
[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88205-88206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27887]



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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-XXX, OMB Control No. 3235-XXXX]


Submission for OMB Review; Comment Request; Rule 211(h)(2)-1

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.) (``PRA''), the Securities and 
Exchange Commission (``Commission'') submitted an information 
collection request to the Office of Management and Budget (``OMB'') for 
review and clearance for the collection of information associated with 
the new Rule 211(h)(2)-1 17 CFR 275.211(h)(2)-1) under the Investment 
Advisers Act of 1940 that was adopted by the Commission on August 23, 
2023.\1\ The title for this collection of information is: ``Rule 
211(h)(2)-1 under the Investment Advisers Act of 1940.''
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    \1\ See Private Fund Advisers; Documentation of Registered 
Investment Adviser Compliance Reviews, Investment Advisers Act 
Release No. IA-6383 (August 23, 2023) [88 FR 63206 (September 14, 
2023)] (``Adopting Release''); the Adopting Release solicited 
comment on the ``collection of information'' requirements and 
associated burdens. The Commission received no comments in response 
to this request in the Adopting Release; however, we have adjusted 
certain of the estimates upwards to reflect updated data/figures for 
certain estimates.
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    Final rule 211(h)(2)-1 prohibits all private fund advisers from, 
directly or indirectly, engaging in the following activities, unless 
they provide written disclosure to investors and, in some cases, obtain 
investor consent regarding such activities: charging the private fund 
for fees or expenses associated with an investigation of the adviser or 
its related persons by any governmental or regulatory authority (other 
than fees and expenses related to an investigation that results or has 
resulted in a court or governmental authority imposing a sanction for a 
violation of the Investment Advisers Act of 1940 or the rules 
promulgated thereunder); charging the private fund for any regulatory 
or compliance fees or expenses, or fees or expenses associated with an 
examination, of the adviser or its related persons; reducing the amount 
of any adviser clawback by actual, potential, or hypothetical taxes 
applicable to the adviser, its related persons, or their respective 
owners or interest holders; charging or allocating fees and expenses 
related to a portfolio investment on a non-pro rata basis when more 
than one private fund or other client advised by the adviser or its 
related persons have invested in the same portfolio company; and 
borrowing money, securities, or other private fund assets, or receiving 
a loan or extension of credit, from a private fund client.
    In the Proposing Release, we solicited comment on whether rule 
211(h)(2)-1 should include disclosure and/or consent requirements.\2\ 
In response to comments received, we have decided to adopt such a 
requirement. Accordingly, the final rule generally will provide either 
a disclosure-based exception or a disclosure- and consent-based 
exception for each restricted activity. We believe that investors will 
be better informed and receive enhanced protection as a result, while 
still potentially benefiting from these activities when they are 
carried out in the interests of the fund, if investors are provided 
with disclosures and, in some cases, consent rights regarding these 
activities. The collection of information is necessary to provide 
private fund investors with information about their private fund 
investments. We believe that many advisers fail to provide disclosure 
of the activities covered by the restrictions or, when disclosure is 
provided, it is often insufficient.
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    \2\ Private Fund Advisers; Documentation of Registered 
Investment Adviser Compliance Reviews, Investment Advisers Act 
Release No. 5955 (Feb. 9, 2022) [87 FR 16886 (Mar. 24, 2022)] 
(``Proposing Release'').
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    Each requirement to disclose information, offer to provide 
information, or adopt policies and procedures constitutes a 
``collection of information'' requirement under the PRA. This 
collection of information is found at 17 CFR 275.211(h)(2)-1 and is 
mandatory if the adviser engages in the restricted activity. The 
respondents to these collections of information requirements will be 
all investment advisers that advise one or more private funds. Based on 
IARD data, as of December 31, 2022, there were 12,234 investment 
advisers (including both registered and unregistered advisers but 
excluding advisers managing solely securitized asset funds (``SAFs'')) 
that provide advice to private funds.\3\ We estimate that these 
advisers, on average, each provide advice to 8 private funds (excluding 
SAFs). We further estimate that these private funds will, on average, 
each have a total of 63 investors. As a result, an average private fund 
adviser will have a total of 504 investors across all private funds it 
advises. Because the information collected pursuant to final rule 
211(h)(2)-1 requires disclosures to private fund investors, these 
disclosures will not be kept confidential. 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.
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    \3\ The following types of private fund advisers (excluding 
advisers managing solely SAFs), among others, will be subject to the 
rule: unregistered advisers (i.e., advisers that may be prohibited 
from registering with us), foreign private advisers, and advisers 
that rely on the intrastate exemption from SEC registration and/or 
the de minimis exemption from SEC registration; However, we are 
unable to estimate the number of advisers in certain of these 
categories because these advisers do not file reports or other 
information with the SEC and we are unable to find reliable, public 
information; as a result, the above estimate is based on information 
from SEC-registered advisers to private funds, exempt reporting 
advisers (at the State and Federal levels), and State-registered 
advisers to private funds, in each instance excluding advisers that 
manage solely SAFs; these figures are approximate, exclude in each 
instance advisers that manage solely SAFs, and assume that all 
exempt reporting advisers are advisers to private funds; the 
breakdown is as follows: 5,248 SEC-registered advisers to private 
funds; 5,234 exempt reporting advisers (at the Federal level); 562 
State-registered advisers to private funds; and 1,922 State exempt 
reporting advisers.
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    We have made certain estimates of this data solely for this PRA 
analysis. The table below summarizes the initial and ongoing annual 
burden estimates associated with the rule.

                                                         Table 3--Rule 211(h)(2)-1 PRA Estimates
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                                    Internal
                                 initial burden     Internal annual burden       Wage rate \1\        Internal time cost         Annual external cost
                                      hours                 hours                                                                       burden
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                                                                   Proposed Estimates
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Preparation of written notices.              15  10 hours \2\...............  $422 (blended rate  $4,220....................  $3,178.\3\
                                                                               for compliance
                                                                               attorney ($425),
                                                                               accounting
                                                                               manager ($337),
                                                                               senior portfolio
                                                                               manager ($383)
                                                                               and assistant
                                                                               general counsel
                                                                               ($543)).

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Provision, distribution,                      9  6 hours \4\................  $73 (rate for       $438......................
 collection, and tracking of                                                   general clerk).
 written notices and consents.
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    Total new annual burden per                  16 hours...................                      $4,658....................  $3,178.
     private fund.
Avg. number of private funds                     8 private funds............                      8 private funds...........  8 private funds.
 per adviser.
Number of advisers.............                  12,234 advisers............                      12,234 advisers...........  9,176 advisers.\5\
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    Total new annual burden....                  1,565,952 hours............                      $455,887,776..............  $233,290,624.
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Notes:
\1\ The hourly wage rates in these estimates 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.
\2\ This includes the internal initial burden estimate annualized over a three-year period, plus 5 hours of ongoing annual burden hours and assumes
  notices and consent forms will be issued once a quarter to investors; the estimates assume that most private fund advisers will rely on the disclosure-
  based or investor consent exceptions to the rules and thus distribute written notices and consent forms to investors (and collect, retain, and track
  consent forms); however, the estimates also take into account that certain fund agreements may not permit or otherwise contemplate the activity
  restricted by the rule (e.g., liquid funds may not contemplate an adviser clawback of performance compensation) and, accordingly, the estimates take
  into account that advisers to those funds will not prepare written notices (or, if applicable, prepare, collect, retain, and track consent forms) as
  contemplated by the rule. The estimate of 10 hours is based on the following calculation: ((15 initial hours/3 years) + 5 hours of additional ongoing
  burden hours) = 10 hours.
\3\ This estimated burden is based on the estimated wage rate of $565/hour, for 5 hours, for outside legal services and $353/hour, for one hour, for
  outside accounting services, at the same frequency as the internal burden hours estimate; the Commission's estimates of the relevant wage rates for
  external time costs, such as outside legal services, take into account staff experience, a variety of sources including general information websites,
  and adjustments for inflation.
\4\ This includes the internal initial burden estimate annualized over a three-year period, plus 3 hours of ongoing annual burden hours; the estimate of
  6 hours is based on the following calculation: ((9 initial hours/3 years) + 3 hours of additional ongoing burden hours) = 6 hours.
\5\ We estimate that 75% of advisers will use outside legal services for these collections of information; this estimate takes into account that
  advisers may elect to use outside legal services (along with in-house counsel), based on factors such as adviser budget and the adviser's standard
  practices for using outside legal services, as well as personnel availability and expertise.

    The public may view background documentation for this information 
collection at the following website: www.reginfo.gov. Find this 
particular information collection by selecting ``Currently under 30-day 
Review--Open for Public Comments'' or by using the search function. 
Written comments and recommendations for the proposed information 
collection should be sent within 30 days of publication of this notice 
by January 19, 2024 to (i) [email protected] 
and (ii) David Bottom, Director/Chief Information Officer, Securities 
and Exchange Commission, c/o John Pezzullo, 100 F Street NE, 
Washington, DC 20549, or by sending an email to: [email protected].

    Dated: December 14, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27887 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P


