Form PF section 1 is part of the joint form between the SEC and 
CFTC. See supra footnote 2.
---------------------------------------------------------------------------

    113. As an alternative approach to reporting financing information, 
should section 3 continue to require advisers to report information 
concerning financial institutions? If so, should section 3 continue to 
require advisers to distinguish between non-U.S. creditors that are 
financial institutions and those that are not? Do advisers find it 
difficult to make that distinction? If so, how could we revise section 
3 to alleviate such a burden and improve data quality?
    114. We are not proposing to amend current Question 57, which 
requires advisers to report information about committed liquidity 
facilities.\101\ Should we amend it? For example, should we require 
advisers to provide the maturity dates of any committed liquidity 
facilities that the liquidity fund has in place, as applicable? Why or 
why not?
---------------------------------------------------------------------------

    \101\ We would redesignate current Question 57 to Question 56.
---------------------------------------------------------------------------

    115. Should we amend how advisers report investor information, as 
proposed? Would the proposed amendments help distinguish between 
liquidity funds that are offered as a separate investment strategy and 
those that are maintained to support other investment strategies? Would 
this information, in turn, inform the Commission and FSOC if money 
market fund requirements result in assets shifting from registered 
money market funds to unregistered products such as liquidity funds? 
Would the proposed changes help inform the Commission and FSOC about 
the liquidity and redemption risks of liquidity funds, and any 
potential systemic risk implications? Is there a better way to meet 
these objectives? Should section 3 require advisers to report 
identifying information for each investor that beneficially owns five 
percent or more of the liquidity fund's equity, such as its name and 
address, as we are proposing for Form N-MFP? \102\ Should we, as 
proposed, remove current Question 59(b), which requires advisers to 
report how many investors beneficially own five percent or more of the 
liquidity fund's equity, because advisers would disclose this 
information through the proposed new requirements for Question 59?
---------------------------------------------------------------------------

    \102\ See Money Market Fund Proposing Release, supra footnote 
15.
---------------------------------------------------------------------------

    116. Should we amend how advisers report investor liquidity? For 
example, should Question 62 require advisers to report investor 
liquidity in dollar amounts, instead of, or in addition to a percentage 
of net asset value, as Question 62 currently requires? Would advisers 
find it more or less burdensome to report investor liquidity in dollar 
amounts instead of as a percentage of net asset value?
    117. Should section 3 require advisers to report information 
concerning the disposition of portfolio securities, as proposed? Would 
the proposed amendments help inform the Commission and FSOC of a 
liquidity fund's liquidity management, as well as their secondary 
market activities in normal and stress periods, to enhance systemic 
risk assessment? Would the proposed amendments help provide data about 
how liquidity funds' selling activity relates to broader trends in 
short-term funding markets? Is there a better way to meet these 
objectives? Are the proposed categories of investment appropriate? 
Should we add, remove, or revise any categories of investment?
    118. Should Form PF define ``U.S. depository institution'' and 
revise the terms ``weekly liquid assets,'' ``WAM,'' and ``WAL,'' as 
proposed? Would the proposed definitions improve data quality? Should 
we provide additional guidance on these or any other terms used in 
section 3?

III. Economic Analysis

A. Introduction

    The Commission is mindful of the economic effects, including the 
costs and benefits, of the proposed amendments. Section 202(c) of the 
Advisers Act provides that when the Commission is engaging in 
rulemaking under the Advisers Act and is required to consider or 
determine whether an action is necessary or appropriate in the public 
interest, the Commission shall also consider whether the action will 
promote efficiency, competition, and capital formation, in addition to 
the protection of investors.\103\ The analysis below addresses the 
likely economic effects of the proposed amendments, including the 
anticipated and estimated benefits and costs of the amendments and 
their likely effects on efficiency, competition, and capital formation. 
The Commission also discusses the potential economic effects of certain 
alternatives to the approaches taken in this proposal.
---------------------------------------------------------------------------

    \103\ 15 U.S.C. 80b-2(c).
---------------------------------------------------------------------------

    Many of the benefits and costs discussed below are difficult to 
quantify. For example, the Commission cannot quantify how regulators 
may adjust their policies and oversight of the private fund industry in 
response to the additional data collected under the proposed rule. 
Also, in some cases, data needed to quantify these economic effects are 
not currently available and the Commission does not have information or 
data that would allow such quantification. For example, costs 
associated with the proposal may depend on existing systems and levels 
of technological expertise within the private fund advisers, which 
could differ across reporting persons. While the Commission has 
attempted to quantify economic effects where possible, much of the 
discussion of economic effects is qualitative in nature. The Commission 
seeks comment on all aspects of the economic analysis, especially any 
data or information that would enable a quantification of the 
proposal's economic effects.

B. Economic Baseline and Affected Parties

1. Economic Baseline
    The Commission adopted Form PF in 2011, with additional amendments 
made to section 3 along with certain money market reforms in 2014.\104\ 
Form PF complements the basic information about private fund advisers 
and funds

[[Page 9127]]

reported on Form ADV.\105\ Unlike Form ADV, Form PF is not an investor-
facing disclosure form. Information that private fund advisers report 
on Form PF is provided to regulators on a confidential basis and is 
nonpublic.\106\ The purpose of Form PF is to provide the Commission and 
FSOC with data that regulators can deploy in their regulatory and 
oversight programs directed at assessing and managing systemic risk and 
protecting investors both in the private fund industry and in the U.S. 
financial markets more broadly.\107\
---------------------------------------------------------------------------

    \104\ See supra footnote 2.
    \105\ Investment advisers to private funds report on Form ADV 
general information about private funds that they advise. This 
includes basic organizational, operational information, and 
information about the fund's key service providers. Information on 
Form ADV is available to the public through the Investment Adviser 
Public Disclosure System, which allows the public to access the most 
recent Form ADV filing made by an investment adviser. See, e.g., 
Form ADV, available at https://www.investor.gov/introduction-investing/investing-basics/glossary/form-adv. See also Investment 
Adviser Public Disclosure, available at https://adviserinfo.sec.gov/. Some private fund advisers that are required 
to report on Form ADV are not required to file Form PF (for example, 
exempt reporting advisers and advisers with less than $150 million 
in private fund assets under management). Other advisers are 
required to file Form PF and are not required to file Form ADV (for 
example, commodity pools that are not private funds). Based on the 
staff review of Form ADV filings and the Private Fund Statistics, 
less than 10 percent of funds reported on Form ADV but not on Form 
PF in 2020. See infra footnote 141.
    \106\ Commission staff publish quarterly reports of aggregated 
and anonymized data regarding private funds on the Commission's 
website. See Private Fund Statistics, Securities and Exchange 
Commission: Division of Investment Management, available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. See 
also supra footnote 4.
    \107\ See supra section I.
---------------------------------------------------------------------------

    Private funds and their advisers play an important role in both 
private and public capital markets. These funds, including hedge funds, 
private equity funds, and liquidity funds, currently have more than 
$17.0 trillion in gross private fund assets.\108\ Private funds invest 
in large and small businesses and use strategies that range from long-
term investments in equity securities to frequent trading and 
investments in complex instruments. Their investors include 
individuals, institutions, governmental and private pension funds, and 
non-profit organizations.
---------------------------------------------------------------------------

    \108\ These estimates are based on staff review of data from the 
Private Fund Statistics report for the last quarter of 2020, issued 
in August 2021. Private fund advisers who file Form PF currently 
have $17.0 trillion in gross assets. See Division of Investment 
Management, Private Fund Statistics, (Aug. 21, 2021), available at 
https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. As discussed above, not all private fund advisers 
are required to file Form PF. See supra footnote 105.
---------------------------------------------------------------------------

    Before Form PF was adopted, the Commission and other regulators had 
limited visibility into the economic activity of private funds and 
relied largely on private vendor databases about private funds that 
covered only voluntarily provided private fund data and are not 
representative of the total population.\109\ Form PF represented an 
improvement in available data about private funds, both in terms of its 
reliability and completeness.\110\ Generally, investment advisers 
registered (or required to be registered) with the Commission with at 
least $150 million in private fund assets under management must file 
Form PF.\111\ Smaller private fund advisers and all private equity fund 
advisers file annually to report general information such as the types 
of private funds advised (e.g., hedge funds, private equity funds, or 
liquidity funds), fund size, use of borrowings and derivatives, 
strategy, and types of investors.\112\ Large private equity advisers 
also provide data about each private equity fund they manage. Large 
hedge fund and liquidity fund advisers also provide data about each 
reporting fund they manage, and are required to file quarterly.\113\
---------------------------------------------------------------------------

    \109\ See, e.g., SEC 2020 Annual Staff Report Relating to the 
Use of Form PF Data (Nov. 2020), available at https://www.sec.gov/files/2020-pf-report-to-congress.pdf.
    \110\ Id.
    \111\ Registered investment advisers with less than $150 million 
in private funds assets under management, exempt reporting advisers, 
and state-registered advisers report general private fund data on 
Form ADV, but do not file Form PF. See supra footnote 105.
    \112\ Id.
    \113\ See supra footnotes 8, 9, and 111.
---------------------------------------------------------------------------

    The Commission and FSOC now have almost a decade of experience with 
analyzing the data collected on Form PF. The collected data has helped 
FSOC establish a baseline picture of the private fund industry for the 
use in assessing systemic risk \114\ and improved the Commission's 
oversight of private fund advisers.\115\ Form PF data also has enhanced 
the Commission and FSOC's ability to frame regulatory policies 
regarding the private fund industry, its advisers, and the markets in 
which they participate, as well as more effectively evaluate the 
outcomes of regulatory policies and programs directed at this sector, 
including the management of systemic risk and the protection of 
investors.\116\ Additionally, based on the data collected through Form 
PF filings, regulators have been able to regularly inform the public 
about ongoing private fund industry statistics and trends by generating 
quarterly Private Fund Statistics reports \117\ and by making publicly 
available certain results of staff research regarding the 
characteristics, activities, and risks of private funds.\118\
---------------------------------------------------------------------------

    \114\ See, e.g., OFR 2021 Annual Report to Congress (Nov. 2021), 
available at https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf; and FSOC 2020 Annual Report, available at 
https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2021.pdf.
    \115\ See supra footnote 109.
    \116\ See supra footnotes 114, 115.
    \117\ See supra footnotes 4, 106.
    \118\ See e.g., D. Johnson and F. Martinez, Form PF Insights on 
Private Equity Funds and Their Portfolio Companies, 18-01 Office of 
Financial Research (Working Paper) (June 2018), available at https://www.financialresearch.gov/briefs/2018/06/14/form-pf-insights-on-private-equity-funds/; D. Hiltgen, Private liquidity Funds: 
Characteristics and Risk Indicators, DERA White Paper (Jan. 2017) 
(``Hiltgen Paper''), available at https://www.sec.gov/files/2017-03/Liquidity%20Fund%20Study.pdf; G. Aragon, T. Ergun, M. Getmansky, and 
G. Girardi, Hedge Funds: Portfolio, Investor, and Financing 
Liquidity, DERA White Paper (May 2017), available at https://www.sec.gov/files/dera_hf-liquidity.pdf; George Aragon, Tolga Ergun, 
and Giulio Girardi, Hedge Fund Liquidity Management: Insights for 
Fund Performance and Systemic Risk Oversight, DERA White Paper (Apr. 
2021), available at https://www.sec.gov/files/dera_hf-liquidity-management.pdf; M. Kruttli, P. Monin, and S. Watugala, The Life of 
the Counterparty: Shock Propagation in Hedge Fund-Prime Broker 
Credit Networks, 19-03 Office of Financial Research (Working Paper) 
(Working Paper) (Oct. 2019), available at https://www.financialresearch.gov/working-papers/files/OFRwp-19-03_the-life-of-the-counterparty.pdf; M. Kruttli, P. Monin, S. Petrasek, and S. 
Watugala, Hedge Fund Treasury Trading and Funding Fragility: 
Evidence from the COVID-19 Crisis, Federal Reserve Board, Finance 
and Economics Discussion Series (Apr. 2021), available at https://www.federalreserve.gov/econres/feds/hedge-fund-treasury-trading-and-funding-fragility-evidence-from-the-covid-19-crisis.htm; M. Kruttli, 
P. Monin, and S. Watugala, Investor Concentration, Flows, and Cash 
Holdings: Evidence from Hedge Funds, Federal Reserve Board, Finance 
and Economics Discussion Series (Dec. 2017), available at https://doi.org/10.17016/FEDS.2017.121.
---------------------------------------------------------------------------

    However, this decade of experience with analyzing Form PF data has 
also highlighted certain limitations of information collected on Form 
PF, including information gaps and situations where more granular and 
timely information would improve the Commission and FSOC's 
understanding of the private fund industry and the potential systemic 
risk relating to its activities, and improve regulators' ability to 
protect investors.\119\ The need for more granular and timely 
information collected on Form PF is further heightened by the 
increasing significance of the private fund industry to financial 
markets and to the broader economy, and resulting regulatory concerns 
regarding potential risks to U.S. financial stability from this 
sector.\120\
---------------------------------------------------------------------------

    \119\ See supra section I.
    \120\ The private fund industry has experienced significant 
growth in size and changes in terms of business practices, 
complexity of fund structures, and investment strategies and 
exposures in the past decade. Supra footnote 4. See also Financial 
Stability Oversight Council Update on Review of Asset Management 
Product and Activities (2014), available at https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf.

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[[Page 9128]]

2. Affected Parties
    The proposal amends and introduces new reporting requirements for 
the advisers to hedge funds,\121\ private equity funds,\122\ and 
liquidity funds.\123\
---------------------------------------------------------------------------

    \121\ Form PF defines ``hedge fund'' broadly to include any 
private fund (other than a securitized asset fund) that has any of 
the following three characteristics: (1) A performance fee or 
allocation that takes into account unrealized gains, or (2) a high 
leverage (i.e., the ability to borrow more than half of its net 
asset value (including committed capital) or have gross notational 
exposure in excess of twice its net asset value (including committed 
capital)) or (3) the ability to short sell securities or enter into 
similar transactions (other than for the purpose of hedging currency 
exposure or managing duration). Any non-exempt commodity pools about 
which an investment adviser is reporting or required to report are 
automatically categorized as hedge funds. Excluded from the ``hedge 
fund'' definition in Form PF are vehicles established for the 
purpose of issuing asset backed securities (``securitized asset 
funds''). See Form PF Glossary.
    \122\ Form PF defines ``private equity fund'' broadly to include 
any private fund that is not a hedge fund, liquidity fund, real 
estate fund, securitized asset fund or venture capital fund and does 
not provide investors with redemption rights in the ordinary course. 
Private funds that have the ability to borrow or short securities 
have to file as a hedge fund. See Form PF Glossary.
    \123\ Form PF defines ``liquidity fund'' broadly to include any 
private fund that seeks to generate income by investing in a 
portfolio of short term obligations in order to maintain a stable 
net asset value or minimize principal volatility for investors. See 
Form PF Glossary.
---------------------------------------------------------------------------

    Hedge funds are one of the largest categories of private 
funds,\124\ and as such play an important role in the U.S. financial 
system due to their ability to mobilize large pools of capital, take 
economically important positions in a market, and their extensive use 
of leverage, derivatives, complex structured products, and short 
selling.\125\ While these features may enable hedge funds to generate 
higher returns as compared to other investment alternatives, the same 
features may also create spillover effects in the event of losses 
(whether caused by their investment and derivatives positions or use of 
leverage or both) that could lead to significant stress or failure not 
just at the affected fund but also across financial markets.\126\
---------------------------------------------------------------------------

    \124\ See supra footnote 108.
    \125\ See, e.g., Lloyd Dixon, Noreen Clancy, and Krishna B. 
Kumar, Hedge Fund and Systemic Risk, RAND Corporation (2012); John 
Kambhu, Til Schuermann, and Kevin Stiroh, Hedge Funds, Financial 
Intermediation, and Systemic Risk, Federal Reserve Bank of New 
York's Economic Policy Review (2007).
    \126\ See supra footnotes 114, 120. See also infra section 
III.C.1.a.
---------------------------------------------------------------------------

    In the last quarter of 2020, hedge fund advisers that are required 
to file Form PF had investment discretion over nearly $8.7 trillion in 
gross assets under management, which represented approximately half of 
the reported assets in the private fund industry.\127\ Currently, hedge 
fund advisers with between $150 million and $2 billion in regulatory 
assets (that do not qualify as large hedge fund advisers) file Form PF 
annually, in which they provide general information about funds they 
advise such as the types of private funds advised, fund size, their use 
of borrowings and derivatives, strategy, and types of investors. Large 
hedge fund advisers with at least $1.5 billion in regulatory assets 
under management attributable to hedge funds file Form PF quarterly, in 
which they provide data about each hedge fund they managed during the 
reporting period (irrespective of the size of the fund). Large hedge 
fund advisers must report more information on Form PF about qualifying 
hedge funds \128\ than other hedge funds they manage during the 
reporting period. In the last quarter of 2020, there were 1,793 
qualifying hedge funds reported on Form PF with $7.1 trillion in gross 
assets under management, which represented approximately 81 percent of 
the reported hedge fund assets.\129\
---------------------------------------------------------------------------

    \127\ See supra footnote 108. In the last quarter of 2020, hedge 
fund assets accounted for 52 percent of the gross asset value 
(``GAV'') ($$8.8/$17.0 trillion) and 40 percent of the net asset 
value (``NAV'') ($4.6/$11.5 trillion) of all private funds reported 
on Form PF.
    \128\ See supra footnote 7.
    \129\ See supra footnote 108. In the last quarter of 2020, 
qualifying hedge fund assets accounted for 81 percent of the GAV 
($7.1/$8.8 trillion) and 77 percent of the NAV ($3.6/$4.7 trillion) 
of all hedge funds reported on Form PF.
---------------------------------------------------------------------------

    Private equity funds are another large category of funds in the 
private fund industry. In the last quarter of 2020, advisers to private 
equity funds had investment discretion over approximately one third of 
the reported gross assets in the private fund industry.\130\ Many 
private equity funds focus on long-term returns by investing in a 
private, non-publicly traded company or business--the portfolio 
company--and engage actively in the management and direction of that 
company or business in order to increase its value.\131\ Other private 
equity funds may specialize in making minority investments in fast-
growing companies or startups.\132\
---------------------------------------------------------------------------

    \130\ See supra footnote 108. In the last quarter of 2020, 
private equity assets accounted for 28 percent of the GAV ($4.7/
$17.0 trillion) and 36 percent of the NAV ($4.1/$11.5 trillion) of 
all private funds reported on Form PF.
    \131\ After purchasing controlling interests in portfolio 
companies, private equity advisers frequently get involved in 
managing those companies by serving on the company's board; 
selecting and monitoring the management team; acting as sounding 
boards for CEOs; and sometimes stepping into management roles 
themselves. See, e.g., Private Equity Funds, Securities and Exchange 
Commission, available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity.
    \132\ See supra footnote 131.
---------------------------------------------------------------------------

    While all fund advisers are subject to fiduciary duties to their 
clients, private equity funds' long-term investment horizons and 
various relationships with affiliates and portfolio companies mean that 
there exist opportunities for fund advisers to pursue transactions or 
investments despite conflicts of interest and also to extract private 
benefits at the expense of the funds they manage and, by extension, the 
limited partners invested in the funds.\133\ The Commission has brought 
several enforcement actions against private equity advisers that 
allegedly received undisclosed fees and expenses, impermissibly shifted 
and misallocated expenses, or failed to disclose conflicts of interests 
adequately, including conflicts arising from fee and expense 
issues.\134\ In addition, private equity funds' increasingly extensive 
use of leverage for financing portfolio companies and a significant 
increase in the use of private credit strategies both raise systemic 
risk concerns.\135\
---------------------------------------------------------------------------

    \133\ Private equity advisers may be managing multiple private 
equity funds and portfolio companies. The funds typically pay the 
private equity adviser for advisory services. Additionally, the 
portfolio companies may also pay the private equity adviser for 
services such as managing and monitoring the portfolio company. 
Affiliates of the private equity adviser may also play a role as 
service providers to the funds or the portfolio companies. See, 
e.g., Observations from Examinations of Investment Advisers Managing 
Private Funds, SEC Risk Alert (June 23, 2020), available at https://www.sec.gov/files/Private%20Fund%20Risk%20Alert_0.pdf; Staff 
Statement of Andrew Ceresney, Securities Enforcement Forum West 2016 
Keynote Address: Private Equity Enforcement Securities and Exchange 
Commission (May 12, 2016) (``Ceresney Keynote''), available at 
https://www.sec.gov/news/speech/private-equity-enforcement.html.
    \134\ See Ceresney Keynote, supra footnote 133.
    \135\ See Moody's Warns of `Systemic Risks' in Private Credit 
Industry, Financial Times (Oct. 26, 2021), available at https://www.ft.com/content/862d0efb-09e5-4d92-b8aa-7856a59adb20; Rod 
Dubitsky, CLOs, Private Equity, Pensions, and Systemic Risk, 26 (1) 
Journal of Structured Finance 26-1 (2020), available at https://jsf.pm-research.com/content/26/1/8.
---------------------------------------------------------------------------

    Currently, all private equity advisers registered with the 
Commission who are required to file Form PF must do so annually. 
Private equity advisers with between $150 million and $2 billion in 
regulatory assets under management attributable to private equity funds 
must provide general information while large private equity advisers 
with at least $2 billion in regulatory assets under management must 
report more detailed data about the private equity funds they

[[Page 9129]]

manage (section 4 of Form PF).\136\ In the last quarter of 2020, there 
were 15,623 private equity funds reported on Form PF with $4.7 trillion 
in gross assets under management.\137\ Of those, 5,266 funds were 
private equity funds managed by large private equity advisers with 
discretion over nearly $3.6 trillion in gross assets, representing 78 
percent of the reported private equity assets.\138\ However, because 
not all private equity advisers file Form PF, section 4 private equity 
fund advisers represent less than 78 percent of total private equity 
fund regulatory assets. When Form PF was adopted in 2011, the $2 
billion reporting threshold for large private equity advisers captured 
75 percent of the U.S. private equity industry's assets under 
management.\139\ As a result of substantial growth in the number of 
private equity funds and advisers since 2011, the market share 
attributable to investors with less than $2 billion in assets under 
management has grown.\140\ As such, currently, the $2 billion reporting 
threshold only captures 67 percent of the entire private equity 
industry.\141\
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    \136\ See supra footnote 8.
    \137\ See supra footnote 108.
    \138\ Id.
    \139\ See supra footnote 2.
    \140\ See supra section I.
    \141\ Based on staff review of Form ADV filings, in 2020, the 
aggregate regulatory assets under management under the discretion of 
private equity advisers were $4.2 trillion. According to the Private 
Fund Statistics Report, this aggregate estimate includes 
approximately $3.8 trillion (90 percent) in gross assets under 
management by private equity advisers that file Form PF, $2.8 
trillion of which were under the discretion of large private equity 
advisers. This represents 67 percent of the industry. See supra 
footnote 108.
---------------------------------------------------------------------------

    Liquidity funds are a relatively small \142\ but important category 
of private funds due to the role they play along with money market 
funds as sources, and users, of liquidity in markets for short-term 
financing.\143\ Liquidity funds follow similar investment strategies as 
money market funds, but are unregistered.\144\ Similar to money market 
funds, liquidity funds are managed with the goal of maintaining a 
stable net asset value or minimizing principal volatility for 
investors.\145\ These funds typically achieve these goals by investing 
in high-quality, short-term debt securities, such as Treasury bills, 
repurchase agreements, or commercial paper, that fluctuate very little 
in value under normal market conditions.\146\ Also, similar to money 
market funds, liquidity funds are sensitive to market conditions and 
may be exposed to losses from certain of their holdings when the 
markets in which the funds invest are under stress.\147\ Compared to 
money market funds, liquidity funds may take on greater risks and, as a 
result, may be more sensitive to market stress, as they are not 
required to comply with the risk-limiting conditions of rule 2a-7, 
which place restrictions on the maturity, diversification, credit 
quality, and liquidity of money market fund investments.\148\
---------------------------------------------------------------------------

    \142\ Id. In the last quarter of 2020, liquidity fund assets 
accounted for 2 percent of the GAV ($0.3/$17.0 trillion) and 2.6 
percent of the NAV ($0.3/$11.5 trillion) of all liquidity funds 
reported on Form PF.
    \143\ See supra footnote 118 (Hiltgen Paper).
    \144\ Id.
    \145\ See supra footnote 123.
    \146\ See supra footnote 118 (Hiltgen Paper).
    \147\ For example, in the second week of March 2020, conditions 
significantly deteriorated in markets for private short-term debt 
instruments, such as commercial paper and certificates of deposit. 
Widening spreads in short-term funding markets put downward pressure 
on the prices of assets in money market and liquidity funds' 
portfolios. See, e.g., U.S. Credit Markets Interconnectedness and 
the Effects of COVID-19 Economic Shock, SEC Staff Report (Oct. 
2020), available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf; Financial Stability Report, Federal 
Reserve Board (Nov. 2020), available at https://www.federalreserve.gov/publications/files/financial-stability-report-20201109.pdf.
    \148\ See supra footnote 143.
---------------------------------------------------------------------------

    Currently, liquidity fund advisers with between $150 million and $1 
billion in assets file Form PF annually, which contains general 
information about funds they manage. Large liquidity fund advisers with 
at least $1 billion in combined regulatory assets under management 
attributable to unregistered liquidity funds and registered money 
market funds are required to file Form PF quarterly and provide more 
detailed data on the liquidity funds they manage (section 3 of Form 
PF).\149\ In the last quarter of 2020, there were 71 liquidity funds 
reported on Form PF with $318 billion in gross assets under 
management.\150\ Of those, 52 funds were large liquidity funds with 
$315 billion in gross assets, which represented 99 percent of the 
reported liquidity fund assets.\151\
---------------------------------------------------------------------------

    \149\ Item A of section 3 of Form PF collects certain 
information for each liquidity fund the adviser manages, such as 
information regarding the fund's portfolio valuation methodology. 
This item also requires information regarding whether the fund, as a 
matter of policy, is managed in compliance with certain provisions 
of rule 2a-7 under the Investment Company Act. Item B requires the 
adviser to report information regarding the fund's assets, while 
Item C requires the adviser to report information regarding the 
fund's borrowings. Finally, Item D asks for certain information 
regarding the fund's investors, including the concentration of the 
fund's investor base and the liquidity of its ownership interests. 
See Form PF.
    \150\ See supra footnote 108.
    \151\ Id.
---------------------------------------------------------------------------

    Private funds are typically limited to accredited investors and 
qualified clients such as pension funds, insurance companies, 
foundations and endowments, and high income and net worth 
individuals.\152\ Retail U.S. investors with exposure to private funds 
are typically invested in private funds indirectly through public and 
private pension plans and other institutional investors.\153\ In the 
last quarter of 2020, public pension plans had $1,533 billion invested 
in reporting private funds while private pension plans had $1,248 
billion invested in reporting private funds, making up 13.3 percent and 
10.9 percent of the overall beneficial ownership in the private equity 
industry, respectively.\154\ Investors may also gain direct exposure to 
private funds through the inclusion of private investments in their 
defined contribution plans, such as 401(k)s.
---------------------------------------------------------------------------

    \152\ See supra footnote 131. See also Hedge Funds, Securities 
and Exchange Commission (Investor.gov: Private Equity Funds), 
available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds.
    \153\ See supra footnotes 108, 152.
    \154\ Id.
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C. Benefits and Costs

1. Benefits
    The proposal is designed to facilitate two primary goals the 
Commission sought to achieve with reporting on Form PF as articulated 
in the original adopting release, namely: (1) Facilitating FSOC's 
understanding and monitoring of potential systemic risk relating to 
activities in the private fund industry and assisting FSOC in 
determining whether and how to deploy its regulatory tools with respect 
to nonbank financial companies; and (2) enhancing the Commission's 
ability to evaluate and develop regulatory policies and improving the 
efficiency and effectiveness of the Commission's efforts to protect 
investors and maintain fair, orderly and efficient markets.\155\
---------------------------------------------------------------------------

    \155\ See supra footnote 2.
---------------------------------------------------------------------------

    Specifically, the proposal includes amendments to sections 3 and 4 
of Form PF, which would enhance and provide more specificity regarding 
the information collected on large advisers of liquidity funds and 
private equity funds. The proposal also introduces new sections 5 and 6 
of Form PF, which would require advisers to qualifying hedge funds and 
private equity funds to provide current reporting to the Commission 
when their funds are facing certain events that may signal stress or 
potential future stress in financial markets or implicate investor 
protection concerns. In addition, the proposed

[[Page 9130]]

amendments include improvements to guidelines, definitions, and 
existing questions aimed to reduce their ambiguity and improve data 
quality. Below we discuss benefits associated with the specific 
elements of the proposed amendments.
a. Current Reporting Requirements for Large Hedge Fund Advisers to 
Qualifying Hedge Funds (Section 5 of Form PF)
    The proposal introduces new section 5 of Form PF requiring large 
hedge fund advisers to qualifying hedge funds (i.e., hedge funds with a 
net asset value of at least $500 million) to file a current report with 
the Commission when their funds experience certain stress events: (1) 
Extraordinary investment losses, (2) certain margin events and 
counterparty defaults, (3) material changes in prime broker 
relationships, (4) changes in unencumbered cash, (5) operations events, 
and (6) certain events associated with withdrawals and redemptions at 
the reporting hedge fund.\156\ These events may serve as signals to the 
Commission and FSOC about significant stress at the reporting fund and 
potential risks to financial stability. Advisers would be required to 
file current reports within one business day of the occurrence of such 
an event.\157\
---------------------------------------------------------------------------

    \156\ See supra section II.A.1.
    \157\ As discussed above, advisers should consider filing a 
current report as soon as possible following such an event. See 
supra section II.A.
---------------------------------------------------------------------------

    The reporting of these stress events is designed to assist the 
Commission and FSOC in assessing potential risks to financial stability 
that hedge funds' activities could pose due to the complexity of their 
strategies, their interconnectedness in the financial system, and the 
limited regulations governing them.\158\ There are two main channels 
through which stress events at an individual hedge fund may pose risks 
to broader financial stability: Forced liquidation of assets, which 
could depress asset prices, and spillover of stress to the fund's 
counterparties, which could negatively impact other activities of the 
counterparties.
---------------------------------------------------------------------------

    \158\ See supra section II.A.1.
---------------------------------------------------------------------------

    First, when a large hedge fund experiences significant losses, a 
margin default, or faces large redemptions, it may be forced to 
deleverage and liquidate its positions at substantially depressed 
prices. Forced liquidation of assets by the hedge fund at depressed 
prices may affect other investors and financial institutions holding 
the same or similar assets.\159\ Consequently, more investors and 
financial institutions may then face increased stress from margin calls 
and creditor concerns. This could lead to more sales at depressed 
prices, potentially causing stress across the entire financial system. 
Second, large hedge funds that use leverage through loans, derivatives, 
or repurchase agreements with other financial institutions as 
counterparties may cause significant problems at those financial 
institutions in times of stress.\160\ This in turn may force those 
institutions to scale back their lending efforts and other investment 
and financing activities with other counterparties, thereby potentially 
creating stress for other market participants.\161\
---------------------------------------------------------------------------

    \159\ For example, because financial institutions base asset 
valuations in part on recent transaction prices for comparable 
assets, when assets are sold at depressed prices, forced 
liquidations at depressed prices could lead to lower valuations for 
entire classes of similar assets. See, e.g., Andrei Shleifer and 
Robert Vishny, Fire Sales in Finance and Macroeconomics, 25 (1) 
Journal of Economic Perspectives 29-48 (2011), available at https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.1.29. See also Fernando 
Duarte and Thomas Eisenbach, Fire-Sale Spillovers and Systemic Risk, 
76 (3) The Journal of Finance 1251-1294, 1251-1256 (Feb. 2021), 
available at https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.13010; Wulf A. Kaal and Timothy A. Krause, Handbook on Hedge 
Funds: Hedge Funds and Systemic Risk, Oxford University Press 12-19 
(2016), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2748096 (retrieved from SSRN Elsevier 
database).
    \160\ For example, a lender to a hedge fund may view its loans 
as increasingly high risk as the hedge fund's balance sheet 
deteriorates. See, e.g., Mark Gertler and Nobuhiro Kiyotaki, Chapter 
11--Financial Intermediation and Credit Policy in Business Cycle 
Analysis, 3 Handbook of Monetary Economics 547-599 (2010), available 
at https://eml.berkeley.edu/~webfac/obstfeld/kiyotaki.pdf.
    \161\ For example, if a bank has a large exposure to a hedge 
fund that defaults or operates in markets where prices are falling 
rapidly, the bank's greater exposure to risk may reduce its ability 
or willingness to extend credit to worthy borrowers. To the extent 
that these bank-dependent borrowers cannot access alternative 
sources of funding, their investment and economic activity could be 
curtailed. See, e.g., Reint Gropp, How Important Are Hedge Funds in 
a Crisis?, FRBSF Economic Letter (Apr. 14, 2014), available at 
https://www.frbsf.org/economic-research/files/el2014-11.pdf. Even 
banks and financial institutions that are not directly harmed by the 
forced liquidation of assets by hedge funds may contribute to a 
system-wide lending contraction in response to hedge fund crises, to 
the extent they withdraw capital from lending to exploit distressed 
prices. See, e.g., Jeremy Stein, The Fire-Sales Problem and 
Securities Financing Transactions, Workshop on `Fire Sales' as a 
Driver of Systemic Risk in Tri-Party Repo and Other Secured Funding 
Markets, Federal Reserve Bank of New York (Oct. 4, 2013), available 
at https://www.bis.org/review/r131007d.pdf.
---------------------------------------------------------------------------

    As a result, a stress event at one large hedge fund may potentially 
spill over to the fund's lenders, counterparties, and across the entire 
financial system, carrying with it significant economic costs and the 
loss of confidence of investors. We believe that a timely notice about 
stress events could provide an early warning of the fund's assets 
liquidation and risk to counterparties. Such a timely notice could 
allow the Commission and FSOC to assess the need for regulatory policy, 
and could allow the Commission to pursue potential outreach, 
examinations, or investigations, in response to any harm to investors 
or potential risks to financial stability on an expedited basis before 
they worsen.
    In addition, current reporting of stress events at multiple 
qualifying hedge funds may indicate broader market instability with 
potential risks for similarly situated funds, or markets in which these 
funds invest. Current reports would allow the Commission and FSOC to 
assess the prevalence of the reported stress events based on the number 
of funds filing in a short time frame, and identify patterns among 
similarly situated funds and common factors that contributed to the 
reported stress events. In that regard, current reports would be 
especially useful during periods of market volatility and stress, when 
the Commission and FSOC are actively and quickly ascertaining the 
affected funds, gathering information to assess systemic risk, and 
determining whether and how to pursue regulatory responses, and when 
the Commission is actively determining whether and how to pursue 
outreach, examinations, or investigations.
    We anticipate that the proposed current reporting requirement would 
improve the transparency to the Commission and FSOC of hedge fund 
activities and risk exposures, which would enhance systemic risk 
assessment and investor protection efforts. We believe that those 
efforts would be beneficial for hedge fund advisers, hedge funds, and 
hedge fund investors, as well as for other market participants, as the 
new and timely information about stress events at hedge funds would 
help the Commission and FSOC to address emerging risk events 
proactively with regulatory responses, and would help the Commission 
further evaluate the need for outreach, examinations, or 
investigations, in order to minimize market disruptions doing so, the 
Commission and FSOC may further advance investor protection efforts. In 
turn, this could help develop robust resolution mechanisms for dealing 
with the stress at systemically important hedge funds, which could lead 
to more resilient financial markets and instill stronger investor 
confidence in the U.S. hedge fund industry and financial markets more 
broadly.\162\
---------------------------------------------------------------------------

    \162\ See, e.g., J[oacute]n Dan[iacute]elsson, Ashley Taylor, 
and Jean-Pierre Zigrand, Highwaymen or Heroes: Should Hedge Funds Be 
Regulated? A Survey, 1 (4) Journal of Financial Stability, 522-543 
(2005), available at https://www.sciencedirect.com/science/article/pii/S1572308905000306.

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[[Page 9131]]

    We also anticipate that the proposed current reporting requirements 
might incentivize some hedge fund managers to enhance internal risk 
controls and reporting, which could support more effective risk 
management for these funds.\163\ To the extent these enhanced internal 
risk controls and reporting improve managers' ability to monitor and 
respond to potential stress events, we believe this could provide 
market-wide benefits to funds, their investors, and financial markets 
more broadly.
---------------------------------------------------------------------------

    \163\ For example, fund advisers may not internalize all of the 
benefits that enhanced risk reporting provides other fund advisers 
and investors to other fund advisers. Current reporting requirements 
may result in reporting practices that are more consistent with fund 
advisers considering the impact of their internal risk reporting on 
the broader market.
---------------------------------------------------------------------------

    Furthermore, requiring hedge fund advisers to report stress events 
on Form PF would support regulatory efficiency because all eligible 
hedge fund advisers would be required to file information about certain 
stress events on a standardized form. This would provide a more 
complete record of significant stress events in the hedge fund industry 
that can be used by the Commission and FSOC for background research to 
identify regulatory tools and mechanisms that could potentially be used 
to make future systemic crises episodes both less likely to occur as 
well as less costly and damaging when they do occur.\164\ The 
observations from this research could help inform and frame regulatory 
responses to future market events and policymaking.
---------------------------------------------------------------------------

    \164\ For instance, a more complete record would allow the staff 
to more accurately assess the prevalence of the reported stress 
events, identify patterns among affected funds, and detect factors 
that contributed to the reported stress events. The observations 
from this research could be used to identify causes for and 
implications of possible future similar stress events, or causes of 
and implications for investor harm, thus enabling the Commission and 
FSOC to respond quickly to such future events.
---------------------------------------------------------------------------

b. Current Reporting Requirements for Advisers to Private Equity Funds 
(Section 6 of Form PF)
    The proposal introduces new section 6 of Form PF requiring all 
advisers of private equity funds (irrespective of a fund's size) to 
file a current report with the Commission within one business day of 
the occurrence of a certain significant event at one or more funds that 
they manage: (1) Execution of an adviser-led secondary transaction, (2) 
implementation of a general partner or limited partner clawback, and 
(3) removal of a fund's general partner, termination of a fund's 
investment period, or termination of a fund.\165\ These events may 
signal to the Commission and FSOC the presence of significant 
developments at the reporting funds and potential risks to broader 
financial markets, as well as indicate potential areas for the 
Commission to pursue outreach, examinations, and investigations 
designed to prevent investor harm and protect investors' interests.
---------------------------------------------------------------------------

    \165\ See supra section II.A.2. As discussed above, advisers 
should consider filing a current report as soon as possible 
following such an event. See supra section II.A.
---------------------------------------------------------------------------

    Although private equity funds have become an essential part of the 
U.S. financial system,\166\ there is only partial and insufficient 
information about their governance, strategies, and performance 
available to regulators. Currently, all private equity advisers (that 
have at least $150 million of private fund assets under management) 
file Form PF annually, within 120 calendar days of the end of their 
fiscal year, which can lead to meaningful delays in reporting 
significant events to the Commission and staleness of certain 
information about their activities. Furthermore, because private equity 
investments are mostly in private companies and businesses, there is 
limited information available on the interim performance of these 
investments and, therefore, on the interim performance and volatility 
of private equity funds.\167\ As a result, significant events at 
private equity funds that could have negative consequences for the 
fund's investors and other financial market participants--such as 
significant losses, removal of the fund's general partner, and fund 
reorganizations and recapitalizations--may not be known to the 
Commission or FSOC, preventing any possible regulatory response, 
outreach, examinations, or investigations that could further investor 
protection for considerable periods of time.
---------------------------------------------------------------------------

    \166\ See supra section II.B.
    \167\ Even when the updated valuations of private equity 
portfolio companies are available, these valuations may appear 
relatively uninformative as they tend to respond slowly to market 
information and could be artificially smoothed. See Tim Jenkinson, 
Miguel Sousa, and R[uuml]diger Stucke, How Fair are the Valuations 
of Private Equity Funds? SSRN Electronic Journal (Feb. 2013), 
available at https://www.psers.pa.gov/About/Investment/Documents/PPMAIRC%202018/27%20How%20Fair%20are%20the%20Valuations%20of%20Private%20Equity%20Funds.pdf; Robert Harris, Tim Jenkinson, and Steven Kaplan, Private 
Equity Performance: What Do We Know?, 69 (5) The Journal of Finance 
1851-1882 (Mar. 27, 2014).
---------------------------------------------------------------------------

    The proposed current reporting for private equity advisers would 
provide an alert to the Commission and FSOC on significant developments 
at the reporting funds that could potentially cause investor harm and 
loss of investor confidence. Such alerts would enable the Commission 
and FSOC to assess the severity of the reported events at the reporting 
private equity fund and, to the extent the reported event may cause 
significant investor harm and loss of investor confidence, these alerts 
would allow the Commission and FSOC to frame potential regulatory 
responses. For example, an implementation of a limited partner clawback 
\168\ may signal that the fund is planning for a material event such as 
substantial litigation or a legal judgment that could negatively impact 
the fund's investors and potentially other market participants.
---------------------------------------------------------------------------

    \168\ See supra section II.A.2.
---------------------------------------------------------------------------

    The Commission could also use the information provided in section 6 
to target its examination program more efficiently and effectively and 
better identify areas in need of regulatory oversight and assessment, 
which should increase both the efficiency and effectiveness of its 
programs and, thus, increase investor protection. For example, the 
removal of a fund's general partner, termination of a fund's investment 
period, or termination of a fund \169\ could lead to the liquidation of 
the fund earlier than anticipated, which could present risks to 
investors and potentially certain markets in which the fund assets were 
invested. A report about an adviser-led secondary transaction \170\ is 
another example of an event that may signal to the Commission a 
potential area for inquiry to prevent investor harm and protect 
investors' interests, as such transactions may present fund-level 
conflicts of interest, such as those that arise because the adviser (or 
its related person) is on both sides of the transaction in adviser-led 
secondary transactions with potentially different economic incentives. 
Current reporting about such events could alert the Commission to 
specific investor protection issues at the fund and the fund's adviser, 
including potential conflicts of interest, and therefore merit timely 
and targeted oversight and assessment.
---------------------------------------------------------------------------

    \169\ Id.
    \170\ Id.
---------------------------------------------------------------------------

    In addition, current reporting of significant events at multiple 
private equity funds may indicate broader market instability that 
negatively affects similarly situated funds, or markets in which these 
funds invest in. For example, widespread implementation of general 
partner clawbacks \171\ among private equity funds may be a sign of an 
emerging market-wide stress episode or

[[Page 9132]]

worsening of economic conditions contributing to the underperformance 
of the funds' portfolio companies. Also, multiple reports about 
adviser-led secondary transactions \172\ such as a fund reorganization 
may serve as an early warning to the Commission and FSOC about 
deteriorating market conditions that may prevent private equity 
managers from utilizing more traditional ways to exit their portfolio 
companies and realize gains.\173\ Current reports would allow the 
Commission and FSOC to assess the prevalence of the reported events in 
the private equity space and identify patterns among similarly situated 
funds and common factors that contributed to the reported events.
---------------------------------------------------------------------------

    \171\ Id.
    \172\ Id.
    \173\ For example, private equity exits have been adversely 
affected by the global Covid-19 pandemic as the three traditional 
ways for private equity advisers to exit portfolio companies--trade 
sales, secondary buy-outs and initial public offerings (``IPOs'')--
became unattainable or unattractive for some advisers. See, e.g., 
Alastair Green, Ari Oxman, and Laurens Seghers, Preparing for 
Private-Equity Exits in the COVID-19 Era, Private Equity & Principal 
Investors Insights, McKinsey &Company (June 11, 2020), available at 
https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/preparing-for-private-equity-exits-in-the-covid-19-era. Conversely, during the same period, there was an 
increase in the adviser-led secondary transactions. See, e.g., 
Nicola Chapman, Martin Forbes, Colin Harley, and Sherri Snelson, 
Private Equity Turns to Fund Restructurings in COVID-19 Slowdown, 
Debt Explorer, White & Case (Feb. 8, 2021), available at https://debtexplorer.whitecase.com/leveraged-finance-commentary/private-equity-turns-to-fund-restructurings-in-covid-19-slowdown#!.
---------------------------------------------------------------------------

    We anticipate that the improved transparency of private equity fund 
activities as a result of the proposed current reporting requirements 
to the Commission and FSOC would enhance regulatory systemic risk 
assessment and investor protection efforts. We expect that those 
efforts would be beneficial for private equity advisers, private equity 
funds, and private equity fund investors, as well as for other market 
participants, as the new and timely information about significant 
events at private equity funds would help the Commission and FSOC to 
address proactively emerging risk events with appropriate regulatory 
policy, thereby minimizing market disruptions and limiting potential 
damages and costs associated with them. Further, collected data on 
significant events at private equity funds would enable the Commission 
and FSOC to perform background research to identify private equity 
trends and areas prone to potential systemic risk and investor 
protection concerns. The observations from this research could 
potentially inform and frame regulatory responses to future market 
events and policymaking.
    Finally, similar to the effect of the proposed current reporting on 
qualifying hedge funds, we anticipate that the proposed current 
reporting requirements for private equity advisers might incentivize 
some managers to enhance internal risk controls and reporting.\174\ To 
the extent these enhanced internal risk controls and reporting improve 
managers' ability to monitor and respond to potential stress events, we 
believe this could provide market-wide benefits to funds, their 
investors, and financial markets more broadly.
---------------------------------------------------------------------------

    \174\ See supra section III.C.1.a.
---------------------------------------------------------------------------

c. Amendments To Require Additional Reporting by Large Private Equity 
Advisers (Section 4 of Form PF)
    The proposed amendments to section 4 of Form PF include 
requirements for additional and more granular information that large 
private equity advisers must provide regarding their activities, risk 
exposures, and counterparties on an annual basis.\175\ The proposal 
would also lower the reporting threshold for the advisers required to 
complete section 4 of Form PF.\176\
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    \175\ See supra section II.B.2.
    \176\ Id.
---------------------------------------------------------------------------

i. Lowering the Reporting Threshold for Large Private Equity Advisers
    The proposed amendments would expand the universe of large private 
equity advisers required to complete section 4 of Form PF to include 
advisers with at least $1.5 billion in private equity assets under 
management.\177\ The new size threshold is designed to ensure 
continuity of the originally envisioned reporting coverage of the 
private equity funds industry.
---------------------------------------------------------------------------

    \177\ Id.
---------------------------------------------------------------------------

    As discussed above, when Form PF was adopted in 2011, the $2 
billion reporting threshold for large private equity advisers captured 
75 percent of the U.S. private equity industry's assets under 
management.\178\ The threshold was established to balance regulators' 
need for a broad, representative set of data regarding the private fund 
industry with the desire to limit the potential burdens of private 
funds' reporting.\179\ However, the $2 billion reporting threshold 
currently only captures 67 percent of the private equity industry.\180\ 
Such reduced coverage could potentially impede regulators' ability to 
obtain a representative picture of the private fund industry and lead 
to misleading conclusions regarding emerging industry trends and 
characteristics. For instance, the activities of private fund advisers 
may differ significantly depending on their size because some 
strategies such as the use of leverage may be practical only at certain 
scales. As a result, reduced reporting coverage--caused by an increase 
in the number of smaller advisers--may hinder regulators from detecting 
certain new trends and group behaviors among smaller private fund 
advisers with potential systemic consequences. By adjusting the 
threshold to maintain comparable coverage of the industry over time, 
analysis of emerging industry trends and characteristics yields more 
accurate pictures of the private fund industry.
---------------------------------------------------------------------------

    \178\ See supra section I.A.1.
    \179\ See supra footnote 139.
    \180\ See supra section I.A.1.
---------------------------------------------------------------------------

    The proposed reduction in the reporting threshold for large private 
equity advisers maintains the originally intended coverage of 75 
percent of private equity assets in today's market.\181\ Having a 
robust data set for analysis is important for both identifying 
potential investor protection issues as well as for assessing systemic 
risk. By maintaining a constant reporting coverage of private equity 
funds, this proposed amendment may ultimately lead to an improved 
understanding of the trends in the private equity industry by the 
Commission and FSOC and better informed regulatory policymaking and 
examinations functions.
---------------------------------------------------------------------------

    \181\ See supra section I.A.1.
---------------------------------------------------------------------------

    The proposed $1.5 billion reporting threshold for private equity 
advisers would also match the reporting threshold for large hedge fund 
advisers,\182\ thereby eliminating a loophole that advisers with 
between $1.5 billion and $2 billion in hedge fund assets under 
management may avoid providing detailed data on their hedge funds on a 
quarterly basis by classifying those funds as private equity funds 
instead. As the distinctions between hedge funds and private equity 
become less evident,\183\ it would be prudent to harmonize the 
reporting thresholds for large hedge fund and private equity fund 
advisers. This would make data collected on Form PF for the two 
categories of funds more comparable and may improve regulatory 
assessment of the trends and systemic risks in the private fund 
industry.
---------------------------------------------------------------------------

    \182\ See supra footnote 8.
    \183\ See, e.g., Joshua Franklin and Laurence Fletcher, Hedge 
Funds Muscle in to Silicon Valley With Private Deals, Financial 
Times (Sept. 9, 2021), available at https://www.ft.com/content/4935b205-8344-465a-8edf-dc23ec990302.

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[[Page 9133]]

ii. Requirements for Additional and More Granular Information for Large 
Private Equity Advisers
    The proposed amendments to section 4 of Form PF would revise how 
large private equity advisers report on fund investment strategies, 
restructuring/recapitalization of portfolio companies, investments in 
different levels of a single portfolio company's capital structure by 
related funds, fund-level borrowings, financing of portfolio companies, 
and risk profiles of controlled portfolio companies and fund exposures 
to these risks.\184\
---------------------------------------------------------------------------

    \184\ See supra section II.B.2.
---------------------------------------------------------------------------

    The proposed amendments would further improve the transparency of 
private equity fund activities and risks to the Commission and FSOC and 
help in developing a more complete picture of the markets where private 
equity funds operate. In turn, this would enhance the Commission's and 
FSOC's ability to assess potential systemic risks presented by private 
equity funds, as well as the potential for loss of investor confidence 
should conflicts of interest in private equity funds materialize. 
Specifically, new and more granular information about private equity 
funds would assist regulators in understanding the diversity of and 
trends in investment and financing strategies employed by private 
equity funds,\185\ their uses and sources of leverage,\186\ the risk 
profiles of portfolio companies controlled by private equity fund 
advisers and funds' exposures to these risks,\187\ funds' exposure to 
changes in interest rates,\188\ as well as to risks from outside the 
U.S.\189\
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    \185\ The proposal introduces a new Question 68 that asks 
advisers to provide information about their private fund strategies 
by choosing from a mutually exclusive list of strategies, allocating 
the percent of capital deployed to each strategy, even if the 
categories do not precisely match the characterization of the 
reporting fund's strategies. If a reporting fund engages in multiple 
strategies, the adviser would provide a good faith estimate of the 
percentage the reporting fund's deployed capital represented by each 
strategy. Id.
    \186\ The proposal introduces several new questions, including: 
New Question 72 asking advisers to report whether a reporting 
private equity fund borrows, or if it has the ability to borrow at 
the fund-level as an alternative or complement to the financing of 
portfolio companies; new Question 74 asking an adviser to report 
whether it, or any of its related persons, provides financing or 
otherwise extends credit to any portfolio company in which the 
reporting fund invests, so as to quantify the value of such 
financing or other extension of credit; and amendments to existing 
Question 75, which requires reporting on the identity of the 
institutions providing bridge financing to the adviser's CPCs (and 
the amount of such financing), to add additional counterparty 
identifying information (i.e., LEI (if any) and if the counterparty 
is affiliated with a major financial institution, the name of the 
financial institution). Id.
    \187\ The proposal introduces new Question 67, which asks an 
adviser to report how many CPCs a reporting private equity fund 
owns. Id.
    \188\ The proposal introduces new Question 82, which asks 
advisers to report what percentage of the aggregate borrowings of a 
reporting private equity fund's controlled portfolio companies is at 
a floating rate rather than a fixed rate. Id.
    \189\ The proposal amends existing Question 78, which asks 
advisers to report the geographical breakdown of investments by 
private equity funds. The new requirement asks for a private equity 
fund's greatest country exposures based a percent of net asset 
value. Id.
---------------------------------------------------------------------------

    We also expect that some new and more granular information would be 
beneficial for the Commission's investor protection efforts. For 
instance, the proposed amendments include a series of new questions 
designed to identify potential conflicts of interest. These include 
questions asking advisers to provide a breakdown of each fund's 
investments in different levels of a single portfolio company's capital 
structure (e.g., equity versus debt),\190\ which would reveal whether 
related funds of a single adviser invest in different levels of a 
portfolio company's capital structure, and therefore, may have 
conflicting interests.\191\ Also, the proposal would ask advisers to 
report whether they or their funds have restructured or recapitalized a 
portfolio company, which may also involve conflicts of interest.\192\ 
This information would enable the Commission to target its examination 
program more efficiently and effectively and better identify areas in 
need of regulatory oversight and market assessment to increase investor 
protection.
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    \190\ The proposal introduces new Question 71, which asks an 
adviser to indicate whether the reporting fund held an investment in 
one class, series, or type of securities (e.g., debt, equity, etc.) 
of a portfolio company while another fund advised by the adviser or 
its related persons concurrently held an investment in a different 
class, series or type of securities (e.g., debt, equity, etc.) of 
the same portfolio company. If the answer is yes, Question 71 asks 
an adviser to provide the name of the portfolio company and a 
description of class, series or type of securities held. Id.
    \191\ For example, an adviser may have two advised funds 
invested in different levels of a portfolio company's capital 
structure, with one fund managing outside capital, while the other 
manages solely internal capital of the adviser's owners/employees. 
See supra footnote 68.
    \192\ The proposal introduces new Question 70, which asks an 
adviser to indicate whether a portfolio company was restructured or 
recapitalized following the reporting fund's investment period. If 
the company was restructured or recapitalized, Question 70 asks the 
adviser, to provide the name of the portfolio company and the 
effective date of the restructuring. See supra section II.B.2.
---------------------------------------------------------------------------

    Overall, the proposed amendments to section 4 of Form PF would 
ultimately assist the Commission and FSOC in better identifying and 
addressing risks to U.S. financial stability and pursuing appropriate 
regulatory policy in response, and would further assist the Commission 
in determining the potential need for outreach, examinations, and 
investigations, thereby enhancing efforts to protect investors and 
other market participants. We expect that the proposed new information 
about large private equity advisers and funds they manage would enable 
the Commission and FSOC to better anticipate and deal with potential 
risks to financial markets and investor harm associated with activities 
by large private equity funds. This could lead to more resilient 
financial markets and instill stronger investor confidence in the U.S. 
private equity industry and financial markets more broadly, which could 
facilitate additional capital formation.
d. Amendments To Require Additional Reporting by Large Liquidity Fund 
Advisers (Section 3 of Form PF)
    The proposed amendments to section 3 of Form PF include 
requirements for additional and more granular information that large 
private liquidity funds would have to provide regarding their 
operational information and assets, as well as portfolio holdings, 
financing, and investor information.\193\ The proposal also would add a 
new item concerning the disposition of portfolio securities.
---------------------------------------------------------------------------

    \193\ See supra section II.C.
---------------------------------------------------------------------------

    The proposed amendments would improve the transparency of liquidity 
fund activities and risks and help the Commission and FSOC in 
developing a more complete picture of the short-term financing markets 
where liquidity funds operate. In turn, this would enhance the 
Commission's and FSOC's ability to assess the potential market and 
systemic risks presented by liquidity funds' activities. Specifically, 
the proposed additional and more granular information would enable the 
Commission and FSOC to better assess liquidity funds' asset 
turnover,\194\ liquidity management and secondary market 
activities,\195\ subscriptions and

[[Page 9134]]

redemptions,\196\ and ownership type and concentration.\197\ This 
information can be used to analyze funds' liquidity and susceptibility 
of funds with specific characteristics to the risks of runs, which have 
a potential to cause systemic risk concerns.\198\ In addition, the 
information can be used for identifying trends in the liquidity funds 
industry during normal market conditions and for assessing deviations 
from those trends that could potentially serve as signals for changes 
in the short-term funding markets. Also, some proposed amendments \199\ 
to section 3 of Form PF would improve comparability of data across 
liquidity funds and money market funds so that regulators can use data 
on both types of funds for oversight and assessment of short term-
financing markets and their participants.
---------------------------------------------------------------------------

    \194\ The proposal includes amendments to existing Question 63, 
which asks advisers to provide information separately for the 
initial acquisition of each security the liquidity fund holds and 
any subsequent acquisitions. Question 63 also asks advisers to 
provide additional identifying information about each portfolio 
security, including the name of the counterparty of a repo. See 
supra section II.C; see also infra footnote 204.
    \195\ The proposal introduces new Item F (Disposition of 
Portfolio Securities), which asks advisers to report information 
about the portfolio securities that the liquidity fund sold or 
disposed of during the reporting period (not including portfolio 
securities that the fund held until maturity). Advisers would report 
the amount as well as the category of investment. See supra section 
II.C.
    \196\ The proposal includes new Question 54, which asks advisers 
to provide the total gross subscriptions (including dividend 
reinvestments) and the total gross redemptions for each month of the 
reporting period. As discussed above, this would include removing 
current Question 54, which concerns the liquidity fund's policy of 
complying with certain provisions of rule 2a-7. Id.
    \197\ The proposal introduces new Question 58, which asks 
advisers to report whether the liquidity fund is established as a 
cash management vehicle for other funds or accounts that the adviser 
or the adviser's affiliates manage (that are not themselves cash 
management vehicles). The proposal also amends existing Question 59 
by asking advisers to provide, for each investor that beneficially 
owns five percent or more of the reporting fund's equity, (1) the 
type of investor and (2) the percent of the reporting fund's equity 
owned by the investor. Id.
    \198\ Runs on liquidity in markets for short-term financing have 
the potential to increase systemic risk and instability, as funds 
may be forced to sell assets at depressed prices in order to 
continue providing liquidity. See, e.g., supra footnote 147.
    \199\ The proposal clarifies that the term ``weekly liquid 
assets'' includes ``daily liquid assets'' in existing Question 53. 
The proposal amends categories in existing Question 56 that now asks 
advisers to indicate whether a creditor is based in the United 
States and whether it is a ``U.S. depository institution,'' rather 
than asking if the creditor is a ``U.S. financial institution.'' 
These amendments will make these categories more consistent with the 
categories the Federal Reserve Board uses in its reports and 
analysis. The proposal also revises the Form PF glossary definition 
of ``WAM'' and ``WAL'' to include an instruction to calculate them 
with the dollar-weighted average based on the percentage of each 
security's market value in the portfolio. This revision will help 
ensure advisers calculate WAM and WAL, which can indicate potential 
risk in the market using a consistent approach. Id.
---------------------------------------------------------------------------

    These additional tools and data would enable the Commission and 
FSOC to better anticipate and deal with potential systemic and investor 
harm risks associated with activities in the liquidity funds industry 
and overall markets for short-term financing. This could lead to more 
resilient financial markets and instill stronger investor confidence in 
the U.S. markets for short-term financing, which could facilitate 
additional capital formation.
e. Amendments to Guidelines, Definitions, and Existing Questions
    In addition to the amendments requiring additional and more 
granular information about specific types of private funds and 
advisers, the proposal also includes clarifications and improvements to 
guidelines, definitions, and existing questions aimed to reduce their 
ambiguity and improve data quality.\200\ We believe that these 
amendments would reduce uncertainty among filers and reduce filing 
errors, thereby improving efficiencies for both regulators and 
advisers.
---------------------------------------------------------------------------

    \200\ For example, as discussed above, the proposal clarifies 
the terms ``weekly liquid asset'' and ``U.S. financial 
institution,'' while providing instructions for calculating ``WAM'' 
and ``WAL.'' See supra footnote 199. The proposal also removes 
Questions 52 and 53, which require reporting whether the liquidity 
fund uses certain methodologies to compute its net asset value, and 
instead requires advisers to report whether the liquidity fund seeks 
to maintain a stable price per share. If it does, advisers are 
required to provide the price it seeks to maintain. Large liquidity 
fund advisers are also required to both report cash separately from 
other categories when reporting assets and portfolio information 
concerning repo collateral, and to name the counterparty of each 
repo. Id.
---------------------------------------------------------------------------

    Specifically, the proposed amendments would address certain 
concerns that private fund advisers indicated regarding the ambiguities 
and inefficiencies that currently exist in the reporting requirements, 
including understanding the definitions and instructions in Form PF and 
the ease of interpreting Form PF questions, which contributed to an 
increased amount of time and effort required to prepare and submit Form 
PF.\201\ We believe that, as a result of the proposed changes aimed at 
reducing these ambiguities and inefficiencies, advisers would face 
lower costs associated with the preparation and submission of Form PF.
---------------------------------------------------------------------------

    \201\ For example, one survey identified the following advisers' 
concerns regarding Form PF: (1) The ambiguity of some questions on 
Form PF; (2) the unclear definition of funds in Form PF; (3) the 
limitations of private fund advisers' existing reporting systems; 
and (4) the challenges in aggregating form PF data. See Wulf Kaal, 
Private Fund Disclosures Under the Dodd-Frank Act, 9(2) Brooklyn 
Journal of Corporate, Financial, and Commercial Law (2015).
---------------------------------------------------------------------------

    We also expect that the proposed amendments would address the 
Commission's and FSOC's concerns regarding the quality and reliability 
of Form PF data and reduce time and effort required to process and 
analyze the data. Staff experience with data collected from Form PF 
over the past decade has revealed inconsistencies and errors in the 
advisers' answers to certain questions, which undermines the quality, 
accuracy, and comparability of the collected data. The proposed 
amendments to existing questions, definitions, and form instructions in 
Form PF would result in less erroneous and more reliable data collected 
through Form PF and would lower the costs to regulators associated with 
processing and understanding this data. The more reliable data 
collected through Form PF would assist regulators in better identifying 
and addressing risks to U.S. financial stability, potentially 
furthering efforts to protect investors and other market participants.
2. Costs
    The proposed amendments to Form PF would lead to certain additional 
costs for private fund advisers. Any portion of these costs that is not 
borne by advisers would ultimately be passed on to private funds' 
investors. These costs would vary depending on the scope of the 
required information and the frequency of the reporting, which is 
determined based on the size and types of funds managed by the adviser. 
For the proposed current reporting requirements, the costs would also 
vary depending on whether funds experience a reporting event and the 
frequency of those events. Generally, the costs would be lower for 
private fund advisers that manage fewer private fund assets or that do 
not manage types of private funds that may be more prone to financial 
stress events. These costs are quantified, to the extent possible, by 
examination of the analysis in section IV.C.\202\
---------------------------------------------------------------------------

    \202\ A 2015 survey of SEC-registered investment advisers to 
private funds affirmed the Commission's cost estimates for smaller 
private fund advisers' Form PF compliance costs, and found that the 
Commission overestimated Form PF compliance costs for larger private 
fund advisers. See Wulf Kaal, Private Fund Disclosures Under the 
Dodd-Frank Act, 9(2) Brooklyn Journal of Corporate, Financial, and 
Commercial Law (2015).
---------------------------------------------------------------------------

    We anticipate that the costs to advisers would be comprised of both 
direct compliance costs and indirect costs. Direct costs for advisers 
would consist of internal costs (for compliance attorneys and other 
non-legal staff of an adviser, such as computer programmers, to prepare 
and review the required disclosure) and external costs (including 
filing fees as well as any costs associated with outsourcing all or a 
portion of the Form PF reporting responsibilities to a filing agent, 
software consultant, or other third-party service provider).\203\
---------------------------------------------------------------------------

    \203\ See section IV.C (for an analysis of the direct costs 
associated with the new Form PF requirements for quarterly and 
annual filings).
---------------------------------------------------------------------------

    We believe that the direct costs associated with the proposed 
amendments would be most significant for the first updated Form PF 
report that

[[Page 9135]]

a private fund adviser would be required to file because the adviser 
would need to familiarize itself with the new reporting form and may 
need to configure its systems to efficiently gather the required 
information. In addition, we believe that some large private fund 
advisers will find it efficient to automate some portion of the 
reporting process, which will increase the burden of the initial 
filing. In subsequent reporting periods, we anticipate that filers 
would incur significantly lower costs because much of the work involved 
in the initial report is non-recurring and because of efficiencies 
realized from system configuration and reporting automation efforts 
accounted for in the initial reporting period. This is consistent with 
the results of a survey of private fund advisers, finding that the 
majority of respondents identified the cost of subsequent annual Form 
PF filings at about half of the initial filing cost.\204\
---------------------------------------------------------------------------

    \204\ See Wulf Kaal, Private Fund Disclosures Under the Dodd-
Frank Act, 9(2) Brooklyn Journal of Corporate, Financial, and 
Commercial Law (2015).
---------------------------------------------------------------------------

    We anticipate that the proposed amendments aimed at improving data 
quality and comparability would impose limited direct costs on advisers 
given that advisers already accommodate similar requirements in their 
current Form PF and Form ADV reporting and can utilize their existing 
capabilities for preparing and submitting an updated Form PF. We expect 
that most of the costs would arise from the proposed requirements to 
report additional and more granular information on Form PF and new 
current reporting requirements for advisers to qualifying hedge funds 
and private equity funds. For existing section 3 and 4 filers, the 
direct costs associated with the proposed amendments to sections 3 and 
4 would mainly include an initial cost to set up a system for 
collecting, verifying additional more granular information, and limited 
ongoing costs associated with periodic reporting of this additional 
information.\205\ The initial costs will be higher for the private 
equity advisers with assets under management between $1.5 billion and 
$2 billion that will be required to complete section 4 under the new 
proposed reporting threshold.\206\
---------------------------------------------------------------------------

    \205\ Based on the analysis in section IV.C, direct internal 
compliance costs for existing section 3 filers associated with the 
preparation and reporting of additional and more granular 
information is estimated at $544.5 per quarterly filing or $2,178 
annually per large liquidity fund adviser. This is calculated as the 
cost of filing under the proposal of $20,022 minus the cost of 
filing prior to the proposal of $19,477.5, where $19,477.5 = 
$29,216/105*70 to incorporate the adjustment explained in footnote 9 
to Table 7. See Table 7. Direct internal compliance costs for 
existing section 4 filers associated with the preparation and 
reporting of additional and more granular information is estimated 
at $7,425 per annual filing per large private equity adviser. This 
is calculated as the cost of filing under the proposal of $35,250 
minus the cost of filing prior to the proposal of $27,825. See Table 
7. It is estimated that there will be no additional direct external 
costs and no changes to filing fees associated with the proposed 
amendments to sections 3 and 4. See Table 10.
    \206\ Based on the analysis in section IV.C, initial costs for 
new section 4 filers is estimated at $80,325 per annual filing per 
large private equity adviser, which is $16,865 higher than the cost 
of initial filing prior to the proposal, which was estimated at 
$63,460. See Table 6. In addition, new section 4 filers will be 
subject to a filing fee of $150 per annual filing and an external 
cost burden ranging from $0 to $50,000 per adviser, which remains at 
the same level as before the proposal. See Table 10.
---------------------------------------------------------------------------

    As discussed in the benefits section, we believe that part of the 
costs to advisers arising from the proposed amendments would be 
mitigated by the cost savings resulting from reduced ambiguities and 
inefficiencies that currently exist in the reporting requirements, as 
this may reduce the amount of time and effort required for some 
advisers to prepare and submit Form PF information.
    The direct costs associated with the proposed new current reporting 
requirements for the advisers of qualifying hedge funds and private 
equity funds would include initial costs required to set up a system 
for monitoring significant events that are subject to the current 
reporting requirement as well as filing fees (the amount of which would 
be determined by the Commission in a separate action).\207\ We 
anticipate these initial costs to be limited because the current report 
triggers were tailored and designed not to be overly burdensome and to 
allow advisers to use existing risk management frameworks that they 
already maintain to actively assess and manage risk. In particular, 
advisers would use the same PFRD non-public filing system as used to 
file the rest of Form PF.\208\ The subsequent compliance costs would 
depend on the occurrence of the reporting events and frequency with 
which those events occur.\209\ To the extent that the reporting events 
occur infrequently, we anticipate the costs associated with the 
proposed current reporting requirement to be limited as advisers would 
not be required to file current reports in the absence of the events. 
For example, during periods of normal market activity we would expect 
relatively few filings for this part of Form PF. The costs associated 
with the proposed amendment, however, would increase with the frequency 
of stress events at the adviser's funds.
---------------------------------------------------------------------------

    \207\ See supra section II.A.3.
    \208\ Id.
    \209\ Based on the analysis in section IV.C, direct internal 
costs associated with the preparation and filing of current reports 
is estimated at $3,538 per report for large hedge fund advisers and 
$4,182 per report for private fund advisers. See Table 8. In 
addition, large hedge fund advisers will be subject to an external 
cost burden of $992 per report associated with outside legal 
services and additional one-time cost ranging from $0 to $12,500, 
per adviser associated with system changes. See Table 11. Private 
equity advisers will be subject to an external cost burden of $992 
per report associated with outside legal service. Additionally, 
there will be a filing fee per current report for both hedge fund 
and private equity fund advisers that is yet to be determined, as 
explained in footnote 1 to Table 11. See Table 11.
---------------------------------------------------------------------------

    Indirect costs for advisers would include the costs associated with 
additional actions that advisers may decide to undertake in light of 
the additional reporting requirements. Specifically, to the extent that 
the proposed amendments provide an incentive for advisers to improve 
internal controls and devote additional time and resources to managing 
their risk exposures and enhancing investor protection, this may result 
in additional expenses for advisers, some of which may be passed on to 
the funds and their investors.\210\
---------------------------------------------------------------------------

    \210\ As discussed above, the length of the reporting period is 
intended to mitigate costs associated with advisers needing to both 
respond to the reporting event and file the required current report. 
See supra section II.A.
---------------------------------------------------------------------------

    Form PF collects confidential information about private funds and 
their trading strategies, and the inadvertent public disclosure of such 
competitively sensitive and proprietary information could adversely 
affect the funds and their investors. However, we anticipate that these 
adverse effects would be mitigated by certain aspects of the Form PF 
reporting requirements and controls and systems designed by the 
Commission for handling the data. For example, with the exception of 
select questions, such as those relating to restructurings/
recapitalizations of portfolio companies and investments in different 
levels of the same portfolio company by funds advised by the adviser 
and its related person,\211\ Form PF data generally could not, on its 
own, be used to identify individual investment positions. The 
Commission has controls and systems for the use and handling of the 
proposed modified and new Form PF data in a manner that reflects the 
sensitivity of the data and is consistent with the maintenance of its 
confidentiality. The Commission has substantial experience with the 
storage and use of nonpublic information reported on Form PF as well as 
other

[[Page 9136]]

nonpublic information that the Commission handles in its course of 
business.
---------------------------------------------------------------------------

    \211\ See supra section II.B.2.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

    We anticipate that the increased ability for the Commission's and 
FSOC's oversight, resulting from the proposed amendments, would promote 
better functioning and more stable financial markets, which would lead 
to efficiency improvements. The additional, more granular, and timely 
data collected on the amended Form PF about private funds and advisers 
would help reduce uncertainty about risks in the U.S. financial system 
and inform and frame regulatory responses to future market events and 
policymaking. It would also help develop regulatory tools and 
mechanisms that could potentially be used to make future systemic 
crises episodes less likely to occur and less costly and damaging when 
they do occur.
    Also, we believe that the proposed amendments would improve the 
efficiency and effectiveness of the Commission's and FSOC's oversight 
of private fund advisers by enabling them to manage and analyze 
information related to the risks posed by private funds more quickly, 
more efficiently, and more consistently than is currently possible. 
Private fund advisers' responses to new proposed questions would help 
the Commission and FSOC better understand the investment activities of 
private funds and the scope of their potential effect on investors and 
the U.S. financial markets.
    We do not anticipate significant effects of the proposed amendments 
on competition in the private fund industry because the reported 
information generally would be nonpublic and similar types of advisers 
would have comparable burdens under the amended Form.
    As discussed in the benefits sections, we expect the proposed 
amendments would enhance the Commission's and FSOC's systemic risk 
assessment and investor protection efforts, which could ultimately lead 
to more resilient financial markets and instill stronger investor 
confidence in the U.S. private fund industry and financial markets more 
broadly. We anticipate that these developments would make U.S. 
financial markets more attractive for investments and improve private 
fund advisers' ability to raise capital, thereby, facilitating capital 
formation.

E. Reasonable Alternatives

1. Changing the Frequency of Current Reporting
    As an alternative to current reporting for hedge fund and private 
equity fund advisers, we considered requiring advisers to report 
relevant information as part of the existing Form PF filing or on a 
scheduled basis, such as semi-annually, quarterly, or monthly.
    In general, these alternatives would provide the Commission and 
FSOC with the same information but at potentially greater cost to 
advisers and on a less timely basis. Specifically, we believe that 
neither of these alternative approaches would significantly reduce the 
cost burden to advisers compared to the proposed current reporting 
requirement, because advisers would still need to incur initial costs 
to set up a system for monitoring significant events that are subject 
to the proposed current reporting requirement. In the case of advisers 
who experience only a few reporting events per year, the alternative 
filing frequency for current reports could also increase subsequent 
reporting costs, as advisers would be required to file two, four, or 
twelve reports per year rather than one report upon the occurrence of 
each reporting event.
    At the same time, delayed reporting about stress events at hedge 
funds and significant events at private equity funds would 
significantly reduce the Commission's and FSOC's ability to assess and 
frame timely responses to the emerging risks and limit potential market 
disruptions, damages, and costs associated with them.
2. Giving Current Report Filers More Time To Reply (Versus One Business 
Day)
    We also considered an alternative to require hedge fund and private 
equity advisers to file current reports within a time period longer 
than one business day.
    Although this alternative would provide more time to advisers to 
prepare and file the form, we do not anticipate that this would reduce 
the cost burden to advisers as compared to the proposed one-day 
reporting requirement. We believe that the proposed structures of 
sections 5 and 6 of Form PF are relatively simple and require advisers 
to flag the reporting event from a menu of available options and add 
straightforward explanatory notes about the events, which generally 
should not require considerable time to complete. Extending the 
reporting time period may increase internal costs to advisers to 
prepare and review the required disclosure, to the extent a longer 
reporting time period indirectly signals to advisers a need for greater 
detail, thoroughness, or diligence.
    On the other hand, due to the time sensitive nature of the reported 
events, additional reporting time would significantly reduce the 
Commission's and FSOC's ability to assess and frame timely responses to 
the emerging risks and limit potential market disruptions, damages and 
costs associated with them.
3. Alternative Reporting Thresholds for Current Reporting by Hedge Fund 
Advisers (Versus Just Large Hedge Fund Advisers to Qualifying Hedge 
Funds)
    We considered an alternative to require all hedge fund advisers to 
file section 5 of Form PF upon occurrence of stress events at one of 
their hedge funds (irrespective of the fund size) instead of requiring 
this reporting from only large advisers to qualifying hedge funds. 
Although this information would be beneficial for the Commission and 
FSOC, as this would provide a more complete picture of the stress 
events in the hedge fund industry and allow better assessment of 
systemic risk and investor protection issues in the smaller hedge funds 
space, we believe that this benefit would be marginal as compared to 
the benefit of the information about qualifying hedge funds for two 
reasons. First, the hedge fund industry is dominated by qualifying 
hedge funds that currently account for approximately 81 percent of the 
industry's gross assets under management among filers of Form PF.\212\ 
Therefore, the proposed current reporting requirement would cover 
stress events that affect a broad, representative set of assets in the 
hedge fund industry. Second, the proposed current reporting is designed 
to serve as a signal to the Commission and FSOC about systemically 
important stress events at hedge funds. Stress events at larger hedge 
funds are more likely to be systemically important due to their 
quantitatively important positions in a market and more extensive use 
of leverage. Overall, we believe at this time that requiring advisers 
to smaller hedge funds to file current reports would impose a 
significant burden on these smaller advisers and not significantly 
expand or improve the Commission's and FSOC's oversight and assessment 
of systemic risk efforts.
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    \212\ See supra footnote 129.

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[[Page 9137]]

    We also considered an alternative to increase the reporting 
threshold for hedge funds that would require a subgroup of the largest 
qualifying hedge funds to file current reports. Although this 
alternative would reduce the reporting burden at smaller qualifying 
hedge advisers, we believe that this would also reduce the benefit 
associated with the proposed current reporting. Specifically, we 
believe that this alternative would likely impede the Commission's and 
FSOC's ability to assess and respond to emerging industry risks, as 
this would reduce the scope of reported stress events to the events 
that affect the largest qualifying hedge funds. To the extent that 
largest qualifying hedge funds have a greater propensity to withstand 
deteriorating market conditions, the Commission and FSOC would have 
less visibility into the stress events that simultaneously affect 
smaller qualifying hedge funds that may indicate or have implications 
for systemic risk and investor protection concerns.
4. Requiring Fewer Private Equity Advisers To File Current Reports (by 
Introducing a Reporting Threshold)
    We considered an alternative current reporting requirement for 
private equity advisers where only advisers to larger private equity 
funds would be required to file section 6 of form PF, i.e., imposing a 
fund size threshold for current reporting.
    Although this alternative would reduce the reporting burden at 
smaller private equity advisers, we believe that this would also reduce 
the benefit associated with the proposed current reporting. 
Specifically, one of the goals of the proposed current reporting for 
private equity funds is to provide the Commission with indicators of 
potential conflicts of interests and investor harm at the funds. This 
would enable the Commission to target its examination program more 
efficiently and effectively and better identify areas in need of 
regulatory oversight and market assessment to increase investor 
protection. The Commission's oversight of private equity advisers is 
not limited to the advisers of a certain size. Conflicts of interest 
and resulting investor harm may occur at private equity advisers of all 
sizes, and the Commission has brought a number of enforcement actions 
against smaller advisers in the past.\213\ In that regard, current 
reports by smaller private equity advisers would be beneficial for the 
Commission's improved ability to protect investors in smaller funds.
---------------------------------------------------------------------------

    \213\ For example, in 2019 the Commission investigated 
Corinthian Capital Group, LLC for misuse of its assets under 
management. As of December 31, 2017, Corinthian managed $270 million 
in assets. See, e.g., Administrative Proceeding, File No. 3-19159 
(May 6, 2019), available at https://www.sec.gov/litigation/admin/2019/ia-5229.pdf. Another example, in 2015 the Commission 
investigated Fenway Partners, LLC for potential conflicts of 
interest. As of April 29, 2015, Fenway Partners had $445 million in 
assets under management. See, e.g., Administrative Proceeding, File 
No. 3-16938 (November 3, 2015), available at https://www.sec.gov/litigation/admin/2015/ia-4253.pdf.
---------------------------------------------------------------------------

    We recognize that the costs associated with the proposed current 
reporting requirement may appear higher to smaller advisers as compared 
to larger advisers. However, as discussed in the costs section, we 
expect the reporting events to be relatively infrequent and, therefore, 
the costs associated with current reporting to be relatively low.
5. Changing the Reporting Events for Current Reporting by Hedge Fund 
Advisers
    We also considered alternatives to which stress events should 
trigger current reporting for hedge fund advisers. Alternative 
reporting events include both different thresholds for how severe of a 
stress event triggers a current report, as well as different categories 
of stress events altogether, separate from those considered in the 
proposal. For example, a hedge fund reporting for proposed Item B would 
be triggered by a loss equal to or greater than 20 percent of a fund's 
most recent net asset value over a rolling 10 business day period,\214\ 
and this threshold could be revised to be triggered by a 10% loss, or a 
30% loss, or any other threshold. As another alternative, and as 
discussed above, the threshold could instead compare losses against the 
volatility of the fund's returns.\215\ Lastly, current reporting could 
alternatively be triggered by stress events besides those considered in 
this proposal. For example, hedge fund current reporting could be 
triggered by a large increase in the volatility of the fund's returns, 
even if that volatility does not result in investment losses.
---------------------------------------------------------------------------

    \214\ See supra section II.A.1.a.
    \215\ Id.
---------------------------------------------------------------------------

    In general, alternative triggers to current reporting requirements 
would either provide the Commission and FSOC with more information at a 
greater cost to advisers, less information at a lower cost to advisers, 
or an alternative metric for measuring the same stress event as the 
proposed reporting event. We believe that the thresholds as proposed 
would trigger reporting for relevant stress events for which we seek 
timely information while minimizing the potential for false positives 
and multiple unnecessary current reports, but as discussed above we 
request suggestions and comments on each proposed reporting event.
6. Alternative Size Threshold for Section 4 Reporting by Large Private 
Equity Advisers
    The proposed amendments to section 4 of form PF include a proposal 
to reduce the filing threshold for large private equity advisers from 
$2 billion to $1.5 billion. We also considered alternatives to reduce 
the reporting size threshold below $1.5 billion or increase it above $2 
billion.
    We believe that increasing the threshold for large private equity 
advisers above $2 billion would likely impede the Commission's and 
FSOC's ability to a representative picture of the private fund industry 
and lead to misleading conclusions regarding emerging industry trends 
and characteristics, as this would reduce the coverage of private 
equity assets in today's market below 67 percent, which is already 
below the originally envisioned 75 percent coverage.\216\
---------------------------------------------------------------------------

    \216\ See supra footnotes 62-63.
---------------------------------------------------------------------------

    On the other hand, reducing the current report size threshold below 
$1.5 billion would be marginally beneficial for the Commission's and 
FSOC's risk oversight and assessment efforts as this would increase the 
representativeness of the sample of reporting advisers. Given that 
smaller private equity advisers and funds now account for a larger 
fraction of the industry than they did when the Form PF was originally 
adopted,\217\ collecting more detailed information about these funds 
would help the Commission and FSOC to detect certain new trends and 
group behaviors with potential systemic consequences among these 
advisers and funds. However, this would also increase the number of 
advisers that would be categorized as large private equity advisers 
subject to the more detailed reporting and impose additional reporting 
burden on those advisers.
---------------------------------------------------------------------------

    \217\ See supra footnote 141.
---------------------------------------------------------------------------

    We think that the proposed new threshold of $1.5 billion strikes an 
appropriate balance between obtaining information regarding a 
significant portion of the private equity industry for analysis while 
continuing to minimize the burden imposed on smaller advisers.
7. Alternatives to the New Section 3 and 4 Reporting Requirements for 
Large Private Equity and Liquidity Fund Advisers
    The proposed amendments also include new questions and revisions to

[[Page 9138]]

existing questions in sections 3 and 4 for large private equity 
advisers and large liquidity fund advisers. The additional large 
private equity adviser revisions are designed to enhance the 
Commission's and FSOC's understanding of certain practices in the 
private equity industry and amend certain existing questions to improve 
data collection.\218\ The additional large liquidity fund adviser 
revisions are designed to help us see a more complete picture of the 
short-term financing markets in which liquidity funds invest, and in 
turn, enhance the Commission and FSOC's ability to monitor and assess 
short-term financing markets and facilitate better regulatory oversight 
of those markets and their participants.\219\ We also considered 
alternatives to each of these sets of proposed amendments in the form 
of different choices of framing, level of detail requested, and precise 
information targeted. For example, for Question 68 of section 4, on 
reporting of private equity private credit strategies, we considered 
consolidating ``Private Credit--Junior/Subordinated Debt,'' ``Private 
Credit--Mezzanine Financing,'' ``Private Credit--Senior Debt,'' and 
Private Credit--Senior Subordinated Debt'' into the ``Private Credit--
Direct Lending/Mid Market Lending'' category.\220\ For the questions in 
section 3 on liquidity fund strategies to maintain a stable price per 
share, we considered maintaining the existing questions and adding the 
new proposed Question 52, which requires advisers to state directly 
whether the reporting fund seeks a stable price per share, instead of 
replacing existing questions with the new Question 52.\221\ We believe 
that the amendments as proposed maximize data quality and enhance the 
usefulness of reported data, but as discussed above we request 
suggestions and comments on each proposed change.\222\
---------------------------------------------------------------------------

    \218\ See supra section II.B.
    \219\ See supra section II.C.
    \220\ See supra section II.B.
    \221\ See supra section II.C.
    \222\ See supra sections II.B to C.
---------------------------------------------------------------------------

F. Request for Comment

    We request comment on all aspects of our economic analysis, 
including the potential costs and benefits of the proposed amendments 
and alternatives thereto, and whether the amendments, if we were to 
adopt them, would promote efficiency, competition, and capital 
formation. In addition, we request comments on our selection of data 
sources, empirical methodology, and the assumptions we have made 
throughout the analysis. Commenters are requested to provide empirical 
data, estimation methodologies, and other factual support for their 
views, in particular, on costs and benefits estimates. In addition, we 
request comment on:
    119. Whether there are any additional costs and benefits associated 
with the proposed amendments to Form PF that should be considered? What 
additional materials and data should we consider for estimating these 
costs and benefits?
    120. Whether our assumptions about costs associated with the 
proposal are accurate? For example, is it accurate to assume that the 
proposed reporting requirements would be less burdensome to advisers 
who are already accustomed to the PFRD filing system they use to file 
the rest of Form PF?

IV. Paperwork Reduction Act

    The proposal would revise an existing ``collection of information'' 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\223\ The SEC is submitting the collection of information to 
the Office of Management and Budget (``OMB'') for review in accordance 
with the PRA.\224\ The title for the collection of information is 
``Form PF and Rule 204(b)-1'' (OMB Control Number 3235-0679), and 
includes both Form PF and rule 204(b)-1 (``the rules''). An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB 
control number. Compliance with the information collection is 
mandatory.
---------------------------------------------------------------------------

    \223\ 44 U.S.C. 3501 through 3521.
    \224\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    The respondents are investment advisers who are (1) registered or 
required to be registered under Advisers Act section 203, (2) advise 
one or more private funds, and (3) managed private fund assets of at 
least $150 million at the end of their most recently completed fiscal 
year (collectively, with their related persons).\225\ Form PF divides 
respondents into groups based on their size and types of private funds 
they manage, requiring some groups to file more information more 
frequently than others. The types of respondents are (1) smaller 
private fund advisers (i.e., private fund advisers who do not qualify 
as a large private fund adviser), (2) large hedge fund advisers, (3) 
large liquidity fund advisers, and (4) large private equity 
advisers.\226\ As discussed more fully in section II above and as 
summarized in sections IV.A and IV.C below, the proposal would require 
current reporting for some groups, and would revise what some groups 
would file.
---------------------------------------------------------------------------

    \225\ See 17 CFR 275.204(b)-1.
    \226\ See supra footnote 8 (discussing the definitions of large 
hedge fund advisers, large liquidity fund advisers, and large 
private equity advisers).
---------------------------------------------------------------------------

A. Purpose and Use of the Information Collection

    The rules implement provisions of Title IV of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (``Dodd-Frank Act''), which 
amended the Advisers Act to require the SEC to, among other things, 
establish reporting requirements for advisers to private funds.\227\ 
The rules are intended to assist the FSOC in its monitoring obligations 
under the Dodd-Frank Act, but the SEC also may use information 
collected on Form PF in its regulatory programs, including 
examinations, investigations, and investor protection efforts relating 
to private fund advisers.\228\
---------------------------------------------------------------------------

    \227\ See 15 U.S.C. 80b-4(b) and 15 U.S.C. 80b-11(e).
    \228\ See 2011 Form PF Adopting Release, supra footnote 2.
---------------------------------------------------------------------------

    The proposed amendments are designed to enhance FSOC's ability to 
monitor systemic risk as well as bolster the SEC's regulatory oversight 
of private fund advisers and investor protection efforts. The proposed 
amendments would do the following:
     Require large hedge fund advisers to file current reports 
upon certain reporting events, as discussed more fully in section II.A 
above;
     Require advisers to private equity funds to file current 
reports upon certain reporting events, as discussed more fully in 
section II.A above;
     Reduce the threshold to qualify as a large private equity 
adviser, as discussed more fully in section II.B above.
     Amend how large private equity advisers report information 
about the private equity funds they advise, as discussed more fully in 
section II.B above; and
     Amend how large liquidity fund advisers report information 
about the liquidity funds they advise, as discussed more fully in 
section II.C above.

[[Page 9139]]

    The proposed current reporting requires advisers to report 
information upon reporting events, which could occur more or less than 
quarterly.\229\ As discussed more fully in sections I and II, above, we 
are proposing the current reporting requirements so we and FSOC can 
receive more timely data to identify and respond to private funds that 
are facing stress that could result in investor harm or systemic risk.
---------------------------------------------------------------------------

    \229\ See 5 CFR 1320.5(d)(2)(i).
---------------------------------------------------------------------------

B. Confidentiality

    Responses to the information collection will be kept confidential 
to the extent permitted by law.\230\ Form PF elicits non-public 
information about private funds and their trading strategies, the 
public disclosure of which could adversely affect the funds and their 
investors. The SEC does not intend to make public Form PF information 
that is identifiable to any particular adviser or private fund, 
although the SEC may use Form PF information in an enforcement action 
and to assess potential systemic risk.\231\ SEC staff issues certain 
publications designed to inform the public of the private funds 
industry, all of which use only aggregated or masked information to 
avoid potentially disclosing any proprietary information.\232\ The 
Advisers Act precludes the SEC from being compelled to reveal Form PF 
information except (1) to Congress, upon an agreement of 
confidentiality, (2) to comply with a request for information from any 
other Federal department or agency or self-regulatory organization for 
purposes within the scope of its jurisdiction, or (3) to comply with an 
order of a court of the United States in an action brought by the 
United States or the SEC.\233\ Any department, agency, or self-
regulatory organization that receives Form PF information must maintain 
its confidentiality consistent with the level of confidentiality 
established for the SEC.\234\ The Advisers Act requires the SEC to make 
Form PF information available to FSOC.\235\ For advisers that are also 
commodity pool operators or commodity trading advisers, filing Form PF 
through the Form PF filing system is filing with both the SEC and 
CFTC.\236\ Therefore, the SEC makes Form PF information available to 
FSOC and the CFTC, pursuant to Advisers Act section 204(b), making the 
information subject to the confidentiality protections applicable to 
information required to be filed under that section. Before sharing any 
Form PF information, the SEC requires that any such department, agency, 
or self-regulatory organization represent to the SEC that it has in 
place controls designed to ensure the use and handling of Form PF 
information in a manner consistent with the protections required by the 
Advisers Act. The SEC has instituted procedures to protect the 
confidentiality of Form PF information in a manner consistent with the 
protections required in the Advisers Act.\237\
---------------------------------------------------------------------------

    \230\ See 5 CFR 1320.5(d)(2)(vii) and (viii).
    \231\ See 15 U.S.C. 80b-10(c).
    \232\ See e.g., Private Funds Statistics, issued by staff of the 
SEC Division of Investment Management's Analytics Office, which we 
have used in this PRA as a data source, available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \233\ See 15 U.S.C. 80b-4(b)(8).
    \234\ See 15 U.S.C. 80b-4(b)(9).
    \235\ See 15 U.S.C. 80b-4(b)(7).
    \236\ See 2011 Form PF Adopting Release, supra footnote 2, at 
n.17.
    \237\ See 5 CFR 1320.5(d)(2)(viii).
---------------------------------------------------------------------------

C. Burden Estimates

    We are revising our total burden estimates to reflect the proposed 
amendments, updated data, and new methodology for certain 
estimates.\238\ The tables below map out the Form PF requirements as 
they apply to each group of respondents and detail our burden 
estimates.
---------------------------------------------------------------------------

    \238\ For the previously approved estimates, see ICR Reference 
No. 202011-3235-019 (conclusion date Apr. 1, 2021), available at 
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202011-3235-019.
---------------------------------------------------------------------------

1. Proposed Form PF Requirements by Respondent

                              Table 1--Proposed Form PF Requirements by Respondent
----------------------------------------------------------------------------------------------------------------
                                    Smaller private    Large hedge fund     Large liquidity      Large private
             Form PF                 fund advisers         advisers          fund advisers      equity advisers
----------------------------------------------------------------------------------------------------------------
Section 1a and section 1b (basic  Annually..........  Quarterly.........  Quarterly.........  Annually.
 information about the adviser
 and the private funds it
 advises); No proposed revisions.
Section 1c (additional            Annually, if they   Quarterly.........  Quarterly, if they  Annually, if they
 information concerning hedge      advise hedge                            advise hedge        advise hedge
 funds); No proposed revisions.    funds.                                  funds.              funds.
Section 2 (additional             No................  Quarterly.........  No................  No.
 information concerning
 qualifying hedge funds); No
 proposed revisions.
Section 3 (additional             No................  No................  Quarterly.........  No.
 information concerning
 liquidity funds); Proposed
 revisions.
Section 4 (additional             No................  No................  No................  Annually.
 information concerning private
 equity funds); Proposed
 revisions.
Section 5 (current reporting      No................  Upon a reporting    No................  No.
 concerning qualifying hedge                           event.
 funds); The proposal would add
 section 5.
Section 6 (current reporting for  Upon a reporting    No................  No................  Upon a reporting
 private equity advisers); The     event, if they                                              event.
 proposal would add section 6.     advise private
                                   equity funds.
Section 7 (temporary hardship     Optional, if they   Optional, if they   Optional, if they   Optional, if they
 request); The proposal would      qualify.            qualify.            qualify.            qualify.
 make this available for current
 reporting.
----------------------------------------------------------------------------------------------------------------


2. Annual Hour Burden Estimates

    Below are tables with annual hour burden estimates for (1) initial 
filings, (2) ongoing annual and quarterly filings, (3) current 
reporting, and (4) transition filings, final filings, and temporary 
hardship requests.
BILLING CODE 8011-01-P

[[Page 9140]]

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[[Page 9141]]


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[[Page 9142]]


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[[Page 9143]]


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[[Page 9145]]


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[[Page 9146]]


3. Annual Monetized Time Burden Estimates

    Below are tables with annual monetized time burden estimates for 
(1) initial filings, (2) ongoing annual and quarterly filings, (3) 
current reporting, and (4) transition filings, final filings, and 
temporary hardship requests.\239\
---------------------------------------------------------------------------

    \239\ The hourly wage rates are based on (1) SIFMA's Management 
& Professional Earnings in the Securities Industry 2013, modified by 
SEC staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead; and (2) SIFMA's Office Salaries in the 
Securities Industry 2013, modified by SEC staff to account for an 
1,800-hour work-year and inflation, and multiplied by 2.93 to 
account for bonuses, firm size, employee benefits and overhead.
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[[Page 9147]]


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[[Page 9148]]


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[[Page 9149]]


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[[Page 9150]]


[GRAPHIC] [TIFF OMITTED] TP17FE22.010

4. Annual External Cost Burden Estimates
    Below are tables with annual external cost burden estimates for (1) 
initial filings as well as ongoing annual and quarterly filings and (2) 
current reporting. There are no filing fees for transition filings, 
final filings, or temporary hardship requests and we continue to 
estimate there would be no external costs for those filings, as 
previously approved.

[[Page 9151]]

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[[Page 9152]]


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[[Page 9153]]


[GRAPHIC] [TIFF OMITTED] TP17FE22.013

5. Summary of Estimates and Change in Burden

[[Page 9154]]

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[[Page 9155]]


[GRAPHIC] [TIFF OMITTED] TP17FE22.015

BILLING CODE 8011-01-C

D. Request for Comments

    We request comment on whether our estimates for burden hours and 
external costs as described above are reasonable. Pursuant to 44 U.S.C. 
3506(c)(2)(B), the Commission solicits comments in order to (1) 
evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the SEC, including 
whether the information will have practical utility; (2) evaluate the 
accuracy of the SEC's estimate of the burden of the proposed collection 
of information; (3) determine whether there are ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
(4) determine whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons wishing to submit comments on the collection of information 
requirements of the proposed amendments should direct them to the OMB 
Desk Officer for the Securities and Exchange Commission, 
[email protected], and should send a copy to 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090, with reference to File No. S7-01-22. OMB is 
required to make a decision concerning the collections of information 
between 30 and 60 days after publication of this release; therefore a 
comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days after publication of this release. Requests 
for materials submitted to OMB by the Commission with regard to these 
collections of information should be in writing, refer to File No. S7-
01-22, and be submitted to the Securities and Exchange Commission, 
Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736.

V. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act of 1980 (``Regulatory Flexibility 
Act'') \240\ requires the SEC to prepare and make available for public 
comment an initial regulatory flexibly analysis of the impact of the 
proposed rule amendments on small entities, unless the SEC certifies 
that the rules, if adopted would not have a significant economic impact 
on a substantial number of small entities.\241\ Pursuant to section 
605(b) of the Regulatory Flexibility Act, the SEC hereby certifies that 
the proposed amendments to Advisers Act rule 204(b)-1 and Form PF would 
not, if adopted, have a significant economic impact on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \240\ 5 U.S.C. 601, et. seq.
    \241\ See 5 U.S.C. 603(a) and 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For the purposes of the Advisers Act and the Regulatory Flexibility 
Act, an investment adviser generally is a small entity if it (1) has 
assets under management having a total value of less than $25 million; 
(2) did not have total assets of $5 million or more on the last day of 
the most recent fiscal year; and (3) does not control, is not 
controlled by, and is not under common control with another investment 
adviser that has assets under management of $25 million or more, or any 
person (other than a natural person) that had total assets of $5 
million or more on the last day of its most recent fiscal year.\242\
---------------------------------------------------------------------------

    \242\ 17 CFR 275.0-7.
---------------------------------------------------------------------------

    By definition, no small entity on its own, would meet rule 204(b)-1 
and Form PF's minimum reporting threshold of $150 million in regulatory 
assets under management attributable to private funds. Based on Form PF 
and Form ADV data as of September 2021, the SEC estimates that no small 
entity advisers are required to file Form PF. The SEC does not have 
evidence to suggest that any small entities are required to file Form 
PF but are not filing Form PF. Therefore, there would be no significant 
economic impact on a substantial number of small entities. The SEC 
encourages written comments on the certification. Commentators are 
asked to describe the nature of any impact on small entities and 
provide empirical data to support the extent of the impact.

[[Page 9156]]

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\243\ the SEC must advise OMB whether a 
proposed regulation constitutes a ``major'' rule. Under SBREFA, a rule 
is considered ``major'' where, if adopted, it results in or is likely 
to result in the following:
---------------------------------------------------------------------------

    \243\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C., and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    The SEC requests comment on whether the proposal would be a ``major 
rule'' for purposes of SBREFA. The SEC solicits comment and empirical 
data on the following:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.
    Commenters are requested to provide empirical data and other 
factual support for their views to the extent possible.

VII. Statutory Authority

    The Commission is proposing amendments to Form PF pursuant to 
authority set forth in Sections 204(b) and 211(e) of the Advisers Act 
[15 U.S.C. 80b-4(b) and 80b-11(e)].

List of Subjects 17 CFR Part 275 and 279

    Reporting and recordkeeping requirements, Securities.

    By the Commission.

    Dated: January 26, 2022.
Vanessa A. Countryman,
Secretary.

Text of Proposed Rules

    For the reasons set forth in the preamble, title 17, chapter II of 
the Code of Federal Regulations is amended as follows.

PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

0
1. The general authority citation for part 275 continues to read as 
follows.

    Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-
2(a)(17), 80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless 
otherwise noted.
* * * * *
0
2. Amend Sec.  275.204(b)-1 by revising paragraphs (f)(2)(i) and (f)(3) 
to read as follows:


Sec.  275.204(b)-1   Reporting by investment advisers to private funds.

* * * * *
    (f) * * *
    (2) * * *
    (i) Complete and file in paper format, in accordance with the 
instructions to Form PF, Item A of Section 1a and Section 7 of Form PF, 
checking the box in Section 1a indicating that you are requesting a 
temporary hardship exemption, no later than one business day after the 
electronic Form PF filing was due;
* * * * *
    (3) The temporary hardship exemption will be granted when you file 
Item A of Section 1a and Section 7 of Form PF, checking the box in 
Section 1a indicating that you are requesting a temporary hardship 
exemption.
* * * * *

PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 
1940

0
3. The authority citation for part 279 continues to read as follows:

    Authority:  The Investment Advisers Act of 1940, 15 U.S.C. 80b-
1, et seq., Pub. L. 111-203, 124 Stat. 1376.


Sec.  279.9   Form PF, reporting by investment advisers to private 
funds.

    Note:  The text of Form PF does not, and the amendments will 
not, appear in the Code of Federal Regulations.

0
4. Revise PF (referenced in Sec.  279.9) to read as follows.
BILLING CODE 8011-01-P

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[FR Doc. 2022-01976 Filed 2-16-22; 8:45 am]
BILLING CODE 8011-01-C


