Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers, 17984-18161 [2024-03473]
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Chapter I
RIN 3038–AF31
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 275 and 279
[Release No. IA–6546; File No. S7–22–22]
RIN 3235–AN13
Form PF; Reporting Requirements for
All Filers and Large Hedge Fund
Advisers
Commodity Futures Trading
Commission and Securities and
Exchange Commission.
ACTION: Joint final rule.
AGENCY:
The Commodity Futures
Trading Commission (‘‘CFTC’’) and the
Securities and Exchange Commission
(‘‘SEC’’) (collectively, ‘‘we’’ or
‘‘Commissions’’) are adopting
amendments to Form PF, the
confidential reporting form for certain
SEC-registered investment advisers to
private funds, including those that also
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SUMMARY:
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are registered with the CFTC as a
commodity pool operator (‘‘CPO’’) or
commodity trading adviser (‘‘CTA’’).
The amendments are designed to
enhance the Financial Stability
Oversight Council’s (‘‘FSOC’s’’) ability
to monitor systemic risk as well as
bolster the SEC’s regulatory oversight of
private fund advisers and investor
protection efforts. In connection with
the amendments to Form PF, the SEC is
amending a rule under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’)
to revise instructions for requesting a
temporary hardship exemption.
DATES:
Effective date: This rule is effective
March 12, 2025.
Compliance date: See section II.F of
this final rule.
FOR FURTHER INFORMATION CONTACT:
CFTC: Pamela Geraghty, Acting Deputy
Director; Michael Ehrstein, Special
Counsel; Elizabeth Groover, Special
Counsel; or Andrew Ruggiero, Special
Counsel, at (202) 418–6700, Commodity
Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW,
Washington, DC 20581. SEC: Neema
Nassiri, Jill Pritzker, Senior Counsels;
Tom Strumpf, Branch Chief; or Melissa
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Roverts Harke, Assistant Director, at
(202) 551–6787 or IArules@sec.gov,
Investment Adviser Regulation Office,
Division of Investment Management,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–8549.
The
Commissions are adopting amendments
to Form PF [17 CFR 279.9] under the
Advisers Act, and the SEC is adopting
amendments to 17 CFR 275.204(b)–1
under the Advisers Act.1
SUPPLEMENTARY INFORMATION:
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 Congress enacted Sections 404 and 406 of the
Dodd-Frank Act, which required that private fund
advisers file reports and specified certain types of
information that should be subject to reporting and/
or recordkeeping requirements. With respect to
such reports, the Dodd-Frank Act authorized the
SEC to require that private fund advisers file such
information ‘‘as necessary and appropriate in the
public interest and for the protection of investors,
or for the assessment of systemic risk.’’ The result
of this enactment was Form PF, which is a joint
form between the SEC and CFTC only with respect
to sections 1 and 2 of the Form.
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
17985
Agency
Reference
CFTC & SEC .....................................................
SEC ...................................................................
Form PF 2 .........................................................
Rule 204(b)–1 ...................................................
17 CFR 279.9.
17 CFR 275.204(b)–1.
I. Introduction
II. Discussion
A. Amendments to the General Instructions
1. Reporting Master-Feeder Arrangements
and Parallel Fund Structures
2. Reporting Private Funds That Invest in
Other Funds
3. Reporting Timelines
B. Amendments Concerning Basic
Information About the Adviser and the
Private Funds It Advises
1. Amendments to Section 1a of Form PF—
Identifying Information
2. Amendments to Section 1b of Form PF—
Concerning All Private Funds
3. Amendments to Section 1c of Form PF—
Concerning All Hedge Funds
C. Amendments Concerning Information
About Hedge Funds Advised by Large
Private Fund Advisers
1. Removal of Existing Section 2a
2. Amendments to Section 2
D. Amendments To Enhance Data Quality
E. Additional Amendments
F. Effective and Compliance Dates
III. Other Matters
IV. Economic Analysis
A. Introduction
B. Economic Baseline and Affected Parties
1. Economic Baseline
2. Affected Parties
C. Benefits, Costs, and Effects on
Efficiency, Competition, and Capital
Formation
1. Benefits
2. Costs
D. Reasonable Alternatives
1. Alternatives to Amendments to General
Instructions, Amendments To Enhance
Data Quality, and Additional
Amendments
2. Alternatives to Amendments to Basic
Information About the Adviser and the
Private Funds It Advises
3. Alternatives to Amendments to
Information About Hedge Funds Advised
by Large Private Fund Advisers
4. Alternatives to the Definition of the
Term ‘‘Hedge Fund’’
V. Paperwork Reduction Act
A. Purpose and Use of the Information
Collection
B. Confidentiality
C. Burden Estimates
VI. Regulatory Flexibility Act Certification
Statutory Authority
Commissions 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. We now have
more than a decade of experience
analyzing the information collected on
Form PF.4 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.5
Based on this experience and in light of
these changes, the Commissions and
FSOC have identified significant
information gaps and situations where
revised information would improve the
Commissions’ and FSOC’s
understanding of the private fund
industry and the potential systemic risk
posed by it, as well as further investor
protection efforts. Accordingly, to
enhance FSOC’s monitoring and
assessment of systemic risk and to
collect additional data and make data
more useful for the Commissions’ use in
their respective regulatory programs,6 in
August 2022, the Commissions
proposed amendments to enhance the
information advisers file on Form PF
and improve data quality.7
I. Introduction
The Commissions are adopting
amendments to sections of Form PF, the
form that certain SEC-registered
investment advisers, including those
that also are registered with the CFTC as
a CPO or CTA, use to report confidential
information about the private funds that
they advise.3 Form PF provides the
3 See 17 CFR 275.204(b)–1. Advisers Act section
202(a)(29) defines the term ‘‘private fund’’ as an
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CFR citation
issuer that would be an investment company, as
defined in section 3 of the Investment Company Act
of 1940 (‘‘Investment Company Act’’), but for
section 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. Any reference to the ‘‘Commissions’’
or ‘‘we,’’ as it relates to the collection and use of
Form PF data, are meant to refer to the agencies in
their separate or collective capacities (as the context
requires or permits), and such data from filings
made pursuant to 17 CFR 275.204(b)–1, by and
through Private Fund Reporting Depository, a
subsystem of the Investment Adviser Registration
Depository (‘‘IARD’’), and reports, analysis, and
memoranda produced pursuant thereto.
4 Form PF was adopted in 2011 as required by the
Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (‘‘Dodd-Frank Act’’). Public
Law 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)], at section I (‘‘2011 Form PF Adopting
Release’’). In 2014, the SEC 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’’). In May 2023,
the SEC amended Form PF section 4, added new
sections 5 and 6, and redesignated prior section 5
as section 7 in connection with certain amendments
to require event reporting for large hedge fund
advisers and all private equity fund advisers and to
revise certain reporting requirements for large
private equity fund advisers. See Form PF; Event
Reporting for Large Hedge Fund Advisers and
Private Equity Fund Advisers; Requirements for
Large Private Equity Fund Adviser Reporting,
Advisers Act Release No. 6297 (May 3, 2023) [88
FR 38146 (June 12, 2023)] (‘‘May 2023 SEC Form
PF Amending Release’’). In July 2023, the SEC
amended Form PF section 3 in connection with
certain money market fund reforms. See Money
Market Fund Reforms; Form PF Reporting
Requirements for Large Liquidity Fund Advisers;
Technical Amendments to Form N–CSR and Form
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N–1A, Advisers Act Release No. 6344 (July 12,
2023) [88 FR 51404 (Aug. 3, 2023)] (‘‘July 2023 SEC
Form PF Amending Release’’). We are now adopting
amendments to the general instructions, section 1,
and section 2, and related amendments in the
glossary of terms.
5 The value of private fund net assets reported on
Form PF has more than doubled, growing from $5
trillion (net) in 2013 to $14 trillion (net) through the
first quarter of 2023, while the number of private
funds reported on the form has increased by nearly
130% in that time period. Unless otherwise noted,
the private funds statistics used in this Release are
from the Private Funds Statistics First Quarter of
2023. Division of Investment Management, Private
Fund Statistics First Quarter 2023 (Oct. 16, 2023),
available at https://www.sec.gov/files/investment/
private-funds-statistics-2023-q1.pdf (‘‘Private Fund
Statistics Q1 2023’’). 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-fundsstatistics.shtml. SEC staff began publishing the
private fund statistics in 2015, including data from
2013. Therefore, many comparisons in this Release
discuss the ten year span from the beginning of
2013 through the first quarter of 2023. Some
discussion in this Release compares data from a
shorter time span because the SEC staff published
such data later than 2013. Staff reports, statistics,
and other staff documents (including those cited
herein) represent the views of SEC staff and are not
a rule, regulation, or statement of the SEC. The SEC
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.
6 Additionally, the Board of Governors of the
Federal Reserve System (‘‘FRB’’) uses this data for
research and analysis.
7 Form PF; Reporting Requirements for All Filers
and Large Hedge Fund Advisers, Advisers Act
Release No. 6083 (Aug. 10, 2022) [87 FR 53832
(Sept. 1, 2022)] (‘‘2022 Joint Form PF Proposing
Release’’). The Commissions voted to issue the 2022
Joint Form PF Proposing Release on Aug 10, 2022.
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The Commissions received a number
of comment letters on the 2022 Joint
Form PF Proposing Release.8 Some
commenters generally supported the
policy goals of the proposal, stating that
the proposal would help the
Commissions and FSOC assess and
respond to systemic risk and the
Commissions to achieve their investor
protection goals.9 Certain commenters
stated that the additional proposed
reporting requirements are not
necessary to identify systemic risk or
protect investors.10 Some commenters
stated that the economic analysis
understates the costs of compliance due
to the scope of proposed changes and
expressed skepticism at the stated
benefits.11 Some commenters criticized
the proposed rulemaking for not
considering the cumulative impact and
costs of the amendments proposed in
the 2022 Joint Form PF Proposing
Release along with those proposed in
the 2022 SEC Form PF Proposing
Release,12 which the SEC proposed in
The release was posted on each of the
Commissions’ websites that day (or shortly
thereafter), and comment letters were received
beginning that same date. The comment period
closed on Oct. 11, 2022. We have considered all
comments received since Aug. 10, 2022.
8 The comment letters on the 2022 Joint Form PF
Proposing Release (File No. S7–22–22) that the SEC
received are available at https://www.sec.gov/
comments/s7-22-22/s72222.htm. The comment
letters that the CFTC received are available at
https://comments.cftc.gov/PublicComments/
CommentList.aspx?id=7312. Several comment
letters are addressed jointly to the Commissions and
appear in both comment files.
9 See, e.g., Comment Letter of Americans for
Financial Reform Education Fund (Oct. 11, 2022)
(‘‘AFREF Comment Letter I’’); Comment Letter of
Better Markets, Inc. (Oct. 11, 2022) (‘‘Better Markets
Comment Letter’’); Comment Letter of FACT
Coalition (Oct. 11, 2022) (‘‘FACT Coalition
Comment Letter’’); Comment Letter of Global Legal
Entity Identifier Foundation (Oct. 11, 2022) (‘‘GLEIF
Comment Letter’’); Comment Letter of Americans
for Financial Reform Education Fund, et al. (Feb.
21, 2023); Comment Letter of Andrew V. (Aug. 10,
2022).
10 See, e.g., Comment Letter of American
Investment Council (Oct. 11, 2022) (‘‘AIC Comment
Letter I’’); Comment Letter of U.S. Chamber of
Commerce (Oct. 11, 2022) (‘‘USCC Comment
Letter’’); Comment Letter of Alternative Investment
Management Association Limited & Alternative
Credit Council (Oct. 11, 2022) (‘‘AIMA/ACC
Comment Letter’’); Comment Letter of Securities
Industry and Financial Markets Association (Oct.
11, 2022) (‘‘SIFMA Comment Letter’’); Comment
Letter of Managed Funds Association (Dec. 7, 2022)
(‘‘MFA Comment Letter II’’). See infra at sections II
and IV.C.1 of this Release for discussion of the
benefits of the adopted amendments for systemic
risk assessment and investor protection efforts.
11 See, e.g., AIC Comment Letter I; SIFMA
Comment Letter; Comment Letter of Managed
Funds Association and National Association of
Private Fund Managers (July 21, 2023) (‘‘MFA/
NAPFM Comment Letter’’). See discussion infra at
section IV.C of this Release.
12 Amendments to Form PF to Require Current
Reporting and Amend Reporting Requirements for
Large Private Equity Advisers and Large Liquidity
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January 2022 and adopted in May
2023.13
We are adopting the amendments
largely as proposed, but with certain
modifications, in consideration of the
comments we received:
• First, we are adopting amendments
to the form’s general instructions, which
apply to all Form PF filers, to improve
data quality and comparability and to
enhance investor protection efforts and
systemic risk assessment. Amendments
include:
Æ Reporting Master-Feeder and
Parallel Fund Structures. As proposed,
we are adopting amendments that will
require separate reporting for each
component fund of a master-feeder
arrangement and parallel fund structure,
other than a disregarded feeder fund
(i.e., a feeder fund that invests all of its
assets in a single master fund, U.S.
treasury bills, and/or cash and cash
equivalents 14). In a change from the
proposal, we are modifying the
instructions to specify how a feeder
fund is required to treat its equity in the
master fund for the purpose of
determining its reporting threshold and
responding to certain questions.
Æ Reporting Fund of Funds. We are
also adopting, with some modifications
from the proposal, amendments to Form
PF regarding how advisers report
private fund investments in other funds.
We are revising proposed Instruction 7
to require an adviser to include the
value of investments in other private
funds (including internal and external
private funds) when determining
whether the adviser is required to file
Form PF, whether it meets the
thresholds for reporting as a large hedge
Fund Advisers, Advisers Act Release No. 5950 (Jan.
26, 2022) [87 FR 9106 (Feb. 17, 2022)] (‘‘2022 SEC
Form PF Proposing Release’’).
13 See, e.g., AIC Comment Letter I; Comment
Letter of Managed Funds Association, Investment
Adviser Association, et al. (Sept. 14, 2022) (‘‘MFA
Comment Letter I’’); Comment Letter of Managed
Funds Association (Mar. 16, 2023) (‘‘MFA Comment
Letter III’’); SIFMA Comment Letter; Comment
Letter of United States House of Representatives
Committee on Financial Services (Sept. 26, 2023)
(‘‘Comment Letter of U.S. House of Representatives
Committee on Financial Services’’). See also May
2023 SEC Form PF Amending Release, supra
footnote 4. See also Comment Letter of AIC (Aug.
8, 2023) (‘‘AIC Comment Letter II’’). See infra
section IV.C of this Release for discussion of costs
and benefits.
14 As discussed in greater detail below, we are
removing government securities from the definition
of ‘‘cash and cash equivalents’’ and presenting
government securities as its own line item in the
Form PF Glossary of Terms. Thus, references herein
to ‘‘cash and cash equivalents’’ refer to the amended
definition, unless otherwise indicated. The
amended definition is intended to provide more
granular detail on this reporting form and is not
intended to change any commercial understanding
or accounting treatment of cash equivalents. See
infra section II.B.2 of this Release.
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fund adviser, large liquidity fund
adviser, or large private equity fund
adviser, and whether a hedge fund is a
qualifying hedge fund, rather than
permit an adviser to either include or
exclude the value of investments in
other private funds for the purpose of
determining its reporting threshold, as
proposed.15
Æ Reporting Trading Vehicles. In a
change from the proposal, we are
adopting an amendment to require
advisers to identify trading vehicles in
section 1b of Form PF and report on an
aggregated basis for the reporting fund
and all trading vehicles (whether fully
owned by the reporting fund or partially
owned), rather than (i) permitting
advisers to report fully owned trading
vehicles on an aggregated or
disaggregated basis and (ii) requiring
advisers to report partially owned
trading vehicles on a disaggregated
basis, as proposed. In a change from the
proposal, we are also adding an
instruction for advisers to specify
whether the reporting fund holds assets,
incurs leverage, or conducts trading or
other activities through a trading
vehicle.
Æ Reporting Timelines. We are also
adopting, as proposed, an amendment to
the instructions that will require all
quarterly filers to file on a calendar
quarter basis, rather than on a fiscal
quarter basis.16
• Second, we are adopting
amendments to sections 1a and 1b of
Form PF, which apply to all Form PF
filers, to provide greater insight into
private funds’ operations and strategies,
and assist in identifying trends,
including those that could create
systemic risk and which are as such
designed to enhance investor protection
efforts and systemic risk assessment.
The amendments are also designed to
improve comparability across advisers,
improve data quality, and reduce
reporting errors. We are adopting, as
proposed, amendments to collect
additional identifying information
regarding the adviser and its related
persons, as well as their private fund
assets under management. We are also
adopting, largely as proposed,
amendments to require advisers to
report additional identifying
information about the private funds they
manage and other information about the
15 See
Instruction 7.
calendar quarter basis filing requirement
does not apply to a private equity fund adviser
filing a private equity event report as contemplated
by section 6 of Form PF, which requires such
adviser to file within 60 calendar days after the end
of the applicable fiscal quarter upon the occurrence
of a private equity reporting event. See May 2023
SEC Form PF Amending Release, supra footnote 4.
16 The
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private funds’ assets, financing, investor
concentration, and performance.
• Third, we are adopting amendments
to section 1c of Form PF, which applies
to private fund advisers that advise
hedge funds. We are adopting, largely as
proposed, amendments to require
advisers to hedge funds to report certain
additional information. As proposed, we
are adopting amendments to require
advisers to hedge funds to report on the
fund’s use of digital assets as an
investment strategy, but in a
modification from the proposal, we are
not adopting the proposed definition of
digital assets. We are also adopting, as
proposed, amendments to remove
certain questions to streamline reporting
and to reduce reporting burdens.
• Fourth, as proposed, we are
redesignating existing section 2a and 2b
of Form PF as section 2, and we are
adopting amendments to the new
consolidated section 2, which applies to
large hedge fund advisers that advise
qualifying hedge funds (i.e., hedge
funds that have a net asset value of at
least $500 million). As proposed, we are
removing aggregate reporting questions
for large hedge fund advisers and
requiring additional fund-level
reporting to enhance investor protection
efforts and systemic risk assessment.17
We are adopting, largely as proposed,
amendments to require large hedge fund
advisers to report more granular
information about the reporting fund’s
investment exposure, open and large
position reporting, borrowing and
counterparty exposure, and market
factor effects. In a change from the
proposal, we are not adopting a
proposed question about investment
performance by portfolio correlation.
• Finally, we are adopting, largely as
proposed, certain additional
amendments to improve data quality
and accuracy of reporting.
The amendments we are adopting are
important enhancements to the ability
to monitor and assess systemic risk and
to determine whether and how to
deploy the Commissions’ or FSOC’s
regulatory tools. The amendments will
also strengthen the effectiveness of the
SEC’s regulatory programs, including
examinations, investigations, and
investor protection efforts relating to
private fund advisers. The Commissions
consulted with FSOC to gain input on
these amendments and to help ensure
that Form PF continues to provide
FSOC with information it can use to
assess systemic risk.
17 Unless stated otherwise, terms in this release
that are defined in the Form PF Glossary of Terms
are as defined therein.
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II. Discussion
A. Amendments to the General
Instructions
We are adopting amendments to the
Form PF general instructions designed
to improve data quality and
comparability and to enhance investor
protection efforts and systemic risk
assessment.18
1. Reporting Master-Feeder
Arrangements and Parallel Fund
Structures
Private funds often use complex
structures to invest, including masterfeeder arrangements and parallel fund
structures.19 We are adopting, largely as
proposed, amendments to Form PF that
generally require advisers to report
separately each component fund of a
master-feeder arrangement and parallel
fund structure.20 An adviser will
continue to aggregate these structures,
however, for purposes of determining
whether the adviser meets a reporting
threshold.21
18 Additional adopted changes to the General
Instructions concerning amendments to enhance
data quality methodologies and additional
amendments are discussed in sections II.D and II.E
of this Release. The amendments to Instruction 3 to
reflect the removal of section 2a are discussed in
section II.C.1 of this Release.
19 A ‘‘master-feeder arrangement’’ is an
arrangement in which one or more funds (‘‘feeder
funds’’) invest all or substantially all of their assets
in a single private fund (‘‘master fund’’). A ‘‘parallel
fund structure’’ is a structure in which one or more
private funds (each, a ‘‘parallel fund’’) pursues
substantially the same investment objective and
strategy and invests side by side in substantially the
same positions as another private fund. See Form
PF Glossary of Terms.
20 See Instruction 6. We also are amending
Instruction 3, as proposed, to reflect the adopted
approach for reporting master-feeder arrangements
and parallel fund structures. See infra footnote 21.
21 See Instruction 5. For example, an adviser
would aggregate private funds that are part of the
same master-feeder arrangement in determining
whether the adviser is a large hedge fund adviser
that must complete section 2 of Form PF. In
connection with these changes, we are amending,
as proposed, the term ‘‘reporting fund’’ and
Instruction 3 so that they no longer discuss
reporting aggregated information. Additionally, we
are reorganizing current Instruction 5 and current
Instruction 6 so that they reflect the adopted
approach for when to aggregate certain funds.
Current Instruction 5 instructs advisers about when
to aggregate information about certain funds for
purposes of reporting thresholds and responding to
questions. Current Instruction 6 instructs advisers
about how to aggregate information about certain
funds. Instruction 5, as amended, instructs advisers
on when to aggregate information about certain
funds for purposes of determining whether they
meet reporting thresholds. Instruction 6, as
amended, instructs advisers about how to report
information about certain funds when responding
to questions. Further, in a modification from the
proposal, we have added a reference to section 5
(Current report for large hedge fund advisers to
qualifying hedge funds), which a qualifying hedge
fund would also be required to complete, as
applicable, as a result of the amendments adopted
in the May 2023 SEC Form PF Amending Release.
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Currently, Form PF provides advisers
with flexibility to respond to questions
regarding master-feeder arrangements
and parallel fund structures either in the
aggregate or separately, as long as they
do so consistently throughout Form
PF.22 In adopting this approach in 2011,
the Commissions stated that requiring
advisers to aggregate or disaggregate
funds in a manner inconsistent with
their internal recordkeeping and
reporting may impose additional
burdens and that, as long as the
structure of those arrangements is
adequately disclosed, a prescriptive
approach to aggregation was not
necessary.23 However, based on
experience reviewing Form PF data, we
observed that when some advisers
report in aggregate and some advisers
report separately, this can result in
obscured risk profiles (e.g., with respect
to asset size, counterparty exposure,
investor liquidity) and make it difficult
to compare complex structures,
undermining the utility of the data
collected.24 Prescribing the way
advisers report a master-feeder
arrangement and parallel fund structure
will provide better insight into the risks
and exposures of these arrangements.
Accordingly, we are amending the
instructions to require an adviser to
report each component fund of a masterfeeder arrangement and parallel fund
structure, except where a feeder fund
invests all its assets in a single master
fund, U.S. treasury bills, and/or ‘‘cash
and cash equivalents’’ (i.e., is a
disregarded feeder fund).25 In the case
22 See
current Instruction 5.
Form PF Adopting Release, supra footnote
4, at text following n.332.
24 For example, a feeder fund may have
counterparty exposure rather than the entire fund
in the aggregate. When this is the case, fewer assets
(e.g., only those held at the feeder level) may be
available as collateral and the counterparty may
have greater risk.
25 See Instruction 6. We are also revising the term
‘‘cash and cash equivalents,’’ as described in
section II.B.2 in this Release, to improve data
quality and provide more granular detail of fund
exposures to the Commissions and FSOC. In
alignment with this revision, we have modified the
term ‘‘disregarded feeder fund’’ for the purposes of
Form PF to specifically include U.S. treasury bills.
U.S. treasury bills are direct obligations of the U.S.
Government with a maturity of one year or less.
Because these short-term holdings are sufficiently
cash-like for our reporting and data analysis
purposes, separate reporting for a feeder fund that
invests all of its assets in U.S. treasury bills (or
some combination of U.S. treasury bills, ‘‘cash and
cash equivalents,’’ and a single master fund) is not
necessary. One commenter stated that the removal
of government securities from the definition of cash
and cash equivalents would reduce the number of
funds that qualify as disregarded feeder funds. See
AIMA/ACC Comment Letter. This commenter
stated that the Commission should revise the
definition to allow for disregarded feeder funds to
invest in government securities. Id. The final
23 2011
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of a disregarded feeder fund in Question
6, advisers instead will identify the
disregarded feeder fund and look
through to any disregarded feeder fund’s
investors in responding to certain
questions regarding fund investors on
behalf of the applicable master fund, as
proposed. The master fund effectively is
a conduit through which a disregarded
feeder fund invests, and we do not
believe separate reporting for such a
feeder fund is necessary for data
analysis purposes. In a modification
from the proposal, we are adopting
instructions to specify that a feeder fund
should disregard any of its holdings in
the master fund’s equity for the purpose
of determining its reporting threshold.26
Some commenters generally
supported the proposed amendments
that require more granular reporting of
private fund structures because this
would allow FSOC to assess systemic
risk and the Commissions to protect
investors more effectively.27 Other
commenters generally opposed the
proposed amendments to require
disaggregated reporting of master-feeder
funds and parallel fund structures,
stating that it would be overly
burdensome for advisers to report this
information and of limited benefit to the
Commissions and/or FSOC.28
Although we acknowledge that the
requirement to report disaggregated data
for parallel fund and master-feeder fund
structures may increase the reporting
burdens on certain advisers, we disagree
that requiring disaggregated reporting
would be significantly more
burdensome than the existing
requirements, because filers are already
required to assemble aggregated data
from the individual components of their
fund structures to determine their
reporting category on Form PF.29 Any
increased burdens are justified because
disaggregated data of these structures
will provide the Commissions and
FSOC with increased transparency into
risk profiles and complex fund
structures, which will improve our
ability to monitor systemic risk and
protect investors. We also disagree that
amendments permit disregarded feeder funds to
invest in U.S. treasury bills, but not other
government securities. We believe this approach is
appropriate because, as noted above and unlike
certain other government securities, U.S. treasury
bills are short-term holdings and sufficiently cashlike for our reporting and data analysis purposes.
Further, U.S. treasury bills generally do not have
the interest rate risk that longer-dated government
securities have.
26 See Instruction 6.
27 See, e.g., AFREF Comment Letter I; Better
Markets Comment Letter.
28 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II.
29 See current Instruction 5.
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disaggregated reporting of master-feeder
funds and parallel fund structures will
be of limited value based on our
experience with Form PF, which
currently obscures our understanding of
their fund structures and the risk
exposure of their component funds.
Some commenters opposed the
proposed disaggregated reporting
requirement, asserting that it would
provide misleading information by
reporting data in isolation as opposed to
as part of an overall fund or investment
program.30 However, rather than be
misleading, the disaggregated reporting
will allow for a clearer understanding of
a fund’s structure. Disaggregated data
will not be misleading to the
Commissions or FSOC in comparison to
aggregated data because the
disaggregated data can still be
aggregated by FSOC and the
Commissions if necessary to understand
and assess the risk of the fund.
One commenter stated that the
disaggregated reporting requirement
would be particularly burdensome for
private equity fund advisers, as this
commenter believed private equity
funds pose less systemic risk.31 The
existing reporting instructions allowing
aggregated reporting result in an
obscured risk profile of all types of
private funds, including private equity
funds. Although private equity funds
may exhibit a different risk profile than
hedge funds, we disagree with the
commenter that understanding their
structure is unimportant to assessing
systemic risk. Understanding the full
risk profile of private equity funds is an
important component of the reporting
on Form PF because of the growth in the
private equity fund industry and its
significance to financial markets.32
Additionally, the disaggregated
reporting requirement is important for
investor protection efforts due to the
increased exposure of investors to the
private equity industry through
investments such as pension funds.33
One commenter stated that requiring
disaggregated data would add a data
security risk that sensitive information
about a fund’s strategy could be publicly
exposed.34 We do not agree that
requiring disaggregated reporting of
30 See, e.g., MFA Comment Letter II; USCC
Comment Letter.
31 AIC Comment Letter I.
32 Since 2013, the number of private equity funds
has more than doubled from under 7,000 to over
20,000, private equity fund gross assets have
quadrupled from $1.6 trillion to $6.6 trillion, and
private equity fund net assets have also quadrupled,
increasing from $1.5 trillion to $6 trillion. See
Private Fund Statistics Q1 2023, supra footnote 4.
33 See, e.g., Public Plans Data (2022), available at
https://publicplansdata.org/quick-facts/national/.
34 USCC Comment Letter.
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component funds presents a significant
increase in public disclosure risk, in
part because the required information is
no more granular than the information
already required to be reported for other
private funds without a master-feeder
arrangement or parallel fund structure.
The Commissions currently have robust
data protection measures in place to
protect all information filed on Form
PF, which is filed on a non-public basis.
Any limited increase in data security
risk associated solely with the collection
of more information is justified because
of the importance of receiving this
disaggregated information for FSOC and
the Commissions’ systemic risk
monitoring and the Commissions’
investor protection efforts. As discussed
more fully above, this disaggregated
data will provide increased
transparency into complex fund
structures and better insight into the
risks presented by such arrangements.
As discussed above, in response to
commenters’ concerns, we are
modifying the instructions for how a
feeder fund determines its reporting
category to specify that the feeder fund
should exclude any of its holdings in
the master fund’s equity when
calculating its total asset value for the
purpose of determining its reporting
category.35 This modification will help
avoid double counting of reported
assets, given that data for the master
fund will be separately reported on
Form PF. It will also require a more
appropriate level of information from
feeder funds than we had proposed. As
proposed, an adviser could have
determined that a feeder fund is a
qualifying hedge fund subject to
additional reporting, even if the feeder
fund’s investments outside of its master
fund were trivial. This level of reporting
for such a feeder fund is not necessary
for data analysis purposes, and the
amended Form PF will accordingly only
require this additional reporting for
feeder funds that are determined to be
qualifying hedge funds based on their
investments made outside of their
master funds. Some commenters
recommended adopting an instruction
for disregarded feeder fund reporting
obligations that allows for a de minimis
amount of a disregarded feeder fund’s
investments to be in other assets, such
as up to 10 or 20 percent of a fund’s
capital, rather than the proposed
instruction, which would require all of
the disregarded feeder fund’s assets to
be invested in a single master fund, U.S.
treasury bills, or cash and cash
35 See
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equivalents.36 We do not believe that
these recommended exceptions would
be appropriate. The adopted instruction,
which provides that a feeder fund that
invests all of its assets in a single master
fund, U.S. treasury bills, or cash and
cash equivalents is a disregarded feeder
fund, is more appropriate because such
a feeder fund is effectively investing
only through its associated master fund.
Disaggregated reporting of such a
disregarded feeder fund is not necessary
for data analysis purposes, because such
reporting would not convey additional
information about the feeder fund’s
exposures, as the feeder fund’s
investments are limited to its
investments through its master fund,
which are required to be reported on the
amended Form PF. In contrast, a feeder
fund that does not invest all of its assets
in a single master fund, U.S. treasury
bills, or cash and cash equivalents
operates and invests in a different
manner, and it is critical to our
understanding of these funds and the
risks that they may pose to receive
disaggregated reporting of these fund
arrangements because such feeder funds
will generally have distinct risk
exposures than their associated master
funds. Further, the modified
instructions we are adopting, which
provide that a reporting feeder fund is
to disregard its holdings in the master
fund’s equity for the purpose of
determining its reporting threshold, are
responsive to commenter concerns that
the burdens on feeder funds with de
minimis non-cash or cash equivalent
holdings would be significant. For
example, under the adopted
instructions, a feeder fund with minimal
holdings outside of the master fund’s
equity may only be required to complete
section 1 of Form PF, when it may have
otherwise been required to complete
additional sections if its holdings in the
equity of the master fund were included
in its reporting threshold determination,
as proposed. The modified instructions
take into consideration the potential
burden of reporting feeder funds on a
separate basis and allows the
Commissions to receive important
reporting on the exposures of feeder
funds other than to its equity in its
master fund.
In addition, we are adopting, as
proposed, an amendment to no longer
allow advisers to separately report any
‘‘parallel managed accounts’’ (which is
distinguished from a ‘‘parallel fund
structure’’), provided that advisers will
continue to be required to report the
total value of all parallel managed
36 See AIMA/ACC Comment Letter; MFA
Comment Letter II.
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accounts related to each reporting
fund.37 Including parallel managed
accounts in the reporting may reduce
the quality of data for our analyses
while also imposing additional burdens
on advisers.38 Data regarding the total
value of parallel managed accounts,
however, will allow FSOC to take into
account the greater amount of assets an
adviser may be managing using a given
strategy for purposes of analyzing the
data reported on Form PF for systemic
risk purposes.
We are adopting, as proposed, an
instruction to provide that a dependent
parallel managed account must be
aggregated with the largest private fund
to which it relates and, unchanged from
the current Form PF, with respect to any
private fund, a ‘‘dependent parallel
managed account’’ remains defined as
any related parallel managed account
other than a parallel managed account
that individually (or together with other
parallel managed accounts that pursue
substantially the same investment
objective and strategy and invest side by
side in substantially the same positions)
has a gross asset value greater than the
gross asset value of such private fund
(or, if the private fund is a parallel fund,
the gross asset value of the parallel fund
structure).39 One commenter sought
clarification that a parallel managed
account should be aggregated with the
single largest private fund to which it
relates.40 We continue to believe that
this approach will more effectively
support systemic risk analyses and our
investor protection efforts, particularly
given the growth in parallel managed
accounts in recent years.41
37 See Instruction 6. A ‘‘parallel managed
account’’ is any managed account or other pool of
assets managed by the adviser that pursues
substantially the same investment objective and
strategy and invests side by side in substantially the
same positions as the identified private fund. See
Form PF Glossary of Terms.
38 See 2011 Form PF Adopting Release, supra
footnote 4, at n.334, and accompanying text (the
Commissions were persuaded that aggregating
parallel managed accounts for reporting purposes
would be difficult and ‘‘result in inconsistent and
misleading data’’ because the characteristics of
parallel managed accounts are often somewhat
different from the funds with which they are
managed). For example, in a separately managed
account a client generally selects an adviser’s
strategy but tailors it to the client’s own investment
guidelines.
39 See Instruction 5; Form PF Glossary of Terms.
40 AIMA/ACC Comment Letter.
41 See David C. Johnson & Francis A. Martinez,
Form PF Insights on Private Equity Funds and Their
Portfolio Companies, Office of Financial Research,
June 14, 2018, at 3–4, available at https://www.
financialresearch.gov/briefs/files/OFRBr_2018_01_
Form-PF.pdf (stating that fund investments in other
funds increased from $227 billion in 2013 to $319
billion in 2016 and noting that the existing
reporting on parallel managed accounts may be
underreported because parallel managed accounts
are not currently required to be reported).
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17989
2. Reporting Private Funds That Invest
in Other Funds
We are adopting amendments to Form
PF regarding how advisers report
private fund investments in other
private funds, trading vehicles, and
other funds that are not private funds.
Investments in other private funds.
We are adopting, with modifications
from the proposal, amendments to
Instruction 7, which addresses how
advisers treat private fund investments
in other private funds (e.g., a ‘‘fund of
funds’’). Currently, advisers include the
value of private fund investments in
other private funds in determining
whether the adviser meets the filing
threshold to file Form PF.42 This
requirement is implicit in the current
form, and we are amending this aspect
of Instruction 7, as proposed, to make it
explicit. Further, current Form PF
generally permits an adviser to
disregard the value of a private fund’s
equity investments in other private
funds for purposes of both the form’s
reporting thresholds (e.g., whether it
qualifies as a large hedge fund adviser)
and responding to questions on Form
PF, as long as the adviser does so
consistently throughout Form PF,
subject to certain exceptions.43 We
proposed continuing to permit an
adviser to either include or exclude the
value of such investments for the
purpose of determining its reporting
thresholds but requiring an adviser to
include the value of such investments
for the purpose of responding to
questions on Form PF.
In a modification from the proposal,
we are adopting an amendment to
Instruction 7 to require an adviser to
include the value of investments in
other private funds (including internal
and external private funds) when
determining whether the adviser is
required to file Form PF, whether it
meets the thresholds for reporting as a
large hedge fund adviser, large liquidity
fund adviser, or large private equity
fund adviser, and whether a hedge fund
is a qualifying hedge fund, rather than
permit an adviser to either include or
exclude the value of investments in
other private funds for the purpose of
determining its reporting threshold, as
42 Form PF Instruction 1 provides that certain
advisers meet the filing threshold if they and their
related persons, collectively, had at least $150
million in private fund assets under management as
of the last day of their most recently completed
fiscal year.
43 For example, under the current instructions, an
adviser is not permitted to disregard any liabilities
of the private fund, even if incurred in connection
with an investment in other private funds. See
current Instruction 7.
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proposed.44 As discussed further below,
as proposed, an adviser will no longer
have flexibility on whether to include or
exclude a reporting fund’s investments
in other private funds for purposes of
responding to questions on Form PF.45
Instead, we are amending Instruction 7
to require an adviser to include the
value of a reporting fund’s investments
in other private funds when responding
to questions on Form PF, unless
otherwise directed by the instructions to
a particular question.
Requiring advisers to report fund of
funds arrangements in a more consistent
manner will allow the Commissions and
FSOC to understand these fund
structures more effectively by providing
greater insight into the scale of reporting
funds’ exposures. The form’s current
flexibility on whether to disregard
underlying funds for the purpose of
determining a reporting fund’s reporting
threshold and when responding to
questions provides unclear and
inconsistent reporting and data on the
scale of reporting funds’ exposures.
One commenter stated that allowing
an adviser to determine whether to
include or exclude a reporting fund’s
investment in other private funds could
result in distortions in the data collected
on Form PF.46 This commenter
recommended revising the instructions
to prohibit an adviser from including a
reporting fund’s investment in other
private funds for the purpose of
determining its reporting threshold. We
agree with this commenter that
permitting advisers the flexibility to
include or exclude the value of the
reporting fund’s investment in other
private funds could result in distortions
in the data and inconsistent reporting.
Therefore, we have modified the
instructions to remove this proposed
flexibility. However, we have modified
the instructions to provide that an
adviser must include the reporting
fund’s investment in other private funds
for determining its reporting threshold.
For the same reasons that Instruction 7
currently (and will continue to) provide
that an adviser must include the
reporting fund’s investments in other
private funds in determining whether it
is required to file Form PF, we believe
it is appropriate for an adviser to use
this same approach to determine the
44 See Instruction 7. In connection with this
Instruction 7, we are also not adopting the proposed
revision to the definition of ‘‘qualifying hedge
fund,’’ which would have instructed advisers that
they may exclude the fund’s investments in other
private funds in determining whether a hedge fund
meets the ‘‘qualifying hedge fund’’ definition. See
Form PF Glossary of Terms.
45 Id.
46 AIMA/ACC Comment Letter.
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reporting fund’s appropriate reporting
category. This modification will provide
for consistent treatment of investments
in other private funds for all Form PF
purposes by specifying that these
investments should be included for the
purpose of determining reporting
threshold, determining filing threshold,
and responding to questions on Form PF
(unless otherwise instructed by a
particular question). We do not believe
that this modification will materially
increase filing burdens because advisers
are currently (and will continue to be)
required to include the value of the
reporting fund’s investments in other
private funds for the purpose of
determining whether it is required to
file Form PF and, as discussed further
below, will be required, as proposed, to
include the value of the reporting fund’s
investments in other private funds in
answering questions on Form PF (unless
otherwise instructed by a particular
question). Some commenters opposed
the proposed amendment to include the
value of a reporting fund’s investment
in other external private funds when
responding to questions because of the
burden of obtaining information about
the underlying investments and their
view on the limited value of the data.47
Data about underlying investments in
external private funds is important to
provide the Commissions and FSOC
with sufficient information to
understand a fund structure to be able
to assess systemic risk. We disagree that
reporting the value of a reporting fund’s
investments in other external private
funds is significantly more burdensome
to report because an adviser is currently
required to calculate the value of its
investment in other private funds in
determining whether the adviser meets
the threshold to file Form PF. One
commenter stated that investments in
private funds should be treated like a
disregarded feeder fund and not require
disaggregated reporting.48 We disagree
that a fund of funds structure presents
the same risks as a disregarded feeder
fund because, in a fund of funds
structure, the feeder fund is itself
engaging in direct investment, whereas
a disregarded feeder fund invests its
assets at the master fund level.
Currently, Instruction 7 specifies that,
in the case of a fund that invests
substantially all of its assets in other
private funds and, other than its
investments in other private funds, only
holds cash and cash equivalents and
instruments acquired for the purpose of
hedging currency exposure, an adviser
is only required to complete section 1b
of Form PF for that fund.49 One
commenter recommended modifying
this instruction to replace the reference
to ‘‘substantially all of its assets’’ in
other private funds to 80% of its assets
and to remove the reference to only
holding cash and cash equivalents and
instruments acquired for the purpose of
hedging currency exposure.50 This
commenter stated that there are
circumstances that may cause an adviser
to invest a small portion of a fund of
fund’s assets directly, such as for tax
purposes or for an investor’s preference,
which would cause the fund to no
longer be considered a fund that invests
substantially all of its assets in other
private funds for purposes of Form PF,
which allows the adviser to only
complete section 1b for that fund.51
Although we agree that the meaning of
‘‘substantially all of its assets’’ should
be clarified for purposes of this form, so
as to generally improve data quality and
comparability, we disagree that the
reference to only holding cash and cash
equivalents and instruments acquired
for the purpose of hedging currency
exposure should be removed. The
exclusion from completing section 1c is
intended to be limited to funds that
invest only through other private funds
for which we receive separate reporting.
Allowing an exclusion for funds that
invest in investments other than private
funds would create a data gap because
we would not receive separate reporting
about investments that are not private
funds. Accordingly, in a change from
the proposal, we are modifying
Instruction 7 only to replace the
instruction ‘‘substantially all of its
assets’’ to ‘‘80% or more of its assets.’’
This modification will help clarify
which funds will need to complete only
section 1b of Form PF.
Currently, advisers are not required
to, but nonetheless have the option to,
‘‘look through’’ a reporting fund’s
investments in any other entity
(including other private funds), except
in instances when the form directs
otherwise.52 As a result, some advisers
may ‘‘look through’’ a reporting fund’s
investments in other entities, while
others do not, leading to unclear data,
inconsistent comparisons, and less
precise analysis across advisers.
Therefore, we are amending, largely as
proposed, Instruction 7 to provide that,
when responding to questions, advisers
must not ‘‘look through’’ a reporting
fund’s investments in internal private
49 See
47 See,
e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II.
48 AIMA/ACC Comment Letter.
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current Instruction 7.
Comment Letter.
50 AIMA/ACC
51 Id.
52 See
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funds or external private funds (other
than a trading vehicle, as described
below), unless the question instructs the
adviser to report exposure obtained
indirectly through positions in such
funds or other entities.53 In a
modification from the proposal, we are
adding an instruction that provides if an
adviser cannot avoid ‘‘looking through’’
to the reporting fund’s investments in
internal private funds or external
private funds in responding to a
particular question, then the adviser
must provide an explanation of its
responses in Question 4. This
instruction is responsive to certain
commenters’ concerns regarding the
burden of disaggregated reporting where
look-through aggregation may be
unavoidable and will provide additional
context for the data reported. Further,
after consideration of commenter
recommendations, in a modification
from the proposal, we are revising
certain questions related to exposures to
instruct advisers to select the exposure
that ‘‘best represents’’ the indirect
investment of the reporting fund, as
discussed more fully below in section
II.C.54 This modification will reduce the
burden on advisers in reporting
exposure information about these
investments in private funds, while
providing reporting on indirect
investments that is important for
effective systemic risk assessment and
investor protection efforts.
As discussed further below, we are
modifying from the proposal the
reporting instructions for trading
vehicles to require an adviser to ‘‘look
through’’ trading vehicles for all
questions. Given this modification, we
are also adopting amendments to
Instruction 8 to exclude trading vehicles
from the general requirement that an
adviser must not ‘‘look through’’ a
reporting fund’s investments in funds or
other entities unless the question
instructs the adviser to report exposure
obtained indirectly through positions in
such funds or other entities. These
amendments are designed to improve
data quality and comparisons, so the
Commissions and FSOC understand
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53 See
Instruction 7. For example, advisers will
not ‘‘look through’’ to the creditors of or
counterparties to other private funds in responding
to questions that ask about a reporting fund’s
borrowings and counterparty exposures. See
Question 18 (concerning borrowings) and Questions
27 and 28 (concerning counterparty exposures).
However, selected questions in section 2 of the form
require advisers to report indirect exposure
resulting from positions held through other entities
including private funds, and advisers will ‘‘look
through’’ the reporting fund’s investments in
internal private funds and external private funds in
responding to those questions. See, e.g., Question
32 (concerning reporting fund exposures).
54 See Questions 33, 35, 36, and 47.
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what Form PF data is from advisers
‘‘looking through’’ a reporting fund’s
investments, which will lead to more
effective systemic risk assessments and
investor protection efforts.
Trading vehicles. Some private funds
wholly or partially own separate legal
entities that hold assets, incur leverage,
or conduct trading or other activities as
part of the private fund’s investment
activities, but do not operate a business
(each, a ‘‘trading vehicle’’).55 Private
funds may use trading vehicles for
various purposes, including (1) for
jurisdictional, tax, or other regulatory
purposes or (2) to ‘‘ring-fence’’ assets in
light of liability or bankruptcy concerns
associated with a particular investment
(i.e., structure assets so counterparties
would only have recourse against the
trading vehicle and not against the
private fund). Currently, Form PF does
not require advisers to identify trading
vehicles. As a result, Form PF does not
provide a clear window into the
existence or use of trading vehicles and
the risks that they present. Because
private funds may use trading vehicles
for a wide variety of purposes, more
complete and accurate visibility into
asset class exposures, position sizes,
and counterparty exposures relied on by
trading vehicles can enhance the
Commissions’ and FSOC’s systemic risk
and financial stability assessment efforts
and the Commissions’ efforts to protect
investors by identifying areas in need of
outreach, examination, or investigation.
We are adopting amendments designed
to address these concerns by requiring
advisers to identify any trading vehicles
of the reporting fund, how the reporting
fund uses the trading vehicle, and the
position sizes and counterparty
exposures of the reporting fund that are
attributable to the trading vehicle.
We are adopting amendments, with
certain modifications from the proposal,
to Form PF’s general instructions to
explain how advisers report information
if the reporting fund uses a trading
vehicle.56 Specifically, if the reporting
fund uses a trading vehicle, the adviser
will be required to identify the trading
55 We are adopting a definition of ‘‘trading
vehicle’’ to the Form PF Glossary of Terms. In a
modification from the proposed definition, we are
specifying that a trading vehicle may be wholly or
partially owned by a reporting fund. See Form PF
Glossary of Terms (definition of ‘‘trading vehicle’’).
The concept of a partially owned trading vehicle
(i.e., if the reporting fund is not the trading vehicle’s
only equity owner) was implicit in the proposed
instructions, which would have provided for
different treatment for a wholly owned or partially
owned trading vehicle. See proposed Instruction 7.
We are modifying the definition of ‘‘trading
vehicle’’ to make this explicit.
56 See Instruction 7. We are also making a
conforming change to Instruction 8 to reference this
new instruction.
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17991
vehicle in section 1b and report answers
on an aggregated basis for the reporting
fund and such trading vehicle.57
Advisers will be instructed to ‘‘look
through’’ the trading vehicle’s holdings
on Form PF, adjusted for the reporting
fund’s percentage ownership interest of
the trading vehicle, in responding to
questions on Form PF for the reporting
fund, as discussed further below.58 As
discussed more fully in section II.B
below, an adviser will also be required
to specify if the reporting fund holds
assets through a trading vehicle, incurs
leverage through a trading vehicle, or
conducts trading or other activities
through a trading vehicle.59 Finally,
advisers will be required to report
trading vehicles on a consolidated basis
but in response to certain questions will
be required to identify the positions and
counterparty exposures that are held
through a trading vehicle, which will
help differentiate the reporting fund’s
exposures and risks from those of its
trading vehicles, as discussed more fully
in sections II.B.3 and II.C.2 below.60
57 We proposed the following for reporting
requirements for trading vehicles: if the reporting
fund uses a trading vehicle, and the reporting fund
is its only equity owner, the adviser would have
been required to either (1) identify the trading
vehicle in section 1b and report answers on an
aggregated basis for the reporting fund and such
trading vehicle, or (2) report the trading vehicle as
a separate reporting fund. An adviser would have
been required to report the trading vehicle
separately if the trading vehicle holds assets, incurs
leverage, or conducts trading or other activities on
behalf of more than one reporting fund. If reporting
separately, (1) advisers would have been required
to report the trading vehicle as a hedge fund if a
hedge fund invests through the trading vehicle; (2)
advisers would have been required to report the
trading vehicle as a qualifying hedge fund if a
qualifying hedge fund invests through the trading
vehicle; or (3) otherwise, advisers would have been
required to report the trading vehicle as a liquidity
fund, private equity fund, or other type of fund
based on its activities.
58 See Instruction 7. We had proposed to permit
disaggregated reporting for wholly-owned trading
vehicles and to require disaggregated reporting for
partially-owned trading vehicles. As discussed
below, the final amendments will instead require
advisers to report all trading vehicles, whether
wholly or partially owned, on a consolidated basis.
In connection with this change, the final
amendments specify that an adviser must adjust
trading vehicle information to reflect the reporting
fund’s percentage ownership interest of the trading
vehicle.
59 See Questions 9(d) through (f). A trading
vehicle is defined as a separate legal entity, wholly
or partially owned by one or more reporting funds,
that holds assets, incurs leverage, or conducts
trading or other activities as part of a reporting
fund’s investment activities but does not operate a
business. See Form PF Glossary of Terms
(definition of ‘‘trading vehicle’’). Questions 9(d)
through (f) ask the reporting fund to identify the
vehicle’s activities that results in it being a ‘‘trading
vehicle,’’ as defined in the Form PF Glossary of
Terms.
60 See, e.g., Questions 27 and 28, which are
required for all hedge fund advisers, and Questions
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We are not adopting proposed
amendments that would have permitted
an adviser to select whether to report a
wholly owned trading vehicle on either
a consolidated or disaggregated basis
and would have required advisers to
report a partially owned trading vehicle
on a disaggregated basis. One
commenter stated the proposed
disaggregated reporting for trading
vehicles would provide the
Commissions and FSOC with insights
into a private fund’s assets and activities
that are not currently reported on Form
PF, which would support assessment of
potential systemic risk.61 Other
commenters opposed the proposed
requirements to disclose trading
vehicles on a disaggregated basis
because of the significant cost and
burdens for such reporting and their
view on the limited benefit of such
reporting to the Commissions.62 Some
commenters stated that disaggregated
reporting of trading vehicles would be
misleading because advisers do not
account for risk on a disaggregated
basis.63 Another commenter stated that
allowing consolidated reporting of
trading vehicles would provide the
Commissions with a clearer and more
accurate depiction of a fund’s
characteristics and exposures than
disaggregated reporting.64 Some
commenters stated that separate
reporting for trading vehicles is not
necessary because trading vehicles are
often used for administrative purposes,
such as for tax or efficiency purposes,
but are managed on a consolidated basis
and regarded as a single entity for
investment purposes.65 Another
commenter recommended limiting
disaggregated reporting of trading
vehicles to only vehicles that engage in
leverage or borrowing to reduce the cost
of implementation of separate
reporting.66 Another commenter
recommended that we focus on specific
questions on Form PF to gain
information about trading vehicles
instead of requiring full separate
reporting of trading vehicles to reduce
burdens and provide clearer reporting.67
Another commenter recommended
permitting aggregated reporting for
42, 43, and 44, which are required for large hedge
fund advisers.
61 NASAA Comment Letter.
62 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter.
63 See, e.g., MFA Comment Letter II; MFA/
NAPFM Comment Letter.
64 AIMA/ACC Comment Letter.
65 See, e.g., MFA Comment Letter II; Schulte
Comment Letter.
66 SIFMA Comment Letter.
67 Schulte Comment Letter.
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trading vehicles that are at least 90%
owned by a single reporting fund.68
After considering such comments, we
are not adopting the proposed
requirement that would have permitted
advisers to report fully owned trading
vehicles on a disaggregated basis and
required them to do so in the case of
partially owned trading vehicles.
Instead, we are requiring advisers to
report all trading vehicles, whether
wholly owned or partially owned, on a
consolidated basis. Requiring advisers
to instead ‘‘look through’’ the reporting
fund’s investment in all trading vehicles
on a consistent basis is appropriate
because receiving disaggregated data for
some but not all trading vehicles could
result in distorted data. Requiring all
reporting funds to report their trading
vehicles, whether fully or partially
owned, on an aggregated basis will
improve data comparability and allow
us to better understand the holdings and
exposures of the fund structure for our
assessments of potential systemic risk.
We also understand from commenters
that a consolidated reporting better
aligns with how advisers regard trading
vehicles internally. However, after
considering a commenter’s
recommendation to include specific
questions on trading vehicles rather
than full disaggregated reporting,69 we
are adopting amendments to include
specific questions relating to a reporting
fund’s trading vehicle use and a trading
vehicle’s position size and risk
exposure, as opposed to requiring the
greater burden of full separate reporting
on Form PF for trading vehicles. We are
also requiring advisers to identify the
relevant party that bears certain risk
exposures, which will allow us to
understand how the reporting fund
makes use of its fund structure,
including any trading vehicles.70 This
approach will result in greater insight
into the overall fund structure and
support of FSOC’s systemic risk
assessments than under the existing
reporting requirements, and it will also
be less burdensome than the approach
we had proposed to require separate full
reporting for certain trading vehicles.
We disagree that any trading vehicle
reporting should be limited to only
vehicles that are used for leverage and
borrowing activities because the
amendments are intended to support
systemic risk assessments more broadly
on and provide insight into how trading
68 MFA
Comment Letter II.
Comment Letter.
70 See, e.g., Questions 27 and 28, which are
applicable to all hedge funds, and Questions 42, 43,
and 44, which are applicable to only large hedge
funds.
69 Schulte
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vehicles are used, which includes
trading vehicles that are used for other
purposes, such as holding assets or
trading. This reporting is important for
systemic risk assessment because it
provides visibility into private funds’
operations and can assist the
Commissions and FSOC in identifying
trends across the industry.
Investments in funds that are not
private funds. Advisers will continue to
include the value of the reporting fund’s
investments in funds and other entities
that are not private funds, in
determining reporting thresholds and
responding to questions, unless
otherwise directed, as Form PF
currently requires.71 For the reasons
discussed above, we are revising the
instructions, substantially as proposed,
to indicate that, when responding to
questions, however, advisers must not
‘‘look through’’ a reporting fund’s
investments in funds or other entities
that are not private funds, or trading
vehicles, unless the question instructs
the adviser to report exposure obtained
indirectly through positions in such
funds or other entities.72
3. Reporting Timelines
We are amending, as proposed,
Instruction 9 to require large hedge fund
advisers and large liquidity fund
advisers to update Form PF within a
certain number of days after the end of
each calendar quarter, rather than after
each fiscal quarter, as Form PF currently
requires.73 One commenter stated that
for quarterly filers who have a fiscal
year ending in a non-calendar quarter
month, the proposed instructions do not
specify the procedure for a filer who,
during the transition from fiscal to
calendar quarter reporting, would
otherwise be required to report twice in
one calendar quarter.74 As suggested by
this commenter, we are requiring that
such filers transition to the new timing
requirement by their first calendar
quarter-end filing for the first full
quarterly reporting period after the
compliance date.75
71 See Instruction 8. In a modification from the
proposal, we are removing the erroneous reference
to Questions 39 and 40 from Instructions 7 and 8,
which implied that these questions require advisers
to look-through the reporting fund’s investments.
72 We are also specifying that advisers should
‘‘look through’’ trading vehicles for all questions, as
provided in Instruction 7 and discussed above.
73 Large hedge fund advisers generally are
required to file within 60 calendar days after the
end of each calendar quarter and large liquidity
fund advisers generally are required to file within
15 calendar days after the end of each calendar
quarter. See Instruction 9.
74 AIMA/ACC Comment Letter.
75 See infra section II.F (Effective and Compliance
Dates).
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All other advisers will continue to file
annual updates within 120 calendar
days after the end of their fiscal year.76
Private equity fund advisers will
continue to file any required quarterly
private equity event reports on a fiscal
quarter basis, as applicable.77 Form PF
will continue to require all advisers to
use fiscal quarters and years to
determine filing thresholds because
advisers already make such calculations
under 17 CFR 279.1 (‘‘Form ADV’’),
which requires annual updates based on
fiscal year.78
Currently, routine fiscal quarter
reporting by large hedge fund advisers
and large liquidity fund advisers
significantly delays the time at which
the Commissions and FSOC receive a
complete data set for a calendar quarter.
For example, large hedge fund advisers
whose first fiscal quarter ends on the
calendar quarter end of March, would
file data covering January, February, and
March by the end of May.79 However,
large hedge fund advisers whose fiscal
quarter ends in May would not file their
March data until the end of July,
delaying Commission and FSOC access
to full calendar quarter data by all large
hedge fund advisers by four months.
The adopted changes are designed to
provide a more complete data set sooner
to improve the efficiency and
effectiveness of investor protection
efforts and systemic risk assessment.
Based on Form ADV data as of
December 2022, 99.6 percent of private
fund advisers already effectively file
Form PF on a calendar basis because
their fiscal quarter or year ends on the
calendar quarter or year end,
respectively.80 The 0.4 percent of
private fund advisers that have a noncalendar fiscal approach, which could
cause a temporary data gap, represents
approximately 224 private funds,
totaling approximately $80 billion in
gross asset value. Calendar quarter
reporting also will more closely align
with reporting on Form CPO–PQR,81
76 We also are adopting amendments to the term
‘‘data reporting date’’ to reflect this approach. See
Form PF Glossary of Terms.
77 See Form PF Section 6 and Instruction 9.
78 See Form PF Instructions 1 and 3; Form ADV
and [17 CFR 275.204–1] Advisers Act rule 204–1
(amendments to Form ADV).
79 See current Instruction 9 (requiring large hedge
fund advisers to update Form PF within 60 calendar
days after the end of their first, second, and third
fiscal quarters, among other things).
80 We are presenting data from all private fund
advisers, not just those who would file their routine
filings on a quarterly basis (i.e., large hedge fund
advisers and large liquidity fund advisers), to avoid
potentially disclosing proprietary information of
individual Form PF filers, and to be inclusive
considering that the population of quarterly filers
versus annual filers may change over time.
81 See 17 CFR pt 4, app A.
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which requires calendar quarterly
reporting, allowing easier integration of
these data sets.
In response to a request for comment
whether reporting deadlines for large
hedge fund advisers to complete their
routine annual filing should be
shortened to 30 calendar days (from 60
calendar days) after the end of each
quarter, one commenter stated that
shorter reporting timelines would
provide FSOC and the Commissions
with the most current information to
monitor systemic risk.82 Another
commenter opposed shortened reporting
timelines and stated that the existing
requirements are already burdensome
and requiring shorter deadlines could
undermine data quality.83 After the
2022 Joint Form PF Proposing Release,
the SEC adopted amendments to Form
PF, which require large hedge fund
advisers to file current reports and
private equity fund advisers to file event
reports upon the occurrence of certain
events.84 The amendment to require
calendar quarter, rather than fiscal
quarter, basis reporting will improve
data comparability and will provide the
Commissions with more timely
information for those large hedge
advisers that currently do not report on
a calendar quarter basis.
B. Amendments Concerning Basic
Information About the Adviser and the
Private Funds It Advises
Each adviser required to file Form PF
must complete all or part of section 1.
We are adopting amendments to section
1 to provide greater insight into private
funds’ operations and strategies and to
assist in identifying trends, including
those that could create systemic risk and
which are as such designed to enhance
investor protection efforts and systemic
risk assessment. The amendments are
designed to improve comparability
across advisers, improve data quality,
and reduce reporting errors, based on
our experience with Form PF filings.
1. Amendments to Section 1a of Form
PF—Identifying Information
Section 1a requires an adviser to
report identifying information about the
adviser and the private funds it
manages. We are adopting, as proposed,
several amendments to collect
additional identifying information
regarding the adviser, its related
persons, and their private fund assets
under management.
82 Comment Letter of Mohammed R. (Sept. 9,
2022).
83 Schulte Comment Letter.
84 May 2023 SEC Form PF Amending Release,
supra footnote 4.
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17993
Legal entity identifiers. We are
adopting, as proposed, amendments to
the definition of ‘‘LEI’’ to exclude the
use of any non-LEI identifier, such as an
RSSD ID, as a substitute for LEI. Legal
entity identifiers, or ‘‘LEIs,’’ help
identify entities and link data from
different sources that use LEIs.85 These
amendments will improve data quality
because, based on our experience with
the current form, reporting RSSD IDs as
LEIs makes it more difficult for our staff
to link data efficiently and effectively.
Current Form PF requires advisers to
report the LEI for certain entities, such
as for the reporting fund, and any
parallel funds if they have an assigned
LEI. It currently instructs advisers, in
the case of an entity that is a financial
institution and does not have an
assigned LEI, to provide the RSSD ID
assigned to the financial institution by
the National Information Center of the
FRB.86 We are adopting an amendment
to the definition of ‘‘LEI’’ to remove the
instruction that an adviser provide an
RSSD ID with respect to an entity that
is a financial institution and that has not
been assigned an LEI. Accordingly, an
adviser will no longer be permitted to
substitute an RSSD ID or any other
financial identifier for any requirement
in Form PF to provide an LEI, if one has
been assigned.87 An adviser may
continue to use an RSSD ID, if the
financial institution has one, or another
financial identifier for any question that
requires an adviser to report other
identifying information, where the form
of identifying information is not
specified.88
We are also adopting, as proposed, an
amendment to require advisers to
provide LEIs for themselves and their
‘‘related persons,’’ if they have an LEI.89
85 Form PF generally defines ‘‘LEI’’ as, with
respect to any company, the ‘‘legal entity identifier’’
assigned by or on behalf of an internationally
recognized standards setting body and required for
reporting purposes by the U.S. Department of the
Treasury’s Office of Financial Research or a
financial regulator. See Form PF Glossary of Terms
(definition of ‘‘LEI’’).
86 Currently, if an adviser has not been assigned
an LEI and does not have an RSSD ID, then the
adviser would leave that line blank.
87 See, e.g., Questions 5(d) and 7(e).
88 See, e.g., Question 9(c). We also added ‘‘RSSD
ID’’ to the Form PF Glossary of Terms and have
defined it as the identifier assigned by the National
Information Center of the Board of Governors of the
Federal Reserve System, if any. See Form PF
Glossary of Terms.
89 See Question 1. We are also adopting
amendments to require advisers to provide the LEI
for other entities, if the other entities have one,
including internal private funds (see Question 7
and Question 15), trading vehicles (see Question 9),
and counterparties (see Question 27 and Question
28). A ‘‘related person’’ has the meaning provided
in Form ADV. See Form PF Glossary of Terms.
Form ADV defines a ‘‘related person’’ as any
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This amendment will help identify
advisers and their related persons and
link data from other data sources that
use LEI as an identifier.
One commenter supported an
expanded use of LEI as a legal identifier
in Form PF and stated that more
comprehensive inclusion of LEI would
create a more complete identification
scheme for the Commissions.90 The
commenter also stated that the LEI field
in the existing Form PF should be used
only for an LEI and not substitute any
other identifier for an LEI.91 The
commenter also supported the creation
of a separate field for the RSSD ID.92
Another commenter stated that
requirements in Form PF to use a
particular financial identifier may
increase costs and reduce innovation
and competition among financial
identifier providers and that increased
competition among financial identifiers
would improve overall transparency
and data quality and reduce costs.93 As
stated above, based on our experience
with the current form, however,
permitting the reporting of other
financial identifiers (namely, RSSD IDs)
as LEIs has generally made it more
difficult for our staff to link data
efficiently and effectively. The
amendments to the ‘‘LEI’’ definition will
thus improve data quality and
comparability on Form PF, which
supports effective assessment of
systemic risk and investor protection
efforts. Additionally, Form PF continues
to not require an adviser to obtain or use
LEI or any other particular financial
identifier (other than private fund
identification numbers for reporting
funds), as our amendments provide only
that any identifier that does not meet
the definition of ‘‘LEI’’ may not be
substituted for an LEI where a question
requests an LEI. Form PF continues to
permit advisers to use other financial
identifiers elsewhere on Form PF where
the reporting of LEI is either not
specified or not required. The
amendments to Form PF we are
adopting do not require any entity that
does not already have an LEI to obtain
one and clarifies that an identifier that
does not meet the ‘‘LEI’’ definition may
not be substituted for an LEI where an
LEI, if available, is requested on Form
PF.
Assets under management. We are
adopting, substantially as proposed,
advisory affiliate and any person that is under
common control with the adviser. See Form ADV
Glossary of Terms.
90 See GLEIF Comment Letter.
91 See id.
92 Id.
93 See Comment Letter of Bloomberg, L.P. (Oct.
13, 2022) (‘‘Bloomberg Comment Letter’’).
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amendments to Question 3 to revise
how advisers report assets under
management attributable to certain
private funds. Current Question 3
requires advisers to provide a
breakdown of regulatory assets under
management and net assets under
management. These data are designed to
show the size of the adviser and the
nature of the adviser’s activities. We did
not receive comment on the proposed
amendments to Question 3. We are
amending the instructions to direct
advisers to exclude the value of private
funds’ investments in other internal
private funds to avoid double counting
of fund of funds assets, as proposed.94
Advisers are required to include the
value of trading vehicle assets because,
under the amended instructions for
reporting trading vehicle assets, as
discussed more fully in section II.A.2
above, advisers are required to ‘‘look
through’’ the reporting fund’s
investment in any trading vehicles.95
We did not receive comment on the
proposed change in instructions to
Question 3. These amendments are
designed to provide a more accurate
view of the assets managed by the
adviser and its related persons, as well
as the general distribution of those
assets among various types of private
funds, because accurately viewing the
scale of these managed assets is
important to effectively assess systemic
risk and further investor protection
efforts.
Explanation of assumptions. We are
amending, as proposed, Question 4,
which advisers use to explain
assumptions that they make in
responding to questions on Form PF, to
add an instruction directing advisers to
provide the question number when the
assumptions relate to a particular
question. We did not receive comments
on this change. This amendment is
designed to help assess data more
efficiently and improve comparability,
based on experience with the form.
We asked in the proposal whether
there are other data sources we should
use to link entities across forms and to
assess data more efficiently. In a further
modification from the proposal, we are
adopting an amendment to require an
adviser to indicate whether it, or any of
its related persons, is registered or
required to be registered as a CPO and/
or a CTA and to provide the legal name
of the entity.96 This information will
94 See
Question 3.
We have also modified the proposed
instructions to Question 3 to remove a reference to
the proposed requirement to report trading vehicles
on a disaggregated basis, which we are not adopting
in this Release. See also Form PF Glossary of Terms.
96 See Question 1(c).
95 Id.
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help more accurately and efficiently
identify dual registrants, including
those that might be implicated in the
identification of threats to financial
stability, increase the usefulness and
interoperability of the data collected by
the Commissions on Form PF and by the
CFTC on Form CPO–PQR, and facilitate
collaboration between the Commissions
with respect to dual registrants.
2. Amendments to Section 1b of Form
PF—Concerning All Private Funds
Section 1b requires advisers to report
certain identifying and other basic
information about each private fund the
adviser manages. We are adopting,
largely as proposed, amendments to
section 1b to require advisers to report
additional identifying information about
the private funds they manage as well
as other basic information about the
private funds’ assets, financing, investor
concentration, and performance. The
amendments are designed to provide
greater insight into private funds’
operations and strategies and assist in
identifying trends, which will enhance
investor protection efforts and FSOC’s
systemic risk assessment. At the same
time, the amendments will help
improve data quality and comparability,
based on our experience with Form PF.
Type of private fund. We are adopting
several amendments to identify different
types of reporting funds more effectively
and to help better isolate data according
to fund type, in order to allow for more
targeted analysis. Currently, advisers
indicate a reporting fund’s type on the
Private Fund Reporting Depository
(‘‘PFRD’’) filing system, and by filling
out particular sections of the form, but
they do not report on the form itself the
type of fund.97 We have found
instances, however, where advisers have
identified a reporting fund differently
on Form PF than on Form ADV, even
though the definitions of each fund type
are the same on both forms. This may
be due to error, or may be due to the
fund’s characteristics changing between
deadlines for Form ADV and Form PF.
Accordingly, to help prevent reporting
errors and help ensure accuracy
concerning the reporting fund’s type, we
are adopting, as proposed, amendments
to require advisers to identify the
reporting fund by selecting one type of
fund from the following list: hedge fund
that is not a qualifying hedge fund,
qualifying hedge fund, liquidity fund,
97 For advisers that are also CPOs or CTAs, filing
Form PF through PFRD is filing with both the SEC
and CFTC. See Instruction 3 (instructing advisers to
file particular sections of Form PF, depending on
their circumstances. For example, all Form PF filers
must file section 1 and large hedge fund advisers
also must file section 2).
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private equity fund, real estate fund,
securitized asset fund, venture capital
fund, or ‘‘other.’’ 98 If an adviser
identifies the reporting fund as ‘‘other,’’
the adviser will be required to describe
the reporting fund in Question 4,
including why it would not qualify for
any of the other options. We did not
receive comments on this amendment.
This amendment will further improve
data quality and data comparability,
based on our experience with Form PF.
In addition, we are adopting, as
proposed, amendments to require an
adviser to indicate whether the
reporting fund is a ‘‘commodity pool,’’
which is categorized as a hedge fund on
Form PF.99 Although the CFTC does
not, as of the date of this Release,
consider Form PF reporting on
commodity pools as constituting
substituted compliance with CFTC
reporting requirements, some CPOs may
continue to report such information on
Form PF.100 This amendment will allow
for analysis of hedge fund data both
with and without commodity pools
reported on the form. One commenter
opposed the existing default treatment
of a commodity pool as a hedge fund for
purposes of Form PF and recommended
allowing an adviser to categorize a
commodity pool in the manner it
determines most appropriate.101 The
amendment we are adopting will
improve data quality and comparability,
based on our experience with Form PF,
and enhance our understanding of the
hedge fund data collected from Form PF
by allowing for analysis of hedge fund
data both including and excluding
CPOs. Additionally, as it relates to the
treatment of commodity pools as hedge
funds for reporting purposes, such
treatment further aligns the consistency
of questions asked across these entities,
both on Form PF, as well as on the
CFTC’s Form CPO–PQR.
Finally, we are adopting, with a
modification from the proposal,
amendments to require advisers to
report whether a reporting fund operates
as a UCITS or AIF.102 One commenter
98 Question
6(a).
6(b). Form PF defines ‘‘commodity
pool’’ as defined in section 1a(10) of the U.S.
Commodity Exchange Act, as amended. See Form
PF Glossary of Terms.
100 Previously, the CFTC permitted dually
registered CPO-investment advisers to submit Form
PF in lieu of certain CFTC reporting requirements.
See Compliance Requirements for Commodity Pool
Operators on Form CPO–PQR (Oct. 9, 2020) [85 FR
71772 (Nov. 10, 2020)] (‘‘Form CPO–PQR Release’’).
101 See MFA Comment Letter II.
102 See Questions 6(c) through (f). We are
adopting, as proposed, a definition for the term
‘‘UCITS’’ as Undertakings for Collective Investment
in Transferable Securities, as defined in the UCITS
Directive of the European Parliament and of the
Council (No. 2009/65/EC), as amended, or as
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supported the requirement to report
whether a fund is a UCITS or AIF and
where a fund is domiciled, but not
where the fund is ‘‘marketed,’’ because
a fund could be marketed anywhere and
a fund’s marketing activity may change
over time.103 Another commenter
recommended that references to
‘‘marketing’’ be reconsidered, because
‘‘marketing’’ is a defined term in the
UCITS Directive applicable to a UCITS
and in the AIFMD and UK AIFMR
applicable to an AIF, and these
definitions may differ in meaning from
the rule’s references to ‘‘marketing.’’ 104
This commenter also stated that the
references to ‘‘marketing’’ in the sense
of rule 206(4)–1 and concepts of
‘‘offers’’ or ‘‘sales’’ under the Securities
Act of 1933 would be confusing in this
question if the purpose of the proposed
question is to determine whether a fund
calls itself a money market fund or an
equivalent term to prospective investors
outside of the United States.105 After
considering comments, we are
modifying the question from the
proposal to require reporting of a fund
that ‘‘offers,’’ rather than ‘‘markets,’’
itself as a money market fund outside
the United States. This modification
will more precisely capture the type of
conduct that we intend to trigger a
reporting requirement, and uses a term
that we believe is commonly understood
by the industry, and which we
accordingly disagree would be
confusing.106 Further, the modification
will be less burdensome on advisers
than the proposed use of ‘‘marketing’’
by clarifying the scope of information
required to be reported and requiring a
more limited subset of conduct to be
reported. For example, a money market
fund may engage in certain conduct that
constitutes marketing in a particular
jurisdiction but not an offering for
purposes of the form.
captured by the Collective Investment Schemes
(Amendment etc.) (EU Exit) Regulations 2019, as
amended. We are adopting, as proposed, a
definition for the term ‘‘AIF’’ as an alternative
investment fund that is not regulated under the
UCITS Directive, as defined in the Directive of the
European Parliament and of the Council on
alternative investment fund managers (No. 2011/61/
EU), as amended, or an alternative investment fund
that is captured by the Alternative Investment Fund
Managers (Amendment etc.) (EU Exit) Regulations
2019, as amended. See Form PF Glossary of Terms.
103 See SIFMA Comment Letter.
104 See AIMA/ACC Comment Letter.
105 Id.
106 ‘‘Offer’’ is defined in the Securities Act as
‘‘every attempt or offer to dispose of, or solicitation
of an offer to buy, a security or interest in a security,
for value.’’ 12 U.S.C. 77b(a)(3). For purposes of this
question, activity may constitute an ‘‘offer’’ under
this definition whether or not the offering is subject
to the registration requirements of the Securities
Act.
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One commenter stated that proposed
Question 6(c) would not enhance the
Commissions’ knowledge about
exposures to non-U.S. beneficial owners
that is not already included in proposed
Question 22 on Form PF.107 Question
6(c), however, is not intended to elicit
the same information about exposures to
non-U.S. beneficial owners as proposed
Question 22, as discussed further below
in section II.B.3. The amendments to
Question 6 relate to the conduct and
operations of the reporting fund, which
are designed to allow the Commissions
and FSOC to filter data for more targeted
analysis to better understand to what
extent and in what jurisdictions a
reporting fund operates outside of the
United States. This information can
help the Commissions better understand
the private fund’s potential exposure to
beneficial owners outside the United
States and to identify potential systemic
risk resulting from economic conditions
or events in particular foreign
jurisdictions. This reporting will also
help avoid double counting when Form
PF data is aggregated with other data
sets that include UCITS, AIFs, and
money market funds that are offered
outside the United States. Proposed
Question 22, as discussed further below
in section II.B.3, requires an adviser to
report more granular information about
the fund’s beneficial owners, including
the percentage of beneficial owners that
are non-U.S. persons.108
The amendments will improve the
data we collect on fund operations and
help us better understand a fund’s
potential exposure to beneficial owners
outside the United States. The
additional information is necessary for a
more targeted analysis of risks presented
in the United States from risks
presented abroad.109 Another
commenter stated that the proposed
amendments do not specify what
conduct constitutes operating as a
UCITS or how to determine where a
fund operates.110 A UCITS operates
under the laws mandated by the
member country of its headquarters
when it is qualified as a UCITS and
authorized by that jurisdiction. This
commenter also stated that the meaning
of money market fund in Question 6(g)
is unclear, particularly for funds that are
established and operate as money
market funds outside of the United
States. For purposes of this question, we
have removed reference in Question 6 to
107 AIMA/ACC
Comment Letter.
Question 22.
109 See Fact Coalition Comment Letter (discussing
the importance of collecting information on
exposures outside of the United States).
110 AIMA/ACC Comment Letter.
108 See
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the defined term ‘‘money market fund’’
as included in the Form PF Glossary of
Terms, which continues to have the
meaning provided in rule 2a–7 under
the Investment Company Act.111
Instead, in a modification from the
proposal, we have amended Question 6
to specify that a money market fund for
purposes of Question 6 includes money
market funds more generally, including
those that operate outside of the United
States in accordance with applicable
non-U.S. laws, rather than being limited
to only ‘‘money market funds’’ as
defined in Form PF.
Master-feeder arrangements, internal
private funds, external private funds,
and parallel fund structures. We are
adopting, as proposed, amendments to
Form PF to require advisers to report
identifying information about masterfeeder arrangements and other private
funds (e.g., funds of funds), including
internal private funds, and external
private funds.112 These changes to the
form reflect that advisers will be
required to report components of
master-feeder arrangements and parallel
fund structures separately, as discussed
more fully in section II.A.1 above. Form
PF currently requires advisers to report
identifying information about parallel
funds, and will continue to do so under
the amended Form PF.113 The
amendments will also require advisers
to report the value of the reporting
fund’s investments in other private
funds (e.g., for funds of funds) in more
detail than is currently required.114
Specifically, the amendments will
require advisers to report the value of
the reporting fund’s equity investments
in external private funds and internal
private funds (including the master fund
and each internal private fund), which
together make up the total investments
in other private funds.115 These
amendments are designed to help map
complex fund structures and cross
reference private fund information more
111 See Form PF Glossary of Terms (definition of
‘‘money market fund’’).
112 For master-feeder arrangements, advisers will
be required to report the name of the feeder fund,
its private fund identification number, and whether
the feeder fund is a separate reporting fund or a
disregarded feeder fund. For internal private funds
that invest in the reporting fund, advisers will be
required to report the name of the internal private
fund, its LEI, if it has one, and its private fund
identification number. See Question 7. If the
reporting fund invests in external private funds,
advisers will be required to report the name of the
master fund, its private fund identification number,
and the master fund’s LEI, if it has one. If the
reporting fund invests in internal private funds,
advisers will be required to report the internal
private fund’s name, its private fund identification
number, and its LEI, if it has one. See Question 15.
113 See Question 7 and Question 8.
114 See Question 15.
115 Id.
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effectively across Form PF filings, in
order to provide more complete and
accurate information about each fund’s
risk profile.
In connection with these
amendments, in the Form PF Glossary
of Terms, we are removing the terms
‘‘investments in external private funds’’
and ‘‘investments in internal private
funds,’’ and replacing them with the
terms ‘‘external private funds’’ (i.e.,
private funds that neither the adviser
nor the adviser’s related persons advise)
and ‘‘internal private funds’’ (i.e.,
private funds that the adviser or any of
the adviser’s related persons advise),
respectively. The definitions do not
direct advisers to exclude ‘‘cash
management funds,’’ as is currently the
case under the terms being removed,
because we have observed that advisers
determine whether a fund is a cash
management fund inconsistently for
purposes of Form PF, which reduces
data quality.
As discussed more fully above in
section II.A.1, some commenters
supported requiring disaggregated
reporting of master-feeder arrangements
and parallel fund structures, stating that
it will allow the Commissions to
identify potential systemic risk more
effectively and increase the
transparency of private fund
holdings.116 Other commenters opposed
the proposed amendments to require
reporting of the components of parallel
funds and master-feeder funds
separately.117 We did not however
receive specific comment on the
proposed definitional changes. One
commenter recommended including an
exclusion in Questions 15(a) and 15(b),
similar to the exclusion in Question
15(c), to avoid potentially double
counting any master funds that are
external private funds.118 We believe
the instruction in Question 15(c) to
exclude any funds disclosed in
Question 15(b) is sufficient to avoid any
double counting of assets in this set of
questions.119 These amendments will
improve data quality and comparability,
based on our experience with Form PF
and in light of adopted changes to
master-feeder and parallel fund
structure reporting on Form PF.
Withdrawal or redemption rights. We
are also adopting, with modifications
from the proposal, as specified below,
116 See, e.g., Better Markets Comment Letter;
NASAA Comment Letter.
117 See, e.g., AIC Comment Letter I; AIMA/ACC
Comment Letter; MFA Comment Letter II.
118 See AIMA/ACC Comment Letter.
119 We do not believe an instruction in Question
15(c) to exclude funds reported in Question 15(a)
is necessary because Question 15(a) relates to
external private funds only.
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amendments to change how advisers
report withdrawal and redemption
rights. Form PF currently requires only
large hedge fund advisers to report
whether each qualifying hedge fund
provides investors with withdrawal or
redemption rights in the ordinary
course.120 We proposed adding a new
Question 10(a) which would generally
require all advisers to report whether a
reporting fund provides investors with
withdrawal and/or redemption rights in
the ordinary course.121 In a modification
from the proposal, we are adopting a
modified Question 10, which instead
requires all advisers to indicate whether
the reporting fund is an open-end
private fund in Question 10(a) or a
closed-end private fund in Question
10(b).
We are relatedly adopting new
defined terms for ‘‘open-end private
fund’’ and ‘‘closed-end private fund’’
and modifying Question 10 to ask
whether the reporting fund is an ‘‘openend private fund’’ or ‘‘closed-end
private fund,’’ rather than whether the
reporting fund provides investors with
withdrawal and/or redemption rights in
the ordinary course. In discussing
certain aspects of the proposal, some
commenters distinguished between
open-end and closed-end funds.122 One
commenter indicated that the term
‘‘closed-end fund’’ refers to funds that
do not offer withdrawal or redemption
rights in the ordinary course.123 We are
defining a ‘‘closed-end private fund’’ as
any private fund that only issues
securities, the terms of which do not
provide a holder with any right, except
in extraordinary circumstances, to
withdraw, redeem, or require the
repurchase of such securities, but which
may entitle holders to receive
distributions made to all holders pro
rata.124 We are defining an ‘‘open-end
private fund’’ as a private fund that
offers redemption rights to its investors
in the ordinary course, which may be
paid in cash or in kind, irrespective of
redemption frequency or notice periods
and without regard to any suspensions,
gates, lock-ups, or side pockets that may
be employed by the fund.125 These
terms are commonly used in the market,
120 See
current Question 49(a).
proposed Question 10(a).
122 See, e.g., AIMA/ACC Comment Letter;
Comment Letter of Ropes & Gray LLP (Oct. 11,
2022) (‘‘Ropes & Gray Comment Letter’’).
123 AIMA/ACC Comment Letter.
124 See Form PF Glossary of Terms (definition of
‘‘closed-end private fund’’). The definition of
‘‘closed-end private fund’’ is adapted from the
definition of ‘‘venture capital fund’’ in rule 203(l)–
1 under the Advisers Act. See 17 CFR 275.203(l)–
1.
125 See Form PF Glossary of Terms (definition of
‘‘open-end private fund’’).
121 See
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based on staff experience, and will be
used in place of the existing question
that asks whether the reporting fund
provides investors with withdrawal/
redemption rights in the ordinary
course.
Although the proposed question and
the adopted question lead to
substantively identical results in most
cases, the adopted question will
improve data quality by more precisely
specifying what is meant by ‘‘offer[ing]
withdrawal and/or redemption rights in
the ordinary course’’ and, accordingly,
how an adviser should classify a
reporting fund that offers limited
withdrawal or redemption rights. In a
modification from the proposal, an
adviser that selects in Question 10 that
the reporting fund is neither an openend private fund nor a closed-end
private fund will be required to provide
a detailed explanation of these
responses in Question 4.126 We
requested comment on whether we
should include an additional category of
‘‘other’’ withdrawal and/or redemption
frequency.127 Some commenters stated
that the proposed question 10 was
unclear on how to report withdrawal
and redemption rights properly,
particularly for funds with rights that do
not fit within a single frequency
category.128 Instead of including an
‘‘other’’ category, as stated above,
advisers that respond ‘‘no’’ to both
Questions 10(a) and 10(b) will be
required to provide a detailed
explanation of these responses in
Question 4, which will enable us to
understand the circumstances of the
fund’s withdrawal and/or redemption
rights and will improve data quality. It
will also help an adviser that might
otherwise feel constrained by these two
categories if the fund it advises does not
fit into either. We are requiring advisers
to identify whether a reporting fund is
an open-end private fund or a closedend private fund to inform the
Commissions and FSOC better of all
reporting funds’ susceptibility to stress
related to investor redemptions, in order
to help identify more effectively how
widespread the potential stress may
be.129
126 See
Questions 10(a) and 10(b).
2022 Joint Form PF Proposing Release
supra footnote 4, at 32.
128 See, e.g., AIMA/ACC Comment Letter; SIFMA
Comment Letter.
129 To implement this change, we have moved
current Questions 49(a) through (e) from section 2b,
which required only large hedge fund advisers to
report withdrawal and redemption information
about qualifying hedge funds, to section 1b, which
requires all advisers to report withdrawal and
redemption information about all the reporting
funds they advise, and we have redesignated
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127 See
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In a modification from the proposal,
if the reporting fund is an open-end
private fund under Question 10(a), the
adviser will be required to indicate (i)
how often withdrawals or redemptions
are permitted by selecting from a list of
categories pursuant to Question 10(c) 130
and (ii) what percentage of the reporting
fund’s net asset value may be, or is,
subject to a suspension of, or material
restrictions on, investor withdrawals/
redemptions by an adviser or fund
governing body pursuant to Question
10(d).131 The adviser will be required to
report this information regardless of
whether there are notice requirements,
gates, lock-ups, or other restrictions on
withdrawals or redemptions.132 These
amendments will allow the
Commissions and FSOC to identify
more effectively the reporting funds that
may be affected by investor withdrawals
during certain market events and/or are
vulnerable to failure as a result of
investor redemptions. This information
will also provide insight into other data
that all reporting funds report. For
example, we understand that closed-end
private equity funds may have certain
patterns of subscriptions and
withdrawals, despite not offering
redemption rights in the ordinary
course, and also may report
performance to investors and
prospective investors as an internal rate
of return as opposed to as a measure of
the changes in the fund’s portfolio
market value.
One commenter stated that expanding
the classes of private funds that are
required to disclose withdrawal and
redemption rights would allow FSOC to
better identify systemic risks,
particularly resulting from market
events.133 Another commenter opposed
the proposed requirement for all
Questions 49(a) through (e) as part of new Question
10.
130 See Question 10(c). The categories are: (1) on
any business day, (2) at intervals of at least two
business days and up to a month, (3) at intervals
longer than monthly up to quarterly, (4) at intervals
longer than quarterly up to annually, and (5) at
intervals of more than one year.
131 We are redesignating current Questions 49(a)
through (e) as new Question 10. Currently, all
advisers to qualifying hedge funds that provided
investors with withdrawal/redemption rights in the
ordinary course are required to respond to
Questions 52(a) through (e) in section 2(b). We are
moving proposed Questions 52(a) through (e) to
section 1(b) and redesignating it as part of new
Question 10, so that all advisers to open-end private
funds, rather than only advisers to qualifying hedge
funds that provide investors with withdrawal/
redemption rights in the ordinary course, will need
to respond to this question.
132 For example, if the reporting fund allows
quarterly redemptions that are subject to a gate,
then the adviser would select ‘‘at intervals longer
than monthly up to quarterly.’’
133 See Fact Coalition Comment Letter.
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17997
advisers to report on withdrawal and
redemption rights, asserting that the
data would be of limited benefit for
systemic risk monitoring due to the
inclusion of data from smaller funds, as
well as that the types of withdrawal and
redemption restrictions referenced in
proposed Question 10(b) (which has
been redesignated as Question 10(c)) do
not reflect the practices of many hedge
funds.134 A private fund of any size that
provides for withdrawal or redemption
rights may be affected by increased
investor withdrawals during certain
market events and/or vulnerable to
failure as a result of investor
redemptions. This reporting will allow
the Commissions and FSOC to assess
withdrawal and redemption patterns to
identify potential signals of stress at a
particular fund or across many funds, or
related to a particular investment
strategy or strategies, which is relevant
for assessing broader systemic risk.
Information on withdrawal and
redemption rights from all private
funds, including smaller private funds
or funds that are not included in the
definition of a ‘‘hedge fund,’’ will
improve FSOC’s ability to monitor
potential systemic risk and support the
Commissions’ investor protection
efforts.
Some commenters stated that the
proposed Question 10(b) (which has
been redesignated as Question 10(c))
does not address how to report a fund
with multiple types of redemption
rights.135 Some commenters
recommended permitting an adviser to
select multiple options for withdrawal
and redemption rights in Question
10.136 However, it would not support or
enhance our data analysis efforts to
modify Question 10(c) to allow for
multiple selections, given that other
questions on Form PF require reporting
of a fund’s withdrawal and redemption
activity.137 Instead, we are modifying
Question 10(c) to ask for the interval on
which withdrawals or redemptions are
‘‘most commonly’’ permitted (i.e., with
respect to most investors). We also
encourage an adviser to report any
additional details on a fund’s
withdrawal or redemption schedule in
response to Question 4, as appropriate.
Trading vehicles. We are adopting,
with modifications from the proposal as
specified below, amendments to require
advisers to provide identifying
information for any trading vehicle in
134 See
Schulte Comment Letter.
e.g., MFA Comment Letter II; SIFMA
Comment Letter; USCC Comment Letter.
136 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II.
137 See, e.g., Question 14.
135 See,
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which the reporting fund holds assets,
incurs leverage, or conducts trading or
other activities.138 Advisers will be
required to disclose the trading vehicle’s
legal name; LEI, if it has one; and any
other identifying information about the
trading vehicle, such as the RSSD ID, if
it has any. In a change from the
proposal, an adviser will also be
required to specify if the reporting fund
holds assets through a trading vehicle,
incurs leverage through a trading
vehicle, or conducts trading or other
activities through a trading vehicle.139
As discussed above, the final
amendments will include specific
questions to target specified information
related to a reporting fund’s use of
trading vehicles, leveraging information
used to answer Questions 9(a) through
(c), as opposed to requiring a full
separate reporting on Form PF for
trading vehicles.140 These questions are
intended to identify what conduct
requires the vehicle to be reported as a
trading vehicle for purposes of Form PF
and will help improve our
understanding of a reporting fund’s
trading vehicle use. This amendment
will help the Commissions and FSOC
understand the reporting fund’s
activities, including how it interacts
with the market if the fund trades
through a trading vehicle, as well as its
related counterparty exposures. The
identifying information will also allow
comparisons of Form PF data with data
from other sources that use such
information to identify entities.
Enhancing the ability to compare Form
PF data in this way, including with
respect to the use of trading vehicles,
will provide a more comprehensive
view of the market that enhances
systemic risk assessment and our
investor protection efforts.
As discussed more fully above in
section II.A.2 of this Release, we
received comments regarding proposed
Instruction 7 regarding the proposed
disaggregated reporting of trading
vehicles. One commenter recommended
that a threshold question of whether the
reporting fund uses a trading vehicle
should be added to proposed Question
9.141 Such an instruction is not
necessary because it is generally
understood that an adviser may leave
blank any inapplicable question.
Gross asset value and net asset value.
We are adopting, with changes from the
proposal, several amendments to the
way advisers report gross asset value
138 See
Question 9.
Questions 9(d) through (f).
140 See supra section II.A.2 of this Release for
further discussion.
141 AIMA/ACC Comment Letter.
139 See
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and net asset value. We are adopting
amendments to require large hedge fund
advisers and large liquidity fund
advisers to report net asset value and
gross asset value (or, if such values are
not calculated monthly, the reporting
fund aggregate calculated value and the
gross reporting fund aggregate
calculated value, respectively) as of the
end of each month of the reporting
period in their quarterly filings, rather
than only reporting the information as
of the end of the reporting period, as
Form PF currently requires.142 This
amendment is designed to facilitate
analysis of other monthly Form PF data,
including certain fund performance and
risk metrics.143
Some commenters expressed concerns
that calculating net asset value (or gross
asset value) on a monthly basis would
be overly burdensome.144 Another
commenter asserted that the net asset
value or gross asset value of a fund or
a fund’s investments may not be
available on a monthly basis in the case
of investments made into other funds or
entities that are not advised by the filer
or its related persons, in which case the
timing of the reporting may not match
a monthly reporting obligation.145 One
commenter recommended requiring
reporting on net asset value and gross
asset value on a quarterly, rather than
monthly, basis to lessen the burden on
advisers.146
Monthly asset value data is important
to allow analysis of other monthly basis
data collected on Form PF for systemic
risk monitoring and to support our
investor protection efforts. However,
after considering comments, and in a
change from the proposal, an adviser
may report in response to Questions 11
and 12 a fund’s ‘‘gross reporting fund
aggregate calculated value’’
(‘‘GRFACV’’) or ‘‘reporting fund
aggregate calculated value’’ (‘‘RFACV’’),
rather than gross asset value or net asset
value, respectively and as applicable, if
142 See Questions 11 and 12. We also are adopting
amendments to the instructions in Question 11 to
correspond with the instructions that no longer
allow advisers to aggregate master-feeder
arrangements, as discussed above. In a modification
from the proposal, we are adding an instruction to
specify that for feeder funds responding to
Questions 11 and 12, the gross asset value or gross
reporting fund aggregate calculated value and net
asset value or reporting fund aggregate calculated
value calculations should be inclusive of its equity
holdings in the master fund, along with its other
holdings, to more accurately represent the value of
the feeder fund’s holdings.
143 See, e.g., Question 23 (requiring all private
fund advisers to report monthly performance data,
to the extent such results are calculated for the
reporting fund).
144 See, e.g., MFA Comment Letter II.
145 See AIMA/ACC Comment Letter.
146 See MFA Comment Letter II.
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its net asset value and gross asset value
are not calculated on a monthly basis.147
Permitting an adviser to report GRFACV
or RFACV will reduce the need for
advisers to report the net asset value or
gross asset value on a monthly basis, as
proposed. As discussed more fully
below, in connection with proposed
amendments to fund performance
reporting, we proposed adding a
requirement for certain advisers to
report additional performance
information, including RFACV. We are
adding the option for advisers to report
RFACV for Question 12 and GRFACV
for Question 11 because use of RFACV
and GRFACV will reduce burdens on
advisers while allowing us to continue
to receive useful monthly valuation data
to allow for effective systemic risk
monitoring and investor protection
efforts.148 RFACV and GRFACV may be
calculated using the adviser’s own
methodologies or those of its service
providers, provided that the
methodologies used to calculate RFACV
and GRFACV are consistent with
information reported internally.149
Advisers will be required to indicate
whether the reported data represents
RFACV or GRFACV, rather than a net
asset value or gross asset value, as
applicable, to maintain data
comparability. Requiring monthly data
will help facilitate analysis of the other
monthly data reported on Form PF, such
as fund performance, and help identify
trends for systemic risk analysis and
investor protection efforts.
We also are adopting, as proposed,
amendments to add new Question 13,
which requires advisers to separately
147 The amendments to Form PF adopted in the
May 2023 SEC Form PF Amending Release, supra
footnote 4, adopted a definition for ‘‘reporting fund
aggregate calculated value.’’ RFACV is defined as
every position in the reporting fund’s portfolio,
including cash and cash equivalents, short
positions, and any fund-level borrowing, with the
most recent price or value applied to the position
for purposes of managing the investment portfolio.
See Form PF Glossary of Terms (definition of
‘‘reporting fund aggregate calculated value’’).
Because we are now, after considering comments,
adding the new GRFACV term, we are also
modifying the definition of RFACV to clarify that
it is a signed (i.e., positive or negative) value where
all positions are summed. GRFACV, which is used
solely in Question 11 is calculated in the same
manner as RFACV, except that instead of summing
each position’s signed value, GRFACV converts
each position’s value to an absolute value prior to
summing these absolute values.
148 This change is also consistent with the recent
amendments adopted by the SEC which require a
large hedge fund adviser to monitor and in certain
instances report, the fund’s RFACV in compliance
with its current reporting obligation. See May 2023
SEC Form PF Amending Release, supra footnote 4.
149 See Form PF Glossary of Terms. Advisers will
continue to be required to report gross asset value
and net asset value as of the end of the reporting
period. See current Questions 8 and 9, which have
been redesignated as Questions 11(a) and 12(a).
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report the value of unfunded
commitments included in the net and
gross asset values reported in Questions
12 and 11.150 Advisers that provide an
RFACV or GRFACV in response to
Questions 12 and 11 will report the
value of unfunded commitments that
are included in the RFACV or GFRACV
figures. Current Questions 8 and 9
(which have been replaced by Questions
11 and 12) require valuations based on
the instruction in Form ADV for
calculating regulatory assets under
management, which requires advisers to
include the amount of any unfunded
commitments.151 This approach reflects
that, in the early years of a private
fund’s life, its adviser typically earns
fees based on the total amount of capital
commitments, which we presume
reflects compensation for efforts
expended on behalf of the fund in
preparation for the investments.152 The
asset value calculations in Questions 11
and 12 should include unfunded
commitments, so that Form PF data is
comparable to Form ADV data.
However, there are circumstances where
understanding the amount represented
by unfunded commitments will enhance
our understanding of changes to a
reporting fund’s net and gross asset
value over time, inform us of trends,
and improve data comparability over
the life of the fund. For example,
knowing the value of uncalled
commitments will help the
Commissions and FSOC more
accurately identify the leverage of a
fund with uncalled commitments. We
did not receive specific comment on the
proposed addition of Question 13. We
continue to believe that receiving this
information on uncalled commitments
will improve data accuracy and
150 We are adopting amendments to the definition
of ‘‘unfunded commitments’’ as committed capital
that has not yet been contributed to the reporting
fund by investors. Currently, the definition refers
only to private equity funds, and we are adopting
amendments to amend the definition to refer to all
reporting funds. Form PF defines ‘‘committed
capital’’ as any commitment pursuant to which a
person is obligated to acquire an interest in, or
make capital contributions to, the private fund. See
Form PF Glossary of Terms.
151 Form PF requires advisers to calculate gross
asset value and net asset value using regulatory
assets under management, a regulatory metric from
Form ADV. See ‘‘gross asset value’’ and ‘‘net asset
value’’ as defined in Form PF Glossary of Terms;
Form ADV: Instructions for Part 1A, Instruction 5.b.
An adviser must calculate its regulatory assets
under management on a gross basis, that is, without
deduction of any outstanding indebtedness or other
accrued but unpaid liabilities. In addition, an
adviser must include the amount of any uncalled
capital commitments made to a private fund
managed by the adviser.
152 Rules Implementing Amendments to the
Investment Advisers Act of 1940, Advisers Act
Release No. 3221 (June 22, 2011) [76 FR 42950,
42956 (July 19, 2011)], at text accompanying n.90.
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comparability, which is important for
effective systemic risk assessment and
investor protection efforts.
Inflows and outflows. We are
adopting, as proposed, an amendment to
add a question requiring advisers to
report information concerning the
reporting fund’s activity, including
contributions to the reporting fund, as
well as withdrawals and redemptions,
which includes all withdrawals,
redemptions, or other distributions of
any kind to investors.153 Amended
Form PF specifies that, for purposes of
the question, advisers must include all
new contributions from investors and
exclude contributions of committed
capital that they have already included
in gross asset value calculated in
accordance with Form ADV
instructions.154 Large hedge fund
advisers and large liquidity fund
advisers are required to provide this
information for each month of the
reporting period. This requirement will
facilitate analysis of other monthly
Form PF data, including certain fund
performance and risk metrics, improve
data accuracy, and allow the
Commissions and FSOC to analyze data
more efficiently. Inflows and outflows
inform the Commissions and FSOC of
the relationship between flows and
performance, changes to net and gross
asset value, as well as trends in the
private fund industry. Accordingly, this
question will provide a more accurate
baseline understanding of inflows and
outflows, so the Commissions and FSOC
can, for example, more accurately assess
how much the private fund industry has
grown from flows versus performance.
Inflows and outflows also can indicate
funding fragility, which can have
systemic risk implications. Therefore,
this amendment will provide more
accurate data of inflows and outflows
for systemic risk assessment and
investor protection efforts, including
identifying activity that may not match
investor disclosures.
One commenter stated that recent
global events have demonstrated the
importance of FSOC’s assessment of the
potential systemic risks created by
inflows into private investment
markets.155 Another commenter stated
that reporting inflows and outflows on
a monthly basis would create additional
burdens with limited benefits for
systemic risk monitoring purposes and
recommended an annual reporting
requirement.156 However, based on our
153 See
Question 14.
PF, as amended, cites to Form ADV, Part
1A Instruction 6.e.(3).
155 Fact Coalition Comment Letter.
156 Schulte Comment Letter.
154 Form
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experience, receiving fund activity data
on a monthly basis for large hedge fund
advisers is important for systemic risk
analysis and investor protection efforts.
Currently, large hedge fund advisers file
quarterly but only report changes in
inflows or outflows on an annual basis,
which causes this data to be stale and
less effective than more frequently
reported data for monitoring systemic
risk. We also currently cannot
differentiate between changes in value
resulting from performance and changes
in value resulting from inflows and
outflows. Inflow and outflow
information on a monthly basis will
allow us to better understand the
meaning of interim changes in
investment inflows and outflows that
may be relevant to systemic risk
assessment. We also understand that
advisers generally maintain this
information on a monthly basis for
internal recordkeeping purposes.
Base currency. We are adopting, as
proposed, amendments to require all
advisers to identify the base currency of
all reporting funds, rather than only
requiring large hedge fund advisers to
identify this information for qualifying
hedge funds.157 As discussed more fully
in section II.D below, Instruction 15 will
continue to require all advisers to
convert monetary values reported on the
form to U.S. dollars for any reporting
fund that uses a base currency other
than U.S. dollars.158 The Commissions
and FSOC are able to currently identify
whether monetary value information
has been converted from another base
currency and whether there may have
been inconsistencies in the converted
information only with respect to
qualifying hedge funds reported by large
hedge fund advisers in response to
current Question 31. Therefore, this
change will allow the Commissions and
FSOC to interpret more accurately
responses to questions regarding foreign
exchange exposures and the effect of
changes in currency rates on all
reporting fund portfolios, which will aid
systemic risk assessment and investor
protection efforts across all reporting
fund portfolios.
Although we received comments
regarding the proposed amendment to
require advisers to report using U.S.
157 To implement this, current Question 31 has
been redesignated as Question 17 and has been
moved from existing section 2b, which required
only large hedge fund advisers to report information
about qualifying hedge funds, to section 1b, which
requires all advisers to report information about all
the reporting funds they advise. See Question 17.
158 See Instruction 15. We are revising, as
proposed, Instruction 15 to provide additional
instructions concerning currency conversions. See
section II.D (Amendments to Enhance Data Quality)
of this Release.
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dollars for any private fund that has a
base currency other than U.S. dollars,159
we did not receive comments to the
proposed amendment to require all
advisers to report the reporting fund’s
base currency. We continue to believe
our adopted approach will allow for
more accurate responses to other
questions on Form PF regarding
currency exposures and improve data
comparability to aid systemic risk
assessment and our investor protection
efforts.160
Borrowings and types of creditors. We
are adopting, largely as proposed,
amendments to revise how advisers
report the reporting fund’s
‘‘borrowings.’’ First, we are revising the
term ‘‘borrowings’’ to (1) specify that it
includes ‘‘synthetic long positions,’’
which is defined in the Glossary of
Terms, and (2) provide a non-exhaustive
list of types of borrowings.161 This
reporting approach is consistent with
SEC staff Form PF Frequently Asked
Questions.162 This amendment is
designed to improve data quality, based
on our experience with the form.
Some commenters stated that it is not
clear how an adviser should report
cross-collateralized agreements.163 A
modification to the instructions to
address this comment is not warranted.
The instructions to Questions 26 and
41,164 as applicable, specify how margin
for these arrangements should be
reported. For example, the instructions
to these questions indicate that the
adviser is to classify borrowing and
159 See
infra section II.D of this Release.
discussed more fully below in section
II.C.2.a, we are also adopting amendments to
require currency exposure reporting for qualifying
hedge fund advisers.
161 ‘‘Borrowings’’ include, but are not limited to
(1) cash and cash equivalents received with an
obligation to repay; (2) securities lending
transactions (count cash and cash equivalents and
securities received by the reporting fund in the
transaction, including securities borrowed by the
reporting fund for short sales); (3) repo or reverse
repo (count cash and cash equivalents and
securities received by the reporting fund); (4)
negative mark-to-market of derivative transactions
from the reporting fund’s point of view; and (5) the
gross notional value of ‘‘synthetic long positions.’’
The term ‘‘synthetic long position’’ is defined in the
Form PF Glossary of Terms. We are adopting, with
modifications from the proposal, the definition of
‘‘synthetic long position’’ based on our
understanding of the instruments and to help
ensure data quality to aid comparability.
162 See SEC staff Form PF Frequently Asked
Questions, available at https://www.sec.gov/
divisions/investment/pfrd/pfrdfaq.shtml (‘‘Form PF
Frequently Asked Questions’’). See Form PF
Frequently Asked Question 12.1 (which provides a
non-exhaustive list of types of borrowings).
163 See AIMA/ACC Comment Letter; USCC
Comment Letter.
164 For hedge funds, other than qualifying hedge
funds, advisers complete Question 26. For
qualifying hedge funds, advisers complete Question
41.
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collateral received and lending and
posted collateral according to type and
the governing legal agreement, such as
a prime brokerage or other brokerage
agreement, for cash margin and
securities lending and borrowing.
Additionally, the instructions for each
of these questions allow respondents to
indicate whether cross margining is in
effect and indicate how to treat the
collateral in such cases. One commenter
stated that the Commissions should
establish a threshold for when a
position is considered ‘‘deep-in-themoney’’ and recommended including a
definition for ‘‘deep-in-the-money’’
positions in the definitions of ‘‘synthetic
long position’’ and ‘‘synthetic short
position.’’ 165 In consideration of this
comment and in order to improve data
quality, we are revising the definitions
of the ‘‘synthetic long position’’ and the
‘‘synthetic short position’’ to more
clearly specify, as an example, that a
position with a delta of 98% or higher
is considered to be ‘‘deep-in-themoney.’’ 166 Based on our experience,
we believe that a delta of 98% or higher
is typically the most appropriate
threshold for both long and short expiry
option exposures for reporting purposes
and will furthermore be generally
consistent with advisers’ expectations
and accommodate their internal
practices, where many advisers already
use a lower threshold. Although other
thresholds could potentially be used, a
delta of 98% or higher will generally
provide us with more reliable and
accurate information for systemic risk
assessment purposes. If set lower than
this level, the threshold could trigger
inappropriately due to the impact of the
delta’s rate of change (i.e., its gamma)
and capture options that should not
constitute synthetic short or long
positions, such as options with little
time left to expiry that may be close to
their strike level. If set higher (e.g., to
99%), the threshold could miss longerdated options that should constitute
synthetic short positions, but where the
lengthy time to expiry allows the
possibility that the options will go
unexercised, such that the threshold
will not be met, and the options will
inappropriately be not included.
Second, we are adopting amendments
to Question 18, which requires advisers
to report the value of the reporting
fund’s borrowings and the types of
creditors, to require advisers to indicate
whether a creditor is based in the
United States and whether it is a ‘‘U.S.
165 MFA
Comment Letter II.
Form PF Glossary of Terms (definitions of
‘‘synthetic long position’’ and ‘‘synthetic short
position’’).
166 See
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depository institution,’’ rather than a
‘‘U.S. financial institution’’ as is
currently required.167 This amendment
will make the categories more consistent
with the categories that the FRB uses in
its reports and analysis, which will
enhance systemic risk assessment.
Advisers are not required to distinguish
between non-U.S. creditors that are
depository institutions and those that
are not. We understand that it is
difficult for advisers to distinguish nonU.S. creditors by type, which can result
in inconsistent data that is less valuable
for analysis. We did not receive specific
comment on this amendment.
Fair value hierarchy. We are adopting,
largely as proposed, a number of
amendments to revise how advisers
report fair value hierarchy in Question
20, to improve data quality and better
understand the reporting fund’s
complexity and valuation challenges.168
First, we are adopting amendments
that require advisers to indicate the date
on which the categorization was
performed. This amendment is designed
to show how old the data is. Some
advisers report current fair value
hierarchy, while others report a prior
year’s fair value hierarchy if the current
data is not yet available.169 This can
167 See Question 18. Form PF defines ‘‘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 Federallychartered 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 Statechartered); (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. See Form
PF Glossary of Terms.
168 We have redesignated current Question 14 to
Question 20.
169 Advisers are not 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 their recordkeeping, risk management,
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cause confusion when analyzing the
data, because the fair value hierarchy
data concerns a different time period
than the other data advisers report on
Form PF. Therefore, we believe that
adding a categorization date will help
prevent the data from being incorrectly
categorized as applying to the wrong
time period, and in turn, will allow the
Commissions and FSOC to correlate
data to other Form PF data and market
events more accurately. We did not
receive specific comment on this
amendment.
Second, we are adopting amendments
to direct advisers to report the absolute
value of all liabilities. Currently,
advisers report liabilities inconsistently,
with some reporting absolute values and
others reporting negative values. This
inconsistency causes errors when the
Commissions and FSOC aggregate this
data, and the amended instruction will
help reduce aggregation errors. We did
not receive specific comment on this
amendment.
Third, we are adopting amendments
to direct advisers to provide an
explanation in Question 4 if they report
assets as a negative value. We have
found that some advisers have reported
negative values for assets in error.170
Therefore, this instruction is designed to
reduce inadvertent errors. We did not
receive specific comment on this
amendment.
Fourth, we are adopting amendments
to require advisers to separately report
cash and cash equivalents. Currently,
Form PF does not explain where
advisers must report cash and cash
equivalents in current Question 14. SEC
staff have recommended that advisers
generally should report cash in the cost
based column and cash equivalents in
the applicable column in the fair value
hierarchy or the cost based column,
depending on the nature of the cash
equivalents, but now we are adding a
separate column for cash and cash
equivalents.171 The amended
categorization is designed to
differentiate reported holdings of cash
and cash equivalents from harder-tovalue assets that may be valued at cost,
and in turn, improve data quality and
comparability. We did not receive
specific comment on this amendment.
Fifth, we are adopting amendments to
the definition of ‘‘cash and cash
or investor reporting (such as estimates that are
refined after completion of a subsequent audit). See
Instruction 16.
170 We recognize that there may be cases when
advisers correctly report negative values, such as
when subtracting fund of fund investments.
171 See Form PF Frequently Asked Question 14.3,
Form PF Frequently Asked Questions, supra
footnote 162.
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equivalents.’’ The current definition of
‘‘cash and cash equivalents’’ includes
‘‘government securities.’’ 172 When
reporting cash and cash equivalents,
some advisers may include government
securities with longer maturities, while
others do not, which results in
inconsistent reporting and may obscure
our and FSOC’s understanding of fund
exposures. Therefore, to improve data
quality, we are removing government
securities from the definition of ‘‘cash
and cash equivalents’’ and presenting
government securities as its own line
item in the Form PF Glossary of
Terms.173 Some commenters opposed
the proposed removal of government
securities from the definition of ‘‘cash
and cash equivalents,’’ stating that the
revised definition is inconsistent with
market practice and internal fund
practices, which generally treat
government securities as cash
equivalents.174 One commenter
recommended that the definition of
‘‘cash and cash equivalents’’ should
include U.S. treasury securities with
maturity of 90 days or less to the extent
that the adviser treats these as cash
equivalents.175 We continue to believe
that the removal of all government
securities from the definition of ‘‘cash
and cash equivalents’’ and requiring
reporting of government securities
holdings separately will improve data
quality and our and FSOC’s
understanding of fund holdings. The
amended definition is intended to
provide more granular detail on a fund’s
exposure and is not intended to change
any commercial understanding or
accounting treatment of cash
equivalents or result in any fund
investment changes. It is appropriate to
require advisers to list all government
securities, including U.S. treasury
securities with maturity of 90 days or
less, under a separate category because
they represent a different asset type and
market that are relevant for purposes of
assessing systemic risk.
Further, we are adopting, as proposed,
an amendment to the term ‘‘cash and
cash equivalents’’ that directs advisers
to exclude digital assets when reporting
172 Form PF defines ‘‘government securities’’ as
(1) U.S. Treasury securities, (2) agency securities,
and (3) any certificate of deposit for any of the
foregoing. See Form PF Glossary of Terms.
173 We are adopting corresponding amendments
to the definition of ‘‘unencumbered cash’’ to reflect
that ‘‘government securities’’ are a distinct term
from ‘‘cash and cash equivalents.’’ This amendment
does not change the meaning of the term
‘‘unencumbered cash.’’ See Form PF Glossary of
Terms.
174 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II.
175 MFA Comment Letter II.
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cash and cash equivalents.176 One
commenter recommended that the
Commissions clarify how to report an
asset that may be reasonably included in
multiple categories and stated that,
digital assets, as proposed to be defined,
may overlap with multiple reporting
categories.177 This amendment to the
‘‘cash and cash equivalent’’ definition
will facilitate appropriate
classifications.
We are adopting amendments to add
instructions directing advisers about
how to report data if their financial
statement’s audit is not yet completed
when Form PF is due. The instructions
state that advisers should use the
estimated values for the fiscal year and
explain that the information is an
estimate in Question 4. The instructions
also provide that the adviser may, but is
not required to, amend Form PF when
the audited financial statements are
complete.178 The instructions are
consistent with responses to Form PF
Frequently Asked Questions and are
designed to provide the Commissions
and FSOC with more recent information
regarding the reporting fund than may
be possible if the reporting fund relied
solely on audited financial statement
information (i.e., the reporting fund’s
previous fiscal year’s audited financial
statements).179 Given that advisers file
Form PF sometimes months after their
quarter and year ends, depending on
their size and the type of funds they
advise, the amended instruction
balances reporting burdens with the
need for more timely information for
assessing potential systemic risk and
investor protection concerns. We did
not receive specific comment on this
amendment.
Beneficial Ownership of the Reporting
Fund. Form PF currently requires
advisers to specify the approximate
percentage of the reporting fund’s equity
that is beneficially owned by different
groups of investors. We are
redesignating current Question 16 as
Question 22 and amending the question,
as proposed, to require advisers to
provide more granular information
regarding the following groups of
beneficial owners.
176 As discussed further in section II.B.3 of this
Release, in a modification from the proposal, we are
not adopting the proposed definition of ‘‘digital
asset.’’
177 MFA Comment Letter II.
178 Instruction 16 continues to provide that an
adviser is not required to update information that
it believes in good faith properly responds to Form
PF on the date of filing, even if that information is
subsequently revised.
179 See Form PF Frequently Asked Question A.11,
Form PF Frequently Asked Questions, supra
footnote 162.
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• Advisers will be required to
indicate whether beneficial owners that
are broker-dealers, insurance
companies, non-profits, pension plans,
banking or thrift institutions are U.S.
persons or non-U.S. persons.180 This
amendment will allow the Commissions
and FSOC to conduct more targeted
analysis about risks presented in the
United States separate from risks
presented abroad. With regard to
pension plans, in particular, it is
currently unclear whether advisers must
report assets in non-U.S. pension plans
as governmental pension plans or
foreign official institutions. Therefore,
this amendment also is designed to
improve data quality, based on our
experience with the form.
• Advisers will be required to
indicate whether beneficial owners that
are private funds are either internal
private funds (i.e., managed by the
adviser or its related persons) or
external private funds. This amendment
is designed to help the Commissions
and FSOC understand the
interconnectedness of private funds to
each other, which will aid systemic risk
assessment and investor protection
efforts. Furthermore, this information
will help the Commissions and FSOC
understand a reporting fund’s risk from
investor demands for liquidity, because
beneficial owners that are external
private funds may have less predictable
withdrawals than internal private funds.
• We are specifying that ‘‘state’’
investors are U.S. state investors to
improve data quality and reduce
potential confusion.181
The amendments provide that if
advisers report information in the
‘‘other’’ category, they must describe in
Question 4 the type of investor, why it
would not qualify for any of the other
categories, and any other information to
180 We understand that, in some cases, an adviser
may not be able to determine what type of non-U.S.
entity the investor is. Current Question 16 provides
a category that addressed that scenario in certain
circumstances, and we are maintaining this
approach. If investors that are not United States
persons and about which certain beneficial
ownership information is not known and cannot
reasonably be obtained because the beneficial
interest is held through a chain involving one or
more third-party intermediaries, advisers currently
report this in current Question 16(m), which we
redesignated as Question 22(s).
181 As proposed, we are also including
instructions to Question 22, as well as Question 21,
which is current Question 15 (concerning a certain
percentage of beneficial ownership), providing that
if the reporting fund is the master fund in a masterfeeder arrangement, advisers must look through any
disregarded feeder fund (i.e., a feeder fund that is
not required to be separately reported). This
amendment is designed to implement the adopted
master-feeder reporting requirements. See section
II.A.1 (Reporting Master-Feeder Arrangements and
Parallel Fund Structures) of this Release.
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explain the selection of ‘‘other.’’ This
amendment is designed to improve data
quality by providing context to the
adviser’s selection of the ‘‘other’’
category and help ensure that advisers
do not inadvertently report information
in the wrong category.
One commenter stated that more
granular reporting on beneficial
ownership would support FSOC’s
analysis of potential sources of systemic
risk.182 This commenter supported
requiring additional disclosure of
beneficial ownership and recommended
requiring additional disclosures of any
politically exposed persons and, for
each private fund, the percentage of
fund investors and fund equity that
originated from certain countries.
Another commenter recommended
allowing advisers to report beneficial
ownership on good faith estimates based
on the data that they have from
investors and stated that the
Commissions had not provided a
reasonable justification for requiring the
proposed, more granular information.183
We understand from this commenter
that advisers may not have information
for all beneficial owners of a reporting
fund by country and that it may be
burdensome to obtain this information.
Country-level information on a fund’s
beneficial owners is not required to be
reported on Form ADV. As proposed,
we are thus not requiring reporting of
this information on Form PF. We
continue to believe that requiring
reporting on percentage of the reporting
fund’s beneficial ownership that is held
by U.S. and non-U.S. persons will
improve data quality, based on our
experience with the form, and will
allow for more effective systemic risk
analysis. For example, this information
will increase the usefulness of the FRB’s
Financial Accounts, a tool that is used
for evaluating trends in and risks to the
U.S. financial system.184 If an adviser is
unable to determine the required
beneficial ownership data, the
amendments specify that an adviser
may provide additional explanatory
information in its response to Question
4.
Fund Performance. We are adopting
several amendments, with
modifications, regarding fund
performance reporting in current
Question 17, which we have
redesignated as Question 23.185 We are
182 Fact
Coalition Comment Letter.
Comment Letter II.
184 See Financial Accounts of the United States,
available at https://www.federalreserve.gov/releases/
z1/.
185 In a separate release, the SEC adopted a new
rule under the Advisers Act to require advisers to
provide certain fund performance information to its
183 MFA
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adopting, as proposed, amendments to
require all advisers to provide gross and
net fund performance as reported to
current and prospective investors,
counterparties, or otherwise for
specified fiscal periods using the table
in redesignated Question 23 with added
instructions specifying which lines to
complete depending on whether the
adviser is submitting an initial filing,
annual update, or quarterly update.186
These amendments will improve data
quality by specifying which fields an
adviser should use to report fund
performance for the specified filing
period.
As discussed further below, the
amendments will require an adviser to
report its performance as a moneyweighted internal rate of return (instead
of a time-weighted return), if the
reporting fund’s performance is reported
to investors, counterparties or otherwise
as an internal rate of return since
inception. This results from a
modification from the proposal in
which we added an instruction to
proposed Question 23 to specify that the
reporting fund may report performance
as either a time-weighted return or an
internal rate of return, but the
methodology used for reporting
performance should be consistent over
time.
In an additional modification from the
proposal that is similarly intended to
promote data quality through reporting
comparability, we are amending the
instructions to the table to specify that
gross and net performance should be
reported using the reporting fund’s base
currency. This instruction is implicit in
the current form, which requires that
performance data be provided as
reported to investors or as calculated for
other purposes, and we are amending
the instruction to make it explicit.
Accordingly, pursuant to this
modification to the proposed
instructions, for example, if a reporting
fund uses Japanese yen as its base
currency, the fund should report its
performance using its base currency,
private funds’ investors in quarterly statements. See
Private Fund Advisers; Documentation of
Registered Investment Adviser Compliance
Reviews, Advisers Act Release No. IA–6383 (Aug.
23, 2023) [88 FR 63206 (Sept. 14, 2023)] (‘‘SEC
Private Fund Advisers Adopting Release’’).
186 As proposed, we also are reorganizing the
table so monthly, quarterly, and yearly data is
presented in separate categories, but this change
will not affect reporting frequency; advisers will
continue to report information according to the
same intervals. We are also amending the table to
refer to the end date of each applicable month,
quarter, and year, rather than last day of the fiscal
period, to reflect the amendments to the reporting
period, as discussed above. See supra section II.A.3
(Reporting Timelines) of this Release, and Question
23(a).
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which is Japanese yen. We also are
adopting, as proposed, amendments to
require advisers to identify the currency
in Question 4.187 This amendment is
designed to inform the Commissions
and FSOC of the currency the adviser
used to report the reporting fund’s gross
and net performance, for more accurate
and informed analysis.
One commenter stated the proposed
requirement does not specify whether
net performance should be net of all
fund fees and expenses or net of only
management fees, incentive fees and
allocations, which are referenced in the
column header for net performance in
Question 23(a); and that it is relatedly
unclear whether gross performance
should reflect the deduction of all other
fund fees and expenses.188 This
commenter suggested that such a result
would be inconsistent with the
treatment of gross performance in the
SEC investment adviser marketing and
the private fund adviser rules, which do
not require that gross performance
reflect the deduction of any fees or
expenses. This commenter also stated
that the Global Investment Performance
Standards require that gross returns
reflect the deduction of only transaction
costs and that the deduction of any
additional fees and expenses is optional.
For purposes of Form PF, advisers must
provide the net performance and gross
performance information that they
provide to investors, counterparties, or
otherwise (or the most representative set
of performance information if the
adviser reports different fund
performance results to different groups,
with an explanation of its selection to be
provided in Question 4). Consistent
with the reference to management fees,
incentive fees, and allocations in the
column header for net performance in
Question 23(a), net performance should
always reflect the deduction of adviser
compensation. In addition, Form PF
provides confidential reporting to the
Commissions, rather than reporting of
performance information to current
investors. Given these different
purposes and audiences for the
information, it is not necessary for us to
further specify how to calculate gross
performance or net performance for
purposes of Form PF. These
amendments are designed to allow the
Commissions and FSOC to compare
performance volatility to identify
market trends for systemic risk analysis
and investor protection efforts.
We are also adopting, as proposed,
amendments to create an alternative to
187 See
Question 23(a).
Letter of CFA Institute (Oct. 11,
2022) (‘‘CFA Institute Comment Letter’’).
188 Comment
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the gross and net performance tabular
reporting. If the reporting fund’s
performance is reported to current and
prospective investors, counterparties, or
otherwise as an internal rate of return
since inception, the adviser will be
required to report its performance as an
internal rate of return.189 If such
information is reported to current and
prospective investors, counterparties, or
otherwise, in a currency other than U.S.
dollars, advisers will be required to
report the data using that currency, and
identify the currency in Question 4.190
This approach is designed to
acknowledge that advisers calculate
performance data differently for
different types of private funds. For
example, advisers of private equity
funds may use a money-weighted rate of
return, such as an internal rate of return,
to calculate performance data, while
advisers to liquidity funds and hedge
funds may use a time-weighted rate of
return. These calculations may differ in
the way they reflect the impact of the
timing of external cash flows, among
other things. Therefore, the adopted
change will allow the Commissions and
FSOC to improve the usefulness and
quality of performance data to conduct
more accurate analysis, including
comparisons, and aggregations.
One commenter noted that proposed
Questions 23(a) (gross and net
performance) and 23(b) (internal rate of
return) may be mutually exclusive for
some reporting funds.191 This
commenter recommended allowing
either Question 23(a) or Question 23(b)
to be left blank, as appropriate. We do
not believe such a specification is
necessary because the instructions
provide that an adviser should respond
to either Question 23(a) or 23(b), as
applicable, and it is generally
understood that an adviser may leave
blank any inapplicable question.
The instructions to Question 23
provide that an adviser may report the
reporting fund’s performance either as a
time-weighted return or a moneyweighted return, such as an internal rate
of return.192 We are adopting defined
189 See instructions to Question 23 and Question
23(b). Question 23(b) also requires that if the fund
reports different performance results to different
groups, advisers must provide the most
representative results and explain their selection in
Question 4. The instructions to Question 23(b)
specify that internal rates of return for periods
longer than one year must be annualized, while
internal rates of return for periods one year or less
must not be annualized. This instruction is
designed to help ensure consistent reporting for
accurate comparisons.
190 See supra in this section II.A.2 of the Release
for further discussion of this amendment.
191 AIMA/ACC Comment Letter.
192 See Question 23. The instructions provide that
the methodology used for reporting performance
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terms for ‘‘rate of return’’ and ‘‘internal
rate of return’’ in the Form PF Glossary
of Terms. In a modification from the
proposal, ‘‘rate of return’’ is generally
defined as the percentage change in the
reporting fund’s net asset value (or,
when a net asset value is not available,
in the reporting fund aggregate
calculated value) in the reporting fund’s
base currency from one date to another
and adjusted for subscriptions and
redemptions.193 Further, in a
modification from the proposal, the rate
of return for a portfolio position is
defined as the percentage change in the
position calculated value, adjusted for
income earned and for changes in the
quantity held resulting from activity,
such as purchases, sales, or splits.194 As
proposed, ‘‘internal rate of return’’ is
defined as the discount rate that causes
the net present value of all cash flows
throughout the life of the fund to be
equal to zero. One commenter
supported the proposed ‘‘internal rate of
return’’ definition and recommended
clarifying how the terms reporting fund
aggregate calculated value and currency,
which are referenced in the ‘‘rate of
return’’ definition, apply to the
‘‘internal rate of return’’ definition.195
‘‘Internal rate of return’’ and ‘‘rate of
return’’ are distinct defined terms in the
Form PF Glossary of Terms, and
reporting fund aggregate calculated
value and currency are not referenced in
and do not apply to the definition of
‘‘internal rate of return.’’ 196 Further,
reporting fund aggregate calculated
value is only used when a net asset
(i.e., as a time-weighted return or money-weighted
return, such as an internal rate of return) should be
consistent over time.
193 The proposed definition of ‘‘rate of return’’
was generally the percentage change in the
reporting fund aggregate market value in the
reporting fund’s base currency from one date to
another and adjusted for subscriptions and
redemptions. The modified definition we are
adopting includes reference to a change in the
fund’s net asset value and modifies the reference to
reporting fund aggregate market value to use the
defined term in Form PF, reporting fund aggregate
calculated value.
194 The proposed definition generally was that the
rate of return for a portfolio position is the
percentage change in the position market value,
adjusted for income earned. One commenter
recommended that we modify this definition stating
that a position return cannot be calculated by
considering only changes in a portfolio’s position
value adjusted for income and should also consider
changes in quantity resulting from transactions. See
CFA Institute Comment Letter. After considering
comments, we have changed the reference to
‘‘position market value’’ in the adopted definition
to refer instead to the defined term in Form PF,
‘‘position calculated value,’’ and we have added
reference to adjustments for changes in quantity
resulting from activity such as purchases, sales, or
splits.
195 See CFA Institute Comment Letter.
196 See Form PF Glossary of Terms (definitions of
‘‘internal rate of return’’ and ‘‘rate of return’’).
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value is not available for calculation of
a rate of return. In a modification from
the proposal, we are adding an
instruction to Questions 23(a) and 23(b)
to specify that the reporting fund’s
performance should not be calculated
using a reporting fund aggregate
calculated value because this question is
intended to report performance, as
reported to investors. One commenter
recommended requiring funds to
consistently report the same type of
returns over time and not switch
between a rate of return calculation,
which is time weighted, and an internal
rate of return, which is money
weighted.197 We agree with this
commenter and believe that consistent
reporting of returns is important for data
comparability. Therefore, in a change
from the proposal, Question 23 includes
an instruction that the methodology
used to report performance should
remain consistent over time. One
commenter stated the proposed
definition does not specify whether to
include the impact of subscription
facilities 198 in the internal rate of return
calculation and requested that we
specify whether returns should be
reported with or without the impact of
any subscription facilities.199 In a
change from the proposal, we are
requiring advisers in responding to
Question 23 to indicate whether the
reported internal rate of return includes
or does not include the impact of
subscription facilities to allow for
improved data comparability. It is
necessary for an adviser to specify
whether the reported rate of return
includes or excludes the impact of
subscription facilities to be able to
accurately compare data between
reporting periods. For example, an
adviser that reports an internal rate of
return with the impact of fund-level
subscription facilities in one reporting
period but reported without the impact
of subscription facilities in a prior
period could report artificially increased
performance metrics.
We are also adopting amendments, as
proposed except as indicated below,
that require advisers to report additional
performance-related information if the
adviser calculates a market value on a
daily basis for any position in the
reporting fund’s portfolio. In such a
case, the adviser will be required to
report several items. First, it would
report the ‘‘reporting fund aggregate
calculated value’’ at the end of the
197 See
CFA Institute Comment Letter.
facilities (or subscription lines)
generally refer to credit lines that are guaranteed by
committed but uncalled capital.
199 See CFA Institute Comment Letter.
198 Subscription
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reporting period.200 Advisers that file a
quarterly update also will report the
reporting fund aggregate calculated
value as of the end of the first and
second month of the reporting
period.201 Second, the adviser will
report the reporting fund’s volatility of
the natural log of the daily ‘‘rate of
return’’ for each month of the reporting
period, following a prescribed
methodology.202 Advisers will be
required to report whether the reporting
fund uses a different methodology than
is prescribed in Form PF to report to
current and prospective investors,
counterparties, or otherwise, and if so,
describe it in Question 4.203 One
commenter recommended requiring
volatility measurements over longer
periods, such as quarterly or annually,
stating that requiring daily
measurements would result in a smaller
population size and less meaningful
information.204 We believe receiving
reporting on the volatility of daily
returns on a monthly basis is important
because significant volatility swings that
occur over a short timeframe may not be
discernible from quarterly or annual
data but can pose systemic risk. Further,
receiving higher frequency volatility
data will give more context to a fund’s
reported monthly returns and will allow
us to assess risk-adjusted returns. We
understand that it is common practice
for advisers to annualize volatility
calculations and compare across
different time intervals.205
200 The amendments to Form PF adopted in the
May 2023 SEC Form PF Amending Release, supra
footnote 4, added a definition for ‘‘reporting fund
aggregate calculated value.’’ See Form PF Glossary
of Terms. See also Question 23(c). We have
modified the reference in the proposed Question to
‘‘reporting fund aggregate market value’’ to the
defined term in Form PF, the reporting fund
aggregate calculated value.
201 See Question 23(c)(i).
202 See discussion of definitions of ‘‘rate of
return’’ and ‘‘position market value,’’ supra
footnotes 193 and 194. The prescribed methodology
is the standard deviation of the natural log of one
plus each of the daily rates of return in the month,
annualized by the square root of 252 trading days.
When calculating the natural log of a daily rate of
return, the rate of return, which is expressed as a
percent, must first be converted to a decimal value
and then one must be added to the decimal value.
See Form PF Glossary of Terms and Question
23(c)(ii). Although the reference to ‘‘of one plus
each’’ was in the proposing release, it was
inadvertently left out of the proposed form. We are
revising the form to include this language. To
reduce potential confusion, we are also specifying
in the instruction to this question that, when
calculating the natural log of a daily rate-of-return,
the rate of return, which is expressed as a percent,
must first be converted to a decimal value and then
one must be added to the decimal value.
203 See Question 23(c)(iii).
204 CFA Institute Comment Letter.
205 We have also modified the table in Question
23(c)(ii) to refer to ‘‘annualized’’ volatility of
returns, rather than monthly, as proposed, to
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Third, the adviser must report
whether the reporting fund had one or
more days with a negative daily rate of
return during the reporting period. If so,
advisers will be required to report (1)
the most recent peak to trough
drawdown, and indicate whether the
drawdown was continuing on the data
reporting date, (2) the largest peak to
trough drawdown, (3) the largest single
day drawdown, and (4) the number of
days with a negative daily rate of return
in the reporting period.206 These
measures are designed to help us and
FSOC understand risk, particularly in
reporting funds with unique return
patterns that are poorly measured using
volatility alone. We understand that
advisers use drawdown metrics,
therefore, this question also is designed
to be more reflective of industry
practice, and in turn improve data
quality.
Advisers are required to report these
figures as an amount in the fund’s base
currency and, in a modification from the
proposal, as a percentage in the fund’s
base currency. One commenter
recommended changing amount in base
currency to percent in base currency.207
We agree with requiring reporting of
percent in base currency to improve
data comparability, and we do not
believe requiring percent in addition to
amount is incrementally more
burdensome to report because the
adviser can leverage existing reporting
of the amount in base currency and
NAV to provide this metric. Requiring
an adviser to also report the percent in
base currency will improve data
comparability because it will provide
consistency across data reported by the
adviser, rather than potentially using a
different exchange rate than the adviser
used. This commenter also
recommended providing definitions and
examples of how to calculate the most
recent and largest peak-to-trough
drawdown and provided a
recommended definition. We do not
believe it is necessary to specify a
particular methodology to calculate
these metrics, which we understand
advisers commonly calculate for their
funds. Together, the adopted changes
are designed to allow the Commissions
and FSOC to compare volatility more
accurately across different fund types to
identify market trends (e.g., volatility of
a specific fund type), for systemic risk
assessment and investor protection
efforts. For example, if several reporting
correspond with the instructions which require the
adviser to report the volatility data for each month
of the reporting period, on an annualized basis.
206 See Question 23(c)(iv).
207 CFA Institute Comment Letter.
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funds that engage in similar trading
activity experience a surge in volatility,
the volatility itself or the reporting
funds’ response to the volatility may
impact others who also are engaging in
similar trading activity, which could
pose systemic risk, and negatively affect
investors.
3. Amendments to Section 1c of Form
PF—Concerning All Hedge Funds
Section 1c requires advisers to report
information about the hedge funds they
advise. We are adopting, as proposed
except as specified below, amendments
to require advisers to report additional
information about hedge funds to
provide greater insight into hedge funds’
operations and strategies, assist in
identifying trends, and improve data
quality and data comparability for
purposes of systemic risk assessments
and to further investor protection
efforts. We are also removing certain
questions where other questions provide
the same or more useful data to
streamline reporting and reduce
reporting burdens without
compromising investor protection
efforts and systemic risk analysis.
Investment Strategies. We are
adopting, as proposed except as
specified below, amendments to how
advisers report hedge fund investment
strategies.208 We are adopting, as
proposed, amendments to require
advisers to indicate which investment
strategies best describe the reporting
fund’s strategies on the last day of the
reporting period, rather than allowing
advisers flexibility to report information
as of the data reporting date or
throughout the reporting period, as
Form PF currently provides.209 This
amendment is designed to improve data
quality by specifying how to report
information if the reporting fund
changes strategies over time. Relatedly,
in a modification from the proposal, we
are also including an instruction that
specifies the methodology an adviser
uses for selecting reporting strategies
should be consistent over time. This
instruction is designed to improve data
quality and comparability by specifying
that an investment strategy should be
categorized consistently from one
reporting period to the next. This
instruction will also simplify the
categorization process for an adviser
because it will require an adviser to
only determine once how to categorize
an ongoing investment strategy.
We also are adopting, as proposed
except as specified below, amendments
208 We are amending current Question 20 and
redesignating it as Question 25.
209 See current Question 20.
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to update the strategy categories that
advisers can select to reflect our
understanding of hedge fund strategies
better and to improve data quality and
comparability, based on experience with
the form. For example, we are including
more granular categories for equity
strategies, such as factor driven,
statistical arbitrage, and emerging
markets. Similarly, we are including
more granular categories for credit
strategies, such as litigation finance,
emerging markets, and asset-backed/
structured products. These more
granular categories are designed to
allow the Commissions and FSOC to
conduct more targeted analysis and
improve comparability among advisers
and hedge funds, which the
Commissions and FSOC can use to
identify and address systemic risk and
investor protection issues in times of
stress more accurately. In a modification
from the proposal, to facilitate
completion of this question and
alleviate challenges filers face in
choosing among a limited list of
investment strategy types, filers will be
able to choose from a ‘‘drop-down’’
menu that includes all investment
strategy categories for Form PF.210
We also are adding, as proposed,
categories that have become more
commonly pursued by hedge funds
since Form PF was adopted, such as
categories concerning real estate and
digital assets.211 Currently, advisers may
210 For purposes of this question, investment
strategies generally include equity (and associated
sub-strategies such as long/short market neutral,
long only, long/short short bias, and long/short long
bias), macro (and associated sub-strategies such as
active trading, commodity, currency, and global
macro), convertible arbitrage, relative value (and
associated strategies such as fixed income asset
backed, fixed income convertible arbitrage, fixed
income corporate, fixed income sovereign, fixed
income arbitrage, and volatility arbitrage), event
driven (and associated sub-sub-strategies such as
distressed, distressed/restructuring, risk arbitrage/
merger arbitrage, equity special situations, and
special situations), credit (and associated substrategies such as asset based lending, litigation
finance, emerging markets, and asset backed/
structured products), managed futures/CTA (and
associated sub-strategies such as fundamental,
quantitative), investment in other funds, private
credit (and associated sub-strategies such as direct
lending/mid-market lending, distressed debt,
junior/subordinate debt, mezzanine financing,
senior debt, senior subordinated debt, special
situations, venture debt, and other), private equity
(and associated sub-strategies such as early stage,
expansion/late stage, buyout, distressed, growth,
private investment in private equity, secondaries,
and turnaround), real estate, real estate investment
trusts, real assets excluding real estate, annuity and
life insurance policies, litigation finance, digital
assets, general partner stakes investing, cash and
cash equivalents, and other.
211 For example, aggregate qualifying hedge fund
gross notional exposure to physical real estate has
grown by 47% from the second quarter 2021
through the first quarter 2023, to $191 billion. See
Private Funds Statistics, supra footnote 5.
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report information regarding these
strategies in the ‘‘other’’ category,
resulting in less robust Form PF data for
analysis, especially when such analysis
filters results based on strategy.212 The
additional categories are designed to
improve reporting quality and data
comparability across advisers, based on
our experience with the form. If an
adviser selects the ‘‘other’’ category, the
adviser will be required to describe in
Question 4 the investment strategy, why
the reporting fund would not qualify for
any of the other categories, and any
other information to explain the
selection of ‘‘other.’’ The requirement to
provide an explanation in Question 4 is
designed to improve data quality by
providing additional context to the
adviser’s selection of the ‘‘other’’
category and will improve our
understanding of the adviser’s
strategies, which may present systemic
risk. It also is designed to help us ensure
that advisers are not misreporting
information in the ‘‘other’’ category
when they should be reporting
information in a different category.
In addition to the investment strategy
category additions described above that
we are adopting as proposed, in a
modification from the proposal, we are
adopting certain additional strategy
categories. We are adopting certain
additional strategy categories that are
currently included in the available
categories in Question 66, which is
structured similarly to Question 25 and
is used to collect information about
private equity fund investment
strategies.213 To facilitate completion of
Question 25 and alleviate challenges
filers may face in choosing among a
limited list of investment strategy types,
in a modification from the proposal,
filers will be able to choose from a dropdown menu that includes all investment
strategy categories for Form PF. The
inclusion of these additional categories
recognizes that funds classified as hedge
funds on Form PF may pursue
212 The amount of hedge fund exposure that
advisers attribute to the ‘‘other’’ category has grown
by 30% to $114 billion, from the second quarter
2021 through the first quarter 2023. See Private
Funds Statistics, supra footnote 5.
213 The additional strategy categories are private
credit (and associated sub-strategies such as direct
lending/mid-market lending, distressed debt,
junior/subordinate debt, mezzanine financing,
senior debt, senior subordinated debt, special
situations, venture debt, and other), private equity
(and associated sub-strategies such as early stage,
expansion/late stage, buyout, distressed, growth,
private investment in private equity, secondaries,
and turnaround), annuity and life insurance
policies, litigation finance, and general partner
stakes investing. See also May 2023 SEC Form PF
Amending Release, supra footnote 4, at n. 216.
Question 66 was added as a new question in the
amendments adopted in the May 2023 SEC Form
PF Amending Release.
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investment strategies more commonly
associated with private equity funds and
vice versa. This change will allow
advisers to categorize their investment
strategies more accurately and will
improve data quality by reducing the
number of strategies that would
otherwise be categorized as ‘‘other.’’ For
similar reasons, in a modification from
the proposal, we are also retaining
certain investment strategy categories
that are included in the current Form
PF, which we had proposed to remove,
to provide more granular information
and maintain existing data
comparability.214 In addition, we are
adopting strategy categories for ‘‘Equity
Long/Short Market Neutral,’’ ‘‘Equity
Long/Short Long Bias,’’ and ‘‘Equity
Long/Short Short Bias,’’ and adding
separate categories for ‘‘Equity Long
Only’’ and ‘‘Credit Long/Short,’’ as
discussed further below.
One commenter opposed including
more granular strategy categories stating
that some proposed categories are not
clear and may require advisers to make
subjective decisions on how to report a
fund’s strategy that could result in
inconsistent reporting.215 This
commenter recommended that the
strategy categories be revised to better
track industry conventions. The
amended strategy categories conform
more closely to industry conventions
than the current categories and will
allow advisers to categorize their
strategies more accurately. One
commenter opposed the increased
granularity in strategy categories, stating
they could disclose a fund’s proprietary
investment information and present
data security concerns.216 The data
reported on Form PF, which is filed on
a non-public basis, is neither
sufficiently detailed nor reported on
such a frequent basis as to present risk
of misuse or enable reverse engineering
of a particular fund’s investment
strategy. One commenter recommended
reverting the category for the ‘‘Equity
Long/Short’’ strategy from the proposed
categories of ‘‘Equity Long Bias’’ and
‘‘Equity Short Bias’’ because of the
burden and potential for misreporting of
long/short equity funds or portfolios. In
a change from the proposal, as
recommended by this commenter, we
are amending the proposed categories
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214 We
are retaining the existing investment
strategies listed in current Question 20 for the
following categories: Macro, Active Trading; Macro,
Commodity; Macro, Currency; Relative Value, Fixed
Income Asset Backed; Relative Value, Fixed Income
Convertible Arbitrage; Relative Value, Fixed Income
Sovereign; Event Driven, Distressed/Restructuring;
Event Driven, Equity Special Situations; and Credit,
Long/Short. See Question 25.
215 MFA Comment Letter II.
216 SIFMA Comment Letter.
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for ‘‘Equity Long Bias’’ and ‘‘Equity
Short Bias’’ and replacing with ‘‘Equity
Long/Short Market Neutral,’’ ‘‘Equity
Long/Short Long Bias,’’ and ‘‘Equity
Long/Short Short Bias,’’ and adding
separate categories for ‘‘Equity Long
Only’’ and ‘‘Credit Long/Short.’’ We
believe these additional categories better
align the strategy categories with
industry conventions and addresses the
concern with appropriately reporting
the strategy category for long/short
equity funds or portfolios.
As proposed, digital assets will be
included as a reportable investment
strategy.217 In a change from the
proposal, however, we are not adopting
a defined term for ‘‘digital assets’’ in the
Glossary of Terms. Some commenters
supported adding a defined term for
digital assets and emphasized the
growing impact of digital assets on the
financial sector more broadly and the
systemic risk that they may pose.218
Other commenters stated that the
proposed definition of digital asset is
too broad and may overlap with other
existing reporting categories.219 One
commenter recommended excluding
from the digital asset definition
references to any specific types of
digital assets because of the evolving
terminology used in the sector.220
Another commenter recommended that
the references to digital assets be
consistent across usages by the SEC.221
This commenter also recommended
adopting distinct defined terms for
different types of digital assets to
differentiate between different asset
categories that may present different
risks, such as differentiating between
established digital assets and newer
digital assets. Another commenter
recommended distinguishing between
so-called ‘‘stablecoins’’ and other digital
assets on the basis that stablecoins may
be less volatile than other digital
assets.222
The Commissions and staff are
continuing to consider the issues raised
by these comments, and we are not
adopting a definition as part of this rule
at this time. However, we agree with
commenters stating that certain
strategies could be categorized as either
a digital asset strategy or another listed
217 As discussed further below in section II.C.2 of
this Release, we are also adopting amendments to
Question 32 to add digital assets as a reportable
sub-asset class.
218 See, e.g., Better Markets Comment Letter;
NASAA Comment Letter.
219 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; USCC Comment Letter.
220 Comment Letter of Rohan G. et al. (Dec. 8,
2022) (‘‘Rohan G. Comment Letter’’).
221 NASAA Comment Letter.
222 AFREF Comment Letter I.
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strategy, and so in those instances the
digital asset strategy is duplicative.223
Accordingly, we are including an
instruction to Question 25 to specify
that, if a particular strategy could be
classified as both a digital asset strategy
and another strategy, an adviser should
report the strategy as the non-digital
asset strategy. This is designed to reduce
potential confusion and improve data
quality.
Counterparty exposures. Counterparty
exposure informs the Commissions and
FSOC of the interconnectedness of
hedge funds with the broader financial
services industry, which is a critical
part of systemic risk assessment and
investor protection efforts.
Understanding counterparty exposures
allows the Commissions and FSOC to
assess who may be impacted by a
reporting fund’s failure, and which
reporting funds may be impacted by a
counterparty’s failure. Counterparty
exposure concerning central clearing
counterparties (‘‘CCPs’’) is of
importance to FSOC’s systemic risk
assessment efforts as evidenced by the
fact that FSOC has designated many
CCP institutions as ‘‘systemically
important,’’ and recommended that
regulators continue to coordinate to
evaluate threats from both default and
non-default losses associated with
CCPs.224
We are adopting, as proposed except
as indicated below, amendments to add
Question 26 and revise current
Questions 22 and 23, which have been
redesignated as Questions 27 and 28, to
provide better insight into hedge funds’
borrowing and financing arrangements
with counterparties, including CCPs.
Question 26 requires advisers to hedge
funds (other than qualifying hedge
funds) to complete a new table
(‘‘consolidated counterparty exposure
table’’) concerning exposures that (1) the
reporting fund has to creditors and
223 For example, a crypto asset security is not a
separate type or category of security for purposes
of Federal securities laws based solely on the use
of distributed ledger technology. See Supplemental
Information and Reopening of Comment Period for
Amendments Regarding the Definition of
‘‘Exchange,’’ 88 FR 29448, 29450 (May 5, 2023)
(stating ‘‘a crypto asset that is a security is not a
separate type or category of security (e.g., NMS
stock, corporate bond) for purposes of federal
securities laws based solely on the use of DLT.’’).
224 Form PF defines ‘‘CCP’’ as central clearing
counterparties (or central clearing houses) (for
example, CME Clearing, The Depository Trust &
Clearing Corporation, Fedwire and LCH Clearnet
Limited). See Financial Stability Oversight Council,
2012 Annual Report, Appendix A, available at
https://home.treasury.gov/system/files/261/2012Annual-Report.pdf (concerning the designations);
Financial Stability Oversight Council, 2021 Annual
Report, p. 14, available at https://home.
treasury.gov/system/files/261/FSOC2021Annual
Report.pdf (concerning the recommendation).
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counterparties, and (2) creditors and
other counterparties have to the
reporting fund.225 Advisers will be
required to report the U.S. dollar value
of the reporting fund’s ‘‘borrowing and
collateral received (B/CR),’’ as well as
its ‘‘lending and posted collateral (L/
PC),’’ aggregated across all
counterparties, including CCPs, as of the
end of the reporting period.226 The form
explains what exposures to net.227
Advisers will be required to classify
information according to type (e.g.,
unsecured borrowing, secured
borrowing, derivatives cleared by a CCP,
and uncleared derivatives) and the
governing legal agreement (e.g., a prime
brokerage or other brokerage agreement
for cash margin and securities lending
and borrowing, a global master
repurchase agreement for repo/reverse
repo, and International Swaps and
Derivatives Association (‘‘ISDA’’) master
agreement for synthetic long positions,
‘‘synthetic short positions,’’ and
derivatives).228 Advisers will be
225 Qualifying hedge funds are not required to
complete this table because section 2, as revised,
includes similar questions that require additional
detail. See discussion at section II.C of this Release.
Together the questions in section 1c and similar
questions at section 2 will allow the Commissions
and FSOC to consolidate information relating to
hedge funds’ and qualifying hedge funds’
arrangements with creditors and other
counterparties, to support systemic risk assessment
and investor protection efforts. We are defining the
term ‘‘consolidated counterparty exposure table’’ in
the Form PF Glossary of Terms. For hedge funds
other than qualifying hedge funds, it means the
section 1c table (at Question 26) that collects the
reporting fund’s borrowing and collateral received
and lending and posted collateral aggregated across
all creditors and counterparties as of the end of the
reporting period. For qualifying hedge funds, it
means the section 2 table (at Question 41) that
collects the reporting fund’s borrowing and
collateral received and lending and posted
collateral aggregated across all creditors and
counterparties as of the end of the reporting period.
226 We are defining ‘‘borrowing and collateral
received (B/CR)’’ and ‘‘lending and posted collateral
(L/PC)’’ in the Form PF Glossary of Terms. We are
adopting these definitions based on our
understanding of borrowing and lending and to
help ensure data quality and comparability. We also
are amending the term ‘‘gross notional value’’ to
provide more detail on how to report it to aid
advisers completing the consolidated counterparty
exposure table. See Form PF Glossary of Terms.
227 Advisers will net the reporting fund’s
exposure with each counterparty and among
affiliated entities of a counterparty to the extent
such exposures may be contractually or legally setoff or netted across those entities or one affiliate
guarantees or may otherwise be obligated to satisfy
the obligations of another under the agreements
governing the transactions. Instructions provide
that netting must be used to reflect net cash
borrowed from or lent to a counterparty but must
not be used to offset securities borrowed and lent
against one another, when reporting prime
brokerage and repo/reverse repo transactions. These
instructions are designed to help ensure data
quality and comparability. See Question 26.
228 We are adopting, as proposed, a definition of
‘‘ISDA’’ as the International Swaps and Derivatives
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required to report transactions under a
master securities loan agreement as
secured borrowings. Advisers will be
required to check a box if one or more
prime brokerage agreements provide for
cross-margining of derivatives and
secured financing transactions. If
advisers check the box, the instructions
specify how to report secured financing
and derivatives in the consolidated
counterparty exposure table.
Some commenters opposed more
granular disclosure of counterparty
exposures, stating that the information
is burdensome to obtain and of limited
value.229 One commenter stated that
reporting on exposures to central
clearing counterparties should be on an
aggregate basis, rather than on an
individual basis, because of the cost to
report and limited value of the
disaggregated data.230 We continue to
believe that this additional information
is important to understanding
counterparty risk exposure, which is
needed for systemic risk assessment
because of the potential contagion risks
of any particular counterparty failure,
and that the value of this information
justifies the associated burdens in
reporting.231 We believe that the
associated burdens are justified because
detailed reporting of counterparty risk
exposure will provide the Commissions
and FSOC with increased transparency
into risk profiles and the
interconnectedness of hedge funds with
the broader financial services industry,
which will improve our ability to assess
systemic risk and protect investors.
We are adopting, largely as proposed,
several amendments to Questions 26, 27
and 28, which require advisers to hedge
funds to provide information about the
reporting fund’s counterparty exposure,
as follows:
• We are adopting, as proposed
except as specifically indicated below,
amendments to Questions 27 and 28 to
provide more detailed instructions for
advisers to use to identify the individual
counterparties. For both Questions 27
and 28, advisers are instructed to use
the calculations from the consolidated
counterparty exposure table to identify
the counterparties.232 This amendment
Association. We are also adopting a definition of
‘‘synthetic short positions’’ in the Form PF Glossary
of Terms (see the Form PF Glossary of Terms). We
are adopting this definition based on our
understanding of the instruments and to help
ensure data quality to aid comparability. See supra
footnote 161 (discussing the definition of ‘‘synthetic
long position’’).
229 See, e.g., AIMA/ACC Comment Letter.
230 MFA Comment Letter II.
231 See infra section IV.C of this Release for
discussion of costs and benefits.
232 See Question 26 for the consolidated
counterparty exposure table. We are also adopting,
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18007
is designed to help ensure that the
Commissions’ and FSOC’s analysis can
identify true data differences, without
the distraction of methodology
differences, which can suggest
differences where there are none, and
reduce circumstances where advisers
misidentify lending relationships. In a
modification from the proposal, we are
adding an instruction to specify the
entity that has the reported exposure.233
This modification will allow us to
determine the relevant entity that bears
such exposure (e.g., a trading vehicle),
which will improve our data quality and
our ability to monitor systemic risk.234
The amended instructions provide that
if the entity that has the exposure is not
the reporting fund, the filer must
provide the legal name of the relevant
entity and LEI, if available.235 This
instruction will allow us to better
understand the scope of the reporting
fund’s exposure.236 We did not receive
specific comment on these amendments
to the instructions. These amendments
will improve data quality and
comparability and reduce adviser
burden.
• We are adopting, as proposed,
amendments to add Question 27, which
requires advisers to identify each
creditor or other counterparty
(including CCPs) to which the reporting
fund owes a certain amount (before
posted collateral) equal to or greater
than either (1) five percent of net asset
value as of the data reporting date or (2)
$1 billion. If there are more than five
such counterparties, the adviser only
will report the five counterparties to
which the reporting fund owes the
largest dollar amount, before taking into
account collateral that the reporting
fund posted. If there are fewer than five
such counterparties, the adviser only
will report the counterparties that meet
the threshold. For example, if only three
substantively as proposed, definitions for the
following terms related to the consolidated
counterparty exposure table: ‘‘cash borrowing
entries,’’ ‘‘cash lending entries,’’ ‘‘collateral posted
entries,’’ and ‘‘collateral received entries.’’ See
Form PF Glossary of Terms.
233 See Question 27.
234 As discussed more fully above in section
II.A.2, we are adopting amendments to include
specific questions relating to a reporting fund’s
trading vehicle use and a trading vehicle’s position
size and risk exposure, as opposed to requiring full
separate reporting on Form PF for trading vehicles.
This modification will allow us to understand
which entity holds the exposure.
235 See Question 27.
236 This modification is related to our
modification from the proposal to require
aggregated reporting and focusing certain questions
on trading vehicles, rather than disaggregated
reporting as proposed, discussed above in section
II.A.2. This modification to the instructions will
allow us to understand whether the reporting fund
or a trading vehicle holds the exposure.
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counterparties meet the threshold, the
adviser would report only three
counterparties. This is a change from
current Question 22, which required
advisers to identify five counterparties
to which the reporting fund has the
greatest mark-to-market net
counterparty credit exposure, regardless
of the actual size of the exposure. The
adopted threshold is designed to
highlight two different, significant,
potentially systemic risks: five percent
of net asset value represents an amount
of borrowing by a reporting fund that, if
repayment was required, could be a
significant loss of financing that could
result in a forced unwind and forced
sales from the reporting fund’s portfolio.
Additionally, the $1 billion represents
an amount that, in the case of a very
large fund, may not represent five
percent of its net assets, but may be
large enough to create stress for certain
of its counterparties. One commenter
recommended that the additional
reporting on counterparties should be
limited to a fund’s three largest
counterparties to reduce the burden on
advisers but provide the Commissions
with sufficiently detailed information
on counterparty exposure.237 We
continue to believe that requiring
reporting of the five largest
counterparties is appropriate and do not
believe that limiting the required
reporting to a fund’s three largest
counterparties would provide sufficient
counterparty risk data for the purposes
discussed above. Furthermore, we do
not believe that reporting on a fund’s
five largest counterparties would be
significantly more burdensome than
reporting on the three largest
counterparties because an adviser could
leverage its systems for reporting on the
three largest counterparties to provide
reporting on the five largest
counterparties.
• In a modification from the proposal,
advisers will also be required to provide
the legal name and the LEI, if any, of the
entity that has the exposure. This
information will allow us to determine
the relevant entity that bears such
exposure (e.g., a trading vehicle), which
will improve our data quality and our
ability to monitor systemic risk.238
• In a modification from the proposal,
the instructions to Question 26 provide
that an adviser is required to report the
reporting fund’s counterparty exposure
without netting any trading vehicle
exposures if the reporting fund does not
guarantee and is not contractually
obligated to fulfill those counterparty
237 MFA
Comment Letter II.
also supra section II.A.2 of this Release for
further discussion of trading vehicle reporting.
obligations.239 The instructions will
further provide that if the reporting fund
guarantees or is obligated to fulfill the
trading vehicle’s counterparty
obligations, then those obligations must
be reported net with the obligations of
the reporting fund. These modified
instructions are intended to address the
aggregated reporting of trading vehicles
and improve data quality by isolating
only the reporting fund’s counterparty
exposures. In a modification from the
proposal, the instructions also provide
that any affiliated private fund should
exclude any exposures that have been
reported in the reporting fund’s filing.
This modified instruction is intended to
reduce filing burdens by eliminating
duplicate reporting and to improve data
quality.
• We are adopting, largely as
proposed except as specified below,
amendments to add Question 28, which
requires advisers to provide information
for counterparties to which the
reporting fund has net mark-to-market
counterparty credit exposure which is
equal to or greater than either (1) five
percent of the reporting fund’s net asset
value as of the data reporting date or (2)
$1 billion, after taking into account
collateral received or posted by the
reporting fund. If there are more than
five such counterparties, the adviser
would only report the five to which the
reporting fund has the greatest mark-tomarket exposure after taking into
account collateral received. If there are
fewer than five such counterparties, the
adviser only would report the
counterparties that meet the threshold.
This is a change from current Question
23, which required advisers to identify
five counterparties to which the
reporting fund has the greatest mark-tomarket net counterparty credit
exposure, regardless of the actual size of
the exposure. The threshold is designed
to represent an amount of lending from
a reporting fund that, if a default
occurred, could cause a significant loss
that could result in a forced unwind and
forced sales from the reporting fund’s
portfolio. Furthermore, we believe that
the five percent threshold level is large
enough to constitute a shock to a
reporting fund’s net asset value and is
an often-used industry metric. The $1
billion threshold represents an amount
that, in the case of a very large
counterparty, may not represent five
percent of its net assets, but may be
large enough to create stress for the
reporting fund. In a modification from
the proposal, we are adding an
instruction to specify the entity that has
238 See
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239 See
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the reported exposure.240 The amended
instructions provide that if the entity
that has the exposure is not the
reporting fund, the filer must provide
the legal name of the relevant entity and
LEI, if available. This instruction will
allow us to better understand the scope
of the reporting fund’s exposure. One
commenter recommended a threshold of
10 percent of a fund’s net asset value,
rather than five percent, for all reporting
related to exposures, including
counterparty exposure, on the basis that
10 percent of net asset value better
represents a magnitude that could have
broader systemic effects and a five
percent threshold would produce data
that is not meaningful for risk
assessments.241 We disagree and
continue to believe that the impact on
a fund’s returns resulting from a
counterparty exposure of greater than
five percent could be significant enough
to present systemic risk and contagion
risk. Currently, advisers report
exposures that the reporting fund has to
counterparties as a percentage of the
reporting fund’s net asset value, and
advisers report exposures that
counterparties have to the reporting
fund in U.S. dollars.242 We are adopting,
as proposed, an amendment that
requires advisers to report both data sets
in U.S. dollars for consistency and
comparability.243 We did not receive
specific comment on this amendment.
• We are adopting, as proposed, an
amendment to require advisers to report
the amount of collateral posted, to help
inform the Commissions and FSOC of
the potential impact of a reporting fund
or counterparty default. We did not
receive specific comment on this
amendment.
• We are adopting, as proposed, an
amendment to require advisers to report
the counterparty’s LEI, if it has one, to
help identify counterparties and more
efficiently link data from other data
sources that use this identifier. We did
not receive specific comment on this
amendment.
• Advisers will continue to indicate if
a counterparty is affiliated with a major
financial institution, as Form PF
currently provides.244 If the financial
institution is not listed on Form PF,
advisers would continue to have the
option of selecting ‘‘other’’ and naming
the entity in the chart, as Form PF
currently provides. However, we are
adopting, as proposed, an amendment to
require advisers to describe the financial
240 See
Question 28.
Comment Letter II.
242 See current Questions 22 and 23.
243 See Questions 27 and 28.
244 See current Questions 22 and 23.
241 MFA
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institution in Question 4. This
amendment is designed to help the
Commissions and FSOC efficiently and
accurately identify the entity, without
having to contact advisers individually.
We did not receive specific comment on
this amendment.
Together, the amendments are
designed to allow the Commissions and
FSOC to identify and align sources of
borrowing and lending to identify
significant counterparty exposures, so
that different styles of borrowing will
not be obscured by methodology
differences or misidentified lending
relationships, based on our experience
with the form.
Form PF continues to require advisers
to report information about individual
counterparties that present the greatest
exposure to and from hedge funds.245
Under the amended Form PF, however,
advisers to qualifying hedge funds will
not be required to complete Questions
27 and 28, if they complete certain
similar questions in Form PF section 2,
to avoid duplication.246
Trading and clearing mechanisms.
We are adopting, as proposed,
amendments to revise how advisers
report information about trading and
clearing mechanisms.247 These types of
data inform the Commissions and FSOC
of the extent of private fund activities
that are conducted on and away from
regulated exchanges and clearing
systems, which is important to
understanding systemic risk that could
be transmitted through counterparty
exposures.248 We are adopting
amendments to require advisers to
report (1) the value traded and (2) the
value of positions at the end of the
reporting period, rather than requiring
advisers to report information as a
percentage in terms of value and trade
volumes, as Form PF currently
requires.249 This change is designed to
245 See
Questions 27 and 28.
Questions 42 and 43 in Form PF section
2 and supra footnote 225.
247 See current Questions 24 and 25, which we
redesignated as Questions 29 and 30.
248 See supra footnote 224 and accompanying text
(discussing the role of CCPs); 2011 Form PF
Adopting Release, supra footnote 4, at n.228, and
accompanying text.
249 Question 29 specifies that ‘‘value traded’’ is
the total value in U.S. dollars of the reporting fund’s
transactions in the instrument category and trading
mode during the reporting period. Question 29 also
specifies that, for derivatives, value traded is the
weighted average of the notional amount of
aggregate derivatives transactions entered into by
the reporting fund during the reporting period,
except for the following: (1) for options, advisers
would use the delta adjusted notional value, and (2)
for interest rate derivatives, advisers would use the
‘‘10-year bond equivalent.’’ This measurement is
designed to track standard industry convention. We
also are adding the term ‘‘10-year bond equivalent’’
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simplify reporting because advisers
compute the value before they convert
it into a percentage; therefore, this
change eliminates an extra calculation
for advisers. It also is designed to
provide the Commissions and FSOC
with data that can be more efficiently
compared and aggregated among
advisers and other data sources. With
data in dollar values, the Commissions
and FSOC could more effectively
estimate the size, extent, and pace of
each hedge fund’s participation in
activity on or away from regulated
exchanges and clearing systems in
relation to total values. Understanding
the size of hedge fund participation in
activity on and away from regulated
exchanges and clearing systems is
important to assessing systemic risk,
because activity that takes place on
regulated exchanges and clearing
systems presents different risks than
activity that takes places away from
regulated exchange and clearing
systems. For example, activity that takes
place away from a regulated exchange or
clearing system may be less transparent,
and may present more credit risk, than
activity that takes place on a regulated
exchange and a clearing system that acts
as a central counterparty that guarantees
trades. Commenters generally supported
amendments that simplify reporting
requirements.250 This amendment will
reduce burdens on advisers by
eliminating an additional calculation
and will improve data comparability.
We also are adopting amendments to
require advisers to report information
about trading and clearing mechanisms
for transactions in interest rate
derivatives separately from other types
of derivatives. Form PF data show that
interest rate derivatives represent the
largest gross investment exposure of
qualifying hedge funds.251 Therefore,
this amendment is designed to help
ensure that the Commissions and FSOC
can identify risks of such a significant
volume of activity on and away from
regulated exchanges and clearing
systems, without the data being
obscured by other types of derivatives.
Advisers will be required to report
interest rate derivatives and other types
of derivatives, by indicating the
estimated amounts that were (1) traded
on a regulated exchange or swap
execution facility, (2) traded over-thecounter and cleared by a CCP, and (3)
traded over the counter or bilaterally
transacted (and not cleared by a CCP).
to the Form PF Glossary of Terms, as discussed in
section II.C.2 of this Release. See infra footnote 293.
250 See, e.g., MFA Comment Letter II; SIFMA
Comment Letter.
251 See Private Funds Statistics, supra footnote 5.
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18009
These categories reflect our
understanding of how derivatives may
be traded.
Advisers continue to be required to
report clearing information concerning
repos, but we are adopting amendments
to specify how to report sponsored
repos and to specify that advisers must
report reverse repos with repos.252
According to the Fixed Income Clearing
Corporation (‘‘FICC’’), FICC’s sponsored
repo service has expanded in 2017 and
2019, ultimately resulting in daily
volume up to $300 million per day as
of 2021, with a peak in June 2023 of
$750 billion.253 Sponsored repos
incorporate a different structure than
other repos, in that FICC serves as a
counterparty to any sponsored trade and
the sponsored member bears
responsibility for meeting the
obligations of the sponsored member on
all transactions that it submits for
clearing. Adding a particular reference
to sponsored repos ensures that advisers
understand how sponsored repos
cleared by a CCP should be reported,
i.e., as trades cleared at a CCP.254
Therefore, we are providing a separate
line item for sponsored repos. The
amendment is designed to improve data
quality concerning repos and sponsored
repos to allow the Commissions and
FSOC to conduct more accurate and
targeted systemic risk assessments and
analysis concerning investor protection
efforts. We are also adopting
amendments to specify that advisers
must report reverse repos with repos.
Current Question 24 required advisers
to report ‘‘repos,’’ which some advisers
could interpret to include reverse repos,
while others could interpret as
252 The amendments also explain that ‘‘repo’’
means ‘‘securities in’’ transactions and ‘‘reverse
repo’’ means ‘‘securities out’’ transactions.
Sponsored repos and sponsored reverse repos apply
to transactions in which the reporting fund has
been sponsored by a sponsoring member of the
Fixed Income Clearing Corporation. We have
revised how Form PF explains tri-party repos to
help ensure they do not exclude sponsored tri-party
repos. Currently, Form PF explains that a tri-party
repo applies where repo collateral is held at a
custodian (not including a CCP) that acts as a third
party agent to both the repo buyer and the repo
seller. We are amending Form PF to explain that triparty repo applies where the repo or reverse repo
collateral is executed using collateral management
and settlement services of a third party that does
not act as a CCP. See Form PF Glossary of Terms
(amended definitions of ‘‘repo’’ and ‘‘reverse repo’’)
and Question 29 instructions (discussing sponsored
repos, sponsored reverse repos, and tri-party repos).
253 See FICC Sponsored Repo in 2021, by DTCC
Connection Staff (Feb. 9, 2021), available at https://
www.dtcc.com/dtcc-connection/articles/2021/
february/09/ficc-sponsored-repo-in-2021. See also
DTC: DTCC’s FICC Sponsored Service Reaches New
Milestone Clearing Over USD$750 Billion in Daily
Sponsored Activity (June 14, 2023), available at
https://www.dtcc.com/news/2023/june/14/dtccsficc-sponsored-service-reaches-new-milestone.
254 Current Question 24.
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excluding reverse repos. Therefore, this
amendment is designed to improve data
quality.255
We are also adopting amendments to
revise current Question 25, which
requires advisers to report the
percentage of the reporting fund’s net
asset value related to transactions not
described in current Question 24, which
we have redesignated as Question 29.
Advisers will be required to report both
the value traded and the position value
as of the end of the reporting period for
transactions not described in Question
29. These amendments are designed to
make Question 30 data comparable with
data from Question 29, so that together
Questions 29 and 30 will provide the
Commissions and FSOC with a
complete data set of the adviser’s
trading and clearing mechanisms during
the reporting period. We did not receive
comments on these proposed
amendments.
Removing Certain Questions
Concerning Hedge Funds. We are
removing, as proposed, current
Questions 19 and 21 from the form.
Current Question 19 required advisers
to hedge funds to report whether the
hedge fund has a single primary
investment strategy or multiple
strategies. Question 25, which requires
hedge fund advisers to disclose certain
information about each investment
strategy, will provide this information,
as discussed above in this section II.B.3
of the Release.
We are also removing current
Question 21, which required hedge fund
advisers to approximate what
percentage of the hedge fund’s net asset
value was managed using high
frequency trading strategies. We believe
the form’s question on portfolio
turnover, with the adopted revisions,
will better inform our and FSOC’s
understanding of the extent of trading
by large hedge fund advisers and will
better show how larger hedge funds
interact with the markets and provide
trading liquidity.256
Commenters generally supported
amendments that eliminate questions
and streamline reporting
requirements.257 One commenter stated
that, by eliminating the collection of
duplicative data, FSOC will be better
able to assess systemic risk and the
Commissions will be better able to
protect investors.258 One commenter
supported removing current Question
255 See
Question 29.
revisions to current Question 27
(redesignated as Question 34), as discussed in
section II.C of this Release.
257 See, e.g., MFA Comment Letter II; SIFMA
Comment Letter.
258 Better Markets Comment Letter.
256 See
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21 regarding the percentage of a hedge
fund’s net asset value managed using
high frequency trading strategies.259 We
believe that removing certain questions
concerning hedge funds will reduce the
burdens on these advisers and the
adoption of new and revised questions
elsewhere on Form PF will improve our
understanding of hedge fund operations
to allow for systemic risk analysis and
investor protection efforts.
C. Amendments Concerning Information
About Hedge Funds Advised by Large
Private Fund Advisers
We are adopting, as proposed except
as specifically indicated below, several
amendments to section 2, including
amendments that remove aggregate
reporting currently required in existing
section 2a, which we have found to be
less meaningful for analysis and more
burdensome for advisers to report, while
preserving and enhancing reporting on
a per fund basis in existing section 2b,
which we are redesignating as section 2.
We are also retaining certain questions
currently reported by advisers on an
aggregate basis that are important for
data analysis and systemic risk
assessment but are requiring reporting
on a per fund basis. Collectively, the
changes to section 2 are designed to
provide better insight into the
operations and strategies employed by
qualifying hedge funds and their
advisers and improve data quality and
comparability to enable FSOC to
monitor systemic risk better and
enhance the Commissions’ regulatory
programs and investor protection
efforts. Furthermore, we are also
removing certain other reporting
requirements that we have found to be
less useful based on our experience with
Form PF since adoption, which will
help reduce reporting burdens for
advisers while preserving the
Commissions’ and FSOC’s regulatory
oversight.
1. Removal of Existing Section 2a
Removal of aggregate reporting. We
are adopting, as proposed, amendments
to eliminate the current requirement for
large hedge fund advisers to report
certain aggregated information about the
hedge funds they manage.260 Based on
259 MFA
Comment Letter II.
are removing existing section 2a and
redesignating existing section 2b as section 2. In
connection with the removal of section 2a, we are
revising the general instructions to make
corresponding changes (including amending
Instruction 3 to reflect the removal of section 2a),
and are revising current Question 27 (reporting on
the value of turnover in certain asset classes in
advisers’ hedge funds’ portfolios) and current
Question 28 (reporting on the geographical
breakdown of investments held by advisers’ hedge
260 We
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our experience using data obtained from
Form PF since its adoption, we have
found that aggregated adviser level
information combines funds with
different strategies and activities, thus
making analyses less meaningful.
Aggregation can mask the directional
exposures of individual funds (e.g.,
positions held by one reporting fund
may appear to be offset by positions
held in a different fund). Additionally,
there can be inconsistencies between
data currently reported in the aggregate
in existing section 2a and on a per fund
basis in existing section 2b (e.g., we
have observed in some instances that
the sum of fund exposures advisers
report in current Question 30 on a per
fund basis exceeds the aggregate figure
reported in current Question 26).
Aggregating information across funds
may be burdensome for some advisers
because certain advisers may keep fund
records on different systems and
‘‘rolling-up’’ the data from different
sources to report on the form may be
complex and time consuming. While
advisers may be required to aggregate
certain types of investment holdings
across their funds for other regulatory
purposes (e.g., certain U.S. registered
equities for Form 13F reporting),
advisers generally do not aggregate all
portfolio investment exposure
information across their funds other
than for Form PF reporting purposes,
given that counterparties, markets, and
investors tend to interact with funds on
an individual basis and not in the
aggregate at the adviser level.
Commenters generally supported
proposed amendments to eliminate
questions and streamline reporting
requirements.261 One commenter stated
that the aggregate reporting of certain
positions may make it difficult to
understand the operations of hedge
funds, especially during periods of
market instability.262 Another
commenter stated that reporting on an
aggregate basis does not result in
obscuring material data.263
We continue to believe that
eliminating aggregate reporting
questions for large hedge fund advisers
will lessen the burden on these advisers
and focus Form PF reporting on more
valuable information for systemic risk
assessment purposes. Removing existing
funds), moving each of these questions to new
section 2, and redesignating them as Question 34
and Question 35, respectively. Furthermore, in
connection with these changes, we are revising the
term ‘‘sub-asset class’’ to refer to Question 32, rather
than current Question 26, which we have removed.
261 See, e.g., MFA Comment Letter II; SIFMA
Comment Letter.
262 See Better Markets Comment Letter.
263 See AIC Comment Letter I.
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section 2a will not result in a
meaningful deterioration in the
information collected because the vast
majority of gross hedge fund assets on
which advisers currently report in the
aggregate in section 2a constitute the
gross assets of qualifying hedge funds
that will continue to be reported
elsewhere in amended section 2. For
example, large hedge fund advisers
currently report total gross notional
exposure for qualifying hedge funds in
section 2b that constituted
approximately 91 percent of the total
gross notional exposure reported on an
aggregate basis by large hedge fund
advisers currently in section 2a as of the
same date.264 Furthermore, as discussed
in section II.B.3 above, we are also
adopting amendments to enhance
reporting for all hedge funds in section
1 (particularly section 1c), which will
mitigate against potential data gaps that
could result from the removal of section
2a, given that advisers currently report
information on all their hedge funds in
section 2a but only report on qualifying
hedge funds in section 2b. Additionally,
certain information currently collected
in section 2a is duplicative of
information that will continue to be
collected on a per fund basis in the
consolidated section 2.265 By continuing
to require reporting on a per fund basis,
information reported elsewhere in the
revised section 2 will allow the
Commissions and FSOC to compile
aggregate figures, as appropriate.266
2. Amendments to Section 2
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We are redesignating existing section
2b as section 2 and adopting, as
proposed except as specified below,
264 As noted above, based on experience with
Form PF since adoption, we have found
information currently gathered in section 2a for the
remaining 9% of funds to not be very useful given
that it is aggregated data across different funds.
265 For example, current Question 26 of section 2a
requires large hedge fund advisers to report
aggregated information on exposure to different
types of assets, which is effectively the same
exposure information that will be reported on a per
fund basis for each qualifying hedge fund in
Question 32 of section 2.
266 Additionally, we are moving current Question
31 (base currency) and current Question 49
(withdrawals and redemptions) required only for
qualifying hedge funds to section 1b, which is
required to be completed by all advisers, and
redesignating them as Question 17 and Question
10(d), respectively. We are also adopting
amendments to enhance section 1c to require more
detailed information about hedge funds’ borrowing
and financing arrangements (including posted
collateral) and also revising current Question 26
(redesignated Question 32) and current Question 27
(redesignated Question 34) to require end of period
reporting of the value of certain instrument
categories (including listed equities, interest rate
derivatives and other derivatives, and repo/reverse
repos).
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amendments to section 2 to do the
following:
(1) Enhance, expand, and simplify
investment exposure reporting;
(2) Revise open and large position
reporting;
(3) Revise borrowing and counterparty
exposure reporting;
(4) Revise market factor effects
reporting; and
(5) Make certain other changes
designed to streamline and enhance the
value of data collected on qualifying
hedge funds by: (a) adding reporting on
currency exposure, turnover, country,
and industry exposure; (b) adding new
reporting on CCPs; (c) streamlining risk
metric reporting and collecting new
information on investment performance
by strategy; and (d) enhancing portfolio
and financing liquidity reporting.
a. Investment Exposure Reporting
We are adopting, largely as proposed
except as specified below, amendments
to: (1) replace the table format of current
Question 30, which we are
redesignating as Question 32, with
narrative instructions and a ‘‘dropdown’’ menu while also revising the
instructions to specify how to report
certain positions, (2) require reporting
based on ‘‘instrument type’’ within subasset classes to identify whether the
fund’s investment exposure is achieved
through cash or physical investment
exposure, through derivatives or other
synthetic positions, or indirectly (e.g.,
through a pooled investment such as an
ETF, an investment company, or a
private fund), (3) require the calculation
of ‘‘adjusted exposure’’ for each subasset class (i.e., require (in addition to
value as currently reported) the
calculation of ‘‘adjusted exposure’’ for
each sub-asset class that allows netting
across instrument types representing the
same reference asset within each subasset class, and, for fixed income,
within a prescribed set of maturity
buckets), (4) require uniform interest
rate risk measure reporting for sub-asset
classes that have interest rate risk (while
eliminating the current option to report
one of duration, weighted average tenor
(WAT), or 10-year equivalents), and (5)
amend the list of reportable sub-asset
classes consistent with these other
changes and collect enhanced
information for some asset types.267
Narrative reporting instructions and
additional information on how to report.
We are adopting, as proposed,
amendments to the redesignated
267 In connection with the amendments, we are
also removing current Question 44 because it is
duplicative of the new reporting requirements in
redesignated Question 32.
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18011
Question 32 which will require advisers
to use a series of ‘‘drop-down’’ menu
selections for each sub-asset class and
the applicable information required for
each sub-asset class. These changes and
new format will simplify and specify
how to report the required information
in redesignated Question 32. These
changes will reduce filer burdens
compared to the current format because
advisers will only be required to
provide information for sub-asset
classes in which their qualifying hedge
funds hold relevant positions.
Furthermore, advisers will be required
to report the absolute value of short
positions, include positions held in
side-pockets as positions of the
reporting fund, and include any closed
out and OTC forward positions that
have not yet expired or matured. We did
not receive comment on these
amendments.
We are adopting, as proposed,
amendments to the instructions to
redesignated Question 32 to specify how
advisers should classify certain
positions. This change is designed to
instruct advisers how to classify
positions that could be accurately
classified in multiple sub-asset classes
and is consistent with SEC staff Form
PF Frequently Asked Questions.268
Specifically, the instructions require
advisers to choose the sub-asset class
that describes the position with the
highest degree of precision, which will
result in more accurate classification of
positions and therefore better data,
rather than simply noting that any
particular position should only be
included in a single sub-asset class. We
did not receive comment on this
instruction.
We are also adopting, as proposed, a
new instruction that directs advisers to
report cash borrowed via reverse repo as
the short value of repos and refers
advisers to the revised definitions of
‘‘repo’’ and ‘‘reverse repo’’ in the
Glossary of Terms, consistent with SEC
staff Form PF Frequently Asked
Questions.269 This change will help
reduce confusion on how to report repo
information and help reduce filer errors.
We did not receive comment on this
instruction or the revised definitions.
Finally, the amended instructions also
include a revised list of sub-asset
classes.270
We are also adopting, as proposed,
amendments to require advisers to
268 See Form PF Frequently Asked Questions,
supra footnote 162, Question 26.2.
269 See Form PF Frequently Asked Questions,
supra footnote 162, Question 26.5.
270 The amendments to the sub-asset class list, as
well as other changes to instructions in specific
parts of Question 32, are discussed below.
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provide additional explanatory
information in situations where a
qualifying hedge fund reports long or
short dollar value exposure to ‘‘catchall’’ sub-asset class categories 271 equal
to or exceeding either (1) five percent of
the reporting fund’s net asset value or
(2) $1 billion.272 We have observed that
some funds report significant amounts
of assets in these ‘‘catch-all’’ categories.
This new explanatory requirement will
inform our understanding of significant
exposure reported in these ‘‘other’’ subasset classes better, which is important
for assessing systemic risk. One
commenter recommended a threshold of
10 percent of a fund’s net asset value,
rather than five percent, for all reporting
related to exposures, including to
‘‘catch-all’’ sub-asset classes.273 We
chose the five percent threshold level
because it represents a level of exposure
that is material to a fund’s investment
performance. We also continue to
believe that the impact on a fund’s
returns resulting from an exposure of
greater than five percent of its net asset
value could be significant enough to
present broader systemic risk and
contagion risk. The $1 billion threshold
represents a level for large funds (e.g.,
those with net asset values in excess of
$20 billion) that is large enough so as to
have potential systemic risk
implications even if the position is less
than five percent of the fund’s net asset
value.
Separate reporting for positions held
physically, synthetically or through
derivatives and indirect exposure. We
are adopting, as proposed except as
specifically indicated below,
amendments to require advisers to
report the dollar value of a qualifying
hedge fund’s long positions and the
dollar value of the fund’s short positions
in certain sub-asset classes by
‘‘instrument type’’ (i.e., cash/physical
instruments, futures, forwards, swaps,
listed options, unlisted options, and
other derivative products, ETFs,
exchange traded products, U.S.
registered investment companies
(excluding ETFs and money market
funds), non-U.S. registered investment
271 These sub-asset classes include loans
(excluding leveraged loans and repo), other
structured products, other derivatives, other
commodities, digital assets, and investments in
other sub-asset classes.
272 Some filers report significant exposure to
these ‘‘other’’ categories. For example, the public
Private Fund Statistics Q1 2023 (Table 46) shows
about $153 billion in aggregate QHF GNE reported
as ‘‘other loans,’’ more than other asset categories
of interest, such as ABS/structured products (ex.
MBS but excluding CLO/CDOs) (about $56 billion)
and convertible bonds ($122 billion) as of Q1 2023.
See Private Fund Statistics Q1 2023, supra footnote
5.
273 See MFA Comment Letter II.
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companies, internal private fund or
external private fund, commodity pool,
or other company, fund, or entity).274
For each month of the reporting period,
advisers will be required to report long
and short positions in these sub-asset
classes held physically, synthetically or
through derivatives, and indirectly
through certain entities, separately in
order to provide the Commissions and
FSOC sufficient information to
274 See Form PF Glossary of Terms (definition of
‘‘instrument type’’). See also Question 32(a). Subasset classes that require reporting by instrument
type (see Question 32(a)(1)) generally include: listed
equity issued by financial institutions; American
Depositary Receipts; other single name listed
equity; indices on listed equity; other listed equity;
unlisted equity issued by financial institutions;
other unlisted equity; investment grade corporate
bonds issued by financial institutions (other than
convertible bonds); investment grade corporate
bonds not issued by financial institutions (other
than convertible bonds); non-investment grade
corporate bonds issued by financial institutions
(other than convertible bonds); non-investment
grade corporate bonds not issued by financial
institutions (other than convertible bonds);
investment grade convertible bonds issued by
financial institutions; investment grade convertible
bonds not issued by financial institutions; noninvestment grade convertible bonds issued by
financial institutions; non-investment grade
convertible bonds not issued by financial
institutions; U.S. Treasury bills; U.S. Treasury notes
and bonds; agency securities; GSE bonds; sovereign
bonds issued by G10 countries other than the U.S;
other sovereign bonds (including supranational
bonds); U.S. state and local bonds; MBS; ABCP;
CDO (senior or higher); CDO (mezzanine); CDO
(junior equity); CLO (senior or higher); CLO
(mezzanine); CLO (junior equity); other ABS; other
structured products; U.S. dollar interest rate
derivatives; non-U.S. currency interest rate
derivatives; foreign exchange derivatives;
correlation derivatives; inflation derivatives;
volatility derivatives; variance derivatives; other
derivatives; agricultural commodities; crude oil
commodities; natural gas commodities; power and
other energy commodities; gold commodities; other
(non-gold) precious metal commodities; base metal
commodities; other commodities; real estate; digital
assets; investments in other sub-asset classes. These
sub-asset classes are reported at the sub-asset class
level and not by instrument type (see Question
32(a)(2)): leveraged loans; loans (excluding
leveraged loans and repo); overnight repo; term
repo (other than overnight); open repo; sovereign
single name CDS; financial institution single name
CDS; other single name CDS; index CDS; exotic
CDS; U.S. currency holdings; non-U.S. currency
holdings; certificates of deposit; other deposits;
money market funds; other cash and cash
equivalents (excluding bank deposits, certificates of
deposit, and money market funds). We are also
amending the Glossary of Terms to (i) amend the
definitions of agency securities, convertible bonds,
corporate bonds, GSE bonds, leveraged loans,
sovereign bonds, and U.S. Treasury securities, in
each case to include positions held indirectly
through another entity, (ii) remove the definitions
of crude oil, derivative exposures to unlisted
equities, gold, natural gas, and power, and (iii)
amend the definitions of commodities and other
commodities. See Form PF Glossary of Terms.
Additionally, for foreign exchange derivatives,
advisers will be required to report foreign exchange
swaps and currency swaps separately, and in
determining dollar value, will not net long and
short positions within sub-asset classes or
instrument types (with the exception of spot foreign
exchange longs and shorts).
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understand, monitor, and assess
qualifying hedge funds’ exposures to
certain types of assets and investment
products. The current instructions (and
the associated definitions) require
advisers to combine exposures held
physically, synthetically, or through
derivatives when reporting certain fixed
income and other sub-asset classes.275
Even when certain sub-asset classes
currently separate physical and
derivative exposures (e.g., listed
equities), all derivative instrument types
are currently combined regardless of
each derivative instrument type’s risk
characteristics. Furthermore, the form’s
current instructions for reporting
investment exposure obtained through
funds or other entities are different. For
example, the current instructions
require advisers to categorize ETFs
based on the assets the ETF holds, while
other registered investment companies
are reported as a separate sub-asset class
and may obscure the extent of a
reporting fund’s exposure to particular
sub-asset classes.
As proposed, in determining the
reporting fund’s exposure to sub-asset
classes for positions held indirectly
through entities, advisers are permitted
to allocate the position among sub-asset
classes and instrument types using
reasonable estimates consistent with
their internal methodologies and
conventions of service providers. In a
modification from the proposal, advisers
are also permitted to report an entirely
indirectly held entity position in one
sub-asset class and instrument type that
best represents the sub-asset class
exposure of the indirectly held entity,
unless the adviser would allocate the
exposure of the indirectly held entity
more granularly under its own internal
methodologies and conventions of its
service providers.276
Some commenters stated that
obtaining information about a fund’s
indirect exposures through investments
in other funds could be difficult or
275 Advisers are required to report the dollar
value of long and short positions for the sub-asset
class (and not instrument type) for the following
sub-asset classes: leveraged loans, loans (excluding
leveraged loans and repo); overnight repo, term
repo (other than overnight), open repo, sovereign
single name CDS, financial institution single name
CDS, other single name CDS, index CDS, exotic
CDS, U.S. currency holdings, non-U.S. currency
holdings, certificates of deposit, other deposits,
money market funds, and other cash and cash
equivalents (excluding bank deposits, certificates of
deposit, and money market funds). See Question
32(a).
276 The proposed instructions would limit the
‘‘best represents’’ standard to reporting of positions
that represent both less than (1) 5% of the reporting
fund’s net asset value and (2) $1 billion. The
adopted instruction removes the proposed position
size condition and applies the ‘‘best represents’’
standard to all indirectly held exposures.
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burdensome.277 One commenter
recommended allowing an adviser to
select the sub-asset class that ‘‘best
represents’’ the position.278 We believe
that adopting a ‘‘best represents’’
standard, regardless of the position size,
balances the importance of obtaining
more accurate and granular data with a
reporting standard that is less
burdensome for advisers than the
proposed standard.
The increased granularity in reporting
will allow for a better understanding of
the activities of qualifying hedge funds
and increase the utility of data collected
for purposes of understanding the role
qualifying hedge funds play in certain
market events. For example, when
monitoring funds’ activities during
recent market events like the March
2020 COVID–19 turmoil, the existing
aggregation of U.S. treasury securities
with related derivatives did not reflect
the role hedge funds played in the U.S
treasury market. Some commenters
supported the proposed amendments to
require hedge fund advisers to report
their long and short holdings on a
disaggregated basis.279 One commenter
stated that requiring private fund
advisers to report both long and short
positions will allow FSOC to have a
complete picture of the risk exposure
across private funds.280 Another
commenter supported disaggregated
reporting of physical and synthetically
held positions, stating that allowing
advisers to aggregate their positions
between physically held and
synthetically held positions can make it
difficult to understand the impact of
hedge fund activity especially during
periods of market instability.281 We
agree that the existing reporting, which
allows advisers to aggregate their
physical and synthetically held
positions, as well as long and short
exposures, obscures our understanding
of the fund’s overall exposure because
of the risk differences between such
holdings, which reduces our ability to
effectively assess systemic risk. One
commenter stated that more granular
disclosure of long and short holdings
can help ensure that FSOC has a
complete understanding of systemic risk
across private funds.282 Another
commenter opposed all proposed
requirements to report additional
monthly data, including the proposed
requirement to provide additional
277 See, e.g., MFA Comment Letter II; SIFMA
Comment Letter.
278 MFA Comment Letter II.
279 See AFREF Comment Letter I; Better Markets
Comment Letter.
280 AFREF Comment Letter I.
281 See Better Markets Comment Letter.
282 AFREF Comment Letter I.
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monthly exposure reporting, on the
basis that such monthly data would be
costly to produce and would not be
more beneficial than the existing
quarterly basis reporting
requirements.283 Obtaining more
granular data on a hedge fund’s long
and short positions is needed in order
to provide the Commissions and FSOC
sufficient information to understand,
monitor, and assess qualifying hedge
funds’ exposures and assess systemic
risk. Further, receiving this data on a
monthly basis, rather than only as of
quarter end, will give us better insight
into trends that may indicate systemic
risk. One commenter recommended that
the Commissions define ‘‘synthetic long
position’’ and ‘‘synthetic short position’’
and include a threshold for when a
position is considered deep-in-themoney.284 As discussed more fully in
section II.B.2 above, we are adopting
definitions for ‘‘synthetic long position’’
and ‘‘synthetic short position’’ in the
Glossary of Terms and specifying as an
example when a position is considered
deep-in-the-money.
Adjusted exposure reporting. While
we will continue to require advisers to
report ‘‘gross’’ long and short exposure,
i.e., the dollar value of a qualifying
hedge fund’s long positions and dollar
value of the fund’s short positions for
various sub-asset classes (and by
instrument type for certain sub-asset
classes as explained above), we are
adopting, as proposed, amendments to
require advisers to also report the
‘‘adjusted’’ exposure of long and short
positions for each sub-asset class in
which a fund has a reportable
position.285 Based on our experience,
we have found that gross exposure
reporting, while useful because the
information indicates fund size on a
comparable basis among funds, may
inflate some qualifying hedge funds’
reported long and short exposures in a
way that does not properly represent the
economic exposure and market risk of a
reporting fund’s portfolio. For example,
when only looking at gross exposure,
certain relative value strategies that are
designed to match long and short
exposures in the same or similar (highly
correlated) assets may reflect very high
leverage, but not have the same level of
risk as portfolios with less leverage but
that are more exposed directionally.
Furthermore, some advisers, for
purposes of managing risk, do not view
their portfolio on a ‘‘gross’’ basis
because they do not believe it provides
283 SIFMA
Comment Letter.
Comment Letter II.
285 Question 32(b). See also Form PF Glossary of
Terms (definition of ‘‘adjusted exposure’’).
284 MFA
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a meaningful measure of risk. ‘‘Gross’’
exposure reporting by itself presents an
incomplete picture that represents a
significant data gap for purposes of
systemic risk analysis.
Advisers will be required to
determine adjusted exposure for each
‘‘sub-asset’’ using a specified
methodology that is designed to
facilitate comparisons of the reported
data, as proposed. Specifically, advisers
will be required to calculate and report
‘‘adjusted exposure’’ of long and short
positions for each sub-asset class by
netting (1) positions that have the same
underlying ‘‘reference asset’’ across
‘‘instrument type’’ (i.e., cash/physical
instruments, futures, forwards, swaps,
listed options, unlisted options, other
derivative products, and positions held
indirectly through another entity such
as ETFs, other exchange traded
products,286 U.S. registered investment
companies (excluding ETFs and money
market funds), investments in non-U.S.
registered investment companies,287
other private funds, commodity pools,
or other companies, funds or
entities)and (2) fixed income positions
that fall within certain predefined
maturity buckets (i.e., 0 to 1 year, 1 to
2 year, 2 to 5 year, 5 to 10 year, 10 to
15 year, 15 to 20 year, and 20+ year).288
286 In connection with this amendment, as
proposed, we are also defining ‘‘exchange traded
product’’ as ‘‘an investment traded on a stock
exchange that invests in underlying securities or
assets, such as an ETF or exchange traded note.’’
See Form PF Glossary of Terms. Given that the
exchange traded product market has grown
significantly since Form PF was first adopted, we
believe that activity in exchange traded products
may present different systemic risks than traditional
listed equities and other instruments that might be
used to obtain exposure to underlying assets owned
within an ETF. Furthermore, we believe added
insight into whether the underlying sub-asset class
exposure is held through an ETF will enhance
FSOC’s analysis of systemic risk associated with
this asset class.
287 See Form PF Glossary of Terms (definition of
‘‘investments in non-U.S. registered investment
companies’’). Furthermore, we are also removing
the term ‘‘U.S. registered investment companies’’
from the Form PF Glossary of Terms.
288 See Form PF Glossary of Terms. We are
adopting, as proposed, a definition of ‘‘reference
asset’’ as a security or other investment asset to
which a fund is exposed through direct ownership
(i.e., a physical or cash position), synthetically (i.e.
the subject of a derivative or similar instrument
held by the fund), or indirect ownership (e.g.,
through ETFs, other exchange traded products, U.S.
registered investment companies, non-U.S.
registered investment companies, internal private
funds, external private funds, commodity pools, or
other companies, funds, or entities). An adviser
may identify a reporting fund’s reference assets
according to its internal methodologies and the
conventions of service providers, provided that
these methodologies and conventions are
consistently applied, do not conflict with any
instructions or guidance relating to Form PF and
reported information is consistent with information
it reports internally and to investors and
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For purposes of determining
‘‘adjusted exposure,’’ a fund may use
cross counterparty netting consistent
with information reported by the fund
internally and to current and
prospective investors, because we
believe it better reflects the fund’s
economic exposure. For example, a fund
with market-neutral trades may lose
substantial amounts of capital in a
period of market stress if prices diverge,
regardless of the identities of the
counterparties. Additionally,
counterparty identification may be
ambiguous for some positions, such as
when a fund simply has a long position
in an equity security traded over an
exchange or purchased from a broker
without the use of any financing.
Finally, if a fund does not net across
all instrument types in monitoring the
economic exposure of the fund’s
investment positions for purposes of
internal reporting and reporting to
investors, we will (in addition to
adjusted exposure determined as
specified above) also require the adviser
to report adjusted exposure based on an
adviser’s internal methodology and
describe in Question 4 how the adviser’s
internal methodology differs from the
standard approach in Question 32. This
additional information will provide
better insight into how these advisers
assess the economic exposure of their
reporting fund’s portfolio, while still
ensuring an adviser provides
information that supports our and
FSOC’s ability to aggregate and compare
the data across funds.
One commenter stated that the
prescribed methodology for calculating
netted exposure would be burdensome
and that the Commissions
underestimated the costs associated
with this calculation.289 One commenter
stated that requiring monthly sub-asset
class information, including adjusted
exposure data, would not facilitate
systemic risk monitoring because
existing quarterly reporting provides the
Commissions with similar
information.290 Receiving exposure data
on a monthly basis will allow us to
better understand interim changes in
exposures that may be relevant to
systemic risk assessment that are not
visible from the existing quarterly
data.291 As discussed more fully in
section IV.C below, identifying sub-asset
classes will not be significantly
counterparties. In a change from the proposal, we
are modifying the defined maturity buckets to
remove the 10 -year and 15-year buckets to reduce
potential confusion.
289 MFA Comment Letter II.
290 SIFMA Comment Letter.
291 See infra section IV.C of this Release for
discussion of costs and benefits.
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burdensome because advisers will
generally only need to make this
determination once, with ongoing
monitoring (and any reclassifications)
relatively limited.292 Further, because a
fund may use cross counterparty netting
consistent with information reported by
the fund internally for purposes of
determining adjusted exposure, the
adjusted exposure reporting should not
be significantly burdensome,
particularly for funds using common
aggregator protocols, because a fund can
leverage its existing internal reporting
methodology.
Require advisers to report a uniform
interest rate risk measure. We are
adopting, as proposed, amendments to
require advisers to report the 10-year
zero coupon bond equivalent 293 for all
sub-asset classes with interest rate risk
(by instrument type if applicable) 294
rather than providing advisers with a
choice to report duration, weighted
average tenor (‘‘WAT’’), or an
unspecified 10-year bond equivalent.295
Advisers will be required to report the
10-year zero coupon bond equivalent of
the dollar value of long and short
positions in each sub-asset class (and by
instrument type, if applicable) as well as
for the adjusted exposure of long and
292 Id. See also infra section V of this Release for
discussion of our increased cost estimates.
293 As discussed further below in section II.D of
this Release, we are adopting, with a modification
from the proposal, a new glossary definition of 10year bond equivalent to explain that the term 10year bond equivalent means ‘‘the equivalent
position in a 10-year zero coupon bond, expressed
in U.S. dollars.’’ See Form PF Glossary of Terms
(definition of ‘‘10-year bond equivalent’’). We are
also making a conforming change to the definition
of interest rate derivative to use this new definition.
294 We are adopting amendments to require
advisers to report the 10-year zero coupon bond
equivalent for the following sub-asset classes:
investment grade corporate bonds issued by
financial institutions (other than convertible
bonds); investment grade corporate bonds not
issued by financial institutions (other than
convertible bonds); non-investment grade corporate
bonds issued by financial institutions (other than
convertible bonds); non-investment grade corporate
bonds not issued by financial institutions (other
than convertible bonds); investment grade
convertible bonds issued by financial institutions;
investment grade convertible bonds not issued by
financial institutions; non-investment grade
convertible bonds issued by financial institutions;
non-investment grade convertible bonds not issued
by financial institutions; U.S. Treasury bills; U.S.
Treasury notes and bonds; U.S. agency securities;
GSE bonds; sovereign bonds issued by G10
countries other than the U.S; other sovereign bonds
(including supranational bonds); U.S. state and
local bonds; leveraged loans; loans (excluding
leveraged loans and repo); overnight repo; term
repo (other than overnight); open repo; MBS; ABCP;
Senior or higher CDO; Mezzanine CDO; Junior
equity CDO; Senior or higher CLO; Mezzanine CLO;
Junior equity CLO; other ABS; other structured
products ; U.S. dollar interest rate derivatives; nonU.S. currency interest rate derivatives; and
certificates of deposit. See Question 32(c).
295 See Question 32(c).
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short exposures for each sub-asset class
for each monthly period.
The amendment will improve
reporting and allow us to obtain better
data, because the current approach,
while providing optionality, makes it
difficult to compare and aggregate data
reported by different funds effectively.
Furthermore, the 10-year zero coupon
bond equivalent is appropriate because
it is commonly used by hedge fund
advisers and will be a better and more
consistent measure of interest rate risk
than duration, WAT, or the current
unspecified 10-year equivalent. WAT
may be an incomplete measure because
it does not always reflect the presence
of options embedded in bonds or
differing sensitivity to interest rate
changes in circumstances where base
currencies are subject to a higher or
lower risk-free rate, and it also may not
be meaningful for interest rate
derivative products. Duration can tend
toward infinity for certain derivatives
and so can provide little meaning or
utility. In addition, methodologies for
calculations of duration and a 10-year
equivalent (if not standardized to a zero
coupon bond) may vary, which can
result in variability among calculations,
and requiring use of the 10-year zero
coupon bond equivalent will provide
comparability across the reported data.
Therefore, eliminating additional
reporting options and requiring the 10year zero coupon bond equivalent will
provide a common denominator across
funds that advisers will be able to easily
calculate and that will provide a
consistent and comparable metric. In
this regard, the requirement should not
create an additional burden for advisers
that currently report based on a 10-year
equivalent for these types of assets,
which we estimate represents roughly
42 percent of the total number of
advisers responding to Question 32.296
One commenter stated that because
the definition of ‘‘10-year bond
equivalent’’ specifies the expression in
the fund’s base currency, for
transactions not in the fund’s base
currency, there would need to be a
foreign exchange conversion into the
base currency and an additional
conversion into U.S. dollars for certain
questions, which would be
burdensome.297 As discussed further
below in section II.D below, we are
modifying the ‘‘10-year bond
equivalent’’ definition to reference U.S.
dollars, rather than the reporting fund’s
base currency. Therefore, an adviser in
this scenario would not be required to
296 Based on analysis of Form PF data 2022Q4,
2021Q4, and 2020Q4.
297 See AIMA/ACC Comment Letter.
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perform any additional exchange
conversions.
Amended list of sub-asset classes.
We are adopting, as proposed,
amendments to the list of reportable
sub-asset classes in Question 32 in two
respects. First, some sub-asset classes
are consolidated and tailored to reflect
the adopted reporting of the dollar value
of long and short positions by
instrument type. For example, sub-asset
classes for listed and unlisted equity
derivatives are combined with sub-asset
classes for listed and unlisted equities,
and similarly, sub-asset classes for
physical commodities and commodity
derivatives are combined.298 Likewise,
some current sub-asset classes will now
be reflected as instrument types, such as
internal private funds, external private
funds, and registered investment
companies (now separated into ETFs,
U.S. registered investment companies,
and non-U.S. registered investment
companies). Second, we are adding new
sub-asset classes to provide additional
information to help the Commissions
and FSOC better understand qualifying
hedge funds’ investment exposures to
certain asset types and reduce reporting
in certain ‘‘catch-all’’ sub-asset classes,
such as ‘‘other listed equity.’’
We are also adopting amendments to:
(1) expand equity exposure reporting to
add sub-asset classes for (a) listed equity
securities (including new sub-asset
classes for other single name listed
equities and indices on listed equities),
and (b) American depository receipts
(‘‘ADRs’’); (2) add additional sub-asset
classes for reporting ‘‘repo’’ and
‘‘reverse repo’’ positions, based on term;
(3) add additional sub-asset classes for
asset backed securities (‘‘ABS’’) and
other structured products; (4) add new
sub-asset classes and revise existing
sub-asset classes that capture certain
derivatives, including certain credit
derivatives and volatility and variance
derivatives; (5) specify sub-asset classes
pertaining to investments in cash and
cash equivalents and commodities; and
(6) add a new sub-asset class for digital
assets.
298 In connection with these amendments, we are
amending the definitions of ‘‘listed equity’’ and
‘‘unlisted equity’’ to reflect that filers should
include synthetic or derivative exposure as well as
positions held indirectly through another entity
(e.g., through an ETF, exchange traded product,
U.S.-registered investment companies, non-U.S.
registered investment companies, internal private
fund or external private fund, commodity pool, or
other company, fund, or entity). Additionally, we
are amending the definition of ‘‘listed equity
derivatives’’ to include derivatives relating to ADRs,
and other derivatives relating to indices on listed
equities. See Form PF Glossary of Terms (definition
of ‘‘listed equity,’’ ‘‘unlisted equity,’’ and ‘‘listed
equity derivatives’’).
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One commenter opposed requiring
more detailed disclosure of a fund’s
holdings and recommended that the
Commissions leverage existing data
sources, such as existing Form PF, Form
13F and 13H, and CFTC Form CPO–
PQR reporting, to obtain more granular
information about a fund’s holdings.299
We disagree that existing data sources
can provide the amended fund-specific
sub-asset class information. As
discussed above, we have identified
information gaps in the data reported on
the existing Form PF based on our
experience. From these data sets, we are
unable to determine the full extent of a
fund’s exposure because the different
types of exposures are combined,
despite different exposures having
differing risk characteristics.300 This
commenter also stated that the
requirement to report more granular
sub-asset class data would be overly
burdensome and costly to report and
that we should use other data sources
for this information.301 These
amendments to the sub-asset class list
more accurately reflect a fund’s holding
than other data sources and current
Form PF reporting, which does not
provide this level of specificity.
Identifying sub-asset classes will not be
significantly burdensome to report
because advisers will generally only
have to make this determination once
and their ongoing monitoring (and any
reclassifications) should be relatively
limited. This commenter also raised
confidentiality concerns and stated that
the detailed sub-asset class data could
enable a person with access to the data
to recreate a private fund’s investment
strategy.302 The asset class level data
reported on Form PF, which is filed on
a non-public basis, is not sufficiently
detailed or reported on a basis frequent
enough to present significant risk of
misuse or enable reverse engineering of
a particular fund’s investment strategy.
Listed equity securities.
We are adding, as proposed, new subasset classes for certain categories of
listed equity securities, specifically, for
other single name listed equities and
indices on listed equities. This change
will provide more granularity to
299 See
SIFMA Comment Letter.
example, Forms 13F and 13H do not
collect fund-specific information, and only a small
sub-set of Form PF filers (commodity pool operators
and commodity trading advisors) are required to file
Form CPO–PQR. As discussed above, we have
identified information gaps in the data reported on
the existing Form PF based on our experience.
301 See SIFMA Comment Letter. See also infra at
section IV.C of this Release for discussion of costs
and benefits.
302 See SIFMA Comment Letter.
300 For
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18015
reporting on listed equities 303 given the
potential impact of these new sub-asset
classes from an overall systemic risk
perspective, as the form currently only
requires advisers to single out and
report listed equities issued by financial
institutions with all other listed equities
reported in a catch-all category ‘‘other
listed equity.’’ Identifying single
equities separately from equity index
exposure can help distinguish broadly
diversified portfolios from those that
could be more concentrated and also
help to identify what strategies are being
pursued by multi-strategy funds.
Additionally, single equity positions
may be more vulnerable to short
squeezes than index positions, so this
level of granularity will help to better
identify entities that may be affected
during a short squeeze event.304
One commenter stated that the
proposed instructions do not specify
whether the reporting fund’s listed
equity security holdings should include
both the reporting fund’s holding in
shares of an ETF as well as the listed
equity holdings of the same ETF.305
Another commenter stated that the
proposed question is unclear how
advisers should report indirect
holdings, such as positions held through
entities such as ETFs, and
recommended permitting advisers to
allocate its exposures using any
reasonable methodology.306 In
consideration of this comment, we are
adopting instructions to Question 32 to
provide that in determining a reporting
fund’s exposure to sub-asset classes for
positions held indirectly through
entities, such as through an ETF, the
adviser may allocate the position among
sub-asset classes and instrument types
using reasonable estimates consistent
with the adviser’s internal
methodologies and conventions of
service providers, and the adviser may
303 See current Question 26 and Question 30,
which required reporting on listed equities but did
not separate out single names from indices.
Investments in single name equities involve
materially more idiosyncratic risks, such as the
potential for more extreme price movements that
are not correlated to other market movements, than
investments in indices, and therefore we have
adopted amendments to require separate reporting.
304 A short squeeze is a type of manipulation in
which prices are manipulated upward to force short
sellers out of their positions, as short sellers are
required by brokers to maintain margin above a
certain level, and as prices rise short sellers must
add cash to their margin accounts or close out their
short positions. Single stock shorts often account
for a higher portion of the available float and/or
often have a larger period of days to cover (i.e., the
number of trading days to cover a short) than do
shorts on ETFs. As a result, a potential need to
cover a short could generally have a more
pronounced effect on single stocks.
305 AIMA/ACC Comment Letter.
306 MFA Comment Letter II.
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report an entirely indirectly held entity
position in one sub-asset class and
instrument type that best represents the
sub-asset class exposure of the
indirectly held entity unless the adviser
would allocate the exposure of the
indirectly held entity more granularly
under the adviser’s own internal
methodologies and conventions of its
service providers.307
ADRs.
We are adding, as proposed, a new
sub-asset class for ADRs in line with
how ADRs are reported on the CFTC’s
Form CPO–PQR.308 While ADRs are
purchased in U.S. dollars, these
instruments have currency risk because
the underlying security is priced in its
home country currency, and the ADR’s
U.S. dollar price fluctuates one-for-one
with each movement in the home
currency. Accordingly, advisers will be
required to report ADRs separately from
other listed equity instruments. This
requirement also will help increase the
utility of the information reported under
the ‘‘other listed equity’’ sub-asset class
on Form PF, which requires reporting of
multiple other sub-asset classes. We did
not receive comment on the proposed
addition of an ADR sub-asset class.
Repurchase Agreements (‘‘Repos’’).
We are adding, as proposed,
additional sub-asset classes to the
‘‘repos’’ section of Question 32 to
capture a breakdown of repos by term
(e.g., overnight, other than overnight,
and open term). Hedge funds often
borrow cash overnight and pledge
securities such as government bonds as
collateral. Collecting more information
on the different types of repos held by
qualifying hedge funds will allow the
Commissions and FSOC to understand
better the role of these funds in
potentially amplifying funding stresses
and the risks associated with short-term
funding for certain trading strategies,
particularly in light of the issues the
repo market experienced during the fall
of 2019 and in March 2020.309 We did
not receive comment on adding subasset classes for repos.
Asset Backed Securities (‘‘ABS’’)/
structured products.
307 See
Question 32.
noted above, where applicable, we are
adopting amendments to align Form PF with Form
CPO–PQR to (1) enable filers that currently are
required to file both Form PF and Form CPO–PQR
independently to compile and use similar data in
completing both forms, and (2) enable users of the
reported data (e.g., FSOC and other regulatory
agencies) to (i) link data for funds that file both
forms, and (ii) aggregate and compare data across
data sets more easily.
309 See, e.g., 2021 Financial Stability Oversight
Council Annual Report at 12 and 159, available at
https://home.treasury.gov/system/files/261/
FSOC2021AnnualReport.pdf.
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308 As
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As proposed, we are separating the
collateralized debt obligation (‘‘CDO’’)
and collateralized loan obligation
(‘‘CLO’’) sub-asset class in Question 32
into two separate sub-asset classes (one
for CDOs and one for CLOs), and further
breaking out each of these new sub-asset
classes based on the seniority of the
instrument (e.g., senior, mezzanine, and
junior tranches) similar to the reporting
approach on the CFTC’s Form CPO–
PQR.310 The changes are designed to
provide separate reporting for CDOs and
CLOs, which is important because CDOs
and CLOs are fundamentally different
financial products and the current
combined reporting obscures the
specific attributes of each product.
One commenter supported the
disclosure of CDOs and CLOs as
separate sub-asset classes because of the
different investment and risk
characteristics of these assets and the
systemic risks associated with both asset
classes.311 We agree. Furthermore, given
the recent focus on CLOs by FSOC 312 in
monitoring systemic risk, having
detailed product specific data for CDOs
and CLOs is justified due to the
potential value this information can
provide for systemic risk monitoring.
Credit, Foreign Exchange, Interest
Rate, and Other Derivatives.
We are revising, as proposed, the
credit, foreign exchange, and interest
rate and other derivative sub-asset
classes to provide more detailed
reporting. For example, with respect to
credit derivatives, the amended subasset classes will collect more detail on
single name CDS exposure to capture
better information on risk signals from
these instruments by adding separate
sub-asset classes for sovereign single
name CDS, financial institution single
name CDS, and other single name CDS
(to capture any credit derivatives that do
not fall into the other enumerated CDS
categories).313 An increase in single
310 See Form PF Glossary of Terms (definitions of
‘‘CDO’’ and ‘‘CLO’’). We are separating the current
definition of ‘‘CDO/CLO’’ into a separate definition
for each financial product. The definition of CDO
only includes collateralized debt obligations
(including cash flow and synthetic) and the
definition of CLO includes collateralized loan
obligations (including cash flow and synthetic)
other than MBS and does not include any positions
held via CDS. See also supra footnote 308
(regarding the alignment of Form PF with Form
CPO–PQR).
311 NASAA Comment Letter.
312 See United States Government Accountability
Office, Report to Agency Officials, ‘‘FINANCIAL
STABILITY Agencies Have Not Found Leveraged
Lending to Significantly Threaten Stability but
Remain Cautious Amid Pandemic,’’ Dec. 2020,
available at https://www.gao.gov/assets/gao-21167.pdf.
313 See also Form PF Glossary of Terms (revised
definition of ‘‘single name CDS’’). We are also
removing ‘‘credit derivatives’’ and ‘‘risk limiting
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name CDS exposure may signify a bet
against an entity or the market more
generally, which may have significant
systemic risk implications, particularly
with respect to concentrated singleissuer positions that can drive more
extreme price movements and face
difficulties in the unwinding process,
and for counterparties on the other side
of highly leveraged trades when the
market moves against these positions.314
Furthermore, single name CDS exposure
can represent important, concentrated
risk positions for a fund, similar to large
single equity positions, which can be
connected to market contagion events,
and have systemic risk and market
liquidity implications.
Similarly, we are adding more
detailed reporting for foreign exchange
derivatives by adding separate sub-asset
classes for foreign exchange swaps and
currency swaps consistent with
reporting to the Bank for International
Settlements (‘‘BIS’’), while removing the
less useful requirement of separate
reporting for foreign exchange
derivatives used for investment and
hedging, as we have found the data of
limited value because we do not believe
that information is reported consistently
across filers.315 Adding separate
reporting for different types of foreign
exchange instruments (e.g., foreign
exchange swaps and currency swaps) is
appropriate because they have
materially different risk characteristics,
including different maturity profiles,
and may be executed under different
documentation which could affect their
ability to be netted against one another.
We refer to the BIS framework because
we understand that it reflects a
commonly accepted industry approach
for classifying these instruments.
Furthermore, given the significance of
hedge funds’ exposure to these
instruments, more granular information
will better inform our understanding of
systemic risk issues that may arise from
conditions’’ as defined terms because they are no
longer used in the form.
314 The CFTC’s Form CPO–PQR also requests
information on single name financial CDS, and the
revised IOSCO Global Fund Investment Survey also
collects this information.
315 In connection with these changes, we are also
adopting changes to the definition of ‘‘foreign
exchange derivative’’ to improve data quality with
respect to how advisers report foreign exchange
derivative exposure. We are revising the definition
to (1) now include any derivative whose underlying
asset is a currency other than the base currency of
the reporting fund, (2) provide additional
information on the treatment of cross-foreign
exchange versus regular foreign exchange, and (3)
require reporting of both legs of cross currency
foreign exchange derivatives to reflect exposures
from such transactions. See Form PF Glossary of
Terms (revised definition of ‘‘foreign exchange
derivative’’).
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holdings in these different types of
instruments.
We are also dividing the current
‘‘interest rate derivatives’’ sub-asset
class into ‘‘U.S. dollar interest rate
derivatives’’ and ‘‘non-U.S. currency
interest rate derivatives.’’ This added
sub-asset class granularity is important
because we have found that Form PF
data consistently shows interest rate
derivatives as the sub-asset class to
which qualifying hedge funds have the
greatest exposure over time. A better
understanding of whether these
exposures are related to the U.S. dollar
yield curve or other countries’ yield
curves is important from a systemic risk
analysis perspective. Finally, we are
adding new sub-asset classes for various
types of derivatives that are regularly
used by hedge funds including
correlation derivatives, inflation
derivatives, volatility derivatives, and
variance derivatives, which will both
provide additional insight into how
qualifying hedge funds use these types
of financial instruments and further
limit the number and type of derivatives
that advisers report in the ‘‘catch-all’’
‘‘other derivatives’’ category.316
More detailed reporting of currency
exposure arising from foreign exchange
derivatives is important for systemic
risk. The requirement to select the subasset class that best represents the
investment will address concerns about
any burdens associated with obtaining
this information.
Although one commenter generally
opposed the inclusion of additional subasset classes,317 we did not receive
comment on these particular sub-asset
class revisions. As discussed more fully
above in the context of particular
amendments to the sub-asset class list,
the amendments to the sub-asset class
list that we are adopting more
accurately reflect a fund’s holding than
other data sources and current Form PF
reporting and are important for systemic
risk analysis. Understanding sub-asset
class exposure on a more granular level
will enhance our understanding of
qualifying hedge funds’ investment
exposures to different asset classes and
instruments that may present different
systemic risks. These amendments will
also enhance data quality by reducing
the asset reporting that is currently
made in ‘‘catch-all’’ categories or less
precise categories, such as a sovereign
single name CDS that would currently
316 In connection with these amendments, we are
also adding new definitions to the Glossary of
Terms for ‘‘correlation derivative,’’ ‘‘inflation
derivative,’’ ‘‘volatility derivative,’’ and ‘‘variance
derivative.’’ See Form PF Glossary of Terms.
317 See SIFMA Comment Letter.
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be categorized more generically as a
single name CDS.
Cash and Commodities.
We are adopting, as proposed,
revisions to the sub-asset class
categories for cash and commodities.
We are adopting amendments to require
advisers to break out cash and cash
equivalents 318 between U.S. currency
holdings and non-U.S. currency
holdings, while also removing the
current requirement to report on
investments in funds for cash
management purposes (other than
money market funds) because in our
experience advisers use inconsistent
methods for determining whether a
private fund investment is being used
for cash management purposes and
other information reported in section 2
is more useful for assessing liquidity
management (e.g., Question 38 with
respect to unencumbered cash).319
One commenter supported separate
reporting of U.S. Treasury security
holdings and cash and cash equivalents
on the basis that including these asset
classes together can obscure information
about a fund’s holdings.320 Another
commenter opposed the proposed
revision to the definition of ‘‘cash and
cash equivalents’’ to remove treasury
securities on the basis that such an
exclusion would be inconsistent with
market practice of treating short-term
treasury securities as a cash equivalent
for risk management and cash
management purposes.321 It is important
to understand a reporting fund’s
exposure to treasury securities distinct
from its cash and cash equivalent
holdings because of the different risk
profiles of these asset categories, as
demonstrated by recent market
events.322 We continue to believe that
318 Some advisers include treasuries in their
reporting of ‘‘cash’’ because it was part of the
current definition of ‘‘cash and cash equivalents.’’
We are revising the definition of ‘‘cash and cash
equivalents’’ to reflect that treasuries should not be
included in the ‘‘cash and cash equivalents’’ subasset class. In connection with this change we also
are adding a new separate definition for
‘‘government securities.’’ See Form PF Glossary of
Terms (revised definition of ‘‘cash and cash
equivalents’’ and definition of ‘‘government
securities’’). See also discussion at section II.B.2 of
this Release regarding the revised definitions of
cash and cash equivalents and government
securities.
319 Additionally, in many cases we will be able
to obtain more information about all internal fund
investments (including whether a fund looks like a
cash management vehicle) through the new
information the amendments require to be reported
in section 1b. See discussion at section II.B.2 of this
Release.
320 See AFREF Comment Letter I.
321 MFA Comment Letter II.
322 See, e.g., Group of Thirty Working Group on
Treasury Market Liquidity, U.S. Treasury Markets:
Steps Toward Increased Resilience, (2021),
available at https://group30.org/publications/
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removing the treasury securities from
the definition of ‘‘cash and cash
equivalents’’ is appropriate and will
provide more useful data and promote
consistency across filers.
Additionally, we are broadening the
current power commodity sub-asset
classes to also capture other energy
commodities and add additional
commodity sub-asset classes (e.g., other
(non-gold) precious metals, agricultural
commodities, and base metal
commodities) to provide added
granularity with respect to these
financial products given their potential
systemic risk implications and to better
inform our and FSOC’s understanding
of the activities of hedge funds in these
important commodities markets. We
have found that a limitation of the
current form is that very different
commodities (e.g., wheat and nickel) are
reported together in the same sub-asset
class (i.e., ‘‘other commodities’’) making
the reported data less meaningful for
analysis. With added granularity, we
will be in a better position to identify
concentrated exposures to particular
commodities, data that could be
valuable in the event of a dislocation in
a particular commodity market.323 The
additional commodity sub-asset classes
that we are adding, i.e., other (non-gold)
precious metals, agricultural
commodities, and base metal
commodities, were chosen because they
are most relevant from a systemic risk
perspective given the size of these
markets and what we currently know of
hedge fund exposures to these
markets.324 We did not receive
detail/4950 (discussing recent market stress events
in the U.S. Treasury securities market).
323 For example, we believe the addition of a base
metal commodities sub-asset class will allow for
identification of large players in the base metals
market (such as those impacted by the Mar. 2022
‘‘nickel squeeze’’). During the Mar. 2022 ‘‘nickel
squeeze,’’ the price of nickel rose unusually steeply
and rapidly in response to commodity price
increases caused by Russia’s invasion of Ukraine,
and this event, coupled with one or more market
participants holding large short positions, caused
prices to increase in an extreme manner (e.g., a oneday increase of 63% for the generic first futures
contract on Mar. 7, 2022). See, e.g., Shabalala,
Zandi, Nickel booms on short squeeze while other
metals retreat, Reuters (Mar. 2022), available at
https://www.reuters.com/markets/europe/lmenickel-jumps-another-10-after-record-rally-supplyfears-2022-03-08/; Nagarajan, Shalini, Nickel
Trading Halted at LME Until Friday After Wild
Price Spike (businessinsider.com) (Mar. 2022),
available at https://markets.businessinsider.com/
news/commodities/nickel-price-london-metalexchange-suspends-trading-shanghai-shortsqueeze-2022-3#:∼:text=The%20London%20Metal
%20Exchange%20has,17%25%20to%20their%20
daily%20limit.
324 These adopted changes with respect to
commodities sub-asset classes will also better align
Form PF with Form CPO–PQR.
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comments on these proposed changes to
the commodity sub-asset classes.
Digital Assets.
We are adopting, as proposed, a new
sub-asset class for digital assets.
However, as discussed more fully above
in section II.B.3 of this Release, we are
not adopting the proposed definition of
‘‘digital assets.’’ 325 We have observed
the growth as well as the volatility of
this asset class in recent years.326 We
understand that many hedge funds have
been formed recently to invest in digital
assets, while many existing hedge funds
are also allocating a portion of their
portfolios to digital assets.327
Accordingly, it is important to collect
information on funds’ exposures to
digital assets in order to understand
better their overall market exposures.
Although we are not adopting the
proposed definition of ‘‘digital assets’’ at
this time, we are adding an instruction
to Question 32 that states if a particular
asset could be classified as both a digital
asset and another asset, the adviser
should report the asset as the nondigital asset. For example, a money
market fund that is traded on a
blockchain should be reported as a
money market fund, rather than as a
digital asset. This is designed to reduce
potential confusion, narrow the assets
that are reported as digital assets under
the form and improve data quality.
One commenter recommended
requiring disclosure of digital asset
exposure on a quarterly or biannual
basis for all filers due to the general
volatility of digital assets and the
potential for systemic risk.328 All large
hedge fund advisers are required to file
Form PF on a quarterly basis, so we will
receive data on digital asset exposure
from these filers on a quarterly basis. In
addition, as discussed more fully above
in section II.B.3 of this Release, we are
adopting amendments which require all
hedge fund advisers, including large
hedge fund advisers, to disclose the
325 See
discussion at section II.B.3 of this Release.
global market for crypto assets is valued
by some estimates at approximately $900 billion as
of Dec. 2022. See, e.g., Global Cryptocurrency
Market Cap Charts, CoinGecko, available at https://
www.coingecko.com/en/global-charts (last visited
on Oct. 12, 2023). Volatility in the price of crypto
assets has caused this number to fluctuate
considerably over the past few years. For example,
in July of 2020 the market was estimated to be
worth approximately $276 billion, but went on to
reach a peak value of approximately $3 trillion by
Nov. 2021. Id.
327 See C. Williamson, Managers Taking Bigger
Steps Into Crypto, Pensions & Investments (Mar.
2022), available at at https://www.pionline.com/
cryptocurrency/hedge-fund-managers-taking-biggersteps-cryptocurrehttps://www.pionline.com/
cryptocurrency/hedge-fund-managers-taking-biggersteps-cryptocurrency.
328 AFREF Comment Letter I.
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reporting fund’s use of digital asset
investment strategies.
Open and Large Position Reporting.
We are adopting, as proposed,
amendments to require advisers to
qualifying hedge funds to report the top
five long and short netted positions and
the top ten netted long and short
positions. This amendment will provide
a holistic view of a reporting fund’s
portfolio concentration. We also
understand that these are commonly
used industry metrics for assessing
portfolio concentration levels. We are
defining ‘‘netted exposure’’ as the sum
of all positions with legal and
contractual rights that provide exposure
to the same reference asset, taking into
account all positions, including
offsetting and partially offsetting
positions, relating to the same reference
asset (without regard to counterparties
or issuers of a derivative or other
instrument that reflects the price of the
reference asset), as proposed.329
Currently, advisers to qualifying hedge
funds are required to report (1) a fund’s
total number of ‘‘open positions’’
determined on the basis of each position
and not with reference to a particular
issuer or counterparty,330 and (2) the
percentage of a fund’s net asset value
and sub-asset class for each open
position that represents five percent or
more of a fund’s net asset value.331
Advisers to qualifying hedge funds will
now be required to report (1) the total
number of reference assets to which a
fund holds long and short netted
exposure, (2) the percentage of net asset
value represented by the aggregate
netted exposures of reference assets
with the top five long and short netted
exposures, and (3) the percentage of net
asset value represented by the aggregate
netted exposures of reference assets
representing the top ten long and short
netted exposures. These amendments
are designed to provide insight into the
extent of a fund’s portfolio
concentration and large exposures to
any reference assets. We have found that
advisers use different methods for
identifying and counting their ‘‘open
positions,’’ which has made making
meaningful comparisons among funds
difficult. This has also potentially
obscured certain large exposures, which
329 Netted exposure to a reference asset may
either be long or short, and advisers will be
required to determine the value of each netted
exposure to each reference asset in U.S. dollars,
expressed as the delta adjusted notional value, or
as the 10-year bond equivalent for reference assets
that are fixed income assets. Advisers will not
report exposure to cash and cash equivalents. See
Question 39. See also Form PF Glossary of Terms
(definition of ‘‘netted exposure’’).
330 Current Question 34.
331 Current Question 35.
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may make concentration assessments
less exact. For example, an ‘‘open
position’’ might indicate a position held
physically, or synthetically through
derivatives, or both.
Advisers will also be required to
provide certain information on a fund’s
reference asset to which the fund has
gross exposure (as of the end of each
month of the reporting period), largely
as proposed, equal to or exceeding (1)
one percent of net asset value, if the
reference asset is a debt security and the
reporting fund’s gross exposure to the
reference asset exceeds 20 percent of the
size of the overall debt security
issuance, (2) one percent of net asset
value, if the reference asset is a listed
equity and the reporting fund’s gross
exposure to the reference asset exceeds
20 percent of average daily trading
volume measured over 90 days
preceding the reporting date, or (3) (a)
five percent of the reporting fund’s net
asset value or (b) $1 billion.332 Advisers
will be required to report: (1) the dollar
value (in U.S. dollars) of all long and the
dollar value (in U.S. dollars) of all short
positions with legal and contractual
rights that provide exposure to the
reference asset; (2) netted exposure to
the reference asset; (3) sub-asset class
and instrument type; (4) the title or
description of the reference asset; (5) the
reference asset issuer (if any) name and
LEI; (6) CUSIP (if any); 333 and (7) if the
reference asset is a debt security, the
size of issue, and if the reference asset
is a listed equity, the average daily
trading volume, measured over 90 days
preceding the reporting date, as
proposed. Additionally, advisers may at
their option choose to provide the FIGI
for the reference asset, but they are not
required to do so.334 We are defining
‘‘gross exposure’’ to a ‘‘reference asset’’
as the sum of the absolute value of all
long and short positions with legal and
contractual rights that provide exposure
to the reference asset, as proposed.335
We considered varying levels of
thresholds and believe that the
thresholds described above are
appropriate based on the following
332 In a modification from the proposal, the
adopted instructions add reference to the size of the
overall debt security issuance (emphasis added) to
specify the appropriate calculation. Further, the
reference to a ‘‘listed equity security’’ has been
modified to ‘‘listed equity’’ to align with the
defined term used in the Glossary of Terms.
333 Advisers will also be required to provide at
least one of the following other identifiers: (1) ISIN;
(2) ticker if ISIN is not available); or (3) other
unique identifier (if ticker and ISIN are not
available). For reference assets with no CUSIP, or
other identifier, advisers will be required to
describe the reference asset. See Question 40(a).
334 See Question 40(a)(xi).
335 See Question 40 and Form PF Glossary of
Terms (revised definition of ‘‘gross exposure’’).
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reasoning. First, the five percent
threshold has been carried over from the
current version of Form PF and is also
a commonly used metric for identifying
significant positions in a portfolio.336 In
addition, while a portfolio is generally
viewed as diversified when it holds at
least 20 different positions, when a
position goes above five percent it
reduces portfolio diversification.
Second, the $1 billion threshold
represents a level for large funds (e.g.,
those with net asset values in excess of
$20 billion) that is large enough so as to
have potential systemic risk
implications even if the position is less
than five percent of the fund. Finally,
the one percent of net asset value and
20 percent of issuance or average
trading volume thresholds are aimed at
limiting filer burdens while still
providing insight into the risks
associated with a position that may be
small relative to a fund’s overall
portfolio, but which constitutes a large
fraction of the market for a particular
holding, given that a liquidation by one
fund can trigger a disorderly
liquidation. A disorderly liquidation of
this kind may raise systemic risk
concerns as it may lead to liquidation
losses at other funds for which the
position is more impactful and possibly
lead to a cascade of additional unwinds.
The purpose of these amendments is
to improve our ability to assess the
magnitude of hedge fund portfolio
concentration, as well as to identify
directional exposure. From a systemic
risk and an investor protection
perspective, high portfolio
concentration carries the risk of
amplified losses that can occur when a
fund’s investment represents a large
portion of a particular investment, asset
class, or market segment. Leveraged
portfolios further amplify this risk. The
amendments are designed to better
capture a fund’s concentration risk (e.g.,
where gross exposure to a reference
asset is large compared to the fund’s
NAV and/or compared to the market for
a reference security). Reporting
positions that are large compared to
market size also may provide some
insight about whether multiple firms are
‘‘crowding’’ into trades in certain types
of securities or other financial assets.
Such ‘‘crowding’’ may increase the risk
that one fund’s forced selling may
trigger systemic effects across a
particular market.
Collecting information about the
composition of exposure to a reference
asset will allow us and FSOC to link the
information reported in Question 40 to
exposure reporting in Question 32,
336 E.g.,
Schedule 13G/13D uses a 5% threshold.
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which will give the reported data added
context and facilitate understanding of a
fund’s investment portfolio and
assessment of any implications for
systemic risk and investor protection
purposes. For example, in a convertible
arbitrage trade involving a position in a
convertible bond and an offsetting
position in the equity securities of the
same issuer, reference asset exposure
might be obtained by positions in two
different sub-asset classes (i.e.,
investment grade convertible bonds and
equities) and using a combination of
instrument types (e.g., physical
ownership and futures or a swap). The
combination of information reported in
Question 32 and Question 40 will
facilitate our ability to identify this type
of situation, better understand a
qualifying hedge fund’s investment
approach and whether it is taking on
concentrated positions (potentially with
leverage), and assess whether or not a
qualifying hedge fund’s activities may
have systemic risk or investor protection
implications.
One commenter stated that more
granular disclosure of holdings,
including both long and short positions,
will provide a more complete picture of
the risk exposure across private funds
and can help the SEC enforce fraud and
manipulation of security-based
swaps.337 Some commenters opposed
the requirements for more detailed
disclosure of holdings on the basis that
more granular disclosure would be
costly to report and is not needed for
systemic risk assessment.338 For reasons
discussed above, more granular
information about a fund’s exposure to
a reference asset will allow us and
FSOC additional context to facilitate
understanding of a fund’s investment
portfolio and assessment of any
implications for systemic risk and
investor protection purposes, which
justifies any incremental cost to
advisers. One commenter recommended
not requiring reporting on exposures on
a gross basis because of the potential for
gross figures to overstate a fund’s
exposure.339 Advisers are required to
report exposures on a gross and net
basis because reporting on either a gross
or net basis only would limit our
understanding of the total risk exposure,
for example any basis risk of the
exposure.
In response to a request for comment
in the proposing release regarding the
use of FIGI as a substitute for CUSIP,
337 AFREF
Comment Letter I.
e.g., MFA Comment Letter II; SIFMA
Comment Letter; AIMA/ACC Comment Letter. See
infra section IV.C of this Release for discussion of
costs and benefits of the amendments.
339 MFA Comment Letter II.
338 See,
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18019
one commenter recommended the
inclusion of FIGI as an alternative
financial identifier in lieu of CUSIP in
Question 40, which requires advisers to
report CUSIP information for each
reference asset, if available.340 Two
commenters opposed permitting the use
of FIGI in lieu of CUSIP stating that
CUSIP is a single fungible identifier,
whereas FIGI is not a single fungible
identifier and produces multiple
identifiers depending on the venue of
execution.341 We agree that, for
reporting on Form PF, a fungible
identifier is preferable because it will
allow for more consistent reporting of
assets than a nonfungible identifier
regardless of the venue of execution,
resulting in more effective monitoring
and assessment of systemic risk. We are
not adopting a change to permit the
substitution of FIGI for CUSIP. Question
40 continues to require advisers to
report for each reference asset the
CUSIP, if any, and at least one of the
following identifiers: ISIN, ticker, if
ISIN is not available, or other unique
identifier, if ISIN and ticker are not
available.342 Advisers may, on an
optional basis, report for each reference
asset the FIGI.343 For reference assets
with no CUSIP or other identifier,
advisers are required to describe the
reference asset.344
b. Borrowing and Counterparty
Exposure
Counterparty exposure. As noted
above, we are revising and enhancing
how advisers report information about
their relationships with creditors and
other counterparties (including CCPs)
and the associated collateral
arrangements for their hedge funds,
largely as proposed.345 For qualifying
hedge funds, we are adopting, as
proposed, a new consolidated
counterparty exposure table, similar to
the new consolidated counterparty
exposure table adopted for hedge funds
in section 1c of the form,346 which will
capture all cash, securities, and
synthetic long and short positions by a
reporting fund, a fund’s credit exposure
340 Bloomberg Comment Letter. Form PF Question
65 also requires large liquidity fund advisers to
report the CUSIP number for each security held by
the reporting fund and for each security subject to
a repo.
341 See, e.g., American Bankers Association
Comment Letter (Oct. 11, 2022); Comment Letter of
CUSIP Global Services (Oct. 11, 2022).
342 Question 40.
343 Id.
344 Id. We encourage advisers to obtain financial
identifiers for all of their assets for the benefit of
their investors when reporting their investments to
regulatory authorities and others.
345 See discussion at section II.B.3 of this Release.
346 Id.
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to counterparties, and amounts of
collateral posted and received. This
table replaces the information currently
required by current Questions 43, 44,
45, and 47, each of which has been
deleted.347 Questions 42 and 43 will
continue to collect information about a
reporting fund’s key individual
counterparties, but in more detail. These
revisions are designed to improve data
quality and comparability, close data
gaps, and provide better insight into
qualifying hedge funds’ borrowing and
financing relationships, their credit
exposure to counterparties and
collateral practices. They also will
enhance the Commissions’ and FSOC’s
ability to assess the activities of
qualifying hedge funds and their
counterparties for investor protection
purposes and in monitoring systemic
risk.
The new consolidated counterparty
exposure table is designed to capture
information on all non-portfolio credit
exposure that a qualifying hedge fund
has to its counterparties (including
CCPs) and the exposure that creditors
and other counterparties have to the
fund, taking into account netting. The
new table requires advisers to report in
U.S. dollars, as of the end of each month
of the reporting period, a qualifying
hedge fund’s borrowings and other
transactions with creditors and other
counterparties by type of borrowing or
transaction (e.g., unsecured, secured
borrowing and lending under a prime
brokerage agreement, secured borrowing
and lending via repo or reverse repo,
other secured borrowing and lending,
derivatives cleared by a CCP, and
uncleared derivatives) and the collateral
posted or received by a reporting fund
in connection with each type of
borrowing or other transaction.348 The
347 In connection with the removal of current
Question 44, we have made a corresponding
amendment to current Question 13 (redesignated as
Question 19), to remove an instruction that is no
longer relevant.
348 The instructions direct advisers to classify
borrowings and other transactions and associated
collateral based on the governing legal agreement
(e.g., a prime brokerage or other brokerage
agreement for cash margin and securities lending
and borrowing, a global master repurchase
agreement for repo/reverse repo, and ISDA master
agreement for synthetic long positions, synthetic
short positions and other derivatives), and instruct
advisers how to report when there is crossmargining under a fund’s prime brokerage
agreement. We are also adding new definitions of
‘‘synthetic long position’’ and ‘‘synthetic short
position’’ to the Glossary of Terms. See Form PF
Glossary of Terms (definitions of ‘‘synthetic long
position’’ and ‘‘synthetic short position’’).
Additionally, the instructions permit advisers to net
a reporting fund’s exposure with each counterparty
and across affiliated entities of a counterparty to the
extent such exposures may be contractually or
legally set-off or netted across those entities and/or
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table also requires advisers to qualifying
hedge funds to (1) classify each type of
borrowing by creditor type (i.e., U.S.
depository institution, U.S. creditors
that are not depository institutions, and
non-U.S. creditors); (2) classify posted
collateral by type (e.g., cash and cash
equivalents, government securities,
securities other than cash and cash
equivalents and government securities
and other types of collateral or credit
support (including the face amount of
letters of credit and similar third party
credit support) received and posted by
a reporting fund, and secured borrowing
and lending (prime brokerage or other
brokerage agreement)), and (3) report, at
the end of each month of the reporting
period, the expected increase in
collateral required to be posted by the
reporting fund if the margin increases
by one percent of position size for each
type of borrowing or other transaction,
as proposed. Measuring the impact of a
one percent margin change will allow
for a meaningful assessment of
qualifying hedge funds’ vulnerability to
changes in financing costs and
identification of funds that are most
sensitive to potential margin changes.
We also believe that measuring this
impact will provide a standardized way
to obtain data on funds’ vulnerability to
margin increases that is easy to scale up
for analysis purposes and allows for
uniform comparisons across hedge
funds to see which funds have lockup
agreements and which funds do not.
Furthermore, the table consolidates
current Questions and provides more
specific instructions in an effort to
eliminate information gaps and improve
the reliability of data collected. This
new approach will collect better
information about a qualifying hedge
fund’s borrowing and financing, cleared
and uncleared derivatives positions, and
collateral practices as well as a fund’s
credit exposure to counterparties
resulting from excess margin, haircuts,
and positive mark-to-market derivatives
transactions, which will enhance
FSOC’s systemic risk assessments.
Some commenters opposed the
requirement to provide additional detail
regarding counterparty exposure and
stated that the information would be
burdensome and costly to obtain.349 We
obligated to satisfy the obligations of another under
the agreements governing the transactions. The
instructions also direct advisers to classify
borrowing by creditor type (e.g., percentage
borrowed from U.S depository institutions, U.S.
creditors that are not U.S depository institutions,
non-U.S. creditors) based on the legal entity that is
the contractual counterparty for such borrowing
and not based on parent company or other affiliated
group.
349 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter.
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continue to believe that disaggregated
counterparty exposure is important to
systemic risk monitoring efforts for the
reasons discussed above. This
information will not be significantly
burdensome to produce as we
understand knowledge of counterparties
to be a component of a fund’s basic risk
management practices.
Significant counterparty reporting.
We are adopting, as proposed except as
specifically indicated below,
amendments to require advisers, for
each of their qualifying hedge funds, to
identify all creditors and counterparties
(including CCPs) where the amount a
fund has borrowed (including any
synthetic long positions) before posted
collateral equals or is greater than either
(1) five percent of the fund’s net asset
value or (2) $1 billion.350 This threshold
is appropriate because it highlights two
different but potentially significant
risks. First, five percent of a fund’s net
asset value represents an amount of
borrowing that, if repayment was
required, could be a significant loss of
financing that could result in a forced
unwind and forced sales from the
reporting fund’s portfolio. Second, $1
billion represents an amount that, in the
case of a very large fund, may not
represent five percent of the fund’s net
asset value, but may be large enough to
create stress for certain of its
counterparties.
This change is designed to specify
how securities held should be treated,
avoiding a common source of error in
how advisers have completed the
current form, and allowing both
counterparty risks related to
collateralized transactions to be viewed
in one place, i.e., the risk that collateral
will not be returned, and the risk that
the borrower of cash will fail to repay
the amount borrowed, risks that we
have found cannot be fully observed
350 See Question 42. Advisers will use
calculations performed to complete the new table
in Question 41 for purposes of identifying the
counterparties to be reported in Question 42 and
Question 43, and the calculation method is
designed to be similar to the calculations used to
identify counterparties in Question 27 and Question
28 in order to facilitate aggregation and analysis of
data across hedge funds and qualifying hedge
funds. Furthermore, if more than five counterparties
meet the threshold, advisers will be required to
complete an individual counterparty exposure table
for the top five creditors or other counterparties to
which a reporting fund owed the greatest amount
in respect of cash borrowing entries (before posted
collateral), and also identify all other creditors and
counterparties (including CCPs) to which the
reporting fund owed an amount in respect of cash
borrowing entries (before posted collateral) equal to
or greater than either (1) 5% of the reporting fund’s
net asset value as of the data reporting date or (2)
$1 billion. See also Form PF Glossary of Terms
(definitions of ‘‘cash borrowing entries’’ and
‘‘collateral posted entries’’).
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based on information collected on the
current form. For the top five creditors
and other counterparties from which a
fund has borrowed the most (including
any synthetic long positions) before
posted collateral, advisers will be
required to identify the counterparty (by
name, LEI, and financial institutional
affiliation) and to provide information
detailing a fund’s transactions and the
associated collateral. We are adopting a
‘‘top five’’ reporting threshold as this
level is consistent with the current
threshold for reporting on collateral
practices on Form PF, and it represents
a level that indicates significant
counterparty exposure.351
Advisers will be required to present
this information using an individual
counterparty exposure 352 table that
follows the same format as the new
consolidated counterparty exposure
table described above for Question 41,
including borrowings and other
transactions by type and collateral
posted and received by type. For all
other creditors and counterparties from
which the amount a fund has borrowed
(including any synthetic long positions)
before posted collateral that equals or is
greater than either (1) five percent of the
fund’s net asset value or (2) $1 billion,
advisers will be required to identify
each counterparty (by legal name, LEI,
and financial institution affiliation) and
report the amount of such borrowings
and the collateral posted by the fund in
U.S. dollars.353
As discussed more fully above in
section II.A.2, we are adopting
amendments that require advisers to
report all trading vehicles on a
consolidated basis. After considering
one commenter’s recommendation, we
are tailoring certain questions about
trading vehicles to help differentiate
potential risks of the reporting fund
from those of its trading vehicles.354 In
Question 42.
connection with the amendment, we are
adding a new definition for ‘‘individual
counterparty exposure table’’ to the Form PF
Glossary of Terms.
353 In a change from the proposal, we have
modified the reference from name to legal name to
specify that the adviser should report the relevant
counterparty’s legal name. This modification will
improve data comparability by enhancing our
ability to track any individual counterparty
reporting across filings. Further, in a change from
the proposal, we have modified the question to
specify that the adviser should report the legal
name of the counterparty, the counterparty LEI, if
any, the borrowing by the reporting fund, the
collateral posted by the reporting fund, and the
legal name of the entity that has the exposure and
its LEI, if any. This modified question aligns the
question’s wording with the information that is
required to be reported in the individual
counterparty exposure tables that follow in the
form.
354 See Schulte Comment Letter.
a modification from the proposal, we are
adding an instruction to require advisers
to list counterparty exposures of trading
vehicles owned by the reporting fund
based on the reporting fund’s percentage
ownership of such trading vehicle
without netting these exposures with
those of the reporting fund if they are
not guaranteed by the reporting fund or
contractual obligations of the reporting
fund.355 The amended instructions
provide that the adviser must also report
the legal name and LEI, if any, of the
entity that has the counterparty
exposure.356 This amended instruction
will allow us to better understand the
scope of the reporting fund’s exposure
and differentiate its exposures from
those held by a separate entity, such as
a trading vehicle.357
As proposed, advisers will be
required, for each of their qualifying
hedge funds, to identify all
counterparties (including CCPs) to
which a fund has net mark-to-market
counterparty credit exposure after
collateral that equals or is greater than
either (1) five percent of the fund’s net
asset value or (2) $1 billion.358 This
threshold is appropriate because both
portions of the threshold highlight
potential systemic risk: five percent of
net asset value is a level that represents
significant exposure (based on the
impact on performance) in the event of
counterparty default, and $1 billion,
while it may not equal five percent of
a large hedge fund’s assets, may indicate
a larger systemic stress involving a
fund’s counterparties. For the top five of
these counterparties, advisers will be
required to identify the counterparty (by
name, LEI and financial institution
affiliation) and provide information
detailing a fund’s relationship with
these counterparties including
associated collateral using the same
table required for individual
counterparty reporting.359 In a
351 See
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352 In
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355 See Question 42. See also Questions 43 and
44 (requiring providing the legal name and LEI, if
any, of the relevant entity with the exposure).
356 See Question 42. If the reporting fund
guarantees or is contractually obligated to fulfill
obligations of a trading vehicle or affiliated private
fund, such exposures are required to be reported net
with the exposures of the reporting fund. If an
adviser to an affiliated private fund separately files
Form PF, such adviser must exclude such
exposures if they have been included in the
reporting fund’s filing. See Question 41.
357 As discussed in section II.A.2 above, in a
modification from the proposal, advisers report
trading vehicles on a consolidated basis but in
response to certain questions will be required to
identify the positions and counterparty exposures
that are held through a trading vehicle, which will
help differentiate the reporting fund’s exposures
and risks from those of its trading vehicles.
358 See Question 43.
359 Under the amendments, however, if an adviser
completes the table in Question 42 for a particular
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18021
modification from the proposal, advisers
will also be required to report the
borrowing by the reporting fund and the
collateral posted by the reporting fund.
These modifications are intended to
align the question text with the
information that is required to be
reported in the counterparty exposure
table. Further, in a modification from
the proposal, an adviser will also be
required to report the legal name of the
entity that has the counterparty
exposure and its LEI, if any. This
modification will allow us to better
understand the scope of the reporting
fund’s exposure and differentiate its
exposures from those held by a separate
entity, such as a trading vehicle. As
proposed, advisers to qualifying hedge
funds will also be required to identify
all other counterparties (by name, LEI,
and financial institution affiliation) to
which a fund has net mark-to-market
exposure after collateral that equals or is
greater than either (1) five percent of a
fund’s net asset value or (2) $1 billion
and will require these advisers to report
the amount of the exposure before and
after collateral posted by either the
counterparty or the reporting fund as
applicable, as proposed. Further, in a
modification from the proposal, advisers
will also be required to report the name
and LEI, if any, of the entity that has the
counterparty exposure. The purpose of
this new requirement is to enhance our
ability to understand the impact of a
particular counterparty failure, such as
the counterparty failures that occurred
during the 2008 financial crisis and in
the period since (e.g., the failure of MF
Global in 2011),360 which is important
for systemic risk assessments and from
an investor protection perspective. In
assessing the risk to a fund of a
counterparty default, the new data will
demonstrate whether a fund has net
borrowing exposure or net lending
exposure to a counterparty. If the fund
is a net borrower with respect to a
counterparty, we will measure cash
borrowed by the fund against collateral
posted by fund. Alternatively, when the
fund is a net lender with respect to a
counterparty, we will measure cash
loaned to the counterparty against
collateral posted by the counterparty to
assess whether the counterparty has
counterparty, the adviser is not required to
complete the table twice.
360 See, e.g., Gapper, John and Kaminska, Izabella,
Downfall of MF Global—US broker-dealer
bankruptcy highlights global reach of eurozone
crisis, Financial Times (Nov. 2011), available at
https://www.ft.com/content/2882d766-06fb-11e190de-00144feabdc0.
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posted insufficient collateral (relative to
the amount borrowed).361
These amendments are designed to
streamline the form by consolidating
information currently collected in
Question 47 into Question 42, and to
improve the quality and comparability
of reported information and our ability
to integrate the data obtained for
analysis with other regulatory data sets
by specifying how advisers determine
borrowing and counterparty credit
exposure.362 The changes, in
conjunction with the new consolidated
counterparty exposure table, will also
provide a better overall view of hedge
funds’ borrowing and other financing
arrangements and counterparty credit
exposure and associated collateral,
which will provide critical insight into
(1) creditor and counterparty exposure
to qualifying hedge funds through
synthetic long positions through
derivatives, (2) potential gaps in margin
received by and posted by qualifying
hedge funds and the size of any such
gaps, (3) qualifying hedge funds’
exposure to a large counterparty failure,
and (4) the expected impact on a fund’s
financing arrangements of a change in
margin requirements.
Finally, advisers will no longer be
required to report the percentage of the
total amount of collateral and other
credit support that a fund has posted to
counterparties that may be rehypothecated as currently required in
Question 38.363 We are adopting this
change because this reporting is
burdensome for advisers, and we have
found that the data obtained is generally
not reliable because advisers cannot
easily collect and report the required
information as re-hypothecation
commonly occurs from omnibus
accounts into which advisers generally
do not have visibility.364
Some commenters opposed the
requirement to provide additional detail
regarding counterparty exposure and
361 See Form PF Glossary of Terms (definitions of
‘‘cash borrowing entries,’’ ‘‘collateral posted
entries,’’ ‘‘cash lending entries,’’ and ‘‘collateral
received entries’’) for a detailed description of these
calculations.
362 Advisers will be required to report the creditor
legal name and LEI, which will aid in the
identification of counterparties and facilitate
analysis of the interconnectedness of market
participants (e.g., Form N–PORT and Form N–CEN
already collect LEI for registered investment
company counterparties and including LEIs here
will facilitate analysis across data sets).
363 We are redesignating current Question 38 as
Question 45.
364 See MFA Letter to Chairman Clayton, Sept. 17,
2018, available at https://www.managedfunds.org/
wp-content/uploads/2020/04/MFA.Form-PFRecommendations.attachment.final.9.17.18.pdf
(noting the rehypothecated securities are taken out
of an omnibus account, which makes reporting for
advisers with any certainty difficult).
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state that the information would be
burdensome and costly to obtain.365
One commenter recommended limiting
the additional counterparty reporting to
only a fund’s top three counterparties,
rather than top five as proposed.366 For
reasons discussed above, disaggregated
counterparty exposure is important to
systemic risk monitoring efforts. This
information will not be significantly
burdensome to produce as we
understand knowledge of counterparties
to be a component of a fund’s basic risk
management practices. The additional
systemic risk benefits described above
of receiving data on a fund’s five largest
counterparties justify the modest
additional incremental burden over
reporting on the largest three
counterparties, as recommended by one
commenter.367
accurate estimates (for the higher
threshold). Based on our experience
with this information, we do not believe
that collecting data at multiple
thresholds for each market factor is
significantly more meaningful than
collecting market factor sensitivity at a
single plausible but still infrequent
threshold.370
The amendments also add a market
factor test concerning non-parallel riskfree interest rate movements. It will test
hedge fund exposure to changes in the
slope of the yield curve, which is
currently untested and can be a source
of systemic risk when there are sudden
interest rate changes. For example, this
market factor will provide meaningful
information on hedge funds that take
complex positions, such as market
neutral strategies (e.g., basis trading in
particular) and other strategies that
c. Market Factor Effects
employ trades that take advantage of
We are adopting, as proposed except
spreads in yield curves coupled with
as specifically indicated below,
high use of leverage. In a modification
amendments to require advisers to
from the proposal, we are removing the
qualifying hedge funds to respond on
risk-free interest rates market factor
Form PF to all market factors to which
reporting and instead adding an
their portfolio is directly exposed, rather instruction to specify that, with respect
than allowing advisers to omit a
to the market factor concerning nonresponse to any market factor that they
parallel risk-free interest rate
do not regularly consider in formal
movements, the sum of all reported nontesting in connection with the reporting parallel risk-free interest rate
fund’s risk management, as Form PF
sensitivities for a given rate movement
currently provides.368 These changes are should total the portfolio’s sensitivity to
designed to enhance investor protection a parallel risk-free interest rate
efforts and systemic risk assessment by
movement of that magnitude to reduce
allowing the Commissions and FSOC to burdens. This modification will reduce
track better common market factor
the burden on advisers by eliminating a
sensitivities, as well as correlations and required reporting item and will not
trends in those market factor
diminish data quality because with the
sensitivities.
added instruction, we can derive the
We are also changing the stress
total parallel risk-free rate sensitivity
thresholds to (1) require advisers to
from the non-parallel risk-free interest
report one threshold for each market
rate movement market factor.
factor, rather than two as is currently
We are also revising the instructions
required and (2) include different
so advisers will be required to report the
thresholds for certain market factors to
long component and short component
capture stress scenarios that are
consistently with market convention,
plausible but still infrequent market
rather than opposite from market
moves.369 Information resulting from
convention, as Form PF currently
stress testing at thresholds in the current requires, in order to reduce inadvertent
form (one low and one high) was not
mistakes in completing the form.371
useful because the thresholds are either
370 See current Question 42.
too frequent (for the lower threshold) or
371 We are amending the instructions to provide
too extreme and may not result in
365 See,
e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter.
366 MFA Comment Letter II.
367 See also infra section IV.C for further
discussion of costs and benefits of the amendments.
368 See Question 47. For market factors that have
no direct effect on a reporting fund’s portfolio, we
instruct filers to enter zero.
369 For example, advisers currently are required to
report the effect of an increase or decrease in equity
prices by 5% and by 20%, while under the
amendments advisers will only report the effect of
a 10% increase or decrease, which is a more
plausible but still infrequent scenario.
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that ‘‘risk-free interest rates’’ include interest rate
swap rates in which a fixed rate is exchanged for
a risk-free floating rate such as the secured
overnight financing rate (‘‘SOFR’’) or the sterling
overnight index average (‘‘SONIA’’). Additionally,
we are amending the instructions to specify that (1)
for market factors involving interest rates and credit
spreads, advisers should separate the effect on its
portfolio into long and short components where (i)
the long component represents the aggregate result
of all positions whose valuation changes in the
opposite direction from the market factor under a
given stress scenario, and (ii) the short component
represents the aggregate result of all positions
whose valuation changes in the same direction as
the market factor under a given stress scenario, and
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We are making two modifications to
the proposal. First, we are adding an
instruction that when reporting
exposures to changes in market factors
for indirect positions, an adviser may
use reasonable estimates that best
represent the exposure to the market
factor, consistent with the adviser’s
internal methodologies and conventions
of service providers. This is responsive
to commenters that suggested the
proposal was unclear in certain
questions as to whether an adviser is
required to ‘‘look through’’ the fund’s
investments.372 Second, as discussed
further above, we are removing the riskfree interest rates market factor and
instead adding an instruction to specify
that, with respect to the market factor
concerning non-parallel risk-free
interest rate movements, the sum of all
reported non-parallel risk-free interest
rate sensitivities for a given rate
movement should total the portfolio’s
sensitivity to a parallel risk-free interest
rate movement of that magnitude. Some
commenters opposed the amendments
requiring advisers to report on all listed
market factors, including any market
factors that the adviser does not
regularly consider in its stress testing.373
Currently, the wording of the
instructions allows an adviser to omit a
response in the event the adviser tested
a similar, but not identical, market
factor. Accurate and complete reporting
of all market factors will provide
important systemic risk information. We
do not believe this amended
requirement will significantly burden
advisers because an adviser will only be
required to stress test risk factors to
which their portfolios are directly
exposed and are instructed to report
zero for any inapplicable market factors.
Further, the modified instruction we are
adopting, which permits an adviser to
use reasonable estimates that best
represent the market factor exposure for
indirectly held positions, will alleviate
some of the burden of reporting this
additional information.
(2) for market factors other than interest rates and
credit spreads, advisers should separate the effect
on its portfolio into long and short components
where (i) the long component represents the
aggregate result of all positions whose valuation
changes in the same direction as the market factor
under a given stress scenario and (ii) the short
component represents the aggregate result of all
positions whose valuation changes in the opposite
direction from the market factor under a given
stress scenario. See Question 47.
372 MFA Comment Letter III.
373 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; Schulte Comment Letter; USCC
Comment Letter.
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d. Additional Amendments to Section 2
Currency exposure reporting. We are
adopting, as proposed except as
specifically indicated below,
amendments to require qualifying hedge
funds to report for each month of the
reporting period, in U.S. dollars, (1) the
net long value and short value of a
fund’s currency exposure arising from
foreign exchange derivatives and all
other assets and liabilities denominated
in currencies other than a fund’s base
currency, and (2) each currency to
which the fund has long dollar value or
short dollar value exposure equal to or
exceeding either (a) five percent of a
fund’s net asset value or (b) $1
billion.374 In responding, advisers will
be required to include currency
exposure obtained indirectly through
positions held in other entities (e.g.,
investment companies, other private
funds, commodity pools or other
companies, funds, or entities) and may
report reasonable estimates if consistent
with internal methodologies and
conventions of service providers.375 In a
change from the proposal, we are adding
an instruction to specify that an adviser
may report the data that ‘‘best
represents’’ the currency exposure from
any indirect investments to lessen the
reporting burden, as long as such
estimates are consistent with the
adviser’s internal methodologies and
conventions of service providers. This
currency exposure requirement is
designed to provide insight into
whether notional currency exposures
reported by qualifying hedge funds in
Question 33 represent directional
exposure or are hedges of equity and/or
fixed income positions. This new
question will allow us to understand
whether a qualifying hedge fund’s
portfolio is exposed to a given currency,
and it will also provide a view into the
fund’s currency exposure resulting from
holdings in foreign securities (e.g.,
Eurobonds). While current Question 30
already requires advisers to separate
currency exposure relating to hedging
from other currency, we have found that
this data has not been very useful for
determining whether a currency
position is speculative or a hedge.
Additionally, it is important to consider
a qualifying hedge fund’s currency
exposure to identify vulnerabilities to
currency fluctuations and market events
that affect different countries and
regions. Finally, the threshold of either
(1) five percent of a fund’s net asset
value or (2) $1 billion for reporting
individual currency exposure is
appropriate because it represents, in
each prong of the threshold, a material
level of portfolio exposure to currency
risk at which a deterioration in the
value of a particular currency could
have a significant negative impact on a
fund’s investors. We also believe that if
multiple large funds have significant
exposure to a currency that is rapidly
devaluing, this circumstance could raise
financial stability concerns, and this
reporting will better enable review of
this type of situation. More broadly, we
also will be able to use the information
obtained to identify concentrations in
particular currencies and assess the
potential impact of market events that
affect particular currencies.
One commenter discussed the
systemic risk concerns present in
currency exposures, particularly as
demonstrated by recent geopolitical
events and resulting currency
fluctuations.376 Other commenters
opposed the proposed requirement to
report currency exposure stating the
information would be of limited value
and burdensome to report.377 Some
commenters stated that reporting
indirect currency exposure accurately
may be difficult because of potential
variations in timing or foreign exchange
rate sources, which could lead to
inaccurate data and false indicators of
risk.378 The modified instruction that
we are adopting, which provides that an
adviser may report the data that ‘‘best
represents’’ the currency exposure from
any indirect investments, clarifies the
reporting requirement and will alleviate
some of the reporting burden. More
detailed reporting of currency exposure
is important for systemic risk purposes.
This belief is reinforced by recent
experiences of currency fluctuation in
the aftermath of geopolitical events that
we have observed.
Turnover. We are adopting, as
proposed, amendments, to require
reporting on a per fund basis on the
value of turnover in certain asset classes
rather than on an aggregate basis as
currently required.379 Requiring this
reporting on a per fund basis will
provide more detailed information to us
and FSOC while at the same time
376 Fact
374 See
Question 33.
375 This instruction is designed to simplify and
reduce the burdens of reporting sub-asset class
exposures. Furthermore, advisers are permitted to
provide good faith estimates and take currency
hedges into account, if consistent with their
internal methodologies and information reported
internally and to investors.
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Coalition Comment Letter.
e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; USCC Comment Letter.
378 AIMA/ACC Comment Letter; MFA Comment
Letter II.
379 Question 34. In connection with amendments,
reporting on the value of turnover in certain asset
classes and the geographical breakdown of
investments is moved from section 2a to section 2.
377 See,
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simplifying reporting for advisers. We
understand that advisers do not
currently aggregate turnover related
information among funds. Aggregating
solely for Form PF reporting is
particularly burdensome as the required
data is typically on separate reporting
systems and advisers must ‘‘roll-up’’
data from these sources to report on the
form.
We are also adding, as proposed, new
categories for turnover reporting that
disaggregate combined categories and
better capture turnover of potentially
relevant securities, such as various
types of derivatives (e.g., listed equity,
interest rate, foreign exchange), which
will help support analysis of hedge fund
market activity.380 Furthermore, we are
adding a new consolidated foreign
exchange and currency swaps category
and making other changes, as
proposed.381 During the March 2020
COVID–19-related market turmoil,
FSOC sought to evaluate the role hedge
funds played in disruptions in the U.S.
treasury market by unwinding cashfutures basis trade positions and taking
advantage of the near-arbitrage between
cash and futures prices of U.S. Treasury
securities.382 Because the current
requirement regarding turnover
reporting on U.S. Treasury securities is
highly aggregated, the SEC staff, during
retrospective analyses on the March
2020 market events, was unable to
obtain a complete picture of activity
relating to long treasuries and treasury
futures. Given the significant size of
hedge funds’ exposures to certain
derivative products, it is important to
gain more insight into trading activities
with respect to these financial
instruments to better enable the
Commissions and FSOC to assess and
monitor the activity of qualifying hedge
funds for systemic risk implications.383
380 We are also breaking out some categories by
futures, swaps, and options as different types of
derivatives have different risk profiles and
implications for systemic risk, and to add a category
for ‘‘other derivative instrument types’’ so that all
derivatives are reported.
381 We are revising the asset class categories to
require advisers to report turnover in derivatives
separately from turnover in physical holdings in
Question 34 and are making other conforming
changes to reflect changes to defined terms in the
Form PF Glossary of Terms.
382 See U.S. Credit Markets Interconnectedness
and the Effects of the COVID–19 Economic Shock,
U.S. Securities Exchange Commission, Oct. 2020,
available at https://www.sec.gov/files/US-CreditMarkets_COVID-19_Report.pdf. See also Financial
Stability Oversight Council 2021 Annual Report,
available at https://home.treasury.gov/system/files/
261/FSOC2021AnnualReport.pdf.
383 As of the end of first quarter of 2023, interest
rate derivatives currently make up approximately
30% of gross notional exposure (GNE) reported on
Form PF, while foreign exchange derivatives make
up approximately 13% of GNE. Additionally,
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Expanded reporting on turnover also
will provide better information for
assessing trading frequency in lieu of
requiring advisers to report what
percentage of their hedge funds’ net
asset value is managed using highfrequency trading strategies.384
Some commenters opposed the
proposed requirement for disaggregated
and more detailed reporting of turnover
stating that such information is of
limited value and burdensome to
report.385 As discussed above, we
continue to believe that turnover
information is related to systemic risk
and observing turnover data in
particular categories can help identify
affected funds and identify possible
contagion risk. Moreover, the adopted
requirement of disaggregated reporting
is less burdensome than the existing
reporting of turnover, which requires
advisers to aggregate data that we
understand they collect on a fund-level
basis.
Country and industry exposure. We
are adopting, as proposed except as
specifically indicated below,
amendments to require advisers to
report all countries (by ISO country
code 386) to which a reporting fund has
exposure equal to or exceeding either (1)
five percent of its net asset value or (2)
$1 billion, and to report the dollar value
of long exposure and the dollar value of
short exposure in U.S. dollars, for each
monthly period to improve data
comparability across funds.387 In a
change from the proposal, we are adding
an instruction to specify that advisers
may report the data that best represents
the country and industry exposure from
any indirect investments and is
consistent with the advisers’ internal
methodologies and conventions of
services providers to lessen the
reporting burden. Under the current
approach, only certain regions were
identified, and these regions were not
uniformly defined, which resulted in
data that was not consistent.388 In
commodity, credit, and other derivatives when
combined make up 5% of GNE or over $1.3 trillion.
See Private Fund Statistics Q1 2023, supra footnote
5.
384 We are removing current Question 21 as it is
redundant in light of the adopted expanded
turnover reporting.
385 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; USCC Comment Letter.
386 This is similar to reporting on Form N–PORT
and will improve the comparability of data between
Form PF and Form N–PORT.
387 Question 35. In connection with the
amendments, reporting on geographical breakdown
of investments has moved from current section 2a
to section 2.
388 Currently, consistent with staff Form PF
Frequently Asked Questions 28.1 and 28.2, advisers
are permitted to report geographical exposure based
on internal methods and indicate in Question 4 if
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addition, at times we have needed to
identify countries of interest not on this
list. As such, we are adopting
amendments to replace the country of
interest and regional reporting with this
new country level information. Finally,
the threshold of either (1) five percent
of net asset value or (2) $1 billion is
appropriate because it represents a
material level of portfolio exposure to
risk relating to individual countries and
geographic regions and is a level that
could significantly impact a fund and its
investors if, for example, there are
currency fluctuations or geopolitical
instability. Furthermore, the data
obtained will allow for identification of
industry concentrations in particular
countries and/or regions and help assess
the potential impact of market events on
these geographic segments. The five
percent threshold level constitutes a
reasonable shock to a fund’s net asset
value. For example, to the extent there
is a market-wide event, a worst-case
scenario would be for long positions to
lose their full value, in this shock case
at least five percent. Furthermore, and
particularly for funds without a
benchmark, five percent is often
evaluated for industry, individual
position, and country risk, and is a
common and easy to measure threshold.
With respect to the $1 billion threshold,
it constitutes sufficiently large nominal
value exposure from a risk perspective.
We are also adding a new question
that requires advisers to provide
information about each industry to
which a reporting fund has exposure
equal to or exceeding either (1) five
percent of its net asset value or (2) $1
billion, as proposed.389 Advisers are
required to report, for each monthly
period, the long dollar value and short
dollar value of a reporting fund’s
exposure by industry based on the
NAICS 390 code of the underlying
exposure.391 The purpose of this new
question is to collect information that
will provide insight into hedge funds’
industry exposures in a standardized
way to allow for comparability among
funds and meaningful aggregation of
data to assess overall industry-specific
concentrations. Further, the threshold of
either (1) five percent of net asset value
or (2) $1 billion is appropriate because
it represents a material level of portfolio
exposure to risk relating to individual
methods did not reflect risk and economic
exposure. See Form PF Frequently Asked
Questions, supra footnote 162.
389 See Question 36.
390 North American Industry Classification
System.
391 See United States Census Bureau, North
American Industry Classification System, available
at https://www.census.gov/naics/.
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industries, and is a level that could
significantly impact a fund and its
investors if, for example, there are
market or geopolitical events that affect
performance by a particular industry,
such as the burst of the ‘‘tech bubble’’
in the early 2000s or COVID–19’s
impact on airline, accommodation and
food service industries. Furthermore,
the data obtained will allow for
identification of industry concentrations
and help assess the potential impact of
market events on industries. While we
considered a lower threshold, we
continue to believe that the adopted
threshold strikes an appropriate balance
between identifying significant industry
exposure and the burdens of reporting
this information on Form PF. This
information will be useful to the
Commissions and FSOC in monitoring
systemic risk, particularly if multiple
funds have significant concentrations in
industries that are experiencing periods
of stress or disruption.
When responding to these questions
about country and industry exposure,
advisers are required to include
exposure obtained indirectly though
positions held in other entities (e.g.,
investment companies, other private
funds, commodity pools or other
company, funds, or entities). Without
this requirement, a fund’s exposure to
geographic regions and industries could
be obscured and hinder the
Commissions’ and FSOC’s ability to
assess risks and the potential impact of
events and trends that affect a particular
industry or geographic region, both of
which could have implications for
investors. While advisers typically
maintain this information, the
instructions to these questions seek to
minimize filer burdens by permitting
advisers to report reasonable estimates if
such reporting is consistent with
internal methodologies and information
reported internally and to investors.
Some commenters opposed the
proposed requirements for more
granular reporting, including
amendments to require more detailed
reporting on country and industry
exposure, stating that such information
would be of limited value for systemic
risk analysis and burdensome to
report.392 Another commenter, however,
discussed how geopolitical instability
and industry disruptions can contribute
to systemic risk.393 For reasons
discussed above, country and industry
exposure reporting is important for
systemic risk, and exposures in excess
of five percent of a fund’s net asset
392 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; USCC Comment Letter.
393 Fact Coalition Comment Letter.
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value could be significant enough to
pose contagion risks. In a modification
from the proposal, we are adding an
instruction to provide that an adviser is
permitted to report reasonable estimates
of a fund’s country and industry
exposure, provided such reporting is
consistent with internal methodologies
and information reported internally and
to investors, which is intended to lessen
the burden on advisers, while allowing
us to continue to receive this reporting
on country and industry exposure.
One commenter stated that requiring
advisers to report industry exposure by
NAICS is burdensome because funds
may not currently collect this data and
it may be costly to obtain.394 We
disagree that NAICS information is
significantly burdensome to obtain and
report. NAICS codes are publicly
available and is the standard used by
certain Federal agencies for classifying
entities by industry.395
Central clearing counterparty (CCP)
reporting. We are adopting, as proposed
except as specifically indicated below,
amendments to require advisers to
identify each CCP or other third party
holding collateral posted by a qualifying
hedge fund in respect of cleared
exposures (including tri-party repo)
equal to or exceeding either (1) five
percent of a reporting fund’s net asset
value or (2) $1 billion.396 The new
question excludes counterparties
already reported in Question 42 and
Question 43,397 and requires advisers to
provide information on: (1) the legal
name of the CCP or third party; (2) LEI
(if available); (3) whether the CCP or
third party is affiliated with a major
financial institution; (4) the reporting
fund’s posted margin (in U.S. dollars);
and (5) the reporting fund’s net
exposure (in U.S. dollars), as proposed.
In a modification from the proposal, we
are also requiring advisers to provide
information on the legal name of the
collateral owner and the collateral
owner LEI. This additional identifying
information will allow us to understand
the reporting fund’s exposure by
differentiating exposures of the
reporting fund from exposures of other
reporting entities. For example, as
discussed more fully above in section
II.A.2, advisers report on trading
vehicles on a consolidated basis with
the reporting fund, and without
identifying information, we would be
unable to differentiate a reporting fund’s
394 MFA
Comment Letter II.
e.g., SBA Small Business Size
Regulations, 13 CFR 121.101 (2023).
396 See Question 44.
397 See discussion at section II.C.2.b of this
Release.
395 See,
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counterparty risk exposure from that of
its trading vehicle.
We are adopting this new question
based on our experience with Form PF
since adoption as we have found data
gaps with respect to identifying
qualifying hedge fund exposures to
CCPs and other third parties that hold
collateral in connection with cleared
exposures. Furthermore, we understand
that (1) many large hedge fund advisers
already track margin posted for cleared
exposures because margin requirements
at any given time may well exceed the
clearinghouse’s exposure to a fund and
therefore are an important credit risk
exposure metric for a fund, and (2) that
CCP recovery, resiliency and resolution
also are current concerns for some
advisers.398 Given these factors, the
burden of this new question is justified
by valuable insight the data obtained
will provide into an area that could
have significant implications from a
systemic risk perspective. Additionally,
we have chosen a reporting threshold of
equal to or exceeding either (1) five
percent of net asset value or (2) $1
billion to be consistent with the
thresholds for other counterparty
exposure questions,399 as a qualifying
hedge fund is similarly exposed where
a third party holds collateral
irrespective of whether the third party is
a CCP or other counterparty. We are also
removing current Question 39, which
required information about transactions
cleared directly through a CCP, as the
information collected is duplicative of
information already collected in current
Question 24 (redesignated Question 29).
One commenter recommended that
exposures to CCPs should be reported
on an aggregate basis, rather than on an
individual CCP basis, because some
advisers track these exposures on an
aggregate basis and the Commissions
have not explained why reporting on an
aggregate basis is not sufficient and
recommended clarifying whether the
instruction in Question 43 to report
information for counterparties that are
CCPs or other third parties holding
collateral in respect of ‘‘cleared
exposures’’ is meant to refer to
‘‘centrally cleared exposures.’’ 400 The
references to cleared exposures in the
instructions to Question 43 are meant to
398 See ‘‘A Path Forward For CCP Resilience,
Recovery, And Resolution,’’ Mar. 10, 2020,
available at https://www.blackrock.com/corporate/
literature/whitepaper/path-forward-for-ccpresilience-recovery-and-resolution.pdf. See also J.P.
Morgan Press Release, Mar. 10, 2020, available at
https://www.jpmorgan.com/solutions/cib/markets/
a-path-forward-for-ccp-resilience-recovery-andresolution.
399 See discussion at section II.C.2.b of this
Release.
400 MFA Comment Letter II.
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include centrally cleared exposures, as
well as other cleared exposures.
Receiving data on which individual
CCPs are used for centrally cleared
positions is important for understanding
systemic risk resulting from a
concentrated use of the same CCPs
among different funds. Further, a CCP
default may result in delayed receipt of
funds that can create spillover effects at
funds, particularly highly leveraged
funds, that raise systemic risk and
investor protection concerns. While the
clearing system is highly risk reducing
and transparent, default of a fund, or of
a clearing member, could nonetheless
cause temporary dislocations that can
become significant at critical times.
Transparency at this level is important
in Form PF and is aligned with funds’
own need to be aware of exposures to
individual clearing members. For these
reasons, it is appropriate to require this
reporting as proposed. This commenter
also argued that the requirement to
report collateral posted by a fund to
meet exchange requirements and
separately report additional collateral
collected by the prime broker would be
difficult for advisers that do not actively
monitor exchange margin requirements
distinctively from prime broker margin
requirements.401 We disagree that this
information would be difficult for
advisers to report because the
instructions to Question 42 specify a
simplified method of how to report such
blended margin arrangements, including
where collateral is not disaggregated.402
The commenter recommended that the
Commissions instead require prime
brokers to provide this information in
standard form and permit advisers to
rely on information provided by their
prime broker.403 It is important for
advisers to report this information
aggregated for the reporting fund
because individualized reporting from
each prime broker may obscure the
fund’s counterparty risk. For example, a
fund that has arrangements with
multiple prime brokers may have a
particular counterparty exposure across
multiple prime brokerage arrangements,
which may be obscured by separate
reporting for each prime broker. Further,
it is important for a reporting fund to
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401 Id.
402 Specifically, Question 42(a)(iii) instructs as
follows: ‘‘check this box if one or more prime
brokerage agreements provide for cross-margining
of derivatives and secured financing transactions. If
you have checked this box, and collateral does not
clearly pertain to secured financing vs. derivatives
transactions, report exposures and collateral as
follows: . . . enter any additional collateral
gathered by the prime broker under a cross
margining agreement on lines (iii)(B), (C), (D), and
(E).
403 MFA Comment Letter II.
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understand its own counterparty risk,
and we understand advisers monitor
levels of counterparty concentration for
risk management purposes. Therefore,
we believe it is appropriate for advisers
to report this information on Form PF
with other exposure reporting.
Individual reporting on CCPs is
important because aggregated reporting
would not provide sufficiently detailed
information to allow us to identify
potential risks. For example, in the
event of a particular counterparty
failure, we would be unable to
accurately localize a fund’s risk
exposure to that counterparty.
Risk metrics. We are adopting, as
proposed, amendments to eliminate the
requirement that an adviser indicate
whether there are risk metrics other
than, or in addition to, Value at Risk
(‘‘VaR’’) that the adviser considers
important to managing a reporting
fund’s risks.404 Advisers generally have
not reported detailed information in
response to this requirement. Currently,
about 55 percent of advisers to
qualifying hedge funds (representing
about 75 percent of the aggregate gross
asset value of qualifying hedge funds)
report using VaR or market factor
changes in managing their hedge
funds.405 Instead, advisers will be
required to provide additional
information about a reporting fund’s
portfolio risk profile, investment
performance by strategy, and volatility
of returns and drawdowns.406 This
amendment will expand the amount of
data collected by collecting risk data in
circumstances where advisers do not
use VaR or market factor changes, and
thus will provide insight across all
(rather than only some) qualifying hedge
funds. This new information will
provide uniform and consistently
reported risk information that will
enhance our ability to monitor and
assess investment risks of qualifying
hedge funds to gauge systemic risk. In
particular, volatility of returns and
404 See
current Question 41.
Private Funds Statistics Q1 2023 (Table
58/59). Current Question 40 (redesignated Question
46) requires advisers to report certain risk data if
the adviser regularly calculates VaR of the reporting
fund. Current Question 42 (redesignated Question
47) requires advisers, for specific market factors, to
determine the effect of specified changes on a
reporting fund’s portfolio but permits advisers to
omit a response to any market factor that they do
not regularly consider in formal testing in
connection with a reporting fund’s risk
management.
406 See Question 49 (investment performance
breakdown by strategy), and Question 23(c)
(volatility of returns and drawdown reporting). See
discussion at section II.B.2 of this Release. We are
also revising the title of Item C. of section 2 to
‘‘Reporting fund risk metrics and performance’’ to
reflect the addition of new questions on
performance to this section of the form.
405 See
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Fmt 4701
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drawdown data is a simple measure of
risk that enables us to monitor riskadjusted returns, changes in volatility
and thereby risk profiles. We did not
receive specific comment on this
amendment.
Investment performance by strategy.
We are adopting, in a modification from
the proposal, amendments to require to
qualifying hedge funds that indicate
more than one investment strategy for a
fund in Question 25 to report monthly
gross investment performance by
strategy if the adviser reports this data
for such fund, whether to current and
prospective investors, counterparties, or
otherwise, rather than if the adviser
‘‘calculates and reports’’ such
information to third parties, as
proposed.407 Advisers will not be
required to respond to this question if
the adviser reports performance for the
fund as an internal rate of return, as
proposed. This question is designed to
integrate Form PF hedge fund data with
the FRB’s reporting on Financial
Accounts of the United States, which
the FRB uses to track the sources and
uses of funds by sector, and which are
a component of a system of
macroeconomic accounts including the
National Income and Product accounts
and balance of payments accounts, all of
which serve as a comprehensive set of
information on the economy’s
performance. We also believe that this
information will be helpful to the
Commissions’ and FSOC’s monitoring
and analysis of strategy-specific
systemic risk in the hedge fund
industry. One commenter recommended
that the requirement be limited to
reporting on investment strategies that
the fund reports to third parties.408 This
commenter also stated that the proposed
instructions were not clear how an
adviser should respond if it does not
report such information to third parties.
After considering comments, in a
change from the proposal, advisers will
be required to respond to this question
only if they actually report investment
performance to third parties; thus,
advisers will not be required to respond
to this question if they only calculate
(but do not report) such information.
This change will allow us to continue to
receive strategy performance
information that is reported to third
parties while reducing the burden on
407 Question 49. The strategies in Question 49 are
based on the strategies included in the drop-down
menu in Question 25 (we are also including a dropdown menu for the strategy categories in Question
25, to better reflect our understanding of hedge fund
strategies and to improve data quality and
comparability). See discussion at section II.B.3 of
this Release.
408 MFA Comment Letter II.
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advisers. We understand that advisers
may frequently calculate strategy
performance for purposes other than
reporting performance to third parties
and that requiring reporting of each
such calculation may be of more limited
value and may be burdensome to report.
Portfolio Correlation. In a change from
the proposal, we are not adopting a
proposed question on portfolio
correlation to collect data on the effects
of a breakdown in correlation. We
received several comments stating that
the proposed portfolio correlation
question would impose significant
burdens on advisers because portfolio
correlation is not a commonly
calculated risk measurement and can be
complex to calculate.409 One commenter
recommended only requiring an adviser
to report portfolio correlation if
correlation is a risk analysis metric that
the adviser reports to its investors.410 In
light of comments we received, we are
persuaded that the complexity and
corresponding increased burden
associated with the proposed portfolio
correlation question would be
significant. The new and modified
questions we are adopting in this
Release will also enhance our leverage
monitoring efforts and enhance our data
insights on counterparty exposures
without including the proposed
portfolio correlation question.
Portfolio Liquidity. We are adopting,
as proposed, amendments to require
advisers to include cash and cash
equivalents when reporting portfolio
liquidity, rather than excluding them, as
the question currently provides.411 We
understand that reporting funds
typically include cash and cash
equivalents when analyzing their
portfolio liquidity. This change will
improve data quality by reducing
inadvertent errors that result from
requiring advisers to report in a way
that is different from how they may
report internally. This change is more
reflective of industry practice, and it is
preferable to receive reported data in a
format that reflects how advisers
typically analyze portfolio liquidity.
We are also amending the form’s
instructions to allow advisers to assign
each investment to more than one
period, rather than directing advisers to
assign each investment to only one
period, as Question 32 currently
provides. We understand that directing
advisers to assign an investment to only
one period may make a reporting fund’s
portfolio appear less liquid than it is
409 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II.
410 AIMA/ACC Comment Letter.
411 See Question 37.
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because it would not reflect that
reporting funds may divide up sales in
different periods (e.g., a reporting fund
could sell off a portion in the first time
period and sell of the remainder in
subsequent time periods). Therefore,
this change is designed to reflect the
liquidity of a reporting fund’s portfolio
more accurately.
While advisers will continue to be
able to rely on their own methodologies
to report portfolio liquidity, we are
adding an instruction explaining that
estimates must be based on a
methodology that takes into account
changes in portfolio composition,
position size, and market conditions
over time. Based on experience with the
form, we have found that some advisers
have used static methodologies that do
not consider portfolio composition and
position size relative to the market, and
therefore do not reflect a reasoned view
about when positions could be
liquidated at or near carrying value.
Therefore, this change will continue to
allow advisers to use their own
methodologies but improve data quality
to ensure that the methodologies
generate reporting that reflects a
reasonable view of portfolio liquidity in
light of changes in portfolio
composition and size, and market
conditions, over time.
One commenter stated that portfolio
liquidity is a metric that may create
misleading impressions when assessed
on a disaggregated fund by fund
basis.412 As discussed more fully above
in section II.A of the Release,
disaggregated reporting, rather than
being misleading, allows for a clearer
understanding of the reporting fund’s
structure, including its portfolio
liquidity, because we can observe
liquidity on a fund by fund basis while
continuing to allow aggregation of data
across the fund structure for the broader
context. This commenter also stated the
proposed instruction regarding how to
report the percentage of fund’s net asset
value that may be liquidated within
each period if an investment is assigned
to more than one period was unclear. In
consideration of this comment, we are
adding an instruction to specify that if
an investment is assigned to more than
one period, the adviser should reflect
the percentage of NAV that might be
liquidated within each period, rather
than the percentage of NAV that the
entire investment represents.413 The
same commenter stated that we should
clarify the meaning of the proposed
instruction that estimates must be based
on a methodology that takes into
412 MFA
Comment Letter II.
37.
413 Question
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18027
account changes in portfolio
composition, position size, and market
conditions over time. To address this
comment, we are also revising the
instructions to specify that, for example,
estimates would change if the portfolio
invests in more or less liquid assets, if/
when the portfolio investments grow to
a size relative to the liquidity of the
markets in which it invests that requires
more time to liquidate, and if liquidity
characteristics change measurably and
meaningfully for the assets in which the
portfolio invests.414 This commenter
also recommended that the total
portfolio liquidity should not be
expressed as a percentage of a fund’s net
asset value, in light of the instruction
that suggests that the total may not add
up to 100 percent.415 The instruction
that the total percentages should add up
to approximately 100 percent is
appropriate because we recognize that
rounding differences may result in a
calculated total percentage that does not
equal 100 percent. We continue to
believe that portfolio liquidity should be
expressed as a percentage of net asset
value because net asset value is also the
unit in which redemptions take place
and would allow calculations in value,
if needed.
Finally, to facilitate more accurate
reporting, collect better data, and reduce
filer errors, we are amending the table
to be included in new Question 37 to
reflect that information should be
reported as a percentage of NAV
consistent with SEC staff Form PF
Frequently Asked Questions.416 We did
not receive specific comment on this
amendment.
Financing and Investor Liquidity.
Current Question 46 is designed to show
the extent to which financing may
become rapidly unavailable for
qualifying hedge funds.417 We are
adopting, as proposed, amendments to
current Question 46 to improve data
quality thereby supporting more
effective systemic risk analysis.418
Advisers will be required to provide the
dollar amount of financing that is
available to the reporting fund,
including financing that is available but
not used, by the following types: (1)
‘‘unsecured borrowing,’’ (2) ‘‘secured
borrowing’’ via prime brokerage, (3)
secured borrowing via reverse repo, and
414 Id.
415 MFA
Comment Letter II. See also Question 37.
Form PF Frequently Asked Questions,
supra footnote 162, Question 32.3.
417 See 2011 Form PF Adopting Release, supra
footnote 4, at text accompanying n.281.
418 We redesignated current Question 46 as
Question 50.
416 See
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(4) other secured borrowings.419
Currently, the Commissions and FSOC
infer this data from this question and
current Question 43 (concerning the
reporting fund’s borrowings).420
However, these inferences may not be
accurate given the number of
assumptions that currently go into
making such inferences. This
information will help us understand the
extent to which a fund’s financing could
be rapidly withdrawn and not replaced.
We did not receive specific comment on
this amendment. Current Question 50,
which we have redesignated as
Question 53, requires an adviser to
report the percentage of the fund’s net
asset value that is subject to suspensions
and restrictions on withdrawals/
redemptions for various time periods. In
a modification from the proposal, we are
amending Question 53 to instruct the
adviser to make a good faith
determination of the withdrawal and
redemption restrictions that would
likely be triggered during significant
market stress conditions. This
additional instruction addresses
commenters’ concerns by reducing the
reporting burden for advisers that advise
funds with varying redemption and
withdrawal rights and improve data
quality.421
Definition of ‘‘Hedge Fund.’’ We
requested comment on whether we
should amend the definition of ‘‘hedge
fund’’ as it is defined in the Form PF
Glossary of Terms. After considering
comments, we are not adopting any
amendments to the existing definition of
‘‘hedge fund’’ at this time. Certain
commenters generally supported
revising the definition of ‘‘hedge fund’’
to remove deemed hedge funds (i.e., a
private fund reported as a ‘‘hedge fund’’
as Form PF directs because the fund’s
governing documents permit the fund to
419 Form PF defines ‘‘unsecured borrowing’’ as
obligations for borrowed money in respect of which
the borrower has not posted collateral or other
credit support. Form PF defines ‘‘secured
borrowing’’ as obligations for borrowed money in
respect of which the borrower has posted collateral
or other credit support. For purposes of this
definition, reverse repos are secured borrowings.
See Form PF Glossary of Terms. These categories
are designed to be consistent with borrowing
categories that qualifying hedge funds will report
on the new counterparty exposure table.
420 Current Question 43 collects data on the
reporting fund’s borrowing by type (e.g., unsecured,
and secured by type, i.e., prime broker, reverse repo
or other), while current Question 46 only collects
a total amount of financing available, both used and
unused, with no breakdown by type of financing.
421 As discussed more fully above in section II.B.2
of this Release, some commenters stated that, in the
context of proposed Question 10, the proposed
amendments should permit reporting of multiple
types of redemption and withdrawal rights. See,
e.g., MFA Comment Letter II; SIFMA Comment
Letter; USCC Comment Letter.
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engage in certain borrowing and short
selling (even though it did not do so at
any time in the past)).422 These
commenters supported revising the
definition of ‘‘hedge fund’’ to exclude
private funds that have an ability to use
leverage or engage in shorting but do not
do so in the ordinary course of business
and that the market does not generally
consider to be hedge funds. Some
commenters recommended adopting a
de minimis test, which would exclude
any private fund from the definition that
has not recently engaged in shorting or
borrowing activity within a specified
period, such as within the last 12
months, or has not engaged in these
activities in excess of a specified
amount, such as greater than 0.5% or
1% of the fund’s net asset value.423 One
commenter recommended an exclusion
for any private fund whose borrowing
activities are only related to real
estate.424 Another commenter
recommended including a rebuttable
presumption in the definition that a
private fund that holds itself out as a
hedge fund is a hedge fund, while a
private equity fund that holds itself out
as pursuing a private equity strategy is
not a hedge fund, similar to the venture
capital exemption under the Advisers
Act.425 Another commenter
recommended specifying in the
definition that only private funds that
provide redemption rights in the
ordinary course can be classified as
hedge funds.426 One commenter
recommended revising the definition to
remove the default treatment of
commodity pools as hedge funds.427
The existing definition is designed to
include any private fund having any one
of three common characteristics of a
hedge fund: (1) a performance fee that
takes into account market value (instead
of only realized gains); (2) leverage; or
(3) short selling. We believe that any
private fund that has one or more of
these characteristics is an appropriate
subject for the more detailed level of
reporting that hedge funds are subject to
on Form PF because the questions that
hedge fund advisers are required to
complete focus on these activities which
422 See, e.g., AIC Comment Letter I; CFA Institute
Comment Letter; Ropes & Gray Comment Letter;
Schulte Comment Letter; SIFMA Comment Letter.
423 See AIC Comment Letter I; Ropes & Gray
Comment Letter.
424 See SIFMA Comment Letter.
425 See Ropes & Gray Comment Letter. 17 CFR
275.203(l)–1. See Exemptions for Advisers to
Venture Capital Funds, Private Fund Advisers with
Less than $150 Million in Assets Under
Management, and Foreign Private Advisers,
Advisers Act Release No. 3222 (June 22, 2011) [76
FR 39646 (July 6, 2011)].
426 See CFA Institute Comment Letter.
427 See MFA Comment Letter II.
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bring funds within the ‘‘hedge fund’’
definition. Without classifying these
funds as hedge funds for the purpose of
Form PF, we would not receive
important reporting on these activities
which may contribute to systemic risk,
particularly in the event of a fund that
has the ability to engage in borrowing or
short selling activities. Incorporating
any carveouts in the definition, such as
the recommended de minimis exception
for borrowing or short selling, could
cause further data mismatches and
increase the burden on advisers because
certain funds could be required to
fluctuate between different reporting
categories in different reporting periods
depending on the fund’s practices in
any given period. In our experience,
such an exclusion would eliminate only
a limited number of private funds from
the reporting category. We also believe
that short selling and borrowing are
important distinguishing characteristics
of hedge funds and providing any
exception for these activities, including
a de minimis one, could have a
significant, negative effect on reporting.
Therefore, we do not believe that
including responses from these private
funds in the reporting information from
hedge fund advisers impairs our data
quality. We also believe adopting a
rebuttable presumption is not
appropriate because it would increase
burdens on advisers by effectively
requiring an adviser to produce
evidence of its filing category. Further,
this approach would effectively allow
an adviser to determine whether it
reports the additional information that
hedge fund advisers are required to
report on Form PF, which would
diminish the quality and value of data
collected on Form PF. Additionally, as
it relates to the treatment of commodity
pools as hedge funds for reporting
purposes, such treatment further aligns
the consistency of questions asked
across these entities, both on this Form
PF, as well as on the CFTC’s Form CPO–
PQR.
D. Amendments To Enhance Data
Quality
We are also adopting, as proposed
except as specifically provided below,
several amendments to the instructions
to Form PF to enhance data quality.428
Specifically, we are adopting the
following changes:
Reporting of percentages. For
questions that require information to be
expressed as a percentage, we are
adopting, as proposed, an amendment to
428 Instruction 15 (provides guidelines for
advisers in responding to questions on Form PF
relying on their own methodology).
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require that percentages be rounded to
the nearest one hundredth of one
percent rather than rounded to the
nearest whole percent. This additional
level of precision is important,
especially for questions where it is
common for filers to report low
percentage values (e.g., risk metric
questions such as Question 40 and
Question 42) to avoid situations where
advisers round to zero and no data is
reported, potentially obscuring small
changes that may be meaningful from a
risk analysis or stress testing
perspective. One commenter stated that
the requirement to report information
expressed as a percentage to the nearest
one hundredth of one percent will
significantly increase the costs and
additional burdens for reporting
advisers.429 This commenter also stated
that, if the Commissions provide a basis
for requiring additional granularity, the
Commissions should amend the
instruction to require reporting rounded
to the nearest one tenth of one percent,
rather than one hundredth of one
percent.
Percentages rounded to the nearest
one hundredth of one percent will allow
the Commissions to obtain and analyze
more precise information that may
otherwise be obscured. For example,
one one-hundredth of one percent can
represent a meaningful dollar amount
depending on the size of the private
fund. And, while we recognize that this
may not be the case for smaller funds,
when such amounts are taken together
for a large group of smaller funds, the
aggregate amount across the fund group
can represent a meaningful dollar
amount for data analysis purposes.
Furthermore, as noted above, this level
of detail is particularly important for
questions where it is common for filers
to report low percentage values to avoid
situations where advisers round to zero
and no data is reported. Finally, we
understand that many advisers already
use electronic spreadsheet programs and
other tools to generate percentages and
assist with rounding, which should
limit the incremental burdens and costs
on advisers. While we considered less
granular reporting, such as rounding to
the nearest one tenth of one percent, the
adopted threshold strikes an appropriate
balance between enhancing Form PF
data quality and the burdens and costs
of reporting this information on Form
PF.
Value of investment positions and
counterparty exposures. We are
amending, as proposed, the instructions
to specify how private fund advisers
determine the value of investment
429 MFA
Comment Letter II.
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positions (including derivatives) and
counterparty exposures. We are
adopting amendments to require
derivatives trades to be reported
independently on a gross basis,
consistent with derivatives reporting on
Form N–PORT.430 We are also
amending the instruction that for all
positions reported on Form PF, to not
include as ‘‘closed-out’’ a position if the
position is closed out with the same
counterparty and results in no credit or
market exposure to the fund, making the
approach on Form PF with respect to
closed out positions consistent with rule
18f–4 of the Investment Company Act
and our understanding of filers’ current
practices.431 We did not receive specific
comment on these amendments. These
changes will provide a more consistent
presentation of reported information on
investment and counterparty exposures
to support more accurate aggregation
and comparisons among private funds
by us and FSOC in assessing systemic
risk.
Reporting of long and short positions.
We are amending, as proposed, the
instructions regarding the reporting of
long and short positions on Form PF to
improve the accuracy and consistency
of reported data used for systemic risk
analysis. The amended instructions
specify that if a question requires the
adviser to distinguish long positions
from short positions, the adviser should
classify positions based on the
following: (1) a long position
experiences a gain when the value of the
market factor to which it relates
increases (and/or the yield of that factor
decreases), and (2) a short position
experiences a loss when the value of the
market factor to which it relates
increases (and/or the yield of that factor
decreases). Although some commenters
supported the proposed amendments to
require advisers to report their long and
short holdings on a disaggregated
basis 432 and other commenters opposed
the requirements for more detailed
430 Specifically, Instruction 15 requires that if a
question in Form PF requests information regarding
a ‘‘position’’ or ‘‘positions,’’ advisers must treat legs
of a transaction even if offsetting or partially
offsetting, or even if entered into with the same
counterparty under the same master agreement as
two separate positions, even if reported internally
as part of a larger transaction. See also instructions
to N–PORT, General Instruction G.
431 See Use of Derivatives by Registered
Investment Companies and Business Development
Companies, Release No. 34084 (Nov. 2, 2020) [85
FR 83162, 83210 (Dec. 21, 2020)]. See also Form PF
Frequently Asked Questions, supra footnote 162,
Question 44.1.
432 See AFREF Comment Letter I; Better Markets
Comment Letter. See supra section II.C.2.a.
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disclosure of holdings,433 we did not
receive specific comment on the
proposed change to the instructions
defining long and short positions. The
amended instructions will improve the
data quality and comparability used for
systemic risk analysis.
Calculating certain derivative values.
We are amending, with a modification
from the proposal, the instruction to
provide that, (1) for calculating the
value of interest rate derivatives,
‘‘value’’ means the 10-year bond
equivalent, and (2) for calculating the
value of options, ‘‘value’’ means the
delta adjusted notional value (expressed
as a 10-year bond equivalent for options
that are interest rate derivatives).434 In
a change from the proposal, the
amended instructions provide that the
value should be expressed in U.S.
dollars, rather than the base currency of
the reporting fund, to maintain
consistent currency reporting
throughout Form PF. One commenter
stated that the definition of ‘‘10-year
bond equivalent’’ specifies the
expression of the value in the fund’s
base currency, which could result in
requiring multiple currency conversions
for any transactions not in the fund’s
base currency.435 We are revising the
‘‘10-year bond equivalent’’ definition to
reference U.S. dollars, rather than the
fund’s base currency. We are making
this change because it is important for
metrics to be reported in a common
currency for data quality and
comparability purposes. The amended
instruction also provides that in
determining the value of these
derivatives, advisers should not net long
and short positions or offset trades but
should exclude closed-out positions that
are closed out with the same
counterparty provided that there is no
credit or market exposure to the fund.
The amendments are designed to
provide more consistent reporting by
advisers, which will help support more
accurate aggregation of data, better
comparisons among funds, and a more
accurate picture for purposes of
assessing systemic risk.436
Currency Conversions for Reporting in
U.S. Dollars. We are amending, as
proposed, Instruction 15 to specify that
if a question requests a monetary value,
advisers should provide the information
433 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter. See
supra section II.C.2.a.
434 See Form PF Glossary of Terms (definition of
‘‘10-year bond equivalent’’ specifies the 10-year
zero coupon bond equivalent).
435 AIMA/ACC Comment Letter.
436 This is consistent with staff Form PF
Frequently Asked Questions, see, e.g., supra
footnote 162, Questions 24.3 and 26.1.
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in U.S. dollars as of the data reporting
date or other requested date (as
applicable) and use a foreign exchange
rate for the applicable date. We are also
amending Instruction 15 to provide that
if a question requests a monetary value
for transactional data that covers a
reporting period, advisers should
provide the information in U.S. dollars,
rounded to the nearest thousand, using
foreign exchange rates as of the dates of
any transactions to convert local
currency values to U.S. dollars.437
One commenter stated that private
funds should be required to report their
holdings in the fund’s base currency,
rather than convert to U.S. dollars, to
allow for assessment of the extent of a
fund’s currency risk exposure.438 We
agree that currency exposure reporting
is important for understanding a fund’s
overall risk exposure and for systemic
risk analysis and, as discussed more
fully in section II.C above, we are
adopting other amendments to Form PF
that require large hedge fund advisers to
report additional data on the fund’s
currency risk exposure.439 Regarding
currency reporting, however, it is
important for data comparability for
advisers to report in a common
currency, rather than in a fund’s base
currency, and for an adviser to
determine foreign exchange rates
consistent with its valuation policies
because reporting in a common
currency allows the Commissions to
evaluate aggregate data, such as
exposures, more readily. One
commenter recommended specifying a
required time of day and methodology
for determining the applicable foreign
exchange rate to avoid inconsistent
data.440 Although specifying a time of
day and methodology could improve
data comparability, this would distort
values reported on Form PF from what
advisers calculate and report to their
investors because these values are
similar to prices on any other portfolio
investment. For a foreign exchange rate,
the adviser is valuing a currency, but
generally should be doing so using the
same source, time of day, or other
methodology for capturing foreign
exchange rates as is defined in the
adviser’s or fund’s valuation policy. It is
preferable for advisers to report values
using the foreign exchange rate practices
they use internally and to report to their
investors.
437 See
Instruction 15.
Comment Letter I.
439 See Question 33.
440 AIMA/ACC Comment Letter.
438 AFREF
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E. Additional Amendments
We are adopting, as proposed except
as indicated below, several additional
amendments to the general instructions
to Form PF. We are adopting an
amendment to Instruction 14 to allow
advisers to request a temporary
hardship exemption electronically to
make it easier to submit a temporary
hardship exemption.441 We are also
adopting an amendment to 17 CFR
275.204(b)–1(f) under the Advisers Act,
that for purposes of determining the
date on which a temporary hardship
exemption is filed, ‘‘filed’’ means the
earlier of the date the request is
postmarked or the date it is received by
the Commission.442 We are adopting the
latter change to assist advisers with
determining what constitutes a ‘‘filed’’
temporary hardship exemption in the
context of the requirement that the
request be filed no later than one
business day after a filer’s electronic
Form PF filing was due as required
under Instruction 14. We did not receive
comments on these proposed
amendments.
Additionally, we are adopting, as
proposed, amendments to Instruction 18
based on recent rule changes made by
the CFTC with respect to Form CPO–
PQR.443 While the CFTC no longer
considers Form PF reporting on
commodity pools as constituting
substituted compliance with CFTC
reporting requirements, some CPOs may
continue to report such information on
Form PF. Although some commenters
recommended that the Commissions
harmonize filing requirements between
Form PF and Form CPO–PQR,444 we did
441 We
are also adopting amendments to update
the mailing address to which advisers requesting a
temporary hardship exemption should mail their
exemption filing, include the email address for
submitting electronically the adviser’s signed
exemption filing in PDF format, and add an
instruction noting that filers should not complete or
file any other sections of Form PF if they are filing
a temporary hardship exemption. See Instruction
14. The reference regarding the instruction
pertaining to temporary hardship exemptions has
also been amended to refer to Instruction 14 instead
of Instruction 13 and, as a result of the amendments
set forth in the May 2023 SEC Form PF Amending
Release, to refer to section 7 instead of section 5.
See Form PF General Instruction 3, Section 7—
Advisers requesting a temporary hardship
exemption.
442 We are also adopting amendments to 17 CFR
275.204(b)–1(f) under the Advisers Act to remove
certain filing instructions in the rule for temporary
hardship exemptions and instead direct filers to the
instructions in the form. See 17 CFR 275.204(b)–
1(f)(2)(i) (indicating that advisers should complete
and file Form PF in accordance with the
instructions to Form PF, no later than one business
day after the electronic Form PF filing was due).
443 See Form CPO–PQR Release, supra footnote
100.
444 See, e.g., MFA Comment Letter II; SIFMA
Comment Letter.
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not receive comments on the proposed
change to the instructions on
substituted compliance.
We are adopting, as proposed,
amendments to the defined term ‘‘G10,’’
which Form PF defines as the Group of
Ten, to (1) remove outdated country
compositions and (2) include an
instruction that if the composition of the
G10 changes after the effective date of
these amendments to Form PF, advisers
should use the current composition as
of the data reporting date. In a
modification from the proposal, we are
not adopting the proposed amendments
to the defined term ‘‘EEA,’’ as this term
is no longer used in the Form following
the amendments we are adopting to
current Question 28.445 We are also
removing ‘‘EEA’’ as a defined term in
the Glossary for the same reason. We
did not receive comments on these
proposed definitional changes.
Additionally, the SEC is making a
technical amendment to Section 5 Item
B ‘‘Extraordinary Investment Losses’’ to
correct a mathematical error in the
version of the form adopted as part of
the May 2023 SEC Form PF Amending
Release. 446 Specifically, the SEC is
revising the equation in the first
sentence so that it accurately reflects
that the 10-business-day holding period
return computation should be a
percentage, rather than a value. To
accomplish this, the SEC is deleting the
phrase ‘‘of reporting fund aggregate
calculated value’’ in Section 5 Item B
‘‘Extraordinary Investment Losses’’
current report for large hedge fund
advisers to qualifying hedge funds.447
F. Effective and Compliance Dates
In order to provide time for advisers
to prepare to comply with the
amendments, including reviewing the
requirements, building the appropriate
internal reporting and tracking systems,
and collecting the required information,
as well as to simplify the compliance
process and reduce potential confusion,
the effective date for the amendments is
445 See section II.C.2.d in this Release for further
discussion of the amendments to current Question
28.
446 In May 2023, the SEC amended Form PF
section 4, added new sections 5 and 6, and
redesignated prior section 5 as section 7 in
connection with certain amendments to require
event reporting for large hedge fund advisers and
all private equity fund advisers and to revise certain
reporting requirements for large private equity fund
advisers. See May 2023 SEC Form PF Amending
Release.
447 As revised, Section 5 Item B states: If on any
business day the 10-business-day holding period
return of the reporting fund is less than or equal to
¥20%, provide the information required by
Questions 5–4 to 5–7, below. (Current reports
should not be filed for overlapping 10-business-day
periods.).
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the same as the compliance date.448 The
effective/compliance date is March 12,
2025, which is one year from the date
of publication of the rules in the Federal
Register. We recognize that the different
effective/compliance date for these
amendments from those adopted in the
May 2023 SEC Form PF Amending
Release and the July 2023 SEC Form PF
Amending Release may lead to
inconsistent reporting as well as
additional compliance burdens because
we are amending certain existing
questions in Form PF.449 If a period
exists during which some advisers may
be completing the old version of these
questions and other advisers are
completing the amended versions, they
may be providing different types of
information. This information could be
difficult to compare and thus would
limit its value for the FSOC and our
assessment of systemic risk. However,
the amendments we are adopting relate
to different sections of Form PF than
those adopted in the May 2023 SEC
Form PF Amending Release and the July
2023 SEC Form PF Amending Release.
Therefore, we will continue to be able
to review the data that is reported in
sections 1 and 2 of Form PF during the
period between the effective/
compliance date of the amendments
adopted in the May 2023 SEC Form PF
Amending Release and the July 2023
SEC Form PF Amending Release. For
example, during the transition period
between the effective/compliance date
of the amendments adopted in May and
July, the data reported on sections 1 and
2 of Form PF will retain its
comparability as all filers will report on
the same sets of questions in these
sections.
Some commenters recommended
adopting the same effective and
compliance date for the amendments
proposed in the 2022 SEC Form PF
448 With respect to the compliance period, several
commenters requested the SEC consider
interactions between the proposed rule and other
recent SEC rules. In determining compliance
periods, the SEC considers the benefits of the rules
as well as the costs of delayed compliance periods
and potential overlapping compliance periods. For
the reasons discussed throughout this release, to the
extent that there are costs from overlapping
compliance periods, the benefits of the rule justify
such costs. See sections IV.B.1 and IV.C.2 of this
Release for a discussion of the interactions of the
final rule with certain other Commission rules.
449 For the amendments adopted in the May 2023
SEC Form PF Amending Release, the effective/
compliance date for sections 5 and 6 is Dec. 11,
2023, and the effective compliance/date for the
amended, existing sections, is June 11, 2024. See
May 2023 SEC Form PF Amending Release, supra
footnote 4. For the amendments adopted in the July
2023 SEC Form PF Amending Release, the effective/
compliance date for the amendments to Form PF is
also June 11, 2024. See July 2023 SEC Form PF
Amending Release, supra footnote 4.
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Proposing Release and the 2022 Joint
Form PF Proposing Release because it
would be more efficient for advisers to
implement a single set of changes to its
systems.450 One commenter
recommended that the Commissions
provide sufficient time for advisers to
comply with any new rules arising out
of the 2022 SEC Form PF Proposing
Release and the 2022 Joint Form PF
Proposing Release.451 One commenter
recommended that the Commissions
adopt concurrent and overlapping
compliance and transition periods for
each set of proposed amendments to
lessen the burden and expense of
compliance.452
We recognize that a single set of
effective/compliance dates for each set
of amendments could potentially
provide certain efficiencies for advisers
in modifying their existing systems. We
considered earlier effective/compliance
dates for the amendments adopted in
this Release that would align with the
effective/compliance dates adopted for
the May/July amendments; however, we
do not believe that either of the
compliance/effective dates for the other
amendments to Form PF would provide
advisers with sufficient time to comply
with the distinct set of amendments that
are being adopted in this Release. The
compliance/effective dates for the
distinct set of Form PF amendments that
we are adopting, which apply to
different sections of the Form than the
May/July amendments to Form PF, are
later than the effective/compliance dates
of the May/July amendments to allow
advisers sufficient time to comply with
the amendments that are being adopted
in this Release, as well as the May/July
amendments.
One commenter recommended a
transition period for the change from
fiscal quarter to calendar quarter
reporting for large hedge fund advisers
and large liquidity fund advisers, as
discussed more fully in section II.A.3
above.453 The commenter stated that for
quarterly filers who have a fiscal year
ending in a non-calendar quarter month,
the proposed instructions do not specify
the procedure for a filer who, during the
transition from fiscal to calendar quarter
reporting, would otherwise be required
to report twice in one calendar
quarter.454 The commenter
450 See, e.g., MFA Comment Letter III; SIFMA
Comment Letter. Subsequent to these comment
letters, the SEC adopted amendments to section 3
of Form PF concerning liquidity funds. See July
2023 SEC Form PF Amending Release, supra
footnote 4.
451 SIFMA Comment Letter.
452 AIMA/ACC Comment Letter.
453 Id.
454 Id.
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recommended that such filers be
required to file their first calendar
quarter-end filing for the first full
quarterly reporting period after the
compliance date, to avoid requiring two
filings in a single calendar quarter
period.455 After considering comments,
we confirm that such an adviser is not
required to file its quarterly report more
than once in a single calendar quarter as
a result of this amendment because
advisers are not required to transition to
the new timing requirement until the
first calendar quarter-end filing for the
first full quarterly reporting period after
the compliance date.
III. Other Matters
Pursuant to the Congressional Review
Act, the Office of Information and
Regulatory Affairs has designated these
rules as not a ‘‘major rule’’ as defined
by 5 U.S.C. 804(2). If any of the
provisions of these rules, or the
application thereof to any person or
circumstance, is held to be invalid, such
invalidity shall not affect other
provisions or application of such
provisions to other persons or
circumstances that can be given effect
without the invalid provision or
application.
IV. Economic Analysis
A. Introduction
The SEC is mindful of the economic
effects, including the costs and benefits,
of the final amendments. Section 202(c)
of the Advisers Act provides that when
the SEC 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 SEC shall also
consider whether the action will
promote efficiency, competition, and
capital formation, in addition to the
protection of investors.456 The analysis
below addresses the likely economic
effects of the final amendments,
including the anticipated and estimated
benefits and costs of the amendments
and their likely effects on efficiency,
competition, and capital formation. The
SEC also discusses the potential
economic effects of certain alternatives
to the approaches taken in this Release.
As discussed in the proposing release,
many of the benefits and costs discussed
below are difficult to quantify. For
example, in some cases, data needed to
quantify these economic effects are not
currently available and the SEC does not
have information or data that would
allow such quantification. While the
SEC has attempted to quantify economic
455 Id.
456 15
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effects where possible, much of the
discussion of economic effects is
qualitative in nature.
adopted: the May 2023 SEC Form PF
Amending Release,460 SEC Private
Funds Advisers Adopting Release,461
Beneficial Ownership Amending
Release,462 Short Position Reporting
Adopting Release,463 Securitizations
B. Economic Baseline and Affected
Parties
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1. Economic Baseline
The baseline against which the costs,
benefits, and the effects on efficiency,
competition, and capital formation of
the final amendments are measured
consists of the current state of the
market, Form PF filers’ current
practices, and the current regulatory
framework. The economic analysis
appropriately considers existing
regulatory requirements, including
recently adopted rules, as part of its
economic baseline against which the
costs and benefits of the final rule are
measured.457
Several commenters requested the
Commission consider interactions
between the economic effects of the
proposed rule and other recent
Commission proposals.458 Commenters
indicated there could be interactions
between this rulemaking and six
proposals 459 that have since been
457 See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111–
15 (D.C. Cir. 2022). This approach also follows SEC
staff guidance on economic analysis for rulemaking.
See SEC Staff, Current Guidance on Economic
Analysis in SEC Rulemaking (Mar. 16, 2012),
available at https://www.sec.gov/divisions/riskfin/
rsfi_guidance_econ_analy_secrulemaking.pdf (‘‘The
economic consequences of proposed rules
(potential costs and benefits including effects on
efficiency, competition, and capital formation)
should be measured against a baseline, which is the
best assessment of how the world would look in the
absence of the proposed action.’’); Id. at 7 (‘‘The
baseline includes both the economic attributes of
the relevant market and the existing regulatory
structure.’’). The best assessment of how the world
would look in the absence of the proposed or final
action typically does not include recently proposed
actions, because doing so would improperly assume
the adoption of those proposed actions.
458 See, e.g., MFA Comment Letter III; SIFMA
Comment Letter; AIC Comment Letter I; AIC
Comment Letter II; MFA/NAPFM Comment Letter;
Comment Letter of U.S. House of Representatives
Committee on Financial Services.
459 Amendments to Form PF to Require Current
Reporting and Amend Reporting Requirements for
Large Private Equity Advisers and Large Liquidity
Fund Advisers, Release No. IA–5950 (Jan. 26, 2022)
[87 FR 9106 (Feb. 17, 2022)] (see MFA/NAPFM
Comment Letter at 20, n.21 and accompanying text;
AIC Comment Letter II at 8, n.25); Private Fund
Advisers; Documentation of Registered Investment
Adviser Compliance Reviews, Release No. IA–5955
(Feb. 9, 2022) [87 FR 16886 (Mar. 24, 2022)] (see
MFA/NAPFM Comment Letter at 10–12; AIC
Comment Letter II at 1, n.3, 8); Modernization of
Beneficial Ownership Reporting, Release Nos. 33–
11030, 34–94211 (Feb. 10, 2022) [87 FR 13846 (Mar.
10, 2022)] (see MFA/NAPFM Comment Letter at
14–15); Short Position and Short Activity Reporting
by Institutional Investment Managers, Release No.
34–94313 (Feb. 25, 2022) [87 FR 14950 (Mar. 16,
2022)] (see MFA/NAPFM Comment Letter at 15–
16); Prohibition Against Conflicts of Interest in
Certain Securitizations, Release No. 33–11151 (Jan.
25, 2023) [88 FR 9678 (Feb. 14, 2023)] (see MFA/
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NAPFM Comment Letter at 21–22); Standards for
Covered Clearing Agencies for U.S. Treasury
Securities and Application of the Broker-Dealer
Customer Protection Rule With Respect to U.S.
Treasury Securities, Release No. 34–95763 (Sept.
14, 2022) [87 FR 64610 (Oct. 25, 2022)] (see July
2023 MFA and NAPFM Comment Letter at 16–17);
Further Definition of ‘‘As a Part of a Regular
Business’’ in the Definition of Dealer and
Government Securities Dealer, Release No. 34–
94524 (Mar. 28, 2022) [87 FR 23054 (Apr. 18, 2022)]
(see MFA/NAPFM Comment Letter at 12–13; AIC
Comment Letter II at n.3, n.16, n.30).
460 May 2023 SEC Form PF Amending Release,
supra footnote 4. The Form PF amendments
adopted in May 2023 require large hedge fund
advisers and all private equity fund advisers to file
reports upon the occurrence of certain reporting
events. The May 2023 SEC Form PF Amending
Release revised Form PF to (i) add new current
reporting requirements for large hedge fund
advisers to qualifying hedge funds upon the
occurrence of key events (new section 5); (ii) add
new quarterly reporting requirements for all private
equity fund advisers upon the occurrence of key
events (new section 6); and (iii) add and revise new
regular reporting questions for large private equity
fund advisers. The compliance dates are Dec. 11,
2023, for the event reports in Form PF sections 5
and 6, and June 11, 2024, for the remainder of the
Form PF amendments in the May 2023 SEC Form
PF Amending Release.
461 SEC Private Fund Advisers Adopting Release,
supra footnote 185. The Commission adopted five
new rules and two rule amendments as part of the
reforms. The compliance date for the quarterly
statement rule and the audit rule is Mar. 14, 2025,
for all advisers. For the adviser-led secondaries
rule, the preferential treatment rule, and the
restricted activities rule, the Commission adopted
staggered compliance dates that provide for the
following transition periods: for advisers with $1.5
billion or more in private funds assets under
management, a 12-month transition period (ending
on Sept. 14, 2024) and for advisers with less than
$1.5 billion in private funds assets, an 18-month
transition period (ending on Mar. 14, 2025). The
compliance date for the amended Advisers Act
compliance rule was Nov. 13, 2023.
462 Modernization of Beneficial Ownership
Reporting, Release No. 33–11253 (Oct. 10, 2023)
(‘‘Beneficial Ownership Amending Release’’).
Among other things, the amendments generally
shorten the filing deadlines for initial and amended
beneficial ownership reports filed on Schedules
13D and 13G, and require that Schedule 13D and
13G filings be made using a structured, machinereadable data language. The amendments are
effective on Feb. 5, 2024. Compliance with the new
filing deadline for Schedule 13G will not be
required before Sept. 30, 2024, and the rule’s
structured data requirements have a one-year
implementation period ending Dec. 18, 2024. See
Beneficial Ownership Amending Release, section
II.G.
463 Short Position and Short Activity Reporting by
Institutional Investment Managers, Release No. 34–
98738 (Oct. 13, 2023) [88 FR 75100 (Nov. 1, 2023)]
(‘‘Short Position Reporting Adopting Release’’). The
new rule and related form are designed to provide
greater transparency through the publication of
short sale-related data to investors and other market
participants. Under the new rule, institutional
investment managers that meet or exceed certain
specified reporting thresholds are required to
report, on a monthly basis using the related form,
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Conflicts Adopting Release,464 Treasury
Clearing Amending Release,465 and
Dealer Definition Amending Release.466
These recently adopted rules were not
included as part of the baseline in the
2022 Joint Form PF Proposing Release
because they were not adopted at that
time. In response to commenters, this
economic analysis considers potential
economic effects arising from the extent
to which there is any overlap between
specified short position data and short activity data
for equity securities. The compliance date for the
rule is Jan. 2, 2025. In addition, the Short Position
Reporting Adopting Release amends the national
market system plan governing consolidated audit
trail (‘‘CAT’’) to require the reporting of reliance on
the bona fide market making exception in the
Commission’s short sale rules. The compliance date
for the CAT amendments is July 2, 2025.
464 Prohibition Against Conflicts of Interest in
Certain Securitizations, Release No. 33–11254 (Nov.
27, 2023) [88 FR 85396 (Dec. 7, 2023)]
(‘‘Securitizations Conflicts Adopting Release’’). The
new rule prohibits an underwriter, placement agent,
initial purchaser, or sponsor of an asset-backed
security (including a synthetic asset-backed
security), or certain affiliates or subsidiaries of any
such entity, from engaging in any transaction that
would involve or result in certain material conflicts
of interest. The compliance date is June 9, 2025.
465 Standards for Covered Clearing Agencies for
U.S. Treasury Securities and Application of the
Broker-Dealer Customer Protection Rule with
Respect to U.S. Treasury Securities, Release No. 34–
99149 (Dec. 13, 2023) [89 FR 2714 (Jan. 16, 2024)]
(‘‘Treasury Clearing Adopting Release’’). Among
other things, the rules require covered clearing
agencies for U.S. Treasury securities to have written
policies and procedures reasonably designed to
require that every direct participant of the covered
clearing agency submit for clearance and settlement
all eligible secondary market transactions in U.S.
Treasury securities to which it is a counterparty.
The compliance dates are 60 days after publication
in the Federal Register for each covered clearing
agency to file any proposed rule changes pursuant
to final Rule 17Ad–22(e)(6)(i), 17Ad–
22(e)(18)(iv)(c), and 15c3–3, and the rule changes
must be effective by Mar. 31, 2025. With respect to
the changes to Rule 17Ad–22(e)(18)(iv)(A) and (B),
(i) each covered clearing agency will be required to
file any proposed rule changes regarding those
amendments no later than 150 days after
publication in the Federal Register, and the
proposed rule changes must be effective by Dec. 31,
2025, for cash market transactions encompassed by
section (ii) of the definition of an eligible secondary
market transaction, and by June 30, 2026, for repo
transactions encompassed by section (i) of the
definition of an eligible secondary market
transactions. Compliance by the direct participants
of a U.S. Treasury securities covered clearing
agency with the requirement to clear eligible
secondary market transactions would not be
required until Dec. 31, 2025 and June 30, 2026,
respectively, for cash and repo transactions.
466 Further Definition of ‘‘As a Part of a Regular
Business’’ in the Definition of Dealer and
Government Securities Dealer in Connection with
Certain Liquidity Providers, Release No. 34–99477
(Jan. 24, 2024) (‘‘Dealer Definition Amending
Release’’). The dealer definition amendments define
the phrase ‘‘as a part of a regular business’’ as used
in the statutory definitions of ‘‘dealer’’ and
‘‘government securities dealer.’’ The compliance
date is one year from the effective date, or
approximately Mar. 2025, for persons engaging in
activities that meet the dealer registration
requirements to register prior to the effective date
of the final rules.
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the compliance period for the final
amendments and the compliance
periods for each of these recently
adopted rules.467
Form PF complements the basic
information about private fund advisers
and funds reported on Form ADV.468 As
discussed above, the Commissions
adopted Form PF in 2011, with
additional amendments made to section
3 along with certain money market
reforms in 2014,469 further amendments
made to sections 3 and 4 in 2023, and
new sections 5 and 6 added in 2023 as
well.470 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.471 The purpose of Form PF
is to provide the Commissions and
FSOC with data that regulators can
deploy in their regulatory and oversight
programs directed at assessing and
467 In addition, commenters indicated there could
also be overlapping compliance costs between the
final amendments and proposals that have not been
adopted. See, e.g., AIC Comment Letter II; MFA/
NAPFM Comment Letter. To the extent those
proposals are adopted, the baseline in those
subsequent rulemakings will reflect the existing
regulatory requirements at that time.
468 Investment advisers to private funds report on
Form ADV, on a public basis, general information
about private funds that they advise, including
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/investingbasics/glossary/form-adv; see also Investment
Adviser Public Disclosure, available at https://
adviserinfo.sec.gov/.
469 See supra footnote 3. When the SEC adopted
the amendments to section 3 in 2014 in connection
with certain money market reforms, it noted that
under the proposal it was concerned that some of
the proposed money market reforms might result in
assets shifting from registered money market funds
to unregistered products such as liquidity funds,
and that the proposed amendments were designed
to help the SEC and FSOC track any potential shift
in assets and better understand the risks associated
with the proposed money market reforms. See, e.g.,
D. Hiltgen, Private Liquidity Funds: Characteristics
and Risk Indicators (Jan. 27, 2017), available at
https://www.sec.gov/files/2017-03/Liquidity%20
Fund%20Study.pdf (‘‘Hiltgen Paper’’); 2011 Form
PF Adopting Release, supra footnote 4; 2014 Form
PF Amending Release, supra footnote 4, at 466;
Commissioner Luis Aguilar Statement,
Strengthening Money Market Funds to Reduce
Systemic Risk, SEC (July 23, 2014), available at
https://www.sec.gov/news/public-statement/201407-23-open-meeting-statment-laa.
470 May 2023 SEC Form PF Amending Release,
supra footnote 4; July 2023 SEC Form PF Amending
Release supra footnote 4.
471 As discussed above, SEC staff publish
quarterly reports of aggregated and anonymized
data regarding private funds on the SEC’s website.
See supra footnote 5; see also Private Fund
Statistics Q1 2023.
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managing systemic risk and protecting
investors.472
Before Form PF was adopted, the SEC
and other regulators, including the
CFTC, had limited visibility into the
economic activity of private fund
advisers and relied largely on private
vendor databases about private funds
that covered only voluntarily provided
private fund data and did not represent
the total population.473 Form PF
represented an improvement in
available data about private funds, both
in terms of its reliability and
completeness.474 Generally, investment
advisers registered (or required to be
registered) with the SEC with at least
$150 million in private fund assets
under management must file Form PF.
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.475 In
addition, large private equity fund
advisers provide data about each private
equity fund they manage. Large hedge
fund advisers and large liquidity fund
advisers also provide data about each
reporting fund they manage, and are
required to file quarterly, currently after
each fiscal quarter.476
The SEC and other regulators 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 477 and improved
the SEC’s oversight of private fund
advisers.478 Form PF data also has
enhanced the SEC’s 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
472 See
supra section I.
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-pfreport-to-congress.pdf.
474 Id.
475 Id.
476 Id.; see also supra section II.A.3.
477 See, e.g., OFR, 2021 Annual Report to
Congress (Nov. 2021), available at https://www.
financialresearch.gov/annual-reports/files/OFRAnnual-Report-2021.pdf; Financial Stability
Oversight Council, 2020 Annual Report, available
at https://home.treasury.gov/system/files/261/
FSOC2020AnnualReport.pdf.
478 See, e.g., SEC 2020 Staff Report, supra
footnote 473.
473 See,
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18033
investors.479 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 480 and by making
publicly available certain results of staff
research regarding the characteristics,
activities, and risks of private funds.481
As discussed above, these data may also
be used by the CFTC for the purposes
of its regulatory programs, including
examinations, investigations and
investor protection efforts.482
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
SEC’s 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.483 For example, as
discussed above, when monitoring
funds’ activities during recent market
events like the March 2020 COVID–19
turmoil, the existing aggregation of U.S.
Treasury securities with related
derivatives did not reflect the role hedge
funds played in the U.S. Treasury
479 See
supra footnotes 477, 478.
supra footnote 471.
481 See, e.g., David C. Johnson & Francis A.
Martinez, Form PF Insights on Private Equity Funds
and Their Portfolio Companies, OFR Brief Series
No. 18–01 (June 14, 2018), available at https://www.
financialresearch.gov/briefs/2018/06/14/form-pfinsights-on-private-equity-funds/; Hiltgen Paper,
supra footnote 470; George Aragon, A. Tolga Ergun,
Mila Getmansky & Giulio Girardi, Hedge Funds:
Portfolio, Investor, and Financing Liquidity (May
17, 2017), available at https://www.sec.gov/files/
dera_hf-liquidity.pdf; George Aragon, Tolga Ergun &
Giulio Girardi, Hedge Fund Liquidity Management:
Insights for Fund Performance and Systemic Risk
Oversight (May 2017), available at https://
www.sec.gov/files/dera_hf-liquiditymanagement.pdf; Mathis S. Kruttli, Phillip J. Monin
& Sumudu W. Watugala, The Life of the
Counterparty: Shock Propagation in Hedge FundPrime Broker Credit Networks (OFR Working Paper
No. 19–03, Oct. 2019), available at https://www.
financialresearch.gov/working-papers/files/OFRwp19-03_the-life-of-the-counterparty.pdf; Mathias S.
Kruttli, Phillip J. Monin, Lubomir Petrasek &
Sumudu W. Watugala, Hedge Fund Treasury
Trading and Funding Fragility: Evidence from the
COVID–19 Crisis, Fed. Rsrv. Bd., Fin. and Econ.
Discussion Series No. 2021–038 (Apr. 2021),
available at https://www.federalreserve.gov/
econres/feds/hedge-fund-treasury-trading-andfunding-fragility-evidence-from-the-covid-19crisis.htm; Mathias S. Kruttli, Phillip J. Monin &
Sumudu W. Watugala, Investor Concentration,
Flows, and Cash Holdings: Evidence from Hedge
Funds, Fed. Rsrv. Bd., Fin. and Econ. Discussion
Series No. 2017–121 (Dec. 15, 2017), available at
https://www.federalreserve.gov/econres/feds/
investor-concentration-flows-and-cash-holdingsevidence-from-hedge-funds.htm.
482 See supra section I.
483 See supra section I.
480 See
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market.484 Also during the COVID–19
market turmoil, FSOC sought to
evaluate the role hedge funds played in
disruptions in the U.S. Treasury market
by unwinding cash-futures basis trade
positions and taking advantage of the
near-arbitrage between cash and futures
prices of U.S. Treasury securities.
Because the existing requirement
regarding turnover reporting on U.S.
Treasury securities is highly aggregated,
the SEC staff, during retrospective
analyses on the March 2020 market
events, was unable to obtain a complete
picture of activity relating to long
treasuries and treasury futures.485 The
need for more granular information
collected on Form PF is further
heightened by the increasing
significance of the private fund industry
to financial markets, and resulting
regulatory concerns regarding potential
risks to U.S. financial stability from this
sector.486 The SEC’s and FSOC’s
experiences analyzing Form PF data has
also identified certain areas of Form PF
where questions result in data received
that is redundant to other questions, or
instructions that result in unnecessary
reporting burden for some advisers.487
2. Affected Parties
The final rule amends the general
instructions and basic information
reporting requirements facing all
categories of private fund advisers. As
discussed above, these include, but are
not limited to, advisers to hedge funds,
private equity funds, real estate funds,
securitized asset funds, liquidity funds,
and venture capital funds.488 The final
rule further amends reporting
requirements for large hedge fund
advisers, including specific revisions for
large hedge fund advisers to qualifying
hedge funds.489
Hedge funds, the focus of part of the
release, are one of the largest categories
of private funds,490 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.491 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 might lead to significant
stress or failure not just at the affected
fund but also across financial
markets.492
In the first quarter of 2023, there were
9,846 hedge funds reported on Form PF,
488 See
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484 See
supra section II.C.2.a.
485 See supra section II.C.2.d. This also includes
the SEC’s and FSOC’s experience analyzing data
from multiple regulatory filings. For example, one
SEC staff paper has used Form PF data and Form
N–MPF data to study rule 2a–7 risk limits and
implications of money market reforms. See, e.g.,
Hiltgen Paper, supra footnote 470.
486 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. See supra footnote 5; see also Financial
Stability Oversight Council Update on Review of
Asset Management Product and Activities (2014),
available at https://home.treasury.gov/system/files/
261/Financial%20Stability%20Oversight%20
Council%20Update%20on%20Review%20of%20
Asset%20Management%20Products%20and%20
Activities.pdf.
487 Based on the analysis in section V.C., the
current costs associated with filing Form PF report
are estimated to be $4,815 annually for smaller
private fund advisers, $48,150 per quarterly filing
or $192,600 annually for large hedge fund advisers,
$22,470 per quarterly filing or $89,880 annually for
large liquidity fund advisers, and $41,730 annually
for large private equity fund advisers. A 2018
industry survey of large hedge fund advisers
observed filing costs that ranged from 35% to 72%
higher than SEC cost estimates. See MFA Letter to
Chairman Clayton, supra footnote 164. However, a
2015 academic survey of SEC-registered investment
advisers to private funds affirmed the SEC’s cost
estimates for smaller private fund advisers’ Form PF
compliance costs, and observed that the SEC
overestimated Form PF compliance costs for larger
private fund advisers. See Wulf Kaal, Private Fund
Disclosures Under the Dodd-Frank Act, 9 Brooklyn
J. Corp., Fin., and Com. L. 428 (2015).
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supra section I.
PF currently 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 notional 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 of Terms. ‘‘Large’’ hedge fund advisers are
those, collectively with their related persons, with
at least $1.5 billion in hedge fund assets under
management as of the last day of any month in the
fiscal quarter immediately preceding the adviser’s
most recently completed fiscal quarter. Qualifying
hedge funds are hedge funds that have a net asset
value (individually or in combination with 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 the adviser’s most recently
completed fiscal quarter. See supra section II.C.
490 See infra footnote 493.
491 See, e.g., Lloyd Dixon, Noreen Clancy &
Krishna B. Kumar, Hedge Fund and Systemic Risk,
RAND Corp. (2012); John Kambhu, Til Schuermann
& Kevin Stiroh, Hedge Funds, Financial
Intermediation, and Systemic Risk, Fed. Rsrv. Bank
of NY’s Econ. Policy Rev. (2007).
492 See supra footnotes 477, 486.
489 Form
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managed by 1,856 advisers, with almost
$9.5 trillion in gross assets under
management, which represented almost
half of gross assets reported by private
fund advisers.493 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 (those with at least $1.5 billion
in regulatory assets under management
attributable to hedge funds) 494 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).495 Large hedge
fund advisers must report more
information on Form PF about
qualifying hedge funds (those with at
least $500 million as of the last day of
any month in the fiscal quarter
immediately preceding the adviser’s
most recently completed fiscal
quarter) 496 than other hedge funds they
manage during the reporting period. In
the first quarter of 2023, there were
2,034 qualifying hedge funds reported
on Form PF, managed by 570 advisers,
with almost $8 trillion in gross assets
under management, which represented
almost 84 percent of the reported hedge
fund assets.497
Private equity funds are another large
category of funds in the private fund
industry. In the first quarter of 2023,
there were 20,917 private equity funds
reported on Form PF, managed by 1,755
advisers, with $6.6 trillion in gross
assets under management, which
represented almost one third of the
reported gross assets in the private fund
industry.498 Many private equity funds
focus on long-term returns by investing
in a private, non-publicly traded
493 In the first quarter of 2023, hedge fund assets
accounted for approximately 46.3% of the gross
asset value (‘‘GAV’’) ($9.5/$20.5 trillion) and
approximately 34.8% of the net asset value
(‘‘NAV’’) ($4.9/14.0 trillion) of all private funds
reported on Form PF. Private Fund Statistics Q1
2023, at 5.
494 See supra footnote 489.
495 Currently, Instruction 9 requires large hedge
fund advisers to update Form PF within 60 days
after the end of each fiscal quarter. See supra
section II.A.3.
496 Id.
497 In the first quarter of 2023, qualifying hedge
fund assets accounted for 84% of the GAV ($8.0/
$9.5 trillion) and 79% of the NAV ($3.9/$4.9
trillion) of all hedge funds reported on Form PF.
Private Fund Statistics Q1 2023, at 4–5.
498 In the first quarter of 2023, private equity
assets accounted for 32.4% of the GAV ($6.6/$20.5
trillion) and 42.7% of the NAV ($6.0/$14.0 trillion)
of all private funds reported on Form PF. Private
Fund Statistics Q1 2023, at 5.
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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.499 Other private
equity funds may specialize in making
minority investments in fast-growing
companies or startups.500
For the remaining categories of funds
(real estate funds, securitized asset
funds, liquidity funds, venture capital
funds, and other private funds), advisers
required to file Form PF had, in the first
quarter of 2023, investment discretion
over almost $4.4 trillion in gross assets
under management.501 These assets
were managed by 1,709 fund advisers
managing 16,668 funds.502
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.503 Private funds that
rely on the exclusion from the definition
of ‘‘investment company’’ provided in
section 3(c)(7) of the Investment
Company Act are limited to investors
that are also qualified purchasers (as
defined in section 2(a)(51) of the
Investment Company Act). 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.504 In the first quarter of 2023,
public pension plans had $1,905 billion
invested in reporting private funds
while private pension plans had $1,302
billion invested in reporting private
funds, making up 13.6 percent and 9.3
percent of the overall beneficial
ownership in the private fund industry,
respectively.505 Private fund advisers
have also sought to be included in
individual investors’ retirement plans,
including their 401(k)s.506
499 After purchasing controlling interests in
portfolio companies, private equity fund 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., SEC, Private Equity Funds, Investor.gov,
available at https://www.investor.gov/introductioninvesting/investing-basics/investment-products/
private-investment-funds/private-equity.
500 Id.
501 Private Fund Statistics Q1 2023, at 5.
502 Private Fund Statistics Q1 2023, at 4.
503 See, e.g., Private Equity Funds, supra footnote
499; SEC, Hedge Funds, Investor.gov, available at
https://www.investor.gov/introduction-investing/
investing-basics/investment-products/privateinvestment-funds/hedge-funds.
504 See supra footnote 503.
505 Private Fund Statistics Q1 2023, at 15.
506 See, e.g., Dep’t of Labor, Information Letter
(June 3, 2020), available at https://www.dol.gov/
agencies/ebsa/about-ebsa/our-activities/resourcecenter/information-letters/06-03-2020.
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C. Benefits, Costs, and Effects on
Efficiency, Competition, and Capital
Formation
1. Benefits
The final amendments are designed to
facilitate two primary goals the SEC
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 SEC’s abilities to evaluate and
develop regulatory policies and
improving the efficiency and
effectiveness of the SEC’s efforts to
protect investors and maintain fair,
orderly, and efficient markets.507
The SEC believes the final
amendments will accomplish these
goals in three key ways, each discussed
in detail in the following sections. First,
the final amendments will provide
solutions to potential reporting errors
and issues of data quality when
analyzing Form PF filings across
advisers and when analyzing multiple
different regulatory filings. Higher
quality data across different funds and
across different regulatory filings can
allow the SEC and FSOC to develop an
understanding of one set of advisers and
apply it to other advisers more rapidly,
or apply lessons from one financial
market to other financial markets. This
can help the SEC and FSOC develop
more effective regulatory responses and
oversight, and help the SEC protect
investors by identifying areas in need of
outreach, examinations, and
investigations in response to potential
systemic risks, conflicting arrangements
between advisers and investors, and
other sources of investor harm.
Second, the final amendments will
help Form PF more completely and
accurately capture information relevant
to ongoing trends in the private fund
industry in terms of ownership, size,
investment strategies, and exposures.
This can improve the SEC’s and FSOC’s
understanding of new developing
systemic risks and potential conflicting
arrangements, thereby further aiding in
the development of regulatory
responses, and also aiding the SEC in
efforts to protect investors by
507 See supra section I. While the final
amendments are also designed to improve the
usefulness of this data for the CFTC, this economic
analysis does not include the benefits associated
with enhancements to the CFTC’s use of reporting
on Form PF.
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identifying areas in need of outreach,
examinations, and investigations.
Third, the final amendments will take
certain steps to streamline certain
reporting and reduce certain reporting
burdens without compromising investor
protection efforts and systemic risk
analysis. This will improve the
efficiency and effectiveness of the SEC’s
efforts to protect investors and maintain
fair, orderly and efficient markets.
The SEC anticipates that the increased
ability for the SEC’s and FSOC’s
oversight, resulting from the final
amendments, might promote better
functioning and more stable financial
markets, which may lead to efficiency
improvements. The SEC does not
anticipate significant benefits on
competition in the private fund industry
from the final amendments because the
reported information generally will be
nonpublic and similar types of advisers
will have comparable burdens under the
amended Form. For similar reasons, the
SEC does not anticipate significant
effects of the amendments on capital
formation.
Several of these amendments have
been revised relative to the proposal.
The revisions include changes to
instructions for purposes of
clarification, revising framing or
explanation of questions where
commenters made suggestions to
improve data quality, revising
instructions to avoid duplicative
reporting or to otherwise ease burden, or
forgoing adopting certain amendments
entirely. We include in the discussion
in this section how the benefits are
impacted by changes made in response
to commenters. In general, revisions
either (1) enhance the benefits or (2)
may reduce the benefits but
substantially reduce the costs.508
The final amendments revise the
general instructions (as well as
implement additional amendments),
section 1 (requiring basic information
about advisers and the private funds
they advise), and section 2 (requiring
information about hedge funds advised
by large private fund advisers) of Form
PF. The benefits associated with each of
these specific elements are discussed in
greater detail below.
a. Amendments to General Instructions,
Amendments To Enhance Data Quality,
and Additional Amendments
The amendments update the Form PF
general instructions to revise how all
private fund advisers satisfy certain
requirements on Form PF, issue a series
of amendments to enhance data quality,
508 We discuss the impacts on costs below. See
infra section IV.C.2.
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and issue a series of additional
amendments.509 There are five
categories of these amendments.
First, the amendments revise the
general instructions for reporting of
master-feeder arrangements and parallel
fund structures.510 These revisions to
the general instructions will improve
consistency of reporting associated with
measuring private fund
interconnectedness and investment in
other private funds by revising
instructions for reporting of ownership
structures and revising instructions that
are currently ambiguous and result in
reporting errors and issues of data
quality across advisers. For example, as
discussed above, Form PF currently
provides advisers with flexibility to
respond to questions regarding masterfeeder arrangements, parallel fund
structures either in the aggregate or
separately, as long as they do so
consistently throughout Form PF. The
revised instructions will specify how to
respond to these questions to prevent
some advisers from responding in the
aggregate and some advisers from
responding separately.511 The revised
instructions will also require reporting
on the total value of parallel managed
accounts.512 The SEC anticipates these
improved data will assist the SEC and
FSOC in assessing potential risks to
financial stability resulting from
increasingly complex ownership and
investment structures of private funds.
While master-feeder arrangements,
509 See
supra sections II.A, II.D, II.E.
supra section II.A.1. However, an adviser
will continue to aggregate these structures for
purposes of determining whether the adviser meets
a reporting threshold.
511 Similar benefits will be obtained from
revisions to Instruction 7, which requires advisers
to include the value of investments in other private
funds when determining whether the adviser meets
the thresholds for reporting as a large hedge fund
adviser, large liquidity fund adviser, or large private
equity fund adviser, and whether a private fund is
a qualifying hedge fund; and generally requires an
adviser to include the value of a reporting fund’s
investments in other private funds when
responding to questions on Form PF. Other
revisions could also provide benefits associated
with consistency of reporting by revising
instructions to avoid error across filers, including
amending instructions to provide that advisers must
not ‘‘look through’’ its investments in other private
funds when responding to questions and adding an
instruction when ‘‘looking through’’ cannot be
avoided; providing general instructions to explain
how advisers will report information if the
reporting fund uses a trading vehicle; and amending
instructions to indicate that advisers must not ‘‘look
through’’ a reporting fund’s investments in funds or
other entities that are not private funds, or trading
vehicles. See supra section II.A.2. Similar benefits
will also be obtained from the amendments
updating instructions to provide conformity with
CFTC’s amendments to Form CPO–PQR, including
those that specify when advisers that are also CPOs
should complete particular sections of Form PF. See
supra section II.E; see also Revised Instruction 18.
512 See supra section II.A.1.
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parallel fund structures, and use of
funds of funds all allow private funds to
benefit from larger pools of capital,
diversify risk, and enjoy shared
returns,513 these same features have
inherent risks of spillovers in losses, as
losses in a master fund or underlying
investment of a fund of funds cause
losses in connected funds as well.
Complex ownership structures may also
create conflicts of interest when the
same individuals serve as directors on
boards of both master and feeder funds
under a single owner,514 and may also
mask instances of fraud and a private
fund’s methods for committing fraud.515
Investor protection efforts will therefore
benefit from more consistent data
providing connections from master
funds to feeder funds and other
ownership information.
While some commenters supported
the proposed amendments on this
topic,516 other commenters opposed the
proposed amendments as of limited
benefit to the Commissions and/or
FSOC.517 For example, as discussed
above, disaggregated data of these
structures will provide the Commissions
and FSOC with increased transparency
into risk profiles and complex fund
structures, which will improve our
ability to monitor systemic risk and
protect investors.518 We also disagree
that disaggregated reporting of masterfeeder funds and parallel fund
structures will be of limited value based
on our experience with Form PF, which
currently obscures our understanding of
their fund structures and the risk
exposure of their component funds.519
We also believe that the disaggregated
reporting will allow for a clearer
understanding of a fund’s structure.520
Commenters also stated that
disaggregated data would provide
misleading information by reporting
513 See, e.g., Robert Harris, Tim Jenkinson, Steven
Kaplan & Ruediger Stucke, Financial
Intermediation in Private Equity: How Well Do
Funds of Funds Perform?, 129 J. Fin. Econ. 2, 287–
305 (Aug. 2018).
514 See, e.g., Todd Ehret, Platinum Fraud Charges
Shine Light On Cayman Director Responsibilities,
Reuters Fin. Reg. Forum (Mar. 30, 2017), available
at https://www.reuters.com/article/bc-finregcayman-private-structure/platinum-fraud-chargesshine-light-on-cayman-director-responsibilitiesidUSKBN17030J.
515 See, e.g., Melvyn Teo, Lessons Learned from
Hedge Fund Fraud, Eureka Hedge (Oct. 2009),
available at https://www.eurekahedge.com/
Research/News/506/Lessons-Learned-From-HedgeFund-Fraud.
516 See supra section II.A.1; see also AFREF
Comment Letter I; Better Markets Comment Letter.
517 See supra section II.A.1; see also AIC
Comment Letter I; AIMA/ACC Comment Letter;
MFA Comment Letter II.
518 See supra section II.A.1.
519 Id.
520 Id.
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data in isolation as opposed to as part
of an overall fund or investment
program.521 We disagree, and think that
disaggregated data will not be
misleading to the Commissions or FSOC
in comparison to aggregated data
because the Commissions and FSOC
could, if necessary, aggregate the data to
understand the overall fund.522
Similarly, as another example, data
regarding the total value of parallel
managed accounts, however, will allow
FSOC to take into account the greater
amount of assets an adviser may be
managing using a given strategy for
purposes of analyzing the data reported
on Form PF for systemic risk
purposes.523
Certain changes made in response to
commenters’ concerns will also enhance
these benefits relative to the proposal.
For example, by modifying the
instructions for how a feeder fund
determines its reporting category to
specify that the feeder fund should
exclude any of its holdings in the master
fund’s equity when calculating its total
asset value for the purpose of
determining its reporting category, the
amendments will avoid double counting
of reported assets, given that data for the
master fund will be separately reported
on Form PF.524
Second, the amendments revise the
general instructions for reporting for
private funds that invest in other funds
or trading vehicles.525 Specifically, the
amendments revise Instruction 7 and 8
to require advisers to include
information pertaining to their trading
vehicles when completing Form PF.526
521 See, e.g., MFA Comment Letter II; USCC
Comment Letter.
522 See supra section II.A.1.
523 Id.
524 Id.
525 These final amendments will include
requiring advisers to include the value of
investments in other private funds in determining
whether the adviser is required to file Form PF and
when determining whether the adviser meets the
thresholds for reporting as a large hedge fund
adviser, large liquidity fund adviser, or large private
equity fund adviser, and whether a private fund is
a qualifying hedge fund; generally requiring an
adviser to include the value of a reporting fund’s
investments in other private funds when
responding to questions on Form PF; provide that
generally advisers must not ‘‘look through’’ its
investments in other private funds (other than a
trading vehicle) when responding to questions and
adding an instruction to provide that advisers must
provide an explanation if ‘‘looking through’’ cannot
be avoided; amending the general instructions to
explain how advisers will report information if the
reporting fund uses a trading vehicle; requiring
advisers to report all trading vehicles, whether
wholly owned or partially owned, on a
consolidated bases; and amending instructions to
indicate that advisers must not ‘‘look through’’ a
reporting fund’s investments in funds or other
entities that are not private funds or trading
vehicles. See supra section II.A.2.
526 See supra section II.A.2.
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Because private funds may use trading
vehicles for a wide variety of purposes,
more complete and accurate visibility
into asset class exposures, position
sizes, and counterparty exposures relied
on by trading vehicles can enhance the
SEC’s and FSOC’s systemic risk and
financial stability assessment efforts and
the SEC’s efforts to protect investors by
identifying areas in need of outreach,
examination, or investigation.
Certain changes made in response to
commenters’ concerns will also enhance
these benefits relative to the proposal.
For example, one commenter stated that
allowing an adviser to determine
whether to include or exclude a
reporting fund’s investment in other
private funds could result in distortions
in the data collected on Form PF.527 By
modifying the instructions to provide
specific instructions, such distortion
can be avoided, which will improve
data quality.528
As another example, commenters
opposed proposed amendments that
would have permitted an adviser to
select whether to report a wholly owned
trading vehicle on either a consolidated
or disaggregated basis and would have
required advisers to report a partially
owned trading vehicle on a
disaggregated basis.529 These
commenters questioned the benefits of
these proposed amendments, for
example stating that separate reporting
for trading vehicles is not necessary
because trading vehicles are often used
for administrative purposes, such as for
tax or efficiency purposes, but are
managed on a consolidated basis and
regarded as a single entity for
investment purposes.530 By instead
requiring advisers to report all trading
vehicles, whether wholly owned or
partially owned, on a consolidated
basis, and by specific questions relating
to a reporting fund’s trading vehicle use
and a trading vehicle’s position size and
risk exposure, we will improve data
comparability and allow us to better
understand the holdings and exposures
of the fund structure for our assessments
of potential systemic risk.
Third, the amendments will revise the
general instructions for reporting
timelines by revising Instruction 9 to
require large hedge fund advisers and
large liquidity fund advisers to update
Form PF within a certain number of
days after the end of each calendar
quarter, rather than each fiscal quarter,
527 See
supra section II.A.2.
528 Id.
529 Id.
530 Id.; see also, e.g., MFA Comment Letter II;
Schulte Comment Letter.
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as Form PF currently requires.531 The
SEC anticipates that these amendments
will improve the consistency of
reporting across different private fund
advisers, across quarterly and annual
filings, and across different regulatory
forms,532 which may improve the ability
of regulators to analyze filing data
across fund advisers and across different
regulatory forms by resolving reporting
errors and issues of data quality. These
data analyses are important contributors
to the SEC’s and FSOC’s efforts to assess
systemic risk and develop a complete
picture of private fund markets. The
SEC anticipates that these improved
reporting alignments may enhance the
SEC’s and FSOC’s abilities to assess
potential risks presented by private
funds.533 For example, as discussed
above, academic research has used Form
PF data and Form N–MPF data to study
rule 2a–7 risk limits and implications of
money market reforms.534 Standardizing
data across regulatory filings can lead to
further industry insights from combined
regulatory filing data, and these
industry insights may improve systemic
risk assessment and regulator investor
protection efforts. However, as
discussed above, because almost all
large hedge fund advisers and large
liquidity fund advisers already
effectively file on a calendar quarter
basis because their fiscal quarter ends
on the calendar quarter, the SEC
anticipates that these benefits will be
marginal.535
Fourth, the amendments issue a series
of revisions that impact several sections
of Form PF, which will broadly enhance
data quality, for example by potentially
resolving reporting errors. These
amendments will specify that reported
percentages be rounded to the nearest
531 See
supra section II.A.3.
532 Id.
533 While the amendments to general instructions
associated with reporting timelines will primarily
offer economic benefits associated with
improvement in data quality and resolutions to data
gaps, the amendments to reporting timelines will
also provide a potential improvement to regulators’
ability to evaluate markets for investor protection
efforts and systemic risk assessment, in that they
accelerate the provision of data from quarterly
reporting. See supra section II.A.3. Moreover, as the
amendments will make reporting timelines more
consistent, there could be reduced costs associated
with regulatory filings, as private fund advisers
reduce their need to track differentiated calendar
quarter and fiscal quarter data.
534 See supra section IV.B.1.
535 See supra section II.A.3. Specifically, and as
discussed above, based on staff analysis of Form
ADV data as of Dec. 2021, 99.2% of private fund
advisers already effectively file on a calendar basis
because their fiscal quarter or year ends on the
calendar quarter or year end, respectively. The
0.8% of private fund advisers that have a noncalendar fiscal approach represents approximately
274 private funds, totaling $200 billion in gross
asset value. See supra section II.A.3.
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one hundredth of one percent, provide
consistent instruction for reporting of
investment and counterparty exposures,
provide consistent instruction on the
reporting of long and short positions,
and provide consistent instruction for
reporting of derivative values.536 The
resulting improved data quality will
improve the ability of the SEC and
FSOC to evaluate market risk and
measure industry trends, thereby
increasing the efficiency with which
regulatory responses are developed,
improving systemic risk assessment and
regulator programs to protect investors.
We did not receive specific comments
on certain of these proposed
amendments, such as the amended
instructions to specify how private fund
advisers determine the value of
investment positions (including
derivatives) and counterparty
exposures.537 Some commenters
expressed support for the amendments
to require advisers to report their long
and short holdings on a disaggregated
basis,538 and other commenters opposed
the requirements for more detailed
disclosures of holdings.539
Certain changes made in response to
commenters will enhance the benefits of
these amendments. For example, one
commenter stated that the definition of
‘‘10-year bond equivalent’’ specifies the
expression of the value in the fund’s
base currency.540 By revising the ‘‘10year bond equivalent’’ definition to
reference U.S. dollars, rather than the
fund’s base currency, resulting metrics
will be reported in a common currency,
which will enhance data quality and
comparability purposes.541
Lastly, the amendments issue a series
of additional revisions that will amend
instructions related to temporary
hardship exemptions, provide
conformity with the CFTC’s
amendments to Form CPO–PQR
(including those that specify when
advisers that are also CPOs should
complete particular sections of Form
PF), and revise definitions of the terms
EEA and G10 within Form PF.542 The
additional amendments updating
instructions to the temporary hardship
exemption to Form PF, by way of an
amendment to 17 CFR 275.204(b)–1(f)
under the Advisers Act, will make it
easier to submit a temporary hardship
exemption and will assist advisers in
536 See
supra section II.D.
537 Id.
538 Id.
539 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter. See
supra section II.C.2.a.
540 Id.; see also AIMA/ACC Comment Letter.
541 See supra section II.D.
542 See supra section II.E, Revised Instruction 18.
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determining what constitutes a ‘‘filed’’
temporary hardship exemption.543
These amendments may facilitate more
successful submissions of temporary
hardship exemptions by private fund
advisers who require one, and may
thereby benefit those advisers, and by
extension their investors, by reducing
costs. Similarly, by providing
conformity with the CFTC’s
amendments to Form CPO–PQR,
including those that specify when
advisers that are also CPOs should
complete particular sections of Form PF,
and revising definitions associated with
the terms EEA and G10, the
amendments may reduce confusion for
advisers filing Form PF, thereby
reducing the burden of filing.544 We did
not receive comments on this aspect of
the proposed changes.545
b. Amendments to Basic Information
About the Adviser and the Private
Funds It Advises
The amendments to section 1, which
requires all private fund advisers to
report information about the adviser and
the private funds they manage, include
revisions to section 1a (concerning basic
identifying information),546 revisions to
section 1b (concerning all of a private
fund adviser’s private funds),547 and
revisions to section 1c (more
specifically concerning all of a private
fund adviser’s hedge funds).548 The
changes will provide greater insight into
all private funds’ operations and
strategies, and will further assist in
assessing industry trends. This section
discusses how the SEC believes the
changes will thereby enhance the SEC’s
and FSOC’s systemic risk assessment
efforts and the SEC’s efforts to protect
investors by identifying areas in need of
outreach, examination, or investigation.
This will be accomplished in four key
ways.
First, the changes will provide more
prescriptive requirements to improve
comparability across advisers and
reduce reporting errors and issues of
data quality by aligning data across
filers and across regulatory filings,
based on our experience with the form.
This greater alignment is designed to
improve the efficiency with which the
SEC and FSOC evaluate market risk and
measure industry trends, thereby
increasing the efficiency with which
regulatory responses are developed,
improving systemic risk assessment and
543 See
supra section II.E.
544 See supra section II.E, Revised Instruction 18.
545 See supra section II.E.
546 See supra section II.B.1.
547 See supra section II.B.2.
548 See supra section II.B.3.
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regulator programs to protect investors.
For example, revisions to section 1a
(relating to adviser reporting of
identifying information for all private
funds they advise) will revise
instructions on the use of LEIs and
RSSD IDs for advisers and related
persons, and might help link data more
efficiently between Form PF and other
regulatory filings that use these
universal identifiers.549 Several
revisions to section 1b (relating to
adviser reporting of basic information
for all private funds they advise) will
modify instructions and might prevent
advisers from inadvertently reporting
different fund types on different
regulatory filings (or, when different
reporting on two different forms is
appropriate, the revised instructions are
designed to solicit the reason for
differentiated reporting), facilitating
more robust data analyses that use
combined data from multiple regulatory
forms.550 Revisions to section 1c will
require advisers to indicate which
investment strategies best describe the
reporting fund’s strategies on the last
day of the reporting period, addressing
any ambiguity about how to report
information if the reporting fund
changes strategies over time.551 The SEC
believes these revisions to section 1, and
others,552 will improve the accuracy and
reliability of Form PF data, thereby
potentially improving the SEC’s and
FSOC’s efforts to assess developing
systemic risks and FSOC’s efforts to
549 See supra section II.B.1. For example, the
reporting of a fund’s and its adviser’s LEI is
consistent with the way fund relationships are
reported in the Global LEI system. See, e.g., LEI
ROC, Policy on Fund Relationships and Guidelines
for the Registration of Investment Funds in the
Global LEI System (May 20, 2019), available at
https://www.leiroc.org/publications/gls/roc_
20190520-1.pdf.
550 See supra section II.B.2. For example, the
Division of Investment Management relies on Form
PF and Form ADV filings in providing quarterly
summaries of private fund industry statistics and
trends. See, e.g., SEC, Division of Investment
Management, Private Fund Statistics (Aug. 21,
2021), available at https://www.sec.gov/divisions/
investment/private-funds-statistics.shtml.
551 See supra section II.B.3.
552 Other revisions that will provide this benefit
include revising reporting of regulatory versus net
assets under management; reporting of assumptions
the adviser makes in responding to questions on
Form PF; reporting of types of fund; reporting of
master-feeder arrangements, internal/external
private funds, and parallel fund structures;
reporting of monthly gross and net asset values;
reporting of the value of unfunded commitments;
reporting on the value of borrowing activity;
reporting of fair value hierarchy; reporting of
beneficial ownership; reporting of fund
performance; more granular reporting of hedge fund
strategies; more granular reporting of hedge fund
counterparty exposures including identification of
counterparties representing a fund’s greatest
exposure; and more granular reporting of hedge
fund trading and clearing mechanisms. See supra
section II.B.
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assess broader financial instability, as
well as potentially improving the SEC’s
efforts to protect investors by
identifying areas in need of outreach,
examination, or investigation.
While commenters who criticized
these changes generally emphasized the
costs of the changes, along with the
overall costs of the amendments,553
certain commenters also questioned the
benefits. For example, one commenter
opposed including more granular
strategy categories stating that some
proposed categories are not clear and
may require advisers to make subjective
decisions on how to report a fund’s
strategy that could result in inconsistent
reporting.554 While certain advisers may
have to make certain subjective
decisions, the amended strategy
categories conform more closely to
industry conventions than the current
categories and will allow advisers to
more accurately categorize their
strategies. Any remaining ambiguity in
these strategy categories will only
mitigate the benefits of the resulting
reporting, not eliminate the benefits.
Certain other commenters agreed with
the benefits of certain proposed
provisions. For example, one
commenter supported an expanded use
of LEI as a legal identifier in Form PF
and stated that more comprehensive
inclusion of LEI would create a more
complete identification scheme for the
Commissions.555 Still other commenters
suggested further revisions, and certain
changes made in response to those
commenters will enhance these benefits.
For example, some commenters stated
that proposed questions on withdrawal
and redemption rights did not address
how to report a fund with multiple
types of redemption rights.556 In
response, we are modifying the question
to ask for the interval on which
withdrawals or redemptions are ‘‘most
commonly’’ permitted (i.e., with respect
to most investors). We also encourage an
adviser to report any additional details
on a fund’s withdrawal or redemption
schedule in response to Question 4, as
appropriate. This will likely improve
comparability across advisers and
reduce reporting errors and issues of
data quality. Still other amendments did
not receive specific comments, such as
the amendment requiring an adviser to
identify the fund type for a reporting
fund as ‘‘other’’ and explaining why the
553 See
infra section IV.C.2.
supra section II.B.3; see also MFA
Comment Letter II.
555 See supra section II.B.1; see also GLEIF
Comment Letter.
556 See supra section II.B.2; see also, e.g., MFA
Comment Letter II; SIFMA Comment Letter.
554 See
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fund does not qualify for any of the
other options.557
Second, the amendments will expand
the data collected by the forms, thereby
facilitating the Commissions and FSOC
to assess newly emerging areas of
potential systemic risk. These expanded
areas of reporting broadly capture key
trends in (i) private fund advisers’
ownership structures, and (ii) private
fund advisers’ investment and trading
strategies, including increasing
exposures to new asset classes, changing
exposures across different categories of
counterparties, and increasing use of
financial tools for increasing fund
performance.
With respect to updated reporting on
ownership structures, as discussed
above, interconnected ownership
structures have inherent risks of
spillovers in losses, as losses in a master
fund or underlying investment of a fund
of funds cause losses in connected
funds as well, and so the enhanced data
on detailed ownership structures from
the final amendments are designed to
improve systemic risk assessment
efforts.558 Improved data will also
contribute to efforts to protect investors
from conflicts of interest and other
sources of potential harm.559 The types
of enhancements to Form PF’s data on
interconnected ownership structures
include, for example, requiring advisers
to provide LEIs for themselves and any
of their related persons, such as
reporting funds and parallel funds,560
and expanding the required reporting
detail on the value of the reporting
fund’s investments in funds of funds.561
Similar to the amendments to general
instructions, the SEC believes that these
revisions will improve measurement of
these complex ownership structures.
The SEC believes this will potentially
improve the SEC’s and FSOC’s efforts to
assess developing systemic risks and
FSOC’s efforts to assess broader
financial instability, as well as
potentially improve the SEC’s efforts to
protect investors from conflicting
arrangements and identify other areas in
need of outreach, examination, or
investigation.562
Many revisions will also keep Form
PF filings up to date with key
developing trends among private fund
advisers’ investing and trading
practices. These revisions will improve
consistency of reporting of modern
private fund issues across fund advisers,
557 See
558 See
supra section II.B.2.
supra section IV.C.1.a.
559 Id.
560 See
supra section II.B.1.
supra section II.B.2.
562 See supra section IV.C.1.a.
561 See
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provide more complete and accurate
information on developing trends, and
improve the SEC’s and FSOC’s abilities
to effectively and efficiently assess new
systemic risks and other potential
sources of investor harm, as well as
inform the SEC’s and FSOC’s broader
views on the private fund landscape.
For example, in Form PF section 1c,
the amendments will require hedge
funds to report whether their
investment strategy includes digital
assets,563 which are a growing and
increasingly important area of hedge
fund strategy.564 The amendments will
therefore help the SEC and FSOC to
assess new sources of potential systemic
risk and develop regulatory responses,
and will further allow the SEC to
analyze new areas of potential investor
harm to determine any necessary
outreach, examination, or investigation.
As another example, the amendments
will introduce several questions on
counterparty exposures, corresponding
to both CCP exposures and bilateral
counterparty (i.e., non-CCP) exposures.
These additions to Form PF include
requiring advisers to report hedge fund
borrowing, lending, and collateral with
respect to transactions involving both
their bilateral counterparties and CCPs,
requiring reporting of hedge fund
derivative and repo activity that was
cleared by a CCP (as well as activity not
cleared by a CCP), and instructing
advisers on what exposures to net.565
There are two economic considerations
associated with counterparty exposure
reporting on Form PF. First, bilateral
exposures and CCP exposures have
different risk profiles, with CCPs
offering risk reduction mechanisms and
other economic benefits by netting
trading across counterparties and across
different assets within an asset class or
by centralizing clearance and settlement
563 See
supra section II.B.3.
e.g., AIMA, PWC & Elwood Asset
Management, Annual Global Crypto Hedge Fund
Report (2023), available at https://www.pwc.com/
gx/en/news-room/press-releases/2023/pwc-2023global-crypto-hedge-fund-report.htmlhttps://
www.pwc.com/gx/en/news-room/press-releases/
2023/pwc-2023-global-crypto-hedge-fundreport.html (concluding that almost a third of
traditional hedge funds were investing in such
assets in 2023, with average allocations of 7%,
representing increases relative to 2021); AIMA,
PWC & Elwood Asset Management, 3rd Annual
Global Crypto Hedge Fund Report (2021), available
at https://www.aima.org/educate/aima-research/
third-annual-global-crypto-hedge-fund-report2021.html (concluding that approximately a fifth of
hedge funds were investing in such assets in 2021,
with on average 3% of their total hedge fund assets
under management invested, and 86% of those
hedge funds intended to deploy more capital into
this asset class by the end of 2021); see also supra
section II.B.3.
565 See supra section II.B.3.
564 See,
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18039
activities.566 The final amendments are
designed to help Form PF provide
insight into relative trends in bilateral
trading versus central counterparty
trading and resulting systemic risks
from counterparty exposures. Second,
while CCPs reduce the systemic risk
associated with the failure of any single
hedge fund or other private fund, the
failure of a large CCP itself could
potentially represent a substantial
systemic risk event in the future.567
While a systemic risk event such as the
failure of a CCP has never occurred in
the United States, CCPs in other
countries have failed,568 and the final
amendments are designed to help Form
PF provide new insights into the
potential for such systemic risk events
in the future. FSOC has also designated
many CCP institutions as ‘‘systemically
important,’’ 569 and recommends that
regulators continue to coordinate to
evaluate threats from both default and
non-default losses associated with
CCPs.570
As a final example, we are adopting
amendments that require advisers to
report additional performance-related
information if the adviser calculates a
market value on a daily basis for any
position in the reporting fund’s
portfolio.571 These include, among other
items, the reporting fund’s volatility of
the natural log of the daily ‘‘rate of
return’’ for each month of the reporting
period.572 Investors will benefit from
systemic risk assessment efforts and
investor protection efforts facilitated by
these reporting items. For example,
allowing the Commission and FSOC to
compare volatility across different fund
types to identify market trends (e.g.,
volatility of a specific fund type) will
help the Commission and FSOC verify
which strategies are the most volatile
and therefore pose the greatest default
risk to bank and broker/dealer
counterparties. Comparing volatility
data on Form PF and risk metric data on
Form PF, such as VaR (Value-at-Risk)
data, will also help the Commission to
566 Siro Aramonte & Wenqian Huang, Costs and
Benefits of Switching to Central Clearing, BIS Q.
Rev. (Dec. 2019), available at https://www.bis.org/
publ/qtrpdf/r_qt1912z.htm; Albert J. Menkveld &
Guillaume Vuillemey, The Economics of Central
Clearing, 13 Ann. Rev. Fin. Econ. 153 (2021).
567 Id.
568 For example, the Hong Kong Futures
Guarantee Corporation failed during the stock
market crash of 1987. See Menkveld & Vuillemey,
supra footnote 566.
569 Fin. Stability Oversight Council, 2012 Annual
Rep., Appendix A, available at https://
home.treasury.gov/system/files/261/2012-AnnualReport.pdf.
570 Id. at 14.
571 See supra section II.B.2.
572 Id.
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detect misleading uses of risk metrics by
funds in disclosures to investors.
The SEC therefore believes these
revisions, and others like them,573 will
help the SEC and FSOC better
understand the modern landscape of the
private fund industry, thereby
potentially improving the SEC’s and
FSOC’s efforts to assess developing
systemic risks and FSOC’s efforts to
assess broader financial instability, as
well as potentially improving the SEC’s
efforts to protect investors by
identifying areas in need of outreach,
examination, or investigation.
Some commenters questioned the
benefits of these types of amendments.
For example, some commenters stated
that disclosure of counterparty
exposures is of limited value.574
However, we continue to believe that
this additional information is important
to understanding counterparty risk
exposure, and counterparty risk
exposures represent substantial sources
of systemic risk.575 Certain others of
these proposed amendments did not
receive significant comment on their
proposed benefits. For example, the
amendments requiring additional
performance-related information if the
adviser calculates market value did not
receive significant comment. One
commenter recommended requiring
volatility measurements over longer
periods, such as quarterly or annually,
stating that requiring daily
measurements would result in a smaller
population size and less meaningful
information.576 As discussed above,
higher frequency volatility information
is important because significant
volatility swings that occur over a short
timeframe may not be discernible from
quarterly or annual data but can pose
systemic risk.577 Further, receiving
higher frequency volatility data will
give more context to a fund’s reported
monthly returns and will allow us to
assess risk-adjusted returns.578 In still
other cases, the benefits from the final
amendments will be enhanced by
changes made in response to
573 Other revisions that will provide this benefit
include the reporting of withdrawal and
redemption rights; reporting of other inflows and
outflows; more granular reporting of hedge fund
strategies; more granular reporting of hedge fund
counterparty exposures including identification of
counterparties representing a fund’s greatest
exposure; and more granular reporting of hedge
fund trading and clearing mechanisms. See supra
section II.B.
574 See supra section II.B.3; see also, e.g., AIMA/
ACC Comment Letter.
575 See supra footnotes 565 through 570 and
accompanying text.
576 See supra section II.B.2; see also CFA Institute
Comment Letter.
577 See supra section II.B.2.
578 Id.
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commenters. For example, one
commenter recommended, for reporting
of certain drawdown metrics associated
with days with a negative daily rate of
return, changing reporting of amount in
base currency to percent in base
currency, and the final amendments
implement this change to be more
reflective of industry practice, and in
turn improve data quality.579
Third, there are revisions that will
expand the scope of certain questions
from only covering qualifying hedge
funds advised by large hedge fund
advisers to covering all hedge funds
advised by any private fund adviser. By
expanding the universe of private funds
that are covered by several questions,
the amendments will enhance the SEC’s
and FSOC’s ability to conduct broad,
representative measurements regarding
the private fund industry. For example,
the amendments will require all
advisers to indicate whether the
reporting fund is an open-end private
fund in Question 10(a) or a closed-end
private fund in Question 10(b).580
Because the activities of private fund
advisers may differ significantly
depending on their size, this enhanced
coverage will potentially enhance
regulators’ abilities to obtain a
representative picture of the private
fund industry and lead to more robust
conclusions regarding emerging
industry trends and characteristics. The
SEC believes these amendments, and
others,581 will enhance regulators’
picture of the private fund industry,
thereby potentially improving the SEC’s
and FSOC’s efforts to assess developing
systemic risks and FSOC’s efforts to
assess broader financial instability, as
well as potentially improving the SEC’s
efforts to protect investors by
identifying areas in need of outreach,
examination, or investigation.
Some commenters questioned these
benefits. For example, one commenter
asserted that the data would be of
limited benefit for systemic risk
monitoring because of the inclusion of
data from smaller funds.582 However,
we continue to believe that a private
fund of any size that provides for
withdrawal or redemption rights may be
affected by increased investor
withdrawals during certain market
events and/or vulnerable to failure as a
result of investor redemptions, and so
the additional data will be relevant for
assessing broader systemic risk, for
579 Id.;
see also CFA Institute Comment Letter.
supra section II.B.2.
581 The revisions to reporting of base currency
will provide similar benefits. See supra section II.B.
582 See supra section II.B.2; see also Schulte
Comment Letter.
580 See
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example by allowing the Commissions
and FSOC to assess the prevalence of
the exercise of withdrawal and
redemption rights to identify potential
patterns among affected funds that may
signal stress at a particular fund or
across many funds.583 Information on
withdrawal and redemption rights from
all private funds, including smaller
private funds or funds that are not
included in the definition of a ‘‘hedge
fund,’’ will improve FSOC’s ability to
monitor potential systemic risk and
support the Commissions’ investor
protection efforts.
One commenter supported the
proposed amendments and agreed with
the potential benefits, stating that
expanding the classes of private funds
that are required to disclose withdrawal
and redemption rights would allow
FSOC to better identify systemic risks,
particularly resulting from market
events.584 Lastly, certain changes will
streamline reporting and reduce the
reporting burden by removing certain
questions where other questions provide
the same or superseding information.
For example, the amendments will
remove current Question 19, which
requires advisers to hedge funds to
report whether the hedge fund has a
single primary investment strategy or
multiple strategies, and will also remove
current Question 21, which requires
advisers to hedge funds to approximate
what percentage of the hedge fund’s net
asset value was managed using high
frequency trading strategies.585 The SEC
believes that these revisions will benefit
advisers and investors by directly
lowering the costs and reducing part of
the burden on advisers of completing
Form PF filings.586 Commenters
generally supported amendments that
eliminate questions and streamline
reporting requirements.587
c. Amendments to Information About
Hedge Funds Advised by Large Private
Fund Advisers
The changes to section 2 will provide
greater insight into operations and
strategies into hedge funds advised by
large private fund advisers specifically,
and will also assist in assessing broader
hedge fund industry trends. This section
583 See
supra section II.B.2.
supra section II.B.2; see also Fact
Coalition Comment Letter.
585 See supra section II.B.3.
586 These benefits from streamlined reporting and
reduced reporting burden will be offset by
increased costs associated with the additional and
more granular detail that will be required on Form
PF under the amendments. See infra sections
IV.C.2, V.C.
587 See supra section II.B.3; see also, e.g., MFA
Comment Letter II; SIFMA Comment Letter; Better
Markets Comment Letter.
584 See
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discusses how the SEC believes the
changes will thereby enhance the SEC’s
and FSOC’s investor protection and
systemic risk assessment efforts. This
will be accomplished in three key ways.
As with section 1, first, the changes
will provide more prescriptive
requirements to improve comparability
across advisers and reduce reporting
errors and issues of data quality, based
on experience with the form. This will
be accomplished by standardizing
reporting of information across different
advisers and across different regulatory
filings. For example, the amendments to
current Question 30 (on qualifying
hedge fund exposures to different types
of assets) will replace the existing
complex table in current Question 30
with a redesignated Question 32 with
reporting instructions that will use a
series of drop-down menu selections
and provide additional narrative
reporting instructions and additional
information on how to report
exposures.588 Similarly, advisers to
qualifying hedge funds will now be
required to report the 10-year zero
coupon bond equivalent for all sub-asset
classes with interest rate risk, rather
than providing advisers with a choice to
report duration, WAT, or an unspecified
10-year equivalent.589 Several revisions
(relating to adviser reporting of basic
information for all hedge funds that it
advises) will revise instructions relating
to reporting of adjusted long and short
exposures and market factor effects on
a hedge fund’s portfolio.590 These
revisions can potentially prevent, for
example, data errors associated with
reporting of long and short components
of a portfolio or discrepancies across
advisers in their choices of which
market factors to report (as Form PF
currently allows advisers to omit a
response to any market factor that they
do not regularly consider in formal risk
management testing).591 As another
example, the changes will provide for a
new sub-asset class in investment
exposure reporting for ADRs, in line
with how ADRs are reported on the
CFTC’s Form CPO–PQR, potentially
improving assessment of currency risk
across regulatory filings.592 As a final
588 See
supra section II.C.2.
589 Id.
590 See
supra sections II.C.2.a; II.C.2.c.
For example, higher quality data on short
positions can facilitate more accurate and timely
identification of significant market participants
during periods of volatility related to shorting
activity, such as the Jan. 2021 ‘‘meme stock’’
episodes. See, e.g., SEC, Staff Rep. 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-structionconditions-early-2021.pdf.
592 See supra section II.C.2.a.
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591 Id.
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example, the changes will revise
reporting for positions held physically,
synthetically, or through derivatives and
indirect exposure, and will require
reporting turnover on a per fund basis
instead of in the aggregate as well as
providing for more granular reporting of
turnover.593 The SEC believes these
revisions, and others,594 will align Form
PF data across filers, thereby potentially
improving the efficiency with which the
SEC and FSOC evaluate market risk and
measure industry trends, thereby
increasing the efficiency with which
regulatory responses are developed,
improving systemic risk assessment and
regulatory programs to protect investors.
Several changes in response to
commenters will either enhance these
benefits or will provide substantially the
same benefits relative to the proposal
but at reduced burden to advisers. For
example, in response to commenters,
under the final amendments advisers
are permitted to report an entirely
indirectly held entity position in one
sub-asset class and instrument type that
best represents the sub-asset class
exposure of the indirectly held entity,
unless the adviser would allocate the
exposure of the indirectly held entity
more granularly under its own internal
methodologies and conventions of its
service providers.595 This modification
balances the importance of obtaining
more accurate and granular data with a
reporting standard that is less
burdensome for advisers than the
593 As discussed above, when monitoring funds’
activities during recent market events like the Mar.
2020 COVID–19 turmoil, the existing aggregation of
U.S. Treasury securities with related derivatives did
not reflect the role hedge funds played in the U.S.
Treasury market. See supra sections II.C.2.a, IV.B.1.
Also during the COVID–19 market turmoil, FSOC
sought to evaluate the role hedge funds played in
disruptions in the U.S. Treasury market by
unwinding cash-futures basis trade positions and
taking advantage of the near-arbitrage between cash
and futures prices of U.S. Treasury securities.
Because the existing requirement regarding
turnover reporting on U.S. Treasury securities is
highly aggregated, the SEC staff, during
retrospective analyses on the Mar. 2020 market
events, was unable to obtain a complete picture of
activity relating to long treasuries and treasury
futures. See supra sections II.C.2.d, IV.B.1.
594 Other revisions that will provide this benefit
include the amendments revising reporting of
reportable sub-asset classes, including those for
certain categories of listed equity securities, repos,
asset-backed securities and other structured
products, derivatives, and cash and commodities;
revising reporting of open and large position
reporting; revising reporting of counterparty
exposures including reporting of significant
counterparties; revising currency reporting;
requiring significant country and industry
exposure; requiring additional reporting on fund
portfolio risk profiles; requiring more granular
reporting of investment performance by strategy;
amending reporting of portfolio liquidity; and
amending reporting of financing liquidity. See
supra section II.C.
595 See supra section II.C.2.a.
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18041
proposed standard. Similarly, in the
final amendments, in response to
commenters we are modifying the ‘‘10year bond equivalent’’ definition to
reference U.S. dollars, rather than the
fund’s base currency, so that advisers
will not be required to perform any
additional exchange conversions.596 As
a final example, with respect to market
factor reporting, commenters suggested
that the proposal was unclear in certain
questions as to whether an adviser is
required to ‘‘look through’’ the fund’s
investments.597 In response, we are
adding an instruction that when
reporting exposures to changes in
market factors for indirect positions, an
adviser may use reasonable estimates
that best represent the exposure to the
market factor, consistent with the
adviser’s internal methodologies and
conventions of service providers.598
Many commenters also agreed with
the benefits of certain proposed
amendments. For example, commenters
supported the amendments to require
hedge fund advisers to report their long
and short holdings on a disaggregated
basis, or stated that requiring private
fund advisers to report both long and
short positions will allow FSOC to have
a complete picture of the risk exposure
across private funds, or stated that
allowing advisers to aggregate their
positions between physically held and
synthetically held positions can make it
difficult to understand the impact of
hedge fund activity especially during
periods of market instability.599 Several
of these amendments did not receive
comments. For example, we did not
receive comments on many aspects of
the amendments to redesignated
Question 32.600
Second, the changes will help Form
PF provide greater insight into newly
emerging areas of risk, including
increasing exposures to new asset
classes, changing exposures across
different categories of counterparties,
and changing risk management practices
(such as changing practices around
posting of collateral). The SEC believes
these changes will help Form PF more
completely and accurately capture
information relevant to ongoing trends
in the private fund industry. For
example, in addition to the more general
investment strategy questions in section
1c described above,601 section 2b will
596 Id.
597 See supra section II.C.2.c; see also MFA
Comment Letter III.
598 See supra section II.C.2.a.
599 Id.; see also AFREF Comment Letter I; Better
Markets Comment Letter.
600 See supra section II.C.2.a.
601 See supra section IV.C.1.b.
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require large advisers to qualifying
hedge funds to report their total
exposures to digital assets.602 As
another example, large advisers to
qualifying hedge funds will be required
to report exposures to additional
commodity sub-asset classes (e.g., other
(non-gold) precious metals, agricultural
commodities, and base metal
commodities).603 They will also be
required to report all other
counterparties (by name, LEI, and
financial institution affiliation) to which
a fund has net mark-to-market exposure
after collateral that equals or is greater
than either (1) five percent of a fund’s
net asset value or (2) $1 billion,
facilitating regulators’ abilities to
understand the impact of a particular
counterparty failure like those that
occurred during the 2008 financial crisis
and in the period since (e.g., the failure
of MF Global in 2011).604 Advisers will
also be required to report certain of their
exposures to CCPs,605 and will be
required to report each CCP (or other
third party) holding collateral in respect
of cleared exposures in excess of five
percent of the fund’s net asset value, or
$1 billion.606
As a final example, advisers will be
required to determine adjusted exposure
for each ‘‘sub-asset’’ using a specified
methodology, as proposed. This
methodology will include, among other
specifications, netting positions that
have the same underlying reference
asset across instrument type, including
positions held indirectly through
another entity such as ETFs and other
exchange traded products.607 These
amendments will also include defining
‘‘exchange traded product’’ to better
facilitate exchange traded product and
ETF exposure reporting. These types of
funds are important avenues of
investing for many types of investors
but can represent different systemic
risks than other types of investments,
potentially increasing certain types of
risk and decreasing other types of risk.
As discussed above, these (and other)
new granular reporting requirements
will represent new possible sources of
systemic risk for the SEC and FSOC to
evaluate, and also new areas of focus for
the SEC’s regulatory outreach,
examination, and investigation.608 The
602 See
supra section II.C.2.a.
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603 Id.
604 See supra section II.C.2.a, footnote 360 and
accompanying text.
605 See supra section II.C.2.b.
606 See supra section II.C.2.d.
607 See supra section II.C.2.a.
608 See supra section IV.C.1.b. For example, the
SEC believes the addition of a base metal
commodities sub-asset class will allow for
identification of large players in the base metals
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SEC believes these revisions, and
others,609 will improve the SEC’s and
FSOC’s efforts to assess developing
systemic risks and FSOC’s efforts to
assess broader financial stability, as well
as potentially improve the SEC’s efforts
to protect investors by identifying areas
in need of outreach, examination, or
investigation.
Some commenters questioned or were
skeptical of these benefits. For example,
one commenter indicated that existing
data sources, such as existing Form PF,
Form 13F and 13H, and CFTC Form
CPO–PQR, already allow the
Commissions to obtain granular
information about a fund’s holdings
with respect to the new sub-asset
classes.610 As discussed above, we have
identified information gaps in the data
reported on the existing Form PF based
on our experience, and we are unable to
determine the full extent of a fund’s
exposure because the different types of
exposures are combined.611 The final
amendments will generate the intended
benefits described above.612
Lastly, the amendments will remove
certain questions where other questions
provide the same or superseding
information, which the SEC believes
will streamline reporting and reduce
reporting burden. For example, the
changes will remove section 2a entirely,
based on a determination that the
aggregated information in section 2a is
market (such as those impacted by the Mar. 2022
‘‘nickel squeeze,’’ during which the price of nickel
rose unusually steeply and rapidly in response to
commodity price increases caused by Russia’s
invasion of Ukraine). See supra footnote 323.
609 Other revisions that will provide this benefit
include revising reporting for positions held
physically, synthetically, or through derivatives and
indirect exposure; revising reportable sub-asset
classes, including those for certain categories of
listed equity securities, repos, asset-backed
securities and other structured products,
derivatives, and other cash and commodities;
further revising reporting of counterparty exposures
including reporting of significant counterparties (in
addition to the revisions to CCP exposures);
revising currency reporting; requiring more granular
reporting of turnover; requiring significant country
and industry exposure; requiring additional
reporting on fund portfolio risk profiles; requiring
more granular reporting of investment performance
by strategy; requiring new reporting on portfolio
correlation; amending reporting of portfolio
liquidity; and amending reporting of financing
liquidity. See supra section II.C.
610 See supra section II.C.2.a; see also SIFMA
Comment Letter.
611 See supra section II.C.2.a. We discuss the costs
of these amendments, including comments on the
proposed amendments, below. See infra section
IV.C.2.
612 Other commenters were opposed to these
amendments, but primarily on the basis of costs of
the updated reporting. See supra section II.C.2.b;
see also AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter. We
discuss the costs of these amendments, including
comments on the proposed amendments, below.
See infra section IV.C.2.
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redundant to information required to be
reported in other sections,613 and will
remove the requirement from Question
38 for advisers to report the percentage
of the total amount of collateral and
other credit support that a fund has
posted to counterparties that may be rehypothecated.614 The SEC believes that
these revisions, and others,615 will
directly lower the costs and reduce the
burden to advisers of completing Form
PF filings. Commenters who discussed
these proposed amendments agreed that
there would be benefits from reducing
the burden by eliminating questions and
streamlining reporting requirements.616
2. Costs
The amendments to Form PF will lead
to certain additional costs for private
fund advisers. Any portion of these
costs that is not borne by advisers will
ultimately be passed on to private
funds’ investors. These costs will vary
depending on the scope of the required
information, which is determined based
on the size and types of funds managed
by the adviser as well as each fund’s
investment strategies, including choices
of asset classes and counterparties.
These costs are quantified, to the extent
possible, by examination of the analysis
in section V.C.
The SEC anticipates that the costs to
advisers associated with Form PF will
be comprised of both direct compliance
costs and indirect costs. Direct costs for
advisers will 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).617
The SEC believes that the direct costs
associated with the final amendments
will be most significant for the first
updated Form PF report that a private
fund adviser will be required to file
because the adviser will need to
613 See
supra section II.C.1.
614 Id.
615 Other
revisions that will provide this benefit
include consolidating Question 47 into Question
36; removing the requirement from Question 38 for
advisers to report the percentage of the total amount
of collateral and other credit support that a fund has
posted to counterparties that may be rehypothecated; and requiring reporting turnover on
a per fund basis instead of in the aggregate. See
supra section II.C.
616 See supra sections II.C.1, II.C.2.b; see also,
e.g., MFA Comment Letter II; SIFMA Comment
Letter; Better Markets Comment Letter.
617 See section V.C. (for an analysis of the direct
costs associated with the new Form PF
requirements for quarterly and annual filings).
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familiarize itself with the new reporting
form and may need to configure its
systems to gather the required
information efficiently. In subsequent
reporting periods, the SEC anticipates
that filers will 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.618
The SEC anticipates that the
amendments aimed at improving data
quality and comparability will impose
limited direct costs on advisers given
that advisers already accommodate
similar requirements in their current
Form PF reporting and can utilize their
existing capabilities for preparing and
submitting an updated Form PF. The
SEC expects that most of the costs will
arise from the requirements to report
additional and more granular
information on Form PF. These direct
costs will 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.619 We
618 See
Kaal, supra footnote 487.
on the analysis in section V.C, initial
costs associated with filing the first updated Form
PF report are estimated to increase by $5,820 for
smaller private fund advisers, $20,190 for large
hedge fund advisers, $10,592 for large liquidity
fund advisers, and $10,647 for large private equity
fund advisers. These figures are calculated as the
cost of filing under the amended form minus the
cost of filing prior to the amendments for each
category of adviser. See Table 6. Direct internal
compliance costs associated with the amendments
are estimated at $2,247 annually for smaller private
fund advisers. Direct internal compliance costs
associated with the amendments are estimated at
$8,346 per quarterly filing or $33,384 annually for
large hedge fund advisers. Direct internal
compliance costs associated with the amendments
are estimated at $5,136 per quarterly filing or
$20,544 annually for large liquidity fund advisers.
Direct internal compliance costs associated with the
amendments are estimated at $4,815 annually for
large private equity fund advisers. These figures are
calculated as the cost of filing under the
amendments minus the cost of filing prior to the
amendments for each category of adviser. See Table
7. It is estimated that there will be no additional
direct external costs and no changes to filing fees
associated with the amendments. See Table 9. The
SEC anticipates that there may be additional firsttime filing costs for filers who do not currently file
on a calendar quarter basis, but that these costs are
likely to be small and not likely to impact
subsequent filings beyond the first. As discussed
above, a 2018 industry survey of large hedge fund
advisers found filing costs that ranged from 35% to
72% higher than SEC cost estimates. These industry
cost estimates would therefore suggest costs
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believe that the amendment to 17 CFR
275.204(b)–1(f) under the Advisers Act
will have minimal costs associated with
it, as the amendment only makes it
easier to submit a temporary hardship
exemption and assists advisers in
determining what constitutes a ‘‘filed’’
temporary hardship exemption.620 As
discussed in the benefits section, the
SEC believes that part of the costs to
advisers arising from the amendments
will 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.621
Indirect costs for advisers will include
the costs associated with additional
actions that advisers may decide to
undertake in light of the additional
reporting requirements on Form PF.
Specifically, to the extent that the
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.
Commenters also identified other
indirect costs in the form of unintended
effects, which we agree may occur. For
example, one commenter stated that
requirements in Form PF to use a
particular financial identifier may
increase costs and reduce innovation
and competition among financial
identifier providers.622 However, we do
not think this effect is likely to occur,
because Form PF continues to not
associated with the changes to Form PF that are
potentially 35% to 72% higher than those estimated
here. See MFA Letter to Chairman Clayton, supra
footnote 364, at 3. However, a 2015 survey of SECregistered investment advisers to private funds
affirmed the SEC’s cost estimates for smaller private
fund advisers’ Form PF compliance costs, and
found that the SEC overestimated Form PF
compliance costs for larger private fund advisers.
These academic literature cost estimates would
therefore suggest that the costs associated with the
changes to Form PF estimated here are potentially
conservatively large. See Kaal, supra footnote 487.
We were persuaded by commenters who asserted
that the proposed burdens underestimated the time
and expense associated with the proposed
amendments. To address commenters’ concerns and
recognizing the changes from the proposal, we have
revised the estimates as reflected here and below.
See infra section V.C.
620 See supra section II.E.
621 The final amendments also seek to limit
unnecessary costs by avoiding redundancies
between new questions and current Questions. For
example, the SEC will remove current Question 22,
as it would be redundant in light of the expanded
turnover reporting. See supra footnote 385.
622 See supra section II.B.1; see also Bloomberg
Comment Letter.
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18043
require an adviser to obtain or use LEI
or any other particular financial
identifier (other than private fund
identification numbers for reporting
funds), as our amendments provide only
that any identifier that does not meet
the definition of ‘‘LEI’’ may not be
substituted for an LEI where a question
requests an LEI.623 Form PF continues
to permit advisers to use other financial
identifiers elsewhere on Form PF where
the reporting of LEI is either not
specified or not required.624 Therefore,
financial identifier providers will not
likely experience any reduction in their
incentives to innovate or compete.
Some commenters stated that there
will be substantial burden including
initial set-up costs, external costs, and
ongoing costs associated with amending
Form PF.625 These commenters also
stated that the Proposing Release
economic analysis understated the costs
of the amendments.626 Several of the
changes to the final amendments
relative to the proposal are in response
to commenter concerns on costs.
Specifically, the final amendments have
removed certain questions that were
proposed and revised other questions in
order to reduce their burden without
compromising the goals of the
Commissions and FSOC in improving
the information received on the form for
purposes of their systemic risk reviews.
For example, we are revising certain
questions related to exposures to
instruct advisers to select the exposure
that ‘‘best represents’’ the indirect
investment of the reporting fund, based
on commenter statements that obtaining
information about a fund’s indirect
exposures through investments in other
funds could be difficult or
burdensome.627 As a second example,
we are also not adopting a proposed
question on portfolio correlations in
response to comments that the proposed
portfolio calculation questions would
have been complex and burdensome to
calculate.628 As a third example, one
commenter stated that for quarterly
filers who have a fiscal year ending in
623 See
supra section II.B.1.
624 Id.
625 See, e.g., MFA Comment Letter III; AIMA/ACC
Comment Letter; MFA/NAPFM Comment Letter.
626 Id. The Proposing Release economic analysis’
quantified costs were based on compliance cost
estimates from the Proposing Release PRA analysis.
As discussed above, industry and academic
literature from 2015–2018 has varied in its findings
on whether SEC’s past PRA analysis estimates of
Form PF compliance costs have historically been
overstated or understated. To address commenters’
concerns and recognizing the changes from the
proposal, we are revising the estimates as reflected
here and below. See infra section V.C; see also
supra footnote 619.
627 See supra sections II.A.2, II.C.2.
628 See supra section II.C.2.
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a non-calendar quarter month, the
proposed instructions do not specify the
procedure for a filer who, during the
transition from fiscal to calendar quarter
reporting, would otherwise be required
to report twice in one calendar
quarter.629 In response, we are requiring
that such filers transition to the new
timing requirement by their first
calendar quarter-end filing for the first
full quarterly reporting period after the
compliance date.630 As a final example,
we are permitting the use of RFACV and
GRFACV in reporting certain questions
related to asset values in Section 1b,
concerning all private funds.631
Permitting an adviser to report GRFACV
or RFACV will reduce burden
associated with reporting of valuation
data on a monthly basis.632
However, there were certain proposed
amendments that commenters criticized
as burdensome but are being adopted
largely as proposed. Each of these
amendments is being adopted either
because costs will be limited, because
benefits will be substantial, or both. For
example, commenters criticized the
prescribed methodology for calculating
netted exposure as burdensome as well
as the need to identify relevant sub-asset
classes and the need to measure these
exposures on a monthly basis.633
However, burden in the case of subasset classes will likely be limited,
because advisers will generally only
need to make the relevant determination
of sub-asset classes once, with ongoing
monitoring (and any reclassifications)
relatively limited. Further, because a
fund may use cross counterparty netting
consistent with information reported by
the fund internally for purposes of
determining adjusted exposure, the
adjusted exposure reporting will likely
not be significantly burdensome,
particularly for funds using common
aggregator protocols.634 As another
example, some commenters opposed the
requirement to provide additional detail
regarding counterparty exposure and
state that the information would be
burdensome and costly to obtain.635 For
629 See
supra section II.A.3.
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630 Id.
631 See supra section II.B.2. The incremental
burdens associated with the use of these terms may
be further limited because the recent amendments
adopted by the SEC require a large hedge fund
adviser to monitor and in certain instances report,
the fund’s RFACV in compliance with its current
reporting obligation. See May 2023 SEC Form PF
Amending Release, supra footnote 4.
632 Id.
633 See supra section II.C.2.a; see also, e.g.,
SIFMA Comment Letter.
634 See supra section II.C.2.a.
635 See supra section II.C.2.b; see also, e.g., MFA
Comment Letter II; SIFMA Comment Letter; AIMA/
ACC Comment Letter.
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reasons discussed above,636 we continue
to believe that disaggregated
counterparty exposure is important to
systemic risk monitoring efforts, and
will not be significantly burdensome to
produce as we understand knowledge of
counterparties to be a component of a
fund’s risk management practices. As a
final example, one commenter stated
that the requirement to report
information expressed as a percentage to
the nearest one hundredth of one
percent will significantly increase the
costs and additional burdens for
reporting advisers.637 However, as
discussed above, percentages rounded
to the nearest one hundredth of one
percent will allow the Commissions to
obtain and analyze more precise
information that may otherwise be
obscured, for example given that one
one-hundredth of one percent can
represent a meaningful dollar amount
depending on the size of the private
fund. And, while we recognize that this
may not be the case for smaller funds,
when such amounts are taken together
for a large group of smaller funds, the
aggregate amount across the fund group
can represent a meaningful dollar
amount for data analysis purposes.638
However, given commenters’
perspectives, we have increased our
assessment of the incremental direct
costs of the final amendments relative to
the proposal, even after revising certain
final amendments and questions relative
to the proposal in order to reduce
incremental burden.639
However, these costs must be
analyzed alongside the important
benefits that will accrue, as receiving
exposure data on a monthly basis will
allow us to better understand interim
changes in exposures that may be
relevant to systemic risk assessment that
are not visible from the existing
quarterly data, which may enhance the
measurement of trends that may
indicate systemic risk. Receiving these
data on a monthly basis will also
improve the Commissions’ ability to
compare netted exposures with other
monthly reported data, such as
redesignated Question 23, relating to
fund performance reported by all
private funds.640 Being able to compare
data on a monthly basis with other data
at the same frequency is important for
systemic risk assessment and to support
investor protection efforts.641
636 Id.
637 See supra section II.D; see also MFA Comment
Letter II.
638 Id.
639 See supra footnotes 619 through 621 and
accompanying text; see also infra section V.C.
640 See supra section II.B.2.
641 Id.
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Some commenters argued that the
heightened compliance costs of Form PF
may be particularly burdensome for
small firms.642 As a result, the final
amendments may represent a barrier to
entry for smaller advisers who cannot
meet the compliance costs or who
cannot compete after passing those costs
on to investors. To the extent any
smaller advisers either exit or forgo
entry in response to these compliance
costs, competition would be negatively
affected. However, comments were
made in the context of the proposal, and
the final amendments reduce many of
the costs of compliance relative to the
proposal.643 Therefore, these effects may
be mitigated, but may nonetheless
occur.
One commenter stated that the SEC
should consider that ‘‘the sheer number
and complexity of the Proposals, when
considered in their totality, if adopted,
would impose staggering aggregate
costs, as well as unprecedented
operational and other practical
challenges.’’ 644 But, consistent with its
long-standing practice, the
Commission’s economic analysis in
each adopting release considers the
incremental benefits and costs for the
specific rule—that is, the benefits and
costs stemming from that rule compared
to the baseline.645 In doing so, the
Commission acknowledges that in some
cases resource limitations can lead to
higher compliance costs when the
compliance period of the rule being
considered overlaps with the
compliance period of other rules. In
determining compliance periods, the
SEC considers the benefits of the rules
as well as the costs of delayed
compliance periods and potential
overlapping compliance periods.
Specifically, some commenters, as
noted above, mentioned the proposals
which culminated in the recent
adoptions of the May 2023 SEC Form PF
Amending Release, SEC Private Funds
Advisers Adopting Release, Beneficial
Ownership Amending Release, Short
Position Reporting Adopting Release,
Securitizations Conflicts Adopting
Release, Treasury Clearing Adopting
Release, and Dealer Definition
Amending Release.646 The SEC
642 See, e.g., MFA Comment Letter; AIMA/ACC
Comment Letter.
643 See supra footnote 456 and accompanying
text.
644 MFA/NAPFM Comment Letter; see also MFA
Comment Letter III; SIFMA Comment Letter; AIC
Comment Letter I; AIC Comment Letter II; Comment
Letter of U.S. House of Representatives Committee
on Financial Services.
645 See supra section IV.C.1.
646 See supra section IV.C.1; see also, e.g., AIC
Comment Letter II; MFA Comment Letter I; MFA
Comment Letter III; SIFMA Comment Letter.
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acknowledges that there are compliance
dates for certain requirements of these
rules that overlap in time with the final
rule, which may impose costs on
resource constrained entities affected by
multiple rules.647 This may be
particularly true for smaller entities
with more limited compliance
resources. This effect can negatively
impact competition because these
entities may be less able to absorb or
pass on these additional costs, making
it more difficult for them to remain in
business or compete.
We do not think these increased costs
from overlapping compliance periods
will be significant for two reasons. First,
the market participants that will be
subject to the amendments in this
rulemaking and who will be subject to
one or more of the other recently
adopted rules could be limited based on
whether those participants’ activities
fall within the scope of the other
rules.648 Second, overlapping
compliance burdens related specifically
to implementation of recent Form PF
amendments will be limited because of
the scope and implementation periods
of the May 2023 SEC Form PF
Amending Release. Only the
compliance period for amendments to
section 4 of Form PF overlap with the
compliance periods for the Form PF
amendments in this rulemaking. As a
result, smaller private fund advisers,
who are the entities more likely to be
resource constrained, will not face any
heightened costs from overlapping
implementation periods because only
large private equity fund advisers—
meaning those, together with their
related persons that are not separately
operated, with at least $2 billion in
combined regulatory assets under
647 The effective/compliance date of the
amendments in this rulemaking is one year from the
date of publication of the rules, which is
anticipated to be in early 2025. See infra section
II.F. See supra footnotes 461 through 467
(summarizing compliance dates for the previously
adopted rules).
648 The Short Position Reporting Adopting
Release will require only institutional investment
managers that meet or exceed certain reporting
thresholds to report short position and short
activity data for equity securities. The
Securitizations Conflicts Adopting Release will
affect only certain entities—and their affiliates and
subsidiaries—that participate in securitization
transactions. The Treasury Clearing Adopting
Release will affect only those Form PF filers that
participate in the secondary market for U.S.
Treasury securities. Lastly, the Dealer Definition
Amending Release will primarily affect certain
principal trading firms and private funds; private
funds will bear the compliance costs associated
with registering as a broker-dealer—and those
funds’ advisers will have to complete the
compliance activities for their funds—only if the
funds’ investment activities bring them within the
scope of the amended definitions. See supra
footnotes 464 through 467.
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management attributable to private
equity funds—report on section 4.
Moreover, commenters’ concerns
about the costs of overlapping
compliance periods were raised in the
context of the proposal and, as
discussed above, we have taken steps to
reduce costs of the final rule in several
ways from the proposal.649 As a result,
for both larger and smaller entities, any
higher costs or potential negative effects
on competition due to overlapping
compliance periods raised in the
context of the proposal may be
mitigated under the final amendments.
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. Some
commenters expressed concerns at this
possibility. For example, one
commenter opposed the increased
granularity in strategy categories, stating
they could disclose a fund’s proprietary
investment information and present
data security concerns.650 However, the
SEC anticipates that any risk of these
adverse effects will be mitigated by
certain aspects of the Form PF reporting
requirements and controls and systems
designed by the SEC for handling the
data. For example, the SEC has controls
and systems for the use and handling of
the 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
SEC has substantial experience with the
storage and use of nonpublic
information reported on Form PF as
well as other nonpublic information that
the SEC handles in the course of
business.
D. Reasonable Alternatives
1. Alternatives to Amendments to
General Instructions, Amendments To
Enhance Data Quality, and Additional
Amendments
The SEC considered alternatives to
the amendments to general instructions,
amendments to enhance data quality,
and the additional amendments in the
final rule (including the amendments to
the process for requesting temporary
hardship exemptions, by way of an
amendment to 17 CFR 275.204(b)–1(f)
under the Advisers Act). The
alternatives considered were in the form
of different choices of framing, level of
additional detail requested by Form PF,
level of detail removed from Form PF,
649 See
supra footnote 625 and accompanying
text.
650 SIFMA
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18045
and precise information targeted. For
example, in the general instructions, the
SEC considered an alternative that
would have required advisers to report
only at the master fund level or only at
the feeder fund level. As another
example, the SEC considered requiring
annual filers to file within 30 calendar
days after the end of their fiscal year,
rather than 120 calendar days.
While many alternatives may have
been able to capture more detailed
information, or may have been able to
capture relevant information with a
smaller reporting burden for advisers,
the SEC believes that each of the
amendments to general instructions,
amendments to enhance data quality,
and additional amendments as adopted
will improve data quality and enhance
the usefulness of reported data without
imposing undue reporting burden.
2. Alternatives to Amendments to Basic
Information About the Adviser and the
Private Funds It Advises
The SEC also considered alternatives
to the amendments to basic information
about advisers and the private funds
they advise. As above, these alternatives
were in the form of different choices of
framing, level of additional detail
requested by Form PF, level of detail
removed from Form PF, and precise
information targeted.
For example, with respect to
identifying information for private
funds in section 1a, the SEC considered
an alternative that would provide more
granularity for advisers to list categories
of funds, such as differentiating between
different types of funds of funds (for
example, differentiating between multimanager funds of funds and multi-asset
funds of funds). As another example,
with respect to basic information
reported for all private funds in section
1b, the SEC considered alternatives that
would limit reporting information about
withdrawal rights, redemption rights,
and contributions to only funds and
advisers of a certain size.
As a final example, with respect to
basic information reported for all hedge
funds, the amendments will require
advisers to identify each creditor or
other counterparty (including CCPs) to
which the reporting fund owes cash and
synthetic financing borrowing (before
posted collateral) equal to or greater
than either (1) five percent of net asset
value of the reporting fund as of the data
reporting date or (2) $1 billion, but the
SEC considered alternatives that would
have changed the thresholds, either
increasing or decreasing Form PF’s
definition of what constitutes a
significant counterparty. With respect to
several such questions, commenters
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suggested the SEC consider alternative
thresholds for reporting.651 As
discussed above, this threshold is
appropriate because both portions of the
threshold highlight potential systemic
risk: five percent of net asset value is a
level that represents significant
exposure (based on the impact on
performance) in the event of
counterparty default, and $1 billion,
while it may not equal five percent of
a large hedge fund’s assets, may indicate
a larger systemic stress involving a
fund’s counterparties.652
The SEC believes that each of the
amendments as adopted improve data
quality and enhance the usefulness of
reported data without imposing an
undue reporting burden.
3. Alternatives to Amendments to
Information About Hedge Funds
Advised by Large Private Fund Advisers
The SEC considered alternatives to
the amendments to information about
hedge funds advised by large private
fund advisers. As above, these
alternatives were in the form of different
choices of framing, level of additional
detail requested by Form PF, level of
detail removed from Form PF, and
precise information targeted.
For example, with respect to
investment exposure reporting, the final
amendments will continue to require
reporting on qualifying hedge fund
exposures to different types of assets,
but will revise the instructions and
format of this reporting. As an
alternative, the SEC considered an
amendment that would require or
permit large hedge fund advisers to file
portfolio position-level information for
qualifying hedge funds similar to what
is required for large liquidity fund
advisers, and large hedge fund advisers
who do so would be allowed to forgo
responding to certain specific
investment exposure questions in
section 2, including Question 30. The
questions as adopted will improve data
quality and enhance the usefulness of
reported data without imposing an
undue reporting burden.653
As another example, the SEC
considered alternative approaches for
instructing reporting advisers on how to
net long and short positions for each
sub-asset class. One prong of the
amended instructions for netting long
and short positions relies on a newly
defined term ‘‘reference asset,’’ which
we define as a security or other
investment asset to which the reporting
fund is exposed through direct
651 See
supra sections II.B.3, II.C.2.
652 Id.
653 See
supra section II.C.
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ownership, synthetically, or indirect
ownership,654 and instructs advisers to
net positions that have the same
underlying reference asset across
instrument types. The SEC considered
instead tailoring these instructions to
different asset classes. For example, the
SEC considered instructing advisers to
net repo exposures in accordance with
generally accepted accounting
principles (‘‘GAAP’’) rules for balance
sheet netting, or instructing advisers
with exposures whose underlying
reference assets are Treasury securities
to net within predefined maturity
buckets. However, the SEC believes that
providing netting instructions through
the single definition of ‘‘reference asset’’
improves data quality and enhances the
usefulness of report data without
imposing undue burden.655
Commenters also suggested
alternatives to questions requiring
reporting of categories of large
exposures, in particular suggesting
alternative parameters or thresholds
defining when exposures should be
reported.656 For example, for the
proposed new questions requiring
advisers to provide information for
counterparties to which the reporting
fund has net mark-to-market
counterparty credit exposure which is
equal to or greater than either (1) five
percent of the reporting fund’s net asset
value as of the data reporting date or (2)
$1 billion, after taking into account
collateral received or posted by the
reporting fund, one commenter
suggested a threshold of 10 percent for
this question.657
For each of these questions, the
thresholds were chosen to highlight
potentially significant systemic risks in
keeping with industry practice. For
example, for the above counterparty
credit exposure question, five percent
was identified as a level large enough to
constitute a shock to a reporting fund’s
net asset value, and $1 billion was
identified as an amount that in the case
of a very large counterparty, may not
represent five percent of its net assets,
but may be large enough to create stress
for the reporting fund.658 As another
example, for the question on country
and industry exposures, the threshold of
either (1) five percent of net asset value
or (2) $1 billion is appropriate for
multiple reasons, such as the fact that it
represents a material level of portfolio
654 See Form PF Glossary of Terms. The
amendments will also instruct advisers to net fixed
income positions that fall within certain predefined
maturity buckets. See supra section II.C.
655 See supra section II.C.
656 See supra sections II.B.3, II.C.2.
657 MFA Comment Letter II.
658 See supra section II.B.3.
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exposure to risk relating to individual
countries and geographic regions, and
the fact that, for funds without a
benchmark, five percent is often
evaluated for industry, individual
position, and country risk, and is a
common and easy-to-measure
threshold.659 With respect to the $1
billion threshold, it constitutes
sufficiently large nominal value
exposure from a risk perspective.660
As a final example, the SEC also
considered requiring advisers to report
Dollar Value of one basis point (DV01)
instead of the 10-year zero coupon bond
equivalent. We understand that the 10year zero coupon bond equivalent is the
most widely used duration measure
currently applied in the industry, and
would require the fewest number of
private funds to update their
calculations of duration to comply with
the reporting requirement.661
Broadly, the SEC believes that each of
the amendments as adopted improve
data quality and enhance the usefulness
of reported data without imposing
undue reporting burden.662
4. Alternatives to the Definition of the
Term ‘‘Hedge Fund’’
The SEC also considered amending
the definition of ‘‘hedge fund’’ which is
defined in the Glossary of Terms as any
private fund (other than a securitized
asset fund) (a) with respect to which one
or more investment advisers (or related
persons of investment advisers) may be
paid a performance fee or allocation
calculated by taking into account
unrealized gains (other than a fee or
allocation the calculation of which may
take into account unrealized gains
solely for the purpose of reducing such
fee or allocation to reflect net unrealized
losses); (b) that may borrow an amount
in excess of one-half of its net asset
value (including any committed capital)
or may have gross notional exposure in
excess of twice its net asset value
(including any committed capital); or (c)
that may sell securities or other assets
short or enter into similar transactions
(other than for the purpose of hedging
currency exposure or managing
duration).663
Under the existing definition, an
adviser to a fund that holds itself out as
a private equity fund and is permitted
in its fund governing documents to
engage in certain short-selling, but has
not done so in the past 12 months,
would be reported in Form PF data as
659 See
supra section II.C.2.d.
660 Id.
661 See
662 See
supra section II.C.2.d.
supra section II.C.2.d.
663 Id.
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a hedge fund with zero short exposure.
The SEC therefore considered a
potential alternative definition of
‘‘hedge fund,’’ under which, to qualify
as a hedge fund under the leverage
prong of the potential alternative
definition, a fund would have to satisfy
subsection (b) of the definition (the
leverage prong), as it does today, but
also must have actually borrowed or
used any leverage during the past 12
months, excluding any borrowings
secured by unfunded commitments (i.e.,
subscription lines of credit).
Additionally, to qualify as a hedge fund
under the short selling prong of the
potential alternative definition (the
short selling prong), the fund would
have engaged in certain short selling
during the past 12 months. The SEC also
considered alternative definitions
requiring, for example, longer or shorter
time periods, different time periods for
borrowing versus short selling, or
requirements for the reporting fund to
provide redemption rights in the
ordinary course.
An alternative definition could reduce
the unnecessary reporting burden faced
by advisers to deemed hedge funds that
hold themselves out as private equity
funds but currently comply with
instructions to report information on
Form PF section 2; however, this benefit
would be partially mitigated by the
impacted private fund advisers who
would then need to report on necessary
Form PF sections for private equity fund
advisers.664 Some reporting funds may
consider themselves ‘‘private equity
funds,’’ but advisers report them as
hedge funds, because the reporting
fund’s governing documents permit the
fund to engage in certain borrowing and
short selling (even though it did not do
so at any time in the past 12 months),
and an alternative definition could
result in these funds reporting in a
manner more consistent with their own
view of their fund strategy. As discussed
above, certain commenters supported
revising the definition, including
offering alternative specific
definitions.665
However, the current definition of
‘‘hedge fund’’ is designed to include any
private fund having any one of three
common characteristics of a hedge fund:
(1) a performance fee, (2) leverage, or (3)
short selling. Any private fund that has
one or more of these characteristics is an
appropriate subject for the more
detailed level of reporting that hedge
funds are subject to on Form PF because
the questions that hedge fund advisers
664 See supra sections II.C.2; IV.C.2; see also infra
section V.C.
665 See supra section II.C.2.d.
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are required to complete focus on these
activities, and these activities may
contribute to systemic risk, particularly
in the case of a fund that has the ability
to engage in borrowing or short selling.
A revised definition that focuses on
actual or contemplated use could
therefore have resulted in incomplete
data for funds engaged in these
activities, meaning incomplete data on
activities that are important potential
contributors to systemic risk. Because
short selling and borrowing are
important distinguishing characteristics
of hedge funds and providing any
exception for these activities, including
a de minimis one, could have a
significant, negative effect on
reporting.666
Moreover, because a reporting fund
may vary from year to year in its use of
leverage or short selling, a revised
definition that focuses on actual or
contemplated use would also have
caused fluctuations in the data from
year to year, depending on which funds
use leverage or short selling in a
particular year, potentially impacting
the quality or usefulness of resulting
data. In particular, when first adopting
the current definition, the Commissions
reasoned that even a reporting fund for
which leverage or short selling is an
important part of its strategy may not
engage in that practice during every
reporting period.667 This effect could
also have increased the burden on
advisers to the extent that their funds
were required to fluctuate between
different reporting categories in
different reporting periods, depending
on the fund’s practices in any given
period.668 The potential costs of this
alternative definition would also have
included transition filing costs for
advisers impacted by the definition,
who would have been required to
update their reporting methods to
capture information from their funds
relevant for reporting on Form PF as a
private equity fund instead of as a hedge
fund, and completing corresponding
sections of the form targeted at each
category.669
V. Paperwork Reduction Act
CFTC:
The information collection titled
‘‘Form PF and Rule 204(b)–1’’ (OMB
Control No. 3235–0679) was issued to
the SEC and implements sections 404
and 406 of the Dodd-Frank Act by
requiring private fund advisers that
666 Id.
667 See supra footnote 3; see also 2011 Form PF
Adopting Release, at text accompanying footnote 4.
668 See supra section II.C.2.d.
669 We estimate that the average cost of a
transition filing is $20.50. See Table 9.
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18047
have at least $150 million in private
fund assets under management to report
certain information regarding the
private funds they advise on Form PF.
The SEC makes information on Form PF
available to the CFTC, subject to the
confidentiality provisions of the DoddFrank Act, and the CFTC may use
information collected on Form PF in its
regulatory programs, including
examinations, investigations and
investor protection efforts relating to
private fund advisers.
CFTC rule 4.27 670 does not impose
any additional burden upon registered
CPOs and CTAs that are dually
registered as investment advisers with
the SEC (‘‘dual registrants’’). There is no
requirement to file Form PF with the
CFTC, and any filings made by dual
registrants with the SEC are made
pursuant to the Advisers Act. While
CFTC rule 4.27(d) states that dually
registered CPOs and CTAs that file Form
PF with the SEC will be deemed to have
filed Form PF with the CFTC for
purposes of any enforcement action
regarding any false or misleading
statement of material fact in Form PF,
the CFTC is not imposing any additional
burdens herein. Therefore, any burden
imposed by Form PF on entities
registered with both the CFTC and the
SEC has been fully accounted for within
the SEC’s calculations regarding the
impact of this collection of information
under the Paperwork Reduction Act of
1995 (‘‘PRA’’), as set forth below.671
SEC:
Certain provisions of the final Form
PF and rule 204(b)–1 revise an existing
‘‘collection of information’’ within the
meaning of the PRA.672 The SEC
published a notice requesting comment
on changes to this collection of
information in the 2022 Joint Form PF
Proposing Release and submitted the
collection of information to the Office of
Management and Budget (‘‘OMB’’) for
review in accordance with the PRA.673
The title for the collection of
information we are amending 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’’).674 The SEC’s solicitation of
670 CFTC rule 4.27, 17 CFR 4.27, was adopted
pursuant to the CFTC’s authority set forth in section
4n of the Commodity Exchange Act, 7 U.S.C. 6n.
CFTC regulations are found at Title 17 Chapter I of
the Code of Federal Regulations.
671 44 U.S.C. 3501 through 3521.
672 Id.
673 44 U.S.C. 3507(d); 5 CFR 1320.11.
674 The SEC also submitted the collection of
information to OMB on Sept. 29, 2023, in
connection with the May 2023 SEC Form PF
Amending Release (ICR Reference No. 202305–
3235–023), which OMB approved on Dec. 18, 2023,
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public comments included estimating
and requesting public comments on the
burden estimates for all information
collections under this OMB control
number (i.e., both changes associated
with the rulemaking and other burden
updates). These changes in burden also
reflect the SEC’s revision and update of
burden estimates since the proposal for
all information collections under this
OMB control number (whether or not
associated with rulemaking changes)
and responses to the SEC’s request for
public comment on all information
collection burden estimates for this
OMB control number. 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 titled ‘‘Form PF and Rule
204(b)–1’’ is mandatory. The
respondents are investment advisers
that (1) are 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).675 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, that
report annually (i.e., private fund
advisers that do not qualify as large
private fund advisers), (2) large hedge
fund advisers, that report more
information quarterly (i.e., advisers with
at least $1.5 billion in hedge fund assets
under management), (3) large liquidity
fund advisers, that report more
information quarterly (i.e., advisers that
manage liquidity funds and have at least
$1 billion in combined money market
and liquidity fund assets under
management), and (4) large private
equity fund advisers, that report more
information annually (i.e., advisers with
at least $2 billion in private equity fund
available at https://www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=202305-3235-023. See May
2023 SEC Form PF Amending Release, supra
footnote 4. Following this, the SEC submitted the
collection of information to OMB on Jan. 11, 2024,
in connection with the July 2023 Form PF
Amending Release (ICR Reference No. 202401–
3235–005), which is currently pending, available at
https://www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=202401-3235-005. See July
2023 SEC Form PF Amending Release, supra
footnote 4. The previously approved estimates used
in this PRA do not reflect this submission to OMB
in connection with the July 2023 Form PF
Amending Release.
675 See 17 CFR 275.204(b)–1.
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19:48 Mar 11, 2024
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assets under management).676 As
discussed more fully in section II above
and as summarized in sections V.A and
V.C below, the amendments revise how
all types of respondents report certain
information on Form PF.
We have revised our burden estimates
in response to comments we received, to
reflect modifications from the proposal,
to incorporate the Form PF amendments
that were separately adopted since the
proposal,677 and to take into
consideration updated data. One
commenter indicated that the proposed
amendments would confer more
benefits than costs.678 We received other
comments to our time and cost burdens
indicating that we underestimated the
burdens to implement the proposed
amendments to Form PF.679 We also
received comments on aspects of the
economic analysis that implicated
estimates we used to calculate the
collection of information burdens.680
We discuss these comments below.
We were persuaded by commenters
who asserted that the proposed burdens
underestimated the time and expense
associated with the proposed
amendments. Upon further
consideration, we believe that it will
take more time than initially
contemplated in the proposal to collect
the applicable data and report on Form
PF. To address commenters’ concerns
and recognizing the changes from the
proposal discussed above in section II,
we are revising the estimates as
reflected in the charts below.
As discussed more fully in section II
above, we have also modified certain
proposed requirements in a manner that
changes our burden estimates in certain
respects. For example, as discussed
more fully in section II.A.2 above, we
are adopting amendments to require
consolidated reporting of trading
vehicles, rather than separate reporting,
as proposed, which reduces our burden
estimates. One commenter stated that
the proposed amendments to require
disaggregated reporting of trading
676 Large hedge fund advisers to qualifying hedge
funds also file current reports as soon as
practicable, but no later than 72 hours from the
occurrence of certain reporting events, as provided
for in Form PF section 5. Private equity fund
advisers also file private equity event reports within
60 days from fiscal quarter end upon the occurrence
of certain reporting reports, as provided for in Form
PF section 6. See May 2023 SEC Form PF
Amending Release, supra footnote 4.
677 See May 2023 SEC Form PF Amending
Release and July 2023 SEC Form PF Amending
Release, supra footnote 4.
678 Better Markets Comment Letter.
679 See, e.g., AIC Comment Letter I; MFA
Comment Letter II; MFA/NAPFM Comment Letter;
SIFMA Comment Letter.
680 See, e.g., AIMA/ACC Comment Letter; MFA
Comment Letter II; SIFMA Comment Letter.
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vehicles would require building of new
reporting systems and that the
Commissions’ estimated costs were
understated, particularly for private
equity fund advisers.681 Some
commenters stated that certain proposed
amendments requiring more granular
reporting would impose significant
costs and burdens on advisers, such as
the proposed requirements for lookthrough reporting, exposures,
performance, and market factor
reporting.682 As discussed more fully in
section II.C above, we have modified the
proposed requirements for large hedge
fund advisers to report certain fund
exposures to allow advisers to report the
exposure category that best represents
the reporting fund’s exposure, which
will reduce the burden on advisers in
collecting and reporting this
information.683 We have also adopted a
modification from the proposal which
permits an adviser to report a fund’s
monthly asset value as a GRFACV or an
RFACV, rather than gross asset value or
net asset value, in the event that these
values are not calculated on a monthly
basis, which is a less burdensome
metric to calculate.684 Further, we are
not adopting a proposed question on
portfolio correlation, as discussed more
fully in section II.C.2 above, after
consideration of comments that stated
the question would impose significant
burdens on advisers because the
calculation would be complex to
perform and is not risk measurement
that advisers currently calculate.685
Some commenters stated that the
proposed cost estimates were
understated because they do not take
into consideration the costs of the
amendments proposed in the 2022 SEC
Form PF Proposing Release.686 Our final
estimates have been revised to include
the effect of the Form PF amendments
that were adopted subsequent to the
2022 Joint Form PF Proposal.687 Our
time and cost estimates also incorporate
other adjustments, which are not based
on changes from the proposed
amendments, for updated data for the
estimated number of respondents and
681 AIC
Comment Letter I.
e.g., AIMA/ACC Comment Letter; USCC
Comment Letter.
683 See, e.g., Questions 32, 33, 35, and 36.
684 See Questions 11 and 12.
685 Proposed Question 48; see, e.g., AIMA/ACC
Comment Letter; MFA Comment Letter II.
686 See, e.g., AIC Comment Letter I; AIC Comment
Letter II; MFA Comment Letter III; SIFMA Comment
Letter; see also 2022 SEC Form PF Proposing
Release, supra footnote 4.
687 See May 2023 SEC Form PF Amending
Release and July 2023 SEC Form PF Amending
Release, supra footnote 4.
682 See,
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salary/wage information across all filer
types.
A. Purpose and Use of the Information
Collection
The rules implement provisions of
Title IV of the Dodd-Frank Act, which
amended the Advisers Act to require the
SEC to, among other things, establish
reporting requirements for advisers to
private funds.688 The information
collected on Form PF is designed to
facilitate FSOC’s obligations under the
Dodd-Frank Act to monitor of systemic
risk in the private fund industry.689 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.690
The final 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 final amendments amend
the form’s general instructions, as well
as section 1 of Form PF, which apply to
all Form PF filers. The final
amendments also amend section 2 of
Form PF, which applies to large hedge
fund advisers that advise qualifying
hedge funds (i.e., hedge funds with a net
asset value of at least $500 million).
B. Confidentiality
Responses to the information
collection will be kept confidential to
the extent permitted by law.691 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 FSOC may use it to assess potential
systemic risk.692 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.693 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.694 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.695 The Advisers Act requires the
SEC to make Form PF information
available to FSOC.696 For advisers that
are also commodity pool operators or
commodity trading advisers, filing Form
18049
PF through the Form PF filing system is
filing with both the SEC and CFTC.697
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.698
C. Burden Estimates
We are revising our total burden final
estimates to reflect the final
amendments, updated data, new
methodology for certain estimates,
subsequent Form PF amendments
adopted after the 2022 Joint Form PF
Proposing Release, and comments we
received to our estimates.699 The tables
below map out the proposed and final
Form PF requirements as they apply to
each group of respondents and detail
our burden estimates.
a. Proposed Form PF Requirements by
Respondent
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TABLE 1a—PROPOSED FORM PF REQUIREMENTS BY RESPONDENT
Form PF
Smaller private fund
advisers
Large hedge fund advisers
Large liquidity fund
advisers
Section 1a and section 1b
(basic information about
the adviser and the private funds it advises).
Proposed revisions.
Section 1c (additional information concerning
hedge funds). Proposed
revisions.
Section 2 (additional information concerning qualifying hedge funds). Proposed revisions.
Annually ............................
Quarterly ...........................
Quarterly ...........................
Annually.
Annually, if they advise
hedge funds.
Quarterly ...........................
Quarterly, if they advise
hedge funds.
Annually, if they advise
hedge funds.
No ......................................
Quarterly ...........................
No ......................................
No.
688 See 15 U.S.C. 80b–4(b) and 15 U.S.C. 80b–
11(e).
689 See Form PF.
690 Id.
691 See 5 CFR 1320.5(d)(2)(vii) and (viii).
692 See 15 U.S.C. 80b–10(c) and 15 U.S.C. 80b–
4(b).
693 See, e.g., Private Funds Statistics, issued by
staff of the SEC Division of Investment
Management’s Analytics Office, which we have
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used in this PRA as a data source, available at
https://www.sec.gov/divisions/investment/privatefunds-statistics.shtml.
694 See 15 U.S.C. 80b–4(b)(8).
695 See 15 U.S.C. 80b–4(b)(9).
696 See 15 U.S.C. 80b–4(b)(7).
697 See 2011 Form PF Adopting Release, supra
footnote 4, at n.17.
698 See 5 CFR 1320.5(d)(2)(viii).
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Large private equity fund
advisers
699 For the previously approved estimates, see ICR
Reference No. 202305–3235–023 (conclusion date
Dec. 18, 2023), available at https://
www.reginfo.gov/public/do/PRAViewICR?ref_
nbr=202305-3235-023. The 2022 Joint Form PF
Proposing Release used the then-current 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.
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TABLE 1a—PROPOSED FORM PF REQUIREMENTS BY RESPONDENT—Continued
Form PF
Smaller private fund
advisers
Large hedge fund advisers
Large liquidity fund
advisers
Large private equity fund
advisers
Section 3 (additional information concerning liquidity funds). No proposed
revisions.
Section 4 (additional information concerning private equity funds).No
proposed revisions.
Section 5 (temporary hardship request). The proposal would revise filing
instructions.
Transition Filings (indicating the adviser is no
longer obligated to file
on a quarterly basis). No
proposed revisions.
Final Filings (indicating the
adviser is no longer subject to the rules). No proposed revisions.
No ......................................
No ......................................
Quarterly ...........................
No.
No ......................................
No ......................................
No ......................................
Annually.
Optional, if they qualify .....
Optional, if they qualify .....
Optional, if they qualify .....
Optional, if they qualify.
Not applicable ...................
If they cease to qualify as
a large hedge fund adviser.
If they cease to qualify as
a large liquidity fund adviser.
Not applicable.
If they qualify .....................
If they qualify .....................
If they qualify .....................
If they qualify.
b. Adopted Form PF Requirements by
Respondent
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ADOPTED FORM PF REQUIREMENTS BY RESPONDENT
Form PF
Smaller private fund
advisers
Large hedge fund advisers
Large liquidity fund
advisers
Section 1a and section 1b
(basic information about
the adviser and the private funds it advises).
The final rules modify
section 1a and section
1b.
Section 1c (additional information concerning
hedge funds). The final
rules modify section 1c.
Section 2 (additional information concerning qualifying hedge funds). The
final rules modify section
2.
Section 3 (additional information concerning liquidity funds). No final revisions.
Section 4 (additional information concerning private equity funds). No
final revisions.
Section 5 (current reporting
concerning qualifying
hedge funds). 1 No final
revisions.
Section 6 (event reporting
for private equity fund
advisers).1 No final revisions.
Section 7 (temporary hardship request)1 The final
rules revise the filing instructions.
Annually ............................
Quarterly ...........................
Quarterly ...........................
Annually.
Annually, if they advise
hedge funds.
Quarterly ...........................
Quarterly, if they advise
hedge funds.
Annually, if they advise
hedge funds.
No ......................................
Quarterly ...........................
No ......................................
No.
No ......................................
No ......................................
Quarterly ...........................
No.
No ......................................
No ......................................
No ......................................
Annually.
No ......................................
As soon as practicable
upon a current reporting
event, but no later than
72 hours.
No ......................................
No ......................................
No.
No ......................................
Within 60 days of fiscal
quarter end upon a reporting event.
Optional, if they qualify .....
Optional, if they qualify .....
Optional, if they qualify.
VerDate Sep<11>2014
Within 60 days of fiscal
quarter end upon a reporting event, if they advise private equity funds.
Optional, if they qualify .....
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Large private
equity fund advisers
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ADOPTED FORM PF REQUIREMENTS BY RESPONDENT—Continued
Form PF
Smaller private fund
advisers
Transition Filings (indicating the adviser is no
longer obligated to file
on a quarterly basis). No
final revisions.
Final Filings (indicating the
adviser is no longer subject to the rules). No
final revisions.
Not applicable ...................
If they cease to qualify as
a large hedge fund adviser.
If they cease to qualify as
a large liquidity fund adviser.
Not applicable.
If they qualify .....................
If they qualify .....................
If they qualify .....................
If they qualify.
Large hedge fund advisers
Large liquidity fund
advisers
Large private
equity fund advisers
Note:
1 The SEC adopted amendments to Form PF, which added sections 5 and 6 and redesignated the previous section 5 as section 7. See May
2023 SEC Form PF Amending Release, supra footnote 4.
c. 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 private equity
event reporting, and (4) transition
filings, final filings, and temporary
hardship requests.
TABLE 2—ANNUAL HOUR BURDEN ESTIMATES FOR INITIAL FILINGS
Number of
respondents
=
aggregate
number of
responses 2
Respondent 1
Smaller Private Fund Advisers:
Proposed Estimate .....................................................................
Final Estimate .............................................................................
Previously Approved ...................................................................
Change .......................................................................................
Large Hedge Fund Advisers:
Proposed Estimate .....................................................................
Final Estimate .............................................................................
Previously Approved ...................................................................
Change .......................................................................................
Large Liquidity Fund Advisers:
Proposed Estimate .....................................................................
Final Estimate .............................................................................
Previously Approved ...................................................................
Change .......................................................................................
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Large Private Equity Fund Advisers:
Proposed Estimate .....................................................................
Final Estimate .............................................................................
Previously Approved ...................................................................
Change .......................................................................................
Hours per
response
amortized
over 3 years 4
Hours per
response 3
6 309
7 374
358
16
8 15
9 14
16
(2)
10 1
11 1
1
0
12 13
13 18
17
1
Aggregate
hours
amortized
over 3 years 5
50
55
40
15
÷3=
÷3=
÷3=
17
18
13
5
5,253
6,732
4,654
2,078
345
380
325
55
÷3=
÷3=
÷3 =
115
127
108
19
1,725
1,778
1,728
50
210
229
200
29
÷3=
÷3=
÷3=
70
76
67
9
70
76
67
9
210
281
252
29
÷3=
÷3=
÷3=
70
94
84
10
910
1,692
1,428
264
Notes:
1 We expect that the hourly burden will be most significant for the initial report because the adviser will need to familiarize itself with the new
reporting form and may need to configure its systems in order to efficiently gather the required information. In addition, we expect 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
but reduce the burden of subsequent filings.
2 This concerns the initial filing; therefore, we estimate one response per respondent. The proposed and final changes are due to using updated data to estimate the number of advisers.
3 Hours per response changes are due to the amendments, as well as amendments to Form PF adopted subsequent to the 2022 Joint Form
PF Proposal for the final estimates and comments we received to our estimates.
4 We amortize the initial time burden over three years because we believe that most of the burden will be incurred in the initial filing.
5 (Number of responses) × (hours per response amortized over three years) = aggregate hours amortized over three years. Changes are due
to (1) using updated data to estimate the number of advisers, (2) the amendments adopted in this Release, (3) amendments to Form PF adopted
subsequent to the 2022 Joint Form PF Proposal, and (4) comments we received to our estimates.
6 In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers filed Form PF in the third quarter of
2021. Based on filing data from the last five years, an average of 12.9% of them did not file for the previous due date. (2,394 × 0.129 = 309 advisers.)
7 In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed Form PF in the first quarter of 2023.
Based on filing data from the last five years, an average of 13.6% of them did not file for the previous due date. (2,750 × 0.136 = 374 advisers.)
8 In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed Form PF in the third quarter of
2021. Based on filing data from the last five years, an average of 2.6% of them did not file for the previous due date. (592 × 0.026 = 15 advisers.)
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9 In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form PF in the first quarter of 2023.
Based on filing data from the last five years, an average of 2.5% of them did not file for the previous due date. (570 × 0.025 = 14 advisers.)
10 In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed Form PF in the third quarter of
2021. Based on filing data from the last five years, an average of 1.5% of them did not file for the previous due date. (24 × 0.015 = 0.36 advisers, rounded up to 1 adviser.)
11 In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed Form PF in the first quarter of 2023.
Based on filing data from 2017 through 2021, an average of 1.5% of them did not file for the previous due date. (21 × 0.015 = 0.32 advisers,
rounded up to 1 adviser.)
12 In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers filed Form PF in the third quarter
of 2021. Based on filing data from the last five years, an average of 3.5% of them did not file for the previous due date. (369 × 0.035 = 13 advisers.)
13 In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers filed Form PF in the first quarter of
2023. Based on filing data from the last five years, an average of 3.9% of them did not file for the previous due date. (450 × 0.039 = 18
advisers.)
TABLE 3—ANNUAL HOUR BURDEN ESTIMATES FOR ONGOING ANNUAL AND QUARTERLY FILINGS
Number of
respondents 2
(advisors)
Respondent 1
Smaller Private Fund:
Proposed Estimate .............................................................
Final Estimate .....................................................................
Previously Approved ...........................................................
Change ...............................................................................
Large Hedge Fund:
Proposed Estimate .............................................................
Final Estimate .....................................................................
Previously Approved ...........................................................
Change ...............................................................................
6 2,085
7 2,376
2,258
118
8 577
9 556
582
(26)
Large Liquidity Fund:
Proposed Estimate .............................................................
Final Estimate .....................................................................
Previously Approved ...........................................................
Change ...............................................................................
10 23
11 20
21
(1)
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Large Private Equity Fund:
Proposed Estimate .............................................................
Final Estimate .....................................................................
Previously Approved ...........................................................
Change ...............................................................................
12 356
13 432
418
14
Number of
responses 3
Hours per
response 4
Aggregate
hours 5
×
×
×
1
1
1
0
×
×
×
20
22
15
7
=
=
=
41,700
52,272
33,870
18,402
×
×
×
4
4
4
0
×
×
×
160
176
150
26
=
=
=
369,280
391,424
349,200
42,224
×
×
×
4
4
4
0
×
×
×
75
86
70
16
=
=
=
6,900
6,880
5,880
1,000
×
×
×
1
1
1
0
×
×
×
105
145
128
17
=
=
=
37,380
62,640
53,504
9,136
Notes:
1 We estimate that after an adviser files its initial report, it will incur significantly lower costs to file ongoing annual and quarterly reports, because much of the work for the initial report is non-recurring and likely created system configuration and reporting efficiencies.
2 Changes to the number of respondents are due to using updated data to estimate the number of advisers.
3 Smaller private fund advisers and large private equity fund advisers file annually. Large hedge fund advisers and large liquidity fund advisers
file quarterly.
4 Hours per response changes are due to the amendments.
5 Changes to the aggregated hours are due to (1) using updated data to estimate the number of advisers, (2) the amendments, (3) amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposing Release, and (4) comments we received to our estimates.
6 In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers filed Form PF in the third quarter of
2021. We estimated that 309 of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (2,394 total
smaller advisers¥309 advisers that made an initial filing = 2,085 advisers that make ongoing filings.)
7 In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed Form PF in the first quarter of 2023.
We estimated that 374 of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (2,750 total smaller
advisers¥374 advisers that made an initial filing = 2,376 advisers that make ongoing filings.)
8 In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed Form PF in the third quarter of
2021. We estimated that 15 of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (592 total
large hedge fund advisers¥15 advisers that made an initial filing = 577 advisers that make ongoing filings.)
9 In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form PF in the first quarter of 2023. We
estimated that 14 of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (570 total large hedge
fund advisers¥14 advisers that made an initial filing = 556 advisers that make ongoing filings.)
10 In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed Form PF in the third quarter of
2021. We estimated that one of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (24 total
large liquidity fund advisers¥1 adviser that made an initial filing = 23 advisers that make ongoing filings.)
11 In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed Form PF in the first quarter of 2023. We
estimated that one of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (21 total large liquidity
fund advisers¥1 adviser that made an initial filing = 20 advisers that make ongoing filings.)
12 In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers filed Form PF in the third quarter
of 2021. We estimated that 13 of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (369 total
large private equity fund advisers¥13 advisers that made an initial filing = 356 advisers that make ongoing filings.)
13 In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers filed Form PF in the first quarter of
2023. We estimated that 18 of them filed an initial filing, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (450 total
large private equity fund advisers¥18 advisers that made an initial filing = 432 advisers that make ongoing filings.)
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TABLE 4—ANNUAL HOUR BURDEN ESTIMATES FOR CURRENT REPORTING AND PRIVATE EQUITY EVENT REPORTING 1
Aggregate
number of
responses
Respondent
Hours per
response
Smaller Private Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Not Applicable
20
20
0
×
×
×
Large Hedge Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
5
5
0
=
=
=
100
100
0
=
=
=
600
600
0
=
=
=
100
100
0
Not Applicable
60
60
0
×
×
×
Large Private Equity Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Aggregate
hours
10
10
0
Not Applicable
20
20
0
×
×
×
5
5
0
Note:
1 Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added Form PF section 5
(Current report for large hedge fund advisers to qualifying hedge funds) and section 6 (Quarterly report for advisers to private equity funds) to
Form PF. See May 2023 SEC Form PF Amending Release, supra footnote 4, at section V for proposed and final estimates for current reporting
and private equity event reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and are not
adopting any changes to these sections in this Release.
TABLE 5—ANNUAL HOUR BURDEN ESTIMATES FOR TRANSITION FILINGS, FINAL FILINGS, AND TEMPORARY HARDSHIP
REQUESTS
Aggregate
number of
responses 2
Filing type 1
Transition Filing from Quarterly to Annual:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Final Filings:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
khammond on DSKJM1Z7X2PROD with RULES3
Temporary Hardship Requests:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Hours per
response
4 68
5 69
71
(2)
6 233
7 243
235
8
83
94
4
0
Aggregate
hours 3
×
×
×
0.25
0.25
0.25
0
=
=
=
17
17.25
17.75
(0.50)
×
×
×
0.25
0.25
0.25
0
=
=
=
58.25
60.75
58.75
2
×
×
×
1
1
1
0
=
=
=
3
4
4
0
Notes:
1 Advisers make limited Form PF filings in three situations. First, any adviser that transitions from filing quarterly to annually because it has
ceased to qualify as a large hedge fund adviser or large liquidity fund adviser, must file a Form PF indicating that it is no longer obligated to report on a quarterly basis. Second, any adviser that is no longer subject to Form PF’s reporting requirements, must file a final filing indicating this.
Third, an adviser may request a temporary hardship exemption if it encounters unanticipated technical difficulties that prevent it from making a
timely electronic filing. A temporary hardship exemption extends the deadline for an electronic filing for seven business days. To request a temporary hardship exemption, the adviser must file a request on Form PF. The final rule amends how advisers file temporary hardship exemption
requests, as discussed in section II.E of this Release; however, the amendment will not result in any changes to the hours per response.
2 Changes to the aggregate number of responses are due to using updated data.
3 Changes to the aggregate hours are due to the changes in the aggregate number of responses.
4 In the case of the proposed estimates, Private Funds Statistics show 616 advisers filed quarterly reports in the third quarter of 2021. Based
on filing data from the last five years, an average of 11.1% of them filed a transition filing. (616 × 0.111 = 68 responses.)
5 In the case of the final estimates, Private Funds Statistics show 591 advisers filed quarterly reports in the first quarter of 2023. Based on filing
data from the last five years, an average of 11.7% of them filed a transition filing. (591 × 0.117 = 69 responses.)
6 In the case of the proposed estimates, Private Funds Statistics show 3,379 advisers filed Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 6.9% of them filed a final filing. (3,379 × 0.069 = approximately 233 responses.)
7 In the case of the final estimates, Private Funds Statistics show 3,791 advisers filed Form PF in the first quarter of 2023. Based on filing data
from the last five years, an average of 6.4% of them filed a final filing. (3,791 × 0.064 = approximately 243 responses.)
8 In the case of the proposed estimates, based on experience receiving temporary hardship requests, we estimate that 1 out of 1,000 advisers
will file a temporary hardship exemption annually. Private Funds Statistics show 3,379 advisers filed Form PF in the third quarter of 2021. (3,379/
1,000 = approximately 3 responses.)
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9 In the case of the final estimates, based on experience receiving temporary hardship requests, we estimate that 1 out of 1,000 advisers will
file a temporary hardship exemption annually. Private Funds Statistics show 3,791 advisers filed Form PF in the first quarter of 2023. (3,791/
1,000 = approximately 4 responses.)
final estimates for (1) initial filings, (2)
ongoing annual and quarterly filings, (3)
current reporting and private equity
event reporting, and (4) transition
d. Annual Monetized Time Burden
Estimates
Below are tables with annual
monetized time burden proposed and
filings, final filings, and temporary
hardship requests.700
TABLE 6—ANNUAL MONETIZED TIME BURDEN OF INITIAL FILINGS
Respondent 1
Per response 2
Smaller Private Fund Advisers:
Proposed Estimate ...................................................
Final Estimate ...........................................................
Previously Approved .................................................
Change .....................................................................
Large Hedge Fund Advisers:
Proposed Estimate ...................................................
Final Estimate ...........................................................
Previously Approved .................................................
Change .....................................................................
khammond on DSKJM1Z7X2PROD with RULES3
Per response
amortized
over 3 years 3
5 $18,250
6 21,340
15,520
5,820
7 118,680
8 139,080
118,890
20,190
Large Liquidity Fund Advisers:
Proposed Estimate ...................................................
Final Estimate ...........................................................
Previously Approved .................................................
Change .....................................................................
10 83,792
Large Private Equity Fund Advisers:
Proposed Estimate ...................................................
Final Estimate ...........................................................
Previously Approved .................................................
Change .....................................................................
12 102,868
9 72,240
73,200
10,592
11 72,240
92,221
10,647
Aggregate
monetized
time burden
amortized
over 3 years
Aggregate
number of
responses 4
÷3=
÷3=
÷3=
$6,083
7,113
5,174
1,939
×
×
×
309
374
358
16
=
=
=
$1,879,647
2,660,262
1,852,292
807,970
÷3=
÷3=
÷3=
39,560
46,360
39,630
6,730
×
×
×
15
14
16
(2)
=
=
=
593,400
649,040
634,080
14,960
÷3=
÷3=
÷3=
24,080
27,931
24,400
3,531
×
×
×
1
1
1
0
=
=
=
24,080
27,931
24,400
3,531
÷3=
÷3=
÷3=
24,080
34,289
30,740
3,549
×
×
×
13
18
17
1
=
=
=
313,040
617,202
522,580
94,622
Notes:
1 We expect that the monetized time burden will be most significant for the initial report, for the same reasons discussed in Table 2: Annual
Hour Burden Estimates for Initial Filings. Accordingly, we anticipate that the initial report will require more attention from senior personnel, including compliance managers and senior risk management specialists, than will ongoing annual and quarterly filings. Changes are due to using (1)
updated hours per estimates, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings, (2) updated aggregate number of, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings, and (3) updated wage estimates.
2 For the hours per in each calculation, see Table 2: Annual Hour Burden Estimates for Initial Filings.
3 We amortize the monetized time burden for initial filings over three years, as we do with other initial burdens in this PRA, because we believe
that most of the burden will be incurred in the initial filing.
4 See Table 2: Annual Hour Burden Estimates for Initial Filings.
5 In the case of the proposed estimates, for smaller private fund advisers, we estimate that the initial report will most likely be completed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist at a cost of $391 per hour. (($339 per hour ×
0.5) + ($391 per hour × 0.5)) × 50 hours per = $18,250.
6 In the case of the final estimates, for smaller private fund advisers, we estimate that the initial report will most likely be completed equally by
a compliance manager at a cost of $360 per hour and a senior risk management specialist at a cost of $416 per hour. (($360 per hour × 0.5) +
($416 per hour × 0.5)) × 55 hours per = $21,340.
7 In the case of the proposed estimates, for large hedge fund advisers, we estimate that for the initial report, of a total estimated burden of 345
hours, approximately 60% will most likely be performed by compliance professionals and 40% will most likely be performed by programmers
working on system configuration and reporting automation (that is approximately 207 hours for compliance professionals and approximately 138
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed equally by a compliance
manager at a cost of $339 per hour and a senior risk management specialist at a cost of $391 per hour. Of the work performed by programmers,
we anticipate that it will be performed equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263
per hour. (($339 per hour × 0.5) + ($391 per hour × 0.5)) × 207 hours = $75,555. (($362 per hour × 0.5) + ($263 per hour × 0.5)) × 138 hours =
$43,125. $75,555 + $43,125 = $118,680.
8 In the case of the final estimates, for large hedge fund advisers, we estimate that for the initial report, of a total estimated burden of 380
hours, approximately 60% will most likely be performed by compliance professionals and 40% will most likely be performed by programmers
working on system configuration and reporting automation (that is approximately 228 hours for compliance professionals and approximately 152
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed equally by a compliance
manager at a cost of $360 per hour and a senior risk management specialist at a cost of $416 per hour. Of the work performed by programmers,
we anticipate that it will be performed equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280
per hour. (($360 per hour × 0.5) + ($416 per hour × 0.5)) × 228 hours = $88,464. (($386 per hour × 0.5) + ($280 per hour × 0.5)) × 152 hours =
$50,616. $88,464 + $50,616 = $139,080.
700 The hourly wage rates used in our proposed
and final 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,
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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 1,800hour work-year and inflation, and multiplied by
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2.93 to account for bonuses, firm size, employee
benefits and overhead. The final estimates are based
on the preceding SIFMA data sets, which SEC staff
have updated since the proposing release to account
for current inflation rates.
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18055
9 In the case of the proposed estimates, for large liquidity fund advisers, we estimate that for the initial report, of a total estimated burden of
210 hours, approximately 60% will most likely be performed by compliance professionals and approximately 40% will most likely be performed by
programmers working on system configuration and reporting automation (that is approximately 126 hours for compliance professionals and 84
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed equally by a compliance
manager at a cost of $339 per hour and a senior risk management specialist at a cost of $391 per hour. Of the work performed by programmers,
we anticipate that it will be performed equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263
per hour. (($339 per hour × 0.5) + ($391 per hour × 0.5)) × 126 hours = $45,990. (($362 per hour × 0.5) + ($263 per hour × 0.5)) × 84 hours =
$26,250. $45,990 + $26,250 = $72,240.
10 In the case of the final estimates, for large liquidity fund advisers, we estimate that for the initial report, of a total estimated burden of 229
hours, approximately 60% will most likely be performed by compliance professionals and approximately 40% will most likely be performed by programmers working on system configuration and reporting automation (that is approximately 137 hours for compliance professionals and 92 hours
for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed equally by a compliance manager
at a cost of $360 per hour and a senior risk management specialist at a cost of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour.
(($360 per hour × 0.5) + ($416 per hour × 0.5)) × 137 hours = $53,156. (($386 per hour × 0.5) + ($280 per hour × 0.5)) × 92 hours = $30,636.
$53,156 + $30,636 = $83,792.
11 In the case of the proposed estimates, for large private equity fund advisers, we expect that for the initial report, of a total estimated burden
of 210 hours, approximately 60% will most likely be performed by compliance professionals and approximately 40% will most likely be performed
by programmers working on system configuration and reporting automation (that is approximately 126 hours for compliance professionals and 84
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed equally by a compliance
manager at a cost of $339 per hour and a senior risk management specialist at a cost of $391 per hour. Of the work performed by programmers,
we anticipate that it will be performed equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263
per hour. (($339 per hour × 0.5) + ($391 per hour × 0.5)) × 126 hours = $45,990. (($362 per hour × 0.5) + ($263 per hour × 0.5)) × 84 hours =
$26,250. $45,990 + $26,250 = $72,240.
12 In the case of the final estimates, for large private equity fund advisers, we expect that for the initial report, of a total estimated burden of
281 hours, approximately 60% will most likely be performed by compliance professionals and approximately 40% will most likely be performed by
programmers working on system configuration and reporting automation (that is approximately 169 hours for compliance professionals and 112
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed equally by a compliance
manager at a cost of $360 per hour and a senior risk management specialist at a cost of $416 per hour. Of the work performed by programmers,
we anticipate that it will be performed equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280
per hour. (($360 per hour × 0.5) + ($416 per hour × 0.5)) × 169 hours = $65,572. (($386 per hour × 0.5) + ($280 per hour × 0.5)) × 112 hours =
$37,296. $65,572 + $37,296 = $102,868.
TABLE 7—ANNUAL MONETIZED TIME BURDEN OF ONGOING ANNUAL AND QUARTERLY FILINGS
Respondent 1
Smaller Private Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Large Hedge Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Large Liquidity Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Large Private Equity Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
khammond on DSKJM1Z7X2PROD with RULES3
Aggregate
number of
responses
Per response 2
3 $6,040
5 7,062
4,815
2,247
7 48,320
9 56,496
48,150
8,346
11 22,650
13 27,606
22,470
5,136
15 31,710
17 46,545
41,730
4,815
×
×
×
4 $2,085
6 2,376
2,258
118
×
×
×
8 2,308
10 2,224
2,328
(104)
×
×
×
12 92
×
×
×
16 356
14 80
84
(4)
18432
418
14
Aggregate
monetized
time burden
=
=
=
$12,593,400
16,779,312
10,872,270
5,907,042
=
=
=
111,522,560
125,647,104
112,093,200
13,553,904
=
=
=
2,083,800
2,208,480
1,887,480
321,000
=
=
=
11,288,760
20,107,440
17,443,140
2,664,300
Notes:
1 We expect that the monetized time burden will be less costly for ongoing annual and quarterly reports than for initial reports, for the same
reasons discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. Accordingly, we anticipate that senior personnel will bear less of
the reporting burden than they would for the initial report. Changes are due to using (1) updated wage estimates, (2) updated hours per response estimates, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings, and (3) updated number of respondents, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. Changes to estimates concerning large liquidity fund advisers primarily appear to be due to correcting a calculation error, as discussed below.
2 For all types of respondents, in the case of the proposed estimates, we estimate that both annual and quarterly reports would be completed
equally by (1) a compliance manager at a cost of $339 per hour, (2) a senior compliance examiner at a cost of $260, (3) a senior risk management specialist at a cost of $391 per hour, and (4) a risk management specialist at a cost of $218 an hour. ($339 × 0.25 = $84.75) + ($260 ×
0.25 = $65) + ($391 × 0.25 = $97.75) + ($218 × 0.25 = $54.50) = $302. In the case of the final estimates, we estimate that both annual and
quarterly reports would be completed equally by (1) a compliance manager at a cost of $360 per hour, (2) a senior compliance examiner at a
cost of $276, (3) a senior risk management specialist at a cost of $416 per hour, and (4) a risk management specialist at a cost of $232 an hour.
($360 × 0.25 = $90) + ($276 × 0.25 = $69) + ($416 × 0.25 = $104) + ($232 × 0.25 = $58) = $321. To calculate the cost per response for each
respondent, we used the hours per response from Table 2: Annual Hour Burden Estimates for Initial Filings.
3 In the case of the proposed estimates, cost per response for smaller private fund advisers: ($302 per hour × 20 hours per response = $6,040
per response.)
4 In the case of the proposed estimates, (2,085 smaller private fund advisers × 1 response annually = 2,085 aggregate responses.)
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5 In the case of the final estimates, cost per response for smaller private fund advisers: ($321 per hour × 22 hours per response = $7,062 per
response.)
6 In the case of the final estimates, (2,376 smaller private fund advisers × 1 response annually = 2,376 aggregate responses.)
7 In the case of the proposed estimates, cost per response for large hedge fund advisers: ($302 per hour × 160 hours per response = $48,320
per response.)
8 In the case of the proposed estimates, (577 large hedge fund advisers × 4 responses annually = 2,308 aggregate responses.)
9 In the case of the final estimates, cost per response for large hedge fund advisers: ($321 per hour × 176 hours per response = $56,496 per
response.)
10 In the case of the final estimates, (556 large hedge fund advisers × 4 responses annually = 2,224 aggregate responses.)
11 In the case of the proposed estimates, cost per response for large liquidity fund advisers: ($302 per hour × 75 hours per response =
$22,650 per response.)
12 In the case of the proposed estimates, (23 large liquidity fund advisers × 4 responses annually = 92 aggregate responses.)
13 In the case of the final estimates, cost per response for large liquidity fund advisers: ($321 per hour × 86 hours per response = $27,606 per
response.)
14 In the case of the final estimates, (20 large liquidity fund advisers × 4 responses annually = 80 aggregate responses.)
15 In the case of the proposed estimates, cost per response for large private equity fund advisers: ($302 per hour × 105 hours per response =
$31,710 per response.)
16 In the case of the proposed estimates, (356 private equity fund advisers × 1 response annually = 356 aggregate responses.)
17 In the case of the final estimates, cost per response for large private equity fund advisers: ($321 per hour × 145 hours per response =
$46,545 per response.)
18 In the case of the final estimates, (432 private equity fund advisers × 1 response annually = 432 aggregate responses.)
TABLE 8—ANNUAL MONETIZED TIME BURDEN OF CURRENT REPORTING AND PRIVATE EQUITY EVENT REPORTING 1
Respondent
Aggregate
number of
responses
Per response
Smaller Private Fund Advisers:
Proposed Estimate ...............................................................................................
Aggregate
monetized
time burden
Not Applicable
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
$2,024
2,024
×
×
20
20
=
=
$40,480
40,480
Change .................................................................................................................
0
×
0
=
0
=
=
=
309,600
309,600
0
=
=
=
40,480
40,480
0
Large Hedge Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Not Applicable
5,160
5,160
0
×
×
×
Large Private Equity Fund Advisers:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
60
60
0
Not Applicable
2,024
2,024
0
×
×
×
20
20
0
Note:
1 Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added Form PF section 5
(Current report for large hedge fund advisers to qualifying hedge funds) and section 6 (Quarterly report for advisers to private equity funds) to
Form PF. See May 2023 SEC Form PF Amending Release, supra footnote 4, at section V for proposed and final estimates for current reporting
and private equity event reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and are not
adopting any changes to these sections in this Release.
TABLE 9—ANNUAL MONETIZED TIME BURDEN FOR TRANSITION FILINGS, FINAL FILINGS, AND TEMPORARY HARDSHIP
REQUESTS
Filing type 1
khammond on DSKJM1Z7X2PROD with RULES3
Transition Filing from Quarterly to Annual:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Final Filings:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
Change .................................................................................................................
Temporary Hardship Requests:
Proposed Estimate ...............................................................................................
Final Estimate .......................................................................................................
Previously Approved .............................................................................................
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3 $19.25
4 20.50
20.50
0
5 19.25
3 20.50
20.50
0
7 237.50
8 252.38
252.38
Aggregate
monetized
time burden
×
×
×
68
69
71
(2)
=
=
=
$1,309
1,414.50
1,455.50
(41)
×
×
×
233
243
235
8
=
=
=
4,485.25
4,981.50
4,817.50
164
×
×
×
3
4
4
=
=
=
712.50
1,009.52
1,099.52
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TABLE 9—ANNUAL MONETIZED TIME BURDEN FOR TRANSITION FILINGS, FINAL FILINGS, AND TEMPORARY HARDSHIP
REQUESTS—Continued
Filing type 1
Aggregate
number of
responses 2
Per response
Change .................................................................................................................
0
Aggregate
monetized
time burden
0
11
(90)
I
Notes:
1 All changes are due to using updated data concerning wage rates and the number of responses.
2 See Table 5: Annual Hour Burden Estimates for Transition Filings, Final Filings, and Temporary Hardship Requests.
3 In the case of the proposed estimates, we estimate that each transition filing will take 0.25 hours and that a compliance clerk would perform
this work at a cost of $77 an hour. (0.25 hours × $77 = $19.25.)
4 In the case of the final estimates, we estimate that each transition filing will take 0.25 hours and that a compliance clerk would perform this
work at a cost of $82 an hour. (0.25 hours × $82 = $20.50.)
5 In the case of the proposed estimates, we estimate that each final filing will take 0.25 hours and that a compliance clerk would perform this
work at a cost of $77 an hour. (0.25 hours × $77 = $19.25.)
6 In the case of the final estimates, we estimate that each final filing will take 0.25 hours and that a compliance clerk would perform this work
at a cost of $82 an hour. (0.25 hours × $82 = $20.50.)
7 In the case of the proposed estimates, we estimate that each temporary hardship request will take 1 hour. We estimate that a compliance
manager would perform five-eighths of the work at a cost of $339 and a general clerk would perform three-eighths of the work at a cost of $68.
(1 hour × ((5⁄8 of an hour × $339 = $212) + (3⁄8 of an hour × $68 = $25.50)) = $237.50 per response.
8 In the case of the final estimates, we estimate that each temporary hardship request will take 1 hour. We estimate that a compliance manager would perform five-eighths of the work at a cost of $360 and a general clerk would perform three-eighths of the work at a cost of $73. (1
hour × ((5⁄8 of an hour × $360 = $225) + (3⁄8 of an hour × $73 = $27.38)) = $252.38 per response.
e. Annual External Cost Burden
Estimates
Below are tables with annual external
cost burden estimates for (1) initial
filings, (2) ongoing annual and quarterly
filings, and (3) current reporting and
private equity event 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.
TABLE 10—ANNUAL EXTERNAL COST BURDEN FOR ONGOING ANNUAL AND QUARTERLY FILINGS AS WELL AS INITIAL
FILINGS
khammond on DSKJM1Z7X2PROD with RULES3
Respondent 1
Number of
responses
per
respondent 2
Filing
fee per
filing 3
External
cost of
initial filing
amortized
over 3
years 5
External
cost of
initial
filing 4
Total
filing
fees
Aggregate
external
cost of
initial filing
amortized
over 3
years 7
Number
of
initial
filings 6
Total
aggregate
external
cost 8
Smaller Private Fund Advisers:
Proposed Estimate ........
Final Estimate ................
1
1
×
×
$150
150
=
=
$150
150
Previously Approved ......
1
×
150
=
150
Not Applicable
392,400
Change ..........................
0
0
Not Applicable
1,266,642
Large Hedge Fund Advisers:
Proposed Estimate ........
Final Estimate ................
Previously Approved ......
Change ..........................
4
4
4
0
×
×
×
150
150
150
0
=
=
=
600
600
600
0
50,000
70,000
50,000
20,000
÷3=
÷3=
÷3=
16,667
23,333
16,667
6,666
×
×
×
15
14
16
(2)
=
=
=
250,005
326,662
266,672
59,990
Large Liquidity Fund Advisers:
Proposed Estimate ........
Final Estimate ................
Previously Approved ......
Change ..........................
4
4
4
0
×
×
×
150
150
150
0
=
=
=
600
600
600
0
50,000
50,000
50,000
0
÷3=
÷3=
÷3=
16,667
16,667
16,667
0
×
×
×
1
1
1
0
=
=
=
16,667
16,667
16,667
0
Large Private Equity Fund
Advisers:
Proposed Estimate ........
Final Estimate ................
Previously Approved ......
Change ..........................
1
1
1
0
×
×
×
150
150
150
0
=
=
=
150
150
150
0
50,000
50,000
50,000
0
÷3=
÷3=
÷3=
16,667
16,667
16,667
0
×
×
×
13
18
17
9
=
=
=
216,671
300,006
283,339
16,667
0
$10,000
10,000
÷3=
÷3=
$3,333
3,333
×
×
309
374
=
=
$1,029,897
1,246,542
9 $1,388,997
10 1,659,042
11 605,205
12 668,662
625,472
43,190
13 31,067
14 29,267
29,867
(600)
15 272,021
16 367,656
348,589
19,067
Notes:
1 We estimate that advisers would incur the cost of filing fees for each filing. For initial filings, advisers may incur costs to modify existing systems or deploy new
systems to support Form PF reporting, acquire or use hardware to perform computations, or otherwise process data that Form PF requires.
2 Smaller private fund advisers and large private equity fund advisers file annually. Large hedge fund advisers and large liquidity fund advisers file quarterly.
3 The SEC established Form PF filing fees in a separate order. Since 2011, filing fees have been and continue to be $150 per annual filing and $150 per quarterly
filing. See Order Approving Filing Fees for Exempt Reporting Advisers and Private Fund Advisers, Advisers Act Release No. 3305 (Oct. 24, 2011) [76 FR 67004 (Oct.
28, 2011)].
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4 In the previous PRA submission for the rules, staff estimated that the external cost burden for initial filings would range from $0 to $50,000 per adviser. This range
reflected the fact that the cost to any adviser may depend on how many funds or the types of funds it manages, the state of its existing systems, the complexity of its
business, the frequency of Form PF filings, the deadlines for completion, and the amount of information the adviser must disclose on Form PF. Staff also estimated
that smaller private fund advisers would be unlikely to bear such costs because the information they must provide is limited and will, in many cases, already be maintained in the ordinary course of business. Given the proposed amendments, we estimate that the external cost burden for smaller private fund advisers would range
from $0 to $10,000, per smaller private fund adviser. This range reflects the amendments and is designed to reflect that the cost to any smaller private fund adviser
may depend on how many funds or the type of funds it manages, the state of its existing systems, and the complexity of its business. We use the upper range to calculate the estimate for smaller private fund advisers: $10,000. Also, given the amendments, in our proposed estimates, we estimated that the external cost burden for
initial filings for large hedge fund advisers, large liquidity fund advisers, and large private equity fund advisers would continue to range from $0 to $50,000 for the
same reasons as the current estimates for those types of advisers. We used the upper range to calculate the estimates: $50,000. After considering comments we received, we estimate a range from $0 to $70,000 for large hedge fund advisers. We use the upper range to calculate cost burden for initial filings for large hedge fund
advisers estimates: $70,000. We continue to estimate that the external cost burden for initial filings for large liquidity fund advisers, and large private equity fund advisers would continue to range from $0 to $50,000 for the same reasons as the current estimates for those types of advisers. We used the upper range to calculate
the estimates: $50,000.
5 We amortize the external cost burden of initial filings over three years, as we do with other initial burdens in this PRA, because we believe that most of the burden
will be incurred in the initial filing.
6 See Table 2: Annual Hour Burden Estimates for Initial Filings.
7 Changes to the aggregate external cost of initial filings, amortized over three years are due to (1) the proposed amendments and (2) using updated data.
8 Changes to the total aggregate external cost are due to (1) the amendments, (2) using updated data, (3) the amendments to Form PF adopted subsequent to the
2022 Joint Form PF Proposing Release, and (4) comments we received to our estimates.
9 In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers filed Form PF in the third quarter of 2021. (2,394 smaller
private fund advisers × $150 total filing fees) + $1,029,897 aggregate external cost of initial filing amortized over three years = $1,388,997 total aggregate external
cost.
10 In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed Form PF in the first quarter of 2023. (2,750 smaller private fund advisers × $150 total filing fees) + $1,246,542 aggregate external cost of initial filing amortized over three years = $1,659,042 total aggregate external cost.
11 In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed Form PF in the third quarter of 2021. (592 large hedge
fund advisers × $600 total filing fees) + $250,005 aggregate external cost of initial filing amortized over three years = $605,205 total aggregate external cost.
12 In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form PF in the first quarter of 2023. (570 large hedge fund
advisers × $600 total filing fees) + $326,662 aggregate external cost of initial filing amortized over three years = $668,662 total aggregate external cost.
13 In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed Form PF in the third quarter of 2021. (24 large liquidity
fund advisers × $600 total filing fees) + $16,667 aggregate external cost of initial filing amortized over three years = $31,067 total aggregate external cost.
14 In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed Form PF in the first quarter of 2023. (21 large liquidity fund
advisers × $600 total filing fees) + $16,667 aggregate external cost of initial filing amortized over three years = $29,267 total aggregate external cost.
15 In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers filed Form PF in the third quarter of 2021. (369 large
private equity fund advisers × $150 total filing fees) + $216,671 aggregate external cost of initial filing amortized over three years = $272,021 total aggregate external
cost.
16 In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers filed Form PF in the first quarter of 2023. (450 large private equity fund advisers × $150 total filing fees) + $300,006 aggregate external cost of initial filing amortized over three years = $367,506 total aggregate external
cost.
TABLE 11—ANNUAL EXTERNAL COST BURDEN FOR CURRENT REPORTING AND PRIVATE EQUITY EVENT REPORTING 1
Cost of outside
counsel per
current report
or private equity
event report
Aggregate
number of
responses
Respondent
Smaller Private Fund Advisers:
Proposed Estimate .................................................
Final Estimate .........................................................
Previously Approved ...............................................
Change ...................................................................
20
20
0
×
×
$1,695
1,695
0
Total
aggregate
external cost
=
=
$33,900
33,900
0
$15,000
15,000
0
$48,900
48,900
0
15,000
15,000
0
116,700
116,700
0
15,000
15,000
0
48,900
48,900
0
Not Applicable
60
60
0
×
×
1,695
1,695
0
Large Private Equity Fund Advisers:
Proposed Estimate .................................................
Final Estimate .........................................................
Previously Approved ...............................................
Change ...................................................................
One-time
cost of
system
changes
Not Applicable
Large Hedge Fund Advisers:
Proposed Estimate .................................................
Final Estimate .........................................................
Previously Approved ...............................................
Change ...................................................................
Aggregate
cost of
outside
counsel
=
=
101,700
101,700
0
Not Applicable
20
20
0
×
×
1,695
1,695
0
=
=
33,900
33,900
0
Advisers pay filing fees, the amount of which will be determined in a separate action.
khammond on DSKJM1Z7X2PROD with RULES3
Note:
1 Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added Form PF section 5
(Current report for large hedge fund advisers to qualifying hedge funds) and section 6 (Quarterly report for advisers to private equity funds) to
Form PF. See May 2023 SEC Form PF Amending Release, supra footnote 4, at section V for proposed and final estimates for current reporting
and private equity event reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and are not
adopting any changes to these sections in this Release.
f. Summary of Estimates and Change in
Burden
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TABLE 12—AGGREGATE ANNUAL ESTIMATES
Description 1
Proposed estimates
Final estimates
Previously approved
Respondents ........................
Responses ...........................
Time Burden ........................
Monetized Time Burden
(Dollars).
External Cost Burden (Dollars).
3,379 respondents 2 ............
5,483 responses 5 ...............
463,296 hours 8 ...................
$140,305,194 10 ...................
3,791 respondents 3 ............
5,935 responses 6 ...............
524,376 hours 9 ...................
$169,094,737.02 11 ..............
3,671 respondents ..............
5,907 responses ..................
451,012 hours .....................
$145,721,172.52 .................
120 respondents.4
28 responses.7
73,364 hours.
$23,373,564.50.
$2,297,290 12 .......................
$2,938,977 13 .......................
$1,610,828 ..........................
$1,328,149.
Change
Notes:
1 Changes are due to (1) the amendments, (2) using updated data, and (3) in the case of the final estimates subsequent Form PF amendments adopted after the 2022 Joint Form PF Proposing Release and comments we received to our estimates, as described in this PRA.
2 In the case of the proposed estimates, Private Funds Statistics show the following advisers filed Form PF in the third quarter of 2021: 2,394
smaller private fund advisers + 592 large hedge fund advisers + 24 large liquidity fund advisers + 369 large private equity fund advisers = 3,379
advisers.
3 In the case of the final estimates, Private Funds Statistics show the following advisers filed Form PF in the first quarter of 2023: 2,750 smaller
private fund advisers + 570 large hedge fund advisers + 21 large liquidity fund advisers + 450 large private equity fund advisers = 3,791 advisers.
4 Changes are due to using updated data.
5 In the case of the proposed estimates, for initial filings (Table 2): (309 smaller private fund adviser responses + 15 large hedge fund adviser
responses + 1 large liquidity fund adviser response + 13 large private equity fund adviser responses = 338 responses.) For ongoing annual and
quarterly filings (Table 7): (2,085 smaller private fund adviser responses + 2,308 large hedge fund adviser responses + 92 large liquidity fund adviser responses + 356 large private equity fund adviser responses = 4,841 responses.) (338 responses for initial filings + 4,841 responses for ongoing annual and quarterly filings + 68 responses for transition filings + 233 responses for final filings + 3 responses for temporary hardship requests = 5,483 responses.)
6 In the case of the final estimates, for initial filings (Table 2): (374 smaller private fund adviser responses + 14 large hedge fund adviser responses + 1 large liquidity fund adviser response + 18 large private equity fund adviser responses = 407 responses.) For ongoing annual and
quarterly filings (Table 7): (2,376 smaller private fund adviser responses + 2,224 large hedge fund adviser responses + 80 large liquidity fund adviser responses + 432 large private equity fund adviser responses = 5,112 responses.) For current reporting and private equity event reporting
(Table 8): (20 smaller private fund adviser responses + 60 large hedge fund adviser responses + 20 large private equity fund adviser responses
= 100 responses) (407 responses for initial filings + 5,112 responses for ongoing annual and quarterly filings + 100 responses + 69 responses
for transition filings + 243 responses for final filings + 4 responses for temporary hardship requests = 5,935 responses.)
7 Changes are due to using updated data concerning the number of filers and, in the case of the final estimates, the inclusion of current reporting and private equity event reporting, which was adopted after the 2022 Joint Form PF Proposing Release, and comments we received to our
estimates.
8 In the case of the proposed estimates, for initial filings: (5,253 hours for smaller private fund advisers + 1,725 hours for large hedge fund advisers + 70 hours for large liquidity fund advisers + 910 hours for large private equity fund advisers = 7,958 hours). For ongoing annual and quarterly filings: (41,700 hours for smaller private fund advisers + 369,280 hours for large hedge fund advisers + 6,900 for hours large liquidity fund
advisers + 37,380 hours for large private equity fund advisers = 455,260 hours). (7,958 hours for initial filings + 455,260 for ongoing annual and
quarterly filings + 17 hours for transition filings + 58.25 hours for final filings + 3 hours for temporary hardship requests = 463,296 hours.
9 In the case of the final estimates, for initial filings: (6,732 hours for smaller private fund advisers + 1,778 hours for large hedge fund advisers
+ 76 hours for large liquidity fund advisers + 1,692 hours for large private equity fund advisers = 10,278 hours). For ongoing annual and quarterly
filings: (52,272 hours for smaller private fund advisers + 391,424 hours for large hedge fund advisers + 6,880 for hours large liquidity fund advisers + 62,640 hours for large private equity fund advisers = 513,216 hours). For current reporting and private equity event reporting: (100 hours
for smaller private fund adviser + 600 hours for large hedge fund adviser + 100 hours for large private equity fund adviser = 800 hours) (10,278
hours for initial filings + 513,216 for ongoing annual and quarterly filings + 800 hours for current reporting and private equity event reporting +
17.25 hours for transition filings + 60.75 hours for final filings + 4 hours for temporary hardship requests = 524,376 hours.
10 In the case of the proposed estimates, for initial filings: ($1,879,647 for smaller private fund advisers + $593,400 for large hedge fund advisers + $24,080 for large liquidity fund advisers + $313,040 for large private equity fund advisers = $2,810,167). For ongoing annual and quarterly
filings: ($12,593,400 for smaller private fund advisers + $111,522,560 for large hedge fund advisers + $2,083,800 for large liquidity fund advisers
+ $11,288,760 for large private equity fund advisers = $137,488,520). ($2,810,167 for initial filings + $137,488,520 for ongoing annual and quarterly filings + $1,309 for transition filings + $4,485.25 for final filings + $712.50 for temporary hardship requests = $140,305,194.
11 In the case of the final estimates, for initial filings: ($2,660,262 for smaller private fund advisers + $649,040 for large hedge fund advisers +
$27,931 for large liquidity fund advisers + $617,202 for large private equity fund advisers = $3,954,435). For ongoing annual and quarterly filings:
($16,779,312 for smaller private fund advisers + $125,647,104 for large hedge fund advisers + $2,208,480 for large liquidity fund advisers +
$20,107,440 for large private equity fund advisers = $164,742,336). For current reporting and private equity event reporting: ($40,480 for smaller
private equity fund advisers + $309,600 for large hedge fund advisers + $40,480 for large private equity fund advisers = $390,560). ($3,954,435
for initial filings + $164,742,336 for ongoing annual and quarterly filings + $390,560 for current reporting and private equity event reporting +
$1,414.50 for transition filings + $4,982 for final filings + $1,009.52 for temporary hardship requests = $169,094,737.02.
12 In the case of the proposed estimates, for the external cost burden: $1,388,997 for smaller private fund advisers + $605,205 for large hedge
fund advisers + $31,067 for large liquidity fund advisers + $272,021 for large private equity fund advisers = $2,297,290.
13 In the case of the final estimates, for external cost burden for annual, quarterly, and initial filing ($1,659,042 for smaller private fund advisers
+ $668,662 for large hedge fund advisers + $29,267 for large liquidity fund advisers + $367,506 for large private equity fund advisers =
$2,724,477). For current reporting: ($48,900 for smaller private fund advisers + $116,700 for large hedge funds + $48,900 for large private equity
fund advisers = $214,500). $2,724,477 + $214,500 = $2,938,977.
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VI. Regulatory Flexibility Act
Certification
CFTC
The Regulatory Flexibility Act
(‘‘RFA’’) requires that when Federal
agencies publish a proposed rulemaking
pursuant to section 553 of the
Administrative Procedure Act, they
consider whether the final rule will
have a significant economic impact on
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a substantial number of ‘‘small
entities.’’ 701
Registered CPOs and CTAs that are
dually registered as investment advisers
with the SEC are only required to file
Form PF with the SEC pursuant to the
Advisers Act. While CFTC rule 4.27(d)
provides that dually registered CPOs
and CTAs that file Form PF with the
701 5
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U.S.C. 601, et. seq.
Frm 00077
Fmt 4701
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SEC will be deemed to have filed Form
PF with the CFTC, for purposes of any
enforcement action regarding any false
or misleading statement of material fact
in Form PF, the CFTC is not imposing
any additional obligation herein beyond
what is already required of these entities
when filing Form PF with the SEC.
Entities impacted by the Form PF are
the SEC’s regulated entities and no
small entity on its own would meet the
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Form PF’s minimum reporting threshold
of $150 million in regulatory assets
under management attributable to
private funds. Also, any economic
impact imposed by Form PF on small
entities registered with both the CFTC
and the SEC has been accounted for
within the SEC’s regulatory flexibility
analysis regarding the impact of this
collection of information under the
RFA. Accordingly, the Chairman, on
behalf of the CFTC, hereby certifies
pursuant to 5 U.S.C. 605(b) that the final
rules will not have a significant
economic impact on a substantial
number of small entities.
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SEC
Pursuant to section 605(b) of the
Regulatory Flexibility Act of 1980
(‘‘Regulatory Flexibility Act’’),702 the
SEC certified 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. The SEC included this
certification in section V of the 2022
Joint Form PF Proposing Release. As
discussed in more detail in the 2022
Joint Form PF Proposing Release, 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.703
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 December 2022,
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, the SEC
stated in the 2022 Joint Form PF
Proposing Release there would be no
702 5
U.S.C. 601, et. seq.
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19:48 Mar 11, 2024
significant economic impact on a
substantial number of small entities
from the proposed amendments to
Advisers Act rule 204(b)–1 and Form
PF.
The SEC requested comment on its
certification in section V of the 2022
Joint Form PF Proposing Release. While
some commenters addressed the
potential impact of the proposed
amendments on smaller or mid-size
private funds,704 no commenters
responded to this request for comment
regarding the SEC’s certification. We are
adopting the amendments largely as
proposed, with certain modifications
from the proposal, as discussed more
fully above in section II, that do not
affect the Advisers Act rule 204(b)–1
and Form PF’s minimum reporting
threshold. We do not believe that these
changes alter the basis upon which the
certification in the 2022 Joint Form PF
Proposing Release was made.
Accordingly, the SEC certifies that the
final amendments to Advisers Act rule
204(b)–1 and Form PF will not have a
significant economic impact on a
substantial number of small entities.
Statutory Authority
CFTC
The CFTC authority for this
rulemaking is provided by 15 U.S.C.
80b–11.
SEC
The SEC is amending 17 CFR
275.204(b)–1 pursuant to its authority
set forth in sections 204(b) and 211(e) of
the Advisers Act [15 U.S.C. 80b–4 and
15 U.S.C. 80b–11], respectively.
The SEC is amending 17 CFR 279.9
pursuant to its authority set forth in
sections 204(b) and 211(e) of the
Advisers Act [15 U.S.C. 80b–4 and 15
U.S.C. 80b–11], respectively.
List of Subjects in 17 CFR Parts 275 and
279
Reporting and recordkeeping
requirements, Securities.
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
1. The general authority citation for
part 275 continues to read as follows.
■
703 17
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CFR 275.0–7.
Frm 00078
Fmt 4701
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.
*
*
*
*
*
2. Amend § 275.204(b)–1 by:
a. Revising paragraph (f)(2)(i) by
removing the phrases ‘‘in paper format,’’
and ‘‘, Item A of Section 1a and Section
5 of Form PF, checking the box in
Section 1a indicating that you are
requesting a temporary hardship
exemption’’;
■ b. Redesignating paragraph (f)(4) as
paragraph (f)(5); and
■ c. Adding new paragraph (f)(4).
The addition reads as follows:
■
■
§ 275.204(b)–1 Reporting by investment
advisers to private funds.
*
*
*
*
*
(f) * * *
(4) A request for a temporary hardship
exemption is considered filed upon the
earlier of the date the request is
postmarked or the date it is received by
the Commission.
*
*
*
*
*
PART 279—FORMS PRESCRIBED
UNDER THE INVESTMENT ADVISERS
ACT OF 1940
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.
§ 279.9 Form PF, reporting by investment
advisers to private funds.
4. Revise Form PF (referenced in
§ 279.9).
■
Note: Form PF is attached as Appendix A
to this document. Form PF will not appear
in the Code of Federal Regulations.
By the Commissions.
Dated: February 8, 2024.
Christopher Kirkpatrick,
Secretary, Commodity Futures Trading
Commission.
Vanessa A. Countryman,
Secretary, Securities and Exchange
Commission.
Note: The following appendix will not
appear in the Code of Federal Regulations.
BILLING CODE 8011–01–P
704 See, e.g., AIC Comment Letter I; AIMA/ACC
Comment Letter; USCC Comment Letter.
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Appendix A-Form PF
FORM PF (Paper Version)
0MB APPROVAL
0MB Number:
3235-0679
Expires:
[Date]
Estimated average burden
hours per response:
[XX.XX]
Reporting Form for Investment Advisers to
Private Funds and Certain Commodity Pool
Operators and Commodity Trading Advisors
I Form PF:
18061
General Instructions
Read these instructions carefully before completing Form PF. Failure to follow these instructions, properly
complete Form PF, or pay all required fees may result in your Form PF being delayed or rejected.
In these instructions and in Form PF, ''you" means the private fund adviser completing or amending this
Form PF. If you are a "separately identifiable department or division" (SID) of a bank, "you" means the SID
rather than the bank (except as provided in Question l(a)). Terms that appear in italics are defmed in the
Glossary of Terms to Form PF.
1.
Who must complete and file a Form PF?
You must complete and file a Form PF, if:
A.
You are registered or required to register with the SEC as an investment adviser;
OR
You are registered or required to register with the CFTC as a CPO or CTA and you are
also registered or required to register with the SEC as an investment adviser;
AND
B.
You manage one or more private funds.
AND
C.
You and your related persons, collectively, had at least $150 million in private fund
assets under management as of the last day of your most recently completed fiscal year.
Many private fund advisers meeting these criteria will be required to complete only Section 1 of
Form PF and will need to file only on an annual basis. Large private fund advisers, however, will be
required to provide additional data, and large hedge fund advisers and large liquidity fund advisers
will need to file every quarter. Large hedge fund advisers will need to file a current report in
Section 5 and advisers to private equity funds will need to file a current report in Section 6, upon
certain current reporting events. See Instructions 3, 9, and 12 below.
For purposes of determining whether you meet the reporting threshold, you are not required to
include the regulatory assets under management of any related person that is separately operated.
See Instruction 5 below for more detail.
2.
I have a related person who is required to tile Form PF. May I and my related person tile a
single Form PF?
Related persons may (but are not required to) report on a single Form PF information with respect
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If your principal office and place ofbusiness is outside the United States, for purposes of this Form
PF you may disregard any private fund that, during your last fiscal year, was not a United States
person, was not offered in the United States, and was not beneficially owned by any United States
person.
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
to all such related persons and the private funds they advise. You must identify in your response
to Question 1 the related persons as to which you are reporting and, where information is
requested about you or the private funds you advise, respond as though you and such related
persons were one firm.
3.
How is Form PF organized?
Section 1 - All Form PF filers
Section 1a
All private fund advisers required to file Farm PF must complete Section 1a. Section 1a
asks general identifying information about you and the types of private funds you
advise.
Section 1b
All private fund advisers required to file Form PF must complete Section 1b. Section 1b
asks for certain information regarding the private funds that you advise.
Section le
All private fund advisers that are required to file Form PF and advise one or more hedge
funds must complete Section le. Section le asks for certain information regarding the
hedge funds that you advise.
Section 2 - Large hedge fund advisers
Section 2
If you and your related persons, collectively, had at least $1.5 billion in hedge fund
assets under management as of the last day of any month in the fiscal quarter
immediately preceding your most recently completed fiscal quarter, you must complete
a separate Section 2 with respect to each qualifying hedge fund that you advise. You are
not required to include the regulatory assets under management of any related person
that is separately operated.
In addition, you must complete a separate Section 2 for each parallel fund that is part of
a parallel fund structure that, in the aggregate, comprises a qualifying hedge fund (even
if that parallel fund is not itself a qualifying hedge fund); and you must complete a
separate Section 2 for the master fund of any master-feeder arrangement that, in the
aggregate, comprises a qualifying hedge fund (even if that master fund is not itself a
qualifying hedge fund) in accordance with Instruction 6.
Section 3 - Large liquidity fund advisers
You are required to complete Section 3 if (i) you advise one or more liquidity funds
and (ii) as of the last day of any month in the fiscal quarter immediately preceding
your most recently completed fiscal quarter, you and your related persons,
collectively, had at least $1 billion in combined money market and liquidity fund
assets under management. You are not required to include the regulatory assets
under management of any related person that is separately operated.
You must complete a separate Section 3 with respect to each liquidity fund that
you advise.
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Section 3
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18063
Section 4 - Large private equity fund advisers
Section 4
You are required to complete Section 4 if you and your related persons,
collectively, had at least $2 billion in private equity fund assets under management
as of the last day of your most recently completed fiscal year. You are not required
to include the regulatory assets under management of any related person that is
separately operated.
You must complete a separate Section 4 with respect to each private equity fund that
you advise.
Section 5 - Current report for large hedge fund advisers to qualifying hedge funds
Section 5
Section 5 is the current reporting form for large hedge fund advisers to qualifying
hedge funds. You must complete and file Section 5 for any current reporting event
with respect to a qualifying hedge fund you advise.
Section 6 - Quarterly event report for advisers to private equity funds
Section 6
Section 6 is the quarterly event reporting form about private equity funds. You must
complete and file Section 6 for any private equity reporting event with respect to a
private equity fund you advise.
Section 7 - Advisers requesting a temporary hardship exemption
Section 7
4.
See Instruction 14 for details.
I am a subadviser or engage a subadviser for a private fund. Who is responsible for reporting
information about that private fund?
Only one private fund adviser should complete and file Form PF for each private fund. If the
adviser that filed Form ADV Section 7.B. l with respect to any private fund is required to file Form
PF, the same adviser must also complete and file Form PF for that private fund. If the adviser that
filed Form ADV Section 7.B. l with respect to any private fund is not required to file Form PF (e.g.,
because it is an exempt reporting adviser) and one or more other advisers to the fund is required to
file Form PF, another adviser must complete and file Form PF for that private fund.
Where a question requests aggregate information regarding the private funds that you advise, you
should only include information regarding the private funds for which you are filing Section I b of
Form PF.
For purposes of determining whether I meet any reporting threshold, when am I required to
aggregate information regarding parallel funds, parallel managed accounts, master-feeder
arrangements, and funds managed by related persons?
•
•
•
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•
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You must aggregate any private funds that are part of the same master-feeder
arrangement (even if you did not, or were not permitted to, aggregate these private
funds for purposes of Form ADV Section 7.B. l).
You must aggregate any private funds that are part of the same parallel fund structure.
Any dependent parallel managed account must be aggregated with the largest private
fund to which that dependent parallel managed account relates.
You must treat any private fund or parallel managed account advised by any of your related
persons as though it were advised by you (including related persons that you have not
identified in Question 1(b) as related persons for which you are filing Form PF, though you
may exclude related persons that are separately operated). Where you are aggregating
dependent parallel managed accounts to determine whether you meet a reporting threshold,
assets held in the accounts should be treated as assets of the private funds with which they
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5.
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
are aggregated.
6.
How do I report information regarding parallel funds, parallel managed accounts, masterfeeder arrangements, and funds reported by related persons?
You must separately report each component fund of master-feeder arrangements and parallel
fund structures. However:
•
•
•
Do not report a feeder fund that invests all of its assets in (i) a single master fund, (ii)
U.S. treasury bills, and/or (iii) cash and cash equivalents (i.e., a disregarded feeder
fund). In reporting a master fund, you must identify whether eachfeeder fund is a
disregarded feeder fund in Question 7 and "look through" to any disregarded feeder
funds' investors in responding to Questions 21 - 22, 51 - 53, and 59- 64.
Do not report information regarding parallel managed accounts (except in Question
16).
Report information for any private fund advised by any of your related persons unless
you have identified that related person in Question 1(b) as a related person for which
you are filing Form PF.
Example I.
You advise a master-feeder arrangement with two feeder funds. Feeder
fund Xhas invested $500 in the master fund and holds a foreign exchange
derivative with a notional value of$100. Feeder fundY invests $200 in
the master fund and has no other assets or liabilities, except cash. The
master fund has used the $700 received from the feeder funds to invest in
corporate bonds. None of these funds has any other assets or liabilities.
For purposes of determining whether any of the funds comprises a
qualifying hedge fund, this master-feeder arrangement should be treated as
a single private fund whose only investments are $700 in corporate bonds
and a foreign exchange derivative with a notional value of$100.
For reporting purposes, if the aggregated master-feeder arrangement
comprises a qualifying hedge fund, the master fund is reported as a
qualifying hedge fund (complete Section 2 (even if is not a qualifying hedge
fund by itself) and reportfeeder fund X and feeder fund Y as internal private
fund investors in Question 7).
A separate report for feeder fund X is required because the fund holds
assets in addition to its investment in the master fund and cash and cash
equivalents (complete Section 1b and 1c). Further, iffeeder fund X meets
the threshold to be a qualifying hedge fund, it also must be reported as a
qualifying hedge fund (complete Section 2 and Section 5, as applicable). In
determining the feeder fund's reporting threshold, you should include all
assets and liabilities of the feeder fund, except for any assets invested in the
master fund.
A separate report is not required for feeder fund Y because it invests in a
single master fund and has no other assets or liabilities except cash.
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You advise a parallel fund structure consisting of two hedge funds, named
parallel fund A and parallel fund B. You also advise a related dependent
parallel managed account. The account and each fund have invested in
corporate bonds of Company X and have no other assets or liabilities.
The value of parallel fund A's investment is $400, the value of parallel
fund B's investment is $300 and the value of the dependent parallel
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Example 2.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18065
managed account's investment is $200. For purposes of determining
whether either of the parallel funds is a qualifying hedge fund, the entire
parallel fund structure and the related dependent parallel managed
account should be treated as a single private fund whose only asset is
$900 of corporate bonds issued by Company X.
For reporting purposes, both parallel fund A and parallel fund B must be
reported separately ( for each ofparallel fund A and B, complete Sections 1b
and le, Section 2, and Section 5, as applicable, if the parallel fund structure
is a qualifying hedge fund). You would disregard the value of the investment
by the dependent parallel managed account when reporting for parallel fund
A and B, and instead, report the value of that investment ($200) in Question
16 for the largest parallel fund, parallel fund A.
7.
I advise a private fund that invests in other private funds (e.g., a "fund of funds") or trading
vehicles. How should I treat these investments for purposes of Form PF?
Reporting thresholds. You must include the value of private fund investments in other private
funds in determining whether you are required to file Form PF and whether you meet thresholds
for filing as a large hedge fund adviser, large liquidity fund adviser, or large private equity fund
adviser and whether a reporting fund is a qualifying hedge fund.
Funds that invest 80% or more of their assets in other private funds. If you advise a private
fund that (i) invests 80% or more of its assets in the equity of private funds (including internal
private funds and external private funds) and (ii) aside from such private fund investments, holds
only cash and cash equivalents and instruments acquired for the purpose of hedging currency
exposure, then you are only required to complete Section 1b for that fund.
Trading vehicles. If the reporting fund holds assets, incurs leverage, or conducts trading or other
activities through a trading vehicle, you must identify the trading vehicle in Section 1b, Question
7(b), and report answers on an aggregated basis for the reporting fund and such trading vehicle. You
must include (look through to) the trading vehicle's holdings, adjusted for the reportingfund's
percentage ownership of the trading vehicle, for all questions answered by the reporting fund.
Do not "look through" the reporting fund's investments in internal private funds or external private
funds (other than a trading vehicle as explained above) in responding to questions on the Form,
unless the question instructs you to report exposure obtained indirectly through positions in such
funds or other entities. For example, do not look through to the creditors of or counterparties to other
private funds in responding to questions that ask about a reporting fund's borrowing and
counterparty exposure (e.g., Questions 18, 26, 27, and 28). However, selected questions in Section 2
of the Form require you to report indirect exposure resulting from positions held through other
entities including private funds, and you must "look through" the reporting fund's investments in
internal private funds and external private funds in responding to these questions. (See Question 32,
Question 33, Question 35, Question 36,and Question 47.) If you cannot avoid "looking through" to
the reporting fund's investments in internal private funds or external private funds in responding to a
particular question, provide an explanation in Question 4.
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Responding to questions. Except as otherwise provided in the instructions for a particular question in
Form PF, include the value of a reporting fund's investments in other private funds (both internal
and external) in responding to questions under this Form PF. For example, (i) include the value of
the reporting fund's investments in other private funds in reporting gross asset value and net asset
value in Question 11 and 12, but (ii) exclude the value of a reporting fund's investment in other
private funds in Question 3, the instructions to which explain that you must not include the value of a
reporting fund's investments in other internal private funds in responding to the question.
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Solely for purposes of this Instruction 7, you may treat as a private fund any issuer formed under
the laws of a jurisdiction other than the United States that has not offered or sold its securities in
the United States or to United States persons but that would be a private fund if it had engaged in
such an offering or sale.
8.
I advise a private fund that invests in funds or other entities that are not private funds or trading
vehicles. How should I treat these investments for purposes of Form PF?
Include the value of investments in any fund or other entity for all purposes under this Form PF. For
example, you must include the value of these investments in determining reporting thresholds and
responding to questions. For example, include the value of these investments in determining gross
asset value in Question 11 and net asset value in Question 12.
Except for trading vehicles, do not "look through" a reporting fund's investments in any fund or
other entity, unless the question instructs you to report exposure obtained indirectly through positions
in such funds or other entities. For example, do not "look through" to the creditors of or
counterparties to any fund or other entity in responding to questions that ask about a reporting fund's
borrowing and counterparty exposure (e.g., Questions 18, 26, 27, and 28). However, selected
questions in Section 2 of the Form require you to report indirect exposure resulting from positions
held through entities, such as a fund or other entity, and you must "look through" the reporting fund's
investments such funds or other entities in responding to these questions. (See Question 32, Question
33, Question 35, Question 36, and Question 47). You should "look through" trading vehicles for all
questions as provided in Instruction 7.
9.
When am I required to update Form PF?
You are required to update Form PF at the following times:
Periodic filings
(large hedge
fund advisers)
Within 60 calendar days after the end of each calendar quarter, you
must file a quarterly update that updates the answers to all Items in this
Form PF relating to the hedge funds that you advise.
If your fiscal year does not end at the end of a calendar quarter, you
must file a quarterly update that updates the answers to all Items in this
Form PF within 60 days after the end of the next calendar quarter after
your fiscal year end.
You may, however, submit an initial filing for the next calendar quarter
after your fiscal year end that updates information relating only to the
hedge funds that you advise so long as you amend your Form PF within
120 calendar days after the end of your fiscal year to update information
relating to any other private funds that you advise. When you file such
an amendment, you are not required to update information previously
filed for such quarter.
Within 15 calendar days after the end of each calendar quarter, you
must file a quarterly update that updates the answers to all Items in this
Form PF relating to the liquidity funds that you advise.
If your fiscal year does not end at the end of a calendar quarter, you
must file a quarterly update that updates the answers to all Items in this
Form PF within 15 days after the end of the next calendar quarter after
your fiscal year end.
You may, however, submit an initial filing for the next calendar quarter
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Periodic filings
(large liquidity
fund advisers)
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18067
after your fiscal year end that updates information relating only to the
liquidity funds that you advise so long as you amend your Form PF
within 120 calendar days after the end of your fiscal year to update
information relating to any other private funds that you advise (subject
to the next paragraph). When you file such an amendment, you are not
required to update information previously filed for such quarter.
If you are both a large liquidity fund adviser and a large hedge fund
adviser, you must file your quarterly updates with respect to the
liquidity funds that you advise within 15 calendar days and with respect
to the hedge funds you advise within 60 calendar days.
Periodic filings
(all other
advisers)
Within 120 calendar days after the end of your fiscal year, you must file
an annual update that updates the answers to all Items in this Form PF.
Large hedge fund advisers and large liquidity fund advisers are not
required to file annual updates but instead file quarterly updates for the
next calendar quarter after their fiscal year end.
Transition filing
If you are transitioning from quarterly to annual filing because you are
no longer a large hedge fund adviser or large liquidity fund adviser,
then you must complete and file Item A of Section 1a and check the box
in Section la indicating that you are making your final quarterly filing.
You must file your transition filing no later than the last day on which
your next quarterly update would be timely.
Current reports
(large hedge
fund advisers)
Large hedge fund advisers must file a current report in Section 5 upon
certain current reporting events with respect to qualifying hedge funds
they advise. See Section 5 for filing deadlines.
Private equity
event reports
(all advisers to
private equity
funds)
Final filing
All advisers to private equity funds must file a private equity event
report in Section 6 upon certain private equity reporting events with
respect to private equity funds they advise within 60 calendar days after
the end of each fiscal quarter.
If you are no longer required to file Form PF, then you must complete
and file Item A of Section 1a and check the box in Section 1a indicating
that you are making your final filing. You must file your final filing no
later than the last day on which your next Form PF update would be
timely. This applies to all Form PF filers.
Failure to update your Form PF as required by these instructions is a violation of SEC and,
where applicable, CFTC rules and could lead to revocation of your registration.
10.
How do I obtain private fund identification numbers for my reporting funds?
If you need to obtain a private fund identification number and you are required to file a quarterly
update of Form PF prior to your next annual update of Form ADV, then you must acquire the
identification number by filing an other-than-annual amendment to your Form ADV and
following the instructions on Form ADV for generating a new number. When filing an otherthan-annual amendment for this purpose, you must complete and file all of Form ADV Section
7.B. l for the new private fund.
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Each private fund must have an identification number for purposes of reporting on Form ADV and
Form PF. Private fund identification numbers can only be obtained by filing Form ADV.
18068
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
See Instruction 6 to Part IA of Form ADV for additional information regarding the acquisition
and use of private fund identification numbers.
11.
Who must sign my Form PF or update?
The individual who signs the Form PF depends upon your form of organization: For a sole
proprietorship, the sole proprietor.
• For a partnership, a general partner.
• For a corporation, an authorized principal officer.
• For a limited liability company, a managing member or authorized person.
• For a SID, a principal officer of your bank who is directly engaged in the management, direction,
or supervision of your investment advisory activities.
• For all others, an authorized individual who participates in managing or directing your affairs.
The signature does not have to be notarized and should be a typed name.
If you and one or more of your related persons are filing a single Form PF, then Form PF may be
signed by one or more individuals; however, the individual, or the individuals collectively, must
have authority, as provided above, to sign both on your behalf and on behalf of all such related
persons.
12.
How do I file my Form PF?
You must file Form PF electronically through the Form PF filing system on the Investment Adviser
Registration Depository website (www.iard.com), which contains detailed filing instructions.
Questions regarding filing through the Form PF filing system should be addressed to the Financial
Industry Regulatory Authority (FINRA) at 240-386-4848.
If you are a large hedge fund adviser filing a current report in Section 5, only file Section 5. Do not
file any other sections of the Form. If you are an adviser to private equity funds filing a current
report in Section 6 only file Section 6. Do not file any other sections of the Form. For all other
types of filings, file the applicable sections as provided in Instruction 3.
13.
Are there filing fees?
Yes, you must pay a filing fee for your Form PF filings. The Form PF filing fee schedule is
published at https://www.sec.gov/iard and https://www.iard.com.
14.
What ifl am not able to file electronically?
To request a temporary hardship exemption, you must complete and file on paper Item A of Section
la and Section 7 of Form PF, checking the box in Section la indicating that you are requesting a
temporary hardship exemption. Do not complete or file any other sections of Form PF. Mail one
manually signed original and one copy of your exemption filing to: U.S. Securities and Exchange
Commission, Investment Adviser Regulation Office, Mail Stop 0-25, 100 F Street NE, Washington,
DC 20549 or submit electronically your signed exemption filing in PDF format by email to
FormPF@sec.gov. You must preserve in your records a copy of any temporary hardship exemption
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A temporary hardship exemption is available if you encounter unanticipated technical difficulties
that prevent you from making a timely filing with the Form PF filing system, such as a computer
malfunction or electrical outage. This exemption does not permit you to file on paper; instead, it
extends the deadline for an electronic filing for seven "business days" (as such term is used in SEC
rule 204(b)-1 (f) ).
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18069
filing. Any request for a temporary hardship exemption must be filed no later than one business
day after the electronic Form PF filing was due. For more information, see SEC rule 204(b)-l(f).
15.
May I rely on my own methodologies in responding to Form PF? How should I enter
requested information?
You may respond to this Form using your own internal methodologies and the conventions of your
service providers, provided the information is consistent with information that you report internally
and to current and prospective investors. However, your methodologies must be consistently
applied, and your responses must be consistent with any instructions or other guidance relating to
this Form. You may explain any of your methodologies, including related assumptions, in
Question 4.
VerDate Sep<11>2014
•
provide the requested information as of the close of business on the data reporting date;
•
if information is requested for any month or quarter, provide the requested information as of the
close of business on the last calendar day of the month or quarter, respectively;
•
if a question requests information expressed as a percentage, enter the response as a percentage
(not a decimal) rounded to the nearest one hundredth of one percent;
•
if a question requests a monetary value, provide the information in U.S. dollars as of the data
reporting date (or other requested date), rounded to the nearest thousand, using a foreign
exchange rate for the applicable date;
•
if a question requests a monetary value for transactional data that covers a reporting period,
provide the information in U.S. dollars, rounded to the nearest thousand, using foreign exchange
rates as of the dates of any transactions to convert local currency values to U.S. dollars (see
questions 14, 23(c)(iv)(B), 23(c)(iv)(C), 23(c)(iv)(D), 29, 30(a), and 34);
•
if a question requests a numerical value other than a percentage or a dollar value, provide
information rounded to the nearest whole number;
•
if a question requests information regarding a "position" or "positions," treat two or more legs of
a transaction even if offsetting or partially offsetting, or even if entered into with the same
counterparty under the same master agreement as two separate positions, even if reported
internally as part of a larger transaction. However, exclude closed-out positions that are closed
out with the same counterparty provided that there is no credit or market exposure to the
reporting fund;
•
if a question requires you to distinguish long positions from short positions, classify positions as
follows: a long position experiences a gain when the price of the market factor to which it
relates increases (and/or the yield of that factor decreases), and a short position experiences a
loss when the price of the market factor to which it relates increases (and/or the yield of that
factor decreases);
•
do not net long and short positions;
•
for derivatives (other than interest rate derivatives and options), ''value" means gross notional
value; for interest rate derivatives, value means the J0-year bond equivalent; for options,
''value" means delta adjusted notional value (expressed as a J0-year bond equivalent for options
19:48 Mar 11, 2024
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In responding to Questions on this Form, the following guidelines apply unless otherwise
specifically indicated:
18070
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
that are interest rate derivatives); in determining the ''value" of derivatives positions, do not net
long and short positions or offsetting or partially offsetting trades; but exclude closed-out
positions that are closed out with the same counterparty provided that there is no credit or market
exposure to the reporting fund;
16.
•
for all other investments and for all borrowings where the reporting fund is the creditor, "value"
means market value or, where there is not a readily available market value, fair value; for
borrowings where the reporting fund is the debtor, "value" means the value you report internally
and to current and prospective investors; and
•
for question 25, the numerator you use to determine the percentage of net asset value should be
measured on the same basis as gross asset value. Your response to this question may total more
than 100%.
How do I amend Form PF, for example, to make a correction?
If you discover that information you filed on Form PF was not accurate at the time of filing, you may
correct the information by re-filing and checking the box in Section la, Section 5, or Section 6, as
applicable, indicating that you are amending a previously submitted filing. You are not required to
update information that you believe in good faith properly responded to Form PF on the date of filing
even if that information is subsequently revised for purposes of your recordkeeping, risk
management or investor reporting (such as estimates that are refined after completion of a subsequent
audit).
Large hedge fund advisers and large liquidity fund advisers that comply with their fourth quarter
filing obligations by submitting an initial filing followed by an amendment in accordance with
Instruction 9 will not be viewed as affirming responses regarding one fund solely by providing
updated information regarding another fund at a later date.
17.
How may I preserve on Form PF the anonymity of a private fund that I advise?
If you seek to preserve the anonymity of a private fund that you advise by maintaining its identity in
your books and records in numerical or alphabetical code, or similar designation, pursuant to rule
204-2(d), you may identify the private fund on Form PF using the same code or designation in place
of the fund's name.
18.
How should I treat a commodity pool for purposes of Form PF?
Commodity pools should be treated as hedge funds for purposes of Form PF. If you are reporting on
Form PF regarding a commodity pool that is not a private fund, then you may treat it as a private fund
for purposes of Form PF. However, such a commodity pool is not required to be included when
determining whether you exceed one or more reporting thresholds. If such a commodity pool is a
qualifying hedge fund and you are otherwise required to report information in section 2 of
Form PF, then you must report regarding the commodity pool in section 2 of Form PF.
Section 204(b) of the Advisers Act [15 U.S.C.80b-4(b)] authorizes the SEC to collect the information that Form
PF requires. The information collected on Form PF is designed to facilitate the Financial Stability Oversight
Council's ("FSOC") monitoring of systemic risk in the private fund industry and to assist FSOC in determining
whether and how to deploy its regulatory tools with respect to nonbank fmancial companies. The SEC and
CFTC may also use information collected on Form PF in their regulatory programs, including examinations,
investigations and investor protection efforts relating to private fund advisers. Filing Form PF is mandatory for
advisers that satisfy the criteria described in Instruction 1 to the Form. See also 17 CFR 275.204(b)-l. The
SEC does not intend to make public information reported on Form PF that is identifiable to any particular
adviser or private fund, although the SEC may use Form PF information in an enforcement action. See Section
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Federal Information Law and Requirements for a Collection oflnformation
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18071
204(b) of the Advisers Act.
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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 control number. The Office of Management and Budget has reviewed this
collection of information under 44 U.S.C. 3507. Any member of the public may direct any comments
concerning the accuracy of the burden estimate and any suggestion for reducing this burden to: Secretary, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
18072
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Information about you and your related persons
(to be completed by all Form PF filers)
Form PF
Section la
Section la: Information about you and your related persons
Check the box that indicates what you would like to do:
a. If you are not a large hedge fund adviser or large liquidity fund adviser:
D Submit your first filing on Form PF
for the period ended:
D
Submit an annual update
for the period ended:
D Amend a previously submitted filing
for the period ended:
D Submit a final filing
D Request a temporary hardship exemption
b. If you are a large hedge fund adviser or large liquidity fund adviser:
D
Submit your first filing on Form PF
for the [1st, 2nd, 3rd, 4th] quarter, which ended:
Submit a quarterly update (including fourth quarter updates)
for the [1st, 2nd, 3rd, 4th] quarter, which ended:
Amend a previously submitted filing
for the [1st, 2nd, 3rd, 4th] quarter, which ended:
Transition to annual reporting
Submit a final filing
D
D
D
D
D
Request a temporary hardship exemption
Item A. Information about you
1.
(a) Provide your name and the other identifying information requested below.
(This should be your full legal name. Ifyou are a sole proprietor, this will be your last, first,
and middle names. Ifyou are a SID, enter the full legal name ofyour bank.
Please use the same name that you use in your Form ADV.)
NFAID
Legal name
SEC 801-Number
Number, if any
Large trader
ID,ifany
Large trader
ID suffix, if any
LE/,ifany
(b) Provide the following information for each of the related persons, if any, with
respect to which you are reporting information on this Form PF:
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ID ifanv
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Large
trader ID
suffix, if any
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Legal name
NFAID
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18073
(c) Provide the following information for yourself and each of the related persons, if any,
with respect to which you are reporting information on this Form. PF that is registered
or required to be registered as a CPO and/or CTA:
Legal Name
CPO, CTA, or Both
l[Drnp-down Hsi]
Drop-down list]
2.
Signatures of sole proprietor or authorized representative (see Instruction I I to Form PF). Signature on
behalf of the firm and its related persons:
I, the undersigned, sign this Form PF on behalf of, and with the authority of, the firm. In addition, I
sign this Form PF on behalf of, and with the authority of, each of the related persons identified in
Question 1(b) (other than any related person for which another individual has signed this Form PF
below).
To the extent that Section 1 or 2 of this Form PF is filed in accordance with a regulatory obligation
imposed by CEA rule 4.27, the firm, each related person for which I am. signing this Form PF, and I
shall accept that any false or misleading statement of a material fact therein or material omission
therefrom. shall constitute a violation of section 6(c)(2) of the CEA.
~----------------~
Nam.e of individual:
Signature:
Title:
Em.ail address:
Telephone contact number (include area code and,
ifoutside the United States, country code):
Date:
Signature on behalf of related persons:
I, the undersigned, sign this Form PF on behalf of, and with the authority of, the related
person(s) identified below.
To the extent that Section 1 or 2 of this Form PF is filed in accordance with a regulatory
obligation imposed by CEA rule 4.27, each related person identified below and I shall accept
that any false or misleading statement of a material fact therein or material omission
therefrom. shall constitute a violation of section 6(c)(2) of the CEA.
~----------------~
Nam.e of each related person on behalf of which
this individual is signing:
Nam.e of individual:
Signature:
Title:
Telephone contact number (include area code and,
ifoutside the United States, country code):
Date:
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Em.ail address:
18074
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Item B. Information about assets of private funds that you advise
3.
Provide a breakdown of your regulatory assets under management and your net assets under
management as follows:
(lfyou are filing a quarterly update for your first, second or third fiscal quarter, you are only required
to update row (a), in the case of a large hedge fund adviser, or row (b), in the case of a large liquidity
fund adviser. To avoid double counting, do not include the value ofyour private funds' investments in
other internal private fundsJ
Regulatory assets
Net assets under
under management
management
(a) Hedge funds ..................................................... .
(b) Liquidity funds ................................................. .
(c) Private equity funds ......................................... .
(d) Real estate funds .............................................. .
(e) Securitized asset funds ..................................... .
(f) Venture capital funds ....................................... .
(g) Other private funds .......................................... .
(h) Funds and accounts other than private funds (i.e.,
the remainder of your assets under
management) .................................................... .
Item C. Miscellaneous
4.
You may use the space below to explain any assumptions that you made in responding to any
question in this Form PF. Assumptions must be in addition to, or reasonably follow from, any
instructions or other guidance relating to Form PF. If you are aware of any instructions or other
guidance that may require a different assumption, provide a citation and explain why that assumption
is not appropriate for this purpose. To the extent responses relate to a particular question, provide the
Question number(s), as applicable.
5.
Description
Question
number
VerDate Sep<11>2014
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[drop-down list for question
number or "all" options.]
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18075
Information about the private funds you advise
(to be completed by all Form PF filers)
Form PF
Section lb
Section 1b: Information about the private funds you advise
You must complete a separate Section 1b for each private fund that you advise, except as provided by
Instruction 6.
Item A. Reporting fund identifying information
5.
(a) Name of the reporting fund
(b) Private fund identification number of the reporting fund
(c) NFA identification number of the reporting fund, if applicable
(d) LEI of the reportingfund, if any
6.
(a) For purposes ofreporting on this Form PF, what type of fund is the reporting fund? [Select one]
[drop-down list for hedge fund that is not a qualifying hedge fund, qualifying hedge fund, liquidity
fund, private equity fund, real estate fund, securitized asset fund, venture capital fund, or "other."]
Ifyou identify the reporting fund as "other," describe the reporting fund in Question 4, including
why it would not qualify for any of the other selections. Ifyou identify the reporting fund as a
different type offund on Form ADV, explain why in Question 4.
(b) Is the reporting fund a commodity pool?
D
D
Yes
No
(c) Does the reporting fund operate as a UCITS?
D
D
Yes
No
(d) If you checked yes in (c), in what countries does the reporting fund operate as a UCITS?
[Drop-down list]
(e) Does the reporting fund operate as an AIF?
D
D
Yes
No
(f) If you checked yes in (e), in what countries does the reporting fund operate as anAIF?
[Drop-down list]
(g) Does the reporting fund offer itself as a money market fund outside the United States?
D
D
Yes
No
(For the purposes ofresponding to Question 6(g) and 6(h) only, a money market fund includes a
similar fund that operates outside ofthe United States in accordance with applicable non-U.S. laws
and are not limited to "money market funds" as defined in the Glossary of Terms.)
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(h) If you checked yes in (g), in what countries does the reporting fund offer itself as a money market
fund? [Drop-down list]
18076
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
7.
(a) Is the reportingfundthe master fund ofa master-feeder arrangement? Ifso, check "yes" below, and
complete (i) and (ii) for eachfeeder fund. Otherwise, check "no." See Instructions 5, 6, and 7 for
ieformation on treatment ofmaster-feeder arrangements.
D
D
Ym
No
(i) Name offeeder fund .................................................................. .
(ii) Private fund identification number of the feeder fund ............. .
(iii) Is the feeder fund a separate reporting fund? If so, check ''yes," below. If the feeder fund is a
"disregarded" feeder fund in accordance with Instruction 6, check "no."
D
□
Yes
No
(b) Do any internal private funds (other than the feeder funds identified in (a) above) invest in the
reporting fund? If so, check "yes" and complete (i), (ii), and (iii) for each such internal private
fund. Otherwise, check "no."
Yes
No
□
□
(i) Name of internal private fund ...................................................... .
(ii) Internal private fund's LEI, if it has one ...................................... .
(iii) Private fund identification number of the internal private fund ... .
8.
(a) Is the reporting fund a component of a parallel fund structure? If so, check "yes" below. Otherwise,
check "no." (See Instructions 5 and 6 for information regarding the treatment of parallel funds.)
D
D
Ym
No
If you responded "yes" to Question 8(a), complete (b) through (e) below for each component in
the parallel fund structure.
(b) Name of the parallel fund
(c) Private fund identification number of the parallel fund
(d) NFA identification number of the parallel fund, ifapplicable
(e) LEI of the parallel fund, if any
9.
If the reporting fund holds assets, incurs leverage, or conducts trading or other activities through a
trading vehicle, provide the following information about each trading vehicle.
(a) Legal name ..................................................................................................................... .
(b) LEL ifany.........................................................................................................................
(c) Other identifying information (indicate type used, if applicable. E.g., RSSD ID) ........ .
(d) Does the reporting fund hold assets through the trading vehicle?
D
Yes
D
No
(e) Does the reporting fund incur leverage through the trading vehicle?
D
Yes
D
No
(f) Does the reporting fund conduct trading or other activities through the trading vehicle?
D
Yes
10. (a) Is the reporting fund an open-end private fund?
D
Yes
D
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No
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D
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18077
(b) Is the reporting fund a closed-end private fund?
D
Yes
D
No
(If you responded "no" to both question IO(a) and question IO(b), please provide a detailed
explanation in question 4.)
(c) If you responded "yes" to 10(a), indicate whether withdrawals/redemptions are permitted most
commonly (i.e. with respect to most investors) (regardless of whether there are notice
requirements, "gates," lock-ups, or other restrictions on withdrawals/redemptions). (check one):
D
D
D
D
D
on any business day
at intervals of least two business days and up to a month
at intervals longer than monthly up to quarterly
at intervals longer than quarterly up to annually
at intervals of more than one year
(d) If you responded "yes" to IO(a), indicate, as of the data reporting date, what percentage of the
reporting funds net asset value, if any:
(i)
May be subjected to a suspension of investor withdrawals/redemptions by
an adviser or fund governing body (this question relates to an adviser's or
governing body's right to suspend and not just whether a suspension is
currently effective) ....................................................................................... .
(ii)
May be subjected to material restrictions on investor withdrawals/
redemptions (e.g., "gates") by an adviser or fund governing body (this
question relates to an adviser's or governing body's right to impose a
restriction and not just whether a restriction has been imposed) .............. ..
(iii) Is subject to a suspension of investor withdrawals/redemptions (this
question relates to whether a suspension is currently effective and not just
an adviser's or governing body's right to suspend) .................................... .
(iv)
Is subject to a material restriction on investor withdrawals/redemptions
(e.g., a "gate") (this question relates to whether a restriction has been
imposed and not just an adviser's or governing body's right to impose a
restriction) ................................................................................................... .
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(For Question JO(d), please note that the standards for imposing suspensions and restrictions on
withdrawals/redemptions may vary among funds. Make a good faith determination of the provisions
that would likely be triggered during conditions that you view as significant market stress.)
18078
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Item B. Assets, financing, and investor concentration
11.
Date
Gross Asset Value
or Gross Reporting
fund Aggregate
Calculated Value
(a) Gross asset value of the reporting fund as of
the end of the reporting
period. ...................................... .
[Drop-down list of
month, day, year]
(b) If you are filing a quarterly update, provide the
reporting fund's gross asset value if available,
or gross reporting fund aggregate calculated
value if the gross asset value is not available,
as of the end of the first month of the reporting
period...................... .
[Drop-down list of
month, day, year]
(c) If you are filing a quarterly update, provide the
reporting fund's gross asset value if available,
or gross reporting fund aggregate calculated
value if the gross asset value is not available,
as of the end of the second month of the
reporting period ... ................... .
[Drop-down list of
month, day, year]
(The amount of the gross asset value of the reporting fund as ofthe end of the reporting period may
differ from the amount you reported in response to question 11 of Form ADV Section 7.B.1. For
instance, the amounts may not be the same ifyou are filing Form PF on a quarterly basis or because
you may not aggregate a master-feeder arrangement for purposes ofthis Form PF.)
(For a feeder fund, the gross asset value and gross reporting fund aggregate calculated value
calculations should be inclusive of its equity holdings in the master fund, along with its other
holdings).
(d) Is the value reported in Question 11 (b) above a gross reporting fund aggregate calculated value?
D
D
Yes
No
(e) Is the value reported in Question 11 (c) above a gross reporting fund aggregate calculated value?
VerDate Sep<11>2014
19:48 Mar 11, 2024
D
Yes
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D
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18079
12.
Date
(a) Net asset value of the reporting fund as of the end
of the reporting
period. .............................................. .
[Drop-down list of
month, day, year]
(b) If you are filing a quarterly update, provide the
reporting fund's net asset value if available or,
reporting fund aggregate calculated value if the
net asset value is not available, as of the end of the
first month of the reporting
period..................... ..
[Drop-down list of
month, day, year]
(c) If you are filing a quarterly update, provide the
reporting fund's net asset value if available or,
reporting fund aggregate calculated value if the
net asset value is not available, as of the end of the
second month of the reporting
period...................... .
[Drop-down list of
month, day, year]
Net Asset Value or
Reporting fund
Aggregate
Calculated Value
(For a feeder fund, the net asset value and net reporting fund aggregate calculated value calculations
should be inclusive of its equity holdings in the master fund, along with its other holdings).
(d) Is the value reported in Question l 2(b) above a reporting fund aggregate calculated value?
D
D
Yes
No
(e) Is the value reported in Question 12(c) above areportingfund aggregate calculated value?
D
13.
D
Yes
No
Value of u-rifunded commitments included in gross asset value or gross reporting fund aggregate
calculated value and net asset value or reporting fund aggregate calculated value reported in Questions
11 and 12 (if the reporting fund does not contract for unfunded commitments, enter "NA") .......
14. Provide the following information concerning the reporting fund's activity during the reporting period.
(For the purpose ofthis question, contributions include all new contributions.from investors, but
exclude contributions ofcommitted capital that you have already included in gross asset value
calculated in accordance with Form ADV, Part IA, Instruction 6.e.(3). Withdrawals and redemptions
from the reporting fund include all withdrawals, redemptions and other distributions ofany kind to
investors.)
15.
(a)
Contributions to the reporting fund during the reporting period.......................... .
(b)
Withdrawals and redemptions from the reportingfund during the reporting period.. .
(a) Value ofreportingfund's investments in equity of external private funds: _ _ __
(b) Check ''yes" if the reporting fund is a feeder fund in a master-feeder arrangement and complete the
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(Ifyou are filing a quarterly update, provide this i-riformation for each month ofthe reporting period.)
18080
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
information below for the master fund in which this fund invests. Otherwise, check "no."
D
Yes
D
No
(i) Nrune of master fund ... .......................................................................... .
(ii) Private fund identification number of the master fund: ................................ .
(iii) The master fund's LEI, if any ................................................................ .
(iv) Value of the private fund's investments in equity of the master fund: ........... .
(c) Check ''yes" if the reporting fund invests in any internal private funds and complete the information
below for each such internal private fund. Otherwise, check "no." Do not complete (c)(i) through
(c)(iv) for a master fund identified in (b), above.
D
D
Yes
No
(i) Nrune of internal private fund ....................................................................... ..
(ii) Private fund identification number of the internal private fund ................. .
(iii) The internal private fund's LEI, ifany ............................................ .
(iv) Value of the private fund's investments in equity of the internal private fund:
16. Value of all parallel managed accounts related to the reporting fund: _ _ _ __
(If any ofyour parallel managed accounts relates to more than one of the private funds you advise,
only report the value of the account once, in connection with the largest private fund to which it
relates)
17.
What is the reporting fund's base currency?
[drop-down list of currencies]
Other - - - - - - - - - - -
18. Provide the following information regarding the value of the reporting fund's borrowings and the types
of creditors.
(You are not required to respond to this question for any reporting fund with respect to which you are
answering questions in Section 2 or Question 71 in Section 4. Do not net out amounts that the reporting
fund loans to creditors or the value ofcollateral pledged to creditors.)
(The percentages borrowed from the specified types ofcreditors should add up to approximately
100%.)
(a) Dollar runount of total borrowings
(b) Percentage borrowed from US. depository institutions
(c) Percentage borrowed from U.S. creditors that are not US. depository institutions
(d) Percentage borrowed from non-U.S. creditors
19.
(a) Does the reporting fund have any outstanding derivatives positions?
D
D
Yes
No
20.
VerDate Sep<11>2014
Provide a summary of the reporting fund's assets and liabilities categorized using the hierarchy below
and indicate the date as of which this categorization was performed. For assets and liabilities that you
report internally and to current and prospective investors as representing fair value, or for which you are
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(b) If you responded ''yes" to Question 19(a), provide the aggregate value of all
derivatives positions of the reportingfund .............................................................. ..
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18081
required to determine fair value in order to report the reporting fund's regulatory assets under
management on Form ADV, categorize them into the following categories based on the valuation
assumptions utilized:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Other than quoted prices included within Level I that are observable for the asset or
liability, either directly or indirectly.
Level 3 - Unobservable inputs, such as your assumptions or the fund's assumptions used to determine
the fair value of the asset or liability.
For any assets and liabilities that you report internally and to current and prospective investors as
representing a measurement attribute other than fair value, and for which you are not required to
determine fair value in order to report the reporting fund's regulatory assets under management on
Form ADV, separately report these assets and liabilities in the "cost-based" measurement column.
Do not report cash and cash equivalents in any other column except for the cash and cash equivalents
column.
(If the funds financial statements are prepared in accordance with U.S. generally accepted accounting
principles ("U.S. GAAP'') or another accounting standard that requires the categorization of assets
and liabilities using a fair value hierarchy similar to that established under U.S. GAAP, then respond
to this question using the fair value hierarchy established under the applicable accounting standard.
Report the absolute value ofall liabilities. Ifyou report assets as a negative value, you must provide
an explanation in Question 4.)
(You should use the estimated values for the fiscal year for which you are reporting if the audit of the
financial statement is not yet completed when the Form PF is required to be filed and explain that the
information is an estimate in Question 4. You may, but are not required to, amend when the audited
financial statements are complete.)
(I'his question requires the use offair values and cost-based measurements, which may be different
from the values contemplated by Instruction 15. You are only required to respond to this question if
you are filing an annual update or a quarterly update for your fourth fiscal quarter.)
As of date [drop-down box for month, day, year]
Level I
Level2
Fair Value
Level3
Cost-based
Cash and Cash
Ec,uivalents
Assets
Liabilities
21.
Specify the approximate percentage of the reporting fund's equity that is beneficially owned by the five
beneficial owners having the largest equity interests in the reporting fund. _ _ _ _ _ __
(For purposes of this question, ifyou know that two or more beneficial owners ofthe reporting fund
are affiliated with each other, you should treat them as a single beneficial owner. If the reporting fund
is the master fund in a master-feeder arrangement, include the beneficial owners of a disregarded
feeder fund described by Instruction 6 as beneficial owners ofthe reporting fund.)
Specify the approximate percentage of the reporting fund's equity that is beneficially owned by the
following groups of investors. If you select "other," describe in Question 4 the type of investor, why it
would not qualify for any of the other groups, and any other information to explain your selection.
(Include each investor in only one group. The total should add up to approximately 100%.
With respect to beneficial interests outstanding prior to March 31, 2012, that have not been
transferred on or after that date, you may respond to this question using good faith estimates
based on data currently available to you. If the reporting fund is the master fund in a masterfeeder arrangement, include the beneficial owners ofa disregarded feeder fund described by
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22.
18082
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Instruction 6 as beneficial owners of the reporting fund.)
(a) Individuals that are United States persons (including their trusts) .......................... .
(b) Individuals that are not United States persons (including their trusts) .................... .
(c) Broker-dealers that are United States persons ......................................................... .
(d) Broker-dealers that are not United States persons ................................................... .
(e) Insurance companies that are United States persons ............................................... .
(f) Insurance companies that are not United States persons ......................................... .
(g) Investment companies registered with the SEC....................................................... .
(h) External private funds ............................................................................................ .
(i) Internal private funds .............................................................................................. .
(i) Non-profits that are United States persons ............................................................... .
(k) Non-profits that are not United States persons ......................................................... .
(1)
U.S. pension plans (excluding governmental pension plans) .................................. .
(m) Non-U.S. pension funds (plans and funds that are not U.S. private or
governmental pension
plans ......................................................................................................................... .
(n) Banking or thrift institutions that are United States persons ................................... .
(o) Banking or thrift institutions that are not United States persons .............................. .
(p) U.S. state or municipal government entities (excluding governmental pension
plans) ...................................................................................................................... .
(q) U.S. state or municipal governmental pension plans ................................................ .
(r) Sovereign wealth funds and foreign official institutions (excluding pension funds).
(s) Investors that are not United States persons and about which the foregoing
beneficial ownership information is not known and cannot reasonably be obtained
because the beneficial interest is held through a chain involving one or more thirdparty intermediaries ................................................................................................. .
(t) Other ......................................................................................................................... .
Item C. Reporting fund performance
23.
Complete (a) unless the reporting fund's performance is reported to current and prospective investors,
counterparties, or otherwise, as an internal rate ofreturn since inception, in which case, complete (b ).
The reporting fund may report performance as either a time-weighted return or a money-weighted return,
such as an internal rate ofreturn; however, the methodology used for reporting performance should be
consistent over time.
If the fund reports different performance results to different groups, provide the most
representative results and explain your selection in Question 4. You are required to provide
monthly and quarterly performance results only if such results are calculated for the reporting fund
(whether for purposes ofreporting to current or prospective investors, counterparties, or
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(a) Provide the reporting fund's gross and net performance, as reported to current
and prospective investors, counterparties, or otherwise. Report the data using the
reporting fund's base currency. Do not calculate the reporting fund's performance
using reporting fund aggregate calculated value.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18083
otherwise).
If you are submitting an initial filing or an annual update, complete (i) through (xvi) (concerning
monthly and quarterly data), only if you calculate such results, and complete (xvii) (concerning
yearly data). (For example, if you are submitting an initial filing or an annual update and you do
not calculate monthly or quarterly performance results, complete (xvii) only.)
If you are submitting a quarterly update, complete the following:
• Complete (i) through (iii) (concerning monthly data), if you calculate such results; and
•
Complete (xiii) through (xvi) for the applicable quarter. (For example, if you are filing a
quarterly update for the first quarter ofreportingfunds' fiscal year, complete (xiii)
(concerning the first quarter), but do not complete (xiv) (concerning the second quarter),
(xv) (concerning the third quarter), or (xvi) (concerning the fourth quarter); and
•
Complete (xvii) (data concerning the reporting fund's most recently completed fiscal
year) only if the quarterly update is for the fourth quarter ofreportingfund's fiscal year.
If the quarterly update is not the fourth quarter of the reporting fund's fiscal year, do
not complete (xvii).
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(lfyour fiscal year is different from the reporting fund's fiscal year, then for any portion of the
reporting fund's fiscal year that has not been completed as of the data reporting date, provide the
relevant ieformationfrom that portion ofthe reporting fund's preceding fiscal year.)
(Performance results for monthly and quarterly periods should not be annualized. If any period
precedes the date of the fund's formation, enter "NA". You are not required to include
performance results for any period with respect to which you previously provided performance
results for the reportingfund on Form PF.)
18084
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
End date
[drop-down
list of month,
dav, vearl
Gross
oerformance
Net of
management
fees, incentive
fees, and
allocations
Monthly Data
(i) 1st month of reporting period
(ii) 2nd month of reporting period
(iii) 3rd month of reporting period
(iv) 4th month of reporting period
(v) 5th month of reporting period
(vi) 6th month of reporting period
(vii) 7th month of reporting period
(viii) 8th month of reporting period
(ix) 9th month of reporting period
(x) 10th month of reporting period
(xi) 11 th month of reporting period
(xii) 12th month of reporting period
Quarterly Data
(xiii) First quarter ofreportingfund's fiscal year
(xiv) Second quarter ofreportingfand's fiscal year
(xv) Third quarterof reporting fond's fiscal year
(xvi) Fourth quarter of reporting fond's fiscal year
Yearly Data
(xvii) Reporting fund's most recently completed fiscal
year
If the fund reports different performance results to different groups, provide the most
representative results and explain your selection in Question 4. You are required to provide
quarterly performance results since inception only if such results are calculated for the reporting
fund (whether for purposes of reporting to current and prospective investors, counterparties, or
otherwise). Internal rates of return for periods longer than one year must be annualized, while
internal rates of return for periods one year or less must not be annualized.
(i) Inception date used for internal rate ofreturn calculation: ...................................... .
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(b) If the reporting fund's performance is reported to current and prospective
investors, counterparties, or otherwise, as an internal rate ofreturn since inception,
provide the reportingfund's performance below. If such information is reported to
current and prospective investors, counterparties, or otherwise, in a currency other
than U.S. dollars, report the data using that currency, and identify the currency in
Question 4. Do not calculate the reporting fund's performance using a reporting fund
aggregate calculated value.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18085
(ii) Inception through the first quarter ofreportingjimd's fiscal year. .............................. .
(iii)Inception through the second quarter ofreportingfund's fiscal year........................... .
(iv) Inception through the third quarter of reporting fund's fiscal year. ............................. .
(v) Inception through the end of the reporting fund's most recently completed fiscal year ..... .
(vi) Does the reported internal rate ofreturn include the effect of any borrowings secured by
unfunded commitments (i.e. subscription lines of credit)?
D
No
□
Yes
(c) If you calculate a market value on a daily basis for any position in the reporting
fund's portfolio, report the following:(i) Provide the reporting fund aggregate
calculated value at the end of the reporting period, and if you are filing a quarterly
update, also report the reporting fund aggregate calculated value as of the end of the
Provide the reporting fund's
first and second month of the reporting period. (ii)
volatility of the natural log of the daily rate-of-return for each month of the reporting
period, computed as the standard deviation of the natural log of one plus each of the
daily rates-of-return in the month, annualized by the square root of252 trading days.
When calculating the natural log of a daily rate-of-return, the rate ofreturn, which is
expressed as a percent, must first be converted to a decimal value and then one must
be added to the decimal value.
Annualized volatility of
returns
(AJ 1st month of reporting period
(H 2nd month of reporting period
(CJ 3rd month of reporting period.
(DJ 4th month of reporting period
(EJ 5th month of reporting period
(P 6th month of reporting period
(G 7th month of reporting period
(J-F 8th month of reporting period
(I) 9th month of reporting period
(J) 10th month of reporting period
(K) 11th month of reporting period
(LJ 12th month of reporting period
D
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□
Yes
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(iii) Is the reporting fund's volatility of the daily rates-of-return reported to
current and prospective investors, counterparties, or otherwise using a different
computation than Question 23(c)(ii)? If yes, describe it in Question 4.
18086
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
(iv)(A) Did the reportingfundhave a negative daily rates-of-return for one or more days during
the reporting period?
D
□
Yes
No
(BJ If you responded "yes" to (iv)(A), report the following for the most recent peak to trough
drawdown:
Amount in base currency _ _ __
End Date- - - -
% in base currency _
Beginning Date_ _ __
If the draw down was continuing on the data reporting date, do not enter an end date and
check here □
(C) Largest peak to trough drawdown of the reporting fund over the reporting period:
Amount in base currency _ _ __
End Date- - - -
% in base currency _
Beginning Date_ _ __
If the draw down was continuing on the data reporting date, check here
□
(D) Largest single day drawdown of the reporting fund over the reporting period:
Amount in base currency _ _ __
% in base currency_ Date_ _ __
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(E) Number of days with a negative daily rates-of-return in the reporting period _ _ _ __
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18087
Information about the hedge funds you advise
(to be completed by all Form PF filers that advise hedge funds)
Form PF
Section le
Section le: Information about the hedge funds you advise
You must complete a separate Section 1c for each hedge fund that you advise, except as provided by
Instruction 6 and Instruction 7.
Item A. Reporting fund identifying information
24.
(a) Name of the reporting fund ................................................................................... .
(b) Private fund identification number of the reporting fund .......................................... .
B
Item B. Certain information regarding the reporting fund
Indicate which of the investment strategies in the drop-down menu below best describe the reporting
fund's strategies on the last day of the reporting period. For each strategy that you have selected, provide
a good faith estimate of the percentage of the reporting fund's net asset value represented by that
strategy. If, in your view, the reporting fund's allocation among strategies is appropriately represented
by the percentage of deployed capital, you may also provide that information.
(Select the investment strategies that best describe the reporting fund's strategies, even if the
descriptions below do not precisely match your characterization ofthose strategies; select "other"
only if a strategy that the reporting fund uses is significantly different from any ofthe strategies
identified below.)
(The strategies in the drop-down menu below are mutually exclusive (i.e., do not report the same
assets under multiple strategies). The reporting strategies methodology used should be consistent
over time. lfproviding percentages ofcapital, the total should add up to approximately I 00%.) (lf
you select "other" as an investment strategy for the reporting fund, describe in Question 4 the
investment strategy, why it would not qualify for any of the other categories, and any other information
to explain the selection "other." lf a particular strategy could be classified as both a digital asset
strategy and another strategy, report the strategy as the non-digital asset strategy.)
%ofNAV
(required)
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Strategy
[drop-down menu]
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%of
capital
(optional)
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25.
18088
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Information about the hedge funds you advise
(to be completed by all Form PF filers that advise hedge funds)
Form PF
Section le
26.
Consolidated Counterparty Exposure Table
Report in the consolidated counterparty exposure table below the reporting fund's borrowing and
collateral received (BICR) and lending and posted collateral (LIPC) aggregated across all creditors and
counterparties (including all CCPs) in U.S. dollars as of the end of the reporting period. (You are not
required to complete this question if the reporting fund is a qualifying hedge fund and you complete
the consolidated counterparty exposure table in Section 2).
You must net the reporting fund's exposure with each counterparty and among affiliated entities of a
counterparty to the extent such exposures may be contractually or legally set-off or netted across those
entities or one affiliate guarantees or may otherwise be obligated to satisfy the obligations of another
under the agreements governing the transactions. Netting must be used to reflect net cash borrowed
from or lent to a counterparty but must not be used to offset securities borrowed and lent against one
another, when reporting prime brokerage and repo/reverse repo transactions.
Report the counterparty exposures of trading vehicles owned by the reporting fund based on the
reporting fund's percentage ownership of each trading vehicle, without netting the trading vehicle's
exposures with the reporting fund's exposures if they are not guaranteed by the reporting fund or
contractual obligations of the reporting fund. If the reporting fund guarantees or is contractually
obligated to fulfill obligations of such trading vehicles or affiliated private funds, such exposures must
be reported net with those of the reporting fund. If an adviser to an affiliated private fund separately
files Form PF, such adviser to the affiliated private fund must exclude such exposures if they have been
reported in the reportingfund's filing.
In completing the table, classify borrowing and collateral received and lending and posted collateral
according to type (e.g., unsecured borrowing, secured borrowing, derivatives cleared by a CCP, and
uncleared derivatives) and the governing legal agreement (e.g., a prime brokerage or other brokerage
agreement for cash margin and securities lending and borrowing, a global master repurchase agreement
for repo/reverse repo, or an ISDA master agreement for synthetic long positions, synthetic short
positions, and derivatives). Report transactions under a master securities loan agreement as other
secured borrowing.
VerDate Sep<11>2014
Check this box if one or more prime brokerage agreements provide for cross-margining of
derivatives and secured financing transactions. If you have checked this box, and collateral does not
clearly pertain to secured financing vs. derivatives transactions, report exposures and collateral as
follows:
• For secured financing, exposures and collateral should be reported in sections (b), (c) and (d),
as applicable
• For derivatives,
o Report the gross notional value and the mark-to-market exposure of the derivatives
transactions with other derivatives transactions (lines (e)(i) or lines (f)(i) and (ii))
o Report associated collateral as collateral received (B/CR) or posted collateral (LIPC)
under the prime brokerage agreement (lines (b)(ii) and (iii)).
• For derivatives cleared by a CCP, for cases where the prime broker gathers additional
collateral in excess of that required by exchanges, report collateral posted by the reporting
fund to meet exchange requirements in the cleared derivatives section on lines (e)(ii) and (iii),
and any additional collateral gathered by the prime broker under a cross margining agreement
should appear on lines (b) (ii) and (iii).
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□
18089
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
8/CR
Consolidated Counterparty Exposure Table
L/PC
Not
Applicable
(a) Unsecured borrowing - cash and cash equivalents
(b) Secured borrowing and lending (prime brokerage or other brokerage agreement)
(i) cash and cash equivalents received in cash margin borrowing, or received or paid by the
reporting fund in securities lending and short sale transactions
(ii) cash and cash equivalents received or posted by the reporting fund as collateral for
derivatives under any cross-margining agreement
(iii) government securities and other securities received and posted by the reporting fund
(c) Secured borrowing and lending via repo and reverse repo (include tri-party repo)
(i) cash and cash equivalents
(ii) government securities and other securities (other than cash and cash equivalents)
received and posted by the reporting fund
(d) Other secured borrowing and lending (describe in Question 4)
(i) cash and cash equivalents
(ii) government securities and other securities (other than cash and cash equivalents)
received and posted by the reporting fund
(e) Derivative positions cleared by a CCP
(i) mark-to-market exposure of derivatives transactions before collateral
(ii) cash and cash equivalents received and posted by the reporting fund as collateral
(iii) government securities and other securities received and posted by the reporting fund as
collateral
(f) Derivative positions that are not cleared by a CCP (uncleared)
(i) gross notional value of synthetic Jong positions and synthetic short positions
(ii) mark-to-market exposure of derivatives transactions before collateral
(iii) cash and cash equivalents received and posted by the reporting fund as collateral
(iv) government securities and other securities received and posted by the reporting fund as
collateral
Identify each creditor or other counterparty (including CCPs) to which the reporting fund owed an
amount in respect of cash borrowing entries(before posted collateral) which is equal to or greater than
either (1) 5% of net asset value as of the data reporting date, or (2) $1 billion. If there are more than five
such counterparties, report the five counterparties to which the reporting fund owed the largest dollar
amount in cash borrowing entries before taking into account collateral posted by the reporting fund. (You
are not required to complete this question if the reporting fund is a qualifying hedge fund and you
complete Question 42 in Section 2).
In the table below, report the legal entity name and LEI of each creditor or other counterparty, if it has
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27.
18090
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
one, m columns {1) anct {n). lnct1cate whether the creditor or counterparty 1s att1llatect with a maJor
fmancial institution in column (iii). If you select "other," name and describe the fmancial institution in
Question 4. Do not treat affiliated counterparty entities as a single group, except that, if the applicable
contractual and legal documentation requires cross margining, report the LEI of the contractual
counterparty, typically the prime broker.
Report the reporting fund's cash borrowing entries for each reported creditor or counterparty in
column (iv) as a negative number. Report in column (v) the collateral posted entries posted by the
reporting fund for each reported creditor or other counterparty as a positive number. Report the legal
name in column (vi) and its LEI, if any, in column (vii), of the entity that has the counterparty
exposure.
(i) Legal
name of
the
counterp
artv
(ii)
Counterp
arty LE/,
ifanv
(a)
(iii) Indicate
below if the
counterparty is
affiliated with a
major financial
institution
[drop-down list of
counterparty
names]
(iv)
Borrowing
by
reporting
fund(in
U.S.
dollars)
(v)
Collater
al
posted
by
reporting
fund(in
U.S.
dollars)
(vi)
Legal
name of
entitv
(vii)
Entity
LEI,if
anv
Other:
rNot applicablel
[drop-down list of
counterparty
names]
Other:
--rNot applicablel
[drop-down list of
counterparty
names]
Other:
--!Not applicablel
[drop-down list of
counterparty
names]
Other:
--rNot applicablel
[drop-down list of
counterparty
names]
(b)
(c)
(d)
(e)
---
Other:
rNot applicablel
Provide the following information for counterparties to which the reporting fund had net mark to market
counterparty credit exposure, after taking into account collateral received or posted by the reporting fund,
which is equal to or greater than either (1) 5% of the reporting fund's net asset value as of the data
reporting date, or (2) $1 billion. Include CCPs or other third parties holding collateral posted by the
reporting fund in respect of cleared exposures (including tri-party repo ). If there are more than five such
counterparties, report the five to which the reporting fund had the greatest mark to market exposure after
taking into account collateral. (You are not required to complete this question ifthe reporting fund is a
qualifying hedge fund and you complete Question 43 in Section 2).
For counterparties to which the reporting fund had net borrowing exposure, the reporting fund's net
mark to market counterparty credit exposure before collateral equals the reporting fund's cash
borrowing entries. The reporting fund's net mark to market counterparty credit exposure after
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28.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18091
collateral is the amount (if any) by which the reporting fund's collateral posted entries exceed such
cash borrowing entries.
For counterparties to which the reporting fund had net lending exposure, the reporting fund's net mark
to market counterparty exposure before collateral means the cash lending entries.
The reporting fund's net mark to market counterparty credit exposure after collateral equals the
amount (if any) by which the reporting fund's cash lending entries exceeds the collateral received
entries.
For all counterparties (whether the reporting fund had borrowing or lending exposure), these
computations will produce a positive value for the counterparties to which the reporting fund had net
mark to market counterparty credit exposure after collateral. This may occur where the reporting
fund's posted collateral exceeded borrowings by the reporting fund from a counterparty. It also may
occur where collateral received by the reporting fund fell short of the reporting fund's net mark to
market counterparty credit exposure through cash and cash equivalents received by a counterparty in
margin borrowing, securities lending, repo and reverse repo transactions, and mark to market exposure
in derivatives transactions.
Report the legal entity name and LEI of each creditor or other counterparty, if it has one, in column (i)
and (ii) below. Indicate if the counterparty is affiliated with a major financial institution in column
(iii). If you select "other," name and describe the financial institution in Question 4. In columns (iv)
and (v), provide the reporting fund's net mark to market counterparty credit exposure, before taking
into account collateral (which will be a negative number where the reporting fund is a net borrower,
and a positive number where the reporting fund is a net lender), and net mark to market counterparty
credit exposure, after taking into account collateral (which will always be a positive number for
counterparties included in this table). Report the legal name in column (vi) and its LEI, if any, in
column (vii), of the entity that has the counterparty exposure.
Do not treat affiliated counterparty entities as a single group, except that, if the applicable contractual
and legal documentation requires cross margining, report the legal entity name and LEI of the
contractual counterparty, typically the prime broker.
(iv) Net
(v) Net
mark to
mark to
(ii)
(iii) Indicate if the
market
market
Counter
counterparty is
exposure
exposure
(i) Legal
-party
affiliated with a
before
after
(vi) Legal
name of the
major financial
collateral (in collateral (in
name of
(vii) Entity
LEI, if
entity
LEI, if any
counterparty
any
institution
U.S. dollars) U.S. dollars)
(b)
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(c)
(d)
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[drop-down list of
counterparty
names]
Other:
[Not applicable l
[drop-down list of
counterparty
names]
Other:
--[Not applicable l
[drop-down list of
counterparty
names]
Other:
--[Not aoolicable l
[drop-down list of
counterparty
names]
Other:
(a)
18092
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
fN ot aoolicable l
[drop-down list of
counterparty
names]
Other:
fN ot annlicable l
(e)
29.
Provide the following information regarding your use of trading and clearing mechanisms during the
reporting period.
(Provide good faith estimates of the mode in which each category was traded and cleared by the
reporting fund, and not the market as a whole. For purposes of this question, a "trade" includes any
transaction, whether entered into on a bilateral basis or through an exchange, trading facility or other
system and whether long or short. With respect to clearing, transactions for which margin is held in a
customer omnibus account at a CCP should be considered cleared by a CCP. Tri-party repo applies
where repo/reverse repo collateral is executed using collateral management and settlement services of
a third party that does not act as a CCP. Sponsored repo/reverse repo, including sponsored tri-party
repo applies to transactions in which the reporting fund has been sponsored by a sponsoring member of
the Fixed Income Clearing Corporation (FICC).)
(Enter "NA" in each part of this question for which the reporting fund engaged in no relevant trades.}
(In column (i) "value traded," report the total value in US. dollars of the reportingfund's transactions
in the instrument category and trading mode during the reporting period. In determining the "value
traded" ofderivatives trades for purposes of Questions 29(b) and 29(c), you should use the weightedaverage of the notional amount ofthe aggregate derivatives transactions entered into by the reporting
fund during the reporting period, except for the following: (I) for options, you would use the delta
adjusted notional value, (2) for interest rate derivatives, you would use the JO-year bond equivalent.)
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(In column (ii) "end a/reporting period value ofpositions," report the sum ofthe absolute value ofall
of the reporting fund's long and short positions in each category and mode at (a) to (d) on the last date
of the reporting period. Ifyou complete Section 2 for the reporting fund, the sum of the end of the
reporting period value ofpositions in each category should be consistent with the sum of long and
short positions for sub-asset classes in that category reported in Question 32.)
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18093
(i) value traded
(ii) End of
(in U.S. dollars) reporting period
value of
positions
(a) securities (other than derivatives) that were traded by the
reporting fund.
On a regulated exchange
OTC
(b) interest rate derivatives that were traded by the reporting fund
On a regulated exchange or swap execution facility
OTC (and cleared by a CCP)
OTC/bilaterally transacted (and not cleared by a CCP)
(c) derivatives (other than interest rate derivatives) that were traded
by the reporting fund and:
On a regulated exchange or swap execution facility
OTC (and cleared by a CCP)
OTC/bilaterally transacted (and not cleared by a CCP)
(d) repo/reverse repo trades that were entered into by the reporting
fund and:
Cleared by a CCP (other than sponsored repo/reverse repo)
I--------+----------<
Cleared by a CCP (sponsored repo/reverse repo).
Bilaterally transacted (and not cleared by a CCP and not
settled on tri-party platform)
Tri-party repo/reverse repo (and not cleared by a CCP)
30.
For transactions of the reporting fund that are not described in any of the categories listed in items (a)
through (d) of Question 29, provide:
(a) the value traded (in U.S. dollars) during the reporting period, calculated according to the method
prescribed for column (i) of Question 29, and
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(b) the end of reporting period value of positions, calculated according to the method prescribed for
column (ii) of Question 29.
18094
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Information about qualifying hedge funds that you advise
Form PF
Section 2
Section 2: Information about qualifying hedge funds that you advise.
You must complete a separate Section 2 for each qualifying hedge fund that you advise, except as provided
by Instruction 6. With respect to master-feeder arrangements and parallel fund structures that collectively
comprise qualifying hedge funds, report the component funds as provided in the General Instructions.
See Instructions 3, 5, and 6.
Item A. Reporting fund identifying information
31.
(a) Nameofthereportingfund.........................................................................................
(b) Private fund identification number of the reporting fund ......................................
~
c=J
Item B. Reporting fund exposures and trading
32. Reportingfund exposures.
For each month of the reporting period, report the information required by (a) to (c) below for the reporting
fund's long and short positions, by sub-asset class (and instrument type, if applicable). Report the absolute
value of short positions. You are not required to report for sub-asset classes for which there are no relevant
positions.
Choose the sub-asset class (and instrument type, if applicable) that describes the sub-asset class exposure and
instrument type of the reporting fund's positions with the highest degree of precision. Include positions held
in side-pockets as positions of the reporting fund. Include any closed out and OTC forward positions that
have not yet expired/matured. Provide the absolute value of short positions. Report cash borrowed via
reverse repo as the short value of repos. See defmitions of repo and reverse repo in the Glossary.
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For this question, sub-asset classes are: listed equity issued by fmancial institutions; American Depositary
Receipts; other single name listed equity; indices on listed equity; other listed equity; unlisted equity issued
by fmancial institutions; other unlisted equity; investment grade corporate bonds issued by financial
institutions (other than convertible bonds); investment grade corporate bonds not issued by financial
institutions (other than convertible bonds); non-investment grade corporate bonds issued by financial
institutions (other than convertible bonds); non-investment grade corporate bonds not issued by fmancial
institutions (other than convertible bonds); investment grade convertible bonds issued by fmancial
institutions; investment grade convertible bonds not issued by fmancial institutions; non-investment grade
convertible bonds issued by fmancial institutions; non-investment grade convertible bonds not issued by
financial institutions; U.S. treasury bills; U.S. treasury notes and bonds; agency securities; GSE bonds;
sovereign bonds issued by G 10 countries other than the U.S, other sovereign bonds (including supranational
bonds); U.S. state and local bonds; leveraged loans; loans (excluding leveraged loans and repo); overnight
repo, term repo (other than overnight); open repo; MES; ABCP; CDO (senior or higher); CDO (mezzanine);
CDO Gunior equity); CLO (senior or higher); CLO (mezzanine); CLO Gunior equity); Other ABS, other
structured products; U.S. dollar interest rate derivatives; non-U.S. currency interest rate derivatives;
sovereign single name CDS; financial institution single name CDS; other single name CDS; index CDS;
exotic CDS; foreign exchange derivatives; correlation derivatives; inflation derivatives; volatility
derivatives; variance derivatives; other derivatives, agricultural commodities; crude oil commodities; natural
gas commodities; power and other energy commodities; gold commodities; other (non-gold) precious metal
commodities; base metal commodities; other commodities; real estate; digital assets; U.S. currency holdings;
non-U.S. currency holdings; certificates of deposit; other deposits; money market funds; other cash and cash
equivalents (excluding bank deposits, certificates of deposit, money market funds, and U.S. treasury bills,
notes and bonds); investments in other sub-asset classes. If a particular asset could be classified as both a
digital asset and another asset, report the asset as the non-digital asset.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18095
(a) (1) Except for the sub-asset classes identified by (a)(2) below, report the dollar value oflong
positions and the dollar value of short positions in each sub-asset class by instrument type: For
this purpose, instrument types are: cash/physical instruments, futures, forwards, swaps, listed
options, unlisted options, other derivative products, ETFs, other exchange traded products, U.S.
registered investment companies (excluding ETFs and money market funds), investments in nonUS registered investment companies, internal private funds, external private funds, commodity
pools, and any other company, fund or entity. For foreign exchange derivatives, report foreign
exchange swaps and currency swaps separately. In determining dollar value, do not net long and
short positions within sub-asset classes or instrument types (with the exception of spot foreign
exchange longs and shorts).
In determining the reporting fund's exposure to sub-asset classes for positions held indirectly through
entities, e.g., ETFs, other exchange traded products, U.S. registered investment companies (excluding
ETFs and money market funds), investments in non-US. registered investment companies, external private
funds, internal private funds, commodity pools, or other companies, funds or entities, you may allocate the
position among sub-asset classes and instrument types using reasonable estimates consistent with your
internal methodologies and conventions of service providers. You may report an entirely indirectly held
entity position in one sub-asset class and instrument type that best represents the sub-asset class exposure
of the indirectly held entity, unless you would allocate the exposure of the indirectly held entity more
granularly under your own internal methodologies and conventions of your service providers.
(i) Long:
(ii) Short:
(2) Report the dollar value of long positions and the dollar value of short positions for the sub-asset class
(not by instrument type) for these sub-asset classes: leveraged loans, loans (excluding leveraged loans and
repo); overnight repo, term repo (other than overnight), open repos; sovereign single name CDS; financial
institution single name CDS; other single name CDS, index CDS; exotic CDS; U.S. currency holdings,
non-U.S. currency holdings, certificates of deposit, other deposits, money market funds, other cash and
cash equivalents (excluding bank deposits, certificates of deposit, money market funds, and U.S. treasury
bills, notes and bonds).
(i) Long:
(ii) Short:
Describe the nature of the reporting fund's investment positions in Question 4, if you report long or short
dollar value equal to or exceeding either (1) 5% of the reporting fund's net asset value or (2) $1 billion in
any of these sub-asset classes: loans (excluding leveraged loans and repo), other structured products,
other derivatives, other commodities, digital assets, investments in other sub-asset classes.)
(b) Adiusted exposure (1) For each sub-asset class in which the reporting fund held relevant
positions, calculate the adjusted exposure of long and short positions by netting positions in the
same underlying reference asset across instrument type, and for fixed income assets, within the
same term, using the following maturity buckets: 0-1 year, 1-2 year, 2-5 year, 5-10 year, 10-15
year, 15-20 year, and 20+ year. You may net counterparties consistent with the information you
report internally and to current and prospective investors.
(2) If, under your methodologies for internal reporting and reporting to investors, you do not
net all positions across all instrument types in monitoring the economic exposure of the
reporting fund's investment positions, you must also (i) report adjusted exposure for each subasset class calculated using your internal methodologies, and (ii) describe in Question 4 how
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(i) Long:
(ii) Short:
18096
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
your internal methodologies differ from the calculations required by subsection (b)(l).
(c) Interest rate risk (JO-year bond equivalent). For sub-asset classes with interest rate risk, report
the 10-year bond equivalent of the sub-asset class long position dollar value and short position
dollar value (by instrument type, if applicable) and adjusted exposure. Report 10-year bond
equivalent as a long value for positions that have a gain when rates decline, and as a short value
for positions that have a loss when rates decline,
(NOTE: 10-year bond equivalent is required for these sub-asset classes: investment grade corporate bonds
issued by fmancial institutions ( other than convertible bonds); investment grade corporate bonds not issued
by financial institutions (other than convertible bonds); non-investment grade corporate bonds issued by
fmancial institutions (other than convertible bonds); non-investment grade corporate bonds not issued by
financial institutions (other than convertible bonds); investment grade convertible bonds issued by financial
institutions; investment grade convertible bonds not issued by fmancial institutions; non-investment grade
convertible bonds issued by financial institutions; non-investment grade convertible bonds not issued by
fmancial institutions; U.S. treasury bills, U.S. treasury notes and bonds; US. agency securities; GSE bonds;
sovereign bonds issued by G 10 countries other than the U.S, other sovereign bonds (including supranational
bonds); U.S. state and local bonds; leveraged loans, loans (excluding leveraged loans and repo); overnight
repo, term repo (other than overnight), open repo, MBS, ABCP, Senior or higher CDO, Mezzanine CDO,
Junior equity CDO, Senior or higher CLO, Mezzanine CLO, Junior equity CLO, Other ABS, other
structured products; U.S. dollar interest rate derivatives, non-U.S. currency interest rate derivatives;
certificates of deposit).
33.
(a) For each month of the reporting period, report the net long value and net short value of the reporting
fund's currency exposure arising fromforeign exchange derivatives and all other assets and liabilities of
the reporting fund that are denominated in a currency other than the reporting fund's base currency.
Currency
1'1 Month
Long value
Short value
2 nd Month
Long value Short value
J<d Month
Long value Short value
I rdrop-down of currencies l
I [drop-down of currencies]
(b) For each month of the reporting period, identify each currency to which the reporting fund has
long dollar value or short dollar value exposure equal to or exceeding either (1) 5% of the
reporting fund's net asset value or (2) $1 billion and report the long dollar value and short dollar
value of this exposure in U.S. dollars.
In responding to this question, include the spot currency exposure arising from all holdings, including
assets denominated in foreign currencies, and derivative products with currency exposure. Include
currency exposure obtained indirectly (e.g., through ETFs, exchange traded products, US. registered
investment companies, non-US. registered investment companies, internal private funds, external
private funds. commodity pools. or other companies, funds or entities). You may report reasonable
estimates, if consistent with your internal methodologies and conventions ofservice providers. For
indirectly held exposures, report currency exposures using reasonable estimates that best represent
the exposures of the entity and are consistent with your internal methodologies and conventions of
service providers.
Currency
34.
VerDate Sep<11>2014
2nd Month
Long value Short value
3 rd Month
Long value Short value
For each month of the reporting period, provide the value of turnover during the month in each of the
asset classes listed below for the reporting fund.
(The value of turnover is the sum ofthe absolute values oftransactions in the relevant asset class
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I rdrop-down of currencies]
I rdrop-down of currenciesl
1'1 Month
Long value
Short value
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18097
during the period.).
1st Month
2nd Month
3rd Month
Listed equity (exclude listed equity derivatives) .....
Corporate bonds (other than convertible bonds;
exclude derivative exposure to corporate bonds)....
Convertible bonds (.exclude derivative exposure to
convertible bonds) ................................................... .
Sovereign bonds and municipal bonds (exclude
derivative exposure)
U.S. treasury bills ................................... .
U.S. treasury notes and bonds ....................... .
Agency securities .................................... .
GSE bonds...................................................... .
Sovereign bonds issued by G 10 countries other
than the U.S ........................................... .
Other sovereign bonds (including supranational
bonds) ....................................... .
U.S state and local bonds................................ .
Listed equity derivatives ... ........................... .
Interest rate derivatives ... ..................... .
U.S. dollars ................................... .
Futures ............................... .
Swaps ............................ .
Options ....................................... .
Other derivative instrument types
Non-U.S. currencies
Futures................................... .
Swaps................................... .
Options................................... .
Other derivative instrument types
Foreign Exchange Derivatives .................. .
Swaps ....................................... .
Options ..................................... .
Other instrument types ......... .
Derivative exposure to U.S treasury securities ......... .
Derivative exposure to sovereign bonds issued by G 10
countries other than the U.S ....
Derivative exposure to other sovereign
bonds................................... .
35. For each month of the reporting period, identify by ISO country code, each country to which the
reporting fund has long dollar value or short dollar value exposure equal or exceeding either (1) 5% of
the reporting fund's net asset value or (2) $1 billion., and report the long dollar value and short dollar
value of this exposure in U.S. dollars.
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Other derivatives ... ...................................... .
18098
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
(See Instruction 15 for information on calculating the numerator for purposes ofthis Question.
Categorize investments based on concentrations ofrisk and economic exposures, and include country
exposure obtained indirectly (e.g., through ETFs, exchange traded products, US. registered
investment companies, non-US. registered investment companies, internal private funds, external
private funds, commodity pools, or other companies,funds or entities. You may report reasonable
estimates, if consistent with your internal methodologies and conventions ofservice providers. For
indirectly held exposures, report country exposures using reasonable estimates that best represent the
exposures of the entity and are consistent with your internal methodologies and conventions ofservice
providers.
ISO Code
I
I
1'1 Month
Loni! value
Short value
2nd Month
Loni! value Short value
Yd Month
Loni! value Short value
fdrop-down ofISO Codel
fdrop-down ofISO Code l
36.
For each month of the reporting period, identify_the reporting fund's exposure by industry, based on the
NAJCS codes of the underlying exposures,_equal or exceeding either: (1) 5% of the reporting fund's net
asset value or (2) $1 billion, and report the long dollar value and short dollar value of this exposure in
U.S. dollars.
Include industry exposure obtained indirectly (e.g., throughETFs, exchange traded products, U.S.
registered investment companies, non-US. registered investment companies, internal private funds,
external private funds, commodity pools, or other companies, funds or entities). You may respond to
this Question using reasonable estimates based on your internal methodologies consistent with
information you report internally and to investors. For indirectly held exposures, report industry
exposures using reasonable estimates that best represent the exposures of the entity and are consistent
with your internal methodologies and conventions of service providers.
NA/CS Code
1st Month
Short value
Loni! value
2nd Month
Loni! value Short value
3 rd Month
Loni! value Short value
[drop-down of NAICS
Codel
[drop-down of NAJCS
Code]
Provide the following information regarding the liquidity of the reporting fund's portfolio.
Specify the percentage by value of the reporting fund's positions that may be liquidated within each
of the periods specified below. Each investment can be assigned to more than one period, but
assignments should be based on the shortest period during which you believe that such position
could reasonably be liquidated at or near its carrying value. If an investment is assigned to more than
one period, reflect the percentage of net asset value that might be liquidated within each period (as
opposed to the percentage of net asset value that the entire investment represents). Use good faith
estimates for liquidity based on market conditions over the reporting period and assuming no firesale discounting. Estimates must be based on a methodology that takes into account changes in
portfolio composition, position size and market conditions over time. For example, estimates would
change if the portfolio invests in more or less liquid assets, if/when the portfolio investments grow to
a size relatively to the liquidity of the markets in which it invests that requires more time to
liquidate, and ifliquidity characteristics change measurably and meaningfully for the assets in which
the portfolio invests. In the event that individual positions are important contingent parts of the
same trade, group all those positions under the liquidity period of the least liquid part (so, for
example, in a convertible bond arbitrage trade, the liquidity of the short should be the same as the
convertible bond). Include cash and cash equivalents.
(The total should add up to approximately 100%.)
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37.
18099
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
%of NAY
1 day or less ............................................................................................... .
2 days - 7 days ........................................................................................... .
8 days - 30 days ......................................................................................... .
31 days - 90 days ....................................................................................... .
91 days - 180 days ..................................................................................... .
181 days-365 days ................................................................................... .
Longer than 365 days ................................................................................. .
pt
2nd
3<d
Month
Month
Month
I
I
I
I
38.
Value of reporting fund's unencumbered cash ............... .
39.
Report the following with respect to the reporting fund's long and short netted exposure to reference
assets at the end of each month of the reporting period:
For purposes of this Question 39, netted exposure means the sum of all positions with legal and
contractual rights that provide exposure to the same reference asset. Take into account all positions,
including offsetting and partially offsetting positions, relating to the same reference asset (without
regard to counterparties or issuers of a derivative or other instrument that reflects the price of the
reference asset). The netted exposure to a reference asset will be either long or short. Determine the
value of each netted exposure to each reference asset in U.S. dollars, expressed as the delta adjusted
notional value, or as the 10-year bond equivalent for reference assets that are fixed income assets.
Do not report exposure to cash and cash equivalents.
1st Month
Long Short
2nd Month
Long Short
Yd Month
Long Short
(a) Total number of reference assets to which the reporting
fund holds long and short netted exposure (approximate)
(b) Percent of net asset value represented by the aggregated
netted exposures of reference assets with the top five (5)
long and short netted exposures.
(c) Percent of net asset value represented by the aggregate
netted exposures of reference assets representing the top ten
(10) long and short netted exposures.
As of the end of each month in the reporting period, provide the information requested below for each
reference asset to which the reporting fund has gross exposure equal to or exceeding:
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40.
18100
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
(i) 1% of net asset value, if the reference asset is a debt security and the reporting fund's gross
exposure to the reference asset exceeds 20% of the size of the overall debt security issuance;
(ii) 1% of net asset value, if the reference asset is a listed equity and the reporting fund's gross
exposure to the reference asset exceeds 20% of average daily trading volume measured over 90 days
preceding the reporting date; or
(iii) either (1) 5% of the reporting fund's net asset value or (2) $1 billion.
For purpose of this Question 40, the reporting fund's gross exposure to a reference asset means the sum
of the absolute value of all long and short positions with legal and contractual rights that provide
exposure to the reference asset.
(a)
First month of the reporting period, Position 1, 2, 3, etc.
(i)
Dollar value (in U.S. dollars) of all long positions with legal and contractual rights that
provide exposure to the reference asset.
(ii)
Dollar value (in U.S. dollars) of all short positions with legal and contractual rights that
provide exposure to the reference asset.
(iii) Netted exposure to reference asset (as defined by Question 39 Instructions).
(iv) Sub-asset class and instrument type: Instruction: Select all that apply. [two drop down
menus]
Title or description of reference asset:
(v)
(vi) Reference asset issuer (if any) name and LEI.
(vii) CUSIP (if any), and at least one of the following other identifiers: (i) ISIN; (ii) Ticker
ifISIN is not available); (iii) Other unique identifier (if ticker and ISIN are not
available) [Must indicate type of identifier used].
(viii) For reference assets with no CUSIP or other identifier, describe the reference asset.
(ix) If the reference asset is a debt security, size of issue:
If the reference asset is a listed equity, average daily trading volume, measured over 90
(x)
days preceding the reporting date.
(xi)
FIGI (optional)
(b) Second month of the reporting period, Position 1, 2, 3, etc. (same list of information to collect)
(c) Third month of the reporting period, Position 1, 2, 3, etc. (same list of information to collect)
41.
Consolidated Counterparty Exposure Table
Report in the consolidated counterparty exposure table below the reporting fund's borrowing and
collateral received (BICR) and lending and posted collateral (LIPC) aggregated across all
counterparties (including all CCPs) in U.S. dollars as of the end of each month of the reporting period.
Report the counterparty exposures of trading vehicles owned by the reporting fund based on the
reporting fund's percentage ownership of each trading vehicle, without netting these exposures with
those of the reportingfand if they are not guaranteed by the reporting fund or contractual obligations
of the reporting fund. If the reporting fund guarantees or is contractually obligated to fulfill
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You must net the reporting fund's exposure with each counterparty and among affiliated entities of a
counterparty to the extent such exposures may be contractually or legally set-off or netted across those
entities and/or one affiliate guarantees or may otherwise be obligated to satisfy the obligations of
another under the agreements governing the transactions. Netting must be used to reflect net cash
borrowed from or lent to a counterparty, but must not be used to offset securities borrowed and lent
against one another, when reporting prime brokerage and repo/reverse repo transactions.
Classify borrowing by creditor type (e.g., percentage borrowed from US. depository institutions, U.S.
creditors that are not US depository institutions, non-U.S. creditors) based on the legal entity that is
the contractual counterparty for such borrowing and not based on parent company or other affiliated
group.
18101
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
obligations of such trading vehicles or affiliated private funds, such exposures must be reported net
with those of the reporting fund. If an adviser to an affiliated private fund separately files Form PF,
such adviser must exclude such exposures if they have been included in the reporting fund's filing.
In completing the table, classify borrowing and collateral received and lending and posted collateral
according to type, (e.g., unsecured, secured borrowing, derivatives cleared by a CCP, and uncleared
derivatives) and the governing legal agreement, e.g., a prime brokerage or other brokerage agreement
for cash margin and securities lending and borrowing, a global master repurchase agreement for
repo/reverse repo, or an ISDA master agreement for synthetic long positions, synthetic short positions
and other derivatives. Report transactions under master securities loan agreement as other secured
borrowing.
□
Check this box if one or more prime brokerage agreements provide for cross-margining of
derivatives and secured financing transactions. If you have checked this box, and collateral does
not clearly pertain to secured financing vs. derivatives transactions, report exposures and collateral
as follows:
• For secured financing, exposures and collateral should be reported in sections (b), (c) and (d)
as applicable.
•
•
For derivatives,
o Report the gross notional value and the mark-to-market of the derivatives transactions
with other derivatives transactions (line (e)(i) or lines (f)(i) and (ii)
o Report associated collateral as collateral received (BICR) or posted collateral (LIPC)
under the prime brokerage agreement (lines (b)(ii),(iii), (iv) and (v)).
For derivatives cleared by a CCP, for cases where the prime broker gathers additional
collateral in excess of that required by exchanges, report collateral posted by the reporting
fund to meet exchange requirements in the cleared derivatives section on lines (e)(ii), (iii),
(iv), and (v) and any additional collateral gathered by the prime broker under a cross
margining agreement should appear on lines (b)(ii), (iii),(iv) and (v).
1"1 Month
BICR
UPC
(a) Unsecured borrowing- cash and cash equivalents
(A) percentage borrowed from US. depository
institutions
(B) percentage borrowed from U.S. creditors that
are not US. devositorv institutions
(C) percentage borrowed from non-U.S. creditors
2 nd Month
BICR
LIPC
3 rd Month
BICR
LIPC
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Apolicable
Not
Aoolicable
agreement)
(i) cash and cash equivalents received in cash margin
borrowing, or received or paid by the reporting fund in
securities lending and short sale transactions
(ii) cash and cash equivalents received and posted by the
reporting fund as collateral for derivatives under any crossmargining agreement
(iii) government securities (other than cash and cash
equivalents) received and posted by the reportin~fund
(iv) securities (other than cash and cash equivalents and
government securities) received and posted by the reporting
fund
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(b) Secured borrowing and lending (prime brokerage or other brokerage
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
1"1 Month
BICR
VPC
(v) other collateral or credit support (including face amount
ofletters of credit and similar third party credit support)
received and posted by the reportinf! fund
(vi) percentage of secured borrowing (prime brokerage or
other brokerage agreement) (sum of (b)(i), (iii), (iv) and (v))
(A) borrowed from US. depository institutions
(B) borrowed from U.S. creditors that are not US.
depository institutions
(C) borrowed from non-U.S. creditors
(vii) at the end of each month of the reporting period,
expected increase in collateral required to be posted by the
reporting fund, if required margin increases by 1% of
position size.
(B) borrowed from U.S. creditors that are not US.
devositorv institutions
(C) borrowed from non-U.S. creditors
(vi) at the end of each month of the reporting period,
expected increase in collateral required to be posted by the
reportimz fund, if required margin increases by 1%
khammond on DSKJM1Z7X2PROD with RULES3
(B) borrowed from U.S. creditors that are not US.
devositorv institutions
(C) borrowed from non-U.S. creditors
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Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
l,\pplicable
Not
Applicable
Not
Applicable
Not
Applicable
Sfmt 4725
Not
Applicable
Not
IAnnlicable
Not
k\pplicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
l,\pplicable
Not
Applicable
Not
Applicable
Not
Applicabl,
Not
Applicable
(d) Other secured borrowing and lending (describe in
Question 4)
(i) cash and cash equivalents
(ii) government securities (other than cash and cash
equivalents) received and posted by the reportinf! fund
(iii) securities (other than cash and cash equivalents and
government securities) received and posted by the reporting
fund
(iv) other collateral or credit support (including face amount
of letters of credit and similar third party credit support)
received and posted bv the revortimz fund
(v) percentage of other secured borrowing (sum of (d)(i),
(ii), (iii) and (iv))
(A) borrowed from US. depository institutions
3 rd Month
B/CR
VPC
Not
l,\pplicable
Not
!Applicable
Not
Applicable
(c) Secured borrowing and lending via repo and reverse repo (include
tri-Partv repo)
(i) cash and cash equivalents
(ii) government securities (other than cash and cash
equivalents) received and posted by the reportinf! fund
(iii) securities (other than cash and cash equivalents and
government securities) received and posted by the reporting
fund
(iv) other collateral or credit support (including face amount
ofletters of credit and similar third party credit support)
received and posted by the revortinf! fund
(v) percentage of secured borrowing via repo and reverse
revo (sum of(c)(i). (ii), (iii) and (iv))
(A) borrowed from US. depository institutions
2nd Month
B/CR
VPC
Not
Applicable
Not
Aoolicable
Not
Applicable
Not
Aoolicable
Not
Applicable
Not
Aoolicable
Not
Applicable
Not
Aoolicable
Not
Aoolicable
Not
Aoolicable
E:\FR\FM\12MRR3.SGM
12MRR3
ER12MR24.081</GPH>
18102
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
istMonth
BICR
VPC
(vi) at the end of each month of the reporting period,
expected increase in collateral required to be posted by the
reportinf! fund, if required marJ:?;in increases by 1%
(e) Derivative positions cleared bv a CCP
(i) mark-to-market exposure of derivatives transactions
before collateral
(ii) cash and cash equivalents received and posted by the
reportinf! fund as collateral
(iii) government securities (other than cash and cash
equivalents) received and posted by the reportingfand as
collateral
(iv) securities (other than cash and cash equivalents and
government securities) received and posted by the reporting
fund as collateral
(v) other collateral or credit support (including face amount
of letters of credit and similar third party credit support)
received and posted by the reportinf! fund
(vi) at the end of each month of the reporting period,
expected increase in collateral required to be posted by the
revortim! fund, if required margin increases bv 1%
Not
Applicabl,
Not
Applicable
Not
Applicable
Not
Applicabli
Not
Applicable
(B) from U.S. creditors that are not U.S. depository
institutions
(C) from non-U.S. creditors
Not
Applicable
Not
Annlicable
Not
Applicable
Not
Aoolicable
Not
Applicable
Not
Aoolicable
Not
Applicable
Not
Aoolicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Identify each creditor or other counterparty (including CCPs) to which the reporting fund owed an
amount in respect of cash borrowing entries (before posted collateral) which is equal to or greater than
either (1) 5% of net asset value as of the data reporting date, or (2) $1 billion. In subsection (a),
complete an individual counterparty exposure table for the five creditors and counterparties to which the
reporting fund owed the greatest dollar amount in cash borrowing entries (before posted collateral).
Follow the instructions for the consolidated counterparty exposure table_in completing each individual
counterparty exposure table.
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42.
3rd Month
BICR
VPC
Not
Applicable
(f) Derivative positions that are not cleared by a CCP
(uncleared)
(i) gross notional value of synthetic long positions and
svnthetic short positions
(ii) mark-to-market exposure of derivatives transactions
before collateral
(iii) cash and cash equivalents received and posted by the
reportinf!fund as collateral
(iv) government securities (other than cash and cash
equivalents) received and posted by the reportingfand as
collateral
(v) securities (other than cash and cash equivalents and
government securities) received and posted by the reporting
fund as collateral
(vi) other collateral or credit support (including face amount
of letters of credit and similar third party credit support)
received and posted by the reportinf!fund
(vii) percentage of synthetic long positions (sum of (f)(i),
(iii), (iv) and (v))
(A) from U.S. depository institutions
(viii) at the end of each month of the reporting period,
expected increase in collateral required to be posted by the
reportinf! fund, if required marJ:?;in increases by 1%
2nd Month
B/CR
VPC
18103
18104
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Identify in subsection (b) all other creditors and counterparties (including CCPs) that were not the top
five listed in the individual counterparty exposure tables, but to which the reporting fund owed an
amount in respect of cash borrowing entries (before posted collateral) which is equal to or greater than
either (1) 5% of the reporting fund's net asset value as of the data reporting date, or (2) $1 billion.
For the entities identified in subsection (b), report the legal entity name and LEI of each creditor or
other counterparty, if it has one, as indicated in subsections (a)(i) or in subsection (b) at columns (a)
and (c). Indicate whether the creditor or counterparty is affiliated with a major financial institution in
subsection (a)(i)(c) or in subsection (b) at column (c). If you select "other," name and describe the
financial institution in Question 4. You may not treat affiliated counterparty entities as a single group,
except that, if the applicable contractual and legal documentation requires cross margining, report the
LEI of the contractual counterparty, typically the prime broker.
For subsection (b ), for each entity identified, report the cash borrowing entries as determined above in
column (d) as a negative number and report total collateral posted entries by the reporting fund in
column (e) as a positive number. Report the legal name in column (vi) and its LEI, if any, in column
(vii), of the entity that has the counterparty exposure.
(a) Individual Counterparty Exposure Table - Top 5 Creditor Counterparties [1, 2, 3, 4, 5]: (Because
borrowing and cash lending should be netted for each counterparty, only one entry is required in each
row ofthis table.)
(i) (a) Legal name of counterparty,
(b) Counterparty LEI, if any,
(c) indicate if affiliated with a major financial institution [drop-down menu],
(d) Borrowing by the reporting fund,
(e) Collateral posted by the reporting fund,
(I) Legal name of entity that has the exposure, and
(g) Entity LEI, if any
8/CR
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(ii) Unsecured borrowing - cash and cash equivalents
L/PC
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
8/CR
18105
L/PC
(iii) Secured borrowing and lending (prime brokerage or other brokerage
agreement
□
Check this box if one or more prime brokerage agreements provide for crossmargining of derivatives and secured financing transactions. If you have
checked this box, and collateral does not clearly pertain to secured financing
vs. derivatives transactions, report exposures and collateral as follows:
•
For secured financing, exposures and collateral should be reported in
sections (iii), (iv) and (v), as applicable
•
For derivatives,
•
o
Report the gross notional value and the mark-to-market of the
derivatives transactions with other derivatives transactions (lines
(vi)(A) and (vii)(A) and (B))
o
Report associated collateral as collateral received (8/CR) or
posted collateral (L/PC) under the prime brokerage agreement
(lines (iii)(B),(C), (D) and (E)).
For derivatives cleared by a CCP, for cases where the prime broker
gathers additional collateral in excess of that required by exchanges,
report collateral posted by the reporting fund to meet exchange
requirements in the cleared derivatives section on lines (vi)(B), (C), (D),
and (E), and enter any additional collateral gathered by the prime broker
under a cross margining agreement on lines (iii)(B),(C), (D) and (E).
(A) cash and cash equivalents received in cash margin borrowing, or received or paid
by the reporting fund in securities lending and short sale transactions
(B) cash and cash equivalents received and posted by the reporting fund as collateral
for derivatives under any cross-margining agreement
(C) government securities (other than cash and cash equivalents) received and posted
by the reporting fund
(D) securities (other than cash and cash equivalents and government securities)
received and posted by the reporting fund
(E) other collateral or credit support (including face amount of letters of credit and
similar third party credit support) received and posted by the reporting fund
(iv) Secured borrowing and lending via repo and reverse repo (include tri-party
repo
(A) cash and cash equivalents
(B) government securities (other than cash and cash equivalents) received and posted
by the reporting fund
(C) securities (other than cash and cash equivalents and government securities)
received and posted by the reporting fund
(D) other collateral or credit support (including face amount of letters of credit and
similar third party credit support) received and posted by the reporting fund
(A) cash and cash equivalents
(B) government securities (other than cash and cash equivalents) received and posted
by the reporting fund
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(v) Other secured borrowing and lending (describe in Question 4)
18106
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
8/CR
L/PC
(C) securities (other than cash and cash equivalents and government securities)
received and posted by the reporting fund
(D) other collateral or credit support (including face amount of letters of credit and
similar third party credit support) received and posted by the reporting fund
(vi) Derivative positions cleared by a CCP
(A) mark-to-market exposure of derivatives transactions before collateral
(B) cash and cash equivalents received and posted by the reporting fund as collateral
(C) government securities (other than cash and cash equivalents) received and posted
by the reporting fund as collateral
(D) securities (other than cash and cash equivalents and government securities)
received and posted by the reporting fund as collateral
(E) other collateral or credit support (including face amount of letters of credit and
similar third party credit support) received and posted by the reporting fund
(vii) Derivative positions that are not cleared by a CCP (uncleared)
(A) gross notional value of synthetic long positions and synthetic short positions
(B) mark-to-market exposure of derivatives transactions before collateral
(C) cash and cash equivalents received and posted by the reporting fund as collateral
(D) government securities (other than cash and cash equivalents) received and
posted by the reporting fund as collateral
(E) securities (other than cash and cash equivalents and government securities)
received and posted by the reporting fund as collateral
(F) other collateral or credit support (including face amount of letters of credit and
similar third party credit support) received and posted by the reporting fund
(b) Other Creditors and Counterparties
(a) Legal
name of
creditor or
other
counterparty
(i)
(b)
Counterparty
LEI, if any
(ii)
43.
VerDate Sep<11>2014
(d)
Borrowing
by the
reporting
fond (in
U.S.
dollars)
(e) Collateral
posted by the
reporting
fond (in U.S.
dollars)
(f) Entity
Legal Name
(g) Entity
LEI, if any
Provide the information required by this question for counterparties to which the reporting fund had net
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(iii)
(c) Indicate if
creditor or other
counterparty is
affiliated with a
major fmancial
institution
[drop-down list of
counterparty
names]
Other:
[Not applicablel
[drop-down list of
counterparty
names]
Other:
[Not applicablel
[drop-down list of
counterparty
names]
Other:
[Not applicablel
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18107
mark to market counterparty credit exposure, after taking into account collateral received or posted by
the reporting fund, which is equal to or greater than either (1) 5% of the reporting fund's net asset value
as of the data reporting date, or (2) $1 billion. Include CCPs or other third parties holding posted
collateral of the reporting fund in respect of cleared exposures (including tri-party repo).
For counterparties to which the reporting fund had net borrowing exposure,
the reporting fund's net mark to market counterparty credit exposure before collateral equals
the reporting fund's cash borrowing entries. The reporting fund's net mark to market
counterparty credit exposure after collateral is the amount (if any) by which the collateral
posted entries exceed such cash borrowing entries.
For counterparties to which the reporting fund had net lending exposure, the reporting fund's net mark
to market counterparty credit exposure before collateral means the cash lending entries. The
reporting fund's net mark to market counterparty credit exposure after collateral equals the amount (if
any) by which the reporting fund's cash lending entries exceed the collateral received entries.
For all counterparties (whether the reporting fund had borrowing or lending exposure), these computations will
produce a positive value for the counterparties to which the reporting fund had net mark to market
counterparty credit exposure after collateral. This may occur where the reporting fund's posted collateral
exceeded borrowings by the reporting fund from a counterparty. It also may occur where collateral received by
the reporting fund fell short of the reporting fund's net mark to market counterparty credit exposure through
cash and cash equivalents received by a counterparty in margin borrowing, securities lending, repo and
reverse repo transactions, and mark to market exposure in derivatives transactions.
Provide the information required by the individual counterparty exposure table at subsection (a) for the five
counterparties to which the reporting fund had the greatest dollar net mark to market counterparty credit
exposure after collateral. Do not report any counterparties that are reported in above in Question 42(a)) and
do not include counterparties to which the reporting fund's net market to market counterparty exposure (after
collateral) was not greater than either (1) 5% of the reporting fund's net asset value on the data reporting date,
or (2) $1 billion.
If there are more than five counterparties to which the reporting fund had net mark to market counterparty
credit exposure after collateral which was equal to or greater than either (1) 5% of the reporting fund's net
asset value as of the data reporting date, or (2) $1 billion (and which are not reported in Question 42(a)),
identify these additional counterparties in subsection (b). Report, for each such counterparty, the reporting
fund's net mark to market counterparty credit exposure, before taking into account collateral (column (d))
which will be a negative number where the reporting fund is a net borrower, and a positive number where the
reporting fund is a net lender, and net mark to market counterparty credit exposure, after taking into account
collateral (column (e)), which will always be a positive number for any counterparties included in this table.
43(a) Individual Counterparty Exposure Table -Top "Debtor" Counterparties Complete the Individual
Counterparty Exposure Table (see Q42(a)) for each of the top "debtor" counterparties)
43(b) Other Counterparties
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In the individual counterparty exposure table, report the legal entity name and LEI of each creditor or other
counterparty, if it has one, as indicated in subsection (a)(i)(a) and (a) (i)(b) or in subsection (b), columns (a)
and (b). Indicate in subsection (a)(i)(c) or subsection (b), column (c), if the counterparty is affiliated with a
major financial institution. If you select "other," name and describe the financial institution in Question 4.
Report the legal entity name and LEI, if any, of each entity that has the counterparty exposure in columns (f)
and (g). You may not treat affiliated counterparty entities as a single group, except that, if the applicable
contractual and legal documentation requires cross margining, report the legal entity name and LEI of the
contractual counterparty, typically the prime broker.
18108
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
(a) Legal
name of
(b)
Counterparty
LEI, if an
(d) Net
mark to
market
exposure
before
collateral
(in U.S.
dollars
(c) Indicate if
counterparty is
affiliated with a
major financial
institution
(e) Net
mark to
market
exposure
after
collateral
(in U.S.
dollars
(f) Legal
name of
enti
(g) Entity
LEI, ifan
[drop-down list of
counterparty
names]
Other:
ot a licable
[drop-down list of
counterparty
names]
Other:
ot a licable
[drop-down list of
counterparty
names]
Other:
11
iii
44.
Identify each CCP or other third party holding collateral posted by the reporting fund in respect of
cleared exposures (including tri-party repo) equal to or exceeding either (1) 5% of the reporting fund's
net asset value as of the data reporting date or (2) $1 billion. (Exclude counterparties reported in
Questions 42 and 43). If a different legal entity than the reporting fund owns the collateral, report the
entity's legal name and its LEI, if any.
CCPor
Third
party legal
name
LEI, if
any
CCP/third party
affiliation with a
major financial
institution (if
any)
Posted
Margin
(in U.S.
dollars)
Net
Exposure
(in U.S.
dollars)
Legal
name of
entity
Entity
LEI, if
any
[drop-down list of
counterparty names]
(a)
Other:
[Not applicable l
[drop-down list of
counterparty names]
(b)
Other:
fNot aoolicablel
[drop-down list of
counterparty names]
(c)
Other:
[Not applicable l
(a) Of the total amount of collateral and other credit support that
counterparties have posted to the reporting fund, what percentage:
VerDate Sep<11>2014
(i)
may be rehypothecated?
(ii)
has the reporting fund rehypothecated?
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45.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18109
Item C. Reporting fund risk metrics and performance
46.
(a) During the reporting period, did you regularly calculate the VaR of the reporting fund?
(Please respond without regard to whether you reported the result of this calculation internally or
to investors.)
D
(b)
□ No
Yes
If you responded ''yes" to Question 46(a), provide the following information.
(If you regularly calculate the VaR of the reporting fund using multiple combinations of
confidence interval, horizon and historical observation period, complete a separate
response to this Question 46(b) for each such combination.)
(i)
Confidence interval used ( e.g., 100%-alpha¾) (as a percentage) ......... .
(ii)
Time horizon used (in number ofdays) .................................................. .
(iii)
What weighting method was used to calculate VaR?
□
□None
Exponential
□
Other:
(iv)
If you responded "exponential" to Question 46(b)(iii), provide the
weighting factor used (as a decimal to two places) ............................. .
(v)
What method was used to calculate VaR?
(vi)
□
Historical simulation
□
Monte Carlo simulation
□
Parametric
□
Other:
Historical lookback period used (in number ofyears; enter "NA" if
none used) ........................................................................................... .
(vii) VaR at the end of the 1st month of the reporting period
(asa%ofNAV) ...................................................................................... .
(viii) VaR at the end of the 2nd month of the reporting period
(as a% ofNAV) ...................................................................................... .
(ix)
47.
VaR at the end of the 3rd month of the reporting period
(as a% ofNAV) ...................................................................................... .
For each of the market factors identified below, determine the effect of the specified changes on the
reporting fund's portfolio and provide the results. For market factors that have no direct effect on the
reporting fund's portfolio, enter zero.
(For market factors involving interest rates and credit spreads, separate the effect on your portfolio
into long and short components where (i) the long component represents the aggregate result ofall
positions whose valuation changes in the opposite direction from the market factor under a given
stress scenario, and (ii) the short component represents the aggregate result ofall positions whose
valuation changes in the same direction as the market factor under a given stress scenario.) (For
market factors other than interest rates and credit spreads, separate the effect on your portfolio into
long and short components where (i) the long component represents the aggregate result ofall
positions whose valuation changes in the same direction as the market factor under a given stress
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In determining the reporting fund's exposure to changes in market factors for positions held indirectly
through entities, e.g., ETFs, other exchange traded products, U.S. registered investment companies
(excluding ETFs and money market funds), investments in non-US. registered investment companies,
external private funds, internal private funds, commodity pools, or other companies, funds or entities,
you may use reasonable estimates that best represent the exposure, consistent with your internal
methodologies and conventions of service providers.
18110
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
scenario and (ii) the short component represents the aggregate result ofall positions whose valuation
changes in the opposite direction from the market factor under a given stress scenario.)
(Assume that changes in a market factor occur instantaneously and that all other factors are held
constant. If the specified change in any market factor would make that factor less than zero, use zero
instead.)
(Please note the following regarding the market factors identified below:
(i) A change in "equity prices" means that the prices ofall equities move up or down by the
specified amount, without regard to whether the equities are listed on any exchange or included in
any index;
(ii)
"Risk free interest rates" means rates of interest accruing on sovereign bonds issued by
governments having the highest credit quality, such as US. treasury securities; and interest rate swap
rates in which a fixed rate is exchanged for a risk-free floating rate such as the secured overnight
financing rate (SOFR) or the sterling overnight index average (SONJA);
(iii)
"Non-parallel risk free interest rate movements" means only risk free interest rates in the
indicated segment of the yield curve move, and no other rates, factors or prices move, and that all
rates within the indicated segment of the yield curve move by the same amount. The sum ofall
reported non-parallel risk free interest rate sensitivities for a given rate movement should total to the
portfolio's sensitivity to a parallel risk free interest rate movement ofthat magnitude;
(iv) A change in "credit spreads" means that all spreads against risk free interest rates change by the
specified amount;
(v) A change in "currency rates" means that the values ofall currencies move up or down by the
specified amount relative to the reporting fund's base currency;
(vi) A change in "commodity prices" means that the prices of all physical commodities move up or
down by the specified amount;
(vii) A change in "option implied volatilities" means that the implied volatilities ofall the options that
the reporting fund holds increase or decrease by the specified number of percentage points (additive,
not multiplicative); and
(viii) A change in "default rates" means that the rate at which debtors default on all instruments of
the specified type increases or decreases by the specified number ofpercentage points.)
.... -=....
....
=
t
t....
z
~
Q
"'
~
.:.= &-
~
-
= -;
~
1a
Q
n
~
~
n
1-,
.s
Market factor - changes in market factor
Effect on
long
components
of portfolio
(as% of
Effect on
short
components
of portfolio
(as% of
NAJI)
NAJI)
Equity prices:
Equity prices increase 10% .......................................
Equity prices decrease 10% ......................................
□
□
Non-parallel risk free interest rate movements:
0-3 year rates only increase 50 bp
0-3 year rates only decrease 50 bp
>3-10 year rates only decrease 50 bp
Only all> 10 year rates increase 50 bp
VerDate Sep<11>2014
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>3-10 year rates only increase 50 bp
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18111
Only all > 10 year rates decrease 50 bp
□
□
Credit spreads:
Credit spreads increase 100 bp ...........................
Credit spreads decrease 100 bv .............................
Currency rates:
□
□
□
□
Currency rates increase 10%.....................................
□
□
Currencv rates decrease 10% ....................................
Commodity prices:
□
□
Commodity prices increase 10% ...............................
□
Commoditv prices decrease 10% ..............................
Option implied volatilities:
□
Implied volatilities increase 10 percentage points.
Implied volatilities decrease 10 percentage points.
□
□
Default rates (ABS):
Default rates increase 10 percentage points ...........
Default rates decrease 10 percentage points ..........
□
□
Default rates (corporate bonds and CDS):
Default rates increase 10 percentage points ................
Default rates decrease 10 percentage points ...............
48.
49.
[Reserved]
If you indicated more than one investment strategy for the reporting fund in Question 25 and you report
performance results to current and prospective investors, counterparties, or otherwise, for one or more of
the investment strategies reported in Question 25, report the gross performance results attributable to
each such strategy during the reporting period in base currency terms.
You are required to provide monthly performance results only if such results are reported for the
reportingfund (whether for purposes of reporting to current and prospective investors, counterparties,
or otherwise). You are not required to respond to this question ifyou report performance for the
reporting fund as an internal rate ofreturn.
Investment Strategy
1st Month
2nd Month
3rd Month
Quarterly
Item D. Financing information
Financing liquidity:
(a) Provide the aggregate dollar amount of borrowing by and cash
financing available to the reporting fund (including all drawn and
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50.
18112
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
undrawn, committed and uncommitted lines of credit as well as any term
financing) ................... .
(b) Provide the dollar amount of financing that is available to the reporting fund but not used by type:
(i) unsecured borrowing ................................................. ..
(ii) secured borrowing via prime brokerage ......................... .
(iii) secured borrowing via reverse repo .......................... .
(iv) other secured borrowings ......................................... .
(c) Divide the amount reported in response to part (a) among the periods specified below depending
on the longest period for which the creditor is contractually committed to provide such financing.
(If a creditor (or syndicate or administrative/collateral agent) is permitted to vary unilaterally
the economic terms ofthe financing or to revalue posted collateral in its own discretion and
demand additional collateral, then the financing should be deemed uncommitted for purposes of
this question. Uncommitted financing should be included under "1 day or less.')
(I'he total should add up to 100%.)
% of total
financing
1 day or less ........................................................................................ .
2 days - 7 days .................................................................................... .
8 days - 30 days ................................................................................. .
31 days - 90 days ............................................................................... .
91 days - 180 days ............................................................................. .
181 days - 365 days ............................................................................ .
Longer than 365 days .......................................................................... .
Item E. Investor information
51.
(a)
As of the data reporting date, what percentage of the reporting fund's net
asset value, if any, is subject to a "side-pocket" arrangement?
(This question relates to whether assets are currently in a side-pocket and not the potential for
assets to be moved to a side-pocket.)
(b) Have additional assets been placed in a side-pocket since the end of the prior reporting period?
(Check "NA" ifyou reported no assets under Question 5l(a) in the current period and/or the
prior period.)
□ Yes
VerDate Sep<11>2014
□ NA
[Reserved]
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52.
□ No
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
53.
18113
Investor liquidity (as a% of net asset value):
(Divide the reporting fund's net asset value among the periods specified below depending on the
shortest period within which investors are entitled, under the fund documents, to withdraw invested
funds or receive redemption payments, as applicable. Assume that you would impose gates where
applicable but that you would not completely suspend withdrawals/redemptions and that there are no
redemption fees. Please base on the notice period before the valuation date rather than the date
proceeds would be paid to investors.)
(The total should add up to approximately I 00%.)
(For Question 53, please note that the standards for imposing suspensions and restrictions on
withdrawals/redemptions may vary among funds. Make a good faith determination ofthe provisions
that would likely be triggered during conditions that you view as significant market stress.)
% of NAVlocked for
1 day or less ....................................................................... .
2 days - 7 days ................................................................... .
8 days - 30 days ................................................................ .
31 days- 90 days .............................................................. .
91 days- 180 days ............................................................ .
181 days- 365 days ........................................................... .
VerDate Sep<11>2014
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longer than 365 days ......................................................... .
18114
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Information about liquidity funds that you advise
Form PF
Section 3
Section 3:
Information about the liquidity funds that you advise
You must complete a separate Section 3 for each liquidity fund that you advise. However, with respect to
master-feeder arrangements and parallel fund structures, you may report collectively or separately about the
component funds as provided in the General Instructions.
Item A. Reporting Jund identifying and operational information
54.
(a) Name of the reporting fund ........................................................................... .
(b) Private fund identification number of the reporting fund ............................. .
55.
(a) Does the reporting fund seek to maintain a stable price per share?
D
D
Yes
No
(b) If yes, state the price the reporting fund seeks to maintain ....................... .
Item B. Reporting fund assets
56.
Provide the following information for each month of the reporting period.
1st
Month
2nd
Month
3rd
Month
(a) Net asset value of reporting fund as reported to current
and prospective investors
(b) Net asset value per share of reporting fund as reported
to current and prospective investors (to the nearest
hundredth ofa cent)
(c) Net asset value per share of reporting fund (to the
nearest hundredth ofa cent; exclude the value ofany
capital support agreement or similar)
(d) WAMofreportingfund (in days)
(e) WAL of reporting fund (in days)
(f) 7-day gross yield ofreportingfund (to the nearest
hundredth ofone percent)
(h) Dollar amount of the reporting fund's assets that are
weekly liquid assets
(i) Dollar amount of the reportingfund's assets that have a
maturity greater than 397 days
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(g) Dollar amount of the reporting fund's assets that are daily
liquid assets
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18115
(j) Amount of cash held by the reporting fund
(k) Total gross subscriptions (including divided
reinvestments)
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(1) Total gross redemptions
18116
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Information about liquidity funds that you advise
(to be completed by large private fund advisers only)
Form PF
Section 3
Item C. Financing information
5 7.
(a) Is the amount of total borrowing reported in response to Question 18 equal to or
greater than 5% of the reporting fund's net asset value?
D Yes
D No
(b) If you responded ''yes" to Question 57(a) above, divide the dollar amount of total borrowing
reported in response to Question 18 among the periods specified below depending on the type of
borrowing, the type of creditor and the latest date on which the reporting fund may repay the
principal amount of the borrowing without defaulting or incurring penalties or additional fees.
(If a creditor (or syndicate or administrative/collateral agent) is permitted to vary
unilaterally the economic terms ofthe financing or to revalue posted collateral in
its own discretion and demand additional collateral, then the borrowing should be
deemed to have a maturity of I day or less for purposes ofthis question. For
amortizing loans, each amortization payment should be treated separately and
grouped with other borrowings based on its payment date.)
(The total amount of borrowings reported below should equal approximately the total
amount ofborrowing reported in response to Question 18.)
Greater
1 day or 2 days to 7 8 days to 30 31 days to than 397
days
days
days
397 days
(i) Unsecured borrowing
less
(A) US. financial institutions
(B) Non-US. financial institutions
(C) Other U.S. creditors
(D) Other non-U.S. creditors
(ii) Secured borrowing
(A) US. financial institutions
(B) Non-US. financial institutions
(C) Other U.S. creditors
(D) Other non-U.S. creditors
58.
Yes
D No
(b) If you responded ''yes" to Question 60(a), provide the aggregate
D
dollar amount of commitments under the liquidity facilities .......... ..
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(a) Does the reporting fund have in place one or more committed liquidity facilities?
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18117
Item D. Investor information
59.
Specify the number of outstanding shares or units of the reporting fund's stock
or similar securities ...................................................................... .
60.
Is the reporting fund established as a cash management vehicle for other funds or accounts that you or
your affiliates manage that are not cash management vehicles?
D
61.
0
Yes
No
Provide the following information regarding investor concentration.
(For purposes of this question, if you know that two or more beneficial
owners of the reporting fund are affiliated with each other, you should treat
them as a single beneficial owner.)
(a) Specify the percentage of the reporting fund's equity that is beneficially
owned by the beneficial owner having the largest equity interest in the
reporting fund ......................................................................................... .
(b) For each investor that beneficially owns 5% or more of the reporting fund's
equity, provide the following information. If you select "other" as an
investor category, describe the investor in Question 4.
(i) Investor Category
(ii) Investor's percent of equity of the
reporting fund on the data reporting date
Drop-down menu of investor categories
in Question 61 l
Drop-down menu of investor categories
in Question 61 l
62.
Provide a good faith estimate, as of the data reporting date, of the percentage
of the reporting fund's outstanding equity that was purchased using securities
lending collateral. ......................................................... .
63.
Provide the following information regarding the restrictions on withdrawals and redemptions by
investors in the reporting fund.
(For Questions 63 and 64, please note that the standards for imposing suspensions and restrictions on
withdrawals/redemptions may vary among funds. Make a good faith determination of the provisions
that would likely be triggered during conditions that you view as significant market stress.)
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Et cetera.
18118
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
As of the data reporting date, what percentage of the reporting fund's net asset value, if any:
(a)
May be subjected to a suspension of investor
withdrawals/redemptions by an adviser or fund governing
body (this question relates to an adviser's or governing body's
right to suspend and not just whether a suspension is currently
effective) .................................................................................. .
(b)
May be subjected to material restrictions on investor
withdrawals/redemptions (e.g., "gates") by an adviser or fund
governing body (this question relates to an adviser's or
governing body's right to impose a restriction and not just
whether a restriction been imposed) ......................................... .
Is subject to a suspension of investor withdrawals/redemptions
(this question relates to whether a suspension is currently
effective and not just an adviser's or governing body's right to
suspend) ..................................................................................... .
(c)
(d)
Is subject to a material restriction on investor
withdrawals/redemptions (e.g., a "gate") (this question relates
to whether a restriction has been imposed and not just an
adviser's or governing body's right to impose a restriction) ...
64. Investor liquidity (as a% of net asset value):
(Divide the reporting fund's net asset value among the periods specified below depending on the
shortest period within which investors are entitled, under the fund documents, to withdraw invested
funds or receive redemption payments, as applicable. Assume that you would impose gates where
applicable but that you would not completely suspend withdrawals/redemptions and that there are no
redemption fees. Please base on the notice period before the valuation date rather than the date
proceeds would be paid to investors.
The total should add up to 100%.)
% of NA Vlocked for
1 day or less ........................................................................ .
1---------------<
2 days - 7 days .................................................................... .
1---------------1
8 days - 30 days ................................................................. .
1---------------l
31 days - 90 days ............................................................... .
1---------------<
91 days -180 days ............................................................. .
1---------------1
181 days - 365 days ............................................................ .
1---------------1
Longer than 365 days .......................................................... .
Item E. Portfolio Information
(a)
Name of the issuer....................................................................................... .
(b)
Title of the issue (including coupon, if applicable) ..................................... .
(c)
CUSIP.......................................................................................................... .
(d)
LEI, if available .......................................................................................... .
(e)
In addition to CUSIP and LEI, provide at least one of the following other identifiers, if
available:
•
VerDate Sep<11>2014
19:48 Mar 11, 2024
ISIN ............................................................................................. .
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65. For each security held by the reporting fund, provide the following information for each month of the
reporting period.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
•
18119
CIK ............................................................................................. .
Other unique identifier (indicate identifier and type of identifier)
(f)
The category of investment that most closely identifies the instrument ..... .
(Select from among the following categories of investment: US. Treasury Debt; US.
Government Agency Debt; Non-US. Sovereign, Sub-Sovereign and Supra-National debt;
Certificate ofDeposit; Non-Negotiable Time Deposit; Variable Rate Demand Note; Other
Municipal Security; Asset Backed Commercial Paper; Other Asset Backed Securities; US.
Treasury Repurchase Agreement, if collateralized only by US. Treasuries (including Strips)
and cash; US. Government Agency Repurchase Agreement, collateralized only by US.
Government agency securities, US. Treasuries, and cash; Other Repurchase Agreement, 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. lfOther Instrument, include a brief
description.)
(g)
For repos, specify whether the repo is "open" (i.e., the repo has no specified end date and, by
its terms, will be extended or "rolled" each business day (or at another specified period) unless
the investor chooses to terminate it), and provide the following information about the securities
subject to the repo (i.e., the collateral):
(if multiple securities ofan issuer are subject to the repo, the securities may be aggregated, in
which case provide: (i) the total principal amount and value and (ii) the range ofmaturity
dates and interest rates.)
(i) Is the repo "open"? ..................
(ii) Is the repo centrally cleared?
□
□
Yes
Yes
□
□
No
No
(iii) If the repo is centrally cleared, identify the CCP ................ .
(iv) Is the repo settled on a tri-party platform? D Yes
D No
(v) Name of the collateral issuer................................................. .
(vi) CUSIP ................................................................................... .
(vii) LEI, if any ................................................. .
(viii) Maturity date ................................................. .
(ix) Coupon or yield................................................. .
(x) The principal amount, to the nearest cent.. ........................................ .
(xi) Value of the collateral, to the nearest cent.. ....................................... .
(xii) The category of investment that most closely represents the
collateral. ................................................ .
whether it is a collateralized debt obligation, municipal debt, whole loan, or
international debt).
(h)
VerDate Sep<11>2014
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19:48 Mar 11, 2024
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(Select from among the following categories of investment: Asset-Backed Securities; Agency
Collateralized Mortgage Obligations; Agency Debentures and Agency Strips; Agency
Mortgage-Backed Securities; Private Label Collateralized Mortgage Obligations; Corporate
Debt Securities; Equities; Money Market; US. Treasuries (including strips); Other
Instrument. lf Other Instrument, include a briefdescription, including, if applicable,
18120
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
of each credit rating agency and the rating each assigned to the security.
(i)
The maturity date used to calculate WAM .................................................. .
(j)
The maturity date used to calculate WAL .................................................. ..
(k)
The ultimate legal maturity date (i.e., the date on which, in accordance with the terms of the
security without regard to any interest rate readjustment or demand feature, the principal
amount must unconditionally be paid) .......
(I)
If the security has a demand feature on which the reporting fund (or its adviser) is relying when
evaluating the quality, maturity, or liquidity of the security, provide the following information:
(If the security does not have such a demand feature, enter "NA. '')
(m)
Identity of the demand feature issuer(s) ............................ ..
(ii)
If the rating assigned by a credit rating agency played a substantial role in the
reporting fund's (or its adviser's) evaluation of the quality, maturity or liquidity of the
demand feature, its issuer, or the security to which it relates, provide the name of each
credit rating agency and the rating assigned by each credit rating agency ................ .
(iii)
The period remaining until the principal amount of the security may be recovered
through the demand feature .......
(iv)
The amount (i.e., percentage) of fractional support provided by each demand feature
issuer............................................. .
(v)
Whether the demand feature is a conditional demand feature
If the security has a guarantee (other than an unconditional letter of credit reported in response
to Question 65(1) above) on which the reporting fund (or its adviser) is relying when evaluating
the quality, maturity, or liquidity of the security, provide the following information:
(If the security does not have such a guarantee, enter "NA. ''.)
(i)
Identity of the guarantor(s) ................................................ .
(ii)
If the rating assigned by a credit rating agency played a substantial role in the reporting
fund's (or its adviser's) evaluation of the quality, maturity or liquidity of the guarantee,
the guarantor, or the security to which the guarantee relates, provide the name of each
credit rating agency and the rating assigned by each credit rating agency ... .............. .
(iii)
The amount (i.e., percentage) of fractional support provided by each guarantor ....... ..
If the security has any enhancements, other than those identified in response to Questions 65(1)
and (m) above, on which the reportingfand (or its adviser) is relying when evaluating the
quality, maturity, or liquidity of the security, provide the following information:
(If the security does not have such an enhancement, enter "NA. '')
(i)
Identity of the enhancement provider(s) ............................ ..
(ii)
The type ofenhancement(s) .............................................. ..
(iii)
If the rating assigned by a credit rating agency played a substantial role in the reporting
fund's (or its adviser's) evaluation of the quality, maturity or liquidity of the
enhancement, its provider, or the security to which it relates, provide the name of each
credit rating agency used and the rating assigned by the credit rating
agency .............. ..
(iv) The amount (i.e., percentage) of fractional support provided by each enhancement
provider ............................................ .
(o) The yield of the security as of the reporting date: ........................... ..
(p) The total value of the reporting fund's position in the security, and separately, if the reporting
VerDate Sep<11>2014
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(n)
(i)
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18121
fund uses the amortized cost method of valuation, the amortized cost value, in both cases to the
nearest cent:
(i)
Including the value of any sponsor support......................... .
(ii)
Excluding the value of any sponsor support........................ .
(q)
The percentage of the reporting fund's net assets invested in the security, to the nearest
hundredth of a percent. ......................................................... .
(r)
Is the security categorized as a level 3 asset or liability in Question 20?
(s)
Is the security a daily liquid asset?
(t)
Is the security a weekly liquid asset?
(u)
Is the security an illiquid security?
(v)
Explanatory notes. Disclose any other information that may be material to other disclosures
related to the portfolio security.
(If none, leave blank.)
Item F. Disposition of Portfolio Securities
66.
Disclose the gross market value (to the nearest cent) of portfolio securities the
reporting fund sold or disposed of during each month of the reporting period by
category of investment. Do not include portfolio securities that the fund held until
maturity.
Cate!!:orv of Investment
[Drop down menu of the category
of investmentl
[Drop down menu of the category
of investmentl
[Drop down menu of the category
of investmentl
First Month
Second Month
Third Month
Category 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, ifany collateral falls outside Treasury, Government Agency and
cash; Insurance Company Funding Agreement; Investment Company; Financial
Company Commercial Paper; Non-Financial Company Commercial Paper;
Tender Option Bond; or Other Instrument. .lf Other Instrument, include a brief
description.
Item G. Parallel Money Market Funds
VerDate Sep<11>2014
If the reporting fand pursues substantially the same investment objective and
strategy and invests side by side in substantially the same positions as a money
market fund advised by you or any of your related persons, provide the money
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67.
18122
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
market fund's EDGAR series identifier ............................................................... .
(If neither you nor any ofyour related persons advise such a money market fund,
enter "NA. '')
Information about private equity funds that you advise
Form PF
Section 4
Section 4: - Information about private equity funds that you advise.
You must complete a separate Section 4 for each private equity fund that you advise. However, with
respect to master-feeder arrangements and parallel fund structures, you may report collectively or
separately about the component funds as provided in the General Instructions.
Item A. Reporting fund identifying information
68.
Name of the reportingfund ............................................................................ .
(a)
(b)
Private fund identification number of the reporting fund .............................. .
Item B. Certain information regarding the reporting fund
69.
Indicate the investment strategy in the drop-down menu that best describe the reporting fund's
investment strategy by percent of deployed capital, during the reporting period. If the reporting fund
engages in more than one strategy, provide a good faith estimate of the percentage of the reporting fund's
deployed capital represented by each strategy.
(Select the investment strategy or strategies that best describe the reporting fund's strategies, even if
the categories below do not precisely match your characterization of the reporting fund's strategy. If
you report all or part of the reporting fund's strategy as "Other", explain in Question 4. The
strategies listed are mutually exclusive (i.e., do not report the same portion ofdeployed capital in
multiple strategies). The total should add to I 00%.)
%of
capital
Strategy
[drop-down menu]
70.
Identify, by ISO country code, each country to which the reporting fund's investments in portfolio
companies represent exposure of 10% or more of the reporting fund's net asset value.
(See Instruction 15 for information on calculating the numerator for purposes of this question. You
should categorize investments based on concentrations ofrisk and economic exposures.
%of NAV
ER12MR24.102</GPH>
ISO code
Item C. Reporting fund and portfolio company financing;
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Country
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18123
71. Provide the following information regarding the value of the reporting fund's borrowings and the
types of creditors.
(Do not net out amounts that the reporting fund loans to creditors or the value of
collateral pledged to creditors. The percentages borrowed from the specified types of
creditors should add up to approximately 100%.)
(a)
Dollar amount of total borrowings ........................................................................... .
(b)
Percentage borrowed from US. financial institutions ............................................. .
(c)
Percentage borrowed from non-US. financial institutions ...................................... .
(d)
Percentage borrowed from U.S. creditors that are not financial institutions ........... .
(e)
Percentage borrowed from non-U.S. creditors that are not financial institutions .... .
(f)
Does the reporting fund borrow or have the ability to borrow at the fund-level as an alternative or
complement to financing of portfolio companies? If so, check "yes' and complete subsection (g) of
this question. Otherwise, check "no'
D Yes
0 No
For each type of borrowing or other cash financing available to the reporting fund, provide the
total dollar amount available and the average amount borrowed over the reporting period.
(g)
Total
amount
available (in
dollars)
Type of Financing
72.
□
Credit secured by the investments of the reporting fund
□
Credit secured by unfunded commitments
□
Credit secured by a combination of unfunded commitments
and investments of the reporting fund.
□
Other (explain in Question 4)
(a)
Average
borrowed over
the reporting
period (in
dollars)
Do you or any of your related persons guarantee, or are you or any of your related persons
otherwise obligated to satisfy, the obligations of any portfolio company in which the reporting
fund invests?
(You are not required to respond "yes" simply because a portfolio company is a primary
obligor and is also your related person.)
D
(b)
D
Yes
No
If you responded ''yes" to Question 72(a) above, report the total dollar value ofall such
guarantees and other obligations ................................................... .
73. What is the weighted average debt-to-equity ratio of the controlled portfolio
companies in which the reporting fund invests (expressed as a decimal to the
tenths place)?
(Weighting should be based on gross assets of each controlled portfolio company as
a percentage of the aggregate gross assets of the reporting fund's controlled
portfolio companies.)
VerDate Sep<11>2014
What is the highest debt-to-equity ratio of any controlled portfolio company in
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73.
18124
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
which the reporting fund invests (expressed as a decimal to the tenths place)?
74.
What is the lowest debt-to-equity ratio of any controlled portfolio company in
which the reporting fund invests (expressed as a decimal to the tenths place)?
75.
What is the aggregate gross asset value of the reporting fund's controlled
portfolio companies?
76.
What is the aggregate principal amount of borrowings categorized as current
liabilities on the most recent balance sheets of the reporting fund's controlled
portfolio companies?
77.
What is the aggregate principal amount of borrowings categorized as long-term
liabilities on the most recent balance sheets of the reporting fund's controlled
portfolio companies?
78.
What percentage of the aggregate borrowings of the reporting fund's controlled
portfolio companies is payment-in-kind (PIK) or zero-coupon debt?
I
_
During the reporting period, did the reporting fund or any of its controlled portfolio ~ - - - - - ~
companies experience an event of default under any of its indentures, loan agreements or
other instruments evidencing obligations for borrowed money? If so, check ''yes" and
complete subsections (a) of this question. Otherwise, check "no".
(Do not include a potential event ofdefault (i.e., an event that would constitute an event of default with the
giving ofnotice, the passage oftime or otherwise) unless it has become an event ofdefault.)
79.
D
(a)
D
Ym
No
Identify the nature of the default event (check all that apply):
□
Payment default of the reporting fund
□
Payment default of a controlled portfolio company
□
A default relating to a failure to uphold terms under the applicable
borrowing agreement, other than a failure to make regularly scheduled
payments.
(a) Does any controlled portfolio company of the reporting fund have in place one or more bridge loans or
commitments (subject to customary conditions) for a bridge loan?
80.
D
D
Ym
No
(b) If you responded "yes" to Question 80(a), identify each person that has provided all or part ofany
bridge loan or commitment to the relevant controlled portfolio company. For each such person, provide
the applicable outstanding amount or commitment amount.
Le1rnl Name of Counternartv
[repeat drop-down list of
creditor/counterparty
names] Other:
LEI, if
anv
Indicate below if the
counterparty is affiliated with
a maior financial institution
Outstanding amount of
financine. if drawn
Amount of
commitment, if
undrawn
[repeat drop-down list of
creditor/counterparty
names] Other:
VerDate Sep<11>2014
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[repeat drop-down list of
creditor/counterparty
names] Other:
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18125
Item D. Portfolio company investment exposures
81.
(a)
Is any of the reporting fund's controlled portfolio companies afinancial industry portfolio
company?
D Yes
0 No
(b)
If you responded "yes" to Question 81(a), then for each of the reporting fund's controlled portfolio
companies that constitutes a financial industry portfolio company, provide the following
information.
%of
Address of
principal
office
(include city,
state and
country)
Legal
Name
I
82.
LEI,if
any
NAICS
code
I
I
Debt-toequity
ratio of
portfolio
company
I
I
reporting
jitnd's gross
assets
invested in
this portfolio
company
Gross
asset
value of
portfolio
company
I
%of
portfolio
company
beneficially
owned by the
reporting
fund
I
Provide a breakdown of the reporting fund's investments in portfolio companies by
industry, based on the NA/CS codes of the companies.
(I'he total should add up to 100%.)
% of reporting fund's total portfolio
company investment
NA/CS code
83.
If you or any of your related persons (other than the reporting
fund) invest in any companies that are portfolio companies of the
reporting fund, provide the aggregate dollar amount of these
investments.
84.
If the reporting fund effectuates (i) any general partner clawback or (ii) a limited partner clawback or
claw backs in excess of an aggregate amount equal to 10 percent of a fund's aggregate capital commitments,
provide the following:
85.
VerDate Sep<11>2014
You may provide any information you believe would be helpful in understanding the information reported
in response to any question in this Section 4 of this form. Identify the related question for each comment
(use a drop-down menu so that notes are received in a structured.format).
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(a) Effective date:
(b) Type of clawback (General Partner/Limited Partner):
(c) Reason for clawback:
18126
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Cullent report for large hedge fund advisers
to qualifying hedge funds
Form PF
Section 5
Section 5: Current report for large hedge fund advisers to qualifying hedge funds.
Upon the occurrence of any one or more of the events specified in Items B to I of this Section 5, you must file a
current report responding to questions required by the applicable Item(s) (a "current report") as soon as
practicable, but no later than 72 hours. The 72 hour period begins upon the occurrence of the event or when you
reasonably believe the event occurred and you must respond to the best of your knowledge on the date of your
current report. You may provide an additional explanation of the facts and circumstances relating to the event,
including the causes and or proposed resolution in explanatory notes under Item J of this section 5.
In this Section 5, references to most recent net asset value mean the net asset value reported as of the data
reporting date.
D
Check here if you are filing an amendment to a previously filed current report. Provide the filing date of the
current report you are amending [Drop-down list of Month, Day, Year, Time].
Item A: Information about you and the reporting fund
5-1
Provide your name and the other identifying information requested below.
(This should be your full legal name.)
CRD
Number
Legal name
I
I
NFA ID
SEC 80 I-Number Number, ifany
I
I
Large trader
ID, if any
I
Large trader
ID suffix, if any
I
I
5-2(a) Name of the reporting fund
5-2(b) Private fund identification number of the reporting fund
5-2(c) NFA identification number of the reporting fund, if applicable
5-2(d) LEI of the reporting fund, if any
5-3
Signatures of authorized representative (see Instruction 11 to Form PF)
I, the undersigned, sign this Section 5 on behalf of, and with the authority of, the firm. In addition, I sign this
Section 5 on behalf of, and with the authority of, each of the related persons identified in Question 1(b) (other than
any related person for which another individual has signed this Section 5 below).
Signature on behalf ofrelated persons:
I, the undersigned, sign this Section 5 on behalf of, and with the authority of, the related person(s) identified
below.
Name of each related person on behalf of which this individual is signing:
VerDate Sep<11>2014
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Name of individual:
Signature:
Title
Email address
Telephone contact number (include area code and, if outside the United States,
country code):
Date
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18127
Name of individual:
Signature:
Title
Email address
Telephone contact number (include area code and, if outside the United States,
country code):
Date
Item B. Extraordinary Investment Losses
If on any business day the 10-business-day holding period return of the reporting fund is less than or equal to 20%, provide the information required by Questions 5-4 to 5-7, below. (Current reports should not be filed for
overlapping 10-business-day periods.)
5-4 Beginning date of the 10-business-day loss period:
5-5 End date of the IO-business-day loss period:
5-6 Holding period return:
5-7 Dollar amount of loss over the 10-business-day loss period:
Item C Margin, Collateral or Equivalent Increase
If the total dollar value of margin, collateral, or an equivalent posted by the reporting fund at the end of a rolling
10-business-day period less the total dollar value of margin, collateral, or an equivalent posted by the reporting
fund at the beginning of the rolling 10-business-day period is greater than or equal to 20% of the average daily
reporting fund aggregate calculated value during the period, provide the following information (if the total value
of margin, collateral or an equivalent posted by the reportingfund continues to increase, do not file another
current report until on or after the next 10-business-day period beginning after the end date stated at 5-9 below.):
5-8 Beginning date of the 10-business-day period during which
the increase was measured:
5-9 End date of the 10-business-day period during which the
increase was measured:
5-10 Provide the total dollar value amount of margin, collateral
or an equivalent posted by the reporting fund at the beginning of
the 10-business-day period during which the increase was
measured:
5-11 Provide the total dollar value amount of margin, collateral
or an equivalent posted by the reporting fund at the end of the 10business-day period during which the increase was measured:
5-13 Counterparty or counterparties requiring increased margin, collateral or equivalent. (If multiple
counterparties are involved list them in order ofthe dollar amount ofcumulative increase required by each
counterparty.)
Counterparty LEI, if
Legal name of the counterparty
VerDate Sep<11>2014
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5-12 Provide the average daily reporting fund aggregate
calculated value of the reporting fund during the 10-business-day
period during which the increase was measured:
18128
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
5-14 Check one or more of the following to describe your current understanding of circumstances relating to the
margin increase(s) (check all that apply):
•
•
•
•
•
•
The increase is a result of exchange or CCP requirements or known regulatory action affecting the
counterparty.
A counterparty or counterparties independently increased the reportingfund's margin, collateral or
equivalent requirements.
The reporting fund established a new relationship or new business with one or more counterparties.
The increase is attributable to new investment positions, investment approach or strategy and/or portfolio
turnover of the reporting fund.
The increase is related to a deteriorating position or positions in the reporting fund's portfolio or other
credit trigger under applicable counterparty agreements.
Other (provide explanation in Item J).
Item D. Notice of Margin Default or Determination ofInability to Meet a Call for Margin, Collateral or
Equivalents
Provide the following information if you either (1) receive notification that the reporting fund is in default on a
call for margin, collateral or an equivalent, resulting in a deficit that the reporting fund will not be able to cover or
address by adding additional funds (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 call during such cure period), provide the following information; or (2) if you
determine that the reporting fund is unable to meet a call for increased margin, collateral or an equivalent,
including in situations where there is a dispute regarding the amount or appropriateness of the margin call.
(You are not required to file a current report in situations where you dispute the amount and appropriateness ofa
call for increased margin, collateral or an equivalent, provided the reportingfund has sufficient assets to meet the
greatest of the disputed amounts.)
(If you make this determination for more than one counterparty on the same day, provide the information required
by 5-15 to 5-18 for each counterparty affected.)
5-15 Date of the notification or determination:
5-16 Dollar amount of the call for margin, collateral or equivalent:
5-1 7
Counterparty:
Counterparty LEI, if any
5-18 Check one or more of the following to describe your current understanding of the circumstances relating to
the default or your determination that the reporting fund is unable to meet a call for increased margin, collateral or
an equivalent:
D A counterparty increased margin, collateral or equivalent requirements for the reporting fund
contributed to the default or inability to meet a call for increased margin, collateral or an
equivalent.
VerDate Sep<11>2014
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Legal name of the counterparty
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
□
□
□
18129
Losses in the value of the reporting fund's portfolio or other credit trigger under applicable
counterparty agreements contributed to the default or inability to meet a call for increased margin,
collateral or an equivalent.
A default or settlement failure of a counterparty contributed to the default or inability to meet a
call for increased margin, collateral or an equivalent.
Other (provide explanation in Item J).
Item E. Counterparty Default
If a counterparty to the reporting fund (l) does not meet a call for margin, collateral or equivalent or fails 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% of the reporting fund aggregate calculated value, provide
the following information.
(If you make this determination for more than one counterparty on the same day, provide the information required
by 5-19 to 5-21 for each counterparty affected.)
5-19 Date of default:
5-20 Dollar amount of default:
5-21 Counterparty:
Legal name of the counterparty
Counterparty LEI, if any
Item F. Prime Broker Relationship Terminated or Materially Restricted
If (1) a prime broker terminates or materially restricts its relationship with the reporting fund, in whole or in part,
in markets where that prime broker continues to be active; or (2) the relationship between the prime broker and the
reporting fund was terminated by either the reporting fund or the prime broker in the last 72 hours or less in
accordance with the section 5 current reporting period, and a termination event was activated in the prime
brokerage agreement or related agreements, within the last 12 months provide the following information below.
(Termination events, as specified in the prime broker agreement or related agreements, that are isolated to the
financial state, activities or other conditions solely of the prime broker should not be considered for the purposes
of this question.)
5-22 Date of the termination or material restriction:
5-23 Date of the termination event(s) if different from date in 5-22:
5-24 Prime Broker:
Legal name of the prime broker
Prime broker LEI, if any
Item G. Operations Event
VerDate Sep<11>2014
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Note: If a prime broker changes the terms of its relationship with the reporting fund in a way that significantly
limits the fund's ability to operate under the terms of the original agreement, or significantly impairs the fund's
ability to trade, the adviser should consider it a "material restriction" that would require filing of this Item F.
18130
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
In this Item G, an "operations evenf' means that the reporting fund or private fund adviser experiences a
significant disruption or degradation of the reportingfund's critical operations, whether as a result ofan event at a
service provider to the reporting fund, the reporting fund, or the adviser. For this purpose, "critical operations"
means operations necessary for (i) the investment, trading, valuation, reporting, and risk management of the
reporting fund; or (ii) the operation of the reporting fund in accordance with the Federal securities laws and
regulations.
If there is an operations event, provide the following:
5-25 Date of the operations event, or date on which you estimate the event first
occurred:
5-26 Date operations event was discovered (discovery date may be same or different
than the date of the event reported in 5-25):
5-27 Check one or more of the following to describe your current understanding of circumstances relating to the
operations event (check all that apply and provide supplementary information in Item J if desired):
•
An operations event at a service provider to the reporting fund or the private fund adviser caused the
operations event (in whole or in part) (if applicable, provide the following information).
(a) Legal Name of Service Provider:
(b) LEI, if any:
( c) Identify services provided by the third party (e.g., fund accounting,
administration, subadviser, accounting, custodial, other):
•
•
•
[drop-down
menul
An operations event that occurred internally at the reporting fund or reporting fund adviser or a related
person.
An operations event that occurred related to a natural disaster or other force majeure event not within the
control of the private fund adviser.
Other (provide explanation in Item J).
5-28 Has the adviser initiated a disaster recovery or business continuity plan relating to the operations event and
the continued operation of the adviser or the reporting fund?
D
□
Yes
No
5-29 Check one or more of the following to describe your current understanding of the impact of the operations
event on the normal operations ofreportingfund (check all that apply):
• Disruption or degradation of trading of the reporting fund's portfolio assets
• Disruption or degradation of the valuation of the reporting fund's portfolio assets
• Disruption or degradation of your management of the reportingfund's investment risk
• Disruption or degradation of your ability to comply with applicable laws, rules, and regulations
• Other (provide explanation in Item J).
If technical or other difficulties resulting from the operations event prevent you from timely filing a current
report, you may file as soon as practicable provided that you explain the technical or other difficulty that
prevented timely filing in Item J of the current report.
If the reporting fund receives cumulative requests for withdrawals or redemptions from the reporting fund equal to
or more than 50% of the most recent net asset value (after netting against subscriptions and other contributions
from investors received and contractually committed), provide the following information:
VerDate Sep<11>2014
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Item H. Withdrawals and Redemptions
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18131
5-30 Date on which the net withdrawals or redemption requests exceeded 50% of
the most recent net asset value:
5-31 Net value of withdrawals or redemptions paid from the reporting fund
between the last data reporting date and the date of this current report:
5-32 Percentage of fund's most recent net asset value for which withdrawals or
redemptions have been requested:
5-33 Have you notified investors that the reporting fund will liquidate?
D
D
Yes
No
Item L Unable to Satisfy Redemptions or Suspension of Redemptions
If the reporting fund (1) is unable to pay redemption requests, or (2) has suspended redemptions and the
suspension lasts for more than 5 consecutive business days; provide the following information:
5-34 Date on which the reporting fund was unable to pay or suspended
redemptions:
5-35 Percentage of fund's most recent net asset value for which redemptions have
been requested and not yet paid on the date of this current report:
5-36 Have you notified investors that the reporting fund will liquidate?
D
D
Yes
No
Item J. Explanatory Notes
VerDate Sep<11>2014
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You may provide any information you believe would be helpful in understanding the information reported in
response to any Item in this Section 5 of this form. Identify the related question for each comment (use a dropdown menu so that notes are received in a structured format).
18132
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Quarterly report for advisers to private equity funds
Form PF
Section 6
Section 6: Quarterly report for advisers to private equity funds.
Upon the occurrence of any one or more of the events specified in Items B or C of this section 6, you must file
a quarterly report responding to questions required by the applicable Item(s) (a ''private equity event report'').
If any of the below items occur within a particular fiscal quarter for the private equity funds you advise you
will file a section 6 quarterly report within 60 calendar days after the end of each calendar quarter. Do not file
a section 6 quarterly report if a private equity reporting event did not occur during that calendar quarter. It is
not necessary to report the same instance of a reporting event again on future section 6 filings. You may
provide an additional explanation of the facts and circumstances relating to the event, including the causes
and/or proposed resolution in explanatory notes under Item D of this section 6.
D
Check here if you are filing an amendment to a previously filed current report. Provide the filing date of
the current report you are amending [Drop-down list of Month, Day, Year, Time].
Item A: Information about you and the reporting fund
6-1
Provide the identifying information requested below.
Full le al name
CRD Number
NFAID
Number, if an
SEC 801Number
Large trader
ID, ifan
Large trader
ID suffix, if an
6-2(a) Name of the reporting fund
6-2(b) Private fund identification number of the reporting fund
6-2(c) NFA identification number of the reporting fund, if any
6-2(d) LEI of the reporting fund, if any
6-3
Signatures of authorized representative (see Instruction I I to Form PF)
I, the undersigned, sign this Section 6 on behalfof, and with the authority of, the firm. In addition, I sign this
Section 6 on behalf of, and with the authority of, each of the related persons identified in Question 1(b) (other
than any related person for which another individual has signed this Section 6 below).
Name of individual:
Signature:
Title:
Email address:
Telephone contact number (include area code and, if outside the United
States, country code):
Date:
Name of individual:
Signature:
Title:
Email address:
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Signature on behalf of related persons:
I, the undersigned, sign this Section 6 on behalf of, and with the authority of, the related person(s) identified
below.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18133
Telephone contact number (include area code and, if outside the United States,
country code):
Date:
Item B. Adviser-Led Secondary Transactions.
If the reporting fund closed an adviser-led secondary transaction, provide the following:
6-4 Closing date of transaction:
6-5 Description of transaction:
Item C. General Partner Removal, Termination of the Investment Period or Termination of Fund.
Upon receipt by the reporting fund or its adviser or affiliate of notification that fund investors have removed
the adviser or its affiliate as the general partner or similar control person of the reporting fund, elected to
terminate the reporting fund's investment period, or elected to terminate the reporting fund, in each case, as
contemplated by the reporting fund's governing documents (each, a "removal event") provide the following:
6-6 Effective date of removal event:
6-7 Description of removal event:
Item D. Explanatory Notes
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You may provide any information you believe would be helpful in understanding the information reported in
response to any Item in this Section 6 of this form. Identify the related question for each comment (use a
drop-down menu so that notes are received in a structured format).
18134
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Request for temporary hardship exemption
(to be completed by private fund advisers requesting exemption)
Form PF
Section 7
Section 7: Request for temporary hardship exemption
You must complete Section 7 if you are requesting a temporary hardship exemption pursuant to SEC
rule 204(b)-l(f).
A.
For which type of Form PF filing are you requesting a temporary hardship exemption?
1. If you are not a large hedge fund adviser or large liquidity fund adviser:
D Initial filing
□ Annual update
□ Final filing
2. If you are a large hedge fund adviser or large liquidity fund adviser:
D
D
□
□
VerDate Sep<11>2014
Provide the following information regarding your request for a temporary hardship exemption (attach
a separate page if additional space is needed).
1.
Describe the nature and extent of the temporary technical difficulties when you attempt
to submit the filing to the Form PF filing system on the IARD:
2.
Describe the extent to which you previously have submitted documents in electronic
format with the same hardware and software that you are unable to use to submit this
filing:
3.
Describe the burden and expense of employing alternative means (e.g., a service
provider) to submit the filing in electronic format in a timely manner:
4.
Provide any other reasons that a temporary hardship exemption is warranted:
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B.
Initial filing
Quarterly update
Filing to transition to annual reporting
Final filing
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18135
IForm PF: Glossary of Terms
7-day gross yield
Based on the 7 days ended on the data reporting
date, calculate the liquidity fund's yield by
determining the net change, exclusive of capital
changes and income other than investment income,
in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of
the period and dividing the difference by the value
of the account at the beginning of the base period
to obtain the base period return, and then
multiplying the base period return by (365/7) with
the resulting yield figure carried to the nearest
hundredth of one percent. The 7-day gross yield
should not reflect a deduction of shareholders fees
and fund operating expenses.
10-year bond equivalent
For interest rate sensitive positions, the equivalent
position in a 10-year zero coupon bond, expressed
in U.S. dollars.
ABCP
Asset backed commercial paper, including (but not
limited to) structured investment vehicles, singleseller conduits and multi-seller conduit programs.
Do not include any positions held via CDS (these
should be recorded in the CDS category).
ABS
Securities derived from the pooling and
repackaging of cash flow producing financial
assets.
Adjusted exposure
The value of positions after netting as specified by
instructions to Question 32.
Adviser-led secondary transaction
Any transaction initiated by the adviser or any of
its related persons that offers private fund investors
the choice to: (i) sell all or a portion of their
interests in the private fund; or (ii) 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.
U.S. Investment Advisers Act of 1940, as
amended.
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Advisers Act
Affiliate
With respect to any person, any other person that
directly or indirectly controls, is controlled by or is
under common control with such person. The term
affiliated means that two or more persons are
affiliates.
Agency securities
Any security issued by a person controlled or
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GLOSSARY OF TERMS
18136
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
supervised by and acting as an instrumentality of
the government of the United States pursuant to
authority granted by the Congress of the United
States and guaranteed as to principal or interest by
the United States.
AIF
An alternative investment fund that is not
regulated under the UCITS Directive, as defined in
the Directive of the European Parliament and of
the Council on alternative investment fund
managers (No. 2011/61/EU), as amended, or an
alternative investment fund that is captured by the
Alternative Investment Fund Managers
(Amendment etc.) (EU Exit) Regulations 2019, as
amended.
Annual update
An update of this Form PF with respect to any
fiscal year.
Average daily reporting fund aggregate calculated
value
The average of the daily reporting fund aggregate
calculated value for the end of the business day on
business days one through ten of the reporting
period.
Borrowing and collateral received ("BICR '')
The mark-to-market value, as of the data reporting
date, of the following: (i) cash and cash
equivalents received as borrowing, (ii) securities
borrowed or received by the reporting fund
(include securities borrowed in connection with
short sales, securities lending and repo), (iii)
collateral posted by a counterparty to the reporting
fund's account, (iv) negative market-to-market
value of derivatives (from the reporting fund's
point of view), and (v) the gross notional value of
synthetic long positions.
Borrowings
Secured borrowings and unsecured borrowings,
collectively. Borrowings by a reporting fund
include, but are not limited to (i) cash and cash
equivalents received with an obligation to repay;
(ii) securities lending transactions (count cash and
cash equivalents and securities received by the
reporting fund in the transaction, including
securities borrowed by the reporting fund for short
sales); (iii) repo or reverse repo (count cash and
cash equivalents and securities received by the
reporting fund); (iv) negative mark-to-market of
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Include bond derivatives and positions held
indirectly through another entity (e.g., through an
ETF, exchange traded product, U.S. registered
investment companies, non-US. registered
investment companies, internal private fund or
external private fund, commodity pool, or other
company, fund or entity).
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18137
derivative transactions from the reporting fund's
point of view; and (v) the gross notional value of
synthetic long positions.
bp
Basis points.
Cash and cash equivalents
Cash (including U.S. and non-U.S. currencies) and
cash equivalents. For purposes of this definition,
cash equivalents are:
(i) bank deposits, certificates of deposit, bankers
acceptances and similar bank instruments held for
investment purposes;
(ii) the net cash surrender value of an insurance
policy; or
( iii) investments in money market funds.
VerDate Sep<11>2014
Cash borrowing entries
For Questions 26 and 41, the sum of amounts
attributable to an individual counterparty included
the entries on the following lines of the reporting
fund's consolidated counterparty exposure table:
(a) unsecured borrowing-cash and cash
equivalents,
(b)(i) cash and cash equivalents received by the
reporting fund in margin loans and securities
lending transactions,
(c)(i) cash and cash equivalents received by the
reporting fund related to repo and reverse repo
(include tri-party repo ),
(d)(i) cash and cash equivalents received by the
reporting fund related to other secured
borrowing,
( e)(i) - negative mark to market exposure of
derivative positions cleared by a CCP and
(f)(i) and (ii) gross notional value of synthetic
long positions and negative mark to market
exposure of uncleared derivative positions (not
cleared by a CCP).
Cash lending entries
For Questions 26 and 41, the sum of amounts
attributable to an individual counterparty included
the entries on the following lines of the reporting
fund's consolidated counterparty exposure table:
(b)(i)- cash and cash equivalents posted by
reporting fund to the counterparty in margin
borrowing and securities lending transactions,
(c)(i) - cash and cash equivalents posted by the
reporting fund relating to repo and reverse repo
(include tri-party repo ),
(d)(i)- cash and cash equivalents posted by the
reporting fund relating to other secured
borrowing,
(e)(i) - positive mark to market exposure in
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Do not include any digital asset in cash and cash
equivalents.
18138
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
derivative positions cleared by a CCP, and
(f)(i) and (ii) - gross notional value of synthetic
short positions and positive mark to market
exposure in uncleared derivative positions (not
cleared by a CCP).
CCP
Central clearing counterparties (or central clearing
houses) (for example, CME Clearing, The
Depository Trust & Clearing Corporation, Fedwire
and LCH Clearnet Limited).
CDO
Collateralized debt obligations (including cash
flow and synthetic).
CDS
Credit default swaps, including any LCDS.
CEA
U.S. Commodity Exchange Act, as amended.
CFTC
U.S. Commodity Futures Trading Commission.
CLO
Collateralized loan obligations (including cash
flow and synthetic) other than MES.
Do not include any positions held via CDS (these
should be recorded in the CDS category).
Closed-end private fund
Any private fund that only issues securities, the
terms of which do not provide a holder with any
right, except in extraordinary circumstances, to
withdraw, redeem, or require the repurchase of
such securities, but which may entitle holders to
receive distributions made to all holders pro rata.
Collateral posted entries
For Question 26, the sum of amounts attributable
to an individual counterparty included the entries
on the following lines of the reporting fund's
consolidated counterparty exposure table:
(b)(ii) - cash and cash equivalents posted by the
reporting fund as collateral for derivatives under a
cross-margining agreement;
(b)(iii) - government securities and other securities
posted by the reporting fund to the counterparty in
margin borrowing, securities lending transactions,
and as margin for derivatives under any crossmargining agreement;
(c)(ii) - government securities and other securities
posted by the reporting fund relating to repo and
reverse repo (include tri-party repo ),
(d)(ii) - government securities and other securities
posted by the reporting fund relating to other
secured borrowing,
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Do not include any positions held via CDS (these
should be recorded in the CDS category).
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18139
(e)(ii) and (iii) - cash and cash equivalents,
government securities and other securities posted
by the reporting fund as collateral relating to
derivative positions cleared by a CCP and
(£)(iii) and (iv) - cash and cash equivalents,
government securities and other securities posted
by the reporting fund as collateral relating to
uncleared derivative positions (not cleared by a
CCP).
For Question 41, entries on the following lines of
the reporting fund's counterparty credit exposure
and collateral table:
(b)(ii)- cash and cash equivalents posted by the
reporting fund as collateral for derivatives under a
cross-margining agreement,
(b)iii), and (iv) government securities and other
securities posted by the reporting fund to the
counterparty in margin borrowing, securities
lending transactions, and as margin for derivatives
under any cross-margining agreement,
(c)(ii)- government securities and other securities
posted by the reporting fund relating to repo and
reverse repo (include tri-party repo),
(d)(ii) - government securities and other
securities posted by the reporting fund relating to
other secured borrowing,
(e)(ii), (iii), and (iv)- cash and cash equivalents,
government securities and other securities posted
by the reporting fund as collateral relating to
derivative positions cleared by a CCP, and
(£)(iii), (iv), and (v)- cash and cash equivalents,
government securities and other securities posted
by the reporting fund as collateral relating to
uncleared derivative positions (not cleared by a
CCP).
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For Question 26, the sum of amounts attributable
to an individual counterparty included the entries
on the following lines of the reporting fund's
consolidated counterparty exposure table:
(b)(ii)- cash and cash equivalents received by
the reporting fund as collateral for derivatives
under any cross-margining agreement,
(b)(iii) - government securities and other
securities received by the reporting fund in cash
margin borrowing and securities lending
transactions,
(c)(ii)- government securities and other
securities received by the reporting fund related to
repo and reverse repo (include tri-party repo ),
( d)(ii) - government securities and other
securities received related to other secured
borrowing,
(e)(ii) and (iii)- cash and cash equivalents,
Collateral received entries
18140
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
government securities and other securities received
as collateral in derivative positions cleared by a
CCPand
(f)(iii) and (iv) - cash and cash equivalents,
government securities and other securities received
as collateral in uncleared derivative positions (not
cleared by a CCP).
Combined money market and liquidity fund assets
under management
With respect to any adviser, the sum of: (i) such
adviser's liquidity fund assets under management;
and (ii) such adviser's regulatory assets under
management that are attributable to money market
funds that it advises.
Committed capital
Any commitment pursuant to which a person is
obligated to acquire an interest in, or make capital
contributions to, the private fund.
Commodities
Has the meaning provided in the CEA.
For questions regarding commodities, provide the
value of all exposure to commodities that you hold
physically, synthetically or through derivatives
(whether cash or physically settled), or indirectly
through another entity (e.g., through an ETF,
exchange traded product, U.S. registered
investment companies, non-U.S. registered
investment companies, internal private fund or
external private fund, commodity pool, or other
company, fund or entity).
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For Question 41, entries on the following lines of
the reportingfund's counterparty credit exposure
and collateral table:
(b )(ii) - cash and cash equivalents received by
the reporting fund as collateral for derivatives
under any cross-margining agreement,
(b)(iii) and (iv) - government securities and other
securities received by the reporting fund in cash
margin borrowing and securities lending
transactions,
(c)(ii) and (iii)- government securities and other
securities received by the reporting fund related to
repo and reverse repo (include tri-party repo ),
(d)(ii) and (iii)- government securities and other
securities received related to other secured
borrowing,
(e)(ii), (iii), and (iv)- cash and cash equivalents,
government securities and other securities received
as collateral in derivative positions cleared by a
CCPand
(f)(iii), (iv) and (v) - cash and cash equivalents,
government securities and other securities received
as collateral in uncleared derivative positions (not
cleared by a CCP).
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18141
Commodity pool
A "commodity pool," as defined in section la(lO)
of the CEA.
Conditional demand feature
Has the meaning provided in rule 2a-7.
Consolidated counterparty exposure table
For hedge funds, other than qualifying hedge
funds, the Section le table (at Question 26) that
collects the reporting fund's borrowing and
collateral received and lending and posted
collateral aggregated across all creditors and
counterparties as of the end of the reporting
period.
For qualifying hedge funds, the Section 2 table (at
Question 41) that collects the reporting fund's
borrowing and collateral received and lending and
posted collateral aggregated across all creditors
and counterparties as of the end of the reporting
period.
Control
Has the meaning provided in Form ADV. The term
controlled has a corresponding meaning.
Controlled portfolio company
With respect to any private equity fund, a portfolio
company that is controlled by the private equity
fund, either alone or together with the private
equity fund's affiliates or other persons that are, as
of the data reporting date, part of a club or
consortium including the private equity fund.
Convertible bonds
Convertible corporate bonds (not yet converted
into shares or cash).
Corporate bonds
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Bonds, debentures, and notes, including
commercial paper, issued by corporations and
other non-governmental entities.
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Include bond derivatives, but do not include any
positions held via CDS (these should be recorded
in the CDS category). Include positions held
indirectly through another entity (e.g., through an
ETF, exchange traded product, U.S. registered
investment companies, non-US. registered
investment companies, internal private fund or
external private fund, commodity pool, or other
company, fund or entity).
18142
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Do not include preferred equities. Include bond
derivatives, but do not include any positions held
via CDS (these should be recorded in the CDS
category). Include positions held indirectly
through another entity (e.g., through an ETF,
exchange traded product, U.S. registered
investment companies, non-U.S. registered
investment companies, internal private fund or
external private fund, commodity pool, or other
company, fund or entity).
Correlation derivative
A derivative transaction for which the underlying
asset is the correlation between the price or rate
movements of two instruments.
CPO
A "commodity pool operator," as defined in
section la(ll) of the CEA.
Credit rating agency
Any nationally recognized statistical rating
organizations, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934.
Critical operations
For purposes ofresponding to Section 5, means the
operations necessary for (i) the investment,
trading, valuation, reporting, and risk management
of the reporting fund; or (ii) the operation of the
reporting fond in accordance with the Federal
securities laws and regulations.
CTA
A "commodity trading advisor," as defined in
section la(12) of the CEA.
Current report
A current report provided pursuant to the items
listed in Section 5 of Form PF.
Current reporting event
Any event that triggers the requirement to complete
and file a current report pursuant to the items in
Section 5 of Form PF.
Daily liquid assets
Has the meaning provided in rule 2a- 7.
Daily rate-of-return
Is the percentage change in the reportingfund
aggregate calculated value from one day to the
next and adjusted for subscriptions and
redemptions, if necessary.
If you are a large hedge fund adviser or a large
liquidity fund adviser responding to Items on this
Form PF relating to any hedge fund or liquidity
fund, the data reporting date is the last calendar
day of the most recently completed calendar
quarter for all Items on Form PF relating to such
hedge funds and liquidity funds.
If you are filing an initial filing or annual update
for any other private fund, the data reporting
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Data reporting date
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18143
Demand feature
Has the meaning provided in rule 2a-7.
Dependent parallel managed account
With respect to any private fund, any related
parallel managed account other than a parallel
managed account that individually (or together
with other parallel managed accounts that pursue
substantially the same investment objective and
strategy and invest side by side in substantially the
same positions) has a gross asset value greater
than the gross asset value of such private fund (or,
if such private fund is a parallel fund, the gross
asset value of the parallel fund structure of which
it is a part).
Dollar amount ofloss over the JO-business-day
period
Is equal to the reporting fund aggregate calculated
value at the end of the 10-business-day loss period
less the reporting fund aggregate calculated value
at the beginning of the IO-business day loss period
less the net of any subscriptions or redemptions
during the 10-business-day period.
Exchange-traded fund.
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ETF
Exchange traded products
An investment traded on a stock exchange that
invests in underlying securities or assets, such as
an ETF or exchange traded note.
Exempt reporting adviser
Has the meaning provided in Farm ADV.
Exotic CDS
CDSs referencing bespoke baskets or tranches of
CDOs, CLOs, and other structured investment
vehicles, including credit default tranches.
External private funds
Private funds that neither you nor your related
persons advise.
Feeder fund
See master-feeder arrangement.
Financial industry portfolio company
Any of the following: (i) a nonbank financial
company, as defined in the Financial Stability Act
of2010; or (ii) any bank, savings association, bank
holding company, financial holding company,
savings and loan holding company, credit union or
other similar company regulated by a Federal,
state, or foreign banking regulator, including the
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date is the last calendar day of your most
recently completed fiscal year.
18144
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Firm
The private fund adviser completing or amending
this Form PF.
Foreign exchange derivative
Any derivative whose underlying asset is a
currency other than the base currency of the
reporting fund or is an exchange rate. Crosscurrency interest rate swaps and currency forwards
should be included inforeign exchange derivatives
and excluded from interest rate derivatives.
If one leg of the foreign exchange derivative is the
base currency of the private fund, only the foreign
currency side of the transaction should be counted.
If neither leg of the foreign exchange derivative is
in the base currency, both legs should be counted.
FormADV
Form ADV, as promulgated and amended by the
SEC.
FormADVSection 7.B.1
General partner clawback
Section 7.B.l of Schedule D to Form ADV.
Any obligation of the general partner, its related
persons, or their respective owners or interest
holders to restore or otherwise return performancebased compensation to the fund pursuant to the
fund's governing agreements.
General partner stakes investing
An investment strategy that acquires noncontrolling interests in alternative investment
managers and other entities that provide advisory
services to, or receive compensation from, private
funds.
GJO
The Group of Ten. If the composition of the GJO
has changed after the effective date of this Form
PF, use the current composition of the GJO.
Government entity
Has the meaning provided in Form ADV.
Government securities
Are: (i) US. treasury securities; (ii) agency
securities; and (iii) any certificate of deposit for
any of the foregoing.
Gross asset value
Value of gross assets, calculated in accordance
with Part IA, Instruction 6.e(3) of Form ADV.
Gross exposure
The sum of the absolute value of all of the
reporting fund's long and short positions with
legal and contractual rights to a reference asset.
Gross notional value
The nominal or notional value of all transactions
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Federal Deposit Insurance Corporation, the Board
of Governors of the Federal Reserve System, the
Office of the Comptroller of the Currency, the
National Credit Union Administration or the Farm
Credit Administration.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18145
that have been entered into but not yet settled as of
the data reporting date. For contracts with
variable nominal or notional principal amounts, the
basis for reporting is the nominal or notional
principal amounts as of the data reporting date
computed as the number of shares or units of the
underlying reference asset times current price on
the data reporting date.
Gross reporting fund aggregate calculated value
The sum of the absolute value of every position in
the reporting fund's portfolio, including cash and
cash equivalents, short positions, and any fundlevel borrowing, with the most recent price or
value applied to the position for purposes of
managing the investment portfolio. Where one or
more portfolio positions are valued less frequently
than daily, the last price used should be carried
forward, though a current foreign exchange rate
may be applied if the position is not valued in U.S.
dollars. It is not necessary to adjust the gross
reporting fund aggregate calculated value for
accrued fees or expenses. Gross reporting fund
aggregate calculated values do not need to be
subjected to fair valuation procedures. The
inclusion of income accruals is recommended but
not required; however, the approach should be
consistent over time. The gross reporting fund
aggregate calculated value may be calculated
using the adviser's own internal methodologies
and conventions of the adviser's service providers,
provided that these are consistent with information
reported internally. But see reporting fund
aggregate calculated value.
GSE bonds
Notes, bonds, and debentures issued by private
entities sponsored by the U.S. federal government
but not guaranteed as to principal and interest by
the U.S. federal government. Include GSE MES.
Guarantee
For purposes of Question 65, has the meaning
provided in paragraph (a)(l6)(i) ofrule 2a-7.
Guarantor
For purposes of Question 65, the provider of any
guarantee.
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Include bond derivatives, but do not include any
positions held via CDS (these should be recorded
in the CDS category). Include positions held
indirectly through another entity (e.g., through an
ETF, exchange traded product, U.S. registered
investment companies, non-US. registered
investment companies, internal private fund or
external private fund, commodity pool, or other
company, fund, or entity).
18146
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Hedge fund
Any private fund (other than a securitized asset
fund):
(a) with respect to which one or more
investment advisers (or related persons of
investment advisers) may be paid a
performance fee or allocation calculated by
taking into account unrealized gains (other
than a fee or allocation the calculation of
which may take into account unrealized
gains solely for the purpose of reducing
such fee or allocation to reflect net
umealized losses);
(b) that may borrow an amount in excess of
one-half of its net asset value (including any
committed capital) or may have gross
notional exposure in excess of twice its net
asset value (including any committed
capital); or
(c) that may sell securities or other assets short
or enter into similar transactions (other than
for the purpose of hedging currency
exposure or managing duration).
Hedge fund assets under management
With respect to any adviser, hedge fund assets
under management are the portion of such
adviser's regulatory assets under management that
are attributable to hedge funds that it advises.
Holding period return
Means the cumulative daily rate-of-return over the
holding period calculated by geometrically linking
the daily rates-of-return. Holding period return
(%) = (((1 + R1) X (1 + R2) ... (1 + R10))- 1) X 100
where R1, R2 ... Rlo are the daily rates-of-return
during the holding period expressed as decimals.
Has the meaning provided in rule 2a- 7.
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Illiquid security
Index CDS
CDSs referencing a standardized basket of credit
entities, including CDS indices and indices
referencing leveraged loans.
Individual counterparty exposure table
The tables at Questions 41 and42 that collect the
reporting fund's borrowing and collateral received
and lending and posted collateral for each
identified creditors and other counterparties as of
the end of the reporting period.
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Solely for purposes of this Form PF, any
commodity pool about which you are reporting or
required to report on Form PF is categorized as a
hedge fund. For purposes of this definition, do not
net long and short positions. Include any
borrowings or notional exposure of another person
that are guaranteed by the private fund or that the
private fund may otherwise be obligated to satisfy.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Iriflation derivative
A derivative transaction for which the underlying
asset is the rate of inflation in a given country, or
the price or yield of inflation-linked debt
securities.
Instrument type
The instrument types specified by Question 32.
Interest rate derivative
Any derivative whose underlying asset is the
obligation to pay or the right to receive a given
amount of money accruing interest at a given rate.
Cross-currency interest rate swaps should be
included inforeign exchange derivatives and
excluded from interest rate derivatives.
18147
Internal private funds
Private funds that you or any of your related
persons advise.
Internal rate ofreturn
The discount rate that causes the net present value
of all cash flows throughout the life of the fund to
be equal to zero. But see, rate ofreturn.
Investment grade
A security is investment grade if it is sufficiently
liquid that it can be sold at or near its carrying
value within a reasonably short period of time and
is subject to no greater than moderate credit risk.
Investments in non-US. registered investment
companies
Investments in investment companies ( other than
private funds, money market funds, and ETFs)
organized outside the U.S. and not registered as
investment companies under the Investment
Company Act of 1940.
Investments in other sub-asset classes
Any investment not included in another sub-asset
class.
ISDA
International Swaps and Derivatives Association
Large hedge fund adviser
Any private fund adviser that is required to file
Section 2 of Form PF for a qualifying hedge fund.
See Instruction 3 to determine whether you are
required to file this section.
Large liquidity fund adviser
Any private fund adviser that is required to file
Section 3 of Form PF.
See Instruction 3 to determine whether you are
required to file this section.
Large private equity fund adviser
Any private fund adviser that is required to file
Section 4a of Form PF.
See Instruction 3 to determine whether you are
required to file this section.
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This information must be presented in terms of the
JO-year bond equivalents.
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Large private fund adviser
Any large hedge fund adviser, large liquidity fund
adviser, or large private equity fund adviser.
LCDS
Loan credit default swaps.
LEI
With respect to any company, the "legal entity
identifier" assigned by or on behalf of an
internationally recognized standards setting body
and required for reporting purposes by the U.S.
Department of the Treasury's Office of Financial
Research or a financial regulator. Do not
substitute any other identifier that does not meet
this definition.
Lending and posted collateral (LIPC)
The mark-to-market value, as of the data reporting
date, of the following: (i) cash and cash
equivalents received by a counterparty from the
reporting fund with the obligation to repay
(exclude portfolio investments), (ii) securities
borrowed or received by a counterparty in a
reverse repo or securities lending transaction, (iii)
collateral posted by the reporting fund to a
counterparty, (iv) positive mark-to-market value of
derivatives (from the reporting fund's point of
view), and (v) gross notional value of synthetic
short positions.
Do not include in lending and posted collateral any
portfolio holdings or transactions for investment
purposes, such as debt or equity securities issued
by a counterparty, or the credit exposure of the
reporting fund obtained by making secured or
unsecured loans or similar transactions as part of
the reporting fund's investment strategy. For
example, in the case of an option on a debt
security, report counterparty credit exposure in
respect of the positive or negative mark-to-market
value of the option and associated posted
collateral; do not report the credit risk of the
underlying debt security.
Loans that are made to entities whose senior
unsecured long term indebtedness is noninvestment grade. This may include loans made in
connection with the financing structure of a
leveraged buyout.
Do not include any positions held via LCDS (these
should be recorded in the CDS category). Include
positions held indirectly through another entity
(e.g., through an ETF, exchange traded product,
U.S. registered investment companies, non-US.
registered investment companies, internal private
fund or external private fund, commodity pool, or
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Leveraged loans
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18149
other company, fund or entity).
Limited partner clawback
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.
Liquidity fund
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 per unit
or minimize principal volatility for investors.
Liquidity fund assets under management
With respect to any adviser, liquidity fund assets
under management are the portion of such
adviser's regulatory assets under management that
are attributable to liquidity funds it advises
(including liquidity funds that are also hedge
funds).
Listed equity
Equities, including preferred equities, listed on a
regulated exchange.
Include synthetic or derivative exposures to
equities. Include positions held indirectly through
another entity (e.g., through an ETF, exchange
traded product, U.S. registered investment
companies, non-US. registered investment
companies, internal private fund or external
private fund, commodity pool, or other company,
fund, or entity).
Listed equity derivatives
All synthetic or derivative exposures to equities,
including preferred equities, listed on a regulated
exchange.
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Master-feeder arrangement
An arrangement in which one or more funds
(''feeder funds") invest all or substantially all of
their assets in a single private fund ("master
fund"). A fund would also be a feeder fund
investing in a master fund for purposes of this
definition if it issued multiple classes (or series) of
shares or interests and each class (or series) invests
substantially all of its assets in a single master
fund.
Master fund
See master-feeder arrangement.
Maturity
The maturity of the relevant asset, determined
without reference to the maturity shortening
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Include e.g., single stock futures, equity index
futures, derivatives relating to ADRs, and other
derivatives relating to indices on listed equities,
dividend swaps, total return swaps ( contracts for
difference), warrants, and rights.
18150
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provisions contained in paragraph (i) ofrule 2a-7
regarding interest rate readjustments.
MES
Mortgage backed securities, including residential,
commercial and agency.
Money market fund
Has the meaning provided in rule 2a-7.
Most recent net asset value
The net asset value reported as of the data
reporting date at the end of the reporting fund's
most recent reporting period.
NA/CS code
With respect to any company, the six-digit North
American Industry Classification System code that
best describes the company's primary business
activity and principal source of revenue. If the
company reports a business activity code to the
U.S. Internal Revenue Service, you may rely on
that code for this purpose.
Net assets under management
Net assets under management are your regulatory
assets under management minus any outstanding
indebtedness or other accrued but unpaid
liabilities.
Net asset value or
NAV
With respect to any reporting fund, the gross assets
reported in response to Question 12 minus any
outstanding indebtedness or other accrued but
unpaid liabilities.
Netted exposure
The reporting fund's exposure to a reference asset,
after netting under instructions at Question 39.
NFA
The National Futures Association.
Non-investment grade
A security is non-investment grade if it is not an
investment grade security.
Non-US. financial institution
Any of the following: (i) a financial institution
chartered outside the United States; (ii) a financial
institution that is separately incorporated or
otherwise organized outside the United States but
has a parent that is a financial institution chartered
in the United States; or (iii) a branch or agency that
resides in the United States but has a parent that is
a financial institution chartered outside the United
States.
Open-end private fund
Any private fund that offers redemption rights to
its investors in the ordinary course, which may be
paid in cash or in kind, irrespective of redemption
frequency or notice periods and without regard to
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Do not include any positions held via CDS (these
should be recorded in the CDS category).
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18151
any suspensions, gates, lock-ups, or side pockets
that may be employed by the fund.
Operations event
Means for purposes of section 5 that the reporting
fund or adviser experiences a significant disruption
or degradation of the reportingfund's critical
operations, whether as a result of an event at a
service provider to the reporting fund, the
reporting fund, or the adviser.
OTC
With respect to any instrument, the trading of that
instrument over the counter.
Other ABS
ABS products that are not covered by another subasset class.
Other commodities
Commodities other than agriculture, base metals,
crude oil, natural gas, gold, other (non-gold)
precious metals, and power and other energy
commodities.
For questions regarding other commodities,
provide the value of all exposure to other
commodities that you hold physically, synthetically
or through derivatives (whether cash or physically
settled), and positions held indirectly through
another entity (e.g., through an ETF, exchange
traded product, U.S. registered investment
companies, non-US. registered investment
companies, internal private fund or external
private fund, commodity pool, or other company,
fund, or entity).
Other derivatives
Any derivative not included as another instrument
type or sub-asset class.
Other private fund
Any private fund that is not a hedge fund, liquidity
fund, private equity fund, real estate fund,
securitized asset fund or venture capital fund.
Other structured products
Any structured products not included in another
sub-asset class.
Parallel fund
See parallel fund structure.
Parallel fund structure
A structure in which one or more private funds
(each, a ''parallel funcf') pursues substantially the
same investment objective and strategy and invests
side by side in substantially the same positions as
another private fund.
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Do not include any positions held via CDS (these
should be recorded in the CDS category).
18152
Parallel managed account
With respect to any private fund, a parallel
managed account is any managed account or other
pool of assets that you advise and that pursues
substantially the same investment objective and
strategy and invests side by side in substantially
the same positions as the identified private fund.
Performance-based compensation
Allocations, payments, or distributions of capital
based on the reporting fund's (or any of its
investments') capital gains, capital appreciation
and/or other profit.
Person
Has the meaning provided in Form ADV.
Position calculated value
The value of a portfolio position using the most
recent price or value available for purposes of
managing the investment portfolio. Where a given
position is valued less frequently than daily, the
last price used should be carried forward, though a
current foreign exchange rate may be applied if
the position is not valued in the reporting fund's
base currency. Position calculated values do not
need to be subjected to fair valuation procedures.
The position calculated value may be calculated
using the adviser's own internal methodologies
and conventions of the adviser's service providers,
provided that these are consistent with information
reported internally.
Principal office and place of business
Has the meaning provided in Form ADV.
Private equity event report
A quarterly report provided pursuant to the items
listed in Section 6 of Form PF.
Private equity fund
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 equity fund assets under management
With respect to any adviser, private equity fund
assets under management are the portion of such
adviser's regulatory assets under management that
are attributable to private equity funds it advises.
Private equity reporting event
Any event that triggers the requirement to complete
and file a private equity event report pursuant to the
items in Section 6 of Form PF.
Any issuer that would be an investment company
as defined in section 3 of the Investment Company
Act of 1940 but for section 3(c)(l) or 3(c)(7) of
that Act.
If any private fund has issued two or more series
(or classes) of equity interests whose values are
determined with respect to separate portfolios of
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Private fund
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18153
Private fund adviser
Any investment adviser that (i) is registered or
required to register with the SEC (including any
investment adviser that is also registered or
required to register with the CFTC as a CPO or
CTA) and (ii) advises one or more private funds.
Private fund assets under management
With respect to any adviser, private fund assets
under management are the portion of such
adviser's regulatory assets under management that
are attributable to private funds it advises.
Qualifying hedge fund
Any hedge fund that has a net asset value
(individually or in combination with 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.
Quarterly update
An update of this Form PF with respect to any
calendar quarter.
Rate ofreturn
For a reporting fund, the rate ofreturn is the
percentage change in the net asset value ( or, when
a net asset value is not available, in the reporting
fund aggregate calculated value) in the reporting
fund's base currency from one date to another and
adjusted for subscriptions and redemptions. For a
portfolio position, the rate ofreturn is the
percentage change in the position calculated value,
adjusted for income earned and for changes in the
quantity held resulting from activity, such as
purchases, sales, or splits. But see, internal rate of
return.
Real estate fund
Any private fund that is not a hedge fund, that does
not provide investors with redemption rights in the
ordinary course and that invests primarily in real
estate and real estate related assets.
Reference asset
A security or other investment asset to which the
reporting fund is exposed through direct ownership
(i.e., a physical or cash position), synthetically
(i.e., the subject of a derivative or similar
instrument held by the reporting fund), or indirect
ownership (e.g., through ETFs, other exchange
traded products, U.S. registered investment
companies, non-US. registered investment
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securities and other assets, then each such series
( or class) should be regarded as a separate private
fund. This only applies with respect to series (or
classes) that you manage as if they were separate
funds and not a fund's side pockets or similar
arrangements.
18154
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Regulatory assets under management
Regulatory assets under management, calculated in
accordance with Part IA, Instruction 5.b of Form
ADV.
Related person
Has the meaning provided in Farm ADV.
Repo
Any purchase of securities coupled with an
agreement to sell the same (or similar) securities at
a later date at an agreed upon price (i.e., a
"securities in" transaction).
Do not include any positions held via CDS (these
should be recorded in the CDS category).
Reporting fund
A private fund as to which you must report
information on Form PF.
Typically, each private fund is a reporting fund.
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companies, internal private funds, external private
funds, commodity pools, or other companies, fund
or entities. In the case of futures contracts
permitting multiple deliverable assets, the
reference asset should be the then-current cheapest
to deliver instrument. You may identify the
reporting fund's reference assets according to your
internal methodologies and the conventions of
service providers, provided that these
methodologies and conventions are consistently
applied and do not conflict with any instructions or
guidance relating to this Form, and reported
information is consistent with information you
report internally and to investors and
counterparties.
Reporting fund aggregate calculated value
Every position in the reporting fund's portfolio,
including cash and cash equivalents, short
positions, and any fund-level borrowing, with the
most recent price or value applied to the position
for purposes of managing the investment portfolio.
The reporting fund aggregate calculated value is a
signed value where all position values are
summed. Where one or more portfolio positions
are valued less frequently than daily, the last price
used should be carried forward, though a current
foreign exchange rate may be applied if the
position is not valued in U.S. dollars. It is not
necessary to adjust the reporting fund aggregate
calculated value for accrued fees or expenses.
Reporting fund aggregate calculated value does
not need to be subjected to fair valuation
procedures. The inclusion of income accruals is
recommended but not required; however, the
approach should be consistent over time. The
reporting fund aggregate calculated value may be
calculated using the adviser's own internal
methodologies and conventions of the adviser's
service providers, provided that these are
consistent with information reported internally.
But see gross reporting fund aggregate calculated
value.
Reporting period
With respect to an annual update, the twelve
month period ending on the data reporting date.
With respect to a quarterly update, the three month
period ending on the data reporting date.
Reverse repo
Any sale of securities coupled with an agreement
to repurchase the same (or similar) securities at a
later date at an agreed upon price (i.e., a "securities
out" transaction).
RSSDID
The identifier assigned by the National
Information Center of the Board of Governors of
the Federal Reserve System, if any.
Rule 2a-7
Rule 2a-7 promulgated by the SEC under the
Investment Company Act of 1940.
SEC
U.S. Securities and Exchange Commission.
Secured borrowing
Obligations for borrowed money in respect of
which the borrower has posted collateral or other
credit support. For purposes of this definition,
reverse repos are secured borrowings.
Securities lending collateral
Cash pledged to the reporting fund's beneficial
owners as collateral in respect of securities lending
arrangements.
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Securitized asset fund
Any private fund whose primary purpose is to
issue asset backed securities and whose investors
are primarily debt holders.
Separately operated
For purposes of this Form, a related person is
separately operated if you are not required to
complete Section 7.A. of Schedule D to Form ADV
with respect to that related person.
Single name CDS
CDSs referencing a single entity. Includes
sovereign single name CDS, fmancial institution
single name CDS, and other single name CDS.
Sovereign bonds
Any notes, bonds and debentures issued by a
national government (including central
governments, other governments and central banks
but excluding U.S. state and local governments),
whether denominated in a local or foreign
currency.
Structured products
Pre-packaged investment products, typically based
on derivatives and including structured notes.
Sub-asset class
Each sub-asset class identified in Question 32.
Synthetic long position
A total return derivative or similar contract under
which (i) the reporting fund receives returns of a
risky reference asset in exchange for paying the
returns of a different, riskless reference asset, or
(ii) the reporting fund sells deep-in-the-money
(e.g., those with deltas of98% or higher) puts on a
risky reference asset in exchange for an option
premium. Total return derivatives may include, for
example, a derivative that receives the total return
or credit spread of equity or debt securities issued
by individual issuers, or baskets or indices of such
securities, including swaps, forwards, deep-in-themoney options (e.g., those with deltas of98% or
higher) and credit default swaps which receive the
credit spread (also sometimes described as "short
credit protection"). Exclude total return derivatives
that have been cleared through a CCP; include
uncleared OTC derivative positions only.
Include derivatives providing the return of equity
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Include bond derivatives, but do not include any
positions held via CDS (these should be recorded
in the CDS category). Include positions held
indirectly through another entity (e.g., through an
ETF, exchange traded product, U.S. registered
investment companies, non-U.S. registered
investment companies, internal private fund or
external private fund, commodity pool, or other
company, fund or entity).
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18157
securities, real estate, digital assets, commodities,
sovereign bonds, corporate bonds, municipal
bonds, and other assets.
Synthetic short position
A total return derivative or similar contract under
which (i) the reporting fund pays returns of a risky
reference asset in exchange for receiving the
returns of a different, riskless reference asset, or
(ii) the reporting fund sells deep-in-the-money
calls (e.g., those with deltas of98% or higher) on a
risky reference asset in exchange for an option
premium. Total return derivatives may include, for
example, a derivative where the fund pays the total
return or credit spread of equity or debt securities
issued by individual issuers, or baskets or indices
of such securities, including swaps, forwards,
deep-in-the-money options (e.g., those with deltas
of98% or higher), and credit default swaps which
pay the credit spread (also sometimes described as
"long credit protection"). Exclude total return
derivatives that have been cleared through a CCP;
include uncleared OTC derivative positions only.
Include derivatives where the fund pays the return
of equity securities, real estate, digital assets,
commodities, sovereign bonds, corporate bonds,
municipal bonds and other assets.
Do not include interest rate derivatives, volatility
derivatives, variance derivatives or foreign
exchange derivatives. Do not include deep-in-themoney put options (e.g., those with deltas of98%
or higher) purchased by the reporting fund if the
reporting fund has already paid the option
premium in full; do include them if the premium is
being paid over time.
Trading vehicle
A separate legal entity, wholly or partially owned
by one or more reporting funds, that holds assets,
incurs leverage, or conducts trading or other
activities as part of a reporting fund's investment
activities but does not operate a business.
UC/TS
Undertakings for Collective Investment in
Transferable Securities, as defined in the UCITS
Directive of the European Parliament and of the
Council (No. 2009/65/EC), as amended, or as
captured by the Collective Investment Schemes
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Do not include interest rate derivatives, volatility
derivatives, variance derivatives or foreign
exchange derivatives. Do not include deep-in-themoney call options (e.g., those with deltas of 98%
or higher) purchased by the reporting fund if the
reporting fund has already paid the option
premium in full, but include them if the premium
is being paid over time.
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
Unencumbered cash
The sum of the private fund's (i) cash and cash
equivalents, (ii) government securities, and (iii) the
value of overnight repos used for liquidity
management where the assets purchased are U.S.
treasury securities or agency securities minus the
sum of the following (without duplication): (i)
cash and cash equivalents and government
securities transferred to a collateral taker pursuant
to a title transfer arrangement; and (ii) cash and
cash equivalents and government securities subject
to a security interest, lien or other encumbrance
(this could include cash and cash equivalents and
government securities in an account subject to a
control agreement).
Unfunded commitments
Committed capital that has not yet been
contributed to the reporting fund by investors.
United States person
Has the meaning provided in rule 203(m)-1 under
the Advisers Act, which includes any natural
person that is resident in the United States.
Unlisted equity
Equities, including preferred equities that are not
listed on a regulated exchange.
Include synthetic or derivative exposures to
equities and positions held indirectly through
another entity ( e.g., through an ETF, exchange
traded product, U.S. registered investment
companies, non-U.S. registered investment
companies, internal private fund or external
private fund, commodity pool, or other company,
fund, or entity).
Unsecured borrowing
Obligations for borrowed money in respect of
which the borrower has not posted collateral or
other credit support.
Any U.S. domiciled depository institution,
including any of the following: (i) 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; (ii) 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
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U.S. depository institution
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(Amendment etc.) (EU Exit) Regulations 2019, as
amended.
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
18159
US. financial institution
Any of the following: (i) a financial institution
chartered in the United States (whether federallychartered or state-chartered); (ii) 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 (iii) a branch or
agency that resides outside the United States but
has a parent that is a financial institution chartered
in the United States.
US. treasury securities
Direct obligations of the U.S. Government. Include
US. treasury security derivatives. Include
positions held indirectly through another entity
(e.g., through an ETF, exchange traded product,
U.S. registered investment companies, non-US.
registered investment companies, internal private
fund or external private fund, commodity pool, or
other company, fund or entity).
Value
See Instruction 15.
VaR
For a given portfolio, the loss over a target horizon
that will not be exceeded at some specified
confidence level.
Variance derivative
A derivative transaction for which the underlying
asset is the price or yield variance of one or more
assets or indices.
Venture capital fund
Any private fund meeting the definition of venture
capital fund in rule 203(1)-1 of the Advisers Act.
Volatility derivative
A derivative transaction for which the underlying
asset is the price or yield volatility of one or more
assets or indices.
WAL
Weighted average portfolio maturity ofa liquidity
fund calculated taking into account the maturity
shortening provisions contained in paragraph (i) of
rule 2a-7, but determined without reference to the
exceptions in paragraph (i) of rule 2a-7 regarding
interest rate readjustments with the dollar-weighted
average based on the percentage of each security's
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facilities; (iii) 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 (iv) a
credit union (including a natural person or
corporate credit union).
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Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
market value in the portfolio.
WAM
Weighted average portfolio maturity of a liquidity
fund calculated taking into account the maturity
shortening provisions contained in paragraph (i) of
rule 2a- 7 with the dollar-weighted average based
on the percentage of each security's market value
in the portfolio.
Weekly liquid assets
Has the meaning provided in rule 2a- 7. Include
daily liquid assets. As a result, the value of weekly
liquid assets should equal or exceed the value of
daily liquid assets.
Note: The following Commodity Futures
Trading Commission (CFTC) appendices will
not appear in the Code of Federal
Regulations.
CFTC Appendices to Form PF;
Reporting Requirements for All Filers
and Large Hedge Fund Advisers—CFTC
Voting Summary and Commissioners’
Statements
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CFTC Appendix 1—Voting Summary
On this matter, Chairman Behnam
and Commissioners Johnson and
Goldsmith Romero voted in the
affirmative. Commissioners Mersinger
and Pham voted in the negative.
CFTC Appendix 2—Statement of
Commissioner Kristin N. Johnson
Transparency is an integral
component of the regulatory framework
that ensures the safety and soundness
and enduring preeminence of our
financial markets. Our statutory
mandate expressly directs the
Commodity Futures Trading
Commission’s (Commission or CFTC)
mission to ‘‘ensure the financial
integrity of all transactions subject to
[the Commodity Exchange Act] and the
avoidance of systemic risk’’ and today,
consistent with this mandate, the
Commission seeks to enhance oversight
and improve visibility through wellcalibrated data collection approaches.1
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (DoddFrank Act) incorporated innovative
regulatory features for promoting the
stability of the U.S. financial system,
including establishing the Financial
Stability Oversight Council (FSOC) to
monitor for emerging systemic risks that
may significantly impact our financial
markets and American consumers.
Congress, in drafting the Dodd-Frank
Act, recognized that systemic risks are
17
U.S.C. 5(b).
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best monitored through collaboration
among prudential and market
regulators, each endowed with distinct
regulatory mandates and empowered to
leverage their expertise to support
FSOC’s systemic risk oversight
objectives.
Specifically, Section 404 of the DoddFrank Act amends Section 204 of the
Investment Advisers Act of 1940
(Advisers Act) and grants the Securities
and Exchange Commission (SEC) the
power to require an SEC-registered
investment adviser to file with the SEC
reports regarding ‘‘private funds advised
by the investment adviser, as necessary
and appropriate in the public interest
and for the protection of investors, or for
the assessment of systemic risk by the
[FSOC].’’ 2 Section 406 of the DoddFrank Act, which amends Section 211 of
the Advisers Act, instructs the SEC and
Commission, after consultation with
FSOC, to ‘‘jointly promulgate rules to
establish the form and content of the
reports required to be filed’’ with the
SEC and Commission by investment
advisers registered both under the
Advisers Act and the Commodity
Exchange Act.3
As directed by the Dodd-Frank Act, in
2011, the Commission and SEC jointly
issued rules to provide FSOC with
important information about private
fund operations and strategies through
Form PF.4 Form PF is a confidential
form for certain SEC-registered
investment advisers to private funds,
including those that may also be dually
registered with the Commission as a
commodity pool operator (CPO) or
commodity trading advisor (CTA).5 In
2 15
U.S.C. 80b–4(b).
U.S.C. 80b–11(e).
4 Reporting by Investment Advisers to Private
Funds and Certain Commodity Pool Operators and
Commodity Trading Advisors on Form PF, 76 FR
71128, 71129 (Nov. 16, 2011).
5 In 2020, the Commission adopted amendments
to Form CPO–PQR for CPOs, which is used by CPOs
and CTAs for reporting purposes. In lieu of filing
3 15
PO 00000
Frm 00178
Fmt 4701
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2022, the Commission and SEC adopted
proposed amendments to Form PF.6 As
noted in the preamble, the Commission
is adopting the joint final rule to amend
Form PF (Final Rule) in an effort to
address information gaps and improve
the Commissions’ and FSOC’s
understanding of the private fund
industry and the potential systemic risk
posed by it. The Final Rule seeks to
clarify aspects of the form and
instructions as well as remove certain
questions to streamline reporting.
Appropriately-tailored regulatory
disclosure is a powerful tool in
identifying vulnerabilities and trends in
our markets, mitigating systemic risk,
and addressing financial stability
concerns. Disclosure of financial
information to market regulators is
critical to the regulatory oversight of our
financial markets, particularly when
such disclosure is accurate, timely,
robust, and usable. Effective disclosure
enables regulators to monitor market
activities and take swift, decisive action
to prevent or manage market stresses
and crises. I support today’s Final Rule
and the careful consideration of both
agencies that it reflects.
I commend the work of the staff of the
Market Participants Division—Amanda
Olear, Pamela Geraghty, Michael
Ehrstein, Elizabeth Groover, and
Andrew Ruggiero—for their careful
work on the Final Rule.
CFTC Appendix 3—Dissenting
Statement of Commissioner Caroline D.
Pham
I respectfully dissent from the Joint
Final Rule on Form PF and Reporting
Requirements for All Filers and Large
Hedge Fund Advisers that is being
issued together with the U.S. Securities
the CFTC’s Form CPO–PQR, CPOs and CTAs may
file NFA Form PQR, a comparable form required by
the National Futures Association.
6 Form PF; Reporting Requirements for All Filers
and Large Hedge Fund Advisers, 87 FR 53832 (Sept.
1, 2022).
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BILLING CODE 8011–01–C
Federal Register / Vol. 89, No. 49 / Tuesday, March 12, 2024 / Rules and Regulations
and Exchange Commission (SEC) (SEC–
CFTC Joint Final Rule on Form PF or
Joint Final Rule) because, overall, the
rule does not achieve its stated purpose
to improve systemic risk monitoring
because it will obscure hidden risks and
unacceptably increase costs for
American savers.
When this proposal was adopted in
August 2022, I raised my concerns that
in a time of economic challenges,
including rising inflation, we must be
careful when considering proposals that
could inhibit positive economic activity
that supports American businesses and
jobs.1 The SEC–CFTC Joint Final Rule
on Form PF charges ahead on the wrong
path with no consideration for these
concerns.
Astoundingly, all rules since the
financial crisis have been based on
aggregating data for better risk
management.2 Yet the SEC–CFTC Joint
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1 Dissenting Statement of Commissioner Caroline
D. Pham Regarding the Proposed Amendments to
Form PF (Aug. 10, 2022). I also continue to believe
the cost-benefit analysis in the Final Rule is
insufficient.
2 See e.g., Prohibitions and Restrictions on
Proprietary Trading and Certain Interests in, and
Relationships With, Hedge Funds and Private
Equity Funds, 79 FR 5808 (Jan. 31, 2014), available
at https://www.federalregister.gov/documents/2014/
01/31/2013-31476/prohibitions-and-restrictions-onproprietary-trading-and-certain-interests-in-andrelationships-with; Bank for International
Settlements (BIS) Basel Committee on Banking
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Final Rule on Form PF continues to
mandate double, and sometimes triple,
reporting,3 without being based on any
demonstrated data or evidence that it
will improve systemic risk monitoring.
To the contrary, it will hinder the ability
of both firms and regulators to truly
identify hidden risk. Effective risk
management requires aggregation to
understand the risk exposure. Indeed,
this is a key pillar of Dodd-Frank
Supervision, Standards for Minimum Capital
Requirements for Market Risk (Jan. 2016), available
at https://www.bis.org/bcbs/publ/d352.pdf. BIS
revised the Standards in 2019. BIS Basel Committee
on Banking Supervision, Standards for Minimum
Capital Requirements for Market Risk (Jan. 2019;
rev. Feb. 2019), available at https://www.bis.org/
bcbs/publ/d457.pdf.
3 An overriding basis for the CFTC and SEC joint
final rule in 2011 was to support the Financial
Stability Oversight Council (FSOC), but three
overlapping, or identical, data sets across the three
entities raises confidentiality and data protection
concerns, along with inefficiency issues. See Joint
Final Rule, Reporting by Investment Advisers to
Private Funds and Certain Commodity Pool
Operators and Commodity Trading Advisors on
Form PF, 76 FR 71128, 71129 (Nov. 16, 2011),
available at https://www.federalregister.gov/
documents/2011/11/16/2011-28549/reporting-byinvestment-advisers-to-private-funds-and-certaincommodity-pool-operators-and-commodity; see also
Authority To Require Supervision and Regulation
of Certain Nonbank Financial Companies, 77 FR
21637, 21644 (Apr. 11, 2012), available at https://
www.federalregister.gov/documents/2012/04/11/
2012-8627/authority-to-require-supervision-andregulation-of-certain-nonbank-financial-companies.
PO 00000
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18161
reforms. But the Joint Final Rule will
force firms to disaggregate risk
monitoring and reporting to the
individual fund level—obscuring the
full picture.
Even worse, the SEC–CFTC Joint
Final Rule on Form PF will create a
flood of new information of dubious
utility that will generate too much noise
and is detrimental to data quality, also
making it harder to see real risk
positions. And, the Joint Final Rule does
nothing to address the many operational
and practical implementation issues
that will unacceptably increase costs for
American savers who have worked hard
to earn their retirement investments.
For all these reasons, I cannot support
the SEC–CFTC Joint Final Rule on Form
PF and must dissent. This is an
unacceptable backsliding on the
progress made since the Dodd-Frank Act
to strengthen our financial system,
mitigate systemic risk, and promote
financial stability.
I appreciate the time that the staff
spent with my office on this rulemaking.
I would like to thank the CFTC team of
Andrew Ruggiero, Elizabeth Groover,
Michael Ehrstein, and Pamela Geraghty
in the Market Participants Division for
their efforts.
[FR Doc. 2024–03473 Filed 3–11–24; 8:45 am]
BILLING CODE 8011–01–P; 6351–01–P
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]]>Agencies
[Federal Register Volume 89, Number 49 (Tuesday, March 12, 2024)]
[Rules and Regulations]
[Pages 17984-18161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03473]
[[Page 17983]]
Vol. 89
Tuesday,
No. 49
March 12, 2024
Part III
Commodity Futures Trading Commission
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17 CFR Chapter I
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 275 and 279
Form PF; Reporting Requirements for All Filers and Large Hedge Fund
Advisers; Joint Final Rule
Federal Register / Vol. 89 , No. 49 / Tuesday, March 12, 2024 / Rules
and Regulations
[[Page 17984]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter I
RIN 3038-AF31
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 275 and 279
[Release No. IA-6546; File No. S7-22-22]
RIN 3235-AN13
Form PF; Reporting Requirements for All Filers and Large Hedge
Fund Advisers
AGENCY: Commodity Futures Trading Commission and Securities and
Exchange Commission.
ACTION: Joint final rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``CFTC'') and the
Securities and Exchange Commission (``SEC'') (collectively, ``we'' or
``Commissions'') are adopting amendments to Form PF, the confidential
reporting form for certain SEC-registered investment advisers to
private funds, including those that also are registered with the CFTC
as a commodity pool operator (``CPO'') or commodity trading adviser
(``CTA''). The amendments are designed to enhance the Financial
Stability Oversight Council's (``FSOC's'') ability to monitor systemic
risk as well as bolster the SEC's regulatory oversight of private fund
advisers and investor protection efforts. In connection with the
amendments to Form PF, the SEC is amending a rule under the Investment
Advisers Act of 1940 (``Advisers Act'') to revise instructions for
requesting a temporary hardship exemption.
DATES:
Effective date: This rule is effective March 12, 2025.
Compliance date: See section II.F of this final rule.
FOR FURTHER INFORMATION CONTACT: CFTC: Pamela Geraghty, Acting Deputy
Director; Michael Ehrstein, Special Counsel; Elizabeth Groover, Special
Counsel; or Andrew Ruggiero, Special Counsel, at (202) 418-6700,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW, Washington, DC 20581. SEC: Neema Nassiri, Jill Pritzker,
Senior Counsels; Tom Strumpf, Branch Chief; or Melissa Roverts Harke,
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 Commissions are adopting amendments to
Form PF [17 CFR 279.9] under the Advisers Act, and the SEC is adopting
amendments to 17 CFR 275.204(b)-1 under the Advisers Act.\1\
---------------------------------------------------------------------------
\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\ Congress enacted Sections 404 and 406 of the Dodd-Frank Act,
which required that private fund advisers file reports and specified
certain types of information that should be subject to reporting
and/or recordkeeping requirements. With respect to such reports, the
Dodd-Frank Act authorized the SEC to require that private fund
advisers file such information ``as necessary and appropriate in the
public interest and for the protection of investors, or for the
assessment of systemic risk.'' The result of this enactment was Form
PF, which is a joint form between the SEC and CFTC only with respect
to sections 1 and 2 of the Form.
[[Page 17985]]
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Agency Reference CFR citation
------------------------------------------------------------------------
CFTC & SEC...................... Form PF \2\....... 17 CFR 279.9.
SEC............................. Rule 204(b)-1..... 17 CFR 275.204(b)-
1.
------------------------------------------------------------------------
I. Introduction
II. Discussion
A. Amendments to the General Instructions
1. Reporting Master-Feeder Arrangements and Parallel Fund
Structures
2. Reporting Private Funds That Invest in Other Funds
3. Reporting Timelines
B. Amendments Concerning Basic Information About the Adviser and
the Private Funds It Advises
1. Amendments to Section 1a of Form PF--Identifying Information
2. Amendments to Section 1b of Form PF--Concerning All Private
Funds
3. Amendments to Section 1c of Form PF--Concerning All Hedge
Funds
C. Amendments Concerning Information About Hedge Funds Advised
by Large Private Fund Advisers
1. Removal of Existing Section 2a
2. Amendments to Section 2
D. Amendments To Enhance Data Quality
E. Additional Amendments
F. Effective and Compliance Dates
III. Other Matters
IV. Economic Analysis
A. Introduction
B. Economic Baseline and Affected Parties
1. Economic Baseline
2. Affected Parties
C. Benefits, Costs, and Effects on Efficiency, Competition, and
Capital Formation
1. Benefits
2. Costs
D. Reasonable Alternatives
1. Alternatives to Amendments to General Instructions,
Amendments To Enhance Data Quality, and Additional Amendments
2. Alternatives to Amendments to Basic Information About the
Adviser and the Private Funds It Advises
3. Alternatives to Amendments to Information About Hedge Funds
Advised by Large Private Fund Advisers
4. Alternatives to the Definition of the Term ``Hedge Fund''
V. Paperwork Reduction Act
A. Purpose and Use of the Information Collection
B. Confidentiality
C. Burden Estimates
VI. Regulatory Flexibility Act Certification
Statutory Authority
I. Introduction
The Commissions are adopting amendments to sections of Form PF, the
form that certain SEC-registered investment advisers, including those
that also are registered with the CFTC as a CPO or CTA, use to report
confidential information about the private funds that they advise.\3\
Form PF provides the Commissions 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. We now have more than a decade of
experience analyzing the information collected on Form PF.\4\ 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.\5\ Based on this experience and in light of
these changes, the Commissions and FSOC have identified significant
information gaps and situations where revised information would improve
the Commissions' and FSOC's understanding of the private fund industry
and the potential systemic risk posed by it, as well as further
investor protection efforts. Accordingly, to enhance FSOC's monitoring
and assessment of systemic risk and to collect additional data and make
data more useful for the Commissions' use in their respective
regulatory programs,\6\ in August 2022, the Commissions proposed
amendments to enhance the information advisers file on Form PF and
improve data quality.\7\
---------------------------------------------------------------------------
\3\ See 17 CFR 275.204(b)-1. 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 section
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. Any reference to the ``Commissions'' or
``we,'' as it relates to the collection and use of Form PF data, are
meant to refer to the agencies in their separate or collective
capacities (as the context requires or permits), and such data from
filings made pursuant to 17 CFR 275.204(b)-1, by and through Private
Fund Reporting Depository, a subsystem of the Investment Adviser
Registration Depository (``IARD''), and reports, analysis, and
memoranda produced pursuant thereto.
\4\ Form PF was adopted in 2011 as required by the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank
Act''). Public Law 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)], at
section I (``2011 Form PF Adopting Release''). In 2014, the SEC
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''). In May 2023, the SEC
amended Form PF section 4, added new sections 5 and 6, and
redesignated prior section 5 as section 7 in connection with certain
amendments to require event reporting for large hedge fund advisers
and all private equity fund advisers and to revise certain reporting
requirements for large private equity fund advisers. See Form PF;
Event Reporting for Large Hedge Fund Advisers and Private Equity
Fund Advisers; Requirements for Large Private Equity Fund Adviser
Reporting, Advisers Act Release No. 6297 (May 3, 2023) [88 FR 38146
(June 12, 2023)] (``May 2023 SEC Form PF Amending Release''). In
July 2023, the SEC amended Form PF section 3 in connection with
certain money market fund reforms. See Money Market Fund Reforms;
Form PF Reporting Requirements for Large Liquidity Fund Advisers;
Technical Amendments to Form N-CSR and Form N-1A, Advisers Act
Release No. 6344 (July 12, 2023) [88 FR 51404 (Aug. 3, 2023)]
(``July 2023 SEC Form PF Amending Release''). We are now adopting
amendments to the general instructions, section 1, and section 2,
and related amendments in the glossary of terms.
\5\ The value of private fund net assets reported on Form PF has
more than doubled, growing from $5 trillion (net) in 2013 to $14
trillion (net) through the first quarter of 2023, while the number
of private funds reported on the form has increased by nearly 130%
in that time period. Unless otherwise noted, the private funds
statistics used in this Release are from the Private Funds
Statistics First Quarter of 2023. Division of Investment Management,
Private Fund Statistics First Quarter 2023 (Oct. 16, 2023),
available at https://www.sec.gov/files/investment/private-funds-statistics-2023-q1.pdf (``Private Fund Statistics Q1 2023''). 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 ten
year span from the beginning of 2013 through the first quarter of
2023. Some discussion in this Release compares data from a shorter
time span because the SEC staff published such data later than 2013.
Staff reports, statistics, and other staff documents (including
those cited herein) represent the views of SEC staff and are not a
rule, regulation, or statement of the SEC. The SEC 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.
\6\ Additionally, the Board of Governors of the Federal Reserve
System (``FRB'') uses this data for research and analysis.
\7\ Form PF; Reporting Requirements for All Filers and Large
Hedge Fund Advisers, Advisers Act Release No. 6083 (Aug. 10, 2022)
[87 FR 53832 (Sept. 1, 2022)] (``2022 Joint Form PF Proposing
Release''). The Commissions voted to issue the 2022 Joint Form PF
Proposing Release on Aug 10, 2022. The release was posted on each of
the Commissions' websites that day (or shortly thereafter), and
comment letters were received beginning that same date. The comment
period closed on Oct. 11, 2022. We have considered all comments
received since Aug. 10, 2022.
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[[Page 17986]]
The Commissions received a number of comment letters on the 2022
Joint Form PF Proposing Release.\8\ Some commenters generally supported
the policy goals of the proposal, stating that the proposal would help
the Commissions and FSOC assess and respond to systemic risk and the
Commissions to achieve their investor protection goals.\9\ Certain
commenters stated that the additional proposed reporting requirements
are not necessary to identify systemic risk or protect investors.\10\
Some commenters stated that the economic analysis understates the costs
of compliance due to the scope of proposed changes and expressed
skepticism at the stated benefits.\11\ Some commenters criticized the
proposed rulemaking for not considering the cumulative impact and costs
of the amendments proposed in the 2022 Joint Form PF Proposing Release
along with those proposed in the 2022 SEC Form PF Proposing
Release,\12\ which the SEC proposed in January 2022 and adopted in May
2023.\13\
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\8\ The comment letters on the 2022 Joint Form PF Proposing
Release (File No. S7-22-22) that the SEC received are available at
https://www.sec.gov/comments/s7-22-22/s72222.htm. The comment
letters that the CFTC received are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7312. Several
comment letters are addressed jointly to the Commissions and appear
in both comment files.
\9\ See, e.g., Comment Letter of Americans for Financial Reform
Education Fund (Oct. 11, 2022) (``AFREF Comment Letter I''); Comment
Letter of Better Markets, Inc. (Oct. 11, 2022) (``Better Markets
Comment Letter''); Comment Letter of FACT Coalition (Oct. 11, 2022)
(``FACT Coalition Comment Letter''); Comment Letter of Global Legal
Entity Identifier Foundation (Oct. 11, 2022) (``GLEIF Comment
Letter''); Comment Letter of Americans for Financial Reform
Education Fund, et al. (Feb. 21, 2023); Comment Letter of Andrew V.
(Aug. 10, 2022).
\10\ See, e.g., Comment Letter of American Investment Council
(Oct. 11, 2022) (``AIC Comment Letter I''); Comment Letter of U.S.
Chamber of Commerce (Oct. 11, 2022) (``USCC Comment Letter'');
Comment Letter of Alternative Investment Management Association
Limited & Alternative Credit Council (Oct. 11, 2022) (``AIMA/ACC
Comment Letter''); Comment Letter of Securities Industry and
Financial Markets Association (Oct. 11, 2022) (``SIFMA Comment
Letter''); Comment Letter of Managed Funds Association (Dec. 7,
2022) (``MFA Comment Letter II''). See infra at sections II and
IV.C.1 of this Release for discussion of the benefits of the adopted
amendments for systemic risk assessment and investor protection
efforts.
\11\ See, e.g., AIC Comment Letter I; SIFMA Comment Letter;
Comment Letter of Managed Funds Association and National Association
of Private Fund Managers (July 21, 2023) (``MFA/NAPFM Comment
Letter''). See discussion infra at section IV.C of this Release.
\12\ Amendments to Form PF to Require Current Reporting and
Amend Reporting Requirements for Large Private Equity Advisers and
Large Liquidity Fund Advisers, Advisers Act Release No. 5950 (Jan.
26, 2022) [87 FR 9106 (Feb. 17, 2022)] (``2022 SEC Form PF Proposing
Release'').
\13\ See, e.g., AIC Comment Letter I; Comment Letter of Managed
Funds Association, Investment Adviser Association, et al. (Sept. 14,
2022) (``MFA Comment Letter I''); Comment Letter of Managed Funds
Association (Mar. 16, 2023) (``MFA Comment Letter III''); SIFMA
Comment Letter; Comment Letter of United States House of
Representatives Committee on Financial Services (Sept. 26, 2023)
(``Comment Letter of U.S. House of Representatives Committee on
Financial Services''). See also May 2023 SEC Form PF Amending
Release, supra footnote 4. See also Comment Letter of AIC (Aug. 8,
2023) (``AIC Comment Letter II''). See infra section IV.C of this
Release for discussion of costs and benefits.
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We are adopting the amendments largely as proposed, but with
certain modifications, in consideration of the comments we received:
First, we are adopting amendments to the form's general
instructions, which apply to all Form PF filers, to improve data
quality and comparability and to enhance investor protection efforts
and systemic risk assessment. Amendments include:
[cir] Reporting Master-Feeder and Parallel Fund Structures. As
proposed, we are adopting amendments that will require separate
reporting for each component fund of a master-feeder arrangement and
parallel fund structure, other than a disregarded feeder fund (i.e., a
feeder fund that invests all of its assets in a single master fund,
U.S. treasury bills, and/or cash and cash equivalents \14\). In a
change from the proposal, we are modifying the instructions to specify
how a feeder fund is required to treat its equity in the master fund
for the purpose of determining its reporting threshold and responding
to certain questions.
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\14\ As discussed in greater detail below, we are removing
government securities from the definition of ``cash and cash
equivalents'' and presenting government securities as its own line
item in the Form PF Glossary of Terms. Thus, references herein to
``cash and cash equivalents'' refer to the amended definition,
unless otherwise indicated. The amended definition is intended to
provide more granular detail on this reporting form and is not
intended to change any commercial understanding or accounting
treatment of cash equivalents. See infra section II.B.2 of this
Release.
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[cir] Reporting Fund of Funds. We are also adopting, with some
modifications from the proposal, amendments to Form PF regarding how
advisers report private fund investments in other funds. We are
revising proposed Instruction 7 to require an adviser to include the
value of investments in other private funds (including internal and
external private funds) when determining whether the adviser is
required to file Form PF, whether it meets the thresholds for reporting
as a large hedge fund adviser, large liquidity fund adviser, or large
private equity fund adviser, and whether a hedge fund is a qualifying
hedge fund, rather than permit an adviser to either include or exclude
the value of investments in other private funds for the purpose of
determining its reporting threshold, as proposed.\15\
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\15\ See Instruction 7.
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[cir] Reporting Trading Vehicles. In a change from the proposal, we
are adopting an amendment to require advisers to identify trading
vehicles in section 1b of Form PF and report on an aggregated basis for
the reporting fund and all trading vehicles (whether fully owned by the
reporting fund or partially owned), rather than (i) permitting advisers
to report fully owned trading vehicles on an aggregated or
disaggregated basis and (ii) requiring advisers to report partially
owned trading vehicles on a disaggregated basis, as proposed. In a
change from the proposal, we are also adding an instruction for
advisers to specify whether the reporting fund holds assets, incurs
leverage, or conducts trading or other activities through a trading
vehicle.
[cir] Reporting Timelines. We are also adopting, as proposed, an
amendment to the instructions that will require all quarterly filers to
file on a calendar quarter basis, rather than on a fiscal quarter
basis.\16\
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\16\ The calendar quarter basis filing requirement does not
apply to a private equity fund adviser filing a private equity event
report as contemplated by section 6 of Form PF, which requires such
adviser to file within 60 calendar days after the end of the
applicable fiscal quarter upon the occurrence of a private equity
reporting event. See May 2023 SEC Form PF Amending Release, supra
footnote 4.
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Second, we are adopting amendments to sections 1a and 1b
of Form PF, which apply to all Form PF filers, to provide greater
insight into private funds' operations and strategies, and assist in
identifying trends, including those that could create systemic risk and
which are as such designed to enhance investor protection efforts and
systemic risk assessment. The amendments are also designed to improve
comparability across advisers, improve data quality, and reduce
reporting errors. We are adopting, as proposed, amendments to collect
additional identifying information regarding the adviser and its
related persons, as well as their private fund assets under management.
We are also adopting, largely as proposed, amendments to require
advisers to report additional identifying information about the private
funds they manage and other information about the
[[Page 17987]]
private funds' assets, financing, investor concentration, and
performance.
Third, we are adopting amendments to section 1c of Form
PF, which applies to private fund advisers that advise hedge funds. We
are adopting, largely as proposed, amendments to require advisers to
hedge funds to report certain additional information. As proposed, we
are adopting amendments to require advisers to hedge funds to report on
the fund's use of digital assets as an investment strategy, but in a
modification from the proposal, we are not adopting the proposed
definition of digital assets. We are also adopting, as proposed,
amendments to remove certain questions to streamline reporting and to
reduce reporting burdens.
Fourth, as proposed, we are redesignating existing section
2a and 2b of Form PF as section 2, and we are adopting amendments to
the new consolidated section 2, which applies to large hedge fund
advisers that advise qualifying hedge funds (i.e., hedge funds that
have a net asset value of at least $500 million). As proposed, we are
removing aggregate reporting questions for large hedge fund advisers
and requiring additional fund-level reporting to enhance investor
protection efforts and systemic risk assessment.\17\ We are adopting,
largely as proposed, amendments to require large hedge fund advisers to
report more granular information about the reporting fund's investment
exposure, open and large position reporting, borrowing and counterparty
exposure, and market factor effects. In a change from the proposal, we
are not adopting a proposed question about investment performance by
portfolio correlation.
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\17\ Unless stated otherwise, terms in this release that are
defined in the Form PF Glossary of Terms are as defined therein.
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Finally, we are adopting, largely as proposed, certain
additional amendments to improve data quality and accuracy of
reporting.
The amendments we are adopting are important enhancements to the
ability to monitor and assess systemic risk and to determine whether
and how to deploy the Commissions' or FSOC's regulatory tools. The
amendments will also strengthen the effectiveness of the SEC's
regulatory programs, including examinations, investigations, and
investor protection efforts relating to private fund advisers. The
Commissions consulted with FSOC to gain input on these amendments and
to help ensure that Form PF continues to provide FSOC with information
it can use to assess systemic risk.
II. Discussion
A. Amendments to the General Instructions
We are adopting amendments to the Form PF general instructions
designed to improve data quality and comparability and to enhance
investor protection efforts and systemic risk assessment.\18\
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\18\ Additional adopted changes to the General Instructions
concerning amendments to enhance data quality methodologies and
additional amendments are discussed in sections II.D and II.E of
this Release. The amendments to Instruction 3 to reflect the removal
of section 2a are discussed in section II.C.1 of this Release.
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1. Reporting Master-Feeder Arrangements and Parallel Fund Structures
Private funds often use complex structures to invest, including
master-feeder arrangements and parallel fund structures.\19\ We are
adopting, largely as proposed, amendments to Form PF that generally
require advisers to report separately each component fund of a master-
feeder arrangement and parallel fund structure.\20\ An adviser will
continue to aggregate these structures, however, for purposes of
determining whether the adviser meets a reporting threshold.\21\
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\19\ A ``master-feeder arrangement'' is an arrangement in which
one or more funds (``feeder funds'') invest all or substantially all
of their assets in a single private fund (``master fund''). A
``parallel fund structure'' is a structure in which one or more
private funds (each, a ``parallel fund'') pursues substantially the
same investment objective and strategy and invests side by side in
substantially the same positions as another private fund. See Form
PF Glossary of Terms.
\20\ See Instruction 6. We also are amending Instruction 3, as
proposed, to reflect the adopted approach for reporting master-
feeder arrangements and parallel fund structures. See infra footnote
21.
\21\ See Instruction 5. For example, an adviser would aggregate
private funds that are part of the same master-feeder arrangement in
determining whether the adviser is a large hedge fund adviser that
must complete section 2 of Form PF. In connection with these
changes, we are amending, as proposed, the term ``reporting fund''
and Instruction 3 so that they no longer discuss reporting
aggregated information. Additionally, we are reorganizing current
Instruction 5 and current Instruction 6 so that they reflect the
adopted approach for when to aggregate certain funds. Current
Instruction 5 instructs advisers about when to aggregate information
about certain funds for purposes of reporting thresholds and
responding to questions. Current Instruction 6 instructs advisers
about how to aggregate information about certain funds. Instruction
5, as amended, instructs advisers on when to aggregate information
about certain funds for purposes of determining whether they meet
reporting thresholds. Instruction 6, as amended, instructs advisers
about how to report information about certain funds when responding
to questions. Further, in a modification from the proposal, we have
added a reference to section 5 (Current report for large hedge fund
advisers to qualifying hedge funds), which a qualifying hedge fund
would also be required to complete, as applicable, as a result of
the amendments adopted in the May 2023 SEC Form PF Amending Release.
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Currently, Form PF provides advisers with flexibility to respond to
questions regarding master-feeder arrangements and parallel fund
structures either in the aggregate or separately, as long as they do so
consistently throughout Form PF.\22\ In adopting this approach in 2011,
the Commissions stated that requiring advisers to aggregate or
disaggregate funds in a manner inconsistent with their internal
recordkeeping and reporting may impose additional burdens and that, as
long as the structure of those arrangements is adequately disclosed, a
prescriptive approach to aggregation was not necessary.\23\ However,
based on experience reviewing Form PF data, we observed that when some
advisers report in aggregate and some advisers report separately, this
can result in obscured risk profiles (e.g., with respect to asset size,
counterparty exposure, investor liquidity) and make it difficult to
compare complex structures, undermining the utility of the data
collected.\24\ Prescribing the way advisers report a master-feeder
arrangement and parallel fund structure will provide better insight
into the risks and exposures of these arrangements.
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\22\ See current Instruction 5.
\23\ 2011 Form PF Adopting Release, supra footnote 4, at text
following n.332.
\24\ For example, a feeder fund may have counterparty exposure
rather than the entire fund in the aggregate. When this is the case,
fewer assets (e.g., only those held at the feeder level) may be
available as collateral and the counterparty may have greater risk.
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Accordingly, we are amending the instructions to require an adviser
to report each component fund of a master-feeder arrangement and
parallel fund structure, except where a feeder fund invests all its
assets in a single master fund, U.S. treasury bills, and/or ``cash and
cash equivalents'' (i.e., is a disregarded feeder fund).\25\ In the
case
[[Page 17988]]
of a disregarded feeder fund in Question 6, advisers instead will
identify the disregarded feeder fund and look through to any
disregarded feeder fund's investors in responding to certain questions
regarding fund investors on behalf of the applicable master fund, as
proposed. The master fund effectively is a conduit through which a
disregarded feeder fund invests, and we do not believe separate
reporting for such a feeder fund is necessary for data analysis
purposes. In a modification from the proposal, we are adopting
instructions to specify that a feeder fund should disregard any of its
holdings in the master fund's equity for the purpose of determining its
reporting threshold.\26\
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\25\ See Instruction 6. We are also revising the term ``cash and
cash equivalents,'' as described in section II.B.2 in this Release,
to improve data quality and provide more granular detail of fund
exposures to the Commissions and FSOC. In alignment with this
revision, we have modified the term ``disregarded feeder fund'' for
the purposes of Form PF to specifically include U.S. treasury bills.
U.S. treasury bills are direct obligations of the U.S. Government
with a maturity of one year or less. Because these short-term
holdings are sufficiently cash-like for our reporting and data
analysis purposes, separate reporting for a feeder fund that invests
all of its assets in U.S. treasury bills (or some combination of
U.S. treasury bills, ``cash and cash equivalents,'' and a single
master fund) is not necessary. One commenter stated that the removal
of government securities from the definition of cash and cash
equivalents would reduce the number of funds that qualify as
disregarded feeder funds. See AIMA/ACC Comment Letter. This
commenter stated that the Commission should revise the definition to
allow for disregarded feeder funds to invest in government
securities. Id. The final amendments permit disregarded feeder funds
to invest in U.S. treasury bills, but not other government
securities. We believe this approach is appropriate because, as
noted above and unlike certain other government securities, U.S.
treasury bills are short-term holdings and sufficiently cash-like
for our reporting and data analysis purposes. Further, U.S. treasury
bills generally do not have the interest rate risk that longer-dated
government securities have.
\26\ See Instruction 6.
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Some commenters generally supported the proposed amendments that
require more granular reporting of private fund structures because this
would allow FSOC to assess systemic risk and the Commissions to protect
investors more effectively.\27\ Other commenters generally opposed the
proposed amendments to require disaggregated reporting of master-feeder
funds and parallel fund structures, stating that it would be overly
burdensome for advisers to report this information and of limited
benefit to the Commissions and/or FSOC.\28\
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\27\ See, e.g., AFREF Comment Letter I; Better Markets Comment
Letter.
\28\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
---------------------------------------------------------------------------
Although we acknowledge that the requirement to report
disaggregated data for parallel fund and master-feeder fund structures
may increase the reporting burdens on certain advisers, we disagree
that requiring disaggregated reporting would be significantly more
burdensome than the existing requirements, because filers are already
required to assemble aggregated data from the individual components of
their fund structures to determine their reporting category on Form
PF.\29\ Any increased burdens are justified because disaggregated data
of these structures will provide the Commissions and FSOC with
increased transparency into risk profiles and complex fund structures,
which will improve our ability to monitor systemic risk and protect
investors. We also disagree that disaggregated reporting of master-
feeder funds and parallel fund structures will be of limited value
based on our experience with Form PF, which currently obscures our
understanding of their fund structures and the risk exposure of their
component funds. Some commenters opposed the proposed disaggregated
reporting requirement, asserting that it would provide misleading
information by reporting data in isolation as opposed to as part of an
overall fund or investment program.\30\ However, rather than be
misleading, the disaggregated reporting will allow for a clearer
understanding of a fund's structure. Disaggregated data will not be
misleading to the Commissions or FSOC in comparison to aggregated data
because the disaggregated data can still be aggregated by FSOC and the
Commissions if necessary to understand and assess the risk of the fund.
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\29\ See current Instruction 5.
\30\ See, e.g., MFA Comment Letter II; USCC Comment Letter.
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One commenter stated that the disaggregated reporting requirement
would be particularly burdensome for private equity fund advisers, as
this commenter believed private equity funds pose less systemic
risk.\31\ The existing reporting instructions allowing aggregated
reporting result in an obscured risk profile of all types of private
funds, including private equity funds. Although private equity funds
may exhibit a different risk profile than hedge funds, we disagree with
the commenter that understanding their structure is unimportant to
assessing systemic risk. Understanding the full risk profile of private
equity funds is an important component of the reporting on Form PF
because of the growth in the private equity fund industry and its
significance to financial markets.\32\ Additionally, the disaggregated
reporting requirement is important for investor protection efforts due
to the increased exposure of investors to the private equity industry
through investments such as pension funds.\33\
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\31\ AIC Comment Letter I.
\32\ Since 2013, the number of private equity funds has more
than doubled from under 7,000 to over 20,000, private equity fund
gross assets have quadrupled from $1.6 trillion to $6.6 trillion,
and private equity fund net assets have also quadrupled, increasing
from $1.5 trillion to $6 trillion. See Private Fund Statistics Q1
2023, supra footnote 4.
\33\ See, e.g., Public Plans Data (2022), available at https://publicplansdata.org/quick-facts/national/.
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One commenter stated that requiring disaggregated data would add a
data security risk that sensitive information about a fund's strategy
could be publicly exposed.\34\ We do not agree that requiring
disaggregated reporting of component funds presents a significant
increase in public disclosure risk, in part because the required
information is no more granular than the information already required
to be reported for other private funds without a master-feeder
arrangement or parallel fund structure. The Commissions currently have
robust data protection measures in place to protect all information
filed on Form PF, which is filed on a non-public basis. Any limited
increase in data security risk associated solely with the collection of
more information is justified because of the importance of receiving
this disaggregated information for FSOC and the Commissions' systemic
risk monitoring and the Commissions' investor protection efforts. As
discussed more fully above, this disaggregated data will provide
increased transparency into complex fund structures and better insight
into the risks presented by such arrangements. As discussed above, in
response to commenters' concerns, we are modifying the instructions for
how a feeder fund determines its reporting category to specify that the
feeder fund should exclude any of its holdings in the master fund's
equity when calculating its total asset value for the purpose of
determining its reporting category.\35\ This modification will help
avoid double counting of reported assets, given that data for the
master fund will be separately reported on Form PF. It will also
require a more appropriate level of information from feeder funds than
we had proposed. As proposed, an adviser could have determined that a
feeder fund is a qualifying hedge fund subject to additional reporting,
even if the feeder fund's investments outside of its master fund were
trivial. This level of reporting for such a feeder fund is not
necessary for data analysis purposes, and the amended Form PF will
accordingly only require this additional reporting for feeder funds
that are determined to be qualifying hedge funds based on their
investments made outside of their master funds. Some commenters
recommended adopting an instruction for disregarded feeder fund
reporting obligations that allows for a de minimis amount of a
disregarded feeder fund's investments to be in other assets, such as up
to 10 or 20 percent of a fund's capital, rather than the proposed
instruction, which would require all of the disregarded feeder fund's
assets to be invested in a single master fund, U.S. treasury bills, or
cash and cash
[[Page 17989]]
equivalents.\36\ We do not believe that these recommended exceptions
would be appropriate. The adopted instruction, which provides that a
feeder fund that invests all of its assets in a single master fund,
U.S. treasury bills, or cash and cash equivalents is a disregarded
feeder fund, is more appropriate because such a feeder fund is
effectively investing only through its associated master fund.
Disaggregated reporting of such a disregarded feeder fund is not
necessary for data analysis purposes, because such reporting would not
convey additional information about the feeder fund's exposures, as the
feeder fund's investments are limited to its investments through its
master fund, which are required to be reported on the amended Form PF.
In contrast, a feeder fund that does not invest all of its assets in a
single master fund, U.S. treasury bills, or cash and cash equivalents
operates and invests in a different manner, and it is critical to our
understanding of these funds and the risks that they may pose to
receive disaggregated reporting of these fund arrangements because such
feeder funds will generally have distinct risk exposures than their
associated master funds. Further, the modified instructions we are
adopting, which provide that a reporting feeder fund is to disregard
its holdings in the master fund's equity for the purpose of determining
its reporting threshold, are responsive to commenter concerns that the
burdens on feeder funds with de minimis non-cash or cash equivalent
holdings would be significant. For example, under the adopted
instructions, a feeder fund with minimal holdings outside of the master
fund's equity may only be required to complete section 1 of Form PF,
when it may have otherwise been required to complete additional
sections if its holdings in the equity of the master fund were included
in its reporting threshold determination, as proposed. The modified
instructions take into consideration the potential burden of reporting
feeder funds on a separate basis and allows the Commissions to receive
important reporting on the exposures of feeder funds other than to its
equity in its master fund.
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\34\ USCC Comment Letter.
\35\ See Instruction 6.
\36\ See AIMA/ACC Comment Letter; MFA Comment Letter II.
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In addition, we are adopting, as proposed, an amendment to no
longer allow advisers to separately report any ``parallel managed
accounts'' (which is distinguished from a ``parallel fund structure''),
provided that advisers will continue to be required to report the total
value of all parallel managed accounts related to each reporting
fund.\37\ Including parallel managed accounts in the reporting may
reduce the quality of data for our analyses while also imposing
additional burdens on advisers.\38\ Data regarding the total value of
parallel managed accounts, however, will allow FSOC to take into
account the greater amount of assets an adviser may be managing using a
given strategy for purposes of analyzing the data reported on Form PF
for systemic risk purposes.
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\37\ See Instruction 6. A ``parallel managed account'' is any
managed account or other pool of assets managed by the adviser that
pursues substantially the same investment objective and strategy and
invests side by side in substantially the same positions as the
identified private fund. See Form PF Glossary of Terms.
\38\ See 2011 Form PF Adopting Release, supra footnote 4, at
n.334, and accompanying text (the Commissions were persuaded that
aggregating parallel managed accounts for reporting purposes would
be difficult and ``result in inconsistent and misleading data''
because the characteristics of parallel managed accounts are often
somewhat different from the funds with which they are managed). For
example, in a separately managed account a client generally selects
an adviser's strategy but tailors it to the client's own investment
guidelines.
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We are adopting, as proposed, an instruction to provide that a
dependent parallel managed account must be aggregated with the largest
private fund to which it relates and, unchanged from the current Form
PF, with respect to any private fund, a ``dependent parallel managed
account'' remains defined as any related parallel managed account other
than a parallel managed account that individually (or together with
other parallel managed accounts that pursue substantially the same
investment objective and strategy and invest side by side in
substantially the same positions) has a gross asset value greater than
the gross asset value of such private fund (or, if the private fund is
a parallel fund, the gross asset value of the parallel fund
structure).\39\ One commenter sought clarification that a parallel
managed account should be aggregated with the single largest private
fund to which it relates.\40\ We continue to believe that this approach
will more effectively support systemic risk analyses and our investor
protection efforts, particularly given the growth in parallel managed
accounts in recent years.\41\
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\39\ See Instruction 5; Form PF Glossary of Terms.
\40\ AIMA/ACC Comment Letter.
\41\ See David C. Johnson & Francis A. Martinez, Form PF
Insights on Private Equity Funds and Their Portfolio Companies,
Office of Financial Research, June 14, 2018, at 3-4, available at
https://www.financialresearch.gov/briefs/files/OFRBr_2018_01_Form-PF.pdf (stating that fund investments in other funds increased from
$227 billion in 2013 to $319 billion in 2016 and noting that the
existing reporting on parallel managed accounts may be underreported
because parallel managed accounts are not currently required to be
reported).
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2. Reporting Private Funds That Invest in Other Funds
We are adopting amendments to Form PF regarding how advisers report
private fund investments in other private funds, trading vehicles, and
other funds that are not private funds.
Investments in other private funds. We are adopting, with
modifications from the proposal, amendments to Instruction 7, which
addresses how advisers treat private fund investments in other private
funds (e.g., a ``fund of funds''). Currently, advisers include the
value of private fund investments in other private funds in determining
whether the adviser meets the filing threshold to file Form PF.\42\
This requirement is implicit in the current form, and we are amending
this aspect of Instruction 7, as proposed, to make it explicit.
Further, current Form PF generally permits an adviser to disregard the
value of a private fund's equity investments in other private funds for
purposes of both the form's reporting thresholds (e.g., whether it
qualifies as a large hedge fund adviser) and responding to questions on
Form PF, as long as the adviser does so consistently throughout Form
PF, subject to certain exceptions.\43\ We proposed continuing to permit
an adviser to either include or exclude the value of such investments
for the purpose of determining its reporting thresholds but requiring
an adviser to include the value of such investments for the purpose of
responding to questions on Form PF.
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\42\ Form PF Instruction 1 provides that certain advisers meet
the filing threshold if they and their related persons,
collectively, had at least $150 million in private fund assets under
management as of the last day of their most recently completed
fiscal year.
\43\ For example, under the current instructions, an adviser is
not permitted to disregard any liabilities of the private fund, even
if incurred in connection with an investment in other private funds.
See current Instruction 7.
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In a modification from the proposal, we are adopting an amendment
to Instruction 7 to require an adviser to include the value of
investments in other private funds (including internal and external
private funds) when determining whether the adviser is required to file
Form PF, whether it meets the thresholds for reporting as a large hedge
fund adviser, large liquidity fund adviser, or large private equity
fund adviser, and whether a hedge fund is a qualifying hedge fund,
rather than permit an adviser to either include or exclude the value of
investments in other private funds for the purpose of determining its
reporting threshold, as
[[Page 17990]]
proposed.\44\ As discussed further below, as proposed, an adviser will
no longer have flexibility on whether to include or exclude a reporting
fund's investments in other private funds for purposes of responding to
questions on Form PF.\45\ Instead, we are amending Instruction 7 to
require an adviser to include the value of a reporting fund's
investments in other private funds when responding to questions on Form
PF, unless otherwise directed by the instructions to a particular
question.
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\44\ See Instruction 7. In connection with this Instruction 7,
we are also not adopting the proposed revision to the definition of
``qualifying hedge fund,'' which would have instructed advisers that
they may exclude the fund's investments in other private funds in
determining whether a hedge fund meets the ``qualifying hedge fund''
definition. See Form PF Glossary of Terms.
\45\ Id.
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Requiring advisers to report fund of funds arrangements in a more
consistent manner will allow the Commissions and FSOC to understand
these fund structures more effectively by providing greater insight
into the scale of reporting funds' exposures. The form's current
flexibility on whether to disregard underlying funds for the purpose of
determining a reporting fund's reporting threshold and when responding
to questions provides unclear and inconsistent reporting and data on
the scale of reporting funds' exposures.
One commenter stated that allowing an adviser to determine whether
to include or exclude a reporting fund's investment in other private
funds could result in distortions in the data collected on Form PF.\46\
This commenter recommended revising the instructions to prohibit an
adviser from including a reporting fund's investment in other private
funds for the purpose of determining its reporting threshold. We agree
with this commenter that permitting advisers the flexibility to include
or exclude the value of the reporting fund's investment in other
private funds could result in distortions in the data and inconsistent
reporting. Therefore, we have modified the instructions to remove this
proposed flexibility. However, we have modified the instructions to
provide that an adviser must include the reporting fund's investment in
other private funds for determining its reporting threshold. For the
same reasons that Instruction 7 currently (and will continue to)
provide that an adviser must include the reporting fund's investments
in other private funds in determining whether it is required to file
Form PF, we believe it is appropriate for an adviser to use this same
approach to determine the reporting fund's appropriate reporting
category. This modification will provide for consistent treatment of
investments in other private funds for all Form PF purposes by
specifying that these investments should be included for the purpose of
determining reporting threshold, determining filing threshold, and
responding to questions on Form PF (unless otherwise instructed by a
particular question). We do not believe that this modification will
materially increase filing burdens because advisers are currently (and
will continue to be) required to include the value of the reporting
fund's investments in other private funds for the purpose of
determining whether it is required to file Form PF and, as discussed
further below, will be required, as proposed, to include the value of
the reporting fund's investments in other private funds in answering
questions on Form PF (unless otherwise instructed by a particular
question). Some commenters opposed the proposed amendment to include
the value of a reporting fund's investment in other external private
funds when responding to questions because of the burden of obtaining
information about the underlying investments and their view on the
limited value of the data.\47\ Data about underlying investments in
external private funds is important to provide the Commissions and FSOC
with sufficient information to understand a fund structure to be able
to assess systemic risk. We disagree that reporting the value of a
reporting fund's investments in other external private funds is
significantly more burdensome to report because an adviser is currently
required to calculate the value of its investment in other private
funds in determining whether the adviser meets the threshold to file
Form PF. One commenter stated that investments in private funds should
be treated like a disregarded feeder fund and not require disaggregated
reporting.\48\ We disagree that a fund of funds structure presents the
same risks as a disregarded feeder fund because, in a fund of funds
structure, the feeder fund is itself engaging in direct investment,
whereas a disregarded feeder fund invests its assets at the master fund
level.
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\46\ AIMA/ACC Comment Letter.
\47\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
\48\ AIMA/ACC Comment Letter.
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Currently, Instruction 7 specifies that, in the case of a fund that
invests substantially all of its assets in other private funds and,
other than its investments in other private funds, only holds cash and
cash equivalents and instruments acquired for the purpose of hedging
currency exposure, an adviser is only required to complete section 1b
of Form PF for that fund.\49\ One commenter recommended modifying this
instruction to replace the reference to ``substantially all of its
assets'' in other private funds to 80% of its assets and to remove the
reference to only holding cash and cash equivalents and instruments
acquired for the purpose of hedging currency exposure.\50\ This
commenter stated that there are circumstances that may cause an adviser
to invest a small portion of a fund of fund's assets directly, such as
for tax purposes or for an investor's preference, which would cause the
fund to no longer be considered a fund that invests substantially all
of its assets in other private funds for purposes of Form PF, which
allows the adviser to only complete section 1b for that fund.\51\
Although we agree that the meaning of ``substantially all of its
assets'' should be clarified for purposes of this form, so as to
generally improve data quality and comparability, we disagree that the
reference to only holding cash and cash equivalents and instruments
acquired for the purpose of hedging currency exposure should be
removed. The exclusion from completing section 1c is intended to be
limited to funds that invest only through other private funds for which
we receive separate reporting. Allowing an exclusion for funds that
invest in investments other than private funds would create a data gap
because we would not receive separate reporting about investments that
are not private funds. Accordingly, in a change from the proposal, we
are modifying Instruction 7 only to replace the instruction
``substantially all of its assets'' to ``80% or more of its assets.''
This modification will help clarify which funds will need to complete
only section 1b of Form PF.
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\49\ See current Instruction 7.
\50\ AIMA/ACC Comment Letter.
\51\ Id.
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Currently, advisers are not required to, but nonetheless have the
option to, ``look through'' a reporting fund's investments in any other
entity (including other private funds), except in instances when the
form directs otherwise.\52\ As a result, some advisers may ``look
through'' a reporting fund's investments in other entities, while
others do not, leading to unclear data, inconsistent comparisons, and
less precise analysis across advisers. Therefore, we are amending,
largely as proposed, Instruction 7 to provide that, when responding to
questions, advisers must not ``look through'' a reporting fund's
investments in internal private
[[Page 17991]]
funds or external private funds (other than a trading vehicle, as
described below), unless the question instructs the adviser to report
exposure obtained indirectly through positions in such funds or other
entities.\53\ In a modification from the proposal, we are adding an
instruction that provides if an adviser cannot avoid ``looking
through'' to the reporting fund's investments in internal private funds
or external private funds in responding to a particular question, then
the adviser must provide an explanation of its responses in Question 4.
This instruction is responsive to certain commenters' concerns
regarding the burden of disaggregated reporting where look-through
aggregation may be unavoidable and will provide additional context for
the data reported. Further, after consideration of commenter
recommendations, in a modification from the proposal, we are revising
certain questions related to exposures to instruct advisers to select
the exposure that ``best represents'' the indirect investment of the
reporting fund, as discussed more fully below in section II.C.\54\ This
modification will reduce the burden on advisers in reporting exposure
information about these investments in private funds, while providing
reporting on indirect investments that is important for effective
systemic risk assessment and investor protection efforts.
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\52\ See current Instruction 8.
\53\ See Instruction 7. For example, advisers will not ``look
through'' to the creditors of or counterparties to other private
funds in responding to questions that ask about a reporting fund's
borrowings and counterparty exposures. See Question 18 (concerning
borrowings) and Questions 27 and 28 (concerning counterparty
exposures). However, selected questions in section 2 of the form
require advisers to report indirect exposure resulting from
positions held through other entities including private funds, and
advisers will ``look through'' the reporting fund's investments in
internal private funds and external private funds in responding to
those questions. See, e.g., Question 32 (concerning reporting fund
exposures).
\54\ See Questions 33, 35, 36, and 47.
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As discussed further below, we are modifying from the proposal the
reporting instructions for trading vehicles to require an adviser to
``look through'' trading vehicles for all questions. Given this
modification, we are also adopting amendments to Instruction 8 to
exclude trading vehicles from the general requirement that an adviser
must not ``look through'' a reporting fund's investments in funds or
other entities unless the question instructs the adviser to report
exposure obtained indirectly through positions in such funds or other
entities. These amendments are designed to improve data quality and
comparisons, so the Commissions and FSOC understand what Form PF data
is from advisers ``looking through'' a reporting fund's investments,
which will lead to more effective systemic risk assessments and
investor protection efforts.
Trading vehicles. Some private funds wholly or partially own
separate legal entities that hold assets, incur leverage, or conduct
trading or other activities as part of the private fund's investment
activities, but do not operate a business (each, a ``trading
vehicle'').\55\ Private funds may use trading vehicles for various
purposes, including (1) for jurisdictional, tax, or other regulatory
purposes or (2) to ``ring-fence'' assets in light of liability or
bankruptcy concerns associated with a particular investment (i.e.,
structure assets so counterparties would only have recourse against the
trading vehicle and not against the private fund). Currently, Form PF
does not require advisers to identify trading vehicles. As a result,
Form PF does not provide a clear window into the existence or use of
trading vehicles and the risks that they present. Because private funds
may use trading vehicles for a wide variety of purposes, more complete
and accurate visibility into asset class exposures, position sizes, and
counterparty exposures relied on by trading vehicles can enhance the
Commissions' and FSOC's systemic risk and financial stability
assessment efforts and the Commissions' efforts to protect investors by
identifying areas in need of outreach, examination, or investigation.
We are adopting amendments designed to address these concerns by
requiring advisers to identify any trading vehicles of the reporting
fund, how the reporting fund uses the trading vehicle, and the position
sizes and counterparty exposures of the reporting fund that are
attributable to the trading vehicle.
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\55\ We are adopting a definition of ``trading vehicle'' to the
Form PF Glossary of Terms. In a modification from the proposed
definition, we are specifying that a trading vehicle may be wholly
or partially owned by a reporting fund. See Form PF Glossary of
Terms (definition of ``trading vehicle''). The concept of a
partially owned trading vehicle (i.e., if the reporting fund is not
the trading vehicle's only equity owner) was implicit in the
proposed instructions, which would have provided for different
treatment for a wholly owned or partially owned trading vehicle. See
proposed Instruction 7. We are modifying the definition of ``trading
vehicle'' to make this explicit.
---------------------------------------------------------------------------
We are adopting amendments, with certain modifications from the
proposal, to Form PF's general instructions to explain how advisers
report information if the reporting fund uses a trading vehicle.\56\
Specifically, if the reporting fund uses a trading vehicle, the adviser
will be required to identify the trading vehicle in section 1b and
report answers on an aggregated basis for the reporting fund and such
trading vehicle.\57\ Advisers will be instructed to ``look through''
the trading vehicle's holdings on Form PF, adjusted for the reporting
fund's percentage ownership interest of the trading vehicle, in
responding to questions on Form PF for the reporting fund, as discussed
further below.\58\ As discussed more fully in section II.B below, an
adviser will also be required to specify if the reporting fund holds
assets through a trading vehicle, incurs leverage through a trading
vehicle, or conducts trading or other activities through a trading
vehicle.\59\ Finally, advisers will be required to report trading
vehicles on a consolidated basis but in response to certain questions
will be required to identify the positions and counterparty exposures
that are held through a trading vehicle, which will help differentiate
the reporting fund's exposures and risks from those of its trading
vehicles, as discussed more fully in sections II.B.3 and II.C.2
below.\60\
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\56\ See Instruction 7. We are also making a conforming change
to Instruction 8 to reference this new instruction.
\57\ We proposed the following for reporting requirements for
trading vehicles: if the reporting fund uses a trading vehicle, and
the reporting fund is its only equity owner, the adviser would have
been required to either (1) identify the trading vehicle in section
1b and report answers on an aggregated basis for the reporting fund
and such trading vehicle, or (2) report the trading vehicle as a
separate reporting fund. An adviser would have been required to
report the trading vehicle separately if the trading vehicle holds
assets, incurs leverage, or conducts trading or other activities on
behalf of more than one reporting fund. If reporting separately, (1)
advisers would have been required to report the trading vehicle as a
hedge fund if a hedge fund invests through the trading vehicle; (2)
advisers would have been required to report the trading vehicle as a
qualifying hedge fund if a qualifying hedge fund invests through the
trading vehicle; or (3) otherwise, advisers would have been required
to report the trading vehicle as a liquidity fund, private equity
fund, or other type of fund based on its activities.
\58\ See Instruction 7. We had proposed to permit disaggregated
reporting for wholly-owned trading vehicles and to require
disaggregated reporting for partially-owned trading vehicles. As
discussed below, the final amendments will instead require advisers
to report all trading vehicles, whether wholly or partially owned,
on a consolidated basis. In connection with this change, the final
amendments specify that an adviser must adjust trading vehicle
information to reflect the reporting fund's percentage ownership
interest of the trading vehicle.
\59\ See Questions 9(d) through (f). A trading vehicle is
defined as a separate legal entity, wholly or partially owned by one
or more reporting funds, that holds assets, incurs leverage, or
conducts trading or other activities as part of a reporting fund's
investment activities but does not operate a business. See Form PF
Glossary of Terms (definition of ``trading vehicle''). Questions
9(d) through (f) ask the reporting fund to identify the vehicle's
activities that results in it being a ``trading vehicle,'' as
defined in the Form PF Glossary of Terms.
\60\ See, e.g., Questions 27 and 28, which are required for all
hedge fund advisers, and Questions 42, 43, and 44, which are
required for large hedge fund advisers.
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[[Page 17992]]
We are not adopting proposed amendments that would have permitted
an adviser to select whether to report a wholly owned trading vehicle
on either a consolidated or disaggregated basis and would have required
advisers to report a partially owned trading vehicle on a disaggregated
basis. One commenter stated the proposed disaggregated reporting for
trading vehicles would provide the Commissions and FSOC with insights
into a private fund's assets and activities that are not currently
reported on Form PF, which would support assessment of potential
systemic risk.\61\ Other commenters opposed the proposed requirements
to disclose trading vehicles on a disaggregated basis because of the
significant cost and burdens for such reporting and their view on the
limited benefit of such reporting to the Commissions.\62\ Some
commenters stated that disaggregated reporting of trading vehicles
would be misleading because advisers do not account for risk on a
disaggregated basis.\63\ Another commenter stated that allowing
consolidated reporting of trading vehicles would provide the
Commissions with a clearer and more accurate depiction of a fund's
characteristics and exposures than disaggregated reporting.\64\ Some
commenters stated that separate reporting for trading vehicles is not
necessary because trading vehicles are often used for administrative
purposes, such as for tax or efficiency purposes, but are managed on a
consolidated basis and regarded as a single entity for investment
purposes.\65\ Another commenter recommended limiting disaggregated
reporting of trading vehicles to only vehicles that engage in leverage
or borrowing to reduce the cost of implementation of separate
reporting.\66\ Another commenter recommended that we focus on specific
questions on Form PF to gain information about trading vehicles instead
of requiring full separate reporting of trading vehicles to reduce
burdens and provide clearer reporting.\67\ Another commenter
recommended permitting aggregated reporting for trading vehicles that
are at least 90% owned by a single reporting fund.\68\
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\61\ NASAA Comment Letter.
\62\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
SIFMA Comment Letter.
\63\ See, e.g., MFA Comment Letter II; MFA/NAPFM Comment Letter.
\64\ AIMA/ACC Comment Letter.
\65\ See, e.g., MFA Comment Letter II; Schulte Comment Letter.
\66\ SIFMA Comment Letter.
\67\ Schulte Comment Letter.
\68\ MFA Comment Letter II.
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After considering such comments, we are not adopting the proposed
requirement that would have permitted advisers to report fully owned
trading vehicles on a disaggregated basis and required them to do so in
the case of partially owned trading vehicles. Instead, we are requiring
advisers to report all trading vehicles, whether wholly owned or
partially owned, on a consolidated basis. Requiring advisers to instead
``look through'' the reporting fund's investment in all trading
vehicles on a consistent basis is appropriate because receiving
disaggregated data for some but not all trading vehicles could result
in distorted data. Requiring all reporting funds to report their
trading vehicles, whether fully or partially owned, on an aggregated
basis will improve data comparability and allow us to better understand
the holdings and exposures of the fund structure for our assessments of
potential systemic risk. We also understand from commenters that a
consolidated reporting better aligns with how advisers regard trading
vehicles internally. However, after considering a commenter's
recommendation to include specific questions on trading vehicles rather
than full disaggregated reporting,\69\ we are adopting amendments to
include specific questions relating to a reporting fund's trading
vehicle use and a trading vehicle's position size and risk exposure, as
opposed to requiring the greater burden of full separate reporting on
Form PF for trading vehicles. We are also requiring advisers to
identify the relevant party that bears certain risk exposures, which
will allow us to understand how the reporting fund makes use of its
fund structure, including any trading vehicles.\70\ This approach will
result in greater insight into the overall fund structure and support
of FSOC's systemic risk assessments than under the existing reporting
requirements, and it will also be less burdensome than the approach we
had proposed to require separate full reporting for certain trading
vehicles. We disagree that any trading vehicle reporting should be
limited to only vehicles that are used for leverage and borrowing
activities because the amendments are intended to support systemic risk
assessments more broadly on and provide insight into how trading
vehicles are used, which includes trading vehicles that are used for
other purposes, such as holding assets or trading. This reporting is
important for systemic risk assessment because it provides visibility
into private funds' operations and can assist the Commissions and FSOC
in identifying trends across the industry.
---------------------------------------------------------------------------
\69\ Schulte Comment Letter.
\70\ See, e.g., Questions 27 and 28, which are applicable to all
hedge funds, and Questions 42, 43, and 44, which are applicable to
only large hedge funds.
---------------------------------------------------------------------------
Investments in funds that are not private funds. Advisers will
continue to include the value of the reporting fund's investments in
funds and other entities that are not private funds, in determining
reporting thresholds and responding to questions, unless otherwise
directed, as Form PF currently requires.\71\ For the reasons discussed
above, we are revising the instructions, substantially as proposed, to
indicate that, when responding to questions, however, advisers must not
``look through'' a reporting fund's investments in funds or other
entities that are not private funds, or trading vehicles, unless the
question instructs the adviser to report exposure obtained indirectly
through positions in such funds or other entities.\72\
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\71\ See Instruction 8. In a modification from the proposal, we
are removing the erroneous reference to Questions 39 and 40 from
Instructions 7 and 8, which implied that these questions require
advisers to look-through the reporting fund's investments.
\72\ We are also specifying that advisers should ``look
through'' trading vehicles for all questions, as provided in
Instruction 7 and discussed above.
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3. Reporting Timelines
We are amending, as proposed, Instruction 9 to require large hedge
fund advisers and large liquidity fund advisers to update Form PF
within a certain number of days after the end of each calendar quarter,
rather than after each fiscal quarter, as Form PF currently
requires.\73\ One commenter stated that for quarterly filers who have a
fiscal year ending in a non-calendar quarter month, the proposed
instructions do not specify the procedure for a filer who, during the
transition from fiscal to calendar quarter reporting, would otherwise
be required to report twice in one calendar quarter.\74\ As suggested
by this commenter, we are requiring that such filers transition to the
new timing requirement by their first calendar quarter-end filing for
the first full quarterly reporting period after the compliance
date.\75\
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\73\ Large hedge fund advisers generally are required to file
within 60 calendar days after the end of each calendar quarter and
large liquidity fund advisers generally are required to file within
15 calendar days after the end of each calendar quarter. See
Instruction 9.
\74\ AIMA/ACC Comment Letter.
\75\ See infra section II.F (Effective and Compliance Dates).
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[[Page 17993]]
All other advisers will continue to file annual updates within 120
calendar days after the end of their fiscal year.\76\ Private equity
fund advisers will continue to file any required quarterly private
equity event reports on a fiscal quarter basis, as applicable.\77\ Form
PF will continue to require all advisers to use fiscal quarters and
years to determine filing thresholds because advisers already make such
calculations under 17 CFR 279.1 (``Form ADV''), which requires annual
updates based on fiscal year.\78\
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\76\ We also are adopting amendments to the term ``data
reporting date'' to reflect this approach. See Form PF Glossary of
Terms.
\77\ See Form PF Section 6 and Instruction 9.
\78\ See Form PF Instructions 1 and 3; Form ADV and [17 CFR
275.204-1] Advisers Act rule 204-1 (amendments to Form ADV).
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Currently, routine fiscal quarter reporting by large hedge fund
advisers and large liquidity fund advisers significantly delays the
time at which the Commissions and FSOC receive a complete data set for
a calendar quarter. For example, large hedge fund advisers whose first
fiscal quarter ends on the calendar quarter end of March, would file
data covering January, February, and March by the end of May.\79\
However, large hedge fund advisers whose fiscal quarter ends in May
would not file their March data until the end of July, delaying
Commission and FSOC access to full calendar quarter data by all large
hedge fund advisers by four months. The adopted changes are designed to
provide a more complete data set sooner to improve the efficiency and
effectiveness of investor protection efforts and systemic risk
assessment. Based on Form ADV data as of December 2022, 99.6 percent of
private fund advisers already effectively file Form PF on a calendar
basis because their fiscal quarter or year ends on the calendar quarter
or year end, respectively.\80\ The 0.4 percent of private fund advisers
that have a non-calendar fiscal approach, which could cause a temporary
data gap, represents approximately 224 private funds, totaling
approximately $80 billion in gross asset value. Calendar quarter
reporting also will more closely align with reporting on Form CPO-
PQR,\81\ which requires calendar quarterly reporting, allowing easier
integration of these data sets.
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\79\ See current Instruction 9 (requiring large hedge fund
advisers to update Form PF within 60 calendar days after the end of
their first, second, and third fiscal quarters, among other things).
\80\ We are presenting data from all private fund advisers, not
just those who would file their routine filings on a quarterly basis
(i.e., large hedge fund advisers and large liquidity fund advisers),
to avoid potentially disclosing proprietary information of
individual Form PF filers, and to be inclusive considering that the
population of quarterly filers versus annual filers may change over
time.
\81\ See 17 CFR pt 4, app A.
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In response to a request for comment whether reporting deadlines
for large hedge fund advisers to complete their routine annual filing
should be shortened to 30 calendar days (from 60 calendar days) after
the end of each quarter, one commenter stated that shorter reporting
timelines would provide FSOC and the Commissions with the most current
information to monitor systemic risk.\82\ Another commenter opposed
shortened reporting timelines and stated that the existing requirements
are already burdensome and requiring shorter deadlines could undermine
data quality.\83\ After the 2022 Joint Form PF Proposing Release, the
SEC adopted amendments to Form PF, which require large hedge fund
advisers to file current reports and private equity fund advisers to
file event reports upon the occurrence of certain events.\84\ The
amendment to require calendar quarter, rather than fiscal quarter,
basis reporting will improve data comparability and will provide the
Commissions with more timely information for those large hedge advisers
that currently do not report on a calendar quarter basis.
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\82\ Comment Letter of Mohammed R. (Sept. 9, 2022).
\83\ Schulte Comment Letter.
\84\ May 2023 SEC Form PF Amending Release, supra footnote 4.
---------------------------------------------------------------------------
B. Amendments Concerning Basic Information About the Adviser and the
Private Funds It Advises
Each adviser required to file Form PF must complete all or part of
section 1. We are adopting amendments to section 1 to provide greater
insight into private funds' operations and strategies and to assist in
identifying trends, including those that could create systemic risk and
which are as such designed to enhance investor protection efforts and
systemic risk assessment. The amendments are designed to improve
comparability across advisers, improve data quality, and reduce
reporting errors, based on our experience with Form PF filings.
1. Amendments to Section 1a of Form PF--Identifying Information
Section 1a requires an adviser to report identifying information
about the adviser and the private funds it manages. We are adopting, as
proposed, several amendments to collect additional identifying
information regarding the adviser, its related persons, and their
private fund assets under management.
Legal entity identifiers. We are adopting, as proposed, amendments
to the definition of ``LEI'' to exclude the use of any non-LEI
identifier, such as an RSSD ID, as a substitute for LEI. Legal entity
identifiers, or ``LEIs,'' help identify entities and link data from
different sources that use LEIs.\85\ These amendments will improve data
quality because, based on our experience with the current form,
reporting RSSD IDs as LEIs makes it more difficult for our staff to
link data efficiently and effectively.
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\85\ Form PF generally defines ``LEI'' as, with respect to any
company, the ``legal entity identifier'' assigned by or on behalf of
an internationally recognized standards setting body and required
for reporting purposes by the U.S. Department of the Treasury's
Office of Financial Research or a financial regulator. See Form PF
Glossary of Terms (definition of ``LEI'').
---------------------------------------------------------------------------
Current Form PF requires advisers to report the LEI for certain
entities, such as for the reporting fund, and any parallel funds if
they have an assigned LEI. It currently instructs advisers, in the case
of an entity that is a financial institution and does not have an
assigned LEI, to provide the RSSD ID assigned to the financial
institution by the National Information Center of the FRB.\86\ We are
adopting an amendment to the definition of ``LEI'' to remove the
instruction that an adviser provide an RSSD ID with respect to an
entity that is a financial institution and that has not been assigned
an LEI. Accordingly, an adviser will no longer be permitted to
substitute an RSSD ID or any other financial identifier for any
requirement in Form PF to provide an LEI, if one has been assigned.\87\
An adviser may continue to use an RSSD ID, if the financial institution
has one, or another financial identifier for any question that requires
an adviser to report other identifying information, where the form of
identifying information is not specified.\88\
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\86\ Currently, if an adviser has not been assigned an LEI and
does not have an RSSD ID, then the adviser would leave that line
blank.
\87\ See, e.g., Questions 5(d) and 7(e).
\88\ See, e.g., Question 9(c). We also added ``RSSD ID'' to the
Form PF Glossary of Terms and have defined it as the identifier
assigned by the National Information Center of the Board of
Governors of the Federal Reserve System, if any. See Form PF
Glossary of Terms.
---------------------------------------------------------------------------
We are also adopting, as proposed, an amendment to require advisers
to provide LEIs for themselves and their ``related persons,'' if they
have an LEI.\89\
[[Page 17994]]
This amendment will help identify advisers and their related persons
and link data from other data sources that use LEI as an identifier.
---------------------------------------------------------------------------
\89\ See Question 1. We are also adopting amendments to require
advisers to provide the LEI for other entities, if the other
entities have one, including internal private funds (see Question 7
and Question 15), trading vehicles (see Question 9), and
counterparties (see Question 27 and Question 28). A ``related
person'' has the meaning provided in Form ADV. See Form PF Glossary
of Terms. Form ADV defines a ``related person'' as any advisory
affiliate and any person that is under common control with the
adviser. See Form ADV Glossary of Terms.
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One commenter supported an expanded use of LEI as a legal
identifier in Form PF and stated that more comprehensive inclusion of
LEI would create a more complete identification scheme for the
Commissions.\90\ The commenter also stated that the LEI field in the
existing Form PF should be used only for an LEI and not substitute any
other identifier for an LEI.\91\ The commenter also supported the
creation of a separate field for the RSSD ID.\92\ Another commenter
stated that requirements in Form PF to use a particular financial
identifier may increase costs and reduce innovation and competition
among financial identifier providers and that increased competition
among financial identifiers would improve overall transparency and data
quality and reduce costs.\93\ As stated above, based on our experience
with the current form, however, permitting the reporting of other
financial identifiers (namely, RSSD IDs) as LEIs has generally made it
more difficult for our staff to link data efficiently and effectively.
The amendments to the ``LEI'' definition will thus improve data quality
and comparability on Form PF, which supports effective assessment of
systemic risk and investor protection efforts. Additionally, Form PF
continues to not require an adviser to obtain or use LEI or any other
particular financial identifier (other than private fund identification
numbers for reporting funds), as our amendments provide only that any
identifier that does not meet the definition of ``LEI'' may not be
substituted for an LEI where a question requests an LEI. Form PF
continues to permit advisers to use other financial identifiers
elsewhere on Form PF where the reporting of LEI is either not specified
or not required. The amendments to Form PF we are adopting do not
require any entity that does not already have an LEI to obtain one and
clarifies that an identifier that does not meet the ``LEI'' definition
may not be substituted for an LEI where an LEI, if available, is
requested on Form PF.
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\90\ See GLEIF Comment Letter.
\91\ See id.
\92\ Id.
\93\ See Comment Letter of Bloomberg, L.P. (Oct. 13, 2022)
(``Bloomberg Comment Letter'').
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Assets under management. We are adopting, substantially as
proposed, amendments to Question 3 to revise how advisers report assets
under management attributable to certain private funds. Current
Question 3 requires advisers to provide a breakdown of regulatory
assets under management and net assets under management. These data are
designed to show the size of the adviser and the nature of the
adviser's activities. We did not receive comment on the proposed
amendments to Question 3. We are amending the instructions to direct
advisers to exclude the value of private funds' investments in other
internal private funds to avoid double counting of fund of funds
assets, as proposed.\94\ Advisers are required to include the value of
trading vehicle assets because, under the amended instructions for
reporting trading vehicle assets, as discussed more fully in section
II.A.2 above, advisers are required to ``look through'' the reporting
fund's investment in any trading vehicles.\95\ We did not receive
comment on the proposed change in instructions to Question 3. These
amendments are designed to provide a more accurate view of the assets
managed by the adviser and its related persons, as well as the general
distribution of those assets among various types of private funds,
because accurately viewing the scale of these managed assets is
important to effectively assess systemic risk and further investor
protection efforts.
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\94\ See Question 3.
\95\ Id. We have also modified the proposed instructions to
Question 3 to remove a reference to the proposed requirement to
report trading vehicles on a disaggregated basis, which we are not
adopting in this Release. See also Form PF Glossary of Terms.
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Explanation of assumptions. We are amending, as proposed, Question
4, which advisers use to explain assumptions that they make in
responding to questions on Form PF, to add an instruction directing
advisers to provide the question number when the assumptions relate to
a particular question. We did not receive comments on this change. This
amendment is designed to help assess data more efficiently and improve
comparability, based on experience with the form.
We asked in the proposal whether there are other data sources we
should use to link entities across forms and to assess data more
efficiently. In a further modification from the proposal, we are
adopting an amendment to require an adviser to indicate whether it, or
any of its related persons, is registered or required to be registered
as a CPO and/or a CTA and to provide the legal name of the entity.\96\
This information will help more accurately and efficiently identify
dual registrants, including those that might be implicated in the
identification of threats to financial stability, increase the
usefulness and interoperability of the data collected by the
Commissions on Form PF and by the CFTC on Form CPO-PQR, and facilitate
collaboration between the Commissions with respect to dual registrants.
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\96\ See Question 1(c).
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2. Amendments to Section 1b of Form PF--Concerning All Private Funds
Section 1b requires advisers to report certain identifying and
other basic information about each private fund the adviser manages. We
are adopting, largely as proposed, amendments to section 1b to require
advisers to report additional identifying information about the private
funds they manage as well as other basic information about the private
funds' assets, financing, investor concentration, and performance. The
amendments are designed to provide greater insight into private funds'
operations and strategies and assist in identifying trends, which will
enhance investor protection efforts and FSOC's systemic risk
assessment. At the same time, the amendments will help improve data
quality and comparability, based on our experience with Form PF.
Type of private fund. We are adopting several amendments to
identify different types of reporting funds more effectively and to
help better isolate data according to fund type, in order to allow for
more targeted analysis. Currently, advisers indicate a reporting fund's
type on the Private Fund Reporting Depository (``PFRD'') filing system,
and by filling out particular sections of the form, but they do not
report on the form itself the type of fund.\97\ We have found
instances, however, where advisers have identified a reporting fund
differently on Form PF than on Form ADV, even though the definitions of
each fund type are the same on both forms. This may be due to error, or
may be due to the fund's characteristics changing between deadlines for
Form ADV and Form PF. Accordingly, to help prevent reporting errors and
help ensure accuracy concerning the reporting fund's type, we are
adopting, as proposed, amendments to require advisers to identify the
reporting fund by selecting one type of fund from the following list:
hedge fund that is not a qualifying hedge fund, qualifying hedge fund,
liquidity fund,
[[Page 17995]]
private equity fund, real estate fund, securitized asset fund, venture
capital fund, or ``other.'' \98\ If an adviser identifies the reporting
fund as ``other,'' the adviser will be required to describe the
reporting fund in Question 4, including why it would not qualify for
any of the other options. We did not receive comments on this
amendment. This amendment will further improve data quality and data
comparability, based on our experience with Form PF.
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\97\ For advisers that are also CPOs or CTAs, filing Form PF
through PFRD is filing with both the SEC and CFTC. See Instruction 3
(instructing advisers to file particular sections of Form PF,
depending on their circumstances. For example, all Form PF filers
must file section 1 and large hedge fund advisers also must file
section 2).
\98\ Question 6(a).
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In addition, we are adopting, as proposed, amendments to require an
adviser to indicate whether the reporting fund is a ``commodity pool,''
which is categorized as a hedge fund on Form PF.\99\ Although the CFTC
does not, as of the date of this Release, consider Form PF reporting on
commodity pools as constituting substituted compliance with CFTC
reporting requirements, some CPOs may continue to report such
information on Form PF.\100\ This amendment will allow for analysis of
hedge fund data both with and without commodity pools reported on the
form. One commenter opposed the existing default treatment of a
commodity pool as a hedge fund for purposes of Form PF and recommended
allowing an adviser to categorize a commodity pool in the manner it
determines most appropriate.\101\ The amendment we are adopting will
improve data quality and comparability, based on our experience with
Form PF, and enhance our understanding of the hedge fund data collected
from Form PF by allowing for analysis of hedge fund data both including
and excluding CPOs. Additionally, as it relates to the treatment of
commodity pools as hedge funds for reporting purposes, such treatment
further aligns the consistency of questions asked across these
entities, both on Form PF, as well as on the CFTC's Form CPO-PQR.
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\99\ Question 6(b). Form PF defines ``commodity pool'' as
defined in section 1a(10) of the U.S. Commodity Exchange Act, as
amended. See Form PF Glossary of Terms.
\100\ Previously, the CFTC permitted dually registered CPO-
investment advisers to submit Form PF in lieu of certain CFTC
reporting requirements. See Compliance Requirements for Commodity
Pool Operators on Form CPO-PQR (Oct. 9, 2020) [85 FR 71772 (Nov. 10,
2020)] (``Form CPO-PQR Release'').
\101\ See MFA Comment Letter II.
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Finally, we are adopting, with a modification from the proposal,
amendments to require advisers to report whether a reporting fund
operates as a UCITS or AIF.\102\ One commenter supported the
requirement to report whether a fund is a UCITS or AIF and where a fund
is domiciled, but not where the fund is ``marketed,'' because a fund
could be marketed anywhere and a fund's marketing activity may change
over time.\103\ Another commenter recommended that references to
``marketing'' be reconsidered, because ``marketing'' is a defined term
in the UCITS Directive applicable to a UCITS and in the AIFMD and UK
AIFMR applicable to an AIF, and these definitions may differ in meaning
from the rule's references to ``marketing.'' \104\ This commenter also
stated that the references to ``marketing'' in the sense of rule
206(4)-1 and concepts of ``offers'' or ``sales'' under the Securities
Act of 1933 would be confusing in this question if the purpose of the
proposed question is to determine whether a fund calls itself a money
market fund or an equivalent term to prospective investors outside of
the United States.\105\ After considering comments, we are modifying
the question from the proposal to require reporting of a fund that
``offers,'' rather than ``markets,'' itself as a money market fund
outside the United States. This modification will more precisely
capture the type of conduct that we intend to trigger a reporting
requirement, and uses a term that we believe is commonly understood by
the industry, and which we accordingly disagree would be
confusing.\106\ Further, the modification will be less burdensome on
advisers than the proposed use of ``marketing'' by clarifying the scope
of information required to be reported and requiring a more limited
subset of conduct to be reported. For example, a money market fund may
engage in certain conduct that constitutes marketing in a particular
jurisdiction but not an offering for purposes of the form.
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\102\ See Questions 6(c) through (f). We are adopting, as
proposed, a definition for the term ``UCITS'' as Undertakings for
Collective Investment in Transferable Securities, as defined in the
UCITS Directive of the European Parliament and of the Council (No.
2009/65/EC), as amended, or as captured by the Collective Investment
Schemes (Amendment etc.) (EU Exit) Regulations 2019, as amended. We
are adopting, as proposed, a definition for the term ``AIF'' as an
alternative investment fund that is not regulated under the UCITS
Directive, as defined in the Directive of the European Parliament
and of the Council on alternative investment fund managers (No.
2011/61/EU), as amended, or an alternative investment fund that is
captured by the Alternative Investment Fund Managers (Amendment
etc.) (EU Exit) Regulations 2019, as amended. See Form PF Glossary
of Terms.
\103\ See SIFMA Comment Letter.
\104\ See AIMA/ACC Comment Letter.
\105\ Id.
\106\ ``Offer'' is defined in the Securities Act as ``every
attempt or offer to dispose of, or solicitation of an offer to buy,
a security or interest in a security, for value.'' 12 U.S.C.
77b(a)(3). For purposes of this question, activity may constitute an
``offer'' under this definition whether or not the offering is
subject to the registration requirements of the Securities Act.
---------------------------------------------------------------------------
One commenter stated that proposed Question 6(c) would not enhance
the Commissions' knowledge about exposures to non-U.S. beneficial
owners that is not already included in proposed Question 22 on Form
PF.\107\ Question 6(c), however, is not intended to elicit the same
information about exposures to non-U.S. beneficial owners as proposed
Question 22, as discussed further below in section II.B.3. The
amendments to Question 6 relate to the conduct and operations of the
reporting fund, which are designed to allow the Commissions and FSOC to
filter data for more targeted analysis to better understand to what
extent and in what jurisdictions a reporting fund operates outside of
the United States. This information can help the Commissions better
understand the private fund's potential exposure to beneficial owners
outside the United States and to identify potential systemic risk
resulting from economic conditions or events in particular foreign
jurisdictions. This reporting will also help avoid double counting when
Form PF data is aggregated with other data sets that include UCITS,
AIFs, and money market funds that are offered outside the United
States. Proposed Question 22, as discussed further below in section
II.B.3, requires an adviser to report more granular information about
the fund's beneficial owners, including the percentage of beneficial
owners that are non-U.S. persons.\108\
---------------------------------------------------------------------------
\107\ AIMA/ACC Comment Letter.
\108\ See Question 22.
---------------------------------------------------------------------------
The amendments will improve the data we collect on fund operations
and help us better understand a fund's potential exposure to beneficial
owners outside the United States. The additional information is
necessary for a more targeted analysis of risks presented in the United
States from risks presented abroad.\109\ Another commenter stated that
the proposed amendments do not specify what conduct constitutes
operating as a UCITS or how to determine where a fund operates.\110\ A
UCITS operates under the laws mandated by the member country of its
headquarters when it is qualified as a UCITS and authorized by that
jurisdiction. This commenter also stated that the meaning of money
market fund in Question 6(g) is unclear, particularly for funds that
are established and operate as money market funds outside of the United
States. For purposes of this question, we have removed reference in
Question 6 to
[[Page 17996]]
the defined term ``money market fund'' as included in the Form PF
Glossary of Terms, which continues to have the meaning provided in rule
2a-7 under the Investment Company Act.\111\ Instead, in a modification
from the proposal, we have amended Question 6 to specify that a money
market fund for purposes of Question 6 includes money market funds more
generally, including those that operate outside of the United States in
accordance with applicable non-U.S. laws, rather than being limited to
only ``money market funds'' as defined in Form PF.
---------------------------------------------------------------------------
\109\ See Fact Coalition Comment Letter (discussing the
importance of collecting information on exposures outside of the
United States).
\110\ AIMA/ACC Comment Letter.
\111\ See Form PF Glossary of Terms (definition of ``money
market fund'').
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Master-feeder arrangements, internal private funds, external
private funds, and parallel fund structures. We are adopting, as
proposed, amendments to Form PF to require advisers to report
identifying information about master-feeder arrangements and other
private funds (e.g., funds of funds), including internal private funds,
and external private funds.\112\ These changes to the form reflect that
advisers will be required to report components of master-feeder
arrangements and parallel fund structures separately, as discussed more
fully in section II.A.1 above. Form PF currently requires advisers to
report identifying information about parallel funds, and will continue
to do so under the amended Form PF.\113\ The amendments will also
require advisers to report the value of the reporting fund's
investments in other private funds (e.g., for funds of funds) in more
detail than is currently required.\114\ Specifically, the amendments
will require advisers to report the value of the reporting fund's
equity investments in external private funds and internal private funds
(including the master fund and each internal private fund), which
together make up the total investments in other private funds.\115\
These amendments are designed to help map complex fund structures and
cross reference private fund information more effectively across Form
PF filings, in order to provide more complete and accurate information
about each fund's risk profile.
---------------------------------------------------------------------------
\112\ For master-feeder arrangements, advisers will be required
to report the name of the feeder fund, its private fund
identification number, and whether the feeder fund is a separate
reporting fund or a disregarded feeder fund. For internal private
funds that invest in the reporting fund, advisers will be required
to report the name of the internal private fund, its LEI, if it has
one, and its private fund identification number. See Question 7. If
the reporting fund invests in external private funds, advisers will
be required to report the name of the master fund, its private fund
identification number, and the master fund's LEI, if it has one. If
the reporting fund invests in internal private funds, advisers will
be required to report the internal private fund's name, its private
fund identification number, and its LEI, if it has one. See Question
15.
\113\ See Question 7 and Question 8.
\114\ See Question 15.
\115\ Id.
---------------------------------------------------------------------------
In connection with these amendments, in the Form PF Glossary of
Terms, we are removing the terms ``investments in external private
funds'' and ``investments in internal private funds,'' and replacing
them with the terms ``external private funds'' (i.e., private funds
that neither the adviser nor the adviser's related persons advise) and
``internal private funds'' (i.e., private funds that the adviser or any
of the adviser's related persons advise), respectively. The definitions
do not direct advisers to exclude ``cash management funds,'' as is
currently the case under the terms being removed, because we have
observed that advisers determine whether a fund is a cash management
fund inconsistently for purposes of Form PF, which reduces data
quality.
As discussed more fully above in section II.A.1, some commenters
supported requiring disaggregated reporting of master-feeder
arrangements and parallel fund structures, stating that it will allow
the Commissions to identify potential systemic risk more effectively
and increase the transparency of private fund holdings.\116\ Other
commenters opposed the proposed amendments to require reporting of the
components of parallel funds and master-feeder funds separately.\117\
We did not however receive specific comment on the proposed
definitional changes. One commenter recommended including an exclusion
in Questions 15(a) and 15(b), similar to the exclusion in Question
15(c), to avoid potentially double counting any master funds that are
external private funds.\118\ We believe the instruction in Question
15(c) to exclude any funds disclosed in Question 15(b) is sufficient to
avoid any double counting of assets in this set of questions.\119\
These amendments will improve data quality and comparability, based on
our experience with Form PF and in light of adopted changes to master-
feeder and parallel fund structure reporting on Form PF.
---------------------------------------------------------------------------
\116\ See, e.g., Better Markets Comment Letter; NASAA Comment
Letter.
\117\ See, e.g., AIC Comment Letter I; AIMA/ACC Comment Letter;
MFA Comment Letter II.
\118\ See AIMA/ACC Comment Letter.
\119\ We do not believe an instruction in Question 15(c) to
exclude funds reported in Question 15(a) is necessary because
Question 15(a) relates to external private funds only.
---------------------------------------------------------------------------
Withdrawal or redemption rights. We are also adopting, with
modifications from the proposal, as specified below, amendments to
change how advisers report withdrawal and redemption rights. Form PF
currently requires only large hedge fund advisers to report whether
each qualifying hedge fund provides investors with withdrawal or
redemption rights in the ordinary course.\120\ We proposed adding a new
Question 10(a) which would generally require all advisers to report
whether a reporting fund provides investors with withdrawal and/or
redemption rights in the ordinary course.\121\ In a modification from
the proposal, we are adopting a modified Question 10, which instead
requires all advisers to indicate whether the reporting fund is an
open-end private fund in Question 10(a) or a closed-end private fund in
Question 10(b).
---------------------------------------------------------------------------
\120\ See current Question 49(a).
\121\ See proposed Question 10(a).
---------------------------------------------------------------------------
We are relatedly adopting new defined terms for ``open-end private
fund'' and ``closed-end private fund'' and modifying Question 10 to ask
whether the reporting fund is an ``open-end private fund'' or ``closed-
end private fund,'' rather than whether the reporting fund provides
investors with withdrawal and/or redemption rights in the ordinary
course. In discussing certain aspects of the proposal, some commenters
distinguished between open-end and closed-end funds.\122\ One commenter
indicated that the term ``closed-end fund'' refers to funds that do not
offer withdrawal or redemption rights in the ordinary course.\123\ We
are defining a ``closed-end private fund'' as any private fund that
only issues securities, the terms of which do not provide a holder with
any right, except in extraordinary circumstances, to withdraw, redeem,
or require the repurchase of such securities, but which may entitle
holders to receive distributions made to all holders pro rata.\124\ We
are defining an ``open-end private fund'' as a private fund that offers
redemption rights to its investors in the ordinary course, which may be
paid in cash or in kind, irrespective of redemption frequency or notice
periods and without regard to any suspensions, gates, lock-ups, or side
pockets that may be employed by the fund.\125\ These terms are commonly
used in the market,
[[Page 17997]]
based on staff experience, and will be used in place of the existing
question that asks whether the reporting fund provides investors with
withdrawal/redemption rights in the ordinary course.
---------------------------------------------------------------------------
\122\ See, e.g., AIMA/ACC Comment Letter; Comment Letter of
Ropes & Gray LLP (Oct. 11, 2022) (``Ropes & Gray Comment Letter'').
\123\ AIMA/ACC Comment Letter.
\124\ See Form PF Glossary of Terms (definition of ``closed-end
private fund''). The definition of ``closed-end private fund'' is
adapted from the definition of ``venture capital fund'' in rule
203(l)-1 under the Advisers Act. See 17 CFR 275.203(l)-1.
\125\ See Form PF Glossary of Terms (definition of ``open-end
private fund'').
---------------------------------------------------------------------------
Although the proposed question and the adopted question lead to
substantively identical results in most cases, the adopted question
will improve data quality by more precisely specifying what is meant by
``offer[ing] withdrawal and/or redemption rights in the ordinary
course'' and, accordingly, how an adviser should classify a reporting
fund that offers limited withdrawal or redemption rights. In a
modification from the proposal, an adviser that selects in Question 10
that the reporting fund is neither an open-end private fund nor a
closed-end private fund will be required to provide a detailed
explanation of these responses in Question 4.\126\ We requested comment
on whether we should include an additional category of ``other''
withdrawal and/or redemption frequency.\127\ Some commenters stated
that the proposed question 10 was unclear on how to report withdrawal
and redemption rights properly, particularly for funds with rights that
do not fit within a single frequency category.\128\ Instead of
including an ``other'' category, as stated above, advisers that respond
``no'' to both Questions 10(a) and 10(b) will be required to provide a
detailed explanation of these responses in Question 4, which will
enable us to understand the circumstances of the fund's withdrawal and/
or redemption rights and will improve data quality. It will also help
an adviser that might otherwise feel constrained by these two
categories if the fund it advises does not fit into either. We are
requiring advisers to identify whether a reporting fund is an open-end
private fund or a closed-end private fund to inform the Commissions and
FSOC better of all reporting funds' susceptibility to stress related to
investor redemptions, in order to help identify more effectively how
widespread the potential stress may be.\129\
---------------------------------------------------------------------------
\126\ See Questions 10(a) and 10(b).
\127\ See 2022 Joint Form PF Proposing Release supra footnote 4,
at 32.
\128\ See, e.g., AIMA/ACC Comment Letter; SIFMA Comment Letter.
\129\ To implement this change, we have moved current Questions
49(a) through (e) from section 2b, which required only large hedge
fund advisers to report withdrawal and redemption information about
qualifying hedge funds, to section 1b, which requires all advisers
to report withdrawal and redemption information about all the
reporting funds they advise, and we have redesignated Questions
49(a) through (e) as part of new Question 10.
---------------------------------------------------------------------------
In a modification from the proposal, if the reporting fund is an
open-end private fund under Question 10(a), the adviser will be
required to indicate (i) how often withdrawals or redemptions are
permitted by selecting from a list of categories pursuant to Question
10(c) \130\ and (ii) what percentage of the reporting fund's net asset
value may be, or is, subject to a suspension of, or material
restrictions on, investor withdrawals/redemptions by an adviser or fund
governing body pursuant to Question 10(d).\131\ The adviser will be
required to report this information regardless of whether there are
notice requirements, gates, lock-ups, or other restrictions on
withdrawals or redemptions.\132\ These amendments will allow the
Commissions and FSOC to identify more effectively the reporting funds
that may be affected by investor withdrawals during certain market
events and/or are vulnerable to failure as a result of investor
redemptions. This information will also provide insight into other data
that all reporting funds report. For example, we understand that
closed-end private equity funds may have certain patterns of
subscriptions and withdrawals, despite not offering redemption rights
in the ordinary course, and also may report performance to investors
and prospective investors as an internal rate of return as opposed to
as a measure of the changes in the fund's portfolio market value.
---------------------------------------------------------------------------
\130\ See Question 10(c). The categories are: (1) on any
business day, (2) at intervals of at least two business days and up
to a month, (3) at intervals longer than monthly up to quarterly,
(4) at intervals longer than quarterly up to annually, and (5) at
intervals of more than one year.
\131\ We are redesignating current Questions 49(a) through (e)
as new Question 10. Currently, all advisers to qualifying hedge
funds that provided investors with withdrawal/redemption rights in
the ordinary course are required to respond to Questions 52(a)
through (e) in section 2(b). We are moving proposed Questions 52(a)
through (e) to section 1(b) and redesignating it as part of new
Question 10, so that all advisers to open-end private funds, rather
than only advisers to qualifying hedge funds that provide investors
with withdrawal/redemption rights in the ordinary course, will need
to respond to this question.
\132\ For example, if the reporting fund allows quarterly
redemptions that are subject to a gate, then the adviser would
select ``at intervals longer than monthly up to quarterly.''
---------------------------------------------------------------------------
One commenter stated that expanding the classes of private funds
that are required to disclose withdrawal and redemption rights would
allow FSOC to better identify systemic risks, particularly resulting
from market events.\133\ Another commenter opposed the proposed
requirement for all advisers to report on withdrawal and redemption
rights, asserting that the data would be of limited benefit for
systemic risk monitoring due to the inclusion of data from smaller
funds, as well as that the types of withdrawal and redemption
restrictions referenced in proposed Question 10(b) (which has been
redesignated as Question 10(c)) do not reflect the practices of many
hedge funds.\134\ A private fund of any size that provides for
withdrawal or redemption rights may be affected by increased investor
withdrawals during certain market events and/or vulnerable to failure
as a result of investor redemptions. This reporting will allow the
Commissions and FSOC to assess withdrawal and redemption patterns to
identify potential signals of stress at a particular fund or across
many funds, or related to a particular investment strategy or
strategies, which is relevant for assessing broader systemic risk.
Information on withdrawal and redemption rights from all private funds,
including smaller private funds or funds that are not included in the
definition of a ``hedge fund,'' will improve FSOC's ability to monitor
potential systemic risk and support the Commissions' investor
protection efforts.
---------------------------------------------------------------------------
\133\ See Fact Coalition Comment Letter.
\134\ See Schulte Comment Letter.
---------------------------------------------------------------------------
Some commenters stated that the proposed Question 10(b) (which has
been redesignated as Question 10(c)) does not address how to report a
fund with multiple types of redemption rights.\135\ Some commenters
recommended permitting an adviser to select multiple options for
withdrawal and redemption rights in Question 10.\136\ However, it would
not support or enhance our data analysis efforts to modify Question
10(c) to allow for multiple selections, given that other questions on
Form PF require reporting of a fund's withdrawal and redemption
activity.\137\ Instead, we are modifying Question 10(c) to ask for the
interval on which withdrawals or redemptions are ``most commonly''
permitted (i.e., with respect to most investors). We also encourage an
adviser to report any additional details on a fund's withdrawal or
redemption schedule in response to Question 4, as appropriate.
---------------------------------------------------------------------------
\135\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter;
USCC Comment Letter.
\136\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
\137\ See, e.g., Question 14.
---------------------------------------------------------------------------
Trading vehicles. We are adopting, with modifications from the
proposal as specified below, amendments to require advisers to provide
identifying information for any trading vehicle in
[[Page 17998]]
which the reporting fund holds assets, incurs leverage, or conducts
trading or other activities.\138\ Advisers will be required to disclose
the trading vehicle's legal name; LEI, if it has one; and any other
identifying information about the trading vehicle, such as the RSSD ID,
if it has any. In a change from the proposal, an adviser will also be
required to specify if the reporting fund holds assets through a
trading vehicle, incurs leverage through a trading vehicle, or conducts
trading or other activities through a trading vehicle.\139\ As
discussed above, the final amendments will include specific questions
to target specified information related to a reporting fund's use of
trading vehicles, leveraging information used to answer Questions 9(a)
through (c), as opposed to requiring a full separate reporting on Form
PF for trading vehicles.\140\ These questions are intended to identify
what conduct requires the vehicle to be reported as a trading vehicle
for purposes of Form PF and will help improve our understanding of a
reporting fund's trading vehicle use. This amendment will help the
Commissions and FSOC understand the reporting fund's activities,
including how it interacts with the market if the fund trades through a
trading vehicle, as well as its related counterparty exposures. The
identifying information will also allow comparisons of Form PF data
with data from other sources that use such information to identify
entities. Enhancing the ability to compare Form PF data in this way,
including with respect to the use of trading vehicles, will provide a
more comprehensive view of the market that enhances systemic risk
assessment and our investor protection efforts.
---------------------------------------------------------------------------
\138\ See Question 9.
\139\ See Questions 9(d) through (f).
\140\ See supra section II.A.2 of this Release for further
discussion.
---------------------------------------------------------------------------
As discussed more fully above in section II.A.2 of this Release, we
received comments regarding proposed Instruction 7 regarding the
proposed disaggregated reporting of trading vehicles. One commenter
recommended that a threshold question of whether the reporting fund
uses a trading vehicle should be added to proposed Question 9.\141\
Such an instruction is not necessary because it is generally understood
that an adviser may leave blank any inapplicable question.
---------------------------------------------------------------------------
\141\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------
Gross asset value and net asset value. We are adopting, with
changes from the proposal, several amendments to the way advisers
report gross asset value and net asset value. We are adopting
amendments to require large hedge fund advisers and large liquidity
fund advisers to report net asset value and gross asset value (or, if
such values are not calculated monthly, the reporting fund aggregate
calculated value and the gross reporting fund aggregate calculated
value, respectively) as of the end of each month of the reporting
period in their quarterly filings, rather than only reporting the
information as of the end of the reporting period, as Form PF currently
requires.\142\ This amendment is designed to facilitate analysis of
other monthly Form PF data, including certain fund performance and risk
metrics.\143\
---------------------------------------------------------------------------
\142\ See Questions 11 and 12. We also are adopting amendments
to the instructions in Question 11 to correspond with the
instructions that no longer allow advisers to aggregate master-
feeder arrangements, as discussed above. In a modification from the
proposal, we are adding an instruction to specify that for feeder
funds responding to Questions 11 and 12, the gross asset value or
gross reporting fund aggregate calculated value and net asset value
or reporting fund aggregate calculated value calculations should be
inclusive of its equity holdings in the master fund, along with its
other holdings, to more accurately represent the value of the feeder
fund's holdings.
\143\ See, e.g., Question 23 (requiring all private fund
advisers to report monthly performance data, to the extent such
results are calculated for the reporting fund).
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Some commenters expressed concerns that calculating net asset value
(or gross asset value) on a monthly basis would be overly
burdensome.\144\ Another commenter asserted that the net asset value or
gross asset value of a fund or a fund's investments may not be
available on a monthly basis in the case of investments made into other
funds or entities that are not advised by the filer or its related
persons, in which case the timing of the reporting may not match a
monthly reporting obligation.\145\ One commenter recommended requiring
reporting on net asset value and gross asset value on a quarterly,
rather than monthly, basis to lessen the burden on advisers.\146\
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\144\ See, e.g., MFA Comment Letter II.
\145\ See AIMA/ACC Comment Letter.
\146\ See MFA Comment Letter II.
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Monthly asset value data is important to allow analysis of other
monthly basis data collected on Form PF for systemic risk monitoring
and to support our investor protection efforts. However, after
considering comments, and in a change from the proposal, an adviser may
report in response to Questions 11 and 12 a fund's ``gross reporting
fund aggregate calculated value'' (``GRFACV'') or ``reporting fund
aggregate calculated value'' (``RFACV''), rather than gross asset value
or net asset value, respectively and as applicable, if its net asset
value and gross asset value are not calculated on a monthly basis.\147\
Permitting an adviser to report GRFACV or RFACV will reduce the need
for advisers to report the net asset value or gross asset value on a
monthly basis, as proposed. As discussed more fully below, in
connection with proposed amendments to fund performance reporting, we
proposed adding a requirement for certain advisers to report additional
performance information, including RFACV. We are adding the option for
advisers to report RFACV for Question 12 and GRFACV for Question 11
because use of RFACV and GRFACV will reduce burdens on advisers while
allowing us to continue to receive useful monthly valuation data to
allow for effective systemic risk monitoring and investor protection
efforts.\148\ RFACV and GRFACV may be calculated using the adviser's
own methodologies or those of its service providers, provided that the
methodologies used to calculate RFACV and GRFACV are consistent with
information reported internally.\149\ Advisers will be required to
indicate whether the reported data represents RFACV or GRFACV, rather
than a net asset value or gross asset value, as applicable, to maintain
data comparability. Requiring monthly data will help facilitate
analysis of the other monthly data reported on Form PF, such as fund
performance, and help identify trends for systemic risk analysis and
investor protection efforts.
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\147\ The amendments to Form PF adopted in the May 2023 SEC Form
PF Amending Release, supra footnote 4, adopted a definition for
``reporting fund aggregate calculated value.'' RFACV is defined as
every position in the reporting fund's portfolio, including cash and
cash equivalents, short positions, and any fund-level borrowing,
with the most recent price or value applied to the position for
purposes of managing the investment portfolio. See Form PF Glossary
of Terms (definition of ``reporting fund aggregate calculated
value''). Because we are now, after considering comments, adding the
new GRFACV term, we are also modifying the definition of RFACV to
clarify that it is a signed (i.e., positive or negative) value where
all positions are summed. GRFACV, which is used solely in Question
11 is calculated in the same manner as RFACV, except that instead of
summing each position's signed value, GRFACV converts each
position's value to an absolute value prior to summing these
absolute values.
\148\ This change is also consistent with the recent amendments
adopted by the SEC which require a large hedge fund adviser to
monitor and in certain instances report, the fund's RFACV in
compliance with its current reporting obligation. See May 2023 SEC
Form PF Amending Release, supra footnote 4.
\149\ See Form PF Glossary of Terms. Advisers will continue to
be required to report gross asset value and net asset value as of
the end of the reporting period. See current Questions 8 and 9,
which have been redesignated as Questions 11(a) and 12(a).
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We also are adopting, as proposed, amendments to add new Question
13, which requires advisers to separately
[[Page 17999]]
report the value of unfunded commitments included in the net and gross
asset values reported in Questions 12 and 11.\150\ Advisers that
provide an RFACV or GRFACV in response to Questions 12 and 11 will
report the value of unfunded commitments that are included in the RFACV
or GFRACV figures. Current Questions 8 and 9 (which have been replaced
by Questions 11 and 12) require valuations based on the instruction in
Form ADV for calculating regulatory assets under management, which
requires advisers to include the amount of any unfunded
commitments.\151\ This approach reflects that, in the early years of a
private fund's life, its adviser typically earns fees based on the
total amount of capital commitments, which we presume reflects
compensation for efforts expended on behalf of the fund in preparation
for the investments.\152\ The asset value calculations in Questions 11
and 12 should include unfunded commitments, so that Form PF data is
comparable to Form ADV data. However, there are circumstances where
understanding the amount represented by unfunded commitments will
enhance our understanding of changes to a reporting fund's net and
gross asset value over time, inform us of trends, and improve data
comparability over the life of the fund. For example, knowing the value
of uncalled commitments will help the Commissions and FSOC more
accurately identify the leverage of a fund with uncalled commitments.
We did not receive specific comment on the proposed addition of
Question 13. We continue to believe that receiving this information on
uncalled commitments will improve data accuracy and comparability,
which is important for effective systemic risk assessment and investor
protection efforts.
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\150\ We are adopting amendments to the definition of ``unfunded
commitments'' as committed capital that has not yet been contributed
to the reporting fund by investors. Currently, the definition refers
only to private equity funds, and we are adopting amendments to
amend the definition to refer to all reporting funds. Form PF
defines ``committed capital'' as any commitment pursuant to which a
person is obligated to acquire an interest in, or make capital
contributions to, the private fund. See Form PF Glossary of Terms.
\151\ Form PF requires advisers to calculate gross asset value
and net asset value using regulatory assets under management, a
regulatory metric from Form ADV. See ``gross asset value'' and ``net
asset value'' as defined in Form PF Glossary of Terms; Form ADV:
Instructions for Part 1A, Instruction 5.b. An adviser must calculate
its regulatory assets under management on a gross basis, that is,
without deduction of any outstanding indebtedness or other accrued
but unpaid liabilities. In addition, an adviser must include the
amount of any uncalled capital commitments made to a private fund
managed by the adviser.
\152\ Rules Implementing Amendments to the Investment Advisers
Act of 1940, Advisers Act Release No. 3221 (June 22, 2011) [76 FR
42950, 42956 (July 19, 2011)], at text accompanying n.90.
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Inflows and outflows. We are adopting, as proposed, an amendment to
add a question requiring advisers to report information concerning the
reporting fund's activity, including contributions to the reporting
fund, as well as withdrawals and redemptions, which includes all
withdrawals, redemptions, or other distributions of any kind to
investors.\153\ Amended Form PF specifies that, for purposes of the
question, advisers must include all new contributions from investors
and exclude contributions of committed capital that they have already
included in gross asset value calculated in accordance with Form ADV
instructions.\154\ Large hedge fund advisers and large liquidity fund
advisers are required to provide this information for each month of the
reporting period. This requirement will facilitate analysis of other
monthly Form PF data, including certain fund performance and risk
metrics, improve data accuracy, and allow the Commissions and FSOC to
analyze data more efficiently. Inflows and outflows inform the
Commissions and FSOC of the relationship between flows and performance,
changes to net and gross asset value, as well as trends in the private
fund industry. Accordingly, this question will provide a more accurate
baseline understanding of inflows and outflows, so the Commissions and
FSOC can, for example, more accurately assess how much the private fund
industry has grown from flows versus performance. Inflows and outflows
also can indicate funding fragility, which can have systemic risk
implications. Therefore, this amendment will provide more accurate data
of inflows and outflows for systemic risk assessment and investor
protection efforts, including identifying activity that may not match
investor disclosures.
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\153\ See Question 14.
\154\ Form PF, as amended, cites to Form ADV, Part 1A
Instruction 6.e.(3).
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One commenter stated that recent global events have demonstrated
the importance of FSOC's assessment of the potential systemic risks
created by inflows into private investment markets.\155\ Another
commenter stated that reporting inflows and outflows on a monthly basis
would create additional burdens with limited benefits for systemic risk
monitoring purposes and recommended an annual reporting
requirement.\156\ However, based on our experience, receiving fund
activity data on a monthly basis for large hedge fund advisers is
important for systemic risk analysis and investor protection efforts.
Currently, large hedge fund advisers file quarterly but only report
changes in inflows or outflows on an annual basis, which causes this
data to be stale and less effective than more frequently reported data
for monitoring systemic risk. We also currently cannot differentiate
between changes in value resulting from performance and changes in
value resulting from inflows and outflows. Inflow and outflow
information on a monthly basis will allow us to better understand the
meaning of interim changes in investment inflows and outflows that may
be relevant to systemic risk assessment. We also understand that
advisers generally maintain this information on a monthly basis for
internal recordkeeping purposes.
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\155\ Fact Coalition Comment Letter.
\156\ Schulte Comment Letter.
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Base currency. We are adopting, as proposed, amendments to require
all advisers to identify the base currency of all reporting funds,
rather than only requiring large hedge fund advisers to identify this
information for qualifying hedge funds.\157\ As discussed more fully in
section II.D below, Instruction 15 will continue to require all
advisers to convert monetary values reported on the form to U.S.
dollars for any reporting fund that uses a base currency other than
U.S. dollars.\158\ The Commissions and FSOC are able to currently
identify whether monetary value information has been converted from
another base currency and whether there may have been inconsistencies
in the converted information only with respect to qualifying hedge
funds reported by large hedge fund advisers in response to current
Question 31. Therefore, this change will allow the Commissions and FSOC
to interpret more accurately responses to questions regarding foreign
exchange exposures and the effect of changes in currency rates on all
reporting fund portfolios, which will aid systemic risk assessment and
investor protection efforts across all reporting fund portfolios.
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\157\ To implement this, current Question 31 has been
redesignated as Question 17 and has been moved from existing section
2b, which required only large hedge fund advisers to report
information about qualifying hedge funds, to section 1b, which
requires all advisers to report information about all the reporting
funds they advise. See Question 17.
\158\ See Instruction 15. We are revising, as proposed,
Instruction 15 to provide additional instructions concerning
currency conversions. See section II.D (Amendments to Enhance Data
Quality) of this Release.
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Although we received comments regarding the proposed amendment to
require advisers to report using U.S.
[[Page 18000]]
dollars for any private fund that has a base currency other than U.S.
dollars,\159\ we did not receive comments to the proposed amendment to
require all advisers to report the reporting fund's base currency. We
continue to believe our adopted approach will allow for more accurate
responses to other questions on Form PF regarding currency exposures
and improve data comparability to aid systemic risk assessment and our
investor protection efforts.\160\
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\159\ See infra section II.D of this Release.
\160\ As discussed more fully below in section II.C.2.a, we are
also adopting amendments to require currency exposure reporting for
qualifying hedge fund advisers.
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Borrowings and types of creditors. We are adopting, largely as
proposed, amendments to revise how advisers report the reporting fund's
``borrowings.'' First, we are revising the term ``borrowings'' to (1)
specify that it includes ``synthetic long positions,'' which is defined
in the Glossary of Terms, and (2) provide a non-exhaustive list of
types of borrowings.\161\ This reporting approach is consistent with
SEC staff Form PF Frequently Asked Questions.\162\ This amendment is
designed to improve data quality, based on our experience with the
form.
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\161\ ``Borrowings'' include, but are not limited to (1) cash
and cash equivalents received with an obligation to repay; (2)
securities lending transactions (count cash and cash equivalents and
securities received by the reporting fund in the transaction,
including securities borrowed by the reporting fund for short
sales); (3) repo or reverse repo (count cash and cash equivalents
and securities received by the reporting fund); (4) negative mark-
to-market of derivative transactions from the reporting fund's point
of view; and (5) the gross notional value of ``synthetic long
positions.'' The term ``synthetic long position'' is defined in the
Form PF Glossary of Terms. We are adopting, with modifications from
the proposal, the definition of ``synthetic long position'' based on
our understanding of the instruments and to help ensure data quality
to aid comparability.
\162\ See SEC staff Form PF Frequently Asked Questions,
available at https://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml (``Form PF Frequently Asked Questions''). See Form PF
Frequently Asked Question 12.1 (which provides a non-exhaustive list
of types of borrowings).
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Some commenters stated that it is not clear how an adviser should
report cross-collateralized agreements.\163\ A modification to the
instructions to address this comment is not warranted. The instructions
to Questions 26 and 41,\164\ as applicable, specify how margin for
these arrangements should be reported. For example, the instructions to
these questions indicate that the adviser is to classify borrowing and
collateral received and lending and posted collateral according to type
and the governing legal agreement, such as a prime brokerage or other
brokerage agreement, for cash margin and securities lending and
borrowing. Additionally, the instructions for each of these questions
allow respondents to indicate whether cross margining is in effect and
indicate how to treat the collateral in such cases. One commenter
stated that the Commissions should establish a threshold for when a
position is considered ``deep-in-the-money'' and recommended including
a definition for ``deep-in-the-money'' positions in the definitions of
``synthetic long position'' and ``synthetic short position.'' \165\ In
consideration of this comment and in order to improve data quality, we
are revising the definitions of the ``synthetic long position'' and the
``synthetic short position'' to more clearly specify, as an example,
that a position with a delta of 98% or higher is considered to be
``deep-in-the-money.'' \166\ Based on our experience, we believe that a
delta of 98% or higher is typically the most appropriate threshold for
both long and short expiry option exposures for reporting purposes and
will furthermore be generally consistent with advisers' expectations
and accommodate their internal practices, where many advisers already
use a lower threshold. Although other thresholds could potentially be
used, a delta of 98% or higher will generally provide us with more
reliable and accurate information for systemic risk assessment
purposes. If set lower than this level, the threshold could trigger
inappropriately due to the impact of the delta's rate of change (i.e.,
its gamma) and capture options that should not constitute synthetic
short or long positions, such as options with little time left to
expiry that may be close to their strike level. If set higher (e.g., to
99%), the threshold could miss longer-dated options that should
constitute synthetic short positions, but where the lengthy time to
expiry allows the possibility that the options will go unexercised,
such that the threshold will not be met, and the options will
inappropriately be not included.
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\163\ See AIMA/ACC Comment Letter; USCC Comment Letter.
\164\ For hedge funds, other than qualifying hedge funds,
advisers complete Question 26. For qualifying hedge funds, advisers
complete Question 41.
\165\ MFA Comment Letter II.
\166\ See Form PF Glossary of Terms (definitions of ``synthetic
long position'' and ``synthetic short position'').
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Second, we are adopting amendments to Question 18, which requires
advisers to report the value of the reporting fund's borrowings and the
types of creditors, to require 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 is
currently required.\167\ This amendment will make the categories more
consistent with the categories that the FRB uses in its reports and
analysis, which will enhance systemic risk assessment. Advisers are not
required to distinguish between non-U.S. creditors that are depository
institutions and those that are not. We understand that it is difficult
for advisers to distinguish non-U.S. creditors by type, which can
result in inconsistent data that is less valuable for analysis. We did
not receive specific comment on this amendment.
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\167\ See Question 18. Form PF defines ``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. See Form PF Glossary of Terms.
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Fair value hierarchy. We are adopting, largely as proposed, a
number of amendments to revise how advisers report fair value hierarchy
in Question 20, to improve data quality and better understand the
reporting fund's complexity and valuation challenges.\168\
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\168\ We have redesignated current Question 14 to Question 20.
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First, we are adopting amendments that require advisers to indicate
the date on which the categorization was performed. This amendment is
designed to show how old the data is. Some advisers report current fair
value hierarchy, while others report a prior year's fair value
hierarchy if the current data is not yet available.\169\ This can
[[Page 18001]]
cause confusion when analyzing the data, because the fair value
hierarchy data concerns a different time period than the other data
advisers report on Form PF. Therefore, we believe that adding a
categorization date will help prevent the data from being incorrectly
categorized as applying to the wrong time period, and in turn, will
allow the Commissions and FSOC to correlate data to other Form PF data
and market events more accurately. We did not receive specific comment
on this amendment.
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\169\ Advisers are not 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 their recordkeeping, risk management, or investor reporting (such
as estimates that are refined after completion of a subsequent
audit). See Instruction 16.
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Second, we are adopting amendments to direct advisers to report the
absolute value of all liabilities. Currently, advisers report
liabilities inconsistently, with some reporting absolute values and
others reporting negative values. This inconsistency causes errors when
the Commissions and FSOC aggregate this data, and the amended
instruction will help reduce aggregation errors. We did not receive
specific comment on this amendment.
Third, we are adopting amendments to direct advisers to provide an
explanation in Question 4 if they report assets as a negative value. We
have found that some advisers have reported negative values for assets
in error.\170\ Therefore, this instruction is designed to reduce
inadvertent errors. We did not receive specific comment on this
amendment.
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\170\ We recognize that there may be cases when advisers
correctly report negative values, such as when subtracting fund of
fund investments.
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Fourth, we are adopting amendments to require advisers to
separately report cash and cash equivalents. Currently, Form PF does
not explain where advisers must report cash and cash equivalents in
current Question 14. SEC staff have recommended that advisers generally
should report cash in the cost based column and cash equivalents in the
applicable column in the fair value hierarchy or the cost based column,
depending on the nature of the cash equivalents, but now we are adding
a separate column for cash and cash equivalents.\171\ The amended
categorization is designed to differentiate reported holdings of cash
and cash equivalents from harder-to-value assets that may be valued at
cost, and in turn, improve data quality and comparability. We did not
receive specific comment on this amendment.
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\171\ See Form PF Frequently Asked Question 14.3, Form PF
Frequently Asked Questions, supra footnote 162.
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Fifth, we are adopting amendments to the definition of ``cash and
cash equivalents.'' The current definition of ``cash and cash
equivalents'' includes ``government securities.'' \172\ When reporting
cash and cash equivalents, some advisers may include government
securities with longer maturities, while others do not, which results
in inconsistent reporting and may obscure our and FSOC's understanding
of fund exposures. Therefore, to improve data quality, we are removing
government securities from the definition of ``cash and cash
equivalents'' and presenting government securities as its own line item
in the Form PF Glossary of Terms.\173\ Some commenters opposed the
proposed removal of government securities from the definition of ``cash
and cash equivalents,'' stating that the revised definition is
inconsistent with market practice and internal fund practices, which
generally treat government securities as cash equivalents.\174\ One
commenter recommended that the definition of ``cash and cash
equivalents'' should include U.S. treasury securities with maturity of
90 days or less to the extent that the adviser treats these as cash
equivalents.\175\ We continue to believe that the removal of all
government securities from the definition of ``cash and cash
equivalents'' and requiring reporting of government securities holdings
separately will improve data quality and our and FSOC's understanding
of fund holdings. The amended definition is intended to provide more
granular detail on a fund's exposure and is not intended to change any
commercial understanding or accounting treatment of cash equivalents or
result in any fund investment changes. It is appropriate to require
advisers to list all government securities, including U.S. treasury
securities with maturity of 90 days or less, under a separate category
because they represent a different asset type and market that are
relevant for purposes of assessing systemic risk.
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\172\ Form PF defines ``government securities'' as (1) U.S.
Treasury securities, (2) agency securities, and (3) any certificate
of deposit for any of the foregoing. See Form PF Glossary of Terms.
\173\ We are adopting corresponding amendments to the definition
of ``unencumbered cash'' to reflect that ``government securities''
are a distinct term from ``cash and cash equivalents.'' This
amendment does not change the meaning of the term ``unencumbered
cash.'' See Form PF Glossary of Terms.
\174\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
\175\ MFA Comment Letter II.
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Further, we are adopting, as proposed, an amendment to the term
``cash and cash equivalents'' that directs advisers to exclude digital
assets when reporting cash and cash equivalents.\176\ One commenter
recommended that the Commissions clarify how to report an asset that
may be reasonably included in multiple categories and stated that,
digital assets, as proposed to be defined, may overlap with multiple
reporting categories.\177\ This amendment to the ``cash and cash
equivalent'' definition will facilitate appropriate classifications.
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\176\ As discussed further in section II.B.3 of this Release, in
a modification from the proposal, we are not adopting the proposed
definition of ``digital asset.''
\177\ MFA Comment Letter II.
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We are adopting amendments to add instructions directing advisers
about how to report data if their financial statement's audit is not
yet completed when Form PF is due. The instructions state that advisers
should use the estimated values for the fiscal year and explain that
the information is an estimate in Question 4. The instructions also
provide that the adviser may, but is not required to, amend Form PF
when the audited financial statements are complete.\178\ The
instructions are consistent with responses to Form PF Frequently Asked
Questions and are designed to provide the Commissions and FSOC with
more recent information regarding the reporting fund than may be
possible if the reporting fund relied solely on audited financial
statement information (i.e., the reporting fund's previous fiscal
year's audited financial statements).\179\ Given that advisers file
Form PF sometimes months after their quarter and year ends, depending
on their size and the type of funds they advise, the amended
instruction balances reporting burdens with the need for more timely
information for assessing potential systemic risk and investor
protection concerns. We did not receive specific comment on this
amendment.
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\178\ Instruction 16 continues to provide that an adviser is not
required to update information that it believes in good faith
properly responds to Form PF on the date of filing, even if that
information is subsequently revised.
\179\ See Form PF Frequently Asked Question A.11, Form PF
Frequently Asked Questions, supra footnote 162.
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Beneficial Ownership of the Reporting Fund. Form PF currently
requires advisers to specify the approximate percentage of the
reporting fund's equity that is beneficially owned by different groups
of investors. We are redesignating current Question 16 as Question 22
and amending the question, as proposed, to require advisers to provide
more granular information regarding the following groups of beneficial
owners.
[[Page 18002]]
Advisers will be required to indicate whether beneficial
owners that are broker-dealers, insurance companies, non-profits,
pension plans, banking or thrift institutions are U.S. persons or non-
U.S. persons.\180\ This amendment will allow the Commissions and FSOC
to conduct more targeted analysis about risks presented in the United
States separate from risks presented abroad. With regard to pension
plans, in particular, it is currently unclear whether advisers must
report assets in non-U.S. pension plans as governmental pension plans
or foreign official institutions. Therefore, this amendment also is
designed to improve data quality, based on our experience with the
form.
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\180\ We understand that, in some cases, an adviser may not be
able to determine what type of non-U.S. entity the investor is.
Current Question 16 provides a category that addressed that scenario
in certain circumstances, and we are maintaining this approach. If
investors that are not United States persons and about which certain
beneficial ownership information is not known and cannot reasonably
be obtained because the beneficial interest is held through a chain
involving one or more third-party intermediaries, advisers currently
report this in current Question 16(m), which we redesignated as
Question 22(s).
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Advisers will be required to indicate whether beneficial
owners that are private funds are either internal private funds (i.e.,
managed by the adviser or its related persons) or external private
funds. This amendment is designed to help the Commissions and FSOC
understand the interconnectedness of private funds to each other, which
will aid systemic risk assessment and investor protection efforts.
Furthermore, this information will help the Commissions and FSOC
understand a reporting fund's risk from investor demands for liquidity,
because beneficial owners that are external private funds may have less
predictable withdrawals than internal private funds.
We are specifying that ``state'' investors are U.S. state
investors to improve data quality and reduce potential confusion.\181\
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\181\ As proposed, we are also including instructions to
Question 22, as well as Question 21, which is current Question 15
(concerning a certain percentage of beneficial ownership), providing
that if the reporting fund is the master fund in a master-feeder
arrangement, advisers must look through any disregarded feeder fund
(i.e., a feeder fund that is not required to be separately
reported). This amendment is designed to implement the adopted
master-feeder reporting requirements. See section II.A.1 (Reporting
Master-Feeder Arrangements and Parallel Fund Structures) of this
Release.
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The amendments provide that if advisers report information in the
``other'' category, they must describe in Question 4 the type of
investor, why it would not qualify for any of the other categories, and
any other information to explain the selection of ``other.'' This
amendment is designed to improve data quality by providing context to
the adviser's selection of the ``other'' category and help ensure that
advisers do not inadvertently report information in the wrong category.
One commenter stated that more granular reporting on beneficial
ownership would support FSOC's analysis of potential sources of
systemic risk.\182\ This commenter supported requiring additional
disclosure of beneficial ownership and recommended requiring additional
disclosures of any politically exposed persons and, for each private
fund, the percentage of fund investors and fund equity that originated
from certain countries. Another commenter recommended allowing advisers
to report beneficial ownership on good faith estimates based on the
data that they have from investors and stated that the Commissions had
not provided a reasonable justification for requiring the proposed,
more granular information.\183\ We understand from this commenter that
advisers may not have information for all beneficial owners of a
reporting fund by country and that it may be burdensome to obtain this
information.
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\182\ Fact Coalition Comment Letter.
\183\ MFA Comment Letter II.
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Country-level information on a fund's beneficial owners is not
required to be reported on Form ADV. As proposed, we are thus not
requiring reporting of this information on Form PF. We continue to
believe that requiring reporting on percentage of the reporting fund's
beneficial ownership that is held by U.S. and non-U.S. persons will
improve data quality, based on our experience with the form, and will
allow for more effective systemic risk analysis. For example, this
information will increase the usefulness of the FRB's Financial
Accounts, a tool that is used for evaluating trends in and risks to the
U.S. financial system.\184\ If an adviser is unable to determine the
required beneficial ownership data, the amendments specify that an
adviser may provide additional explanatory information in its response
to Question 4.
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\184\ See Financial Accounts of the United States, available at
https://www.federalreserve.gov/releases/z1/.
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Fund Performance. We are adopting several amendments, with
modifications, regarding fund performance reporting in current Question
17, which we have redesignated as Question 23.\185\ We are adopting, as
proposed, amendments to require all advisers to provide gross and net
fund performance as reported to current and prospective investors,
counterparties, or otherwise for specified fiscal periods using the
table in redesignated Question 23 with added instructions specifying
which lines to complete depending on whether the adviser is submitting
an initial filing, annual update, or quarterly update.\186\ These
amendments will improve data quality by specifying which fields an
adviser should use to report fund performance for the specified filing
period.
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\185\ In a separate release, the SEC adopted a new rule under
the Advisers Act to require advisers to provide certain fund
performance information to its private funds' investors in quarterly
statements. See Private Fund Advisers; Documentation of Registered
Investment Adviser Compliance Reviews, Advisers Act Release No. IA-
6383 (Aug. 23, 2023) [88 FR 63206 (Sept. 14, 2023)] (``SEC Private
Fund Advisers Adopting Release'').
\186\ As proposed, we also are reorganizing the table so
monthly, quarterly, and yearly data is presented in separate
categories, but this change will not affect reporting frequency;
advisers will continue to report information according to the same
intervals. We are also amending the table to refer to the end date
of each applicable month, quarter, and year, rather than last day of
the fiscal period, to reflect the amendments to the reporting
period, as discussed above. See supra section II.A.3 (Reporting
Timelines) of this Release, and Question 23(a).
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As discussed further below, the amendments will require an adviser
to report its performance as a money-weighted internal rate of return
(instead of a time-weighted return), if the reporting fund's
performance is reported to investors, counterparties or otherwise as an
internal rate of return since inception. This results from a
modification from the proposal in which we added an instruction to
proposed Question 23 to specify that the reporting fund may report
performance as either a time-weighted return or an internal rate of
return, but the methodology used for reporting performance should be
consistent over time.
In an additional modification from the proposal that is similarly
intended to promote data quality through reporting comparability, we
are amending the instructions to the table to specify that gross and
net performance should be reported using the reporting fund's base
currency. This instruction is implicit in the current form, which
requires that performance data be provided as reported to investors or
as calculated for other purposes, and we are amending the instruction
to make it explicit. Accordingly, pursuant to this modification to the
proposed instructions, for example, if a reporting fund uses Japanese
yen as its base currency, the fund should report its performance using
its base currency,
[[Page 18003]]
which is Japanese yen. We also are adopting, as proposed, amendments to
require advisers to identify the currency in Question 4.\187\ This
amendment is designed to inform the Commissions and FSOC of the
currency the adviser used to report the reporting fund's gross and net
performance, for more accurate and informed analysis.
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\187\ See Question 23(a).
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One commenter stated the proposed requirement does not specify
whether net performance should be net of all fund fees and expenses or
net of only management fees, incentive fees and allocations, which are
referenced in the column header for net performance in Question 23(a);
and that it is relatedly unclear whether gross performance should
reflect the deduction of all other fund fees and expenses.\188\ This
commenter suggested that such a result would be inconsistent with the
treatment of gross performance in the SEC investment adviser marketing
and the private fund adviser rules, which do not require that gross
performance reflect the deduction of any fees or expenses. This
commenter also stated that the Global Investment Performance Standards
require that gross returns reflect the deduction of only transaction
costs and that the deduction of any additional fees and expenses is
optional. For purposes of Form PF, advisers must provide the net
performance and gross performance information that they provide to
investors, counterparties, or otherwise (or the most representative set
of performance information if the adviser reports different fund
performance results to different groups, with an explanation of its
selection to be provided in Question 4). Consistent with the reference
to management fees, incentive fees, and allocations in the column
header for net performance in Question 23(a), net performance should
always reflect the deduction of adviser compensation. In addition, Form
PF provides confidential reporting to the Commissions, rather than
reporting of performance information to current investors. Given these
different purposes and audiences for the information, it is not
necessary for us to further specify how to calculate gross performance
or net performance for purposes of Form PF. These amendments are
designed to allow the Commissions and FSOC to compare performance
volatility to identify market trends for systemic risk analysis and
investor protection efforts.
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\188\ Comment Letter of CFA Institute (Oct. 11, 2022) (``CFA
Institute Comment Letter'').
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We are also adopting, as proposed, amendments to create an
alternative to the gross and net performance tabular reporting. If the
reporting fund's performance is reported to current and prospective
investors, counterparties, or otherwise as an internal rate of return
since inception, the adviser will be required to report its performance
as an internal rate of return.\189\ If such information is reported to
current and prospective investors, counterparties, or otherwise, in a
currency other than U.S. dollars, advisers will be required to report
the data using that currency, and identify the currency in Question
4.\190\ This approach is designed to acknowledge that advisers
calculate performance data differently for different types of private
funds. For example, advisers of private equity funds may use a money-
weighted rate of return, such as an internal rate of return, to
calculate performance data, while advisers to liquidity funds and hedge
funds may use a time-weighted rate of return. These calculations may
differ in the way they reflect the impact of the timing of external
cash flows, among other things. Therefore, the adopted change will
allow the Commissions and FSOC to improve the usefulness and quality of
performance data to conduct more accurate analysis, including
comparisons, and aggregations.
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\189\ See instructions to Question 23 and Question 23(b).
Question 23(b) also requires that if the fund reports different
performance results to different groups, advisers must provide the
most representative results and explain their selection in Question
4. The instructions to Question 23(b) specify that internal rates of
return for periods longer than one year must be annualized, while
internal rates of return for periods one year or less must not be
annualized. This instruction is designed to help ensure consistent
reporting for accurate comparisons.
\190\ See supra in this section II.A.2 of the Release for
further discussion of this amendment.
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One commenter noted that proposed Questions 23(a) (gross and net
performance) and 23(b) (internal rate of return) may be mutually
exclusive for some reporting funds.\191\ This commenter recommended
allowing either Question 23(a) or Question 23(b) to be left blank, as
appropriate. We do not believe such a specification is necessary
because the instructions provide that an adviser should respond to
either Question 23(a) or 23(b), as applicable, and it is generally
understood that an adviser may leave blank any inapplicable question.
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\191\ AIMA/ACC Comment Letter.
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The instructions to Question 23 provide that an adviser may report
the reporting fund's performance either as a time-weighted return or a
money-weighted return, such as an internal rate of return.\192\ We are
adopting defined terms for ``rate of return'' and ``internal rate of
return'' in the Form PF Glossary of Terms. In a modification from the
proposal, ``rate of return'' is generally defined as the percentage
change in the reporting fund's net asset value (or, when a net asset
value is not available, in the reporting fund aggregate calculated
value) in the reporting fund's base currency from one date to another
and adjusted for subscriptions and redemptions.\193\ Further, in a
modification from the proposal, the rate of return for a portfolio
position is defined as the percentage change in the position calculated
value, adjusted for income earned and for changes in the quantity held
resulting from activity, such as purchases, sales, or splits.\194\ As
proposed, ``internal rate of return'' is defined as the discount rate
that causes the net present value of all cash flows throughout the life
of the fund to be equal to zero. One commenter supported the proposed
``internal rate of return'' definition and recommended clarifying how
the terms reporting fund aggregate calculated value and currency, which
are referenced in the ``rate of return'' definition, apply to the
``internal rate of return'' definition.\195\ ``Internal rate of
return'' and ``rate of return'' are distinct defined terms in the Form
PF Glossary of Terms, and reporting fund aggregate calculated value and
currency are not referenced in and do not apply to the definition of
``internal rate of return.'' \196\ Further, reporting fund aggregate
calculated value is only used when a net asset
[[Page 18004]]
value is not available for calculation of a rate of return. In a
modification from the proposal, we are adding an instruction to
Questions 23(a) and 23(b) to specify that the reporting fund's
performance should not be calculated using a reporting fund aggregate
calculated value because this question is intended to report
performance, as reported to investors. One commenter recommended
requiring funds to consistently report the same type of returns over
time and not switch between a rate of return calculation, which is time
weighted, and an internal rate of return, which is money weighted.\197\
We agree with this commenter and believe that consistent reporting of
returns is important for data comparability. Therefore, in a change
from the proposal, Question 23 includes an instruction that the
methodology used to report performance should remain consistent over
time. One commenter stated the proposed definition does not specify
whether to include the impact of subscription facilities \198\ in the
internal rate of return calculation and requested that we specify
whether returns should be reported with or without the impact of any
subscription facilities.\199\ In a change from the proposal, we are
requiring advisers in responding to Question 23 to indicate whether the
reported internal rate of return includes or does not include the
impact of subscription facilities to allow for improved data
comparability. It is necessary for an adviser to specify whether the
reported rate of return includes or excludes the impact of subscription
facilities to be able to accurately compare data between reporting
periods. For example, an adviser that reports an internal rate of
return with the impact of fund-level subscription facilities in one
reporting period but reported without the impact of subscription
facilities in a prior period could report artificially increased
performance metrics.
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\192\ See Question 23. The instructions provide that the
methodology used for reporting performance (i.e., as a time-weighted
return or money-weighted return, such as an internal rate of return)
should be consistent over time.
\193\ The proposed definition of ``rate of return'' was
generally the percentage change in the reporting fund aggregate
market value in the reporting fund's base currency from one date to
another and adjusted for subscriptions and redemptions. The modified
definition we are adopting includes reference to a change in the
fund's net asset value and modifies the reference to reporting fund
aggregate market value to use the defined term in Form PF, reporting
fund aggregate calculated value.
\194\ The proposed definition generally was that the rate of
return for a portfolio position is the percentage change in the
position market value, adjusted for income earned. One commenter
recommended that we modify this definition stating that a position
return cannot be calculated by considering only changes in a
portfolio's position value adjusted for income and should also
consider changes in quantity resulting from transactions. See CFA
Institute Comment Letter. After considering comments, we have
changed the reference to ``position market value'' in the adopted
definition to refer instead to the defined term in Form PF,
``position calculated value,'' and we have added reference to
adjustments for changes in quantity resulting from activity such as
purchases, sales, or splits.
\195\ See CFA Institute Comment Letter.
\196\ See Form PF Glossary of Terms (definitions of ``internal
rate of return'' and ``rate of return'').
\197\ See CFA Institute Comment Letter.
\198\ Subscription facilities (or subscription lines) generally
refer to credit lines that are guaranteed by committed but uncalled
capital.
\199\ See CFA Institute Comment Letter.
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We are also adopting amendments, as proposed except as indicated
below, that require advisers to report additional performance-related
information if the adviser calculates a market value on a daily basis
for any position in the reporting fund's portfolio. In such a case, the
adviser will be required to report several items. First, it would
report the ``reporting fund aggregate calculated value'' at the end of
the reporting period.\200\ Advisers that file a quarterly update also
will report the reporting fund aggregate calculated value as of the end
of the first and second month of the reporting period.\201\ Second, the
adviser will report the reporting fund's volatility of the natural log
of the daily ``rate of return'' for each month of the reporting period,
following a prescribed methodology.\202\ Advisers will be required to
report whether the reporting fund uses a different methodology than is
prescribed in Form PF to report to current and prospective investors,
counterparties, or otherwise, and if so, describe it in Question
4.\203\ One commenter recommended requiring volatility measurements
over longer periods, such as quarterly or annually, stating that
requiring daily measurements would result in a smaller population size
and less meaningful information.\204\ We believe receiving reporting on
the volatility of daily returns on a monthly basis is important because
significant volatility swings that occur over a short timeframe may not
be discernible from quarterly or annual data but can pose systemic
risk. Further, receiving higher frequency volatility data will give
more context to a fund's reported monthly returns and will allow us to
assess risk-adjusted returns. We understand that it is common practice
for advisers to annualize volatility calculations and compare across
different time intervals.\205\
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\200\ The amendments to Form PF adopted in the May 2023 SEC Form
PF Amending Release, supra footnote 4, added a definition for
``reporting fund aggregate calculated value.'' See Form PF Glossary
of Terms. See also Question 23(c). We have modified the reference in
the proposed Question to ``reporting fund aggregate market value''
to the defined term in Form PF, the reporting fund aggregate
calculated value.
\201\ See Question 23(c)(i).
\202\ See discussion of definitions of ``rate of return'' and
``position market value,'' supra footnotes 193 and 194. The
prescribed methodology is the standard deviation of the natural log
of one plus each of the daily rates of return in the month,
annualized by the square root of 252 trading days. When calculating
the natural log of a daily rate of return, the rate of return, which
is expressed as a percent, must first be converted to a decimal
value and then one must be added to the decimal value. See Form PF
Glossary of Terms and Question 23(c)(ii). Although the reference to
``of one plus each'' was in the proposing release, it was
inadvertently left out of the proposed form. We are revising the
form to include this language. To reduce potential confusion, we are
also specifying in the instruction to this question that, when
calculating the natural log of a daily rate-of-return, the rate of
return, which is expressed as a percent, must first be converted to
a decimal value and then one must be added to the decimal value.
\203\ See Question 23(c)(iii).
\204\ CFA Institute Comment Letter.
\205\ We have also modified the table in Question 23(c)(ii) to
refer to ``annualized'' volatility of returns, rather than monthly,
as proposed, to correspond with the instructions which require the
adviser to report the volatility data for each month of the
reporting period, on an annualized basis.
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Third, the adviser must report whether the reporting fund had one
or more days with a negative daily rate of return during the reporting
period. If so, advisers will be required to report (1) the most recent
peak to trough drawdown, and indicate whether the drawdown was
continuing on the data reporting date, (2) the largest peak to trough
drawdown, (3) the largest single day drawdown, and (4) the number of
days with a negative daily rate of return in the reporting period.\206\
These measures are designed to help us and FSOC understand risk,
particularly in reporting funds with unique return patterns that are
poorly measured using volatility alone. We understand that advisers use
drawdown metrics, therefore, this question also is designed to be more
reflective of industry practice, and in turn improve data quality.
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\206\ See Question 23(c)(iv).
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Advisers are required to report these figures as an amount in the
fund's base currency and, in a modification from the proposal, as a
percentage in the fund's base currency. One commenter recommended
changing amount in base currency to percent in base currency.\207\ We
agree with requiring reporting of percent in base currency to improve
data comparability, and we do not believe requiring percent in addition
to amount is incrementally more burdensome to report because the
adviser can leverage existing reporting of the amount in base currency
and NAV to provide this metric. Requiring an adviser to also report the
percent in base currency will improve data comparability because it
will provide consistency across data reported by the adviser, rather
than potentially using a different exchange rate than the adviser used.
This commenter also recommended providing definitions and examples of
how to calculate the most recent and largest peak-to-trough drawdown
and provided a recommended definition. We do not believe it is
necessary to specify a particular methodology to calculate these
metrics, which we understand advisers commonly calculate for their
funds. Together, the adopted changes are designed to allow the
Commissions and FSOC to compare volatility more accurately across
different fund types to identify market trends (e.g., volatility of a
specific fund type), for systemic risk assessment and investor
protection efforts. For example, if several reporting
[[Page 18005]]
funds that engage in similar trading activity experience a surge in
volatility, the volatility itself or the reporting funds' response to
the volatility may impact others who also are engaging in similar
trading activity, which could pose systemic risk, and negatively affect
investors.
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\207\ CFA Institute Comment Letter.
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3. Amendments to Section 1c of Form PF--Concerning All Hedge Funds
Section 1c requires advisers to report information about the hedge
funds they advise. We are adopting, as proposed except as specified
below, amendments to require advisers to report additional information
about hedge funds to provide greater insight into hedge funds'
operations and strategies, assist in identifying trends, and improve
data quality and data comparability for purposes of systemic risk
assessments and to further investor protection efforts. We are also
removing certain questions where other questions provide the same or
more useful data to streamline reporting and reduce reporting burdens
without compromising investor protection efforts and systemic risk
analysis.
Investment Strategies. We are adopting, as proposed except as
specified below, amendments to how advisers report hedge fund
investment strategies.\208\ We are adopting, as proposed, amendments to
require advisers to indicate which investment strategies best describe
the reporting fund's strategies on the last day of the reporting
period, rather than allowing advisers flexibility to report information
as of the data reporting date or throughout the reporting period, as
Form PF currently provides.\209\ This amendment is designed to improve
data quality by specifying how to report information if the reporting
fund changes strategies over time. Relatedly, in a modification from
the proposal, we are also including an instruction that specifies the
methodology an adviser uses for selecting reporting strategies should
be consistent over time. This instruction is designed to improve data
quality and comparability by specifying that an investment strategy
should be categorized consistently from one reporting period to the
next. This instruction will also simplify the categorization process
for an adviser because it will require an adviser to only determine
once how to categorize an ongoing investment strategy.
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\208\ We are amending current Question 20 and redesignating it
as Question 25.
\209\ See current Question 20.
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We also are adopting, as proposed except as specified below,
amendments to update the strategy categories that advisers can select
to reflect our understanding of hedge fund strategies better and to
improve data quality and comparability, based on experience with the
form. For example, we are including more granular categories for equity
strategies, such as factor driven, statistical arbitrage, and emerging
markets. Similarly, we are including more granular categories for
credit strategies, such as litigation finance, emerging markets, and
asset-backed/structured products. These more granular categories are
designed to allow the Commissions and FSOC to conduct more targeted
analysis and improve comparability among advisers and hedge funds,
which the Commissions and FSOC can use to identify and address systemic
risk and investor protection issues in times of stress more accurately.
In a modification from the proposal, to facilitate completion of this
question and alleviate challenges filers face in choosing among a
limited list of investment strategy types, filers will be able to
choose from a ``drop-down'' menu that includes all investment strategy
categories for Form PF.\210\
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\210\ For purposes of this question, investment strategies
generally include equity (and associated sub-strategies such as
long/short market neutral, long only, long/short short bias, and
long/short long bias), macro (and associated sub-strategies such as
active trading, commodity, currency, and global macro), convertible
arbitrage, relative value (and associated strategies such as fixed
income asset backed, fixed income convertible arbitrage, fixed
income corporate, fixed income sovereign, fixed income arbitrage,
and volatility arbitrage), event driven (and associated sub-sub-
strategies such as distressed, distressed/restructuring, risk
arbitrage/merger arbitrage, equity special situations, and special
situations), credit (and associated sub-strategies such as asset
based lending, litigation finance, emerging markets, and asset
backed/structured products), managed futures/CTA (and associated
sub-strategies such as fundamental, quantitative), investment in
other funds, private credit (and associated sub-strategies such as
direct lending/mid-market lending, distressed debt, junior/
subordinate debt, mezzanine financing, senior debt, senior
subordinated debt, special situations, venture debt, and other),
private equity (and associated sub-strategies such as early stage,
expansion/late stage, buyout, distressed, growth, private investment
in private equity, secondaries, and turnaround), real estate, real
estate investment trusts, real assets excluding real estate, annuity
and life insurance policies, litigation finance, digital assets,
general partner stakes investing, cash and cash equivalents, and
other.
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We also are adding, as proposed, categories that have become more
commonly pursued by hedge funds since Form PF was adopted, such as
categories concerning real estate and digital assets.\211\ Currently,
advisers may report information regarding these strategies in the
``other'' category, resulting in less robust Form PF data for analysis,
especially when such analysis filters results based on strategy.\212\
The additional categories are designed to improve reporting quality and
data comparability across advisers, based on our experience with the
form. If an adviser selects the ``other'' category, the adviser will be
required to describe in Question 4 the investment strategy, why the
reporting fund would not qualify for any of the other categories, and
any other information to explain the selection of ``other.'' The
requirement to provide an explanation in Question 4 is designed to
improve data quality by providing additional context to the adviser's
selection of the ``other'' category and will improve our understanding
of the adviser's strategies, which may present systemic risk. It also
is designed to help us ensure that advisers are not misreporting
information in the ``other'' category when they should be reporting
information in a different category.
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\211\ For example, aggregate qualifying hedge fund gross
notional exposure to physical real estate has grown by 47% from the
second quarter 2021 through the first quarter 2023, to $191 billion.
See Private Funds Statistics, supra footnote 5.
\212\ The amount of hedge fund exposure that advisers attribute
to the ``other'' category has grown by 30% to $114 billion, from the
second quarter 2021 through the first quarter 2023. See Private
Funds Statistics, supra footnote 5.
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In addition to the investment strategy category additions described
above that we are adopting as proposed, in a modification from the
proposal, we are adopting certain additional strategy categories. We
are adopting certain additional strategy categories that are currently
included in the available categories in Question 66, which is
structured similarly to Question 25 and is used to collect information
about private equity fund investment strategies.\213\ To facilitate
completion of Question 25 and alleviate challenges filers may face in
choosing among a limited list of investment strategy types, in a
modification from the proposal, filers will be able to choose from a
drop-down menu that includes all investment strategy categories for
Form PF. The inclusion of these additional categories recognizes that
funds classified as hedge funds on Form PF may pursue
[[Page 18006]]
investment strategies more commonly associated with private equity
funds and vice versa. This change will allow advisers to categorize
their investment strategies more accurately and will improve data
quality by reducing the number of strategies that would otherwise be
categorized as ``other.'' For similar reasons, in a modification from
the proposal, we are also retaining certain investment strategy
categories that are included in the current Form PF, which we had
proposed to remove, to provide more granular information and maintain
existing data comparability.\214\ In addition, we are adopting strategy
categories for ``Equity Long/Short Market Neutral,'' ``Equity Long/
Short Long Bias,'' and ``Equity Long/Short Short Bias,'' and adding
separate categories for ``Equity Long Only'' and ``Credit Long/Short,''
as discussed further below.
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\213\ The additional strategy categories are private credit (and
associated sub-strategies such as direct lending/mid-market lending,
distressed debt, junior/subordinate debt, mezzanine financing,
senior debt, senior subordinated debt, special situations, venture
debt, and other), private equity (and associated sub-strategies such
as early stage, expansion/late stage, buyout, distressed, growth,
private investment in private equity, secondaries, and turnaround),
annuity and life insurance policies, litigation finance, and general
partner stakes investing. See also May 2023 SEC Form PF Amending
Release, supra footnote 4, at n. 216. Question 66 was added as a new
question in the amendments adopted in the May 2023 SEC Form PF
Amending Release.
\214\ We are retaining the existing investment strategies listed
in current Question 20 for the following categories: Macro, Active
Trading; Macro, Commodity; Macro, Currency; Relative Value, Fixed
Income Asset Backed; Relative Value, Fixed Income Convertible
Arbitrage; Relative Value, Fixed Income Sovereign; Event Driven,
Distressed/Restructuring; Event Driven, Equity Special Situations;
and Credit, Long/Short. See Question 25.
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One commenter opposed including more granular strategy categories
stating that some proposed categories are not clear and may require
advisers to make subjective decisions on how to report a fund's
strategy that could result in inconsistent reporting.\215\ This
commenter recommended that the strategy categories be revised to better
track industry conventions. The amended strategy categories conform
more closely to industry conventions than the current categories and
will allow advisers to categorize their strategies more accurately. One
commenter opposed the increased granularity in strategy categories,
stating they could disclose a fund's proprietary investment information
and present data security concerns.\216\ The data reported on Form PF,
which is filed on a non-public basis, is neither sufficiently detailed
nor reported on such a frequent basis as to present risk of misuse or
enable reverse engineering of a particular fund's investment strategy.
One commenter recommended reverting the category for the ``Equity Long/
Short'' strategy from the proposed categories of ``Equity Long Bias''
and ``Equity Short Bias'' because of the burden and potential for
misreporting of long/short equity funds or portfolios. In a change from
the proposal, as recommended by this commenter, we are amending the
proposed categories for ``Equity Long Bias'' and ``Equity Short Bias''
and replacing with ``Equity Long/Short Market Neutral,'' ``Equity Long/
Short Long Bias,'' and ``Equity Long/Short Short Bias,'' and adding
separate categories for ``Equity Long Only'' and ``Credit Long/Short.''
We believe these additional categories better align the strategy
categories with industry conventions and addresses the concern with
appropriately reporting the strategy category for long/short equity
funds or portfolios.
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\215\ MFA Comment Letter II.
\216\ SIFMA Comment Letter.
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As proposed, digital assets will be included as a reportable
investment strategy.\217\ In a change from the proposal, however, we
are not adopting a defined term for ``digital assets'' in the Glossary
of Terms. Some commenters supported adding a defined term for digital
assets and emphasized the growing impact of digital assets on the
financial sector more broadly and the systemic risk that they may
pose.\218\ Other commenters stated that the proposed definition of
digital asset is too broad and may overlap with other existing
reporting categories.\219\ One commenter recommended excluding from the
digital asset definition references to any specific types of digital
assets because of the evolving terminology used in the sector.\220\
Another commenter recommended that the references to digital assets be
consistent across usages by the SEC.\221\ This commenter also
recommended adopting distinct defined terms for different types of
digital assets to differentiate between different asset categories that
may present different risks, such as differentiating between
established digital assets and newer digital assets. Another commenter
recommended distinguishing between so-called ``stablecoins'' and other
digital assets on the basis that stablecoins may be less volatile than
other digital assets.\222\
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\217\ As discussed further below in section II.C.2 of this
Release, we are also adopting amendments to Question 32 to add
digital assets as a reportable sub-asset class.
\218\ See, e.g., Better Markets Comment Letter; NASAA Comment
Letter.
\219\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
USCC Comment Letter.
\220\ Comment Letter of Rohan G. et al. (Dec. 8, 2022) (``Rohan
G. Comment Letter'').
\221\ NASAA Comment Letter.
\222\ AFREF Comment Letter I.
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The Commissions and staff are continuing to consider the issues
raised by these comments, and we are not adopting a definition as part
of this rule at this time. However, we agree with commenters stating
that certain strategies could be categorized as either a digital asset
strategy or another listed strategy, and so in those instances the
digital asset strategy is duplicative.\223\ Accordingly, we are
including an instruction to Question 25 to specify that, if a
particular strategy could be classified as both a digital asset
strategy and another strategy, an adviser should report the strategy as
the non-digital asset strategy. This is designed to reduce potential
confusion and improve data quality.
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\223\ For example, a crypto asset security is not a separate
type or category of security for purposes of Federal securities laws
based solely on the use of distributed ledger technology. See
Supplemental Information and Reopening of Comment Period for
Amendments Regarding the Definition of ``Exchange,'' 88 FR 29448,
29450 (May 5, 2023) (stating ``a crypto asset that is a security is
not a separate type or category of security (e.g., NMS stock,
corporate bond) for purposes of federal securities laws based solely
on the use of DLT.'').
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Counterparty exposures. Counterparty exposure informs the
Commissions and FSOC of the interconnectedness of hedge funds with the
broader financial services industry, which is a critical part of
systemic risk assessment and investor protection efforts. Understanding
counterparty exposures allows the Commissions and FSOC to assess who
may be impacted by a reporting fund's failure, and which reporting
funds may be impacted by a counterparty's failure. Counterparty
exposure concerning central clearing counterparties (``CCPs'') is of
importance to FSOC's systemic risk assessment efforts as evidenced by
the fact that FSOC has designated many CCP institutions as
``systemically important,'' and recommended that regulators continue to
coordinate to evaluate threats from both default and non-default losses
associated with CCPs.\224\
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\224\ Form PF defines ``CCP'' as central clearing counterparties
(or central clearing houses) (for example, CME Clearing, The
Depository Trust & Clearing Corporation, Fedwire and LCH Clearnet
Limited). See Financial Stability Oversight Council, 2012 Annual
Report, Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf (concerning the designations);
Financial Stability Oversight Council, 2021 Annual Report, p. 14,
available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf (concerning the recommendation).
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We are adopting, as proposed except as indicated below, amendments
to add Question 26 and revise current Questions 22 and 23, which have
been redesignated as Questions 27 and 28, to provide better insight
into hedge funds' borrowing and financing arrangements with
counterparties, including CCPs. Question 26 requires advisers to hedge
funds (other than qualifying hedge funds) to complete a new table
(``consolidated counterparty exposure table'') concerning exposures
that (1) the reporting fund has to creditors and
[[Page 18007]]
counterparties, and (2) creditors and other counterparties have to the
reporting fund.\225\ Advisers will be required to report the U.S.
dollar value of the reporting fund's ``borrowing and collateral
received (B/CR),'' as well as its ``lending and posted collateral (L/
PC),'' aggregated across all counterparties, including CCPs, as of the
end of the reporting period.\226\ The form explains what exposures to
net.\227\ Advisers will be required to classify information according
to type (e.g., unsecured borrowing, secured borrowing, derivatives
cleared by a CCP, and uncleared derivatives) and the governing legal
agreement (e.g., a prime brokerage or other brokerage agreement for
cash margin and securities lending and borrowing, a global master
repurchase agreement for repo/reverse repo, and International Swaps and
Derivatives Association (``ISDA'') master agreement for synthetic long
positions, ``synthetic short positions,'' and derivatives).\228\
Advisers will be required to report transactions under a master
securities loan agreement as secured borrowings. Advisers will be
required to check a box if one or more prime brokerage agreements
provide for cross-margining of derivatives and secured financing
transactions. If advisers check the box, the instructions specify how
to report secured financing and derivatives in the consolidated
counterparty exposure table.
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\225\ Qualifying hedge funds are not required to complete this
table because section 2, as revised, includes similar questions that
require additional detail. See discussion at section II.C of this
Release. Together the questions in section 1c and similar questions
at section 2 will allow the Commissions and FSOC to consolidate
information relating to hedge funds' and qualifying hedge funds'
arrangements with creditors and other counterparties, to support
systemic risk assessment and investor protection efforts. We are
defining the term ``consolidated counterparty exposure table'' in
the Form PF Glossary of Terms. For hedge funds other than qualifying
hedge funds, it means the section 1c table (at Question 26) that
collects the reporting fund's borrowing and collateral received and
lending and posted collateral aggregated across all creditors and
counterparties as of the end of the reporting period. For qualifying
hedge funds, it means the section 2 table (at Question 41) that
collects the reporting fund's borrowing and collateral received and
lending and posted collateral aggregated across all creditors and
counterparties as of the end of the reporting period.
\226\ We are defining ``borrowing and collateral received (B/
CR)'' and ``lending and posted collateral (L/PC)'' in the Form PF
Glossary of Terms. We are adopting these definitions based on our
understanding of borrowing and lending and to help ensure data
quality and comparability. We also are amending the term ``gross
notional value'' to provide more detail on how to report it to aid
advisers completing the consolidated counterparty exposure table.
See Form PF Glossary of Terms.
\227\ Advisers will net the reporting fund's exposure with each
counterparty and among affiliated entities of a counterparty to the
extent such exposures may be contractually or legally set-off or
netted across those entities or one affiliate guarantees or may
otherwise be obligated to satisfy the obligations of another under
the agreements governing the transactions. Instructions provide that
netting must be used to reflect net cash borrowed from or lent to a
counterparty but must not be used to offset securities borrowed and
lent against one another, when reporting prime brokerage and repo/
reverse repo transactions. These instructions are designed to help
ensure data quality and comparability. See Question 26.
\228\ We are adopting, as proposed, a definition of ``ISDA'' as
the International Swaps and Derivatives Association. We are also
adopting a definition of ``synthetic short positions'' in the Form
PF Glossary of Terms (see the Form PF Glossary of Terms). We are
adopting this definition based on our understanding of the
instruments and to help ensure data quality to aid comparability.
See supra footnote 161 (discussing the definition of ``synthetic
long position'').
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Some commenters opposed more granular disclosure of counterparty
exposures, stating that the information is burdensome to obtain and of
limited value.\229\ One commenter stated that reporting on exposures to
central clearing counterparties should be on an aggregate basis, rather
than on an individual basis, because of the cost to report and limited
value of the disaggregated data.\230\ We continue to believe that this
additional information is important to understanding counterparty risk
exposure, which is needed for systemic risk assessment because of the
potential contagion risks of any particular counterparty failure, and
that the value of this information justifies the associated burdens in
reporting.\231\ We believe that the associated burdens are justified
because detailed reporting of counterparty risk exposure will provide
the Commissions and FSOC with increased transparency into risk profiles
and the interconnectedness of hedge funds with the broader financial
services industry, which will improve our ability to assess systemic
risk and protect investors.
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\229\ See, e.g., AIMA/ACC Comment Letter.
\230\ MFA Comment Letter II.
\231\ See infra section IV.C of this Release for discussion of
costs and benefits.
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We are adopting, largely as proposed, several amendments to
Questions 26, 27 and 28, which require advisers to hedge funds to
provide information about the reporting fund's counterparty exposure,
as follows:
We are adopting, as proposed except as specifically
indicated below, amendments to Questions 27 and 28 to provide more
detailed instructions for advisers to use to identify the individual
counterparties. For both Questions 27 and 28, advisers are instructed
to use the calculations from the consolidated counterparty exposure
table to identify the counterparties.\232\ This amendment is designed
to help ensure that the Commissions' and FSOC's analysis can identify
true data differences, without the distraction of methodology
differences, which can suggest differences where there are none, and
reduce circumstances where advisers misidentify lending relationships.
In a modification from the proposal, we are adding an instruction to
specify the entity that has the reported exposure.\233\ This
modification will allow us to determine the relevant entity that bears
such exposure (e.g., a trading vehicle), which will improve our data
quality and our ability to monitor systemic risk.\234\ The amended
instructions provide that if the entity that has the exposure is not
the reporting fund, the filer must provide the legal name of the
relevant entity and LEI, if available.\235\ This instruction will allow
us to better understand the scope of the reporting fund's
exposure.\236\ We did not receive specific comment on these amendments
to the instructions. These amendments will improve data quality and
comparability and reduce adviser burden.
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\232\ See Question 26 for the consolidated counterparty exposure
table. We are also adopting, substantively as proposed, definitions
for the following terms related to the consolidated counterparty
exposure table: ``cash borrowing entries,'' ``cash lending
entries,'' ``collateral posted entries,'' and ``collateral received
entries.'' See Form PF Glossary of Terms.
\233\ See Question 27.
\234\ As discussed more fully above in section II.A.2, we are
adopting amendments to include specific questions relating to a
reporting fund's trading vehicle use and a trading vehicle's
position size and risk exposure, as opposed to requiring full
separate reporting on Form PF for trading vehicles. This
modification will allow us to understand which entity holds the
exposure.
\235\ See Question 27.
\236\ This modification is related to our modification from the
proposal to require aggregated reporting and focusing certain
questions on trading vehicles, rather than disaggregated reporting
as proposed, discussed above in section II.A.2. This modification to
the instructions will allow us to understand whether the reporting
fund or a trading vehicle holds the exposure.
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We are adopting, as proposed, amendments to add Question
27, which requires advisers to identify each creditor or other
counterparty (including CCPs) to which the reporting fund owes a
certain amount (before posted collateral) equal to or greater than
either (1) five percent of net asset value as of the data reporting
date or (2) $1 billion. If there are more than five such
counterparties, the adviser only will report the five counterparties to
which the reporting fund owes the largest dollar amount, before taking
into account collateral that the reporting fund posted. If there are
fewer than five such counterparties, the adviser only will report the
counterparties that meet the threshold. For example, if only three
[[Page 18008]]
counterparties meet the threshold, the adviser would report only three
counterparties. This is a change from current Question 22, which
required advisers to identify five counterparties to which the
reporting fund has the greatest mark-to-market net counterparty credit
exposure, regardless of the actual size of the exposure. The adopted
threshold is designed to highlight two different, significant,
potentially systemic risks: five percent of net asset value represents
an amount of borrowing by a reporting fund that, if repayment was
required, could be a significant loss of financing that could result in
a forced unwind and forced sales from the reporting fund's portfolio.
Additionally, the $1 billion represents an amount that, in the case of
a very large fund, may not represent five percent of its net assets,
but may be large enough to create stress for certain of its
counterparties. One commenter recommended that the additional reporting
on counterparties should be limited to a fund's three largest
counterparties to reduce the burden on advisers but provide the
Commissions with sufficiently detailed information on counterparty
exposure.\237\ We continue to believe that requiring reporting of the
five largest counterparties is appropriate and do not believe that
limiting the required reporting to a fund's three largest
counterparties would provide sufficient counterparty risk data for the
purposes discussed above. Furthermore, we do not believe that reporting
on a fund's five largest counterparties would be significantly more
burdensome than reporting on the three largest counterparties because
an adviser could leverage its systems for reporting on the three
largest counterparties to provide reporting on the five largest
counterparties.
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\237\ MFA Comment Letter II.
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In a modification from the proposal, advisers will also be
required to provide the legal name and the LEI, if any, of the entity
that has the exposure. This information will allow us to determine the
relevant entity that bears such exposure (e.g., a trading vehicle),
which will improve our data quality and our ability to monitor systemic
risk.\238\
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\238\ See also supra section II.A.2 of this Release for further
discussion of trading vehicle reporting.
---------------------------------------------------------------------------
In a modification from the proposal, the instructions to
Question 26 provide that an adviser is required to report the reporting
fund's counterparty exposure without netting any trading vehicle
exposures if the reporting fund does not guarantee and is not
contractually obligated to fulfill those counterparty obligations.\239\
The instructions will further provide that if the reporting fund
guarantees or is obligated to fulfill the trading vehicle's
counterparty obligations, then those obligations must be reported net
with the obligations of the reporting fund. These modified instructions
are intended to address the aggregated reporting of trading vehicles
and improve data quality by isolating only the reporting fund's
counterparty exposures. In a modification from the proposal, the
instructions also provide that any affiliated private fund should
exclude any exposures that have been reported in the reporting fund's
filing. This modified instruction is intended to reduce filing burdens
by eliminating duplicate reporting and to improve data quality.
---------------------------------------------------------------------------
\239\ See Question 26.
---------------------------------------------------------------------------
We are adopting, largely as proposed except as specified
below, amendments to add Question 28, which requires advisers to
provide information for counterparties to which the reporting fund has
net mark-to-market counterparty credit exposure which is equal to or
greater than either (1) five percent of the reporting fund's net asset
value as of the data reporting date or (2) $1 billion, after taking
into account collateral received or posted by the reporting fund. If
there are more than five such counterparties, the adviser would only
report the five to which the reporting fund has the greatest mark-to-
market exposure after taking into account collateral received. If there
are fewer than five such counterparties, the adviser only would report
the counterparties that meet the threshold. This is a change from
current Question 23, which required advisers to identify five
counterparties to which the reporting fund has the greatest mark-to-
market net counterparty credit exposure, regardless of the actual size
of the exposure. The threshold is designed to represent an amount of
lending from a reporting fund that, if a default occurred, could cause
a significant loss that could result in a forced unwind and forced
sales from the reporting fund's portfolio. Furthermore, we believe that
the five percent threshold level is large enough to constitute a shock
to a reporting fund's net asset value and is an often-used industry
metric. The $1 billion threshold represents an amount that, in the case
of a very large counterparty, may not represent five percent of its net
assets, but may be large enough to create stress for the reporting
fund. In a modification from the proposal, we are adding an instruction
to specify the entity that has the reported exposure.\240\ The amended
instructions provide that if the entity that has the exposure is not
the reporting fund, the filer must provide the legal name of the
relevant entity and LEI, if available. This instruction will allow us
to better understand the scope of the reporting fund's exposure. One
commenter recommended a threshold of 10 percent of a fund's net asset
value, rather than five percent, for all reporting related to
exposures, including counterparty exposure, on the basis that 10
percent of net asset value better represents a magnitude that could
have broader systemic effects and a five percent threshold would
produce data that is not meaningful for risk assessments.\241\ We
disagree and continue to believe that the impact on a fund's returns
resulting from a counterparty exposure of greater than five percent
could be significant enough to present systemic risk and contagion
risk. Currently, advisers report exposures that the reporting fund has
to counterparties as a percentage of the reporting fund's net asset
value, and advisers report exposures that counterparties have to the
reporting fund in U.S. dollars.\242\ We are adopting, as proposed, an
amendment that requires advisers to report both data sets in U.S.
dollars for consistency and comparability.\243\ We did not receive
specific comment on this amendment.
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\240\ See Question 28.
\241\ MFA Comment Letter II.
\242\ See current Questions 22 and 23.
\243\ See Questions 27 and 28.
---------------------------------------------------------------------------
We are adopting, as proposed, an amendment to require
advisers to report the amount of collateral posted, to help inform the
Commissions and FSOC of the potential impact of a reporting fund or
counterparty default. We did not receive specific comment on this
amendment.
We are adopting, as proposed, an amendment to require
advisers to report the counterparty's LEI, if it has one, to help
identify counterparties and more efficiently link data from other data
sources that use this identifier. We did not receive specific comment
on this amendment.
Advisers will continue to indicate if a counterparty is
affiliated with a major financial institution, as Form PF currently
provides.\244\ If the financial institution is not listed on Form PF,
advisers would continue to have the option of selecting ``other'' and
naming the entity in the chart, as Form PF currently provides. However,
we are adopting, as proposed, an amendment to require advisers to
describe the financial
[[Page 18009]]
institution in Question 4. This amendment is designed to help the
Commissions and FSOC efficiently and accurately identify the entity,
without having to contact advisers individually. We did not receive
specific comment on this amendment.
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\244\ See current Questions 22 and 23.
---------------------------------------------------------------------------
Together, the amendments are designed to allow the Commissions and
FSOC to identify and align sources of borrowing and lending to identify
significant counterparty exposures, so that different styles of
borrowing will not be obscured by methodology differences or
misidentified lending relationships, based on our experience with the
form.
Form PF continues to require advisers to report information about
individual counterparties that present the greatest exposure to and
from hedge funds.\245\ Under the amended Form PF, however, advisers to
qualifying hedge funds will not be required to complete Questions 27
and 28, if they complete certain similar questions in Form PF section
2, to avoid duplication.\246\
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\245\ See Questions 27 and 28.
\246\ See Questions 42 and 43 in Form PF section 2 and supra
footnote 225.
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Trading and clearing mechanisms. We are adopting, as proposed,
amendments to revise how advisers report information about trading and
clearing mechanisms.\247\ These types of data inform the Commissions
and FSOC of the extent of private fund activities that are conducted on
and away from regulated exchanges and clearing systems, which is
important to understanding systemic risk that could be transmitted
through counterparty exposures.\248\ We are adopting amendments to
require advisers to report (1) the value traded and (2) the value of
positions at the end of the reporting period, rather than requiring
advisers to report information as a percentage in terms of value and
trade volumes, as Form PF currently requires.\249\ This change is
designed to simplify reporting because advisers compute the value
before they convert it into a percentage; therefore, this change
eliminates an extra calculation for advisers. It also is designed to
provide the Commissions and FSOC with data that can be more efficiently
compared and aggregated among advisers and other data sources. With
data in dollar values, the Commissions and FSOC could more effectively
estimate the size, extent, and pace of each hedge fund's participation
in activity on or away from regulated exchanges and clearing systems in
relation to total values. Understanding the size of hedge fund
participation in activity on and away from regulated exchanges and
clearing systems is important to assessing systemic risk, because
activity that takes place on regulated exchanges and clearing systems
presents different risks than activity that takes places away from
regulated exchange and clearing systems. For example, activity that
takes place away from a regulated exchange or clearing system may be
less transparent, and may present more credit risk, than activity that
takes place on a regulated exchange and a clearing system that acts as
a central counterparty that guarantees trades. Commenters generally
supported amendments that simplify reporting requirements.\250\ This
amendment will reduce burdens on advisers by eliminating an additional
calculation and will improve data comparability.
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\247\ See current Questions 24 and 25, which we redesignated as
Questions 29 and 30.
\248\ See supra footnote 224 and accompanying text (discussing
the role of CCPs); 2011 Form PF Adopting Release, supra footnote 4,
at n.228, and accompanying text.
\249\ Question 29 specifies that ``value traded'' is the total
value in U.S. dollars of the reporting fund's transactions in the
instrument category and trading mode during the reporting period.
Question 29 also specifies that, for derivatives, value traded is
the weighted average of the notional amount of aggregate derivatives
transactions entered into by the reporting fund during the reporting
period, except for the following: (1) for options, advisers would
use the delta adjusted notional value, and (2) for interest rate
derivatives, advisers would use the ``10-year bond equivalent.''
This measurement is designed to track standard industry convention.
We also are adding the term ``10-year bond equivalent'' to the Form
PF Glossary of Terms, as discussed in section II.C.2 of this
Release. See infra footnote 293.
\250\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
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We also are adopting amendments to require advisers to report
information about trading and clearing mechanisms for transactions in
interest rate derivatives separately from other types of derivatives.
Form PF data show that interest rate derivatives represent the largest
gross investment exposure of qualifying hedge funds.\251\ Therefore,
this amendment is designed to help ensure that the Commissions and FSOC
can identify risks of such a significant volume of activity on and away
from regulated exchanges and clearing systems, without the data being
obscured by other types of derivatives. Advisers will be required to
report interest rate derivatives and other types of derivatives, by
indicating the estimated amounts that were (1) traded on a regulated
exchange or swap execution facility, (2) traded over-the-counter and
cleared by a CCP, and (3) traded over the counter or bilaterally
transacted (and not cleared by a CCP). These categories reflect our
understanding of how derivatives may be traded.
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\251\ See Private Funds Statistics, supra footnote 5.
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Advisers continue to be required to report clearing information
concerning repos, but we are adopting amendments to specify how to
report sponsored repos and to specify that advisers must report reverse
repos with repos.\252\ According to the Fixed Income Clearing
Corporation (``FICC''), FICC's sponsored repo service has expanded in
2017 and 2019, ultimately resulting in daily volume up to $300 million
per day as of 2021, with a peak in June 2023 of $750 billion.\253\
Sponsored repos incorporate a different structure than other repos, in
that FICC serves as a counterparty to any sponsored trade and the
sponsored member bears responsibility for meeting the obligations of
the sponsored member on all transactions that it submits for clearing.
Adding a particular reference to sponsored repos ensures that advisers
understand how sponsored repos cleared by a CCP should be reported,
i.e., as trades cleared at a CCP.\254\ Therefore, we are providing a
separate line item for sponsored repos. The amendment is designed to
improve data quality concerning repos and sponsored repos to allow the
Commissions and FSOC to conduct more accurate and targeted systemic
risk assessments and analysis concerning investor protection efforts.
We are also adopting amendments to specify that advisers must report
reverse repos with repos. Current Question 24 required advisers to
report ``repos,'' which some advisers could interpret to include
reverse repos, while others could interpret as
[[Page 18010]]
excluding reverse repos. Therefore, this amendment is designed to
improve data quality.\255\
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\252\ The amendments also explain that ``repo'' means
``securities in'' transactions and ``reverse repo'' means
``securities out'' transactions. Sponsored repos and sponsored
reverse repos apply to transactions in which the reporting fund has
been sponsored by a sponsoring member of the Fixed Income Clearing
Corporation. We have revised how Form PF explains tri-party repos to
help ensure they do not exclude sponsored tri-party repos.
Currently, Form PF explains that a tri-party repo applies where repo
collateral is held at a custodian (not including a CCP) that acts as
a third party agent to both the repo buyer and the repo seller. We
are amending Form PF to explain that tri-party repo applies where
the repo or reverse repo collateral is executed using collateral
management and settlement services of a third party that does not
act as a CCP. See Form PF Glossary of Terms (amended definitions of
``repo'' and ``reverse repo'') and Question 29 instructions
(discussing sponsored repos, sponsored reverse repos, and tri-party
repos).
\253\ See FICC Sponsored Repo in 2021, by DTCC Connection Staff
(Feb. 9, 2021), available at https://www.dtcc.com/dtcc-connection/articles/2021/february/09/ficc-sponsored-repo-in-2021. See also DTC:
DTCC's FICC Sponsored Service Reaches New Milestone Clearing Over
USD$750 Billion in Daily Sponsored Activity (June 14, 2023),
available at https://www.dtcc.com/news/2023/june/14/dtccs-ficc-sponsored-service-reaches-new-milestone.
\254\ Current Question 24.
\255\ See Question 29.
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We are also adopting amendments to revise current Question 25,
which requires advisers to report the percentage of the reporting
fund's net asset value related to transactions not described in current
Question 24, which we have redesignated as Question 29. Advisers will
be required to report both the value traded and the position value as
of the end of the reporting period for transactions not described in
Question 29. These amendments are designed to make Question 30 data
comparable with data from Question 29, so that together Questions 29
and 30 will provide the Commissions and FSOC with a complete data set
of the adviser's trading and clearing mechanisms during the reporting
period. We did not receive comments on these proposed amendments.
Removing Certain Questions Concerning Hedge Funds. We are removing,
as proposed, current Questions 19 and 21 from the form. Current
Question 19 required advisers to hedge funds to report whether the
hedge fund has a single primary investment strategy or multiple
strategies. Question 25, which requires hedge fund advisers to disclose
certain information about each investment strategy, will provide this
information, as discussed above in this section II.B.3 of the Release.
We are also removing current Question 21, which required hedge fund
advisers to approximate what percentage of the hedge fund's net asset
value was managed using high frequency trading strategies. We believe
the form's question on portfolio turnover, with the adopted revisions,
will better inform our and FSOC's understanding of the extent of
trading by large hedge fund advisers and will better show how larger
hedge funds interact with the markets and provide trading
liquidity.\256\
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\256\ See revisions to current Question 27 (redesignated as
Question 34), as discussed in section II.C of this Release.
---------------------------------------------------------------------------
Commenters generally supported amendments that eliminate questions
and streamline reporting requirements.\257\ One commenter stated that,
by eliminating the collection of duplicative data, FSOC will be better
able to assess systemic risk and the Commissions will be better able to
protect investors.\258\ One commenter supported removing current
Question 21 regarding the percentage of a hedge fund's net asset value
managed using high frequency trading strategies.\259\ We believe that
removing certain questions concerning hedge funds will reduce the
burdens on these advisers and the adoption of new and revised questions
elsewhere on Form PF will improve our understanding of hedge fund
operations to allow for systemic risk analysis and investor protection
efforts.
---------------------------------------------------------------------------
\257\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
\258\ Better Markets Comment Letter.
\259\ MFA Comment Letter II.
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C. Amendments Concerning Information About Hedge Funds Advised by Large
Private Fund Advisers
We are adopting, as proposed except as specifically indicated
below, several amendments to section 2, including amendments that
remove aggregate reporting currently required in existing section 2a,
which we have found to be less meaningful for analysis and more
burdensome for advisers to report, while preserving and enhancing
reporting on a per fund basis in existing section 2b, which we are
redesignating as section 2. We are also retaining certain questions
currently reported by advisers on an aggregate basis that are important
for data analysis and systemic risk assessment but are requiring
reporting on a per fund basis. Collectively, the changes to section 2
are designed to provide better insight into the operations and
strategies employed by qualifying hedge funds and their advisers and
improve data quality and comparability to enable FSOC to monitor
systemic risk better and enhance the Commissions' regulatory programs
and investor protection efforts. Furthermore, we are also removing
certain other reporting requirements that we have found to be less
useful based on our experience with Form PF since adoption, which will
help reduce reporting burdens for advisers while preserving the
Commissions' and FSOC's regulatory oversight.
1. Removal of Existing Section 2a
Removal of aggregate reporting. We are adopting, as proposed,
amendments to eliminate the current requirement for large hedge fund
advisers to report certain aggregated information about the hedge funds
they manage.\260\ Based on our experience using data obtained from Form
PF since its adoption, we have found that aggregated adviser level
information combines funds with different strategies and activities,
thus making analyses less meaningful. Aggregation can mask the
directional exposures of individual funds (e.g., positions held by one
reporting fund may appear to be offset by positions held in a different
fund). Additionally, there can be inconsistencies between data
currently reported in the aggregate in existing section 2a and on a per
fund basis in existing section 2b (e.g., we have observed in some
instances that the sum of fund exposures advisers report in current
Question 30 on a per fund basis exceeds the aggregate figure reported
in current Question 26). Aggregating information across funds may be
burdensome for some advisers because certain advisers may keep fund
records on different systems and ``rolling-up'' the data from different
sources to report on the form may be complex and time consuming. While
advisers may be required to aggregate certain types of investment
holdings across their funds for other regulatory purposes (e.g.,
certain U.S. registered equities for Form 13F reporting), advisers
generally do not aggregate all portfolio investment exposure
information across their funds other than for Form PF reporting
purposes, given that counterparties, markets, and investors tend to
interact with funds on an individual basis and not in the aggregate at
the adviser level.
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\260\ We are removing existing section 2a and redesignating
existing section 2b as section 2. In connection with the removal of
section 2a, we are revising the general instructions to make
corresponding changes (including amending Instruction 3 to reflect
the removal of section 2a), and are revising current Question 27
(reporting on the value of turnover in certain asset classes in
advisers' hedge funds' portfolios) and current Question 28
(reporting on the geographical breakdown of investments held by
advisers' hedge funds), moving each of these questions to new
section 2, and redesignating them as Question 34 and Question 35,
respectively. Furthermore, in connection with these changes, we are
revising the term ``sub-asset class'' to refer to Question 32,
rather than current Question 26, which we have removed.
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Commenters generally supported proposed amendments to eliminate
questions and streamline reporting requirements.\261\ One commenter
stated that the aggregate reporting of certain positions may make it
difficult to understand the operations of hedge funds, especially
during periods of market instability.\262\ Another commenter stated
that reporting on an aggregate basis does not result in obscuring
material data.\263\
---------------------------------------------------------------------------
\261\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
\262\ See Better Markets Comment Letter.
\263\ See AIC Comment Letter I.
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We continue to believe that eliminating aggregate reporting
questions for large hedge fund advisers will lessen the burden on these
advisers and focus Form PF reporting on more valuable information for
systemic risk assessment purposes. Removing existing
[[Page 18011]]
section 2a will not result in a meaningful deterioration in the
information collected because the vast majority of gross hedge fund
assets on which advisers currently report in the aggregate in section
2a constitute the gross assets of qualifying hedge funds that will
continue to be reported elsewhere in amended section 2. For example,
large hedge fund advisers currently report total gross notional
exposure for qualifying hedge funds in section 2b that constituted
approximately 91 percent of the total gross notional exposure reported
on an aggregate basis by large hedge fund advisers currently in section
2a as of the same date.\264\ Furthermore, as discussed in section
II.B.3 above, we are also adopting amendments to enhance reporting for
all hedge funds in section 1 (particularly section 1c), which will
mitigate against potential data gaps that could result from the removal
of section 2a, given that advisers currently report information on all
their hedge funds in section 2a but only report on qualifying hedge
funds in section 2b. Additionally, certain information currently
collected in section 2a is duplicative of information that will
continue to be collected on a per fund basis in the consolidated
section 2.\265\ By continuing to require reporting on a per fund basis,
information reported elsewhere in the revised section 2 will allow the
Commissions and FSOC to compile aggregate figures, as appropriate.\266\
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\264\ As noted above, based on experience with Form PF since
adoption, we have found information currently gathered in section 2a
for the remaining 9% of funds to not be very useful given that it is
aggregated data across different funds.
\265\ For example, current Question 26 of section 2a requires
large hedge fund advisers to report aggregated information on
exposure to different types of assets, which is effectively the same
exposure information that will be reported on a per fund basis for
each qualifying hedge fund in Question 32 of section 2.
\266\ Additionally, we are moving current Question 31 (base
currency) and current Question 49 (withdrawals and redemptions)
required only for qualifying hedge funds to section 1b, which is
required to be completed by all advisers, and redesignating them as
Question 17 and Question 10(d), respectively. We are also adopting
amendments to enhance section 1c to require more detailed
information about hedge funds' borrowing and financing arrangements
(including posted collateral) and also revising current Question 26
(redesignated Question 32) and current Question 27 (redesignated
Question 34) to require end of period reporting of the value of
certain instrument categories (including listed equities, interest
rate derivatives and other derivatives, and repo/reverse repos).
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2. Amendments to Section 2
We are redesignating existing section 2b as section 2 and adopting,
as proposed except as specified below, amendments to section 2 to do
the following:
(1) Enhance, expand, and simplify investment exposure reporting;
(2) Revise open and large position reporting;
(3) Revise borrowing and counterparty exposure reporting;
(4) Revise market factor effects reporting; and
(5) Make certain other changes designed to streamline and enhance
the value of data collected on qualifying hedge funds by: (a) adding
reporting on currency exposure, turnover, country, and industry
exposure; (b) adding new reporting on CCPs; (c) streamlining risk
metric reporting and collecting new information on investment
performance by strategy; and (d) enhancing portfolio and financing
liquidity reporting.
a. Investment Exposure Reporting
We are adopting, largely as proposed except as specified below,
amendments to: (1) replace the table format of current Question 30,
which we are redesignating as Question 32, with narrative instructions
and a ``drop-down'' menu while also revising the instructions to
specify how to report certain positions, (2) require reporting based on
``instrument type'' within sub-asset classes to identify whether the
fund's investment exposure is achieved through cash or physical
investment exposure, through derivatives or other synthetic positions,
or indirectly (e.g., through a pooled investment such as an ETF, an
investment company, or a private fund), (3) require the calculation of
``adjusted exposure'' for each sub-asset class (i.e., require (in
addition to value as currently reported) the calculation of ``adjusted
exposure'' for each sub-asset class that allows netting across
instrument types representing the same reference asset within each sub-
asset class, and, for fixed income, within a prescribed set of maturity
buckets), (4) require uniform interest rate risk measure reporting for
sub-asset classes that have interest rate risk (while eliminating the
current option to report one of duration, weighted average tenor (WAT),
or 10-year equivalents), and (5) amend the list of reportable sub-asset
classes consistent with these other changes and collect enhanced
information for some asset types.\267\
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\267\ In connection with the amendments, we are also removing
current Question 44 because it is duplicative of the new reporting
requirements in redesignated Question 32.
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Narrative reporting instructions and additional information on how
to report.
We are adopting, as proposed, amendments to the redesignated
Question 32 which will require advisers to use a series of ``drop-
down'' menu selections for each sub-asset class and the applicable
information required for each sub-asset class. These changes and new
format will simplify and specify how to report the required information
in redesignated Question 32. These changes will reduce filer burdens
compared to the current format because advisers will only be required
to provide information for sub-asset classes in which their qualifying
hedge funds hold relevant positions. Furthermore, advisers will be
required to report the absolute value of short positions, include
positions held in side-pockets as positions of the reporting fund, and
include any closed out and OTC forward positions that have not yet
expired or matured. We did not receive comment on these amendments.
We are adopting, as proposed, amendments to the instructions to
redesignated Question 32 to specify how advisers should classify
certain positions. This change is designed to instruct advisers how to
classify positions that could be accurately classified in multiple sub-
asset classes and is consistent with SEC staff Form PF Frequently Asked
Questions.\268\ Specifically, the instructions require advisers to
choose the sub-asset class that describes the position with the highest
degree of precision, which will result in more accurate classification
of positions and therefore better data, rather than simply noting that
any particular position should only be included in a single sub-asset
class. We did not receive comment on this instruction.
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\268\ See Form PF Frequently Asked Questions, supra footnote
162, Question 26.2.
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We are also adopting, as proposed, a new instruction that directs
advisers to report cash borrowed via reverse repo as the short value of
repos and refers advisers to the revised definitions of ``repo'' and
``reverse repo'' in the Glossary of Terms, consistent with SEC staff
Form PF Frequently Asked Questions.\269\ This change will help reduce
confusion on how to report repo information and help reduce filer
errors. We did not receive comment on this instruction or the revised
definitions. Finally, the amended instructions also include a revised
list of sub-asset classes.\270\
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\269\ See Form PF Frequently Asked Questions, supra footnote
162, Question 26.5.
\270\ The amendments to the sub-asset class list, as well as
other changes to instructions in specific parts of Question 32, are
discussed below.
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We are also adopting, as proposed, amendments to require advisers
to
[[Page 18012]]
provide additional explanatory information in situations where a
qualifying hedge fund reports long or short dollar value exposure to
``catch-all'' sub-asset class categories \271\ equal to or exceeding
either (1) five percent of the reporting fund's net asset value or (2)
$1 billion.\272\ We have observed that some funds report significant
amounts of assets in these ``catch-all'' categories. This new
explanatory requirement will inform our understanding of significant
exposure reported in these ``other'' sub-asset classes better, which is
important for assessing systemic risk. One commenter recommended a
threshold of 10 percent of a fund's net asset value, rather than five
percent, for all reporting related to exposures, including to ``catch-
all'' sub-asset classes.\273\ We chose the five percent threshold level
because it represents a level of exposure that is material to a fund's
investment performance. We also continue to believe that the impact on
a fund's returns resulting from an exposure of greater than five
percent of its net asset value could be significant enough to present
broader systemic risk and contagion risk. The $1 billion threshold
represents a level for large funds (e.g., those with net asset values
in excess of $20 billion) that is large enough so as to have potential
systemic risk implications even if the position is less than five
percent of the fund's net asset value.
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\271\ These sub-asset classes include loans (excluding leveraged
loans and repo), other structured products, other derivatives, other
commodities, digital assets, and investments in other sub-asset
classes.
\272\ Some filers report significant exposure to these ``other''
categories. For example, the public Private Fund Statistics Q1 2023
(Table 46) shows about $153 billion in aggregate QHF GNE reported as
``other loans,'' more than other asset categories of interest, such
as ABS/structured products (ex. MBS but excluding CLO/CDOs) (about
$56 billion) and convertible bonds ($122 billion) as of Q1 2023. See
Private Fund Statistics Q1 2023, supra footnote 5.
\273\ See MFA Comment Letter II.
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Separate reporting for positions held physically, synthetically or
through derivatives and indirect exposure. We are adopting, as proposed
except as specifically indicated below, amendments to require advisers
to report the dollar value of a qualifying hedge fund's long positions
and the dollar value of the fund's short positions in certain sub-asset
classes by ``instrument type'' (i.e., cash/physical instruments,
futures, forwards, swaps, listed options, unlisted options, and other
derivative products, ETFs, exchange traded products, U.S. registered
investment companies (excluding ETFs and money market funds), non-U.S.
registered investment companies, internal private fund or external
private fund, commodity pool, or other company, fund, or entity).\274\
For each month of the reporting period, advisers will be required to
report long and short positions in these sub-asset classes held
physically, synthetically or through derivatives, and indirectly
through certain entities, separately in order to provide the
Commissions and FSOC sufficient information to understand, monitor, and
assess qualifying hedge funds' exposures to certain types of assets and
investment products. The current instructions (and the associated
definitions) require advisers to combine exposures held physically,
synthetically, or through derivatives when reporting certain fixed
income and other sub-asset classes.\275\ Even when certain sub-asset
classes currently separate physical and derivative exposures (e.g.,
listed equities), all derivative instrument types are currently
combined regardless of each derivative instrument type's risk
characteristics. Furthermore, the form's current instructions for
reporting investment exposure obtained through funds or other entities
are different. For example, the current instructions require advisers
to categorize ETFs based on the assets the ETF holds, while other
registered investment companies are reported as a separate sub-asset
class and may obscure the extent of a reporting fund's exposure to
particular sub-asset classes.
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\274\ See Form PF Glossary of Terms (definition of ``instrument
type''). See also Question 32(a). Sub-asset classes that require
reporting by instrument type (see Question 32(a)(1)) generally
include: listed equity issued by financial institutions; American
Depositary Receipts; other single name listed equity; indices on
listed equity; other listed equity; unlisted equity issued by
financial institutions; other unlisted equity; investment grade
corporate bonds issued by financial institutions (other than
convertible bonds); investment grade corporate bonds not issued by
financial institutions (other than convertible bonds); non-
investment grade corporate bonds issued by financial institutions
(other than convertible bonds); non-investment grade corporate bonds
not issued by financial institutions (other than convertible bonds);
investment grade convertible bonds issued by financial institutions;
investment grade convertible bonds not issued by financial
institutions; non-investment grade convertible bonds issued by
financial institutions; non-investment grade convertible bonds not
issued by financial institutions; U.S. Treasury bills; U.S. Treasury
notes and bonds; agency securities; GSE bonds; sovereign bonds
issued by G10 countries other than the U.S; other sovereign bonds
(including supranational bonds); U.S. state and local bonds; MBS;
ABCP; CDO (senior or higher); CDO (mezzanine); CDO (junior equity);
CLO (senior or higher); CLO (mezzanine); CLO (junior equity); other
ABS; other structured products; U.S. dollar interest rate
derivatives; non-U.S. currency interest rate derivatives; foreign
exchange derivatives; correlation derivatives; inflation
derivatives; volatility derivatives; variance derivatives; other
derivatives; agricultural commodities; crude oil commodities;
natural gas commodities; power and other energy commodities; gold
commodities; other (non-gold) precious metal commodities; base metal
commodities; other commodities; real estate; digital assets;
investments in other sub-asset classes. These sub-asset classes are
reported at the sub-asset class level and not by instrument type
(see Question 32(a)(2)): leveraged loans; loans (excluding leveraged
loans and repo); overnight repo; term repo (other than overnight);
open repo; sovereign single name CDS; financial institution single
name CDS; other single name CDS; index CDS; exotic CDS; U.S.
currency holdings; non-U.S. currency holdings; certificates of
deposit; other deposits; money market funds; other cash and cash
equivalents (excluding bank deposits, certificates of deposit, and
money market funds). We are also amending the Glossary of Terms to
(i) amend the definitions of agency securities, convertible bonds,
corporate bonds, GSE bonds, leveraged loans, sovereign bonds, and
U.S. Treasury securities, in each case to include positions held
indirectly through another entity, (ii) remove the definitions of
crude oil, derivative exposures to unlisted equities, gold, natural
gas, and power, and (iii) amend the definitions of commodities and
other commodities. See Form PF Glossary of Terms. Additionally, for
foreign exchange derivatives, advisers will be required to report
foreign exchange swaps and currency swaps separately, and in
determining dollar value, will not net long and short positions
within sub-asset classes or instrument types (with the exception of
spot foreign exchange longs and shorts).
\275\ Advisers are required to report the dollar value of long
and short positions for the sub-asset class (and not instrument
type) for the following sub-asset classes: leveraged loans, loans
(excluding leveraged loans and repo); overnight repo, term repo
(other than overnight), open repo, sovereign single name CDS,
financial institution single name CDS, other single name CDS, index
CDS, exotic CDS, U.S. currency holdings, non-U.S. currency holdings,
certificates of deposit, other deposits, money market funds, and
other cash and cash equivalents (excluding bank deposits,
certificates of deposit, and money market funds). See Question
32(a).
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As proposed, in determining the reporting fund's exposure to sub-
asset classes for positions held indirectly through entities, advisers
are permitted to allocate the position among sub-asset classes and
instrument types using reasonable estimates consistent with their
internal methodologies and conventions of service providers. In a
modification from the proposal, advisers are also permitted to report
an entirely indirectly held entity position in one sub-asset class and
instrument type that best represents the sub-asset class exposure of
the indirectly held entity, unless the adviser would allocate the
exposure of the indirectly held entity more granularly under its own
internal methodologies and conventions of its service providers.\276\
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\276\ The proposed instructions would limit the ``best
represents'' standard to reporting of positions that represent both
less than (1) 5% of the reporting fund's net asset value and (2) $1
billion. The adopted instruction removes the proposed position size
condition and applies the ``best represents'' standard to all
indirectly held exposures.
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Some commenters stated that obtaining information about a fund's
indirect exposures through investments in other funds could be
difficult or
[[Page 18013]]
burdensome.\277\ One commenter recommended allowing an adviser to
select the sub-asset class that ``best represents'' the position.\278\
We believe that adopting a ``best represents'' standard, regardless of
the position size, balances the importance of obtaining more accurate
and granular data with a reporting standard that is less burdensome for
advisers than the proposed standard.
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\277\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
\278\ MFA Comment Letter II.
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The increased granularity in reporting will allow for a better
understanding of the activities of qualifying hedge funds and increase
the utility of data collected for purposes of understanding the role
qualifying hedge funds play in certain market events. For example, when
monitoring funds' activities during recent market events like the March
2020 COVID-19 turmoil, the existing aggregation of U.S. treasury
securities with related derivatives did not reflect the role hedge
funds played in the U.S treasury market. Some commenters supported the
proposed amendments to require hedge fund advisers to report their long
and short holdings on a disaggregated basis.\279\ One commenter stated
that requiring private fund advisers to report both long and short
positions will allow FSOC to have a complete picture of the risk
exposure across private funds.\280\ Another commenter supported
disaggregated reporting of physical and synthetically held positions,
stating that allowing advisers to aggregate their positions between
physically held and synthetically held positions can make it difficult
to understand the impact of hedge fund activity especially during
periods of market instability.\281\ We agree that the existing
reporting, which allows advisers to aggregate their physical and
synthetically held positions, as well as long and short exposures,
obscures our understanding of the fund's overall exposure because of
the risk differences between such holdings, which reduces our ability
to effectively assess systemic risk. One commenter stated that more
granular disclosure of long and short holdings can help ensure that
FSOC has a complete understanding of systemic risk across private
funds.\282\ Another commenter opposed all proposed requirements to
report additional monthly data, including the proposed requirement to
provide additional monthly exposure reporting, on the basis that such
monthly data would be costly to produce and would not be more
beneficial than the existing quarterly basis reporting
requirements.\283\ Obtaining more granular data on a hedge fund's long
and short positions is needed in order to provide the Commissions and
FSOC sufficient information to understand, monitor, and assess
qualifying hedge funds' exposures and assess systemic risk. Further,
receiving this data on a monthly basis, rather than only as of quarter
end, will give us better insight into trends that may indicate systemic
risk. One commenter recommended that the Commissions define ``synthetic
long position'' and ``synthetic short position'' and include a
threshold for when a position is considered deep-in-the-money.\284\ As
discussed more fully in section II.B.2 above, we are adopting
definitions for ``synthetic long position'' and ``synthetic short
position'' in the Glossary of Terms and specifying as an example when a
position is considered deep-in-the-money.
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\279\ See AFREF Comment Letter I; Better Markets Comment Letter.
\280\ AFREF Comment Letter I.
\281\ See Better Markets Comment Letter.
\282\ AFREF Comment Letter I.
\283\ SIFMA Comment Letter.
\284\ MFA Comment Letter II.
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Adjusted exposure reporting. While we will continue to require
advisers to report ``gross'' long and short exposure, i.e., the dollar
value of a qualifying hedge fund's long positions and dollar value of
the fund's short positions for various sub-asset classes (and by
instrument type for certain sub-asset classes as explained above), we
are adopting, as proposed, amendments to require advisers to also
report the ``adjusted'' exposure of long and short positions for each
sub-asset class in which a fund has a reportable position.\285\ Based
on our experience, we have found that gross exposure reporting, while
useful because the information indicates fund size on a comparable
basis among funds, may inflate some qualifying hedge funds' reported
long and short exposures in a way that does not properly represent the
economic exposure and market risk of a reporting fund's portfolio. For
example, when only looking at gross exposure, certain relative value
strategies that are designed to match long and short exposures in the
same or similar (highly correlated) assets may reflect very high
leverage, but not have the same level of risk as portfolios with less
leverage but that are more exposed directionally. Furthermore, some
advisers, for purposes of managing risk, do not view their portfolio on
a ``gross'' basis because they do not believe it provides a meaningful
measure of risk. ``Gross'' exposure reporting by itself presents an
incomplete picture that represents a significant data gap for purposes
of systemic risk analysis.
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\285\ Question 32(b). See also Form PF Glossary of Terms
(definition of ``adjusted exposure'').
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Advisers will be required to determine adjusted exposure for each
``sub-asset'' using a specified methodology that is designed to
facilitate comparisons of the reported data, as proposed. Specifically,
advisers will be required to calculate and report ``adjusted exposure''
of long and short positions for each sub-asset class by netting (1)
positions that have the same underlying ``reference asset'' across
``instrument type'' (i.e., cash/physical instruments, futures,
forwards, swaps, listed options, unlisted options, other derivative
products, and positions held indirectly through another entity such as
ETFs, other exchange traded products,\286\ U.S. registered investment
companies (excluding ETFs and money market funds), investments in non-
U.S. registered investment companies,\287\ other private funds,
commodity pools, or other companies, funds or entities)and (2) fixed
income positions that fall within certain predefined maturity buckets
(i.e., 0 to 1 year, 1 to 2 year, 2 to 5 year, 5 to 10 year, 10 to 15
year, 15 to 20 year, and 20+ year).\288\
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\286\ In connection with this amendment, as proposed, we are
also defining ``exchange traded product'' as ``an investment traded
on a stock exchange that invests in underlying securities or assets,
such as an ETF or exchange traded note.'' See Form PF Glossary of
Terms. Given that the exchange traded product market has grown
significantly since Form PF was first adopted, we believe that
activity in exchange traded products may present different systemic
risks than traditional listed equities and other instruments that
might be used to obtain exposure to underlying assets owned within
an ETF. Furthermore, we believe added insight into whether the
underlying sub-asset class exposure is held through an ETF will
enhance FSOC's analysis of systemic risk associated with this asset
class.
\287\ See Form PF Glossary of Terms (definition of ``investments
in non-U.S. registered investment companies''). Furthermore, we are
also removing the term ``U.S. registered investment companies'' from
the Form PF Glossary of Terms.
\288\ See Form PF Glossary of Terms. We are adopting, as
proposed, a definition of ``reference asset'' as a security or other
investment asset to which a fund is exposed through direct ownership
(i.e., a physical or cash position), synthetically (i.e. the subject
of a derivative or similar instrument held by the fund), or indirect
ownership (e.g., through ETFs, other exchange traded products, U.S.
registered investment companies, non-U.S. registered investment
companies, internal private funds, external private funds, commodity
pools, or other companies, funds, or entities). An adviser may
identify a reporting fund's reference assets according to its
internal methodologies and the conventions of service providers,
provided that these methodologies and conventions are consistently
applied, do not conflict with any instructions or guidance relating
to Form PF and reported information is consistent with information
it reports internally and to investors and counterparties. In a
change from the proposal, we are modifying the defined maturity
buckets to remove the 10 -year and 15-year buckets to reduce
potential confusion.
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[[Page 18014]]
For purposes of determining ``adjusted exposure,'' a fund may use
cross counterparty netting consistent with information reported by the
fund internally and to current and prospective investors, because we
believe it better reflects the fund's economic exposure. For example, a
fund with market-neutral trades may lose substantial amounts of capital
in a period of market stress if prices diverge, regardless of the
identities of the counterparties. Additionally, counterparty
identification may be ambiguous for some positions, such as when a fund
simply has a long position in an equity security traded over an
exchange or purchased from a broker without the use of any financing.
Finally, if a fund does not net across all instrument types in
monitoring the economic exposure of the fund's investment positions for
purposes of internal reporting and reporting to investors, we will (in
addition to adjusted exposure determined as specified above) also
require the adviser to report adjusted exposure based on an adviser's
internal methodology and describe in Question 4 how the adviser's
internal methodology differs from the standard approach in Question 32.
This additional information will provide better insight into how these
advisers assess the economic exposure of their reporting fund's
portfolio, while still ensuring an adviser provides information that
supports our and FSOC's ability to aggregate and compare the data
across funds.
One commenter stated that the prescribed methodology for
calculating netted exposure would be burdensome and that the
Commissions underestimated the costs associated with this
calculation.\289\ One commenter stated that requiring monthly sub-asset
class information, including adjusted exposure data, would not
facilitate systemic risk monitoring because existing quarterly
reporting provides the Commissions with similar information.\290\
Receiving exposure data on a monthly basis will allow us to better
understand interim changes in exposures that may be relevant to
systemic risk assessment that are not visible from the existing
quarterly data.\291\ As discussed more fully in section IV.C below,
identifying sub-asset classes will not be significantly burdensome
because advisers will generally only need to make this determination
once, with ongoing monitoring (and any reclassifications) relatively
limited.\292\ Further, because a fund may use cross counterparty
netting consistent with information reported by the fund internally for
purposes of determining adjusted exposure, the adjusted exposure
reporting should not be significantly burdensome, particularly for
funds using common aggregator protocols, because a fund can leverage
its existing internal reporting methodology.
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\289\ MFA Comment Letter II.
\290\ SIFMA Comment Letter.
\291\ See infra section IV.C of this Release for discussion of
costs and benefits.
\292\ Id. See also infra section V of this Release for
discussion of our increased cost estimates.
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Require advisers to report a uniform interest rate risk measure. We
are adopting, as proposed, amendments to require advisers to report the
10-year zero coupon bond equivalent \293\ for all sub-asset classes
with interest rate risk (by instrument type if applicable) \294\ rather
than providing advisers with a choice to report duration, weighted
average tenor (``WAT''), or an unspecified 10-year bond
equivalent.\295\ Advisers will be required to report the 10-year zero
coupon bond equivalent of the dollar value of long and short positions
in each sub-asset class (and by instrument type, if applicable) as well
as for the adjusted exposure of long and short exposures for each sub-
asset class for each monthly period.
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\293\ As discussed further below in section II.D of this
Release, we are adopting, with a modification from the proposal, a
new glossary definition of 10-year bond equivalent to explain that
the term 10-year bond equivalent means ``the equivalent position in
a 10-year zero coupon bond, expressed in U.S. dollars.'' See Form PF
Glossary of Terms (definition of ``10-year bond equivalent''). We
are also making a conforming change to the definition of interest
rate derivative to use this new definition.
\294\ We are adopting amendments to require advisers to report
the 10-year zero coupon bond equivalent for the following sub-asset
classes: investment grade corporate bonds issued by financial
institutions (other than convertible bonds); investment grade
corporate bonds not issued by financial institutions (other than
convertible bonds); non-investment grade corporate bonds issued by
financial institutions (other than convertible bonds); non-
investment grade corporate bonds not issued by financial
institutions (other than convertible bonds); investment grade
convertible bonds issued by financial institutions; investment grade
convertible bonds not issued by financial institutions; non-
investment grade convertible bonds issued by financial institutions;
non-investment grade convertible bonds not issued by financial
institutions; U.S. Treasury bills; U.S. Treasury notes and bonds;
U.S. agency securities; GSE bonds; sovereign bonds issued by G10
countries other than the U.S; other sovereign bonds (including
supranational bonds); U.S. state and local bonds; leveraged loans;
loans (excluding leveraged loans and repo); overnight repo; term
repo (other than overnight); open repo; MBS; ABCP; Senior or higher
CDO; Mezzanine CDO; Junior equity CDO; Senior or higher CLO;
Mezzanine CLO; Junior equity CLO; other ABS; other structured
products ; U.S. dollar interest rate derivatives; non-U.S. currency
interest rate derivatives; and certificates of deposit. See Question
32(c).
\295\ See Question 32(c).
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The amendment will improve reporting and allow us to obtain better
data, because the current approach, while providing optionality, makes
it difficult to compare and aggregate data reported by different funds
effectively. Furthermore, the 10-year zero coupon bond equivalent is
appropriate because it is commonly used by hedge fund advisers and will
be a better and more consistent measure of interest rate risk than
duration, WAT, or the current unspecified 10-year equivalent. WAT may
be an incomplete measure because it does not always reflect the
presence of options embedded in bonds or differing sensitivity to
interest rate changes in circumstances where base currencies are
subject to a higher or lower risk-free rate, and it also may not be
meaningful for interest rate derivative products. Duration can tend
toward infinity for certain derivatives and so can provide little
meaning or utility. In addition, methodologies for calculations of
duration and a 10-year equivalent (if not standardized to a zero coupon
bond) may vary, which can result in variability among calculations, and
requiring use of the 10-year zero coupon bond equivalent will provide
comparability across the reported data. Therefore, eliminating
additional reporting options and requiring the 10-year zero coupon bond
equivalent will provide a common denominator across funds that advisers
will be able to easily calculate and that will provide a consistent and
comparable metric. In this regard, the requirement should not create an
additional burden for advisers that currently report based on a 10-year
equivalent for these types of assets, which we estimate represents
roughly 42 percent of the total number of advisers responding to
Question 32.\296\
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\296\ Based on analysis of Form PF data 2022Q4, 2021Q4, and
2020Q4.
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One commenter stated that because the definition of ``10-year bond
equivalent'' specifies the expression in the fund's base currency, for
transactions not in the fund's base currency, there would need to be a
foreign exchange conversion into the base currency and an additional
conversion into U.S. dollars for certain questions, which would be
burdensome.\297\ As discussed further below in section II.D below, we
are modifying the ``10-year bond equivalent'' definition to reference
U.S. dollars, rather than the reporting fund's base currency.
Therefore, an adviser in this scenario would not be required to
[[Page 18015]]
perform any additional exchange conversions.
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\297\ See AIMA/ACC Comment Letter.
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Amended list of sub-asset classes.
We are adopting, as proposed, amendments to the list of reportable
sub-asset classes in Question 32 in two respects. First, some sub-asset
classes are consolidated and tailored to reflect the adopted reporting
of the dollar value of long and short positions by instrument type. For
example, sub-asset classes for listed and unlisted equity derivatives
are combined with sub-asset classes for listed and unlisted equities,
and similarly, sub-asset classes for physical commodities and commodity
derivatives are combined.\298\ Likewise, some current sub-asset classes
will now be reflected as instrument types, such as internal private
funds, external private funds, and registered investment companies (now
separated into ETFs, U.S. registered investment companies, and non-U.S.
registered investment companies). Second, we are adding new sub-asset
classes to provide additional information to help the Commissions and
FSOC better understand qualifying hedge funds' investment exposures to
certain asset types and reduce reporting in certain ``catch-all'' sub-
asset classes, such as ``other listed equity.''
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\298\ In connection with these amendments, we are amending the
definitions of ``listed equity'' and ``unlisted equity'' to reflect
that filers should include synthetic or derivative exposure as well
as positions held indirectly through another entity (e.g., through
an ETF, exchange traded product, U.S.-registered investment
companies, non-U.S. registered investment companies, internal
private fund or external private fund, commodity pool, or other
company, fund, or entity). Additionally, we are amending the
definition of ``listed equity derivatives'' to include derivatives
relating to ADRs, and other derivatives relating to indices on
listed equities. See Form PF Glossary of Terms (definition of
``listed equity,'' ``unlisted equity,'' and ``listed equity
derivatives'').
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We are also adopting amendments to: (1) expand equity exposure
reporting to add sub-asset classes for (a) listed equity securities
(including new sub-asset classes for other single name listed equities
and indices on listed equities), and (b) American depository receipts
(``ADRs''); (2) add additional sub-asset classes for reporting ``repo''
and ``reverse repo'' positions, based on term; (3) add additional sub-
asset classes for asset backed securities (``ABS'') and other
structured products; (4) add new sub-asset classes and revise existing
sub-asset classes that capture certain derivatives, including certain
credit derivatives and volatility and variance derivatives; (5) specify
sub-asset classes pertaining to investments in cash and cash
equivalents and commodities; and (6) add a new sub-asset class for
digital assets.
One commenter opposed requiring more detailed disclosure of a
fund's holdings and recommended that the Commissions leverage existing
data sources, such as existing Form PF, Form 13F and 13H, and CFTC Form
CPO-PQR reporting, to obtain more granular information about a fund's
holdings.\299\ We disagree that existing data sources can provide the
amended fund-specific sub-asset class information. As discussed above,
we have identified information gaps in the data reported on the
existing Form PF based on our experience. From these data sets, we are
unable to determine the full extent of a fund's exposure because the
different types of exposures are combined, despite different exposures
having differing risk characteristics.\300\ This commenter also stated
that the requirement to report more granular sub-asset class data would
be overly burdensome and costly to report and that we should use other
data sources for this information.\301\ These amendments to the sub-
asset class list more accurately reflect a fund's holding than other
data sources and current Form PF reporting, which does not provide this
level of specificity. Identifying sub-asset classes will not be
significantly burdensome to report because advisers will generally only
have to make this determination once and their ongoing monitoring (and
any reclassifications) should be relatively limited. This commenter
also raised confidentiality concerns and stated that the detailed sub-
asset class data could enable a person with access to the data to
recreate a private fund's investment strategy.\302\ The asset class
level data reported on Form PF, which is filed on a non-public basis,
is not sufficiently detailed or reported on a basis frequent enough to
present significant risk of misuse or enable reverse engineering of a
particular fund's investment strategy.
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\299\ See SIFMA Comment Letter.
\300\ For example, Forms 13F and 13H do not collect fund-
specific information, and only a small sub-set of Form PF filers
(commodity pool operators and commodity trading advisors) are
required to file Form CPO-PQR. As discussed above, we have
identified information gaps in the data reported on the existing
Form PF based on our experience.
\301\ See SIFMA Comment Letter. See also infra at section IV.C
of this Release for discussion of costs and benefits.
\302\ See SIFMA Comment Letter.
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Listed equity securities.
We are adding, as proposed, new sub-asset classes for certain
categories of listed equity securities, specifically, for other single
name listed equities and indices on listed equities. This change will
provide more granularity to reporting on listed equities \303\ given
the potential impact of these new sub-asset classes from an overall
systemic risk perspective, as the form currently only requires advisers
to single out and report listed equities issued by financial
institutions with all other listed equities reported in a catch-all
category ``other listed equity.'' Identifying single equities
separately from equity index exposure can help distinguish broadly
diversified portfolios from those that could be more concentrated and
also help to identify what strategies are being pursued by multi-
strategy funds. Additionally, single equity positions may be more
vulnerable to short squeezes than index positions, so this level of
granularity will help to better identify entities that may be affected
during a short squeeze event.\304\
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\303\ See current Question 26 and Question 30, which required
reporting on listed equities but did not separate out single names
from indices. Investments in single name equities involve materially
more idiosyncratic risks, such as the potential for more extreme
price movements that are not correlated to other market movements,
than investments in indices, and therefore we have adopted
amendments to require separate reporting.
\304\ A short squeeze is a type of manipulation in which prices
are manipulated upward to force short sellers out of their
positions, as short sellers are required by brokers to maintain
margin above a certain level, and as prices rise short sellers must
add cash to their margin accounts or close out their short
positions. Single stock shorts often account for a higher portion of
the available float and/or often have a larger period of days to
cover (i.e., the number of trading days to cover a short) than do
shorts on ETFs. As a result, a potential need to cover a short could
generally have a more pronounced effect on single stocks.
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One commenter stated that the proposed instructions do not specify
whether the reporting fund's listed equity security holdings should
include both the reporting fund's holding in shares of an ETF as well
as the listed equity holdings of the same ETF.\305\ Another commenter
stated that the proposed question is unclear how advisers should report
indirect holdings, such as positions held through entities such as
ETFs, and recommended permitting advisers to allocate its exposures
using any reasonable methodology.\306\ In consideration of this
comment, we are adopting instructions to Question 32 to provide that in
determining a reporting fund's exposure to sub-asset classes for
positions held indirectly through entities, such as through an ETF, the
adviser may allocate the position among sub-asset classes and
instrument types using reasonable estimates consistent with the
adviser's internal methodologies and conventions of service providers,
and the adviser may
[[Page 18016]]
report an entirely indirectly held entity position in one sub-asset
class and instrument type that best represents the sub-asset class
exposure of the indirectly held entity unless the adviser would
allocate the exposure of the indirectly held entity more granularly
under the adviser's own internal methodologies and conventions of its
service providers.\307\
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\305\ AIMA/ACC Comment Letter.
\306\ MFA Comment Letter II.
\307\ See Question 32.
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ADRs.
We are adding, as proposed, a new sub-asset class for ADRs in line
with how ADRs are reported on the CFTC's Form CPO-PQR.\308\ While ADRs
are purchased in U.S. dollars, these instruments have currency risk
because the underlying security is priced in its home country currency,
and the ADR's U.S. dollar price fluctuates one-for-one with each
movement in the home currency. Accordingly, advisers will be required
to report ADRs separately from other listed equity instruments. This
requirement also will help increase the utility of the information
reported under the ``other listed equity'' sub-asset class on Form PF,
which requires reporting of multiple other sub-asset classes. We did
not receive comment on the proposed addition of an ADR sub-asset class.
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\308\ As noted above, where applicable, we are adopting
amendments to align Form PF with Form CPO-PQR to (1) enable filers
that currently are required to file both Form PF and Form CPO-PQR
independently to compile and use similar data in completing both
forms, and (2) enable users of the reported data (e.g., FSOC and
other regulatory agencies) to (i) link data for funds that file both
forms, and (ii) aggregate and compare data across data sets more
easily.
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Repurchase Agreements (``Repos'').
We are adding, as proposed, additional sub-asset classes to the
``repos'' section of Question 32 to capture a breakdown of repos by
term (e.g., overnight, other than overnight, and open term). Hedge
funds often borrow cash overnight and pledge securities such as
government bonds as collateral. Collecting more information on the
different types of repos held by qualifying hedge funds will allow the
Commissions and FSOC to understand better the role of these funds in
potentially amplifying funding stresses and the risks associated with
short-term funding for certain trading strategies, particularly in
light of the issues the repo market experienced during the fall of 2019
and in March 2020.\309\ We did not receive comment on adding sub-asset
classes for repos.
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\309\ See, e.g., 2021 Financial Stability Oversight Council
Annual Report at 12 and 159, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
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Asset Backed Securities (``ABS'')/structured products.
As proposed, we are separating the collateralized debt obligation
(``CDO'') and collateralized loan obligation (``CLO'') sub-asset class
in Question 32 into two separate sub-asset classes (one for CDOs and
one for CLOs), and further breaking out each of these new sub-asset
classes based on the seniority of the instrument (e.g., senior,
mezzanine, and junior tranches) similar to the reporting approach on
the CFTC's Form CPO-PQR.\310\ The changes are designed to provide
separate reporting for CDOs and CLOs, which is important because CDOs
and CLOs are fundamentally different financial products and the current
combined reporting obscures the specific attributes of each product.
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\310\ See Form PF Glossary of Terms (definitions of ``CDO'' and
``CLO''). We are separating the current definition of ``CDO/CLO''
into a separate definition for each financial product. The
definition of CDO only includes collateralized debt obligations
(including cash flow and synthetic) and the definition of CLO
includes collateralized loan obligations (including cash flow and
synthetic) other than MBS and does not include any positions held
via CDS. See also supra footnote 308 (regarding the alignment of
Form PF with Form CPO-PQR).
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One commenter supported the disclosure of CDOs and CLOs as separate
sub-asset classes because of the different investment and risk
characteristics of these assets and the systemic risks associated with
both asset classes.\311\ We agree. Furthermore, given the recent focus
on CLOs by FSOC \312\ in monitoring systemic risk, having detailed
product specific data for CDOs and CLOs is justified due to the
potential value this information can provide for systemic risk
monitoring.
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\311\ NASAA Comment Letter.
\312\ See United States Government Accountability Office, Report
to Agency Officials, ``FINANCIAL STABILITY Agencies Have Not Found
Leveraged Lending to Significantly Threaten Stability but Remain
Cautious Amid Pandemic,'' Dec. 2020, available at https://www.gao.gov/assets/gao-21-167.pdf.
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Credit, Foreign Exchange, Interest Rate, and Other Derivatives.
We are revising, as proposed, the credit, foreign exchange, and
interest rate and other derivative sub-asset classes to provide more
detailed reporting. For example, with respect to credit derivatives,
the amended sub-asset classes will collect more detail on single name
CDS exposure to capture better information on risk signals from these
instruments by adding separate sub-asset classes for sovereign single
name CDS, financial institution single name CDS, and other single name
CDS (to capture any credit derivatives that do not fall into the other
enumerated CDS categories).\313\ An increase in single name CDS
exposure may signify a bet against an entity or the market more
generally, which may have significant systemic risk implications,
particularly with respect to concentrated single-issuer positions that
can drive more extreme price movements and face difficulties in the
unwinding process, and for counterparties on the other side of highly
leveraged trades when the market moves against these positions.\314\
Furthermore, single name CDS exposure can represent important,
concentrated risk positions for a fund, similar to large single equity
positions, which can be connected to market contagion events, and have
systemic risk and market liquidity implications.
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\313\ See also Form PF Glossary of Terms (revised definition of
``single name CDS''). We are also removing ``credit derivatives''
and ``risk limiting conditions'' as defined terms because they are
no longer used in the form.
\314\ The CFTC's Form CPO-PQR also requests information on
single name financial CDS, and the revised IOSCO Global Fund
Investment Survey also collects this information.
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Similarly, we are adding more detailed reporting for foreign
exchange derivatives by adding separate sub-asset classes for foreign
exchange swaps and currency swaps consistent with reporting to the Bank
for International Settlements (``BIS''), while removing the less useful
requirement of separate reporting for foreign exchange derivatives used
for investment and hedging, as we have found the data of limited value
because we do not believe that information is reported consistently
across filers.\315\ Adding separate reporting for different types of
foreign exchange instruments (e.g., foreign exchange swaps and currency
swaps) is appropriate because they have materially different risk
characteristics, including different maturity profiles, and may be
executed under different documentation which could affect their ability
to be netted against one another. We refer to the BIS framework because
we understand that it reflects a commonly accepted industry approach
for classifying these instruments. Furthermore, given the significance
of hedge funds' exposure to these instruments, more granular
information will better inform our understanding of systemic risk
issues that may arise from
[[Page 18017]]
holdings in these different types of instruments.
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\315\ In connection with these changes, we are also adopting
changes to the definition of ``foreign exchange derivative'' to
improve data quality with respect to how advisers report foreign
exchange derivative exposure. We are revising the definition to (1)
now include any derivative whose underlying asset is a currency
other than the base currency of the reporting fund, (2) provide
additional information on the treatment of cross-foreign exchange
versus regular foreign exchange, and (3) require reporting of both
legs of cross currency foreign exchange derivatives to reflect
exposures from such transactions. See Form PF Glossary of Terms
(revised definition of ``foreign exchange derivative'').
---------------------------------------------------------------------------
We are also dividing the current ``interest rate derivatives'' sub-
asset class into ``U.S. dollar interest rate derivatives'' and ``non-
U.S. currency interest rate derivatives.'' This added sub-asset class
granularity is important because we have found that Form PF data
consistently shows interest rate derivatives as the sub-asset class to
which qualifying hedge funds have the greatest exposure over time. A
better understanding of whether these exposures are related to the U.S.
dollar yield curve or other countries' yield curves is important from a
systemic risk analysis perspective. Finally, we are adding new sub-
asset classes for various types of derivatives that are regularly used
by hedge funds including correlation derivatives, inflation
derivatives, volatility derivatives, and variance derivatives, which
will both provide additional insight into how qualifying hedge funds
use these types of financial instruments and further limit the number
and type of derivatives that advisers report in the ``catch-all''
``other derivatives'' category.\316\
---------------------------------------------------------------------------
\316\ In connection with these amendments, we are also adding
new definitions to the Glossary of Terms for ``correlation
derivative,'' ``inflation derivative,'' ``volatility derivative,''
and ``variance derivative.'' See Form PF Glossary of Terms.
---------------------------------------------------------------------------
More detailed reporting of currency exposure arising from foreign
exchange derivatives is important for systemic risk. The requirement to
select the sub-asset class that best represents the investment will
address concerns about any burdens associated with obtaining this
information.
Although one commenter generally opposed the inclusion of
additional sub-asset classes,\317\ we did not receive comment on these
particular sub-asset class revisions. As discussed more fully above in
the context of particular amendments to the sub-asset class list, the
amendments to the sub-asset class list that we are adopting more
accurately reflect a fund's holding than other data sources and current
Form PF reporting and are important for systemic risk analysis.
Understanding sub-asset class exposure on a more granular level will
enhance our understanding of qualifying hedge funds' investment
exposures to different asset classes and instruments that may present
different systemic risks. These amendments will also enhance data
quality by reducing the asset reporting that is currently made in
``catch-all'' categories or less precise categories, such as a
sovereign single name CDS that would currently be categorized more
generically as a single name CDS.
---------------------------------------------------------------------------
\317\ See SIFMA Comment Letter.
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Cash and Commodities.
We are adopting, as proposed, revisions to the sub-asset class
categories for cash and commodities. We are adopting amendments to
require advisers to break out cash and cash equivalents \318\ between
U.S. currency holdings and non-U.S. currency holdings, while also
removing the current requirement to report on investments in funds for
cash management purposes (other than money market funds) because in our
experience advisers use inconsistent methods for determining whether a
private fund investment is being used for cash management purposes and
other information reported in section 2 is more useful for assessing
liquidity management (e.g., Question 38 with respect to unencumbered
cash).\319\
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\318\ Some advisers include treasuries in their reporting of
``cash'' because it was part of the current definition of ``cash and
cash equivalents.'' We are revising the definition of ``cash and
cash equivalents'' to reflect that treasuries should not be included
in the ``cash and cash equivalents'' sub-asset class. In connection
with this change we also are adding a new separate definition for
``government securities.'' See Form PF Glossary of Terms (revised
definition of ``cash and cash equivalents'' and definition of
``government securities''). See also discussion at section II.B.2 of
this Release regarding the revised definitions of cash and cash
equivalents and government securities.
\319\ Additionally, in many cases we will be able to obtain more
information about all internal fund investments (including whether a
fund looks like a cash management vehicle) through the new
information the amendments require to be reported in section 1b. See
discussion at section II.B.2 of this Release.
---------------------------------------------------------------------------
One commenter supported separate reporting of U.S. Treasury
security holdings and cash and cash equivalents on the basis that
including these asset classes together can obscure information about a
fund's holdings.\320\ Another commenter opposed the proposed revision
to the definition of ``cash and cash equivalents'' to remove treasury
securities on the basis that such an exclusion would be inconsistent
with market practice of treating short-term treasury securities as a
cash equivalent for risk management and cash management purposes.\321\
It is important to understand a reporting fund's exposure to treasury
securities distinct from its cash and cash equivalent holdings because
of the different risk profiles of these asset categories, as
demonstrated by recent market events.\322\ We continue to believe that
removing the treasury securities from the definition of ``cash and cash
equivalents'' is appropriate and will provide more useful data and
promote consistency across filers.
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\320\ See AFREF Comment Letter I.
\321\ MFA Comment Letter II.
\322\ See, e.g., Group of Thirty Working Group on Treasury
Market Liquidity, U.S. Treasury Markets: Steps Toward Increased
Resilience, (2021), available at https://group30.org/publications/detail/4950 (discussing recent market stress events in the U.S.
Treasury securities market).
---------------------------------------------------------------------------
Additionally, we are broadening the current power commodity sub-
asset classes to also capture other energy commodities and add
additional commodity sub-asset classes (e.g., other (non-gold) precious
metals, agricultural commodities, and base metal commodities) to
provide added granularity with respect to these financial products
given their potential systemic risk implications and to better inform
our and FSOC's understanding of the activities of hedge funds in these
important commodities markets. We have found that a limitation of the
current form is that very different commodities (e.g., wheat and
nickel) are reported together in the same sub-asset class (i.e.,
``other commodities'') making the reported data less meaningful for
analysis. With added granularity, we will be in a better position to
identify concentrated exposures to particular commodities, data that
could be valuable in the event of a dislocation in a particular
commodity market.\323\ The additional commodity sub-asset classes that
we are adding, i.e., other (non-gold) precious metals, agricultural
commodities, and base metal commodities, were chosen because they are
most relevant from a systemic risk perspective given the size of these
markets and what we currently know of hedge fund exposures to these
markets.\324\ We did not receive
[[Page 18018]]
comments on these proposed changes to the commodity sub-asset classes.
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\323\ For example, we believe the addition of a base metal
commodities sub-asset class will allow for identification of large
players in the base metals market (such as those impacted by the
Mar. 2022 ``nickel squeeze''). During the Mar. 2022 ``nickel
squeeze,'' the price of nickel rose unusually steeply and rapidly in
response to commodity price increases caused by Russia's invasion of
Ukraine, and this event, coupled with one or more market
participants holding large short positions, caused prices to
increase in an extreme manner (e.g., a one-day increase of 63% for
the generic first futures contract on Mar. 7, 2022). See, e.g.,
Shabalala, Zandi, Nickel booms on short squeeze while other metals
retreat, Reuters (Mar. 2022), available at https://www.reuters.com/markets/europe/lme-nickel-jumps-another-10-after-record-rally-supply-fears-2022-03-08/; Nagarajan, Shalini, Nickel Trading Halted
at LME Until Friday After Wild Price Spike (businessinsider.com)
(Mar. 2022), available at https://markets.businessinsider.com/news/
commodities/nickel-price-london-metal-exchange-suspends-trading-
shanghai-short-squeeze-2022-
3#:~:text=The%20London%20Metal%20Exchange%20has,17%25%20to%20their%20
daily%20limit.
\324\ These adopted changes with respect to commodities sub-
asset classes will also better align Form PF with Form CPO-PQR.
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Digital Assets.
We are adopting, as proposed, a new sub-asset class for digital
assets. However, as discussed more fully above in section II.B.3 of
this Release, we are not adopting the proposed definition of ``digital
assets.'' \325\ We have observed the growth as well as the volatility
of this asset class in recent years.\326\ We understand that many hedge
funds have been formed recently to invest in digital assets, while many
existing hedge funds are also allocating a portion of their portfolios
to digital assets.\327\ Accordingly, it is important to collect
information on funds' exposures to digital assets in order to
understand better their overall market exposures. Although we are not
adopting the proposed definition of ``digital assets'' at this time, we
are adding an instruction to Question 32 that states if a particular
asset could be classified as both a digital asset and another asset,
the adviser should report the asset as the non-digital asset. For
example, a money market fund that is traded on a blockchain should be
reported as a money market fund, rather than as a digital asset. This
is designed to reduce potential confusion, narrow the assets that are
reported as digital assets under the form and improve data quality.
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\325\ See discussion at section II.B.3 of this Release.
\326\ The global market for crypto assets is valued by some
estimates at approximately $900 billion as of Dec. 2022. See, e.g.,
Global Cryptocurrency Market Cap Charts, CoinGecko, available at
https://www.coingecko.com/en/global-charts (last visited on Oct. 12,
2023). Volatility in the price of crypto assets has caused this
number to fluctuate considerably over the past few years. For
example, in July of 2020 the market was estimated to be worth
approximately $276 billion, but went on to reach a peak value of
approximately $3 trillion by Nov. 2021. Id.
\327\ See C. Williamson, Managers Taking Bigger Steps Into
Crypto, Pensions & Investments (Mar. 2022), available at at https://www.pionline.com/cryptocurrency/hedge-fund-managers-taking-bigger-steps-cryptocurrehttps://www.pionline.com/cryptocurrency/hedge-fund-managers-taking-bigger-steps-cryptocurrency.
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One commenter recommended requiring disclosure of digital asset
exposure on a quarterly or biannual basis for all filers due to the
general volatility of digital assets and the potential for systemic
risk.\328\ All large hedge fund advisers are required to file Form PF
on a quarterly basis, so we will receive data on digital asset exposure
from these filers on a quarterly basis. In addition, as discussed more
fully above in section II.B.3 of this Release, we are adopting
amendments which require all hedge fund advisers, including large hedge
fund advisers, to disclose the reporting fund's use of digital asset
investment strategies.
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\328\ AFREF Comment Letter I.
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Open and Large Position Reporting.
We are adopting, as proposed, amendments to require advisers to
qualifying hedge funds to report the top five long and short netted
positions and the top ten netted long and short positions. This
amendment will provide a holistic view of a reporting fund's portfolio
concentration. We also understand that these are commonly used industry
metrics for assessing portfolio concentration levels. We are defining
``netted exposure'' as the sum of all positions with legal and
contractual rights that provide exposure to the same reference asset,
taking into account all positions, including offsetting and partially
offsetting positions, relating to the same reference asset (without
regard to counterparties or issuers of a derivative or other instrument
that reflects the price of the reference asset), as proposed.\329\
Currently, advisers to qualifying hedge funds are required to report
(1) a fund's total number of ``open positions'' determined on the basis
of each position and not with reference to a particular issuer or
counterparty,\330\ and (2) the percentage of a fund's net asset value
and sub-asset class for each open position that represents five percent
or more of a fund's net asset value.\331\ Advisers to qualifying hedge
funds will now be required to report (1) the total number of reference
assets to which a fund holds long and short netted exposure, (2) the
percentage of net asset value represented by the aggregate netted
exposures of reference assets with the top five long and short netted
exposures, and (3) the percentage of net asset value represented by the
aggregate netted exposures of reference assets representing the top ten
long and short netted exposures. These amendments are designed to
provide insight into the extent of a fund's portfolio concentration and
large exposures to any reference assets. We have found that advisers
use different methods for identifying and counting their ``open
positions,'' which has made making meaningful comparisons among funds
difficult. This has also potentially obscured certain large exposures,
which may make concentration assessments less exact. For example, an
``open position'' might indicate a position held physically, or
synthetically through derivatives, or both.
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\329\ Netted exposure to a reference asset may either be long or
short, and advisers will be required to determine the value of each
netted exposure to each reference asset in U.S. dollars, expressed
as the delta adjusted notional value, or as the 10-year bond
equivalent for reference assets that are fixed income assets.
Advisers will not report exposure to cash and cash equivalents. See
Question 39. See also Form PF Glossary of Terms (definition of
``netted exposure'').
\330\ Current Question 34.
\331\ Current Question 35.
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Advisers will also be required to provide certain information on a
fund's reference asset to which the fund has gross exposure (as of the
end of each month of the reporting period), largely as proposed, equal
to or exceeding (1) one percent of net asset value, if the reference
asset is a debt security and the reporting fund's gross exposure to the
reference asset exceeds 20 percent of the size of the overall debt
security issuance, (2) one percent of net asset value, if the reference
asset is a listed equity and the reporting fund's gross exposure to the
reference asset exceeds 20 percent of average daily trading volume
measured over 90 days preceding the reporting date, or (3) (a) five
percent of the reporting fund's net asset value or (b) $1 billion.\332\
Advisers will be required to report: (1) the dollar value (in U.S.
dollars) of all long and the dollar value (in U.S. dollars) of all
short positions with legal and contractual rights that provide exposure
to the reference asset; (2) netted exposure to the reference asset; (3)
sub-asset class and instrument type; (4) the title or description of
the reference asset; (5) the reference asset issuer (if any) name and
LEI; (6) CUSIP (if any); \333\ and (7) if the reference asset is a debt
security, the size of issue, and if the reference asset is a listed
equity, the average daily trading volume, measured over 90 days
preceding the reporting date, as proposed. Additionally, advisers may
at their option choose to provide the FIGI for the reference asset, but
they are not required to do so.\334\ We are defining ``gross exposure''
to a ``reference asset'' as the sum of the absolute value of all long
and short positions with legal and contractual rights that provide
exposure to the reference asset, as proposed.\335\ We considered
varying levels of thresholds and believe that the thresholds described
above are appropriate based on the following
[[Page 18019]]
reasoning. First, the five percent threshold has been carried over from
the current version of Form PF and is also a commonly used metric for
identifying significant positions in a portfolio.\336\ In addition,
while a portfolio is generally viewed as diversified when it holds at
least 20 different positions, when a position goes above five percent
it reduces portfolio diversification. Second, the $1 billion threshold
represents a level for large funds (e.g., those with net asset values
in excess of $20 billion) that is large enough so as to have potential
systemic risk implications even if the position is less than five
percent of the fund. Finally, the one percent of net asset value and 20
percent of issuance or average trading volume thresholds are aimed at
limiting filer burdens while still providing insight into the risks
associated with a position that may be small relative to a fund's
overall portfolio, but which constitutes a large fraction of the market
for a particular holding, given that a liquidation by one fund can
trigger a disorderly liquidation. A disorderly liquidation of this kind
may raise systemic risk concerns as it may lead to liquidation losses
at other funds for which the position is more impactful and possibly
lead to a cascade of additional unwinds.
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\332\ In a modification from the proposal, the adopted
instructions add reference to the size of the overall debt security
issuance (emphasis added) to specify the appropriate calculation.
Further, the reference to a ``listed equity security'' has been
modified to ``listed equity'' to align with the defined term used in
the Glossary of Terms.
\333\ Advisers will also be required to provide at least one of
the following other identifiers: (1) ISIN; (2) ticker if ISIN is not
available); or (3) other unique identifier (if ticker and ISIN are
not available). For reference assets with no CUSIP, or other
identifier, advisers will be required to describe the reference
asset. See Question 40(a).
\334\ See Question 40(a)(xi).
\335\ See Question 40 and Form PF Glossary of Terms (revised
definition of ``gross exposure'').
\336\ E.g., Schedule 13G/13D uses a 5% threshold.
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The purpose of these amendments is to improve our ability to assess
the magnitude of hedge fund portfolio concentration, as well as to
identify directional exposure. From a systemic risk and an investor
protection perspective, high portfolio concentration carries the risk
of amplified losses that can occur when a fund's investment represents
a large portion of a particular investment, asset class, or market
segment. Leveraged portfolios further amplify this risk. The amendments
are designed to better capture a fund's concentration risk (e.g., where
gross exposure to a reference asset is large compared to the fund's NAV
and/or compared to the market for a reference security). Reporting
positions that are large compared to market size also may provide some
insight about whether multiple firms are ``crowding'' into trades in
certain types of securities or other financial assets. Such
``crowding'' may increase the risk that one fund's forced selling may
trigger systemic effects across a particular market.
Collecting information about the composition of exposure to a
reference asset will allow us and FSOC to link the information reported
in Question 40 to exposure reporting in Question 32, which will give
the reported data added context and facilitate understanding of a
fund's investment portfolio and assessment of any implications for
systemic risk and investor protection purposes. For example, in a
convertible arbitrage trade involving a position in a convertible bond
and an offsetting position in the equity securities of the same issuer,
reference asset exposure might be obtained by positions in two
different sub-asset classes (i.e., investment grade convertible bonds
and equities) and using a combination of instrument types (e.g.,
physical ownership and futures or a swap). The combination of
information reported in Question 32 and Question 40 will facilitate our
ability to identify this type of situation, better understand a
qualifying hedge fund's investment approach and whether it is taking on
concentrated positions (potentially with leverage), and assess whether
or not a qualifying hedge fund's activities may have systemic risk or
investor protection implications.
One commenter stated that more granular disclosure of holdings,
including both long and short positions, will provide a more complete
picture of the risk exposure across private funds and can help the SEC
enforce fraud and manipulation of security-based swaps.\337\ Some
commenters opposed the requirements for more detailed disclosure of
holdings on the basis that more granular disclosure would be costly to
report and is not needed for systemic risk assessment.\338\ For reasons
discussed above, more granular information about a fund's exposure to a
reference asset will allow us and FSOC additional context to facilitate
understanding of a fund's investment portfolio and assessment of any
implications for systemic risk and investor protection purposes, which
justifies any incremental cost to advisers. One commenter recommended
not requiring reporting on exposures on a gross basis because of the
potential for gross figures to overstate a fund's exposure.\339\
Advisers are required to report exposures on a gross and net basis
because reporting on either a gross or net basis only would limit our
understanding of the total risk exposure, for example any basis risk of
the exposure.
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\337\ AFREF Comment Letter I.
\338\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter;
AIMA/ACC Comment Letter. See infra section IV.C of this Release for
discussion of costs and benefits of the amendments.
\339\ MFA Comment Letter II.
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In response to a request for comment in the proposing release
regarding the use of FIGI as a substitute for CUSIP, one commenter
recommended the inclusion of FIGI as an alternative financial
identifier in lieu of CUSIP in Question 40, which requires advisers to
report CUSIP information for each reference asset, if available.\340\
Two commenters opposed permitting the use of FIGI in lieu of CUSIP
stating that CUSIP is a single fungible identifier, whereas FIGI is not
a single fungible identifier and produces multiple identifiers
depending on the venue of execution.\341\ We agree that, for reporting
on Form PF, a fungible identifier is preferable because it will allow
for more consistent reporting of assets than a nonfungible identifier
regardless of the venue of execution, resulting in more effective
monitoring and assessment of systemic risk. We are not adopting a
change to permit the substitution of FIGI for CUSIP. Question 40
continues to require advisers to report for each reference asset the
CUSIP, if any, and at least one of the following identifiers: ISIN,
ticker, if ISIN is not available, or other unique identifier, if ISIN
and ticker are not available.\342\ Advisers may, on an optional basis,
report for each reference asset the FIGI.\343\ For reference assets
with no CUSIP or other identifier, advisers are required to describe
the reference asset.\344\
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\340\ Bloomberg Comment Letter. Form PF Question 65 also
requires large liquidity fund advisers to report the CUSIP number
for each security held by the reporting fund and for each security
subject to a repo.
\341\ See, e.g., American Bankers Association Comment Letter
(Oct. 11, 2022); Comment Letter of CUSIP Global Services (Oct. 11,
2022).
\342\ Question 40.
\343\ Id.
\344\ Id. We encourage advisers to obtain financial identifiers
for all of their assets for the benefit of their investors when
reporting their investments to regulatory authorities and others.
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b. Borrowing and Counterparty Exposure
Counterparty exposure. As noted above, we are revising and
enhancing how advisers report information about their relationships
with creditors and other counterparties (including CCPs) and the
associated collateral arrangements for their hedge funds, largely as
proposed.\345\ For qualifying hedge funds, we are adopting, as
proposed, a new consolidated counterparty exposure table, similar to
the new consolidated counterparty exposure table adopted for hedge
funds in section 1c of the form,\346\ which will capture all cash,
securities, and synthetic long and short positions by a reporting fund,
a fund's credit exposure
[[Page 18020]]
to counterparties, and amounts of collateral posted and received. This
table replaces the information currently required by current Questions
43, 44, 45, and 47, each of which has been deleted.\347\ Questions 42
and 43 will continue to collect information about a reporting fund's
key individual counterparties, but in more detail. These revisions are
designed to improve data quality and comparability, close data gaps,
and provide better insight into qualifying hedge funds' borrowing and
financing relationships, their credit exposure to counterparties and
collateral practices. They also will enhance the Commissions' and
FSOC's ability to assess the activities of qualifying hedge funds and
their counterparties for investor protection purposes and in monitoring
systemic risk.
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\345\ See discussion at section II.B.3 of this Release.
\346\ Id.
\347\ In connection with the removal of current Question 44, we
have made a corresponding amendment to current Question 13
(redesignated as Question 19), to remove an instruction that is no
longer relevant.
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The new consolidated counterparty exposure table is designed to
capture information on all non-portfolio credit exposure that a
qualifying hedge fund has to its counterparties (including CCPs) and
the exposure that creditors and other counterparties have to the fund,
taking into account netting. The new table requires advisers to report
in U.S. dollars, as of the end of each month of the reporting period, a
qualifying hedge fund's borrowings and other transactions with
creditors and other counterparties by type of borrowing or transaction
(e.g., unsecured, secured borrowing and lending under a prime brokerage
agreement, secured borrowing and lending via repo or reverse repo,
other secured borrowing and lending, derivatives cleared by a CCP, and
uncleared derivatives) and the collateral posted or received by a
reporting fund in connection with each type of borrowing or other
transaction.\348\ The table also requires advisers to qualifying hedge
funds to (1) classify each type of borrowing by creditor type (i.e.,
U.S. depository institution, U.S. creditors that are not depository
institutions, and non-U.S. creditors); (2) classify posted collateral
by type (e.g., cash and cash equivalents, government securities,
securities other than cash and cash equivalents and government
securities and other types of collateral or credit support (including
the face amount of letters of credit and similar third party credit
support) received and posted by a reporting fund, and secured borrowing
and lending (prime brokerage or other brokerage agreement)), and (3)
report, at the end of each month of the reporting period, the expected
increase in collateral required to be posted by the reporting fund if
the margin increases by one percent of position size for each type of
borrowing or other transaction, as proposed. Measuring the impact of a
one percent margin change will allow for a meaningful assessment of
qualifying hedge funds' vulnerability to changes in financing costs and
identification of funds that are most sensitive to potential margin
changes. We also believe that measuring this impact will provide a
standardized way to obtain data on funds' vulnerability to margin
increases that is easy to scale up for analysis purposes and allows for
uniform comparisons across hedge funds to see which funds have lockup
agreements and which funds do not. Furthermore, the table consolidates
current Questions and provides more specific instructions in an effort
to eliminate information gaps and improve the reliability of data
collected. This new approach will collect better information about a
qualifying hedge fund's borrowing and financing, cleared and uncleared
derivatives positions, and collateral practices as well as a fund's
credit exposure to counterparties resulting from excess margin,
haircuts, and positive mark-to-market derivatives transactions, which
will enhance FSOC's systemic risk assessments.
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\348\ The instructions direct advisers to classify borrowings
and other transactions and associated collateral based on the
governing legal agreement (e.g., a prime brokerage or other
brokerage agreement for cash margin and securities lending and
borrowing, a global master repurchase agreement for repo/reverse
repo, and ISDA master agreement for synthetic long positions,
synthetic short positions and other derivatives), and instruct
advisers how to report when there is cross-margining under a fund's
prime brokerage agreement. We are also adding new definitions of
``synthetic long position'' and ``synthetic short position'' to the
Glossary of Terms. See Form PF Glossary of Terms (definitions of
``synthetic long position'' and ``synthetic short position'').
Additionally, the instructions permit advisers to net a reporting
fund's exposure with each counterparty and across affiliated
entities of a counterparty to the extent such exposures may be
contractually or legally set-off or netted across those entities
and/or one affiliate guarantees or may otherwise be obligated to
satisfy the obligations of another under the agreements governing
the transactions. The instructions also direct advisers to classify
borrowing by creditor type (e.g., percentage borrowed from U.S
depository institutions, U.S. creditors that are not U.S depository
institutions, non-U.S. creditors) based on the legal entity that is
the contractual counterparty for such borrowing and not based on
parent company or other affiliated group.
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Some commenters opposed the requirement to provide additional
detail regarding counterparty exposure and stated that the information
would be burdensome and costly to obtain.\349\ We continue to believe
that disaggregated counterparty exposure is important to systemic risk
monitoring efforts for the reasons discussed above. This information
will not be significantly burdensome to produce as we understand
knowledge of counterparties to be a component of a fund's basic risk
management practices.
---------------------------------------------------------------------------
\349\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
SIFMA Comment Letter.
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Significant counterparty reporting. We are adopting, as proposed
except as specifically indicated below, amendments to require advisers,
for each of their qualifying hedge funds, to identify all creditors and
counterparties (including CCPs) where the amount a fund has borrowed
(including any synthetic long positions) before posted collateral
equals or is greater than either (1) five percent of the fund's net
asset value or (2) $1 billion.\350\ This threshold is appropriate
because it highlights two different but potentially significant risks.
First, five percent of a fund's net asset value represents an amount of
borrowing that, if repayment was required, could be a significant loss
of financing that could result in a forced unwind and forced sales from
the reporting fund's portfolio. Second, $1 billion represents an amount
that, in the case of a very large fund, may not represent five percent
of the fund's net asset value, but may be large enough to create stress
for certain of its counterparties.
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\350\ See Question 42. Advisers will use calculations performed
to complete the new table in Question 41 for purposes of identifying
the counterparties to be reported in Question 42 and Question 43,
and the calculation method is designed to be similar to the
calculations used to identify counterparties in Question 27 and
Question 28 in order to facilitate aggregation and analysis of data
across hedge funds and qualifying hedge funds. Furthermore, if more
than five counterparties meet the threshold, advisers will be
required to complete an individual counterparty exposure table for
the top five creditors or other counterparties to which a reporting
fund owed the greatest amount in respect of cash borrowing entries
(before posted collateral), and also identify all other creditors
and counterparties (including CCPs) to which the reporting fund owed
an amount in respect of cash borrowing entries (before posted
collateral) equal to or greater than either (1) 5% of the reporting
fund's net asset value as of the data reporting date or (2) $1
billion. See also Form PF Glossary of Terms (definitions of ``cash
borrowing entries'' and ``collateral posted entries'').
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This change is designed to specify how securities held should be
treated, avoiding a common source of error in how advisers have
completed the current form, and allowing both counterparty risks
related to collateralized transactions to be viewed in one place, i.e.,
the risk that collateral will not be returned, and the risk that the
borrower of cash will fail to repay the amount borrowed, risks that we
have found cannot be fully observed
[[Page 18021]]
based on information collected on the current form. For the top five
creditors and other counterparties from which a fund has borrowed the
most (including any synthetic long positions) before posted collateral,
advisers will be required to identify the counterparty (by name, LEI,
and financial institutional affiliation) and to provide information
detailing a fund's transactions and the associated collateral. We are
adopting a ``top five'' reporting threshold as this level is consistent
with the current threshold for reporting on collateral practices on
Form PF, and it represents a level that indicates significant
counterparty exposure.\351\
---------------------------------------------------------------------------
\351\ See Question 42.
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Advisers will be required to present this information using an
individual counterparty exposure \352\ table that follows the same
format as the new consolidated counterparty exposure table described
above for Question 41, including borrowings and other transactions by
type and collateral posted and received by type. For all other
creditors and counterparties from which the amount a fund has borrowed
(including any synthetic long positions) before posted collateral that
equals or is greater than either (1) five percent of the fund's net
asset value or (2) $1 billion, advisers will be required to identify
each counterparty (by legal name, LEI, and financial institution
affiliation) and report the amount of such borrowings and the
collateral posted by the fund in U.S. dollars.\353\
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\352\ In connection with the amendment, we are adding a new
definition for ``individual counterparty exposure table'' to the
Form PF Glossary of Terms.
\353\ In a change from the proposal, we have modified the
reference from name to legal name to specify that the adviser should
report the relevant counterparty's legal name. This modification
will improve data comparability by enhancing our ability to track
any individual counterparty reporting across filings. Further, in a
change from the proposal, we have modified the question to specify
that the adviser should report the legal name of the counterparty,
the counterparty LEI, if any, the borrowing by the reporting fund,
the collateral posted by the reporting fund, and the legal name of
the entity that has the exposure and its LEI, if any. This modified
question aligns the question's wording with the information that is
required to be reported in the individual counterparty exposure
tables that follow in the form.
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As discussed more fully above in section II.A.2, we are adopting
amendments that require advisers to report all trading vehicles on a
consolidated basis. After considering one commenter's recommendation,
we are tailoring certain questions about trading vehicles to help
differentiate potential risks of the reporting fund from those of its
trading vehicles.\354\ In a modification from the proposal, we are
adding an instruction to require advisers to list counterparty
exposures of trading vehicles owned by the reporting fund based on the
reporting fund's percentage ownership of such trading vehicle without
netting these exposures with those of the reporting fund if they are
not guaranteed by the reporting fund or contractual obligations of the
reporting fund.\355\ The amended instructions provide that the adviser
must also report the legal name and LEI, if any, of the entity that has
the counterparty exposure.\356\ This amended instruction will allow us
to better understand the scope of the reporting fund's exposure and
differentiate its exposures from those held by a separate entity, such
as a trading vehicle.\357\
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\354\ See Schulte Comment Letter.
\355\ See Question 42. See also Questions 43 and 44 (requiring
providing the legal name and LEI, if any, of the relevant entity
with the exposure).
\356\ See Question 42. If the reporting fund guarantees or is
contractually obligated to fulfill obligations of a trading vehicle
or affiliated private fund, such exposures are required to be
reported net with the exposures of the reporting fund. If an adviser
to an affiliated private fund separately files Form PF, such adviser
must exclude such exposures if they have been included in the
reporting fund's filing. See Question 41.
\357\ As discussed in section II.A.2 above, in a modification
from the proposal, advisers report trading vehicles on a
consolidated basis but in response to certain questions will be
required to identify the positions and counterparty exposures that
are held through a trading vehicle, which will help differentiate
the reporting fund's exposures and risks from those of its trading
vehicles.
---------------------------------------------------------------------------
As proposed, advisers will be required, for each of their
qualifying hedge funds, to identify all counterparties (including CCPs)
to which a fund has net mark-to-market counterparty credit exposure
after collateral that equals or is greater than either (1) five percent
of the fund's net asset value or (2) $1 billion.\358\ This threshold is
appropriate because both portions of the threshold highlight potential
systemic risk: five percent of net asset value is a level that
represents significant exposure (based on the impact on performance) in
the event of counterparty default, and $1 billion, while it may not
equal five percent of a large hedge fund's assets, may indicate a
larger systemic stress involving a fund's counterparties. For the top
five of these counterparties, advisers will be required to identify the
counterparty (by name, LEI and financial institution affiliation) and
provide information detailing a fund's relationship with these
counterparties including associated collateral using the same table
required for individual counterparty reporting.\359\ In a modification
from the proposal, advisers will also be required to report the
borrowing by the reporting fund and the collateral posted by the
reporting fund. These modifications are intended to align the question
text with the information that is required to be reported in the
counterparty exposure table. Further, in a modification from the
proposal, an adviser will also be required to report the legal name of
the entity that has the counterparty exposure and its LEI, if any. This
modification will allow us to better understand the scope of the
reporting fund's exposure and differentiate its exposures from those
held by a separate entity, such as a trading vehicle. As proposed,
advisers to qualifying hedge funds will also be required to identify
all other counterparties (by name, LEI, and financial institution
affiliation) to which a fund has net mark-to-market exposure after
collateral that equals or is greater than either (1) five percent of a
fund's net asset value or (2) $1 billion and will require these
advisers to report the amount of the exposure before and after
collateral posted by either the counterparty or the reporting fund as
applicable, as proposed. Further, in a modification from the proposal,
advisers will also be required to report the name and LEI, if any, of
the entity that has the counterparty exposure. The purpose of this new
requirement is to enhance our ability to understand the impact of a
particular counterparty failure, such as the counterparty failures that
occurred during the 2008 financial crisis and in the period since
(e.g., the failure of MF Global in 2011),\360\ which is important for
systemic risk assessments and from an investor protection perspective.
In assessing the risk to a fund of a counterparty default, the new data
will demonstrate whether a fund has net borrowing exposure or net
lending exposure to a counterparty. If the fund is a net borrower with
respect to a counterparty, we will measure cash borrowed by the fund
against collateral posted by fund. Alternatively, when the fund is a
net lender with respect to a counterparty, we will measure cash loaned
to the counterparty against collateral posted by the counterparty to
assess whether the counterparty has
[[Page 18022]]
posted insufficient collateral (relative to the amount borrowed).\361\
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\358\ See Question 43.
\359\ Under the amendments, however, if an adviser completes the
table in Question 42 for a particular counterparty, the adviser is
not required to complete the table twice.
\360\ See, e.g., Gapper, John and Kaminska, Izabella, Downfall
of MF Global--US broker-dealer bankruptcy highlights global reach of
eurozone crisis, Financial Times (Nov. 2011), available at https://www.ft.com/content/2882d766-06fb-11e1-90de-00144feabdc0.
\361\ See Form PF Glossary of Terms (definitions of ``cash
borrowing entries,'' ``collateral posted entries,'' ``cash lending
entries,'' and ``collateral received entries'') for a detailed
description of these calculations.
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These amendments are designed to streamline the form by
consolidating information currently collected in Question 47 into
Question 42, and to improve the quality and comparability of reported
information and our ability to integrate the data obtained for analysis
with other regulatory data sets by specifying how advisers determine
borrowing and counterparty credit exposure.\362\ The changes, in
conjunction with the new consolidated counterparty exposure table, will
also provide a better overall view of hedge funds' borrowing and other
financing arrangements and counterparty credit exposure and associated
collateral, which will provide critical insight into (1) creditor and
counterparty exposure to qualifying hedge funds through synthetic long
positions through derivatives, (2) potential gaps in margin received by
and posted by qualifying hedge funds and the size of any such gaps, (3)
qualifying hedge funds' exposure to a large counterparty failure, and
(4) the expected impact on a fund's financing arrangements of a change
in margin requirements.
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\362\ Advisers will be required to report the creditor legal
name and LEI, which will aid in the identification of counterparties
and facilitate analysis of the interconnectedness of market
participants (e.g., Form N-PORT and Form N-CEN already collect LEI
for registered investment company counterparties and including LEIs
here will facilitate analysis across data sets).
---------------------------------------------------------------------------
Finally, advisers will no longer be required to report the
percentage of the total amount of collateral and other credit support
that a fund has posted to counterparties that may be re-hypothecated as
currently required in Question 38.\363\ We are adopting this change
because this reporting is burdensome for advisers, and we have found
that the data obtained is generally not reliable because advisers
cannot easily collect and report the required information as re-
hypothecation commonly occurs from omnibus accounts into which advisers
generally do not have visibility.\364\
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\363\ We are redesignating current Question 38 as Question 45.
\364\ See MFA Letter to Chairman Clayton, Sept. 17, 2018,
available at https://www.managedfunds.org/wp-content/uploads/2020/04/MFA.Form-PF-Recommendations.attachment.final.9.17.18.pdf (noting
the rehypothecated securities are taken out of an omnibus account,
which makes reporting for advisers with any certainty difficult).
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Some commenters opposed the requirement to provide additional
detail regarding counterparty exposure and state that the information
would be burdensome and costly to obtain.\365\ One commenter
recommended limiting the additional counterparty reporting to only a
fund's top three counterparties, rather than top five as proposed.\366\
For reasons discussed above, disaggregated counterparty exposure is
important to systemic risk monitoring efforts. This information will
not be significantly burdensome to produce as we understand knowledge
of counterparties to be a component of a fund's basic risk management
practices. The additional systemic risk benefits described above of
receiving data on a fund's five largest counterparties justify the
modest additional incremental burden over reporting on the largest
three counterparties, as recommended by one commenter.\367\
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\365\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
SIFMA Comment Letter.
\366\ MFA Comment Letter II.
\367\ See also infra section IV.C for further discussion of
costs and benefits of the amendments.
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c. Market Factor Effects
We are adopting, as proposed except as specifically indicated
below, amendments to require advisers to qualifying hedge funds to
respond on Form PF to all market factors to which their portfolio is
directly exposed, rather than allowing advisers to omit a response to
any market factor that they do not regularly consider in formal testing
in connection with the reporting fund's risk management, as Form PF
currently provides.\368\ These changes are designed to enhance investor
protection efforts and systemic risk assessment by allowing the
Commissions and FSOC to track better common market factor
sensitivities, as well as correlations and trends in those market
factor sensitivities.
---------------------------------------------------------------------------
\368\ See Question 47. For market factors that have no direct
effect on a reporting fund's portfolio, we instruct filers to enter
zero.
---------------------------------------------------------------------------
We are also changing the stress thresholds to (1) require advisers
to report one threshold for each market factor, rather than two as is
currently required and (2) include different thresholds for certain
market factors to capture stress scenarios that are plausible but still
infrequent market moves.\369\ Information resulting from stress testing
at thresholds in the current form (one low and one high) was not useful
because the thresholds are either too frequent (for the lower
threshold) or too extreme and may not result in accurate estimates (for
the higher threshold). Based on our experience with this information,
we do not believe that collecting data at multiple thresholds for each
market factor is significantly more meaningful than collecting market
factor sensitivity at a single plausible but still infrequent
threshold.\370\
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\369\ For example, advisers currently are required to report the
effect of an increase or decrease in equity prices by 5% and by 20%,
while under the amendments advisers will only report the effect of a
10% increase or decrease, which is a more plausible but still
infrequent scenario.
\370\ See current Question 42.
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The amendments also add a market factor test concerning non-
parallel risk-free interest rate movements. It will test hedge fund
exposure to changes in the slope of the yield curve, which is currently
untested and can be a source of systemic risk when there are sudden
interest rate changes. For example, this market factor will provide
meaningful information on hedge funds that take complex positions, such
as market neutral strategies (e.g., basis trading in particular) and
other strategies that employ trades that take advantage of spreads in
yield curves coupled with high use of leverage. In a modification from
the proposal, we are removing the risk-free interest rates market
factor reporting and instead adding an instruction to specify that,
with respect to the market factor concerning non-parallel risk-free
interest rate movements, the sum of all reported non-parallel risk-free
interest rate sensitivities for a given rate movement should total the
portfolio's sensitivity to a parallel risk-free interest rate movement
of that magnitude to reduce burdens. This modification will reduce the
burden on advisers by eliminating a required reporting item and will
not diminish data quality because with the added instruction, we can
derive the total parallel risk-free rate sensitivity from the non-
parallel risk-free interest rate movement market factor.
We are also revising the instructions so advisers will be required
to report the long component and short component consistently with
market convention, rather than opposite from market convention, as Form
PF currently requires, in order to reduce inadvertent mistakes in
completing the form.\371\
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\371\ We are amending the instructions to provide that ``risk-
free interest rates'' include interest rate swap rates in which a
fixed rate is exchanged for a risk-free floating rate such as the
secured overnight financing rate (``SOFR'') or the sterling
overnight index average (``SONIA''). Additionally, we are amending
the instructions to specify that (1) for market factors involving
interest rates and credit spreads, advisers should separate the
effect on its portfolio into long and short components where (i) the
long component represents the aggregate result of all positions
whose valuation changes in the opposite direction from the market
factor under a given stress scenario, and (ii) the short component
represents the aggregate result of all positions whose valuation
changes in the same direction as the market factor under a given
stress scenario, and (2) for market factors other than interest
rates and credit spreads, advisers should separate the effect on its
portfolio into long and short components where (i) the long
component represents the aggregate result of all positions whose
valuation changes in the same direction as the market factor under a
given stress scenario and (ii) the short component represents the
aggregate result of all positions whose valuation changes in the
opposite direction from the market factor under a given stress
scenario. See Question 47.
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[[Page 18023]]
We are making two modifications to the proposal. First, we are
adding an instruction that when reporting exposures to changes in
market factors for indirect positions, an adviser may use reasonable
estimates that best represent the exposure to the market factor,
consistent with the adviser's internal methodologies and conventions of
service providers. This is responsive to commenters that suggested the
proposal was unclear in certain questions as to whether an adviser is
required to ``look through'' the fund's investments.\372\ Second, as
discussed further above, we are removing the risk-free interest rates
market factor and instead adding an instruction to specify that, with
respect to the market factor concerning non-parallel risk-free interest
rate movements, the sum of all reported non-parallel risk-free interest
rate sensitivities for a given rate movement should total the
portfolio's sensitivity to a parallel risk-free interest rate movement
of that magnitude. Some commenters opposed the amendments requiring
advisers to report on all listed market factors, including any market
factors that the adviser does not regularly consider in its stress
testing.\373\ Currently, the wording of the instructions allows an
adviser to omit a response in the event the adviser tested a similar,
but not identical, market factor. Accurate and complete reporting of
all market factors will provide important systemic risk information. We
do not believe this amended requirement will significantly burden
advisers because an adviser will only be required to stress test risk
factors to which their portfolios are directly exposed and are
instructed to report zero for any inapplicable market factors. Further,
the modified instruction we are adopting, which permits an adviser to
use reasonable estimates that best represent the market factor exposure
for indirectly held positions, will alleviate some of the burden of
reporting this additional information.
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\372\ MFA Comment Letter III.
\373\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
Schulte Comment Letter; USCC Comment Letter.
---------------------------------------------------------------------------
d. Additional Amendments to Section 2
Currency exposure reporting. We are adopting, as proposed except as
specifically indicated below, amendments to require qualifying hedge
funds to report for each month of the reporting period, in U.S.
dollars, (1) the net long value and short value of a fund's currency
exposure arising from foreign exchange derivatives and all other assets
and liabilities denominated in currencies other than a fund's base
currency, and (2) each currency to which the fund has long dollar value
or short dollar value exposure equal to or exceeding either (a) five
percent of a fund's net asset value or (b) $1 billion.\374\ In
responding, advisers will be required to include currency exposure
obtained indirectly through positions held in other entities (e.g.,
investment companies, other private funds, commodity pools or other
companies, funds, or entities) and may report reasonable estimates if
consistent with internal methodologies and conventions of service
providers.\375\ In a change from the proposal, we are adding an
instruction to specify that an adviser may report the data that ``best
represents'' the currency exposure from any indirect investments to
lessen the reporting burden, as long as such estimates are consistent
with the adviser's internal methodologies and conventions of service
providers. This currency exposure requirement is designed to provide
insight into whether notional currency exposures reported by qualifying
hedge funds in Question 33 represent directional exposure or are hedges
of equity and/or fixed income positions. This new question will allow
us to understand whether a qualifying hedge fund's portfolio is exposed
to a given currency, and it will also provide a view into the fund's
currency exposure resulting from holdings in foreign securities (e.g.,
Eurobonds). While current Question 30 already requires advisers to
separate currency exposure relating to hedging from other currency, we
have found that this data has not been very useful for determining
whether a currency position is speculative or a hedge. Additionally, it
is important to consider a qualifying hedge fund's currency exposure to
identify vulnerabilities to currency fluctuations and market events
that affect different countries and regions. Finally, the threshold of
either (1) five percent of a fund's net asset value or (2) $1 billion
for reporting individual currency exposure is appropriate because it
represents, in each prong of the threshold, a material level of
portfolio exposure to currency risk at which a deterioration in the
value of a particular currency could have a significant negative impact
on a fund's investors. We also believe that if multiple large funds
have significant exposure to a currency that is rapidly devaluing, this
circumstance could raise financial stability concerns, and this
reporting will better enable review of this type of situation. More
broadly, we also will be able to use the information obtained to
identify concentrations in particular currencies and assess the
potential impact of market events that affect particular currencies.
---------------------------------------------------------------------------
\374\ See Question 33.
\375\ This instruction is designed to simplify and reduce the
burdens of reporting sub-asset class exposures. Furthermore,
advisers are permitted to provide good faith estimates and take
currency hedges into account, if consistent with their internal
methodologies and information reported internally and to investors.
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One commenter discussed the systemic risk concerns present in
currency exposures, particularly as demonstrated by recent geopolitical
events and resulting currency fluctuations.\376\ Other commenters
opposed the proposed requirement to report currency exposure stating
the information would be of limited value and burdensome to
report.\377\ Some commenters stated that reporting indirect currency
exposure accurately may be difficult because of potential variations in
timing or foreign exchange rate sources, which could lead to inaccurate
data and false indicators of risk.\378\ The modified instruction that
we are adopting, which provides that an adviser may report the data
that ``best represents'' the currency exposure from any indirect
investments, clarifies the reporting requirement and will alleviate
some of the reporting burden. More detailed reporting of currency
exposure is important for systemic risk purposes. This belief is
reinforced by recent experiences of currency fluctuation in the
aftermath of geopolitical events that we have observed.
---------------------------------------------------------------------------
\376\ Fact Coalition Comment Letter.
\377\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
USCC Comment Letter.
\378\ AIMA/ACC Comment Letter; MFA Comment Letter II.
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Turnover. We are adopting, as proposed, amendments, to require
reporting on a per fund basis on the value of turnover in certain asset
classes rather than on an aggregate basis as currently required.\379\
Requiring this reporting on a per fund basis will provide more detailed
information to us and FSOC while at the same time
[[Page 18024]]
simplifying reporting for advisers. We understand that advisers do not
currently aggregate turnover related information among funds.
Aggregating solely for Form PF reporting is particularly burdensome as
the required data is typically on separate reporting systems and
advisers must ``roll-up'' data from these sources to report on the
form.
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\379\ Question 34. In connection with amendments, reporting on
the value of turnover in certain asset classes and the geographical
breakdown of investments is moved from section 2a to section 2.
---------------------------------------------------------------------------
We are also adding, as proposed, new categories for turnover
reporting that disaggregate combined categories and better capture
turnover of potentially relevant securities, such as various types of
derivatives (e.g., listed equity, interest rate, foreign exchange),
which will help support analysis of hedge fund market activity.\380\
Furthermore, we are adding a new consolidated foreign exchange and
currency swaps category and making other changes, as proposed.\381\
During the March 2020 COVID-19-related market turmoil, FSOC sought to
evaluate the role hedge funds played in disruptions in the U.S.
treasury market by unwinding cash-futures basis trade positions and
taking advantage of the near-arbitrage between cash and futures prices
of U.S. Treasury securities.\382\ Because the current requirement
regarding turnover reporting on U.S. Treasury securities is highly
aggregated, the SEC staff, during retrospective analyses on the March
2020 market events, was unable to obtain a complete picture of activity
relating to long treasuries and treasury futures. Given the significant
size of hedge funds' exposures to certain derivative products, it is
important to gain more insight into trading activities with respect to
these financial instruments to better enable the Commissions and FSOC
to assess and monitor the activity of qualifying hedge funds for
systemic risk implications.\383\ Expanded reporting on turnover also
will provide better information for assessing trading frequency in lieu
of requiring advisers to report what percentage of their hedge funds'
net asset value is managed using high-frequency trading
strategies.\384\
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\380\ We are also breaking out some categories by futures,
swaps, and options as different types of derivatives have different
risk profiles and implications for systemic risk, and to add a
category for ``other derivative instrument types'' so that all
derivatives are reported.
\381\ We are revising the asset class categories to require
advisers to report turnover in derivatives separately from turnover
in physical holdings in Question 34 and are making other conforming
changes to reflect changes to defined terms in the Form PF Glossary
of Terms.
\382\ See U.S. Credit Markets Interconnectedness and the Effects
of the COVID-19 Economic Shock, U.S. Securities Exchange Commission,
Oct. 2020, available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf. See also Financial Stability Oversight
Council 2021 Annual Report, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
\383\ As of the end of first quarter of 2023, interest rate
derivatives currently make up approximately 30% of gross notional
exposure (GNE) reported on Form PF, while foreign exchange
derivatives make up approximately 13% of GNE. Additionally,
commodity, credit, and other derivatives when combined make up 5% of
GNE or over $1.3 trillion. See Private Fund Statistics Q1 2023,
supra footnote 5.
\384\ We are removing current Question 21 as it is redundant in
light of the adopted expanded turnover reporting.
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Some commenters opposed the proposed requirement for disaggregated
and more detailed reporting of turnover stating that such information
is of limited value and burdensome to report.\385\ As discussed above,
we continue to believe that turnover information is related to systemic
risk and observing turnover data in particular categories can help
identify affected funds and identify possible contagion risk. Moreover,
the adopted requirement of disaggregated reporting is less burdensome
than the existing reporting of turnover, which requires advisers to
aggregate data that we understand they collect on a fund-level basis.
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\385\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
USCC Comment Letter.
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Country and industry exposure. We are adopting, as proposed except
as specifically indicated below, amendments to require advisers to
report all countries (by ISO country code \386\) to which a reporting
fund has exposure equal to or exceeding either (1) five percent of its
net asset value or (2) $1 billion, and to report the dollar value of
long exposure and the dollar value of short exposure in U.S. dollars,
for each monthly period to improve data comparability across
funds.\387\ In a change from the proposal, we are adding an instruction
to specify that advisers may report the data that best represents the
country and industry exposure from any indirect investments and is
consistent with the advisers' internal methodologies and conventions of
services providers to lessen the reporting burden. Under the current
approach, only certain regions were identified, and these regions were
not uniformly defined, which resulted in data that was not
consistent.\388\ In addition, at times we have needed to identify
countries of interest not on this list. As such, we are adopting
amendments to replace the country of interest and regional reporting
with this new country level information. Finally, the threshold of
either (1) five percent of net asset value or (2) $1 billion is
appropriate because it represents a material level of portfolio
exposure to risk relating to individual countries and geographic
regions and is a level that could significantly impact a fund and its
investors if, for example, there are currency fluctuations or
geopolitical instability. Furthermore, the data obtained will allow for
identification of industry concentrations in particular countries and/
or regions and help assess the potential impact of market events on
these geographic segments. The five percent threshold level constitutes
a reasonable shock to a fund's net asset value. For example, to the
extent there is a market-wide event, a worst-case scenario would be for
long positions to lose their full value, in this shock case at least
five percent. Furthermore, and particularly for funds without a
benchmark, five percent is often evaluated for industry, individual
position, and country risk, and is a common and easy to measure
threshold. With respect to the $1 billion threshold, it constitutes
sufficiently large nominal value exposure from a risk perspective.
---------------------------------------------------------------------------
\386\ This is similar to reporting on Form N-PORT and will
improve the comparability of data between Form PF and Form N-PORT.
\387\ Question 35. In connection with the amendments, reporting
on geographical breakdown of investments has moved from current
section 2a to section 2.
\388\ Currently, consistent with staff Form PF Frequently Asked
Questions 28.1 and 28.2, advisers are permitted to report
geographical exposure based on internal methods and indicate in
Question 4 if methods did not reflect risk and economic exposure.
See Form PF Frequently Asked Questions, supra footnote 162.
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We are also adding a new question that requires advisers to provide
information about each industry to which a reporting fund has exposure
equal to or exceeding either (1) five percent of its net asset value or
(2) $1 billion, as proposed.\389\ Advisers are required to report, for
each monthly period, the long dollar value and short dollar value of a
reporting fund's exposure by industry based on the NAICS \390\ code of
the underlying exposure.\391\ The purpose of this new question is to
collect information that will provide insight into hedge funds'
industry exposures in a standardized way to allow for comparability
among funds and meaningful aggregation of data to assess overall
industry-specific concentrations. Further, the threshold of either (1)
five percent of net asset value or (2) $1 billion is appropriate
because it represents a material level of portfolio exposure to risk
relating to individual
[[Page 18025]]
industries, and is a level that could significantly impact a fund and
its investors if, for example, there are market or geopolitical events
that affect performance by a particular industry, such as the burst of
the ``tech bubble'' in the early 2000s or COVID-19's impact on airline,
accommodation and food service industries. Furthermore, the data
obtained will allow for identification of industry concentrations and
help assess the potential impact of market events on industries. While
we considered a lower threshold, we continue to believe that the
adopted threshold strikes an appropriate balance between identifying
significant industry exposure and the burdens of reporting this
information on Form PF. This information will be useful to the
Commissions and FSOC in monitoring systemic risk, particularly if
multiple funds have significant concentrations in industries that are
experiencing periods of stress or disruption.
---------------------------------------------------------------------------
\389\ See Question 36.
\390\ North American Industry Classification System.
\391\ See United States Census Bureau, North American Industry
Classification System, available at https://www.census.gov/naics/.
---------------------------------------------------------------------------
When responding to these questions about country and industry
exposure, advisers are required to include exposure obtained indirectly
though positions held in other entities (e.g., investment companies,
other private funds, commodity pools or other company, funds, or
entities). Without this requirement, a fund's exposure to geographic
regions and industries could be obscured and hinder the Commissions'
and FSOC's ability to assess risks and the potential impact of events
and trends that affect a particular industry or geographic region, both
of which could have implications for investors. While advisers
typically maintain this information, the instructions to these
questions seek to minimize filer burdens by permitting advisers to
report reasonable estimates if such reporting is consistent with
internal methodologies and information reported internally and to
investors.
Some commenters opposed the proposed requirements for more granular
reporting, including amendments to require more detailed reporting on
country and industry exposure, stating that such information would be
of limited value for systemic risk analysis and burdensome to
report.\392\ Another commenter, however, discussed how geopolitical
instability and industry disruptions can contribute to systemic
risk.\393\ For reasons discussed above, country and industry exposure
reporting is important for systemic risk, and exposures in excess of
five percent of a fund's net asset value could be significant enough to
pose contagion risks. In a modification from the proposal, we are
adding an instruction to provide that an adviser is permitted to report
reasonable estimates of a fund's country and industry exposure,
provided such reporting is consistent with internal methodologies and
information reported internally and to investors, which is intended to
lessen the burden on advisers, while allowing us to continue to receive
this reporting on country and industry exposure.
---------------------------------------------------------------------------
\392\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
USCC Comment Letter.
\393\ Fact Coalition Comment Letter.
---------------------------------------------------------------------------
One commenter stated that requiring advisers to report industry
exposure by NAICS is burdensome because funds may not currently collect
this data and it may be costly to obtain.\394\ We disagree that NAICS
information is significantly burdensome to obtain and report. NAICS
codes are publicly available and is the standard used by certain
Federal agencies for classifying entities by industry.\395\
---------------------------------------------------------------------------
\394\ MFA Comment Letter II.
\395\ See, e.g., SBA Small Business Size Regulations, 13 CFR
121.101 (2023).
---------------------------------------------------------------------------
Central clearing counterparty (CCP) reporting. We are adopting, as
proposed except as specifically indicated below, amendments to require
advisers to identify each CCP or other third party holding collateral
posted by a qualifying hedge fund in respect of cleared exposures
(including tri-party repo) equal to or exceeding either (1) five
percent of a reporting fund's net asset value or (2) $1 billion.\396\
The new question excludes counterparties already reported in Question
42 and Question 43,\397\ and requires advisers to provide information
on: (1) the legal name of the CCP or third party; (2) LEI (if
available); (3) whether the CCP or third party is affiliated with a
major financial institution; (4) the reporting fund's posted margin (in
U.S. dollars); and (5) the reporting fund's net exposure (in U.S.
dollars), as proposed. In a modification from the proposal, we are also
requiring advisers to provide information on the legal name of the
collateral owner and the collateral owner LEI. This additional
identifying information will allow us to understand the reporting
fund's exposure by differentiating exposures of the reporting fund from
exposures of other reporting entities. For example, as discussed more
fully above in section II.A.2, advisers report on trading vehicles on a
consolidated basis with the reporting fund, and without identifying
information, we would be unable to differentiate a reporting fund's
counterparty risk exposure from that of its trading vehicle.
---------------------------------------------------------------------------
\396\ See Question 44.
\397\ See discussion at section II.C.2.b of this Release.
---------------------------------------------------------------------------
We are adopting this new question based on our experience with Form
PF since adoption as we have found data gaps with respect to
identifying qualifying hedge fund exposures to CCPs and other third
parties that hold collateral in connection with cleared exposures.
Furthermore, we understand that (1) many large hedge fund advisers
already track margin posted for cleared exposures because margin
requirements at any given time may well exceed the clearinghouse's
exposure to a fund and therefore are an important credit risk exposure
metric for a fund, and (2) that CCP recovery, resiliency and resolution
also are current concerns for some advisers.\398\ Given these factors,
the burden of this new question is justified by valuable insight the
data obtained will provide into an area that could have significant
implications from a systemic risk perspective. Additionally, we have
chosen a reporting threshold of equal to or exceeding either (1) five
percent of net asset value or (2) $1 billion to be consistent with the
thresholds for other counterparty exposure questions,\399\ as a
qualifying hedge fund is similarly exposed where a third party holds
collateral irrespective of whether the third party is a CCP or other
counterparty. We are also removing current Question 39, which required
information about transactions cleared directly through a CCP, as the
information collected is duplicative of information already collected
in current Question 24 (redesignated Question 29).
---------------------------------------------------------------------------
\398\ See ``A Path Forward For CCP Resilience, Recovery, And
Resolution,'' Mar. 10, 2020, available at https://www.blackrock.com/corporate/literature/whitepaper/path-forward-for-ccp-resilience-recovery-and-resolution.pdf. See also J.P. Morgan Press Release,
Mar. 10, 2020, available at https://www.jpmorgan.com/solutions/cib/markets/a-path-forward-for-ccp-resilience-recovery-and-resolution.
\399\ See discussion at section II.C.2.b of this Release.
---------------------------------------------------------------------------
One commenter recommended that exposures to CCPs should be reported
on an aggregate basis, rather than on an individual CCP basis, because
some advisers track these exposures on an aggregate basis and the
Commissions have not explained why reporting on an aggregate basis is
not sufficient and recommended clarifying whether the instruction in
Question 43 to report information for counterparties that are CCPs or
other third parties holding collateral in respect of ``cleared
exposures'' is meant to refer to ``centrally cleared exposures.'' \400\
The references to cleared exposures in the instructions to Question 43
are meant to
[[Page 18026]]
include centrally cleared exposures, as well as other cleared
exposures. Receiving data on which individual CCPs are used for
centrally cleared positions is important for understanding systemic
risk resulting from a concentrated use of the same CCPs among different
funds. Further, a CCP default may result in delayed receipt of funds
that can create spillover effects at funds, particularly highly
leveraged funds, that raise systemic risk and investor protection
concerns. While the clearing system is highly risk reducing and
transparent, default of a fund, or of a clearing member, could
nonetheless cause temporary dislocations that can become significant at
critical times. Transparency at this level is important in Form PF and
is aligned with funds' own need to be aware of exposures to individual
clearing members. For these reasons, it is appropriate to require this
reporting as proposed. This commenter also argued that the requirement
to report collateral posted by a fund to meet exchange requirements and
separately report additional collateral collected by the prime broker
would be difficult for advisers that do not actively monitor exchange
margin requirements distinctively from prime broker margin
requirements.\401\ We disagree that this information would be difficult
for advisers to report because the instructions to Question 42 specify
a simplified method of how to report such blended margin arrangements,
including where collateral is not disaggregated.\402\ The commenter
recommended that the Commissions instead require prime brokers to
provide this information in standard form and permit advisers to rely
on information provided by their prime broker.\403\ It is important for
advisers to report this information aggregated for the reporting fund
because individualized reporting from each prime broker may obscure the
fund's counterparty risk. For example, a fund that has arrangements
with multiple prime brokers may have a particular counterparty exposure
across multiple prime brokerage arrangements, which may be obscured by
separate reporting for each prime broker. Further, it is important for
a reporting fund to understand its own counterparty risk, and we
understand advisers monitor levels of counterparty concentration for
risk management purposes. Therefore, we believe it is appropriate for
advisers to report this information on Form PF with other exposure
reporting. Individual reporting on CCPs is important because aggregated
reporting would not provide sufficiently detailed information to allow
us to identify potential risks. For example, in the event of a
particular counterparty failure, we would be unable to accurately
localize a fund's risk exposure to that counterparty.
---------------------------------------------------------------------------
\400\ MFA Comment Letter II.
\401\ Id.
\402\ Specifically, Question 42(a)(iii) instructs as follows:
``check this box if one or more prime brokerage agreements provide
for cross-margining of derivatives and secured financing
transactions. If you have checked this box, and collateral does not
clearly pertain to secured financing vs. derivatives transactions,
report exposures and collateral as follows: . . . enter any
additional collateral gathered by the prime broker under a cross
margining agreement on lines (iii)(B), (C), (D), and (E).
\403\ MFA Comment Letter II.
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Risk metrics. We are adopting, as proposed, amendments to eliminate
the requirement that an adviser indicate whether there are risk metrics
other than, or in addition to, Value at Risk (``VaR'') that the adviser
considers important to managing a reporting fund's risks.\404\ Advisers
generally have not reported detailed information in response to this
requirement. Currently, about 55 percent of advisers to qualifying
hedge funds (representing about 75 percent of the aggregate gross asset
value of qualifying hedge funds) report using VaR or market factor
changes in managing their hedge funds.\405\ Instead, advisers will be
required to provide additional information about a reporting fund's
portfolio risk profile, investment performance by strategy, and
volatility of returns and drawdowns.\406\ This amendment will expand
the amount of data collected by collecting risk data in circumstances
where advisers do not use VaR or market factor changes, and thus will
provide insight across all (rather than only some) qualifying hedge
funds. This new information will provide uniform and consistently
reported risk information that will enhance our ability to monitor and
assess investment risks of qualifying hedge funds to gauge systemic
risk. In particular, volatility of returns and drawdown data is a
simple measure of risk that enables us to monitor risk-adjusted
returns, changes in volatility and thereby risk profiles. We did not
receive specific comment on this amendment.
---------------------------------------------------------------------------
\404\ See current Question 41.
\405\ See Private Funds Statistics Q1 2023 (Table 58/59).
Current Question 40 (redesignated Question 46) requires advisers to
report certain risk data if the adviser regularly calculates VaR of
the reporting fund. Current Question 42 (redesignated Question 47)
requires advisers, for specific market factors, to determine the
effect of specified changes on a reporting fund's portfolio but
permits advisers to omit a response to any market factor that they
do not regularly consider in formal testing in connection with a
reporting fund's risk management.
\406\ See Question 49 (investment performance breakdown by
strategy), and Question 23(c) (volatility of returns and drawdown
reporting). See discussion at section II.B.2 of this Release. We are
also revising the title of Item C. of section 2 to ``Reporting fund
risk metrics and performance'' to reflect the addition of new
questions on performance to this section of the form.
---------------------------------------------------------------------------
Investment performance by strategy. We are adopting, in a
modification from the proposal, amendments to require to qualifying
hedge funds that indicate more than one investment strategy for a fund
in Question 25 to report monthly gross investment performance by
strategy if the adviser reports this data for such fund, whether to
current and prospective investors, counterparties, or otherwise, rather
than if the adviser ``calculates and reports'' such information to
third parties, as proposed.\407\ Advisers will not be required to
respond to this question if the adviser reports performance for the
fund as an internal rate of return, as proposed. This question is
designed to integrate Form PF hedge fund data with the FRB's reporting
on Financial Accounts of the United States, which the FRB uses to track
the sources and uses of funds by sector, and which are a component of a
system of macroeconomic accounts including the National Income and
Product accounts and balance of payments accounts, all of which serve
as a comprehensive set of information on the economy's performance. We
also believe that this information will be helpful to the Commissions'
and FSOC's monitoring and analysis of strategy-specific systemic risk
in the hedge fund industry. One commenter recommended that the
requirement be limited to reporting on investment strategies that the
fund reports to third parties.\408\ This commenter also stated that the
proposed instructions were not clear how an adviser should respond if
it does not report such information to third parties. After considering
comments, in a change from the proposal, advisers will be required to
respond to this question only if they actually report investment
performance to third parties; thus, advisers will not be required to
respond to this question if they only calculate (but do not report)
such information. This change will allow us to continue to receive
strategy performance information that is reported to third parties
while reducing the burden on
[[Page 18027]]
advisers. We understand that advisers may frequently calculate strategy
performance for purposes other than reporting performance to third
parties and that requiring reporting of each such calculation may be of
more limited value and may be burdensome to report.
---------------------------------------------------------------------------
\407\ Question 49. The strategies in Question 49 are based on
the strategies included in the drop-down menu in Question 25 (we are
also including a drop-down menu for the strategy categories in
Question 25, to better reflect our understanding of hedge fund
strategies and to improve data quality and comparability). See
discussion at section II.B.3 of this Release.
\408\ MFA Comment Letter II.
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Portfolio Correlation. In a change from the proposal, we are not
adopting a proposed question on portfolio correlation to collect data
on the effects of a breakdown in correlation. We received several
comments stating that the proposed portfolio correlation question would
impose significant burdens on advisers because portfolio correlation is
not a commonly calculated risk measurement and can be complex to
calculate.\409\ One commenter recommended only requiring an adviser to
report portfolio correlation if correlation is a risk analysis metric
that the adviser reports to its investors.\410\ In light of comments we
received, we are persuaded that the complexity and corresponding
increased burden associated with the proposed portfolio correlation
question would be significant. The new and modified questions we are
adopting in this Release will also enhance our leverage monitoring
efforts and enhance our data insights on counterparty exposures without
including the proposed portfolio correlation question.
---------------------------------------------------------------------------
\409\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
\410\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------
Portfolio Liquidity. We are adopting, as proposed, amendments to
require advisers to include cash and cash equivalents when reporting
portfolio liquidity, rather than excluding them, as the question
currently provides.\411\ We understand that reporting funds typically
include cash and cash equivalents when analyzing their portfolio
liquidity. This change will improve data quality by reducing
inadvertent errors that result from requiring advisers to report in a
way that is different from how they may report internally. This change
is more reflective of industry practice, and it is preferable to
receive reported data in a format that reflects how advisers typically
analyze portfolio liquidity.
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\411\ See Question 37.
---------------------------------------------------------------------------
We are also amending the form's instructions to allow advisers to
assign each investment to more than one period, rather than directing
advisers to assign each investment to only one period, as Question 32
currently provides. We understand that directing advisers to assign an
investment to only one period may make a reporting fund's portfolio
appear less liquid than it is because it would not reflect that
reporting funds may divide up sales in different periods (e.g., a
reporting fund could sell off a portion in the first time period and
sell of the remainder in subsequent time periods). Therefore, this
change is designed to reflect the liquidity of a reporting fund's
portfolio more accurately.
While advisers will continue to be able to rely on their own
methodologies to report portfolio liquidity, we are adding an
instruction explaining that estimates must be based on a methodology
that takes into account changes in portfolio composition, position
size, and market conditions over time. Based on experience with the
form, we have found that some advisers have used static methodologies
that do not consider portfolio composition and position size relative
to the market, and therefore do not reflect a reasoned view about when
positions could be liquidated at or near carrying value. Therefore,
this change will continue to allow advisers to use their own
methodologies but improve data quality to ensure that the methodologies
generate reporting that reflects a reasonable view of portfolio
liquidity in light of changes in portfolio composition and size, and
market conditions, over time.
One commenter stated that portfolio liquidity is a metric that may
create misleading impressions when assessed on a disaggregated fund by
fund basis.\412\ As discussed more fully above in section II.A of the
Release, disaggregated reporting, rather than being misleading, allows
for a clearer understanding of the reporting fund's structure,
including its portfolio liquidity, because we can observe liquidity on
a fund by fund basis while continuing to allow aggregation of data
across the fund structure for the broader context. This commenter also
stated the proposed instruction regarding how to report the percentage
of fund's net asset value that may be liquidated within each period if
an investment is assigned to more than one period was unclear. In
consideration of this comment, we are adding an instruction to specify
that if an investment is assigned to more than one period, the adviser
should reflect the percentage of NAV that might be liquidated within
each period, rather than the percentage of NAV that the entire
investment represents.\413\ The same commenter stated that we should
clarify the meaning of the proposed instruction that estimates must be
based on a methodology that takes into account changes in portfolio
composition, position size, and market conditions over time. To address
this comment, we are also revising the instructions to specify that,
for example, estimates would change if the portfolio invests in more or
less liquid assets, if/when the portfolio investments grow to a size
relative to the liquidity of the markets in which it invests that
requires more time to liquidate, and if liquidity characteristics
change measurably and meaningfully for the assets in which the
portfolio invests.\414\ This commenter also recommended that the total
portfolio liquidity should not be expressed as a percentage of a fund's
net asset value, in light of the instruction that suggests that the
total may not add up to 100 percent.\415\ The instruction that the
total percentages should add up to approximately 100 percent is
appropriate because we recognize that rounding differences may result
in a calculated total percentage that does not equal 100 percent. We
continue to believe that portfolio liquidity should be expressed as a
percentage of net asset value because net asset value is also the unit
in which redemptions take place and would allow calculations in value,
if needed.
---------------------------------------------------------------------------
\412\ MFA Comment Letter II.
\413\ Question 37.
\414\ Id.
\415\ MFA Comment Letter II. See also Question 37.
---------------------------------------------------------------------------
Finally, to facilitate more accurate reporting, collect better
data, and reduce filer errors, we are amending the table to be included
in new Question 37 to reflect that information should be reported as a
percentage of NAV consistent with SEC staff Form PF Frequently Asked
Questions.\416\ We did not receive specific comment on this amendment.
---------------------------------------------------------------------------
\416\ See Form PF Frequently Asked Questions, supra footnote
162, Question 32.3.
---------------------------------------------------------------------------
Financing and Investor Liquidity. Current Question 46 is designed
to show the extent to which financing may become rapidly unavailable
for qualifying hedge funds.\417\ We are adopting, as proposed,
amendments to current Question 46 to improve data quality thereby
supporting more effective systemic risk analysis.\418\ Advisers will be
required to provide the dollar amount of financing that is available to
the reporting fund, including financing that is available but not used,
by the following types: (1) ``unsecured borrowing,'' (2) ``secured
borrowing'' via prime brokerage, (3) secured borrowing via reverse
repo, and
[[Page 18028]]
(4) other secured borrowings.\419\ Currently, the Commissions and FSOC
infer this data from this question and current Question 43 (concerning
the reporting fund's borrowings).\420\ However, these inferences may
not be accurate given the number of assumptions that currently go into
making such inferences. This information will help us understand the
extent to which a fund's financing could be rapidly withdrawn and not
replaced. We did not receive specific comment on this amendment.
Current Question 50, which we have redesignated as Question 53,
requires an adviser to report the percentage of the fund's net asset
value that is subject to suspensions and restrictions on withdrawals/
redemptions for various time periods. In a modification from the
proposal, we are amending Question 53 to instruct the adviser to make a
good faith determination of the withdrawal and redemption restrictions
that would likely be triggered during significant market stress
conditions. This additional instruction addresses commenters' concerns
by reducing the reporting burden for advisers that advise funds with
varying redemption and withdrawal rights and improve data quality.\421\
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\417\ See 2011 Form PF Adopting Release, supra footnote 4, at
text accompanying n.281.
\418\ We redesignated current Question 46 as Question 50.
\419\ Form PF defines ``unsecured borrowing'' as obligations for
borrowed money in respect of which the borrower has not posted
collateral or other credit support. Form PF defines ``secured
borrowing'' as obligations for borrowed money in respect of which
the borrower has posted collateral or other credit support. For
purposes of this definition, reverse repos are secured borrowings.
See Form PF Glossary of Terms. These categories are designed to be
consistent with borrowing categories that qualifying hedge funds
will report on the new counterparty exposure table.
\420\ Current Question 43 collects data on the reporting fund's
borrowing by type (e.g., unsecured, and secured by type, i.e., prime
broker, reverse repo or other), while current Question 46 only
collects a total amount of financing available, both used and
unused, with no breakdown by type of financing.
\421\ As discussed more fully above in section II.B.2 of this
Release, some commenters stated that, in the context of proposed
Question 10, the proposed amendments should permit reporting of
multiple types of redemption and withdrawal rights. See, e.g., MFA
Comment Letter II; SIFMA Comment Letter; USCC Comment Letter.
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Definition of ``Hedge Fund.'' We requested comment on whether we
should amend the definition of ``hedge fund'' as it is defined in the
Form PF Glossary of Terms. After considering comments, we are not
adopting any amendments to the existing definition of ``hedge fund'' at
this time. Certain commenters generally supported revising the
definition of ``hedge fund'' to remove deemed hedge funds (i.e., a
private fund reported as a ``hedge fund'' as Form PF directs because
the fund's governing documents permit the fund to engage in certain
borrowing and short selling (even though it did not do so at any time
in the past)).\422\ These commenters supported revising the definition
of ``hedge fund'' to exclude private funds that have an ability to use
leverage or engage in shorting but do not do so in the ordinary course
of business and that the market does not generally consider to be hedge
funds. Some commenters recommended adopting a de minimis test, which
would exclude any private fund from the definition that has not
recently engaged in shorting or borrowing activity within a specified
period, such as within the last 12 months, or has not engaged in these
activities in excess of a specified amount, such as greater than 0.5%
or 1% of the fund's net asset value.\423\ One commenter recommended an
exclusion for any private fund whose borrowing activities are only
related to real estate.\424\ Another commenter recommended including a
rebuttable presumption in the definition that a private fund that holds
itself out as a hedge fund is a hedge fund, while a private equity fund
that holds itself out as pursuing a private equity strategy is not a
hedge fund, similar to the venture capital exemption under the Advisers
Act.\425\ Another commenter recommended specifying in the definition
that only private funds that provide redemption rights in the ordinary
course can be classified as hedge funds.\426\ One commenter recommended
revising the definition to remove the default treatment of commodity
pools as hedge funds.\427\
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\422\ See, e.g., AIC Comment Letter I; CFA Institute Comment
Letter; Ropes & Gray Comment Letter; Schulte Comment Letter; SIFMA
Comment Letter.
\423\ See AIC Comment Letter I; Ropes & Gray Comment Letter.
\424\ See SIFMA Comment Letter.
\425\ See Ropes & Gray Comment Letter. 17 CFR 275.203(l)-1. See
Exemptions for Advisers to Venture Capital Funds, Private Fund
Advisers with Less than $150 Million in Assets Under Management, and
Foreign Private Advisers, Advisers Act Release No. 3222 (June 22,
2011) [76 FR 39646 (July 6, 2011)].
\426\ See CFA Institute Comment Letter.
\427\ See MFA Comment Letter II.
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The existing definition is designed to include any private fund
having any one of three common characteristics of a hedge fund: (1) a
performance fee that takes into account market value (instead of only
realized gains); (2) leverage; or (3) short selling. We believe that
any private fund that has one or more of these characteristics is an
appropriate subject for the more detailed level of reporting that hedge
funds are subject to on Form PF because the questions that hedge fund
advisers are required to complete focus on these activities which bring
funds within the ``hedge fund'' definition. Without classifying these
funds as hedge funds for the purpose of Form PF, we would not receive
important reporting on these activities which may contribute to
systemic risk, particularly in the event of a fund that has the ability
to engage in borrowing or short selling activities. Incorporating any
carveouts in the definition, such as the recommended de minimis
exception for borrowing or short selling, could cause further data
mismatches and increase the burden on advisers because certain funds
could be required to fluctuate between different reporting categories
in different reporting periods depending on the fund's practices in any
given period. In our experience, such an exclusion would eliminate only
a limited number of private funds from the reporting category. We also
believe that short selling and borrowing are important distinguishing
characteristics of hedge funds and providing any exception for these
activities, including a de minimis one, could have a significant,
negative effect on reporting. Therefore, we do not believe that
including responses from these private funds in the reporting
information from hedge fund advisers impairs our data quality. We also
believe adopting a rebuttable presumption is not appropriate because it
would increase burdens on advisers by effectively requiring an adviser
to produce evidence of its filing category. Further, this approach
would effectively allow an adviser to determine whether it reports the
additional information that hedge fund advisers are required to report
on Form PF, which would diminish the quality and value of data
collected on Form PF. Additionally, as it relates to the treatment of
commodity pools as hedge funds for reporting purposes, such treatment
further aligns the consistency of questions asked across these
entities, both on this Form PF, as well as on the CFTC's Form CPO-PQR.
D. Amendments To Enhance Data Quality
We are also adopting, as proposed except as specifically provided
below, several amendments to the instructions to Form PF to enhance
data quality.\428\ Specifically, we are adopting the following changes:
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\428\ Instruction 15 (provides guidelines for advisers in
responding to questions on Form PF relying on their own
methodology).
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Reporting of percentages. For questions that require information to
be expressed as a percentage, we are adopting, as proposed, an
amendment to
[[Page 18029]]
require that percentages be rounded to the nearest one hundredth of one
percent rather than rounded to the nearest whole percent. This
additional level of precision is important, especially for questions
where it is common for filers to report low percentage values (e.g.,
risk metric questions such as Question 40 and Question 42) to avoid
situations where advisers round to zero and no data is reported,
potentially obscuring small changes that may be meaningful from a risk
analysis or stress testing perspective. One commenter stated that the
requirement to report information expressed as a percentage to the
nearest one hundredth of one percent will significantly increase the
costs and additional burdens for reporting advisers.\429\ This
commenter also stated that, if the Commissions provide a basis for
requiring additional granularity, the Commissions should amend the
instruction to require reporting rounded to the nearest one tenth of
one percent, rather than one hundredth of one percent.
---------------------------------------------------------------------------
\429\ MFA Comment Letter II.
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Percentages rounded to the nearest one hundredth of one percent
will allow the Commissions to obtain and analyze more precise
information that may otherwise be obscured. For example, one one-
hundredth of one percent can represent a meaningful dollar amount
depending on the size of the private fund. And, while we recognize that
this may not be the case for smaller funds, when such amounts are taken
together for a large group of smaller funds, the aggregate amount
across the fund group can represent a meaningful dollar amount for data
analysis purposes. Furthermore, as noted above, this level of detail is
particularly important for questions where it is common for filers to
report low percentage values to avoid situations where advisers round
to zero and no data is reported. Finally, we understand that many
advisers already use electronic spreadsheet programs and other tools to
generate percentages and assist with rounding, which should limit the
incremental burdens and costs on advisers. While we considered less
granular reporting, such as rounding to the nearest one tenth of one
percent, the adopted threshold strikes an appropriate balance between
enhancing Form PF data quality and the burdens and costs of reporting
this information on Form PF.
Value of investment positions and counterparty exposures. We are
amending, as proposed, the instructions to specify how private fund
advisers determine the value of investment positions (including
derivatives) and counterparty exposures. We are adopting amendments to
require derivatives trades to be reported independently on a gross
basis, consistent with derivatives reporting on Form N-PORT.\430\ We
are also amending the instruction that for all positions reported on
Form PF, to not include as ``closed-out'' a position if the position is
closed out with the same counterparty and results in no credit or
market exposure to the fund, making the approach on Form PF with
respect to closed out positions consistent with rule 18f-4 of the
Investment Company Act and our understanding of filers' current
practices.\431\ We did not receive specific comment on these
amendments. These changes will provide a more consistent presentation
of reported information on investment and counterparty exposures to
support more accurate aggregation and comparisons among private funds
by us and FSOC in assessing systemic risk.
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\430\ Specifically, Instruction 15 requires that if a question
in Form PF requests information regarding a ``position'' or
``positions,'' advisers must treat legs of a transaction even if
offsetting or partially offsetting, or even if entered into with the
same counterparty under the same master agreement as two separate
positions, even if reported internally as part of a larger
transaction. See also instructions to N-PORT, General Instruction G.
\431\ See Use of Derivatives by Registered Investment Companies
and Business Development Companies, Release No. 34084 (Nov. 2, 2020)
[85 FR 83162, 83210 (Dec. 21, 2020)]. See also Form PF Frequently
Asked Questions, supra footnote 162, Question 44.1.
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Reporting of long and short positions. We are amending, as
proposed, the instructions regarding the reporting of long and short
positions on Form PF to improve the accuracy and consistency of
reported data used for systemic risk analysis. The amended instructions
specify that if a question requires the adviser to distinguish long
positions from short positions, the adviser should classify positions
based on the following: (1) a long position experiences a gain when the
value of the market factor to which it relates increases (and/or the
yield of that factor decreases), and (2) a short position experiences a
loss when the value of the market factor to which it relates increases
(and/or the yield of that factor decreases). Although some commenters
supported the proposed amendments to require advisers to report their
long and short holdings on a disaggregated basis \432\ and other
commenters opposed the requirements for more detailed disclosure of
holdings,\433\ we did not receive specific comment on the proposed
change to the instructions defining long and short positions. The
amended instructions will improve the data quality and comparability
used for systemic risk analysis.
---------------------------------------------------------------------------
\432\ See AFREF Comment Letter I; Better Markets Comment Letter.
See supra section II.C.2.a.
\433\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
SIFMA Comment Letter. See supra section II.C.2.a.
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Calculating certain derivative values. We are amending, with a
modification from the proposal, the instruction to provide that, (1)
for calculating the value of interest rate derivatives, ``value'' means
the 10-year bond equivalent, and (2) for calculating the value of
options, ``value'' means the delta adjusted notional value (expressed
as a 10-year bond equivalent for options that are interest rate
derivatives).\434\ In a change from the proposal, the amended
instructions provide that the value should be expressed in U.S.
dollars, rather than the base currency of the reporting fund, to
maintain consistent currency reporting throughout Form PF. One
commenter stated that the definition of ``10-year bond equivalent''
specifies the expression of the value in the fund's base currency,
which could result in requiring multiple currency conversions for any
transactions not in the fund's base currency.\435\ We are revising the
``10-year bond equivalent'' definition to reference U.S. dollars,
rather than the fund's base currency. We are making this change because
it is important for metrics to be reported in a common currency for
data quality and comparability purposes. The amended instruction also
provides that in determining the value of these derivatives, advisers
should not net long and short positions or offset trades but should
exclude closed-out positions that are closed out with the same
counterparty provided that there is no credit or market exposure to the
fund. The amendments are designed to provide more consistent reporting
by advisers, which will help support more accurate aggregation of data,
better comparisons among funds, and a more accurate picture for
purposes of assessing systemic risk.\436\
---------------------------------------------------------------------------
\434\ See Form PF Glossary of Terms (definition of ``10-year
bond equivalent'' specifies the 10-year zero coupon bond
equivalent).
\435\ AIMA/ACC Comment Letter.
\436\ This is consistent with staff Form PF Frequently Asked
Questions, see, e.g., supra footnote 162, Questions 24.3 and 26.1.
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Currency Conversions for Reporting in U.S. Dollars. We are
amending, as proposed, Instruction 15 to specify that if a question
requests a monetary value, advisers should provide the information
[[Page 18030]]
in U.S. dollars as of the data reporting date or other requested date
(as applicable) and use a foreign exchange rate for the applicable
date. We are also amending Instruction 15 to provide that if a question
requests a monetary value for transactional data that covers a
reporting period, advisers should provide the information in U.S.
dollars, rounded to the nearest thousand, using foreign exchange rates
as of the dates of any transactions to convert local currency values to
U.S. dollars.\437\
---------------------------------------------------------------------------
\437\ See Instruction 15.
---------------------------------------------------------------------------
One commenter stated that private funds should be required to
report their holdings in the fund's base currency, rather than convert
to U.S. dollars, to allow for assessment of the extent of a fund's
currency risk exposure.\438\ We agree that currency exposure reporting
is important for understanding a fund's overall risk exposure and for
systemic risk analysis and, as discussed more fully in section II.C
above, we are adopting other amendments to Form PF that require large
hedge fund advisers to report additional data on the fund's currency
risk exposure.\439\ Regarding currency reporting, however, it is
important for data comparability for advisers to report in a common
currency, rather than in a fund's base currency, and for an adviser to
determine foreign exchange rates consistent with its valuation policies
because reporting in a common currency allows the Commissions to
evaluate aggregate data, such as exposures, more readily. One commenter
recommended specifying a required time of day and methodology for
determining the applicable foreign exchange rate to avoid inconsistent
data.\440\ Although specifying a time of day and methodology could
improve data comparability, this would distort values reported on Form
PF from what advisers calculate and report to their investors because
these values are similar to prices on any other portfolio investment.
For a foreign exchange rate, the adviser is valuing a currency, but
generally should be doing so using the same source, time of day, or
other methodology for capturing foreign exchange rates as is defined in
the adviser's or fund's valuation policy. It is preferable for advisers
to report values using the foreign exchange rate practices they use
internally and to report to their investors.
---------------------------------------------------------------------------
\438\ AFREF Comment Letter I.
\439\ See Question 33.
\440\ AIMA/ACC Comment Letter.
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E. Additional Amendments
We are adopting, as proposed except as indicated below, several
additional amendments to the general instructions to Form PF. We are
adopting an amendment to Instruction 14 to allow advisers to request a
temporary hardship exemption electronically to make it easier to submit
a temporary hardship exemption.\441\ We are also adopting an amendment
to 17 CFR 275.204(b)-1(f) under the Advisers Act, that for purposes of
determining the date on which a temporary hardship exemption is filed,
``filed'' means the earlier of the date the request is postmarked or
the date it is received by the Commission.\442\ We are adopting the
latter change to assist advisers with determining what constitutes a
``filed'' temporary hardship exemption in the context of the
requirement that the request be filed no later than one business day
after a filer's electronic Form PF filing was due as required under
Instruction 14. We did not receive comments on these proposed
amendments.
---------------------------------------------------------------------------
\441\ We are also adopting amendments to update the mailing
address to which advisers requesting a temporary hardship exemption
should mail their exemption filing, include the email address for
submitting electronically the adviser's signed exemption filing in
PDF format, and add an instruction noting that filers should not
complete or file any other sections of Form PF if they are filing a
temporary hardship exemption. See Instruction 14. The reference
regarding the instruction pertaining to temporary hardship
exemptions has also been amended to refer to Instruction 14 instead
of Instruction 13 and, as a result of the amendments set forth in
the May 2023 SEC Form PF Amending Release, to refer to section 7
instead of section 5. See Form PF General Instruction 3, Section 7--
Advisers requesting a temporary hardship exemption.
\442\ We are also adopting amendments to 17 CFR 275.204(b)-1(f)
under the Advisers Act to remove certain filing instructions in the
rule for temporary hardship exemptions and instead direct filers to
the instructions in the form. See 17 CFR 275.204(b)-1(f)(2)(i)
(indicating that advisers should complete and file Form PF in
accordance with the instructions to Form PF, no later than one
business day after the electronic Form PF filing was due).
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Additionally, we are adopting, as proposed, amendments to
Instruction 18 based on recent rule changes made by the CFTC with
respect to Form CPO-PQR.\443\ While the CFTC no longer considers Form
PF reporting on commodity pools as constituting substituted compliance
with CFTC reporting requirements, some CPOs may continue to report such
information on Form PF. Although some commenters recommended that the
Commissions harmonize filing requirements between Form PF and Form CPO-
PQR,\444\ we did not receive comments on the proposed change to the
instructions on substituted compliance.
---------------------------------------------------------------------------
\443\ See Form CPO-PQR Release, supra footnote 100.
\444\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
---------------------------------------------------------------------------
We are adopting, as proposed, amendments to the defined term
``G10,'' which Form PF defines as the Group of Ten, to (1) remove
outdated country compositions and (2) include an instruction that if
the composition of the G10 changes after the effective date of these
amendments to Form PF, advisers should use the current composition as
of the data reporting date. In a modification from the proposal, we are
not adopting the proposed amendments to the defined term ``EEA,'' as
this term is no longer used in the Form following the amendments we are
adopting to current Question 28.\445\ We are also removing ``EEA'' as a
defined term in the Glossary for the same reason. We did not receive
comments on these proposed definitional changes.
---------------------------------------------------------------------------
\445\ See section II.C.2.d in this Release for further
discussion of the amendments to current Question 28.
---------------------------------------------------------------------------
Additionally, the SEC is making a technical amendment to Section 5
Item B ``Extraordinary Investment Losses'' to correct a mathematical
error in the version of the form adopted as part of the May 2023 SEC
Form PF Amending Release. \446\ Specifically, the SEC is revising the
equation in the first sentence so that it accurately reflects that the
10-business-day holding period return computation should be a
percentage, rather than a value. To accomplish this, the SEC is
deleting the phrase ``of reporting fund aggregate calculated value'' in
Section 5 Item B ``Extraordinary Investment Losses'' current report for
large hedge fund advisers to qualifying hedge funds.\447\
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\446\ In May 2023, the SEC amended Form PF section 4, added new
sections 5 and 6, and redesignated prior section 5 as section 7 in
connection with certain amendments to require event reporting for
large hedge fund advisers and all private equity fund advisers and
to revise certain reporting requirements for large private equity
fund advisers. See May 2023 SEC Form PF Amending Release.
\447\ As revised, Section 5 Item B states: If on any business
day the 10-business-day holding period return of the reporting fund
is less than or equal to -20%, provide the information required by
Questions 5-4 to 5-7, below. (Current reports should not be filed
for overlapping 10-business-day periods.).
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F. Effective and Compliance Dates
In order to provide time for advisers to prepare to comply with the
amendments, including reviewing the requirements, building the
appropriate internal reporting and tracking systems, and collecting the
required information, as well as to simplify the compliance process and
reduce potential confusion, the effective date for the amendments is
[[Page 18031]]
the same as the compliance date.\448\ The effective/compliance date is
March 12, 2025, which is one year from the date of publication of the
rules in the Federal Register. We recognize that the different
effective/compliance date for these amendments from those adopted in
the May 2023 SEC Form PF Amending Release and the July 2023 SEC Form PF
Amending Release may lead to inconsistent reporting as well as
additional compliance burdens because we are amending certain existing
questions in Form PF.\449\ If a period exists during which some
advisers may be completing the old version of these questions and other
advisers are completing the amended versions, they may be providing
different types of information. This information could be difficult to
compare and thus would limit its value for the FSOC and our assessment
of systemic risk. However, the amendments we are adopting relate to
different sections of Form PF than those adopted in the May 2023 SEC
Form PF Amending Release and the July 2023 SEC Form PF Amending
Release. Therefore, we will continue to be able to review the data that
is reported in sections 1 and 2 of Form PF during the period between
the effective/compliance date of the amendments adopted in the May 2023
SEC Form PF Amending Release and the July 2023 SEC Form PF Amending
Release. For example, during the transition period between the
effective/compliance date of the amendments adopted in May and July,
the data reported on sections 1 and 2 of Form PF will retain its
comparability as all filers will report on the same sets of questions
in these sections.
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\448\ With respect to the compliance period, several commenters
requested the SEC consider interactions between the proposed rule
and other recent SEC rules. In determining compliance periods, the
SEC considers the benefits of the rules as well as the costs of
delayed compliance periods and potential overlapping compliance
periods. For the reasons discussed throughout this release, to the
extent that there are costs from overlapping compliance periods, the
benefits of the rule justify such costs. See sections IV.B.1 and
IV.C.2 of this Release for a discussion of the interactions of the
final rule with certain other Commission rules.
\449\ For the amendments adopted in the May 2023 SEC Form PF
Amending Release, the effective/compliance date for sections 5 and 6
is Dec. 11, 2023, and the effective compliance/date for the amended,
existing sections, is June 11, 2024. See May 2023 SEC Form PF
Amending Release, supra footnote 4. For the amendments adopted in
the July 2023 SEC Form PF Amending Release, the effective/compliance
date for the amendments to Form PF is also June 11, 2024. See July
2023 SEC Form PF Amending Release, supra footnote 4.
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Some commenters recommended adopting the same effective and
compliance date for the amendments proposed in the 2022 SEC Form PF
Proposing Release and the 2022 Joint Form PF Proposing Release because
it would be more efficient for advisers to implement a single set of
changes to its systems.\450\ One commenter recommended that the
Commissions provide sufficient time for advisers to comply with any new
rules arising out of the 2022 SEC Form PF Proposing Release and the
2022 Joint Form PF Proposing Release.\451\ One commenter recommended
that the Commissions adopt concurrent and overlapping compliance and
transition periods for each set of proposed amendments to lessen the
burden and expense of compliance.\452\
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\450\ See, e.g., MFA Comment Letter III; SIFMA Comment Letter.
Subsequent to these comment letters, the SEC adopted amendments to
section 3 of Form PF concerning liquidity funds. See July 2023 SEC
Form PF Amending Release, supra footnote 4.
\451\ SIFMA Comment Letter.
\452\ AIMA/ACC Comment Letter.
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We recognize that a single set of effective/compliance dates for
each set of amendments could potentially provide certain efficiencies
for advisers in modifying their existing systems. We considered earlier
effective/compliance dates for the amendments adopted in this Release
that would align with the effective/compliance dates adopted for the
May/July amendments; however, we do not believe that either of the
compliance/effective dates for the other amendments to Form PF would
provide advisers with sufficient time to comply with the distinct set
of amendments that are being adopted in this Release. The compliance/
effective dates for the distinct set of Form PF amendments that we are
adopting, which apply to different sections of the Form than the May/
July amendments to Form PF, are later than the effective/compliance
dates of the May/July amendments to allow advisers sufficient time to
comply with the amendments that are being adopted in this Release, as
well as the May/July amendments.
One commenter recommended a transition period for the change from
fiscal quarter to calendar quarter reporting for large hedge fund
advisers and large liquidity fund advisers, as discussed more fully in
section II.A.3 above.\453\ The commenter stated that for quarterly
filers who have a fiscal year ending in a non-calendar quarter month,
the proposed instructions do not specify the procedure for a filer who,
during the transition from fiscal to calendar quarter reporting, would
otherwise be required to report twice in one calendar quarter.\454\ The
commenter recommended that such filers be required to file their first
calendar quarter-end filing for the first full quarterly reporting
period after the compliance date, to avoid requiring two filings in a
single calendar quarter period.\455\ After considering comments, we
confirm that such an adviser is not required to file its quarterly
report more than once in a single calendar quarter as a result of this
amendment because advisers are not required to transition to the new
timing requirement until the first calendar quarter-end filing for the
first full quarterly reporting period after the compliance date.
---------------------------------------------------------------------------
\453\ Id.
\454\ Id.
\455\ Id.
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III. Other Matters
Pursuant to the Congressional Review Act, the Office of Information
and Regulatory Affairs has designated these rules as not a ``major
rule'' as defined by 5 U.S.C. 804(2). If any of the provisions of these
rules, or the application thereof to any person or circumstance, is
held to be invalid, such invalidity shall not affect other provisions
or application of such provisions to other persons or circumstances
that can be given effect without the invalid provision or application.
IV. Economic Analysis
A. Introduction
The SEC is mindful of the economic effects, including the costs and
benefits, of the final amendments. Section 202(c) of the Advisers Act
provides that when the SEC 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 SEC shall also
consider whether the action will promote efficiency, competition, and
capital formation, in addition to the protection of investors.\456\ The
analysis below addresses the likely economic effects of the final
amendments, including the anticipated and estimated benefits and costs
of the amendments and their likely effects on efficiency, competition,
and capital formation. The SEC also discusses the potential economic
effects of certain alternatives to the approaches taken in this
Release.
---------------------------------------------------------------------------
\456\ 15 U.S.C. 80b-2(c).
---------------------------------------------------------------------------
As discussed in the proposing release, many of the benefits and
costs discussed below are difficult to quantify. For example, in some
cases, data needed to quantify these economic effects are not currently
available and the SEC does not have information or data that would
allow such quantification. While the SEC has attempted to quantify
economic
[[Page 18032]]
effects where possible, much of the discussion of economic effects is
qualitative in nature.
B. Economic Baseline and Affected Parties
1. Economic Baseline
The baseline against which the costs, benefits, and the effects on
efficiency, competition, and capital formation of the final amendments
are measured consists of the current state of the market, Form PF
filers' current practices, and the current regulatory framework. The
economic analysis appropriately considers existing regulatory
requirements, including recently adopted rules, as part of its economic
baseline against which the costs and benefits of the final rule are
measured.\457\
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\457\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C.
Cir. 2022). This approach also follows SEC staff guidance on
economic analysis for rulemaking. See SEC Staff, Current Guidance on
Economic Analysis in SEC Rulemaking (Mar. 16, 2012), available at
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); Id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure.''). The best assessment of how the world would look in
the absence of the proposed or final action typically does not
include recently proposed actions, because doing so would improperly
assume the adoption of those proposed actions.
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Several commenters requested the Commission consider interactions
between the economic effects of the proposed rule and other recent
Commission proposals.\458\ Commenters indicated there could be
interactions between this rulemaking and six proposals \459\ that have
since been adopted: the May 2023 SEC Form PF Amending Release,\460\ SEC
Private Funds Advisers Adopting Release,\461\ Beneficial Ownership
Amending Release,\462\ Short Position Reporting Adopting Release,\463\
Securitizations Conflicts Adopting Release,\464\ Treasury Clearing
Amending Release,\465\ and Dealer Definition Amending Release.\466\
These recently adopted rules were not included as part of the baseline
in the 2022 Joint Form PF Proposing Release because they were not
adopted at that time. In response to commenters, this economic analysis
considers potential economic effects arising from the extent to which
there is any overlap between
[[Page 18033]]
the compliance period for the final amendments and the compliance
periods for each of these recently adopted rules.\467\
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\458\ See, e.g., MFA Comment Letter III; SIFMA Comment Letter;
AIC Comment Letter I; AIC Comment Letter II; MFA/NAPFM Comment
Letter; Comment Letter of U.S. House of Representatives Committee on
Financial Services.
\459\ Amendments to Form PF to Require Current Reporting and
Amend Reporting Requirements for Large Private Equity Advisers and
Large Liquidity Fund Advisers, Release No. IA-5950 (Jan. 26, 2022)
[87 FR 9106 (Feb. 17, 2022)] (see MFA/NAPFM Comment Letter at 20,
n.21 and accompanying text; AIC Comment Letter II at 8, n.25);
Private Fund Advisers; Documentation of Registered Investment
Adviser Compliance Reviews, Release No. IA-5955 (Feb. 9, 2022) [87
FR 16886 (Mar. 24, 2022)] (see MFA/NAPFM Comment Letter at 10-12;
AIC Comment Letter II at 1, n.3, 8); Modernization of Beneficial
Ownership Reporting, Release Nos. 33-11030, 34-94211 (Feb. 10, 2022)
[87 FR 13846 (Mar. 10, 2022)] (see MFA/NAPFM Comment Letter at 14-
15); Short Position and Short Activity Reporting by Institutional
Investment Managers, Release No. 34-94313 (Feb. 25, 2022) [87 FR
14950 (Mar. 16, 2022)] (see MFA/NAPFM Comment Letter at 15-16);
Prohibition Against Conflicts of Interest in Certain
Securitizations, Release No. 33-11151 (Jan. 25, 2023) [88 FR 9678
(Feb. 14, 2023)] (see MFA/NAPFM Comment Letter at 21-22); Standards
for Covered Clearing Agencies for U.S. Treasury Securities and
Application of the Broker-Dealer Customer Protection Rule With
Respect to U.S. Treasury Securities, Release No. 34-95763 (Sept. 14,
2022) [87 FR 64610 (Oct. 25, 2022)] (see July 2023 MFA and NAPFM
Comment Letter at 16-17); Further Definition of ``As a Part of a
Regular Business'' in the Definition of Dealer and Government
Securities Dealer, Release No. 34-94524 (Mar. 28, 2022) [87 FR 23054
(Apr. 18, 2022)] (see MFA/NAPFM Comment Letter at 12-13; AIC Comment
Letter II at n.3, n.16, n.30).
\460\ May 2023 SEC Form PF Amending Release, supra footnote 4.
The Form PF amendments adopted in May 2023 require large hedge fund
advisers and all private equity fund advisers to file reports upon
the occurrence of certain reporting events. The May 2023 SEC Form PF
Amending Release revised Form PF to (i) add new current reporting
requirements for large hedge fund advisers to qualifying hedge funds
upon the occurrence of key events (new section 5); (ii) add new
quarterly reporting requirements for all private equity fund
advisers upon the occurrence of key events (new section 6); and
(iii) add and revise new regular reporting questions for large
private equity fund advisers. The compliance dates are Dec. 11,
2023, for the event reports in Form PF sections 5 and 6, and June
11, 2024, for the remainder of the Form PF amendments in the May
2023 SEC Form PF Amending Release.
\461\ SEC Private Fund Advisers Adopting Release, supra footnote
185. The Commission adopted five new rules and two rule amendments
as part of the reforms. The compliance date for the quarterly
statement rule and the audit rule is Mar. 14, 2025, for all
advisers. For the adviser-led secondaries rule, the preferential
treatment rule, and the restricted activities rule, the Commission
adopted staggered compliance dates that provide for the following
transition periods: for advisers with $1.5 billion or more in
private funds assets under management, a 12-month transition period
(ending on Sept. 14, 2024) and for advisers with less than $1.5
billion in private funds assets, an 18-month transition period
(ending on Mar. 14, 2025). The compliance date for the amended
Advisers Act compliance rule was Nov. 13, 2023.
\462\ Modernization of Beneficial Ownership Reporting, Release
No. 33-11253 (Oct. 10, 2023) (``Beneficial Ownership Amending
Release''). Among other things, the amendments generally shorten the
filing deadlines for initial and amended beneficial ownership
reports filed on Schedules 13D and 13G, and require that Schedule
13D and 13G filings be made using a structured, machine-readable
data language. The amendments are effective on Feb. 5, 2024.
Compliance with the new filing deadline for Schedule 13G will not be
required before Sept. 30, 2024, and the rule's structured data
requirements have a one-year implementation period ending Dec. 18,
2024. See Beneficial Ownership Amending Release, section II.G.
\463\ Short Position and Short Activity Reporting by
Institutional Investment Managers, Release No. 34-98738 (Oct. 13,
2023) [88 FR 75100 (Nov. 1, 2023)] (``Short Position Reporting
Adopting Release''). The new rule and related form are designed to
provide greater transparency through the publication of short sale-
related data to investors and other market participants. Under the
new rule, institutional investment managers that meet or exceed
certain specified reporting thresholds are required to report, on a
monthly basis using the related form, specified short position data
and short activity data for equity securities. The compliance date
for the rule is Jan. 2, 2025. In addition, the Short Position
Reporting Adopting Release amends the national market system plan
governing consolidated audit trail (``CAT'') to require the
reporting of reliance on the bona fide market making exception in
the Commission's short sale rules. The compliance date for the CAT
amendments is July 2, 2025.
\464\ Prohibition Against Conflicts of Interest in Certain
Securitizations, Release No. 33-11254 (Nov. 27, 2023) [88 FR 85396
(Dec. 7, 2023)] (``Securitizations Conflicts Adopting Release'').
The new rule prohibits an underwriter, placement agent, initial
purchaser, or sponsor of an asset-backed security (including a
synthetic asset-backed security), or certain affiliates or
subsidiaries of any such entity, from engaging in any transaction
that would involve or result in certain material conflicts of
interest. The compliance date is June 9, 2025.
\465\ Standards for Covered Clearing Agencies for U.S. Treasury
Securities and Application of the Broker-Dealer Customer Protection
Rule with Respect to U.S. Treasury Securities, Release No. 34-99149
(Dec. 13, 2023) [89 FR 2714 (Jan. 16, 2024)] (``Treasury Clearing
Adopting Release''). Among other things, the rules require covered
clearing agencies for U.S. Treasury securities to have written
policies and procedures reasonably designed to require that every
direct participant of the covered clearing agency submit for
clearance and settlement all eligible secondary market transactions
in U.S. Treasury securities to which it is a counterparty. The
compliance dates are 60 days after publication in the Federal
Register for each covered clearing agency to file any proposed rule
changes pursuant to final Rule 17Ad-22(e)(6)(i), 17Ad-
22(e)(18)(iv)(c), and 15c3-3, and the rule changes must be effective
by Mar. 31, 2025. With respect to the changes to Rule 17Ad-
22(e)(18)(iv)(A) and (B), (i) each covered clearing agency will be
required to file any proposed rule changes regarding those
amendments no later than 150 days after publication in the Federal
Register, and the proposed rule changes must be effective by Dec.
31, 2025, for cash market transactions encompassed by section (ii)
of the definition of an eligible secondary market transaction, and
by June 30, 2026, for repo transactions encompassed by section (i)
of the definition of an eligible secondary market transactions.
Compliance by the direct participants of a U.S. Treasury securities
covered clearing agency with the requirement to clear eligible
secondary market transactions would not be required until Dec. 31,
2025 and June 30, 2026, respectively, for cash and repo
transactions.
\466\ Further Definition of ``As a Part of a Regular Business''
in the Definition of Dealer and Government Securities Dealer in
Connection with Certain Liquidity Providers, Release No. 34-99477
(Jan. 24, 2024) (``Dealer Definition Amending Release''). The dealer
definition amendments define the phrase ``as a part of a regular
business'' as used in the statutory definitions of ``dealer'' and
``government securities dealer.'' The compliance date is one year
from the effective date, or approximately Mar. 2025, for persons
engaging in activities that meet the dealer registration
requirements to register prior to the effective date of the final
rules.
\467\ In addition, commenters indicated there could also be
overlapping compliance costs between the final amendments and
proposals that have not been adopted. See, e.g., AIC Comment Letter
II; MFA/NAPFM Comment Letter. To the extent those proposals are
adopted, the baseline in those subsequent rulemakings will reflect
the existing regulatory requirements at that time.
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Form PF complements the basic information about private fund
advisers and funds reported on Form ADV.\468\ As discussed above, the
Commissions adopted Form PF in 2011, with additional amendments made to
section 3 along with certain money market reforms in 2014,\469\ further
amendments made to sections 3 and 4 in 2023, and new sections 5 and 6
added in 2023 as well.\470\ 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.\471\ The purpose of Form PF is to provide the Commissions
and FSOC with data that regulators can deploy in their regulatory and
oversight programs directed at assessing and managing systemic risk and
protecting investors.\472\
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\468\ Investment advisers to private funds report on Form ADV,
on a public basis, general information about private funds that they
advise, including 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/.
\469\ See supra footnote 3. When the SEC adopted the amendments
to section 3 in 2014 in connection with certain money market
reforms, it noted that under the proposal it was concerned that some
of the proposed money market reforms might result in assets shifting
from registered money market funds to unregistered products such as
liquidity funds, and that the proposed amendments were designed to
help the SEC and FSOC track any potential shift in assets and better
understand the risks associated with the proposed money market
reforms. See, e.g., D. Hiltgen, Private Liquidity Funds:
Characteristics and Risk Indicators (Jan. 27, 2017), available at
https://www.sec.gov/files/2017-03/Liquidity%20Fund%20Study.pdf
(``Hiltgen Paper''); 2011 Form PF Adopting Release, supra footnote
4; 2014 Form PF Amending Release, supra footnote 4, at 466;
Commissioner Luis Aguilar Statement, Strengthening Money Market
Funds to Reduce Systemic Risk, SEC (July 23, 2014), available at
https://www.sec.gov/news/public-statement/2014-07-23-open-meeting-statment-laa.
\470\ May 2023 SEC Form PF Amending Release, supra footnote 4;
July 2023 SEC Form PF Amending Release supra footnote 4.
\471\ As discussed above, SEC staff publish quarterly reports of
aggregated and anonymized data regarding private funds on the SEC's
website. See supra footnote 5; see also Private Fund Statistics Q1
2023.
\472\ See supra section I.
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Before Form PF was adopted, the SEC and other regulators, including
the CFTC, had limited visibility into the economic activity of private
fund advisers and relied largely on private vendor databases about
private funds that covered only voluntarily provided private fund data
and did not represent the total population.\473\ Form PF represented an
improvement in available data about private funds, both in terms of its
reliability and completeness.\474\ Generally, investment advisers
registered (or required to be registered) with the SEC with at least
$150 million in private fund assets under management must file Form PF.
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.\475\ In addition, large private equity fund
advisers provide data about each private equity fund they manage. Large
hedge fund advisers and large liquidity fund advisers also provide data
about each reporting fund they manage, and are required to file
quarterly, currently after each fiscal quarter.\476\
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\473\ 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.
\474\ Id.
\475\ Id.
\476\ Id.; see also supra section II.A.3.
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The SEC and other regulators 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 \477\ and improved the SEC's
oversight of private fund advisers.\478\ Form PF data also has enhanced
the SEC's 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.\479\
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 \480\ and by making publicly available
certain results of staff research regarding the characteristics,
activities, and risks of private funds.\481\ As discussed above, these
data may also be used by the CFTC for the purposes of its regulatory
programs, including examinations, investigations and investor
protection efforts.\482\
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\477\ See, e.g., OFR, 2021 Annual Report to Congress (Nov.
2021), available at https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2021.pdf; Financial Stability
Oversight Council, 2020 Annual Report, available at https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf.
\478\ See, e.g., SEC 2020 Staff Report, supra footnote 473.
\479\ See supra footnotes 477, 478.
\480\ See supra footnote 471.
\481\ See, e.g., David C. Johnson & Francis A. Martinez, Form PF
Insights on Private Equity Funds and Their Portfolio Companies, OFR
Brief Series No. 18-01 (June 14, 2018), available at https://www.financialresearch.gov/briefs/2018/06/14/form-pf-insights-on-private-equity-funds/; Hiltgen Paper, supra footnote 470; George
Aragon, A. Tolga Ergun, Mila Getmansky & Giulio Girardi, Hedge
Funds: Portfolio, Investor, and Financing Liquidity (May 17, 2017),
available at https://www.sec.gov/files/dera_hf-liquidity.pdf; George
Aragon, Tolga Ergun & Giulio Girardi, Hedge Fund Liquidity
Management: Insights for Fund Performance and Systemic Risk
Oversight (May 2017), available at https://www.sec.gov/files/dera_hf-liquidity-management.pdf; Mathis S. Kruttli, Phillip J.
Monin & Sumudu W. Watugala, The Life of the Counterparty: Shock
Propagation in Hedge Fund-Prime Broker Credit Networks (OFR Working
Paper No. 19-03, Oct. 2019), available at https://www.financialresearch.gov/working-papers/files/OFRwp-19-03_the-life-of-the-counterparty.pdf; Mathias S. Kruttli, Phillip J. Monin,
Lubomir Petrasek & Sumudu W. Watugala, Hedge Fund Treasury Trading
and Funding Fragility: Evidence from the COVID-19 Crisis, Fed. Rsrv.
Bd., Fin. and Econ. Discussion Series No. 2021-038 (Apr. 2021),
available at https://www.federalreserve.gov/econres/feds/hedge-fund-treasury-trading-and-funding-fragility-evidence-from-the-covid-19-crisis.htm; Mathias S. Kruttli, Phillip J. Monin & Sumudu W.
Watugala, Investor Concentration, Flows, and Cash Holdings: Evidence
from Hedge Funds, Fed. Rsrv. Bd., Fin. and Econ. Discussion Series
No. 2017-121 (Dec. 15, 2017), available at https://www.federalreserve.gov/econres/feds/investor-concentration-flows-and-cash-holdings-evidence-from-hedge-funds.htm.
\482\ See supra section I.
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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 SEC's 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.\483\ For example, as discussed above, when monitoring funds'
activities during recent market events like the March 2020 COVID-19
turmoil, the existing aggregation of U.S. Treasury securities with
related derivatives did not reflect the role hedge funds played in the
U.S. Treasury
[[Page 18034]]
market.\484\ Also during the COVID-19 market turmoil, FSOC sought to
evaluate the role hedge funds played in disruptions in the U.S.
Treasury market by unwinding cash-futures basis trade positions and
taking advantage of the near-arbitrage between cash and futures prices
of U.S. Treasury securities. Because the existing requirement regarding
turnover reporting on U.S. Treasury securities is highly aggregated,
the SEC staff, during retrospective analyses on the March 2020 market
events, was unable to obtain a complete picture of activity relating to
long treasuries and treasury futures.\485\ The need for more granular
information collected on Form PF is further heightened by the
increasing significance of the private fund industry to financial
markets, and resulting regulatory concerns regarding potential risks to
U.S. financial stability from this sector.\486\ The SEC's and FSOC's
experiences analyzing Form PF data has also identified certain areas of
Form PF where questions result in data received that is redundant to
other questions, or instructions that result in unnecessary reporting
burden for some advisers.\487\
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\483\ See supra section I.
\484\ See supra section II.C.2.a.
\485\ See supra section II.C.2.d. This also includes the SEC's
and FSOC's experience analyzing data from multiple regulatory
filings. For example, one SEC staff paper has used Form PF data and
Form N-MPF data to study rule 2a-7 risk limits and implications of
money market reforms. See, e.g., Hiltgen Paper, supra footnote 470.
\486\ 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. See supra footnote 5; see also
Financial Stability Oversight Council Update on Review of Asset
Management Product and Activities (2014), available at https://home.treasury.gov/system/files/261/Financial%20Stability%20Oversight%20Council%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf.
\487\ Based on the analysis in section V.C., the current costs
associated with filing Form PF report are estimated to be $4,815
annually for smaller private fund advisers, $48,150 per quarterly
filing or $192,600 annually for large hedge fund advisers, $22,470
per quarterly filing or $89,880 annually for large liquidity fund
advisers, and $41,730 annually for large private equity fund
advisers. A 2018 industry survey of large hedge fund advisers
observed filing costs that ranged from 35% to 72% higher than SEC
cost estimates. See MFA Letter to Chairman Clayton, supra footnote
164. However, a 2015 academic survey of SEC-registered investment
advisers to private funds affirmed the SEC's cost estimates for
smaller private fund advisers' Form PF compliance costs, and
observed that the SEC overestimated Form PF compliance costs for
larger private fund advisers. See Wulf Kaal, Private Fund
Disclosures Under the Dodd-Frank Act, 9 Brooklyn J. Corp., Fin., and
Com. L. 428 (2015).
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2. Affected Parties
The final rule amends the general instructions and basic
information reporting requirements facing all categories of private
fund advisers. As discussed above, these include, but are not limited
to, advisers to hedge funds, private equity funds, real estate funds,
securitized asset funds, liquidity funds, and venture capital
funds.\488\ The final rule further amends reporting requirements for
large hedge fund advisers, including specific revisions for large hedge
fund advisers to qualifying hedge funds.\489\
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\488\ See supra section I.
\489\ Form PF currently 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 notional
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 of Terms. ``Large'' hedge fund
advisers are those, collectively with their related persons, with at
least $1.5 billion in hedge fund assets under management as of the
last day of any month in the fiscal quarter immediately preceding
the adviser's most recently completed fiscal quarter. Qualifying
hedge funds are hedge funds that have a net asset value
(individually or in combination with 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 the adviser's most recently completed fiscal
quarter. See supra section II.C.
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Hedge funds, the focus of part of the release, are one of the
largest categories of private funds,\490\ 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.\491\ 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 might lead to
significant stress or failure not just at the affected fund but also
across financial markets.\492\
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\490\ See infra footnote 493.
\491\ See, e.g., Lloyd Dixon, Noreen Clancy & Krishna B. Kumar,
Hedge Fund and Systemic Risk, RAND Corp. (2012); John Kambhu, Til
Schuermann & Kevin Stiroh, Hedge Funds, Financial Intermediation,
and Systemic Risk, Fed. Rsrv. Bank of NY's Econ. Policy Rev. (2007).
\492\ See supra footnotes 477, 486.
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In the first quarter of 2023, there were 9,846 hedge funds reported
on Form PF, managed by 1,856 advisers, with almost $9.5 trillion in
gross assets under management, which represented almost half of gross
assets reported by private fund advisers.\493\ 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 (those with at least $1.5 billion in regulatory
assets under management attributable to hedge funds) \494\ 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).\495\ Large hedge fund advisers must report more information on
Form PF about qualifying hedge funds (those with at least $500 million
as of the last day of any month in the fiscal quarter immediately
preceding the adviser's most recently completed fiscal quarter) \496\
than other hedge funds they manage during the reporting period. In the
first quarter of 2023, there were 2,034 qualifying hedge funds reported
on Form PF, managed by 570 advisers, with almost $8 trillion in gross
assets under management, which represented almost 84 percent of the
reported hedge fund assets.\497\
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\493\ In the first quarter of 2023, hedge fund assets accounted
for approximately 46.3% of the gross asset value (``GAV'') ($9.5/
$20.5 trillion) and approximately 34.8% of the net asset value
(``NAV'') ($4.9/14.0 trillion) of all private funds reported on Form
PF. Private Fund Statistics Q1 2023, at 5.
\494\ See supra footnote 489.
\495\ Currently, Instruction 9 requires large hedge fund
advisers to update Form PF within 60 days after the end of each
fiscal quarter. See supra section II.A.3.
\496\ Id.
\497\ In the first quarter of 2023, qualifying hedge fund assets
accounted for 84% of the GAV ($8.0/$9.5 trillion) and 79% of the NAV
($3.9/$4.9 trillion) of all hedge funds reported on Form PF. Private
Fund Statistics Q1 2023, at 4-5.
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Private equity funds are another large category of funds in the
private fund industry. In the first quarter of 2023, there were 20,917
private equity funds reported on Form PF, managed by 1,755 advisers,
with $6.6 trillion in gross assets under management, which represented
almost one third of the reported gross assets in the private fund
industry.\498\ Many private equity funds focus on long-term returns by
investing in a private, non-publicly traded
[[Page 18035]]
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.\499\ Other private equity funds may specialize in
making minority investments in fast-growing companies or startups.\500\
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\498\ In the first quarter of 2023, private equity assets
accounted for 32.4% of the GAV ($6.6/$20.5 trillion) and 42.7% of
the NAV ($6.0/$14.0 trillion) of all private funds reported on Form
PF. Private Fund Statistics Q1 2023, at 5.
\499\ After purchasing controlling interests in portfolio
companies, private equity fund 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., SEC, Private Equity Funds, Investor.gov,
available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity.
\500\ Id.
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For the remaining categories of funds (real estate funds,
securitized asset funds, liquidity funds, venture capital funds, and
other private funds), advisers required to file Form PF had, in the
first quarter of 2023, investment discretion over almost $4.4 trillion
in gross assets under management.\501\ These assets were managed by
1,709 fund advisers managing 16,668 funds.\502\
---------------------------------------------------------------------------
\501\ Private Fund Statistics Q1 2023, at 5.
\502\ Private Fund Statistics Q1 2023, at 4.
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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.\503\ Private funds that rely on the exclusion from the
definition of ``investment company'' provided in section 3(c)(7) of the
Investment Company Act are limited to investors that are also qualified
purchasers (as defined in section 2(a)(51) of the Investment Company
Act). 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.\504\ In the
first quarter of 2023, public pension plans had $1,905 billion invested
in reporting private funds while private pension plans had $1,302
billion invested in reporting private funds, making up 13.6 percent and
9.3 percent of the overall beneficial ownership in the private fund
industry, respectively.\505\ Private fund advisers have also sought to
be included in individual investors' retirement plans, including their
401(k)s.\506\
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\503\ See, e.g., Private Equity Funds, supra footnote 499; SEC,
Hedge Funds, Investor.gov, available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds.
\504\ See supra footnote 503.
\505\ Private Fund Statistics Q1 2023, at 15.
\506\ See, e.g., Dep't of Labor, Information Letter (June 3,
2020), available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020.
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C. Benefits, Costs, and Effects on Efficiency, Competition, and Capital
Formation
1. Benefits
The final amendments are designed to facilitate two primary goals
the SEC 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 SEC's abilities
to evaluate and develop regulatory policies and improving the
efficiency and effectiveness of the SEC's efforts to protect investors
and maintain fair, orderly, and efficient markets.\507\
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\507\ See supra section I. While the final amendments are also
designed to improve the usefulness of this data for the CFTC, this
economic analysis does not include the benefits associated with
enhancements to the CFTC's use of reporting on Form PF.
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The SEC believes the final amendments will accomplish these goals
in three key ways, each discussed in detail in the following sections.
First, the final amendments will provide solutions to potential
reporting errors and issues of data quality when analyzing Form PF
filings across advisers and when analyzing multiple different
regulatory filings. Higher quality data across different funds and
across different regulatory filings can allow the SEC and FSOC to
develop an understanding of one set of advisers and apply it to other
advisers more rapidly, or apply lessons from one financial market to
other financial markets. This can help the SEC and FSOC develop more
effective regulatory responses and oversight, and help the SEC protect
investors by identifying areas in need of outreach, examinations, and
investigations in response to potential systemic risks, conflicting
arrangements between advisers and investors, and other sources of
investor harm.
Second, the final amendments will help Form PF more completely and
accurately capture information relevant to ongoing trends in the
private fund industry in terms of ownership, size, investment
strategies, and exposures. This can improve the SEC's and FSOC's
understanding of new developing systemic risks and potential
conflicting arrangements, thereby further aiding in the development of
regulatory responses, and also aiding the SEC in efforts to protect
investors by identifying areas in need of outreach, examinations, and
investigations.
Third, the final amendments will take certain steps to streamline
certain reporting and reduce certain reporting burdens without
compromising investor protection efforts and systemic risk analysis.
This will improve the efficiency and effectiveness of the SEC's efforts
to protect investors and maintain fair, orderly and efficient markets.
The SEC anticipates that the increased ability for the SEC's and
FSOC's oversight, resulting from the final amendments, might promote
better functioning and more stable financial markets, which may lead to
efficiency improvements. The SEC does not anticipate significant
benefits on competition in the private fund industry from the final
amendments because the reported information generally will be nonpublic
and similar types of advisers will have comparable burdens under the
amended Form. For similar reasons, the SEC does not anticipate
significant effects of the amendments on capital formation.
Several of these amendments have been revised relative to the
proposal. The revisions include changes to instructions for purposes of
clarification, revising framing or explanation of questions where
commenters made suggestions to improve data quality, revising
instructions to avoid duplicative reporting or to otherwise ease
burden, or forgoing adopting certain amendments entirely. We include in
the discussion in this section how the benefits are impacted by changes
made in response to commenters. In general, revisions either (1)
enhance the benefits or (2) may reduce the benefits but substantially
reduce the costs.\508\
---------------------------------------------------------------------------
\508\ We discuss the impacts on costs below. See infra section
IV.C.2.
---------------------------------------------------------------------------
The final amendments revise the general instructions (as well as
implement additional amendments), section 1 (requiring basic
information about advisers and the private funds they advise), and
section 2 (requiring information about hedge funds advised by large
private fund advisers) of Form PF. The benefits associated with each of
these specific elements are discussed in greater detail below.
a. Amendments to General Instructions, Amendments To Enhance Data
Quality, and Additional Amendments
The amendments update the Form PF general instructions to revise
how all private fund advisers satisfy certain requirements on Form PF,
issue a series of amendments to enhance data quality,
[[Page 18036]]
and issue a series of additional amendments.\509\ There are five
categories of these amendments.
---------------------------------------------------------------------------
\509\ See supra sections II.A, II.D, II.E.
---------------------------------------------------------------------------
First, the amendments revise the general instructions for reporting
of master-feeder arrangements and parallel fund structures.\510\ These
revisions to the general instructions will improve consistency of
reporting associated with measuring private fund interconnectedness and
investment in other private funds by revising instructions for
reporting of ownership structures and revising instructions that are
currently ambiguous and result in reporting errors and issues of data
quality across advisers. For example, as discussed above, Form PF
currently provides advisers with flexibility to respond to questions
regarding master-feeder arrangements, parallel fund structures either
in the aggregate or separately, as long as they do so consistently
throughout Form PF. The revised instructions will specify how to
respond to these questions to prevent some advisers from responding in
the aggregate and some advisers from responding separately.\511\ The
revised instructions will also require reporting on the total value of
parallel managed accounts.\512\ The SEC anticipates these improved data
will assist the SEC and FSOC in assessing potential risks to financial
stability resulting from increasingly complex ownership and investment
structures of private funds. While master-feeder arrangements, parallel
fund structures, and use of funds of funds all allow private funds to
benefit from larger pools of capital, diversify risk, and enjoy shared
returns,\513\ these same features have inherent risks of spillovers in
losses, as losses in a master fund or underlying investment of a fund
of funds cause losses in connected funds as well. Complex ownership
structures may also create conflicts of interest when the same
individuals serve as directors on boards of both master and feeder
funds under a single owner,\514\ and may also mask instances of fraud
and a private fund's methods for committing fraud.\515\ Investor
protection efforts will therefore benefit from more consistent data
providing connections from master funds to feeder funds and other
ownership information.
---------------------------------------------------------------------------
\510\ See supra section II.A.1. However, an adviser will
continue to aggregate these structures for purposes of determining
whether the adviser meets a reporting threshold.
\511\ Similar benefits will be obtained from revisions to
Instruction 7, which requires advisers to include the value of
investments in other private funds when determining whether the
adviser meets the thresholds for reporting as a large hedge fund
adviser, large liquidity fund adviser, or large private equity fund
adviser, and whether a private fund is a qualifying hedge fund; and
generally requires an adviser to include the value of a reporting
fund's investments in other private funds when responding to
questions on Form PF. Other revisions could also provide benefits
associated with consistency of reporting by revising instructions to
avoid error across filers, including amending instructions to
provide that advisers must not ``look through'' its investments in
other private funds when responding to questions and adding an
instruction when ``looking through'' cannot be avoided; providing
general instructions to explain how advisers will report information
if the reporting fund uses a trading vehicle; and amending
instructions to indicate that advisers must not ``look through'' a
reporting fund's investments in funds or other entities that are not
private funds, or trading vehicles. See supra section II.A.2.
Similar benefits will also be obtained from the amendments updating
instructions to provide conformity with CFTC's amendments to Form
CPO-PQR, including those that specify when advisers that are also
CPOs should complete particular sections of Form PF. See supra
section II.E; see also Revised Instruction 18.
\512\ See supra section II.A.1.
\513\ See, e.g., Robert Harris, Tim Jenkinson, Steven Kaplan &
Ruediger Stucke, Financial Intermediation in Private Equity: How
Well Do Funds of Funds Perform?, 129 J. Fin. Econ. 2, 287-305 (Aug.
2018).
\514\ See, e.g., Todd Ehret, Platinum Fraud Charges Shine Light
On Cayman Director Responsibilities, Reuters Fin. Reg. Forum (Mar.
30, 2017), available at https://www.reuters.com/article/bc-finreg-cayman-private-structure/platinum-fraud-charges-shine-light-on-cayman-director-responsibilities-idUSKBN17030J.
\515\ See, e.g., Melvyn Teo, Lessons Learned from Hedge Fund
Fraud, Eureka Hedge (Oct. 2009), available at https://www.eurekahedge.com/Research/News/506/Lessons-Learned-From-Hedge-Fund-Fraud.
---------------------------------------------------------------------------
While some commenters supported the proposed amendments on this
topic,\516\ other commenters opposed the proposed amendments as of
limited benefit to the Commissions and/or FSOC.\517\ For example, as
discussed above, disaggregated data of these structures will provide
the Commissions and FSOC with increased transparency into risk profiles
and complex fund structures, which will improve our ability to monitor
systemic risk and protect investors.\518\ We also disagree that
disaggregated reporting of master-feeder funds and parallel fund
structures will be of limited value based on our experience with Form
PF, which currently obscures our understanding of their fund structures
and the risk exposure of their component funds.\519\ We also believe
that the disaggregated reporting will allow for a clearer understanding
of a fund's structure.\520\
---------------------------------------------------------------------------
\516\ See supra section II.A.1; see also AFREF Comment Letter I;
Better Markets Comment Letter.
\517\ See supra section II.A.1; see also AIC Comment Letter I;
AIMA/ACC Comment Letter; MFA Comment Letter II.
\518\ See supra section II.A.1.
\519\ Id.
\520\ Id.
---------------------------------------------------------------------------
Commenters also stated that disaggregated data would provide
misleading information by reporting data in isolation as opposed to as
part of an overall fund or investment program.\521\ We disagree, and
think that disaggregated data will not be misleading to the Commissions
or FSOC in comparison to aggregated data because the Commissions and
FSOC could, if necessary, aggregate the data to understand the overall
fund.\522\ Similarly, as another example, data regarding the total
value of parallel managed accounts, however, will allow FSOC to take
into account the greater amount of assets an adviser may be managing
using a given strategy for purposes of analyzing the data reported on
Form PF for systemic risk purposes.\523\
---------------------------------------------------------------------------
\521\ See, e.g., MFA Comment Letter II; USCC Comment Letter.
\522\ See supra section II.A.1.
\523\ Id.
---------------------------------------------------------------------------
Certain changes made in response to commenters' concerns will also
enhance these benefits relative to the proposal. For example, by
modifying the instructions for how a feeder fund determines its
reporting category to specify that the feeder fund should exclude any
of its holdings in the master fund's equity when calculating its total
asset value for the purpose of determining its reporting category, the
amendments will avoid double counting of reported assets, given that
data for the master fund will be separately reported on Form PF.\524\
---------------------------------------------------------------------------
\524\ Id.
---------------------------------------------------------------------------
Second, the amendments revise the general instructions for
reporting for private funds that invest in other funds or trading
vehicles.\525\ Specifically, the amendments revise Instruction 7 and 8
to require advisers to include information pertaining to their trading
vehicles when completing Form PF.\526\
[[Page 18037]]
Because private funds may use trading vehicles for a wide variety of
purposes, more complete and accurate visibility into asset class
exposures, position sizes, and counterparty exposures relied on by
trading vehicles can enhance the SEC's and FSOC's systemic risk and
financial stability assessment efforts and the SEC's efforts to protect
investors by identifying areas in need of outreach, examination, or
investigation.
---------------------------------------------------------------------------
\525\ These final amendments will include requiring advisers to
include the value of investments in other private funds in
determining whether the adviser is required to file Form PF and when
determining whether the adviser meets the thresholds for reporting
as a large hedge fund adviser, large liquidity fund adviser, or
large private equity fund adviser, and whether a private fund is a
qualifying hedge fund; generally requiring an adviser to include the
value of a reporting fund's investments in other private funds when
responding to questions on Form PF; provide that generally advisers
must not ``look through'' its investments in other private funds
(other than a trading vehicle) when responding to questions and
adding an instruction to provide that advisers must provide an
explanation if ``looking through'' cannot be avoided; amending the
general instructions to explain how advisers will report information
if the reporting fund uses a trading vehicle; requiring advisers to
report all trading vehicles, whether wholly owned or partially
owned, on a consolidated bases; and amending instructions to
indicate that advisers must not ``look through'' a reporting fund's
investments in funds or other entities that are not private funds or
trading vehicles. See supra section II.A.2.
\526\ See supra section II.A.2.
---------------------------------------------------------------------------
Certain changes made in response to commenters' concerns will also
enhance these benefits relative to the proposal. For example, one
commenter stated that allowing an adviser to determine whether to
include or exclude a reporting fund's investment in other private funds
could result in distortions in the data collected on Form PF.\527\ By
modifying the instructions to provide specific instructions, such
distortion can be avoided, which will improve data quality.\528\
---------------------------------------------------------------------------
\527\ See supra section II.A.2.
\528\ Id.
---------------------------------------------------------------------------
As another example, commenters opposed proposed amendments that
would have permitted an adviser to select whether to report a wholly
owned trading vehicle on either a consolidated or disaggregated basis
and would have required advisers to report a partially owned trading
vehicle on a disaggregated basis.\529\ These commenters questioned the
benefits of these proposed amendments, for example stating that
separate reporting for trading vehicles is not necessary because
trading vehicles are often used for administrative purposes, such as
for tax or efficiency purposes, but are managed on a consolidated basis
and regarded as a single entity for investment purposes.\530\ By
instead requiring advisers to report all trading vehicles, whether
wholly owned or partially owned, on a consolidated basis, and by
specific questions relating to a reporting fund's trading vehicle use
and a trading vehicle's position size and risk exposure, we will
improve data comparability and allow us to better understand the
holdings and exposures of the fund structure for our assessments of
potential systemic risk.
---------------------------------------------------------------------------
\529\ Id.
\530\ Id.; see also, e.g., MFA Comment Letter II; Schulte
Comment Letter.
---------------------------------------------------------------------------
Third, the amendments will revise the general instructions for
reporting timelines by revising Instruction 9 to require large hedge
fund advisers and large liquidity fund advisers to update Form PF
within a certain number of days after the end of each calendar quarter,
rather than each fiscal quarter, as Form PF currently requires.\531\
The SEC anticipates that these amendments will improve the consistency
of reporting across different private fund advisers, across quarterly
and annual filings, and across different regulatory forms,\532\ which
may improve the ability of regulators to analyze filing data across
fund advisers and across different regulatory forms by resolving
reporting errors and issues of data quality. These data analyses are
important contributors to the SEC's and FSOC's efforts to assess
systemic risk and develop a complete picture of private fund markets.
The SEC anticipates that these improved reporting alignments may
enhance the SEC's and FSOC's abilities to assess potential risks
presented by private funds.\533\ For example, as discussed above,
academic research has used Form PF data and Form N-MPF data to study
rule 2a-7 risk limits and implications of money market reforms.\534\
Standardizing data across regulatory filings can lead to further
industry insights from combined regulatory filing data, and these
industry insights may improve systemic risk assessment and regulator
investor protection efforts. However, as discussed above, because
almost all large hedge fund advisers and large liquidity fund advisers
already effectively file on a calendar quarter basis because their
fiscal quarter ends on the calendar quarter, the SEC anticipates that
these benefits will be marginal.\535\
---------------------------------------------------------------------------
\531\ See supra section II.A.3.
\532\ Id.
\533\ While the amendments to general instructions associated
with reporting timelines will primarily offer economic benefits
associated with improvement in data quality and resolutions to data
gaps, the amendments to reporting timelines will also provide a
potential improvement to regulators' ability to evaluate markets for
investor protection efforts and systemic risk assessment, in that
they accelerate the provision of data from quarterly reporting. See
supra section II.A.3. Moreover, as the amendments will make
reporting timelines more consistent, there could be reduced costs
associated with regulatory filings, as private fund advisers reduce
their need to track differentiated calendar quarter and fiscal
quarter data.
\534\ See supra section IV.B.1.
\535\ See supra section II.A.3. Specifically, and as discussed
above, based on staff analysis of Form ADV data as of Dec. 2021,
99.2% of private fund advisers already effectively file on a
calendar basis because their fiscal quarter or year ends on the
calendar quarter or year end, respectively. The 0.8% of private fund
advisers that have a non-calendar fiscal approach represents
approximately 274 private funds, totaling $200 billion in gross
asset value. See supra section II.A.3.
---------------------------------------------------------------------------
Fourth, the amendments issue a series of revisions that impact
several sections of Form PF, which will broadly enhance data quality,
for example by potentially resolving reporting errors. These amendments
will specify that reported percentages be rounded to the nearest one
hundredth of one percent, provide consistent instruction for reporting
of investment and counterparty exposures, provide consistent
instruction on the reporting of long and short positions, and provide
consistent instruction for reporting of derivative values.\536\ The
resulting improved data quality will improve the ability of the SEC and
FSOC to evaluate market risk and measure industry trends, thereby
increasing the efficiency with which regulatory responses are
developed, improving systemic risk assessment and regulator programs to
protect investors.
---------------------------------------------------------------------------
\536\ See supra section II.D.
---------------------------------------------------------------------------
We did not receive specific comments on certain of these proposed
amendments, such as the amended instructions to specify how private
fund advisers determine the value of investment positions (including
derivatives) and counterparty exposures.\537\ Some commenters expressed
support for the amendments to require advisers to report their long and
short holdings on a disaggregated basis,\538\ and other commenters
opposed the requirements for more detailed disclosures of
holdings.\539\
---------------------------------------------------------------------------
\537\ Id.
\538\ Id.
\539\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
SIFMA Comment Letter. See supra section II.C.2.a.
---------------------------------------------------------------------------
Certain changes made in response to commenters will enhance the
benefits of these amendments. For example, one commenter stated that
the definition of ``10-year bond equivalent'' specifies the expression
of the value in the fund's base currency.\540\ By revising the ``10-
year bond equivalent'' definition to reference U.S. dollars, rather
than the fund's base currency, resulting metrics will be reported in a
common currency, which will enhance data quality and comparability
purposes.\541\
---------------------------------------------------------------------------
\540\ Id.; see also AIMA/ACC Comment Letter.
\541\ See supra section II.D.
---------------------------------------------------------------------------
Lastly, the amendments issue a series of additional revisions that
will amend instructions related to temporary hardship exemptions,
provide conformity with the CFTC's amendments to Form CPO-PQR
(including those that specify when advisers that are also CPOs should
complete particular sections of Form PF), and revise definitions of the
terms EEA and G10 within Form PF.\542\ The additional amendments
updating instructions to the temporary hardship exemption to Form PF,
by way of an amendment to 17 CFR 275.204(b)-1(f) under the Advisers
Act, will make it easier to submit a temporary hardship exemption and
will assist advisers in
[[Page 18038]]
determining what constitutes a ``filed'' temporary hardship
exemption.\543\ These amendments may facilitate more successful
submissions of temporary hardship exemptions by private fund advisers
who require one, and may thereby benefit those advisers, and by
extension their investors, by reducing costs. Similarly, by providing
conformity with the CFTC's amendments to Form CPO-PQR, including those
that specify when advisers that are also CPOs should complete
particular sections of Form PF, and revising definitions associated
with the terms EEA and G10, the amendments may reduce confusion for
advisers filing Form PF, thereby reducing the burden of filing.\544\ We
did not receive comments on this aspect of the proposed changes.\545\
---------------------------------------------------------------------------
\542\ See supra section II.E, Revised Instruction 18.
\543\ See supra section II.E.
\544\ See supra section II.E, Revised Instruction 18.
\545\ See supra section II.E.
---------------------------------------------------------------------------
b. Amendments to Basic Information About the Adviser and the Private
Funds It Advises
The amendments to section 1, which requires all private fund
advisers to report information about the adviser and the private funds
they manage, include revisions to section 1a (concerning basic
identifying information),\546\ revisions to section 1b (concerning all
of a private fund adviser's private funds),\547\ and revisions to
section 1c (more specifically concerning all of a private fund
adviser's hedge funds).\548\ The changes will provide greater insight
into all private funds' operations and strategies, and will further
assist in assessing industry trends. This section discusses how the SEC
believes the changes will thereby enhance the SEC's and FSOC's systemic
risk assessment efforts and the SEC's efforts to protect investors by
identifying areas in need of outreach, examination, or investigation.
This will be accomplished in four key ways.
---------------------------------------------------------------------------
\546\ See supra section II.B.1.
\547\ See supra section II.B.2.
\548\ See supra section II.B.3.
---------------------------------------------------------------------------
First, the changes will provide more prescriptive requirements to
improve comparability across advisers and reduce reporting errors and
issues of data quality by aligning data across filers and across
regulatory filings, based on our experience with the form. This greater
alignment is designed to improve the efficiency with which the SEC and
FSOC evaluate market risk and measure industry trends, thereby
increasing the efficiency with which regulatory responses are
developed, improving systemic risk assessment and regulator programs to
protect investors. For example, revisions to section 1a (relating to
adviser reporting of identifying information for all private funds they
advise) will revise instructions on the use of LEIs and RSSD IDs for
advisers and related persons, and might help link data more efficiently
between Form PF and other regulatory filings that use these universal
identifiers.\549\ Several revisions to section 1b (relating to adviser
reporting of basic information for all private funds they advise) will
modify instructions and might prevent advisers from inadvertently
reporting different fund types on different regulatory filings (or,
when different reporting on two different forms is appropriate, the
revised instructions are designed to solicit the reason for
differentiated reporting), facilitating more robust data analyses that
use combined data from multiple regulatory forms.\550\ Revisions to
section 1c will require advisers to indicate which investment
strategies best describe the reporting fund's strategies on the last
day of the reporting period, addressing any ambiguity about how to
report information if the reporting fund changes strategies over
time.\551\ The SEC believes these revisions to section 1, and
others,\552\ will improve the accuracy and reliability of Form PF data,
thereby potentially improving the SEC's and FSOC's efforts to assess
developing systemic risks and FSOC's efforts to assess broader
financial instability, as well as potentially improving the SEC's
efforts to protect investors by identifying areas in need of outreach,
examination, or investigation.
---------------------------------------------------------------------------
\549\ See supra section II.B.1. For example, the reporting of a
fund's and its adviser's LEI is consistent with the way fund
relationships are reported in the Global LEI system. See, e.g., LEI
ROC, Policy on Fund Relationships and Guidelines for the
Registration of Investment Funds in the Global LEI System (May 20,
2019), available at https://www.leiroc.org/publications/gls/roc_20190520-1.pdf.
\550\ See supra section II.B.2. For example, the Division of
Investment Management relies on Form PF and Form ADV filings in
providing quarterly summaries of private fund industry statistics
and trends. See, e.g., SEC, Division of Investment Management,
Private Fund Statistics (Aug. 21, 2021), available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
\551\ See supra section II.B.3.
\552\ Other revisions that will provide this benefit include
revising reporting of regulatory versus net assets under management;
reporting of assumptions the adviser makes in responding to
questions on Form PF; reporting of types of fund; reporting of
master-feeder arrangements, internal/external private funds, and
parallel fund structures; reporting of monthly gross and net asset
values; reporting of the value of unfunded commitments; reporting on
the value of borrowing activity; reporting of fair value hierarchy;
reporting of beneficial ownership; reporting of fund performance;
more granular reporting of hedge fund strategies; more granular
reporting of hedge fund counterparty exposures including
identification of counterparties representing a fund's greatest
exposure; and more granular reporting of hedge fund trading and
clearing mechanisms. See supra section II.B.
---------------------------------------------------------------------------
While commenters who criticized these changes generally emphasized
the costs of the changes, along with the overall costs of the
amendments,\553\ certain commenters also questioned the benefits. For
example, one commenter opposed including more granular strategy
categories stating that some proposed categories are not clear and may
require advisers to make subjective decisions on how to report a fund's
strategy that could result in inconsistent reporting.\554\ While
certain advisers may have to make certain subjective decisions, the
amended strategy categories conform more closely to industry
conventions than the current categories and will allow advisers to more
accurately categorize their strategies. Any remaining ambiguity in
these strategy categories will only mitigate the benefits of the
resulting reporting, not eliminate the benefits.
---------------------------------------------------------------------------
\553\ See infra section IV.C.2.
\554\ See supra section II.B.3; see also MFA Comment Letter II.
---------------------------------------------------------------------------
Certain other commenters agreed with the benefits of certain
proposed provisions. For example, one commenter supported an expanded
use of LEI as a legal identifier in Form PF and stated that more
comprehensive inclusion of LEI would create a more complete
identification scheme for the Commissions.\555\ Still other commenters
suggested further revisions, and certain changes made in response to
those commenters will enhance these benefits. For example, some
commenters stated that proposed questions on withdrawal and redemption
rights did not address how to report a fund with multiple types of
redemption rights.\556\ In response, we are modifying the question to
ask for the interval on which withdrawals or redemptions are ``most
commonly'' permitted (i.e., with respect to most investors). We also
encourage an adviser to report any additional details on a fund's
withdrawal or redemption schedule in response to Question 4, as
appropriate. This will likely improve comparability across advisers and
reduce reporting errors and issues of data quality. Still other
amendments did not receive specific comments, such as the amendment
requiring an adviser to identify the fund type for a reporting fund as
``other'' and explaining why the
[[Page 18039]]
fund does not qualify for any of the other options.\557\
---------------------------------------------------------------------------
\555\ See supra section II.B.1; see also GLEIF Comment Letter.
\556\ See supra section II.B.2; see also, e.g., MFA Comment
Letter II; SIFMA Comment Letter.
\557\ See supra section II.B.2.
---------------------------------------------------------------------------
Second, the amendments will expand the data collected by the forms,
thereby facilitating the Commissions and FSOC to assess newly emerging
areas of potential systemic risk. These expanded areas of reporting
broadly capture key trends in (i) private fund advisers' ownership
structures, and (ii) private fund advisers' investment and trading
strategies, including increasing exposures to new asset classes,
changing exposures across different categories of counterparties, and
increasing use of financial tools for increasing fund performance.
With respect to updated reporting on ownership structures, as
discussed above, interconnected ownership structures have inherent
risks of spillovers in losses, as losses in a master fund or underlying
investment of a fund of funds cause losses in connected funds as well,
and so the enhanced data on detailed ownership structures from the
final amendments are designed to improve systemic risk assessment
efforts.\558\ Improved data will also contribute to efforts to protect
investors from conflicts of interest and other sources of potential
harm.\559\ The types of enhancements to Form PF's data on
interconnected ownership structures include, for example, requiring
advisers to provide LEIs for themselves and any of their related
persons, such as reporting funds and parallel funds,\560\ and expanding
the required reporting detail on the value of the reporting fund's
investments in funds of funds.\561\ Similar to the amendments to
general instructions, the SEC believes that these revisions will
improve measurement of these complex ownership structures. The SEC
believes this will potentially improve the SEC's and FSOC's efforts to
assess developing systemic risks and FSOC's efforts to assess broader
financial instability, as well as potentially improve the SEC's efforts
to protect investors from conflicting arrangements and identify other
areas in need of outreach, examination, or investigation.\562\
---------------------------------------------------------------------------
\558\ See supra section IV.C.1.a.
\559\ Id.
\560\ See supra section II.B.1.
\561\ See supra section II.B.2.
\562\ See supra section IV.C.1.a.
---------------------------------------------------------------------------
Many revisions will also keep Form PF filings up to date with key
developing trends among private fund advisers' investing and trading
practices. These revisions will improve consistency of reporting of
modern private fund issues across fund advisers, provide more complete
and accurate information on developing trends, and improve the SEC's
and FSOC's abilities to effectively and efficiently assess new systemic
risks and other potential sources of investor harm, as well as inform
the SEC's and FSOC's broader views on the private fund landscape.
For example, in Form PF section 1c, the amendments will require
hedge funds to report whether their investment strategy includes
digital assets,\563\ which are a growing and increasingly important
area of hedge fund strategy.\564\ The amendments will therefore help
the SEC and FSOC to assess new sources of potential systemic risk and
develop regulatory responses, and will further allow the SEC to analyze
new areas of potential investor harm to determine any necessary
outreach, examination, or investigation.
---------------------------------------------------------------------------
\563\ See supra section II.B.3.
\564\ See, e.g., AIMA, PWC & Elwood Asset Management, Annual
Global Crypto Hedge Fund Report (2023), available at https://www.pwc.com/gx/en/news-room/press-releases/2023/pwc-2023-global-crypto-hedge-fund-report.htmlhttps://www.pwc.com/gx/en/news-room/press-releases/2023/pwc-2023-global-crypto-hedge-fund-report.html
(concluding that almost a third of traditional hedge funds were
investing in such assets in 2023, with average allocations of 7%,
representing increases relative to 2021); AIMA, PWC & Elwood Asset
Management, 3rd Annual Global Crypto Hedge Fund Report (2021),
available at https://www.aima.org/educate/aima-research/third-annual-global-crypto-hedge-fund-report-2021.html (concluding that
approximately a fifth of hedge funds were investing in such assets
in 2021, with on average 3% of their total hedge fund assets under
management invested, and 86% of those hedge funds intended to deploy
more capital into this asset class by the end of 2021); see also
supra section II.B.3.
---------------------------------------------------------------------------
As another example, the amendments will introduce several questions
on counterparty exposures, corresponding to both CCP exposures and
bilateral counterparty (i.e., non-CCP) exposures. These additions to
Form PF include requiring advisers to report hedge fund borrowing,
lending, and collateral with respect to transactions involving both
their bilateral counterparties and CCPs, requiring reporting of hedge
fund derivative and repo activity that was cleared by a CCP (as well as
activity not cleared by a CCP), and instructing advisers on what
exposures to net.\565\ There are two economic considerations associated
with counterparty exposure reporting on Form PF. First, bilateral
exposures and CCP exposures have different risk profiles, with CCPs
offering risk reduction mechanisms and other economic benefits by
netting trading across counterparties and across different assets
within an asset class or by centralizing clearance and settlement
activities.\566\ The final amendments are designed to help Form PF
provide insight into relative trends in bilateral trading versus
central counterparty trading and resulting systemic risks from
counterparty exposures. Second, while CCPs reduce the systemic risk
associated with the failure of any single hedge fund or other private
fund, the failure of a large CCP itself could potentially represent a
substantial systemic risk event in the future.\567\ While a systemic
risk event such as the failure of a CCP has never occurred in the
United States, CCPs in other countries have failed,\568\ and the final
amendments are designed to help Form PF provide new insights into the
potential for such systemic risk events in the future. FSOC has also
designated many CCP institutions as ``systemically important,'' \569\
and recommends that regulators continue to coordinate to evaluate
threats from both default and non-default losses associated with
CCPs.\570\
---------------------------------------------------------------------------
\565\ See supra section II.B.3.
\566\ Siro Aramonte & Wenqian Huang, Costs and Benefits of
Switching to Central Clearing, BIS Q. Rev. (Dec. 2019), available at
https://www.bis.org/publ/qtrpdf/r_qt1912z.htm; Albert J. Menkveld &
Guillaume Vuillemey, The Economics of Central Clearing, 13 Ann. Rev.
Fin. Econ. 153 (2021).
\567\ Id.
\568\ For example, the Hong Kong Futures Guarantee Corporation
failed during the stock market crash of 1987. See Menkveld &
Vuillemey, supra footnote 566.
\569\ Fin. Stability Oversight Council, 2012 Annual Rep.,
Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf.
\570\ Id. at 14.
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As a final example, we are adopting amendments that require
advisers to report additional performance-related information if the
adviser calculates a market value on a daily basis for any position in
the reporting fund's portfolio.\571\ These include, among other items,
the reporting fund's volatility of the natural log of the daily ``rate
of return'' for each month of the reporting period.\572\ Investors will
benefit from systemic risk assessment efforts and investor protection
efforts facilitated by these reporting items. For example, allowing the
Commission and FSOC to compare volatility across different fund types
to identify market trends (e.g., volatility of a specific fund type)
will help the Commission and FSOC verify which strategies are the most
volatile and therefore pose the greatest default risk to bank and
broker/dealer counterparties. Comparing volatility data on Form PF and
risk metric data on Form PF, such as VaR (Value-at-Risk) data, will
also help the Commission to
[[Page 18040]]
detect misleading uses of risk metrics by funds in disclosures to
investors.
---------------------------------------------------------------------------
\571\ See supra section II.B.2.
\572\ Id.
---------------------------------------------------------------------------
The SEC therefore believes these revisions, and others like
them,\573\ will help the SEC and FSOC better understand the modern
landscape of the private fund industry, thereby potentially improving
the SEC's and FSOC's efforts to assess developing systemic risks and
FSOC's efforts to assess broader financial instability, as well as
potentially improving the SEC's efforts to protect investors by
identifying areas in need of outreach, examination, or investigation.
---------------------------------------------------------------------------
\573\ Other revisions that will provide this benefit include the
reporting of withdrawal and redemption rights; reporting of other
inflows and outflows; more granular reporting of hedge fund
strategies; more granular reporting of hedge fund counterparty
exposures including identification of counterparties representing a
fund's greatest exposure; and more granular reporting of hedge fund
trading and clearing mechanisms. See supra section II.B.
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Some commenters questioned the benefits of these types of
amendments. For example, some commenters stated that disclosure of
counterparty exposures is of limited value.\574\ However, we continue
to believe that this additional information is important to
understanding counterparty risk exposure, and counterparty risk
exposures represent substantial sources of systemic risk.\575\ Certain
others of these proposed amendments did not receive significant comment
on their proposed benefits. For example, the amendments requiring
additional performance-related information if the adviser calculates
market value did not receive significant comment. One commenter
recommended requiring volatility measurements over longer periods, such
as quarterly or annually, stating that requiring daily measurements
would result in a smaller population size and less meaningful
information.\576\ As discussed above, higher frequency volatility
information is important because significant volatility swings that
occur over a short timeframe may not be discernible from quarterly or
annual data but can pose systemic risk.\577\ Further, receiving higher
frequency volatility data will give more context to a fund's reported
monthly returns and will allow us to assess risk-adjusted returns.\578\
In still other cases, the benefits from the final amendments will be
enhanced by changes made in response to commenters. For example, one
commenter recommended, for reporting of certain drawdown metrics
associated with days with a negative daily rate of return, changing
reporting of amount in base currency to percent in base currency, and
the final amendments implement this change to be more reflective of
industry practice, and in turn improve data quality.\579\
---------------------------------------------------------------------------
\574\ See supra section II.B.3; see also, e.g., AIMA/ACC Comment
Letter.
\575\ See supra footnotes 565 through 570 and accompanying text.
\576\ See supra section II.B.2; see also CFA Institute Comment
Letter.
\577\ See supra section II.B.2.
\578\ Id.
\579\ Id.; see also CFA Institute Comment Letter.
---------------------------------------------------------------------------
Third, there are revisions that will expand the scope of certain
questions from only covering qualifying hedge funds advised by large
hedge fund advisers to covering all hedge funds advised by any private
fund adviser. By expanding the universe of private funds that are
covered by several questions, the amendments will enhance the SEC's and
FSOC's ability to conduct broad, representative measurements regarding
the private fund industry. For example, the amendments will require all
advisers to indicate whether the reporting fund is an open-end private
fund in Question 10(a) or a closed-end private fund in Question
10(b).\580\ Because the activities of private fund advisers may differ
significantly depending on their size, this enhanced coverage will
potentially enhance regulators' abilities to obtain a representative
picture of the private fund industry and lead to more robust
conclusions regarding emerging industry trends and characteristics. The
SEC believes these amendments, and others,\581\ will enhance
regulators' picture of the private fund industry, thereby potentially
improving the SEC's and FSOC's efforts to assess developing systemic
risks and FSOC's efforts to assess broader financial instability, as
well as potentially improving the SEC's efforts to protect investors by
identifying areas in need of outreach, examination, or investigation.
---------------------------------------------------------------------------
\580\ See supra section II.B.2.
\581\ The revisions to reporting of base currency will provide
similar benefits. See supra section II.B.
---------------------------------------------------------------------------
Some commenters questioned these benefits. For example, one
commenter asserted that the data would be of limited benefit for
systemic risk monitoring because of the inclusion of data from smaller
funds.\582\ However, we continue to believe that a private fund of any
size that provides for withdrawal or redemption rights may be affected
by increased investor withdrawals during certain market events and/or
vulnerable to failure as a result of investor redemptions, and so the
additional data will be relevant for assessing broader systemic risk,
for example by allowing the Commissions and FSOC to assess the
prevalence of the exercise of withdrawal and redemption rights to
identify potential patterns among affected funds that may signal stress
at a particular fund or across many funds.\583\ Information on
withdrawal and redemption rights from all private funds, including
smaller private funds or funds that are not included in the definition
of a ``hedge fund,'' will improve FSOC's ability to monitor potential
systemic risk and support the Commissions' investor protection efforts.
---------------------------------------------------------------------------
\582\ See supra section II.B.2; see also Schulte Comment Letter.
\583\ See supra section II.B.2.
---------------------------------------------------------------------------
One commenter supported the proposed amendments and agreed with the
potential benefits, stating that expanding the classes of private funds
that are required to disclose withdrawal and redemption rights would
allow FSOC to better identify systemic risks, particularly resulting
from market events.\584\ Lastly, certain changes will streamline
reporting and reduce the reporting burden by removing certain questions
where other questions provide the same or superseding information. For
example, the amendments will remove current Question 19, which requires
advisers to hedge funds to report whether the hedge fund has a single
primary investment strategy or multiple strategies, and will also
remove current Question 21, which requires advisers to hedge funds to
approximate what percentage of the hedge fund's net asset value was
managed using high frequency trading strategies.\585\ The SEC believes
that these revisions will benefit advisers and investors by directly
lowering the costs and reducing part of the burden on advisers of
completing Form PF filings.\586\ Commenters generally supported
amendments that eliminate questions and streamline reporting
requirements.\587\
---------------------------------------------------------------------------
\584\ See supra section II.B.2; see also Fact Coalition Comment
Letter.
\585\ See supra section II.B.3.
\586\ These benefits from streamlined reporting and reduced
reporting burden will be offset by increased costs associated with
the additional and more granular detail that will be required on
Form PF under the amendments. See infra sections IV.C.2, V.C.
\587\ See supra section II.B.3; see also, e.g., MFA Comment
Letter II; SIFMA Comment Letter; Better Markets Comment Letter.
---------------------------------------------------------------------------
c. Amendments to Information About Hedge Funds Advised by Large Private
Fund Advisers
The changes to section 2 will provide greater insight into
operations and strategies into hedge funds advised by large private
fund advisers specifically, and will also assist in assessing broader
hedge fund industry trends. This section
[[Page 18041]]
discusses how the SEC believes the changes will thereby enhance the
SEC's and FSOC's investor protection and systemic risk assessment
efforts. This will be accomplished in three key ways.
As with section 1, first, the changes will provide more
prescriptive requirements to improve comparability across advisers and
reduce reporting errors and issues of data quality, based on experience
with the form. This will be accomplished by standardizing reporting of
information across different advisers and across different regulatory
filings. For example, the amendments to current Question 30 (on
qualifying hedge fund exposures to different types of assets) will
replace the existing complex table in current Question 30 with a
redesignated Question 32 with reporting instructions that will use a
series of drop-down menu selections and provide additional narrative
reporting instructions and additional information on how to report
exposures.\588\ Similarly, advisers to qualifying hedge funds will now
be required to report the 10-year zero coupon bond equivalent for all
sub-asset classes with interest rate risk, rather than providing
advisers with a choice to report duration, WAT, or an unspecified 10-
year equivalent.\589\ Several revisions (relating to adviser reporting
of basic information for all hedge funds that it advises) will revise
instructions relating to reporting of adjusted long and short exposures
and market factor effects on a hedge fund's portfolio.\590\ These
revisions can potentially prevent, for example, data errors associated
with reporting of long and short components of a portfolio or
discrepancies across advisers in their choices of which market factors
to report (as Form PF currently allows advisers to omit a response to
any market factor that they do not regularly consider in formal risk
management testing).\591\ As another example, the changes will provide
for a new sub-asset class in investment exposure reporting for ADRs, in
line with how ADRs are reported on the CFTC's Form CPO-PQR, potentially
improving assessment of currency risk across regulatory filings.\592\
As a final example, the changes will revise reporting for positions
held physically, synthetically, or through derivatives and indirect
exposure, and will require reporting turnover on a per fund basis
instead of in the aggregate as well as providing for more granular
reporting of turnover.\593\ The SEC believes these revisions, and
others,\594\ will align Form PF data across filers, thereby potentially
improving the efficiency with which the SEC and FSOC evaluate market
risk and measure industry trends, thereby increasing the efficiency
with which regulatory responses are developed, improving systemic risk
assessment and regulatory programs to protect investors.
---------------------------------------------------------------------------
\588\ See supra section II.C.2.
\589\ Id.
\590\ See supra sections II.C.2.a; II.C.2.c.
\591\ Id. For example, higher quality data on short positions
can facilitate more accurate and timely identification of
significant market participants during periods of volatility related
to shorting activity, such as the Jan. 2021 ``meme stock'' episodes.
See, e.g., SEC, Staff Rep. 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.
\592\ See supra section II.C.2.a.
\593\ As discussed above, when monitoring funds' activities
during recent market events like the Mar. 2020 COVID-19 turmoil, the
existing aggregation of U.S. Treasury securities with related
derivatives did not reflect the role hedge funds played in the U.S.
Treasury market. See supra sections II.C.2.a, IV.B.1. Also during
the COVID-19 market turmoil, FSOC sought to evaluate the role hedge
funds played in disruptions in the U.S. Treasury market by unwinding
cash-futures basis trade positions and taking advantage of the near-
arbitrage between cash and futures prices of U.S. Treasury
securities. Because the existing requirement regarding turnover
reporting on U.S. Treasury securities is highly aggregated, the SEC
staff, during retrospective analyses on the Mar. 2020 market events,
was unable to obtain a complete picture of activity relating to long
treasuries and treasury futures. See supra sections II.C.2.d,
IV.B.1.
\594\ Other revisions that will provide this benefit include the
amendments revising reporting of reportable sub-asset classes,
including those for certain categories of listed equity securities,
repos, asset-backed securities and other structured products,
derivatives, and cash and commodities; revising reporting of open
and large position reporting; revising reporting of counterparty
exposures including reporting of significant counterparties;
revising currency reporting; requiring significant country and
industry exposure; requiring additional reporting on fund portfolio
risk profiles; requiring more granular reporting of investment
performance by strategy; amending reporting of portfolio liquidity;
and amending reporting of financing liquidity. See supra section
II.C.
---------------------------------------------------------------------------
Several changes in response to commenters will either enhance these
benefits or will provide substantially the same benefits relative to
the proposal but at reduced burden to advisers. For example, in
response to commenters, under the final amendments advisers are
permitted to report an entirely indirectly held entity position in one
sub-asset class and instrument type that best represents the sub-asset
class exposure of the indirectly held entity, unless the adviser would
allocate the exposure of the indirectly held entity more granularly
under its own internal methodologies and conventions of its service
providers.\595\ This modification balances the importance of obtaining
more accurate and granular data with a reporting standard that is less
burdensome for advisers than the proposed standard. Similarly, in the
final amendments, in response to commenters we are modifying the ``10-
year bond equivalent'' definition to reference U.S. dollars, rather
than the fund's base currency, so that advisers will not be required to
perform any additional exchange conversions.\596\ As a final example,
with respect to market factor reporting, commenters suggested that the
proposal was unclear in certain questions as to whether an adviser is
required to ``look through'' the fund's investments.\597\ In response,
we are adding an instruction that when reporting exposures to changes
in market factors for indirect positions, an adviser may use reasonable
estimates that best represent the exposure to the market factor,
consistent with the adviser's internal methodologies and conventions of
service providers.\598\
---------------------------------------------------------------------------
\595\ See supra section II.C.2.a.
\596\ Id.
\597\ See supra section II.C.2.c; see also MFA Comment Letter
III.
\598\ See supra section II.C.2.a.
---------------------------------------------------------------------------
Many commenters also agreed with the benefits of certain proposed
amendments. For example, commenters supported the amendments to require
hedge fund advisers to report their long and short holdings on a
disaggregated basis, or stated that requiring private fund advisers to
report both long and short positions will allow FSOC to have a complete
picture of the risk exposure across private funds, or stated that
allowing advisers to aggregate their positions between physically held
and synthetically held positions can make it difficult to understand
the impact of hedge fund activity especially during periods of market
instability.\599\ Several of these amendments did not receive comments.
For example, we did not receive comments on many aspects of the
amendments to redesignated Question 32.\600\
---------------------------------------------------------------------------
\599\ Id.; see also AFREF Comment Letter I; Better Markets
Comment Letter.
\600\ See supra section II.C.2.a.
---------------------------------------------------------------------------
Second, the changes will help Form PF provide greater insight into
newly emerging areas of risk, including increasing exposures to new
asset classes, changing exposures across different categories of
counterparties, and changing risk management practices (such as
changing practices around posting of collateral). The SEC believes
these changes will help Form PF more completely and accurately capture
information relevant to ongoing trends in the private fund industry.
For example, in addition to the more general investment strategy
questions in section 1c described above,\601\ section 2b will
[[Page 18042]]
require large advisers to qualifying hedge funds to report their total
exposures to digital assets.\602\ As another example, large advisers to
qualifying hedge funds will be required to report exposures to
additional commodity sub-asset classes (e.g., other (non-gold) precious
metals, agricultural commodities, and base metal commodities).\603\
They will also be required to report all other counterparties (by name,
LEI, and financial institution affiliation) to which a fund has net
mark-to-market exposure after collateral that equals or is greater than
either (1) five percent of a fund's net asset value or (2) $1 billion,
facilitating regulators' abilities to understand the impact of a
particular counterparty failure like those that occurred during the
2008 financial crisis and in the period since (e.g., the failure of MF
Global in 2011).\604\ Advisers will also be required to report certain
of their exposures to CCPs,\605\ and will be required to report each
CCP (or other third party) holding collateral in respect of cleared
exposures in excess of five percent of the fund's net asset value, or
$1 billion.\606\
---------------------------------------------------------------------------
\601\ See supra section IV.C.1.b.
\602\ See supra section II.C.2.a.
\603\ Id.
\604\ See supra section II.C.2.a, footnote 360 and accompanying
text.
\605\ See supra section II.C.2.b.
\606\ See supra section II.C.2.d.
---------------------------------------------------------------------------
As a final example, advisers will be required to determine adjusted
exposure for each ``sub-asset'' using a specified methodology, as
proposed. This methodology will include, among other specifications,
netting positions that have the same underlying reference asset across
instrument type, including positions held indirectly through another
entity such as ETFs and other exchange traded products.\607\ These
amendments will also include defining ``exchange traded product'' to
better facilitate exchange traded product and ETF exposure reporting.
These types of funds are important avenues of investing for many types
of investors but can represent different systemic risks than other
types of investments, potentially increasing certain types of risk and
decreasing other types of risk.
---------------------------------------------------------------------------
\607\ See supra section II.C.2.a.
---------------------------------------------------------------------------
As discussed above, these (and other) new granular reporting
requirements will represent new possible sources of systemic risk for
the SEC and FSOC to evaluate, and also new areas of focus for the SEC's
regulatory outreach, examination, and investigation.\608\ The SEC
believes these revisions, and others,\609\ will improve the SEC's and
FSOC's efforts to assess developing systemic risks and FSOC's efforts
to assess broader financial stability, as well as potentially improve
the SEC's efforts to protect investors by identifying areas in need of
outreach, examination, or investigation.
---------------------------------------------------------------------------
\608\ See supra section IV.C.1.b. For example, the SEC believes
the addition of a base metal commodities sub-asset class will allow
for identification of large players in the base metals market (such
as those impacted by the Mar. 2022 ``nickel squeeze,'' during which
the price of nickel rose unusually steeply and rapidly in response
to commodity price increases caused by Russia's invasion of
Ukraine). See supra footnote 323.
\609\ Other revisions that will provide this benefit include
revising reporting for positions held physically, synthetically, or
through derivatives and indirect exposure; revising reportable sub-
asset classes, including those for certain categories of listed
equity securities, repos, asset-backed securities and other
structured products, derivatives, and other cash and commodities;
further revising reporting of counterparty exposures including
reporting of significant counterparties (in addition to the
revisions to CCP exposures); revising currency reporting; requiring
more granular reporting of turnover; requiring significant country
and industry exposure; requiring additional reporting on fund
portfolio risk profiles; requiring more granular reporting of
investment performance by strategy; requiring new reporting on
portfolio correlation; amending reporting of portfolio liquidity;
and amending reporting of financing liquidity. See supra section
II.C.
---------------------------------------------------------------------------
Some commenters questioned or were skeptical of these benefits. For
example, one commenter indicated that existing data sources, such as
existing Form PF, Form 13F and 13H, and CFTC Form CPO-PQR, already
allow the Commissions to obtain granular information about a fund's
holdings with respect to the new sub-asset classes.\610\ As discussed
above, we have identified information gaps in the data reported on the
existing Form PF based on our experience, and we are unable to
determine the full extent of a fund's exposure because the different
types of exposures are combined.\611\ The final amendments will
generate the intended benefits described above.\612\
---------------------------------------------------------------------------
\610\ See supra section II.C.2.a; see also SIFMA Comment Letter.
\611\ See supra section II.C.2.a. We discuss the costs of these
amendments, including comments on the proposed amendments, below.
See infra section IV.C.2.
\612\ Other commenters were opposed to these amendments, but
primarily on the basis of costs of the updated reporting. See supra
section II.C.2.b; see also AIMA/ACC Comment Letter; MFA Comment
Letter II; SIFMA Comment Letter. We discuss the costs of these
amendments, including comments on the proposed amendments, below.
See infra section IV.C.2.
---------------------------------------------------------------------------
Lastly, the amendments will remove certain questions where other
questions provide the same or superseding information, which the SEC
believes will streamline reporting and reduce reporting burden. For
example, the changes will remove section 2a entirely, based on a
determination that the aggregated information in section 2a is
redundant to information required to be reported in other
sections,\613\ and will remove the requirement from Question 38 for
advisers to report the percentage of the total amount of collateral and
other credit support that a fund has posted to counterparties that may
be re-hypothecated.\614\ The SEC believes that these revisions, and
others,\615\ will directly lower the costs and reduce the burden to
advisers of completing Form PF filings. Commenters who discussed these
proposed amendments agreed that there would be benefits from reducing
the burden by eliminating questions and streamlining reporting
requirements.\616\
---------------------------------------------------------------------------
\613\ See supra section II.C.1.
\614\ Id.
\615\ Other revisions that will provide this benefit include
consolidating Question 47 into Question 36; removing the requirement
from Question 38 for advisers to report the percentage of the total
amount of collateral and other credit support that a fund has posted
to counterparties that may be re-hypothecated; and requiring
reporting turnover on a per fund basis instead of in the aggregate.
See supra section II.C.
\616\ See supra sections II.C.1, II.C.2.b; see also, e.g., MFA
Comment Letter II; SIFMA Comment Letter; Better Markets Comment
Letter.
---------------------------------------------------------------------------
2. Costs
The amendments to Form PF will lead to certain additional costs for
private fund advisers. Any portion of these costs that is not borne by
advisers will ultimately be passed on to private funds' investors.
These costs will vary depending on the scope of the required
information, which is determined based on the size and types of funds
managed by the adviser as well as each fund's investment strategies,
including choices of asset classes and counterparties. These costs are
quantified, to the extent possible, by examination of the analysis in
section V.C.
The SEC anticipates that the costs to advisers associated with Form
PF will be comprised of both direct compliance costs and indirect
costs. Direct costs for advisers will 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).\617\
---------------------------------------------------------------------------
\617\ See section V.C. (for an analysis of the direct costs
associated with the new Form PF requirements for quarterly and
annual filings).
---------------------------------------------------------------------------
The SEC believes that the direct costs associated with the final
amendments will be most significant for the first updated Form PF
report that a private fund adviser will be required to file because the
adviser will need to
[[Page 18043]]
familiarize itself with the new reporting form and may need to
configure its systems to gather the required information efficiently.
In subsequent reporting periods, the SEC anticipates that filers will
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.\618\
---------------------------------------------------------------------------
\618\ See Kaal, supra footnote 487.
---------------------------------------------------------------------------
The SEC anticipates that the amendments aimed at improving data
quality and comparability will impose limited direct costs on advisers
given that advisers already accommodate similar requirements in their
current Form PF reporting and can utilize their existing capabilities
for preparing and submitting an updated Form PF. The SEC expects that
most of the costs will arise from the requirements to report additional
and more granular information on Form PF. These direct costs will
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.\619\ We believe that the amendment to 17 CFR 275.204(b)-
1(f) under the Advisers Act will have minimal costs associated with it,
as the amendment only makes it easier to submit a temporary hardship
exemption and assists advisers in determining what constitutes a
``filed'' temporary hardship exemption.\620\ As discussed in the
benefits section, the SEC believes that part of the costs to advisers
arising from the amendments will 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.\621\
---------------------------------------------------------------------------
\619\ Based on the analysis in section V.C, initial costs
associated with filing the first updated Form PF report are
estimated to increase by $5,820 for smaller private fund advisers,
$20,190 for large hedge fund advisers, $10,592 for large liquidity
fund advisers, and $10,647 for large private equity fund advisers.
These figures are calculated as the cost of filing under the amended
form minus the cost of filing prior to the amendments for each
category of adviser. See Table 6. Direct internal compliance costs
associated with the amendments are estimated at $2,247 annually for
smaller private fund advisers. Direct internal compliance costs
associated with the amendments are estimated at $8,346 per quarterly
filing or $33,384 annually for large hedge fund advisers. Direct
internal compliance costs associated with the amendments are
estimated at $5,136 per quarterly filing or $20,544 annually for
large liquidity fund advisers. Direct internal compliance costs
associated with the amendments are estimated at $4,815 annually for
large private equity fund advisers. These figures are calculated as
the cost of filing under the amendments minus the cost of filing
prior to the amendments for each category of adviser. See Table 7.
It is estimated that there will be no additional direct external
costs and no changes to filing fees associated with the amendments.
See Table 9. The SEC anticipates that there may be additional first-
time filing costs for filers who do not currently file on a calendar
quarter basis, but that these costs are likely to be small and not
likely to impact subsequent filings beyond the first. As discussed
above, a 2018 industry survey of large hedge fund advisers found
filing costs that ranged from 35% to 72% higher than SEC cost
estimates. These industry cost estimates would therefore suggest
costs associated with the changes to Form PF that are potentially
35% to 72% higher than those estimated here. See MFA Letter to
Chairman Clayton, supra footnote 364, at 3. However, a 2015 survey
of SEC-registered investment advisers to private funds affirmed the
SEC's cost estimates for smaller private fund advisers' Form PF
compliance costs, and found that the SEC overestimated Form PF
compliance costs for larger private fund advisers. These academic
literature cost estimates would therefore suggest that the costs
associated with the changes to Form PF estimated here are
potentially conservatively large. See Kaal, supra footnote 487. We
were persuaded by commenters who asserted that the proposed burdens
underestimated the time and expense associated with the proposed
amendments. To address commenters' concerns and recognizing the
changes from the proposal, we have revised the estimates as
reflected here and below. See infra section V.C.
\620\ See supra section II.E.
\621\ The final amendments also seek to limit unnecessary costs
by avoiding redundancies between new questions and current
Questions. For example, the SEC will remove current Question 22, as
it would be redundant in light of the expanded turnover reporting.
See supra footnote 385.
---------------------------------------------------------------------------
Indirect costs for advisers will include the costs associated with
additional actions that advisers may decide to undertake in light of
the additional reporting requirements on Form PF. Specifically, to the
extent that the 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.
Commenters also identified other indirect costs in the form of
unintended effects, which we agree may occur. For example, one
commenter stated that requirements in Form PF to use a particular
financial identifier may increase costs and reduce innovation and
competition among financial identifier providers.\622\ However, we do
not think this effect is likely to occur, because Form PF continues to
not require an adviser to obtain or use LEI or any other particular
financial identifier (other than private fund identification numbers
for reporting funds), as our amendments provide only that any
identifier that does not meet the definition of ``LEI'' may not be
substituted for an LEI where a question requests an LEI.\623\ Form PF
continues to permit advisers to use other financial identifiers
elsewhere on Form PF where the reporting of LEI is either not specified
or not required.\624\ Therefore, financial identifier providers will
not likely experience any reduction in their incentives to innovate or
compete.
---------------------------------------------------------------------------
\622\ See supra section II.B.1; see also Bloomberg Comment
Letter.
\623\ See supra section II.B.1.
\624\ Id.
---------------------------------------------------------------------------
Some commenters stated that there will be substantial burden
including initial set-up costs, external costs, and ongoing costs
associated with amending Form PF.\625\ These commenters also stated
that the Proposing Release economic analysis understated the costs of
the amendments.\626\ Several of the changes to the final amendments
relative to the proposal are in response to commenter concerns on
costs. Specifically, the final amendments have removed certain
questions that were proposed and revised other questions in order to
reduce their burden without compromising the goals of the Commissions
and FSOC in improving the information received on the form for purposes
of their systemic risk reviews. For example, we are revising certain
questions related to exposures to instruct advisers to select the
exposure that ``best represents'' the indirect investment of the
reporting fund, based on commenter statements that obtaining
information about a fund's indirect exposures through investments in
other funds could be difficult or burdensome.\627\ As a second example,
we are also not adopting a proposed question on portfolio correlations
in response to comments that the proposed portfolio calculation
questions would have been complex and burdensome to calculate.\628\ As
a third example, one commenter stated that for quarterly filers who
have a fiscal year ending in
[[Page 18044]]
a non-calendar quarter month, the proposed instructions do not specify
the procedure for a filer who, during the transition from fiscal to
calendar quarter reporting, would otherwise be required to report twice
in one calendar quarter.\629\ In response, we are requiring that such
filers transition to the new timing requirement by their first calendar
quarter-end filing for the first full quarterly reporting period after
the compliance date.\630\ As a final example, we are permitting the use
of RFACV and GRFACV in reporting certain questions related to asset
values in Section 1b, concerning all private funds.\631\ Permitting an
adviser to report GRFACV or RFACV will reduce burden associated with
reporting of valuation data on a monthly basis.\632\
---------------------------------------------------------------------------
\625\ See, e.g., MFA Comment Letter III; AIMA/ACC Comment
Letter; MFA/NAPFM Comment Letter.
\626\ Id. The Proposing Release economic analysis' quantified
costs were based on compliance cost estimates from the Proposing
Release PRA analysis. As discussed above, industry and academic
literature from 2015-2018 has varied in its findings on whether
SEC's past PRA analysis estimates of Form PF compliance costs have
historically been overstated or understated. To address commenters'
concerns and recognizing the changes from the proposal, we are
revising the estimates as reflected here and below. See infra
section V.C; see also supra footnote 619.
\627\ See supra sections II.A.2, II.C.2.
\628\ See supra section II.C.2.
\629\ See supra section II.A.3.
\630\ Id.
\631\ See supra section II.B.2. The incremental burdens
associated with the use of these terms may be further limited
because the recent amendments adopted by the SEC require a large
hedge fund adviser to monitor and in certain instances report, the
fund's RFACV in compliance with its current reporting obligation.
See May 2023 SEC Form PF Amending Release, supra footnote 4.
\632\ Id.
---------------------------------------------------------------------------
However, there were certain proposed amendments that commenters
criticized as burdensome but are being adopted largely as proposed.
Each of these amendments is being adopted either because costs will be
limited, because benefits will be substantial, or both. For example,
commenters criticized the prescribed methodology for calculating netted
exposure as burdensome as well as the need to identify relevant sub-
asset classes and the need to measure these exposures on a monthly
basis.\633\ However, burden in the case of sub-asset classes will
likely be limited, because advisers will generally only need to make
the relevant determination of sub-asset classes once, with ongoing
monitoring (and any reclassifications) relatively limited. Further,
because a fund may use cross counterparty netting consistent with
information reported by the fund internally for purposes of determining
adjusted exposure, the adjusted exposure reporting will likely not be
significantly burdensome, particularly for funds using common
aggregator protocols.\634\ As another example, some commenters opposed
the requirement to provide additional detail regarding counterparty
exposure and state that the information would be burdensome and costly
to obtain.\635\ For reasons discussed above,\636\ we continue to
believe that disaggregated counterparty exposure is important to
systemic risk monitoring efforts, and will not be significantly
burdensome to produce as we understand knowledge of counterparties to
be a component of a fund's risk management practices. As a final
example, one commenter stated that the requirement to report
information expressed as a percentage to the nearest one hundredth of
one percent will significantly increase the costs and additional
burdens for reporting advisers.\637\ However, as discussed above,
percentages rounded to the nearest one hundredth of one percent will
allow the Commissions to obtain and analyze more precise information
that may otherwise be obscured, for example given that one one-
hundredth of one percent can represent a meaningful dollar amount
depending on the size of the private fund. And, while we recognize that
this may not be the case for smaller funds, when such amounts are taken
together for a large group of smaller funds, the aggregate amount
across the fund group can represent a meaningful dollar amount for data
analysis purposes.\638\ However, given commenters' perspectives, we
have increased our assessment of the incremental direct costs of the
final amendments relative to the proposal, even after revising certain
final amendments and questions relative to the proposal in order to
reduce incremental burden.\639\
---------------------------------------------------------------------------
\633\ See supra section II.C.2.a; see also, e.g., SIFMA Comment
Letter.
\634\ See supra section II.C.2.a.
\635\ See supra section II.C.2.b; see also, e.g., MFA Comment
Letter II; SIFMA Comment Letter; AIMA/ACC Comment Letter.
\636\ Id.
\637\ See supra section II.D; see also MFA Comment Letter II.
\638\ Id.
\639\ See supra footnotes 619 through 621 and accompanying text;
see also infra section V.C.
---------------------------------------------------------------------------
However, these costs must be analyzed alongside the important
benefits that will accrue, as receiving exposure data on a monthly
basis will allow us to better understand interim changes in exposures
that may be relevant to systemic risk assessment that are not visible
from the existing quarterly data, which may enhance the measurement of
trends that may indicate systemic risk. Receiving these data on a
monthly basis will also improve the Commissions' ability to compare
netted exposures with other monthly reported data, such as redesignated
Question 23, relating to fund performance reported by all private
funds.\640\ Being able to compare data on a monthly basis with other
data at the same frequency is important for systemic risk assessment
and to support investor protection efforts.\641\
---------------------------------------------------------------------------
\640\ See supra section II.B.2.
\641\ Id.
---------------------------------------------------------------------------
Some commenters argued that the heightened compliance costs of Form
PF may be particularly burdensome for small firms.\642\ As a result,
the final amendments may represent a barrier to entry for smaller
advisers who cannot meet the compliance costs or who cannot compete
after passing those costs on to investors. To the extent any smaller
advisers either exit or forgo entry in response to these compliance
costs, competition would be negatively affected. However, comments were
made in the context of the proposal, and the final amendments reduce
many of the costs of compliance relative to the proposal.\643\
Therefore, these effects may be mitigated, but may nonetheless occur.
---------------------------------------------------------------------------
\642\ See, e.g., MFA Comment Letter; AIMA/ACC Comment Letter.
\643\ See supra footnote 456 and accompanying text.
---------------------------------------------------------------------------
One commenter stated that the SEC should consider that ``the sheer
number and complexity of the Proposals, when considered in their
totality, if adopted, would impose staggering aggregate costs, as well
as unprecedented operational and other practical challenges.'' \644\
But, consistent with its long-standing practice, the Commission's
economic analysis in each adopting release considers the incremental
benefits and costs for the specific rule--that is, the benefits and
costs stemming from that rule compared to the baseline.\645\ In doing
so, the Commission acknowledges that in some cases resource limitations
can lead to higher compliance costs when the compliance period of the
rule being considered overlaps with the compliance period of other
rules. In determining compliance periods, the SEC considers the
benefits of the rules as well as the costs of delayed compliance
periods and potential overlapping compliance periods.
---------------------------------------------------------------------------
\644\ MFA/NAPFM Comment Letter; see also MFA Comment Letter III;
SIFMA Comment Letter; AIC Comment Letter I; AIC Comment Letter II;
Comment Letter of U.S. House of Representatives Committee on
Financial Services.
\645\ See supra section IV.C.1.
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Specifically, some commenters, as noted above, mentioned the
proposals which culminated in the recent adoptions of the May 2023 SEC
Form PF Amending Release, SEC Private Funds Advisers Adopting Release,
Beneficial Ownership Amending Release, Short Position Reporting
Adopting Release, Securitizations Conflicts Adopting Release, Treasury
Clearing Adopting Release, and Dealer Definition Amending Release.\646\
The SEC
[[Page 18045]]
acknowledges that there are compliance dates for certain requirements
of these rules that overlap in time with the final rule, which may
impose costs on resource constrained entities affected by multiple
rules.\647\ This may be particularly true for smaller entities with
more limited compliance resources. This effect can negatively impact
competition because these entities may be less able to absorb or pass
on these additional costs, making it more difficult for them to remain
in business or compete.
---------------------------------------------------------------------------
\646\ See supra section IV.C.1; see also, e.g., AIC Comment
Letter II; MFA Comment Letter I; MFA Comment Letter III; SIFMA
Comment Letter.
\647\ The effective/compliance date of the amendments in this
rulemaking is one year from the date of publication of the rules,
which is anticipated to be in early 2025. See infra section II.F.
See supra footnotes 461 through 467 (summarizing compliance dates
for the previously adopted rules).
---------------------------------------------------------------------------
We do not think these increased costs from overlapping compliance
periods will be significant for two reasons. First, the market
participants that will be subject to the amendments in this rulemaking
and who will be subject to one or more of the other recently adopted
rules could be limited based on whether those participants' activities
fall within the scope of the other rules.\648\ Second, overlapping
compliance burdens related specifically to implementation of recent
Form PF amendments will be limited because of the scope and
implementation periods of the May 2023 SEC Form PF Amending Release.
Only the compliance period for amendments to section 4 of Form PF
overlap with the compliance periods for the Form PF amendments in this
rulemaking. As a result, smaller private fund advisers, who are the
entities more likely to be resource constrained, will not face any
heightened costs from overlapping implementation periods because only
large private equity fund advisers--meaning those, together with their
related persons that are not separately operated, with at least $2
billion in combined regulatory assets under management attributable to
private equity funds--report on section 4.
---------------------------------------------------------------------------
\648\ The Short Position Reporting Adopting Release will require
only institutional investment managers that meet or exceed certain
reporting thresholds to report short position and short activity
data for equity securities. The Securitizations Conflicts Adopting
Release will affect only certain entities--and their affiliates and
subsidiaries--that participate in securitization transactions. The
Treasury Clearing Adopting Release will affect only those Form PF
filers that participate in the secondary market for U.S. Treasury
securities. Lastly, the Dealer Definition Amending Release will
primarily affect certain principal trading firms and private funds;
private funds will bear the compliance costs associated with
registering as a broker-dealer--and those funds' advisers will have
to complete the compliance activities for their funds--only if the
funds' investment activities bring them within the scope of the
amended definitions. See supra footnotes 464 through 467.
---------------------------------------------------------------------------
Moreover, commenters' concerns about the costs of overlapping
compliance periods were raised in the context of the proposal and, as
discussed above, we have taken steps to reduce costs of the final rule
in several ways from the proposal.\649\ As a result, for both larger
and smaller entities, any higher costs or potential negative effects on
competition due to overlapping compliance periods raised in the context
of the proposal may be mitigated under the final amendments.
---------------------------------------------------------------------------
\649\ See supra footnote 625 and accompanying text.
---------------------------------------------------------------------------
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. Some commenters expressed
concerns at this possibility. For example, one commenter opposed the
increased granularity in strategy categories, stating they could
disclose a fund's proprietary investment information and present data
security concerns.\650\ However, the SEC anticipates that any risk of
these adverse effects will be mitigated by certain aspects of the Form
PF reporting requirements and controls and systems designed by the SEC
for handling the data. For example, the SEC has controls and systems
for the use and handling of the 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 SEC has substantial
experience with the storage and use of nonpublic information reported
on Form PF as well as other nonpublic information that the SEC handles
in the course of business.
---------------------------------------------------------------------------
\650\ SIFMA Comment Letter.
---------------------------------------------------------------------------
D. Reasonable Alternatives
1. Alternatives to Amendments to General Instructions, Amendments To
Enhance Data Quality, and Additional Amendments
The SEC considered alternatives to the amendments to general
instructions, amendments to enhance data quality, and the additional
amendments in the final rule (including the amendments to the process
for requesting temporary hardship exemptions, by way of an amendment to
17 CFR 275.204(b)-1(f) under the Advisers Act). The alternatives
considered were in the form of different choices of framing, level of
additional detail requested by Form PF, level of detail removed from
Form PF, and precise information targeted. For example, in the general
instructions, the SEC considered an alternative that would have
required advisers to report only at the master fund level or only at
the feeder fund level. As another example, the SEC considered requiring
annual filers to file within 30 calendar days after the end of their
fiscal year, rather than 120 calendar days.
While many alternatives may have been able to capture more detailed
information, or may have been able to capture relevant information with
a smaller reporting burden for advisers, the SEC believes that each of
the amendments to general instructions, amendments to enhance data
quality, and additional amendments as adopted will improve data quality
and enhance the usefulness of reported data without imposing undue
reporting burden.
2. Alternatives to Amendments to Basic Information About the Adviser
and the Private Funds It Advises
The SEC also considered alternatives to the amendments to basic
information about advisers and the private funds they advise. As above,
these alternatives were in the form of different choices of framing,
level of additional detail requested by Form PF, level of detail
removed from Form PF, and precise information targeted.
For example, with respect to identifying information for private
funds in section 1a, the SEC considered an alternative that would
provide more granularity for advisers to list categories of funds, such
as differentiating between different types of funds of funds (for
example, differentiating between multi-manager funds of funds and
multi-asset funds of funds). As another example, with respect to basic
information reported for all private funds in section 1b, the SEC
considered alternatives that would limit reporting information about
withdrawal rights, redemption rights, and contributions to only funds
and advisers of a certain size.
As a final example, with respect to basic information reported for
all hedge funds, the amendments will require advisers to identify each
creditor or other counterparty (including CCPs) to which the reporting
fund owes cash and synthetic financing borrowing (before posted
collateral) equal to or greater than either (1) five percent of net
asset value of the reporting fund as of the data reporting date or (2)
$1 billion, but the SEC considered alternatives that would have changed
the thresholds, either increasing or decreasing Form PF's definition of
what constitutes a significant counterparty. With respect to several
such questions, commenters
[[Page 18046]]
suggested the SEC consider alternative thresholds for reporting.\651\
As discussed above, this threshold is appropriate because both portions
of the threshold highlight potential systemic risk: five percent of net
asset value is a level that represents significant exposure (based on
the impact on performance) in the event of counterparty default, and $1
billion, while it may not equal five percent of a large hedge fund's
assets, may indicate a larger systemic stress involving a fund's
counterparties.\652\
---------------------------------------------------------------------------
\651\ See supra sections II.B.3, II.C.2.
\652\ Id.
---------------------------------------------------------------------------
The SEC believes that each of the amendments as adopted improve
data quality and enhance the usefulness of reported data without
imposing an undue reporting burden.
3. Alternatives to Amendments to Information About Hedge Funds Advised
by Large Private Fund Advisers
The SEC considered alternatives to the amendments to information
about hedge funds advised by large private fund advisers. As above,
these alternatives were in the form of different choices of framing,
level of additional detail requested by Form PF, level of detail
removed from Form PF, and precise information targeted.
For example, with respect to investment exposure reporting, the
final amendments will continue to require reporting on qualifying hedge
fund exposures to different types of assets, but will revise the
instructions and format of this reporting. As an alternative, the SEC
considered an amendment that would require or permit large hedge fund
advisers to file portfolio position-level information for qualifying
hedge funds similar to what is required for large liquidity fund
advisers, and large hedge fund advisers who do so would be allowed to
forgo responding to certain specific investment exposure questions in
section 2, including Question 30. The questions as adopted will improve
data quality and enhance the usefulness of reported data without
imposing an undue reporting burden.\653\
---------------------------------------------------------------------------
\653\ See supra section II.C.
---------------------------------------------------------------------------
As another example, the SEC considered alternative approaches for
instructing reporting advisers on how to net long and short positions
for each sub-asset class. One prong of the amended instructions for
netting long and short positions relies on a newly defined term
``reference asset,'' which we define as a security or other investment
asset to which the reporting fund is exposed through direct ownership,
synthetically, or indirect ownership,\654\ and instructs advisers to
net positions that have the same underlying reference asset across
instrument types. The SEC considered instead tailoring these
instructions to different asset classes. For example, the SEC
considered instructing advisers to net repo exposures in accordance
with generally accepted accounting principles (``GAAP'') rules for
balance sheet netting, or instructing advisers with exposures whose
underlying reference assets are Treasury securities to net within
predefined maturity buckets. However, the SEC believes that providing
netting instructions through the single definition of ``reference
asset'' improves data quality and enhances the usefulness of report
data without imposing undue burden.\655\
---------------------------------------------------------------------------
\654\ See Form PF Glossary of Terms. The amendments will also
instruct advisers to net fixed income positions that fall within
certain predefined maturity buckets. See supra section II.C.
\655\ See supra section II.C.
---------------------------------------------------------------------------
Commenters also suggested alternatives to questions requiring
reporting of categories of large exposures, in particular suggesting
alternative parameters or thresholds defining when exposures should be
reported.\656\ For example, for the proposed new questions requiring
advisers to provide information for counterparties to which the
reporting fund has net mark-to-market counterparty credit exposure
which is equal to or greater than either (1) five percent of the
reporting fund's net asset value as of the data reporting date or (2)
$1 billion, after taking into account collateral received or posted by
the reporting fund, one commenter suggested a threshold of 10 percent
for this question.\657\
---------------------------------------------------------------------------
\656\ See supra sections II.B.3, II.C.2.
\657\ MFA Comment Letter II.
---------------------------------------------------------------------------
For each of these questions, the thresholds were chosen to
highlight potentially significant systemic risks in keeping with
industry practice. For example, for the above counterparty credit
exposure question, five percent was identified as a level large enough
to constitute a shock to a reporting fund's net asset value, and $1
billion was identified as an amount that in the case of a very large
counterparty, may not represent five percent of its net assets, but may
be large enough to create stress for the reporting fund.\658\ As
another example, for the question on country and industry exposures,
the threshold of either (1) five percent of net asset value or (2) $1
billion is appropriate for multiple reasons, such as the fact that it
represents a material level of portfolio exposure to risk relating to
individual countries and geographic regions, and the fact that, for
funds without a benchmark, five percent is often evaluated for
industry, individual position, and country risk, and is a common and
easy-to-measure threshold.\659\ With respect to the $1 billion
threshold, it constitutes sufficiently large nominal value exposure
from a risk perspective.\660\
---------------------------------------------------------------------------
\658\ See supra section II.B.3.
\659\ See supra section II.C.2.d.
\660\ Id.
---------------------------------------------------------------------------
As a final example, the SEC also considered requiring advisers to
report Dollar Value of one basis point (DV01) instead of the 10-year
zero coupon bond equivalent. We understand that the 10-year zero coupon
bond equivalent is the most widely used duration measure currently
applied in the industry, and would require the fewest number of private
funds to update their calculations of duration to comply with the
reporting requirement.\661\
---------------------------------------------------------------------------
\661\ See supra section II.C.2.d.
---------------------------------------------------------------------------
Broadly, the SEC believes that each of the amendments as adopted
improve data quality and enhance the usefulness of reported data
without imposing undue reporting burden.\662\
---------------------------------------------------------------------------
\662\ See supra section II.C.2.d.
---------------------------------------------------------------------------
4. Alternatives to the Definition of the Term ``Hedge Fund''
The SEC also considered amending the definition of ``hedge fund''
which is defined in the Glossary of Terms as any private fund (other
than a securitized asset fund) (a) with respect to which one or more
investment advisers (or related persons of investment advisers) may be
paid a performance fee or allocation calculated by taking into account
unrealized gains (other than a fee or allocation the calculation of
which may take into account unrealized gains solely for the purpose of
reducing such fee or allocation to reflect net unrealized losses); (b)
that may borrow an amount in excess of one-half of its net asset value
(including any committed capital) or may have gross notional exposure
in excess of twice its net asset value (including any committed
capital); or (c) that may sell securities or other assets short or
enter into similar transactions (other than for the purpose of hedging
currency exposure or managing duration).\663\
---------------------------------------------------------------------------
\663\ Id.
---------------------------------------------------------------------------
Under the existing definition, an adviser to a fund that holds
itself out as a private equity fund and is permitted in its fund
governing documents to engage in certain short-selling, but has not
done so in the past 12 months, would be reported in Form PF data as
[[Page 18047]]
a hedge fund with zero short exposure. The SEC therefore considered a
potential alternative definition of ``hedge fund,'' under which, to
qualify as a hedge fund under the leverage prong of the potential
alternative definition, a fund would have to satisfy subsection (b) of
the definition (the leverage prong), as it does today, but also must
have actually borrowed or used any leverage during the past 12 months,
excluding any borrowings secured by unfunded commitments (i.e.,
subscription lines of credit). Additionally, to qualify as a hedge fund
under the short selling prong of the potential alternative definition
(the short selling prong), the fund would have engaged in certain short
selling during the past 12 months. The SEC also considered alternative
definitions requiring, for example, longer or shorter time periods,
different time periods for borrowing versus short selling, or
requirements for the reporting fund to provide redemption rights in the
ordinary course.
An alternative definition could reduce the unnecessary reporting
burden faced by advisers to deemed hedge funds that hold themselves out
as private equity funds but currently comply with instructions to
report information on Form PF section 2; however, this benefit would be
partially mitigated by the impacted private fund advisers who would
then need to report on necessary Form PF sections for private equity
fund advisers.\664\ Some reporting funds may consider themselves
``private equity funds,'' but advisers report them as hedge funds,
because the reporting fund's governing documents permit the fund to
engage in certain borrowing and short selling (even though it did not
do so at any time in the past 12 months), and an alternative definition
could result in these funds reporting in a manner more consistent with
their own view of their fund strategy. As discussed above, certain
commenters supported revising the definition, including offering
alternative specific definitions.\665\
---------------------------------------------------------------------------
\664\ See supra sections II.C.2; IV.C.2; see also infra section
V.C.
\665\ See supra section II.C.2.d.
---------------------------------------------------------------------------
However, the current definition of ``hedge fund'' is designed to
include any private fund having any one of three common characteristics
of a hedge fund: (1) a performance fee, (2) leverage, or (3) short
selling. Any private fund that has one or more of these characteristics
is an appropriate subject for the more detailed level of reporting that
hedge funds are subject to on Form PF because the questions that hedge
fund advisers are required to complete focus on these activities, and
these activities may contribute to systemic risk, particularly in the
case of a fund that has the ability to engage in borrowing or short
selling.
A revised definition that focuses on actual or contemplated use
could therefore have resulted in incomplete data for funds engaged in
these activities, meaning incomplete data on activities that are
important potential contributors to systemic risk. Because short
selling and borrowing are important distinguishing characteristics of
hedge funds and providing any exception for these activities, including
a de minimis one, could have a significant, negative effect on
reporting.\666\
---------------------------------------------------------------------------
\666\ Id.
---------------------------------------------------------------------------
Moreover, because a reporting fund may vary from year to year in
its use of leverage or short selling, a revised definition that focuses
on actual or contemplated use would also have caused fluctuations in
the data from year to year, depending on which funds use leverage or
short selling in a particular year, potentially impacting the quality
or usefulness of resulting data. In particular, when first adopting the
current definition, the Commissions reasoned that even a reporting fund
for which leverage or short selling is an important part of its
strategy may not engage in that practice during every reporting
period.\667\ This effect could also have increased the burden on
advisers to the extent that their funds were required to fluctuate
between different reporting categories in different reporting periods,
depending on the fund's practices in any given period.\668\ The
potential costs of this alternative definition would also have included
transition filing costs for advisers impacted by the definition, who
would have been required to update their reporting methods to capture
information from their funds relevant for reporting on Form PF as a
private equity fund instead of as a hedge fund, and completing
corresponding sections of the form targeted at each category.\669\
---------------------------------------------------------------------------
\667\ See supra footnote 3; see also 2011 Form PF Adopting
Release, at text accompanying footnote 4.
\668\ See supra section II.C.2.d.
\669\ We estimate that the average cost of a transition filing
is $20.50. See Table 9.
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V. Paperwork Reduction Act
CFTC:
The information collection titled ``Form PF and Rule 204(b)-1''
(OMB Control No. 3235-0679) was issued to the SEC and implements
sections 404 and 406 of the Dodd-Frank Act by requiring private fund
advisers that have at least $150 million in private fund assets under
management to report certain information regarding the private funds
they advise on Form PF. The SEC makes information on Form PF available
to the CFTC, subject to the confidentiality provisions of the Dodd-
Frank Act, and the CFTC may use information collected on Form PF in its
regulatory programs, including examinations, investigations and
investor protection efforts relating to private fund advisers.
CFTC rule 4.27 \670\ does not impose any additional burden upon
registered CPOs and CTAs that are dually registered as investment
advisers with the SEC (``dual registrants''). There is no requirement
to file Form PF with the CFTC, and any filings made by dual registrants
with the SEC are made pursuant to the Advisers Act. While CFTC rule
4.27(d) states that dually registered CPOs and CTAs that file Form PF
with the SEC will be deemed to have filed Form PF with the CFTC for
purposes of any enforcement action regarding any false or misleading
statement of material fact in Form PF, the CFTC is not imposing any
additional burdens herein. Therefore, any burden imposed by Form PF on
entities registered with both the CFTC and the SEC has been fully
accounted for within the SEC's calculations regarding the impact of
this collection of information under the Paperwork Reduction Act of
1995 (``PRA''), as set forth below.\671\
---------------------------------------------------------------------------
\670\ CFTC rule 4.27, 17 CFR 4.27, was adopted pursuant to the
CFTC's authority set forth in section 4n of the Commodity Exchange
Act, 7 U.S.C. 6n. CFTC regulations are found at Title 17 Chapter I
of the Code of Federal Regulations.
\671\ 44 U.S.C. 3501 through 3521.
---------------------------------------------------------------------------
SEC:
Certain provisions of the final Form PF and rule 204(b)-1 revise an
existing ``collection of information'' within the meaning of the
PRA.\672\ The SEC published a notice requesting comment on changes to
this collection of information in the 2022 Joint Form PF Proposing
Release and submitted the collection of information to the Office of
Management and Budget (``OMB'') for review in accordance with the
PRA.\673\ The title for the collection of information we are amending
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'').\674\ The SEC's
solicitation of
[[Page 18048]]
public comments included estimating and requesting public comments on
the burden estimates for all information collections under this OMB
control number (i.e., both changes associated with the rulemaking and
other burden updates). These changes in burden also reflect the SEC's
revision and update of burden estimates since the proposal for all
information collections under this OMB control number (whether or not
associated with rulemaking changes) and responses to the SEC's request
for public comment on all information collection burden estimates for
this OMB control number. 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.
---------------------------------------------------------------------------
\672\ Id.
\673\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
\674\ The SEC also submitted the collection of information to
OMB on Sept. 29, 2023, in connection with the May 2023 SEC Form PF
Amending Release (ICR Reference No. 202305-3235-023), which OMB
approved on Dec. 18, 2023, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202305-3235-023. See May 2023 SEC Form
PF Amending Release, supra footnote 4. Following this, the SEC
submitted the collection of information to OMB on Jan. 11, 2024, in
connection with the July 2023 Form PF Amending Release (ICR
Reference No. 202401-3235-005), which is currently pending,
available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202401-3235-005. See July 2023 SEC Form PF
Amending Release, supra footnote 4. The previously approved
estimates used in this PRA do not reflect this submission to OMB in
connection with the July 2023 Form PF Amending Release.
---------------------------------------------------------------------------
Compliance with the information collection titled ``Form PF and
Rule 204(b)-1'' is mandatory. The respondents are investment advisers
that (1) are 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).\675\ 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, that report annually
(i.e., private fund advisers that do not qualify as large private fund
advisers), (2) large hedge fund advisers, that report more information
quarterly (i.e., advisers with at least $1.5 billion in hedge fund
assets under management), (3) large liquidity fund advisers, that
report more information quarterly (i.e., advisers that manage liquidity
funds and have at least $1 billion in combined money market and
liquidity fund assets under management), and (4) large private equity
fund advisers, that report more information annually (i.e., advisers
with at least $2 billion in private equity fund assets under
management).\676\ As discussed more fully in section II above and as
summarized in sections V.A and V.C below, the amendments revise how all
types of respondents report certain information on Form PF.
---------------------------------------------------------------------------
\675\ See 17 CFR 275.204(b)-1.
\676\ Large hedge fund advisers to qualifying hedge funds also
file current reports as soon as practicable, but no later than 72
hours from the occurrence of certain reporting events, as provided
for in Form PF section 5. Private equity fund advisers also file
private equity event reports within 60 days from fiscal quarter end
upon the occurrence of certain reporting reports, as provided for in
Form PF section 6. See May 2023 SEC Form PF Amending Release, supra
footnote 4.
---------------------------------------------------------------------------
We have revised our burden estimates in response to comments we
received, to reflect modifications from the proposal, to incorporate
the Form PF amendments that were separately adopted since the
proposal,\677\ and to take into consideration updated data. One
commenter indicated that the proposed amendments would confer more
benefits than costs.\678\ We received other comments to our time and
cost burdens indicating that we underestimated the burdens to implement
the proposed amendments to Form PF.\679\ We also received comments on
aspects of the economic analysis that implicated estimates we used to
calculate the collection of information burdens.\680\ We discuss these
comments below.
---------------------------------------------------------------------------
\677\ See May 2023 SEC Form PF Amending Release and July 2023
SEC Form PF Amending Release, supra footnote 4.
\678\ Better Markets Comment Letter.
\679\ See, e.g., AIC Comment Letter I; MFA Comment Letter II;
MFA/NAPFM Comment Letter; SIFMA Comment Letter.
\680\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II;
SIFMA Comment Letter.
---------------------------------------------------------------------------
We were persuaded by commenters who asserted that the proposed
burdens underestimated the time and expense associated with the
proposed amendments. Upon further consideration, we believe that it
will take more time than initially contemplated in the proposal to
collect the applicable data and report on Form PF. To address
commenters' concerns and recognizing the changes from the proposal
discussed above in section II, we are revising the estimates as
reflected in the charts below.
As discussed more fully in section II above, we have also modified
certain proposed requirements in a manner that changes our burden
estimates in certain respects. For example, as discussed more fully in
section II.A.2 above, we are adopting amendments to require
consolidated reporting of trading vehicles, rather than separate
reporting, as proposed, which reduces our burden estimates. One
commenter stated that the proposed amendments to require disaggregated
reporting of trading vehicles would require building of new reporting
systems and that the Commissions' estimated costs were understated,
particularly for private equity fund advisers.\681\ Some commenters
stated that certain proposed amendments requiring more granular
reporting would impose significant costs and burdens on advisers, such
as the proposed requirements for look-through reporting, exposures,
performance, and market factor reporting.\682\ As discussed more fully
in section II.C above, we have modified the proposed requirements for
large hedge fund advisers to report certain fund exposures to allow
advisers to report the exposure category that best represents the
reporting fund's exposure, which will reduce the burden on advisers in
collecting and reporting this information.\683\ We have also adopted a
modification from the proposal which permits an adviser to report a
fund's monthly asset value as a GRFACV or an RFACV, rather than gross
asset value or net asset value, in the event that these values are not
calculated on a monthly basis, which is a less burdensome metric to
calculate.\684\ Further, we are not adopting a proposed question on
portfolio correlation, as discussed more fully in section II.C.2 above,
after consideration of comments that stated the question would impose
significant burdens on advisers because the calculation would be
complex to perform and is not risk measurement that advisers currently
calculate.\685\
---------------------------------------------------------------------------
\681\ AIC Comment Letter I.
\682\ See, e.g., AIMA/ACC Comment Letter; USCC Comment Letter.
\683\ See, e.g., Questions 32, 33, 35, and 36.
\684\ See Questions 11 and 12.
\685\ Proposed Question 48; see, e.g., AIMA/ACC Comment Letter;
MFA Comment Letter II.
---------------------------------------------------------------------------
Some commenters stated that the proposed cost estimates were
understated because they do not take into consideration the costs of
the amendments proposed in the 2022 SEC Form PF Proposing Release.\686\
Our final estimates have been revised to include the effect of the Form
PF amendments that were adopted subsequent to the 2022 Joint Form PF
Proposal.\687\ Our time and cost estimates also incorporate other
adjustments, which are not based on changes from the proposed
amendments, for updated data for the estimated number of respondents
and
[[Page 18049]]
salary/wage information across all filer types.
---------------------------------------------------------------------------
\686\ See, e.g., AIC Comment Letter I; AIC Comment Letter II;
MFA Comment Letter III; SIFMA Comment Letter; see also 2022 SEC Form
PF Proposing Release, supra footnote 4.
\687\ See May 2023 SEC Form PF Amending Release and July 2023
SEC Form PF Amending Release, supra footnote 4.
---------------------------------------------------------------------------
A. Purpose and Use of the Information Collection
The rules implement provisions of Title IV of the Dodd-Frank Act,
which amended the Advisers Act to require the SEC to, among other
things, establish reporting requirements for advisers to private
funds.\688\ The information collected on Form PF is designed to
facilitate FSOC's obligations under the Dodd-Frank Act to monitor of
systemic risk in the private fund industry.\689\ 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.\690\
---------------------------------------------------------------------------
\688\ See 15 U.S.C. 80b-4(b) and 15 U.S.C. 80b-11(e).
\689\ See Form PF.
\690\ Id.
---------------------------------------------------------------------------
The final 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 final
amendments amend the form's general instructions, as well as section 1
of Form PF, which apply to all Form PF filers. The final amendments
also amend section 2 of Form PF, which applies to large hedge fund
advisers that advise qualifying hedge funds (i.e., hedge funds with a
net asset value of at least $500 million).
B. Confidentiality
Responses to the information collection will be kept confidential
to the extent permitted by law.\691\ 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 FSOC may use it to assess potential systemic risk.\692\ 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.\693\ 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.\694\ 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.\695\ The Advisers Act
requires the SEC to make Form PF information available to FSOC.\696\
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.\697\ 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.\698\
---------------------------------------------------------------------------
\691\ See 5 CFR 1320.5(d)(2)(vii) and (viii).
\692\ See 15 U.S.C. 80b-10(c) and 15 U.S.C. 80b-4(b).
\693\ 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.
\694\ See 15 U.S.C. 80b-4(b)(8).
\695\ See 15 U.S.C. 80b-4(b)(9).
\696\ See 15 U.S.C. 80b-4(b)(7).
\697\ See 2011 Form PF Adopting Release, supra footnote 4, at
n.17.
\698\ See 5 CFR 1320.5(d)(2)(viii).
---------------------------------------------------------------------------
C. Burden Estimates
We are revising our total burden final estimates to reflect the
final amendments, updated data, new methodology for certain estimates,
subsequent Form PF amendments adopted after the 2022 Joint Form PF
Proposing Release, and comments we received to our estimates.\699\ The
tables below map out the proposed and final Form PF requirements as
they apply to each group of respondents and detail our burden
estimates.
---------------------------------------------------------------------------
\699\ For the previously approved estimates, see ICR Reference
No. 202305-3235-023 (conclusion date Dec. 18, 2023), available at
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202305-3235-023. The 2022 Joint Form PF Proposing Release used the then-current
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.
---------------------------------------------------------------------------
a. Proposed Form PF Requirements by Respondent
Table 1a--Proposed Form PF Requirements by Respondent
----------------------------------------------------------------------------------------------------------------
Large private
Form PF Smaller private Large hedge fund Large liquidity equity fund
fund advisers advisers fund advisers advisers
----------------------------------------------------------------------------------------------------------------
Section 1a and section 1b (basic Annually.......... Quarterly......... Quarterly......... Annually.
information about the adviser
and the private funds it
advises). 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). Proposed revisions. funds. funds. funds.
Section 2 (additional No................ Quarterly......... No................ No.
information concerning
qualifying hedge funds).
Proposed revisions.
[[Page 18050]]
Section 3 (additional No................ No................ Quarterly......... No.
information concerning
liquidity funds). No proposed
revisions.
Section 4 (additional No................ No................ No................ Annually.
information concerning private
equity funds).No proposed
revisions.
Section 5 (temporary hardship Optional, if they Optional, if they Optional, if they Optional, if they
request). The proposal would qualify. qualify. qualify. qualify.
revise filing instructions.
Transition Filings (indicating Not applicable.... If they cease to If they cease to Not applicable.
the adviser is no longer qualify as a qualify as a
obligated to file on a large hedge fund large liquidity
quarterly basis). No proposed adviser. fund adviser.
revisions.
Final Filings (indicating the If they qualify... If they qualify... If they qualify... If they qualify.
adviser is no longer subject to
the rules). No proposed
revisions.
----------------------------------------------------------------------------------------------------------------
b. Adopted Form PF Requirements by Respondent
Adopted Form PF Requirements by Respondent
----------------------------------------------------------------------------------------------------------------
Large private
Form PF Smaller private Large hedge fund Large liquidity equity fund
fund advisers advisers fund advisers advisers
----------------------------------------------------------------------------------------------------------------
Section 1a and section 1b (basic Annually.......... Quarterly......... Quarterly......... Annually.
information about the adviser
and the private funds it
advises). The final rules
modify section 1a and section
1b.
Section 1c (additional Annually, if they Quarterly......... Quarterly, if they Annually, if they
information concerning hedge advise hedge advise hedge advise hedge
funds). The final rules modify funds. funds. funds.
section 1c.
Section 2 (additional No................ Quarterly......... No................ No.
information concerning
qualifying hedge funds). The
final rules modify section 2.
Section 3 (additional No................ No................ Quarterly......... No.
information concerning
liquidity funds). No final
revisions.
Section 4 (additional No................ No................ No................ Annually.
information concerning private
equity funds). No final
revisions.
Section 5 (current reporting No................ As soon as No................ No.
concerning qualifying hedge practicable upon
funds). \1\ No final revisions. a current
reporting event,
but no later than
72 hours.
Section 6 (event reporting for Within 60 days of No................ No................ Within 60 days of
private equity fund fiscal quarter fiscal quarter
advisers).\1\ No final end upon a end upon a
revisions. reporting event, reporting event.
if they advise
private equity
funds.
Section 7 (temporary hardship Optional, if they Optional, if they Optional, if they Optional, if they
request)\1\ The final rules qualify. qualify. qualify. qualify.
revise the filing instructions.
[[Page 18051]]
Transition Filings (indicating Not applicable.... If they cease to If they cease to Not applicable.
the adviser is no longer qualify as a qualify as a
obligated to file on a large hedge fund large liquidity
quarterly basis). No final adviser. fund adviser.
revisions.
Final Filings (indicating the If they qualify... If they qualify... If they qualify... If they qualify.
adviser is no longer subject to
the rules). No final revisions.
----------------------------------------------------------------------------------------------------------------
Note:
\1\ The SEC adopted amendments to Form PF, which added sections 5 and 6 and redesignated the previous section 5
as section 7. See May 2023 SEC Form PF Amending Release, supra footnote 4.
c. 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 private equity event reporting, and (4) transition
filings, final filings, and temporary hardship requests.
Table 2--Annual Hour Burden Estimates for Initial Filings
----------------------------------------------------------------------------------------------------------------
Number of
respondents = Hours per Hours per Aggregate
Respondent \1\ aggregate response response hours
number of \3\ amortized over amortized over
responses \2\ 3 years \4\ 3 years \5\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate................... \6\ 309 50 / 3 = 17 5,253
Final Estimate...................... \7\ 374 55 / 3 = 18 6,732
Previously Approved................. 358 40 / 3 = 13 4,654
Change.............................. 16 15 5 2,078
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate................... \8\ 15 345 / 3 = 115 1,725
Final Estimate...................... \9\ 14 380 / 3 = 127 1,778
Previously Approved................. 16 325 /3 = 108 1,728
Change.............................. (2) 55 19 50
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund Advisers:
Proposed Estimate................... \10\ 1 210 / 3 = 70 70
Final Estimate...................... \11\ 1 229 / 3 = 76 76
Previously Approved................. 1 200 / 3 = 67 67
Change.............................. 0 29 9 9
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
Proposed Estimate................... \12\ 13 210 / 3 = 70 910
Final Estimate...................... \13\ 18 281 / 3 = 94 1,692
Previously Approved................. 17 252 / 3 = 84 1,428
Change.............................. 1 29 10 264
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We expect that the hourly burden will be most significant for the initial report because the adviser will
need to familiarize itself with the new reporting form and may need to configure its systems in order to
efficiently gather the required information. In addition, we expect 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 but reduce the burden of subsequent filings.
\2\ This concerns the initial filing; therefore, we estimate one response per respondent. The proposed and final
changes are due to using updated data to estimate the number of advisers.
\3\ Hours per response changes are due to the amendments, as well as amendments to Form PF adopted subsequent to
the 2022 Joint Form PF Proposal for the final estimates and comments we received to our estimates.
\4\ We amortize the initial time burden over three years because we believe that most of the burden will be
incurred in the initial filing.
\5\ (Number of responses) x (hours per response amortized over three years) = aggregate hours amortized over
three years. Changes are due to (1) using updated data to estimate the number of advisers, (2) the amendments
adopted in this Release, (3) amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposal, and
(4) comments we received to our estimates.
\6\ In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers
filed Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 12.9%
of them did not file for the previous due date. (2,394 x 0.129 = 309 advisers.)
\7\ In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed
Form PF in the first quarter of 2023. Based on filing data from the last five years, an average of 13.6% of
them did not file for the previous due date. (2,750 x 0.136 = 374 advisers.)
\8\ In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed
Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 2.6% of
them did not file for the previous due date. (592 x 0.026 = 15 advisers.)
[[Page 18052]]
\9\ In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form
PF in the first quarter of 2023. Based on filing data from the last five years, an average of 2.5% of them did
not file for the previous due date. (570 x 0.025 = 14 advisers.)
\10\ In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed
Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 1.5% of
them did not file for the previous due date. (24 x 0.015 = 0.36 advisers, rounded up to 1 adviser.)
\11\ In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed
Form PF in the first quarter of 2023. Based on filing data from 2017 through 2021, an average of 1.5% of them
did not file for the previous due date. (21 x 0.015 = 0.32 advisers, rounded up to 1 adviser.)
\12\ In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers
filed Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 3.5%
of them did not file for the previous due date. (369 x 0.035 = 13 advisers.)
\13\ In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers
filed Form PF in the first quarter of 2023. Based on filing data from the last five years, an average of 3.9%
of them did not file for the previous due date. (450 x 0.039 = 18 advisers.)
Table 3--Annual Hour Burden Estimates for Ongoing Annual and Quarterly Filings
----------------------------------------------------------------------------------------------------------------
Number of
Respondent \1\ respondents \2\ Number of Hours per Aggregate
(advisors) responses \3\ response \4\ hours \5\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund:
Proposed Estimate.............. \6\ 2,085 x 1 x 20 = 41,700
Final Estimate................. \7\ 2,376 x 1 x 22 = 52,272
Previously Approved............ 2,258 x 1 x 15 = 33,870
Change......................... 118 0 7 18,402
Large Hedge Fund:
Proposed Estimate.............. \8\ 577 x 4 x 160 = 369,280
Final Estimate................. \9\ 556 x 4 x 176 = 391,424
Previously Approved............ 582 x 4 x 150 = 349,200
Change......................... (26) 0 26 42,224
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund:
Proposed Estimate.............. \10\ 23 x 4 x 75 = 6,900
Final Estimate................. \11\ 20 x 4 x 86 = 6,880
Previously Approved............ 21 x 4 x 70 = 5,880
Change......................... (1) 0 16 1,000
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund:
Proposed Estimate.............. \12\ 356 x 1 x 105 = 37,380
Final Estimate................. \13\ 432 x 1 x 145 = 62,640
Previously Approved............ 418 x 1 x 128 = 53,504
Change......................... 14 0 17 9,136
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We estimate that after an adviser files its initial report, it will incur significantly lower costs to file
ongoing annual and quarterly reports, because much of the work for the initial report is non-recurring and
likely created system configuration and reporting efficiencies.
\2\ Changes to the number of respondents are due to using updated data to estimate the number of advisers.
\3\ Smaller private fund advisers and large private equity fund advisers file annually. Large hedge fund
advisers and large liquidity fund advisers file quarterly.
\4\ Hours per response changes are due to the amendments.
\5\ Changes to the aggregated hours are due to (1) using updated data to estimate the number of advisers, (2)
the amendments, (3) amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposing Release, and
(4) comments we received to our estimates.
\6\ In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers
filed Form PF in the third quarter of 2021. We estimated that 309 of them filed an initial filing, as
discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (2,394 total smaller advisers-309
advisers that made an initial filing = 2,085 advisers that make ongoing filings.)
\7\ In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed
Form PF in the first quarter of 2023. We estimated that 374 of them filed an initial filing, as discussed in
Table 2: Annual Hour Burden Estimates for Initial Filings. (2,750 total smaller advisers-374 advisers that
made an initial filing = 2,376 advisers that make ongoing filings.)
\8\ In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed
Form PF in the third quarter of 2021. We estimated that 15 of them filed an initial filing, as discussed in
Table 2: Annual Hour Burden Estimates for Initial Filings. (592 total large hedge fund advisers-15 advisers
that made an initial filing = 577 advisers that make ongoing filings.)
\9\ In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form
PF in the first quarter of 2023. We estimated that 14 of them filed an initial filing, as discussed in Table
2: Annual Hour Burden Estimates for Initial Filings. (570 total large hedge fund advisers-14 advisers that
made an initial filing = 556 advisers that make ongoing filings.)
\10\ In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed
Form PF in the third quarter of 2021. We estimated that one of them filed an initial filing, as discussed in
Table 2: Annual Hour Burden Estimates for Initial Filings. (24 total large liquidity fund advisers-1 adviser
that made an initial filing = 23 advisers that make ongoing filings.)
\11\ In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed
Form PF in the first quarter of 2023. We estimated that one of them filed an initial filing, as discussed in
Table 2: Annual Hour Burden Estimates for Initial Filings. (21 total large liquidity fund advisers-1 adviser
that made an initial filing = 20 advisers that make ongoing filings.)
\12\ In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers
filed Form PF in the third quarter of 2021. We estimated that 13 of them filed an initial filing, as discussed
in Table 2: Annual Hour Burden Estimates for Initial Filings. (369 total large private equity fund advisers-13
advisers that made an initial filing = 356 advisers that make ongoing filings.)
\13\ In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers
filed Form PF in the first quarter of 2023. We estimated that 18 of them filed an initial filing, as discussed
in Table 2: Annual Hour Burden Estimates for Initial Filings. (450 total large private equity fund advisers-18
advisers that made an initial filing = 432 advisers that make ongoing filings.)
[[Page 18053]]
Table 4--Annual Hour Burden Estimates for Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
Aggregate
Respondent number of Hours per Aggregate
responses response hours
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate................................. Not Applicable
---------------------------------------------------------
Final Estimate.................................... 20 x 5 = 100
Previously Approved............................... 20 x 5 = 100
Change............................................ 0 x 0 = 0
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate................................. Not Applicable
---------------------------------------------------------
Final Estimate.................................... 60 x 10 = 600
Previously Approved............................... 60 x 10 = 600
Change............................................ 0 x 0 = 0
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
Proposed Estimate................................. Not Applicable
---------------------------------------------------------
Final Estimate.................................... 20 x 5 = 100
Previously Approved............................... 20 x 5 = 100
Change............................................ 0 x 0 = 0
----------------------------------------------------------------------------------------------------------------
Note:
\1\ Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added
Form PF section 5 (Current report for large hedge fund advisers to qualifying hedge funds) and section 6
(Quarterly report for advisers to private equity funds) to Form PF. See May 2023 SEC Form PF Amending Release,
supra footnote 4, at section V for proposed and final estimates for current reporting and private equity event
reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and
are not adopting any changes to these sections in this Release.
Table 5--Annual Hour Burden Estimates for Transition Filings, Final Filings, and Temporary Hardship Requests
----------------------------------------------------------------------------------------------------------------
Aggregate
Filing type \1\ number of Hours per Aggregate
responses \2\ response hours \3\
----------------------------------------------------------------------------------------------------------------
Transition Filing from Quarterly to Annual:
Proposed Estimate................................. \4\ 68 x 0.25 = 17
Final Estimate.................................... \5\ 69 x 0.25 = 17.25
Previously Approved............................... 71 x 0.25 = 17.75
Change............................................ (2) 0 (0.50)
----------------------------------------------------------------------------------------------------------------
Final Filings:
Proposed Estimate................................. \6\ 233 x 0.25 = 58.25
Final Estimate.................................... \7\ 243 x 0.25 = 60.75
Previously Approved............................... 235 x 0.25 = 58.75
Change............................................ 8 0 2
----------------------------------------------------------------------------------------------------------------
Temporary Hardship Requests:
Proposed Estimate................................. \8\ 3 x 1 = 3
Final Estimate.................................... \9\ 4 x 1 = 4
Previously Approved............................... 4 x 1 = 4
Change............................................ 0 0 0
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Advisers make limited Form PF filings in three situations. First, any adviser that transitions from filing
quarterly to annually because it has ceased to qualify as a large hedge fund adviser or large liquidity fund
adviser, must file a Form PF indicating that it is no longer obligated to report on a quarterly basis. Second,
any adviser that is no longer subject to Form PF's reporting requirements, must file a final filing indicating
this. Third, an adviser may request a temporary hardship exemption if it encounters unanticipated technical
difficulties that prevent it from making a timely electronic filing. A temporary hardship exemption extends
the deadline for an electronic filing for seven business days. To request a temporary hardship exemption, the
adviser must file a request on Form PF. The final rule amends how advisers file temporary hardship exemption
requests, as discussed in section II.E of this Release; however, the amendment will not result in any changes
to the hours per response.
\2\ Changes to the aggregate number of responses are due to using updated data.
\3\ Changes to the aggregate hours are due to the changes in the aggregate number of responses.
\4\ In the case of the proposed estimates, Private Funds Statistics show 616 advisers filed quarterly reports in
the third quarter of 2021. Based on filing data from the last five years, an average of 11.1% of them filed a
transition filing. (616 x 0.111 = 68 responses.)
\5\ In the case of the final estimates, Private Funds Statistics show 591 advisers filed quarterly reports in
the first quarter of 2023. Based on filing data from the last five years, an average of 11.7% of them filed a
transition filing. (591 x 0.117 = 69 responses.)
\6\ In the case of the proposed estimates, Private Funds Statistics show 3,379 advisers filed Form PF in the
third quarter of 2021. Based on filing data from the last five years, an average of 6.9% of them filed a final
filing. (3,379 x 0.069 = approximately 233 responses.)
\7\ In the case of the final estimates, Private Funds Statistics show 3,791 advisers filed Form PF in the first
quarter of 2023. Based on filing data from the last five years, an average of 6.4% of them filed a final
filing. (3,791 x 0.064 = approximately 243 responses.)
\8\ In the case of the proposed estimates, based on experience receiving temporary hardship requests, we
estimate that 1 out of 1,000 advisers will file a temporary hardship exemption annually. Private Funds
Statistics show 3,379 advisers filed Form PF in the third quarter of 2021. (3,379/1,000 = approximately 3
responses.)
[[Page 18054]]
\9\ In the case of the final estimates, based on experience receiving temporary hardship requests, we estimate
that 1 out of 1,000 advisers will file a temporary hardship exemption annually. Private Funds Statistics show
3,791 advisers filed Form PF in the first quarter of 2023. (3,791/1,000 = approximately 4 responses.)
d. Annual Monetized Time Burden Estimates
Below are tables with annual monetized time burden proposed and
final estimates for (1) initial filings, (2) ongoing annual and
quarterly filings, (3) current reporting and private equity event
reporting, and (4) transition filings, final filings, and temporary
hardship requests.\700\
---------------------------------------------------------------------------
\700\ The hourly wage rates used in our proposed and final
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. The final estimates are based
on the preceding SIFMA data sets, which SEC staff have updated since
the proposing release to account for current inflation rates.
Table 6--Annual Monetized Time Burden of Initial Filings
----------------------------------------------------------------------------------------------------------------
Aggregate
Per response Aggregate monetized
Respondent \1\ Per response amortized over number of time burden
\2\ 3 years \3\ responses \4\ amortized
over 3 years
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund
Advisers:
Proposed Estimate....... \5\ $18,250 / 3 = $6,083 x 309 = $1,879,647
Final Estimate.......... \6\ 21,340 / 3 = 7,113 x 374 = 2,660,262
Previously Approved..... 15,520 / 3 = 5,174 x 358 = 1,852,292
Change.................. 5,820 1,939 16 807,970
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate....... \7\ 118,680 / 3 = 39,560 x 15 = 593,400
Final Estimate.......... \8\ 139,080 / 3 = 46,360 x 14 = 649,040
Previously Approved..... 118,890 / 3 = 39,630 x 16 = 634,080
Change.................. 20,190 6,730 (2) 14,960
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund
Advisers:
Proposed Estimate....... \9\ 72,240 / 3 = 24,080 x 1 = 24,080
Final Estimate.......... \10\ 83,792 / 3 = 27,931 x 1 = 27,931
Previously Approved..... 73,200 / 3 = 24,400 x 1 = 24,400
Change.................. 10,592 3,531 0 3,531
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund
Advisers:
Proposed Estimate....... \11\ 72,240 / 3 = 24,080 x 13 = 313,040
Final Estimate.......... \12\ 102,868 / 3 = 34,289 x 18 = 617,202
Previously Approved..... 92,221 / 3 = 30,740 x 17 = 522,580
Change.................. 10,647 3,549 1 94,622
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We expect that the monetized time burden will be most significant for the initial report, for the same
reasons discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. Accordingly, we anticipate
that the initial report will require more attention from senior personnel, including compliance managers and
senior risk management specialists, than will ongoing annual and quarterly filings. Changes are due to using
(1) updated hours per estimates, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings,
(2) updated aggregate number of, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings,
and (3) updated wage estimates.
\2\ For the hours per in each calculation, see Table 2: Annual Hour Burden Estimates for Initial Filings.
\3\ We amortize the monetized time burden for initial filings over three years, as we do with other initial
burdens in this PRA, because we believe that most of the burden will be incurred in the initial filing.
\4\ See Table 2: Annual Hour Burden Estimates for Initial Filings.
\5\ In the case of the proposed estimates, for smaller private fund advisers, we estimate that the initial
report will most likely be completed equally by a compliance manager at a cost of $339 per hour and a senior
risk management specialist at a cost of $391 per hour. (($339 per hour x 0.5) + ($391 per hour x 0.5)) x 50
hours per = $18,250.
\6\ In the case of the final estimates, for smaller private fund advisers, we estimate that the initial report
will most likely be completed equally by a compliance manager at a cost of $360 per hour and a senior risk
management specialist at a cost of $416 per hour. (($360 per hour x 0.5) + ($416 per hour x 0.5)) x 55 hours
per = $21,340.
\7\ In the case of the proposed estimates, for large hedge fund advisers, we estimate that for the initial
report, of a total estimated burden of 345 hours, approximately 60% will most likely be performed by
compliance professionals and 40% will most likely be performed by programmers working on system configuration
and reporting automation (that is approximately 207 hours for compliance professionals and approximately 138
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
performed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist
at a cost of $391 per hour. Of the work performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263 per hour.
(($339 per hour x 0.5) + ($391 per hour x 0.5)) x 207 hours = $75,555. (($362 per hour x 0.5) + ($263 per hour
x 0.5)) x 138 hours = $43,125. $75,555 + $43,125 = $118,680.
\8\ In the case of the final estimates, for large hedge fund advisers, we estimate that for the initial report,
of a total estimated burden of 380 hours, approximately 60% will most likely be performed by compliance
professionals and 40% will most likely be performed by programmers working on system configuration and
reporting automation (that is approximately 228 hours for compliance professionals and approximately 152 hours
for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed
equally by a compliance manager at a cost of $360 per hour and a senior risk management specialist at a cost
of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed equally by a
senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour. (($360 per
hour x 0.5) + ($416 per hour x 0.5)) x 228 hours = $88,464. (($386 per hour x 0.5) + ($280 per hour x 0.5)) x
152 hours = $50,616. $88,464 + $50,616 = $139,080.
[[Page 18055]]
\9\ In the case of the proposed estimates, for large liquidity fund advisers, we estimate that for the initial
report, of a total estimated burden of 210 hours, approximately 60% will most likely be performed by
compliance professionals and approximately 40% will most likely be performed by programmers working on system
configuration and reporting automation (that is approximately 126 hours for compliance professionals and 84
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
performed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist
at a cost of $391 per hour. Of the work performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263 per hour.
(($339 per hour x 0.5) + ($391 per hour x 0.5)) x 126 hours = $45,990. (($362 per hour x 0.5) + ($263 per hour
x 0.5)) x 84 hours = $26,250. $45,990 + $26,250 = $72,240.
\10\ In the case of the final estimates, for large liquidity fund advisers, we estimate that for the initial
report, of a total estimated burden of 229 hours, approximately 60% will most likely be performed by
compliance professionals and approximately 40% will most likely be performed by programmers working on system
configuration and reporting automation (that is approximately 137 hours for compliance professionals and 92
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
performed equally by a compliance manager at a cost of $360 per hour and a senior risk management specialist
at a cost of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour.
(($360 per hour x 0.5) + ($416 per hour x 0.5)) x 137 hours = $53,156. (($386 per hour x 0.5) + ($280 per hour
x 0.5)) x 92 hours = $30,636. $53,156 + $30,636 = $83,792.
\11\ In the case of the proposed estimates, for large private equity fund advisers, we expect that for the
initial report, of a total estimated burden of 210 hours, approximately 60% will most likely be performed by
compliance professionals and approximately 40% will most likely be performed by programmers working on system
configuration and reporting automation (that is approximately 126 hours for compliance professionals and 84
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
performed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist
at a cost of $391 per hour. Of the work performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263 per hour.
(($339 per hour x 0.5) + ($391 per hour x 0.5)) x 126 hours = $45,990. (($362 per hour x 0.5) + ($263 per hour
x 0.5)) x 84 hours = $26,250. $45,990 + $26,250 = $72,240.
\12\ In the case of the final estimates, for large private equity fund advisers, we expect that for the initial
report, of a total estimated burden of 281 hours, approximately 60% will most likely be performed by
compliance professionals and approximately 40% will most likely be performed by programmers working on system
configuration and reporting automation (that is approximately 169 hours for compliance professionals and 112
hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
performed equally by a compliance manager at a cost of $360 per hour and a senior risk management specialist
at a cost of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour.
(($360 per hour x 0.5) + ($416 per hour x 0.5)) x 169 hours = $65,572. (($386 per hour x 0.5) + ($280 per hour
x 0.5)) x 112 hours = $37,296. $65,572 + $37,296 = $102,868.
Table 7--Annual Monetized Time Burden of Ongoing Annual and Quarterly Filings
----------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Respondent \1\ Per response number of monetized
\2\ responses time burden
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate................................. \3\ $6,040 x \4\ $2,085 = $12,593,400
Final Estimate.................................... \5\ 7,062 x \6\ 2,376 = 16,779,312
Previously Approved............................... 4,815 x 2,258 = 10,872,270
Change............................................ 2,247 118 5,907,042
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate................................. \7\ 48,320 x \8\ 2,308 = 111,522,560
Final Estimate.................................... \9\ 56,496 x \10\ 2,224 = 125,647,104
Previously Approved............................... 48,150 x 2,328 = 112,093,200
Change............................................ 8,346 (104) 13,553,904
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund Advisers:
Proposed Estimate................................. \11\ 22,650 x \12\ 92 = 2,083,800
Final Estimate.................................... \13\ 27,606 x \14\ 80 = 2,208,480
Previously Approved............................... 22,470 x 84 = 1,887,480
Change............................................ 5,136 (4) 321,000
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
Proposed Estimate................................. \15\ 31,710 x \16\ 356 = 11,288,760
Final Estimate.................................... \17\ 46,545 x \18\432 = 20,107,440
Previously Approved............................... 41,730 x 418 = 17,443,140
Change............................................ 4,815 14 2,664,300
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We expect that the monetized time burden will be less costly for ongoing annual and quarterly reports than
for initial reports, for the same reasons discussed in Table 2: Annual Hour Burden Estimates for Initial
Filings. Accordingly, we anticipate that senior personnel will bear less of the reporting burden than they
would for the initial report. Changes are due to using (1) updated wage estimates, (2) updated hours per
response estimates, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings, and (3) updated
number of respondents, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. Changes to
estimates concerning large liquidity fund advisers primarily appear to be due to correcting a calculation
error, as discussed below.
\2\ For all types of respondents, in the case of the proposed estimates, we estimate that both annual and
quarterly reports would be completed equally by (1) a compliance manager at a cost of $339 per hour, (2) a
senior compliance examiner at a cost of $260, (3) a senior risk management specialist at a cost of $391 per
hour, and (4) a risk management specialist at a cost of $218 an hour. ($339 x 0.25 = $84.75) + ($260 x 0.25 =
$65) + ($391 x 0.25 = $97.75) + ($218 x 0.25 = $54.50) = $302. In the case of the final estimates, we estimate
that both annual and quarterly reports would be completed equally by (1) a compliance manager at a cost of
$360 per hour, (2) a senior compliance examiner at a cost of $276, (3) a senior risk management specialist at
a cost of $416 per hour, and (4) a risk management specialist at a cost of $232 an hour. ($360 x 0.25 = $90) +
($276 x 0.25 = $69) + ($416 x 0.25 = $104) + ($232 x 0.25 = $58) = $321. To calculate the cost per response
for each respondent, we used the hours per response from Table 2: Annual Hour Burden Estimates for Initial
Filings.
\3\ In the case of the proposed estimates, cost per response for smaller private fund advisers: ($302 per hour x
20 hours per response = $6,040 per response.)
\4\ In the case of the proposed estimates, (2,085 smaller private fund advisers x 1 response annually = 2,085
aggregate responses.)
[[Page 18056]]
\5\ In the case of the final estimates, cost per response for smaller private fund advisers: ($321 per hour x 22
hours per response = $7,062 per response.)
\6\ In the case of the final estimates, (2,376 smaller private fund advisers x 1 response annually = 2,376
aggregate responses.)
\7\ In the case of the proposed estimates, cost per response for large hedge fund advisers: ($302 per hour x 160
hours per response = $48,320 per response.)
\8\ In the case of the proposed estimates, (577 large hedge fund advisers x 4 responses annually = 2,308
aggregate responses.)
\9\ In the case of the final estimates, cost per response for large hedge fund advisers: ($321 per hour x 176
hours per response = $56,496 per response.)
\10\ In the case of the final estimates, (556 large hedge fund advisers x 4 responses annually = 2,224 aggregate
responses.)
\11\ In the case of the proposed estimates, cost per response for large liquidity fund advisers: ($302 per hour
x 75 hours per response = $22,650 per response.)
\12\ In the case of the proposed estimates, (23 large liquidity fund advisers x 4 responses annually = 92
aggregate responses.)
\13\ In the case of the final estimates, cost per response for large liquidity fund advisers: ($321 per hour x
86 hours per response = $27,606 per response.)
\14\ In the case of the final estimates, (20 large liquidity fund advisers x 4 responses annually = 80 aggregate
responses.)
\15\ In the case of the proposed estimates, cost per response for large private equity fund advisers: ($302 per
hour x 105 hours per response = $31,710 per response.)
\16\ In the case of the proposed estimates, (356 private equity fund advisers x 1 response annually = 356
aggregate responses.)
\17\ In the case of the final estimates, cost per response for large private equity fund advisers: ($321 per
hour x 145 hours per response = $46,545 per response.)
\18\ In the case of the final estimates, (432 private equity fund advisers x 1 response annually = 432 aggregate
responses.)
Table 8--Annual Monetized Time Burden of Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Respondent Per response number of monetized
responses time burden
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate................................. Not Applicable
---------------------------------------------------------
Final Estimate.................................... $2,024 x 20 = $40,480
Previously Approved............................... 2,024 x 20 = 40,480
----------------------------------------------------------------------------------------------------------------
Change............................................ 0 x 0 = 0
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate................................. Not Applicable
---------------------------------------------------------
Final Estimate.................................... 5,160 x 60 = 309,600
Previously Approved............................... 5,160 x 60 = 309,600
Change............................................ 0 x 0 = 0
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
Proposed Estimate................................. Not Applicable
---------------------------------------------------------
Final Estimate.................................... 2,024 x 20 = 40,480
Previously Approved............................... 2,024 x 20 = 40,480
Change............................................ 0 x 0 = 0
----------------------------------------------------------------------------------------------------------------
Note:
\1\ Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added
Form PF section 5 (Current report for large hedge fund advisers to qualifying hedge funds) and section 6
(Quarterly report for advisers to private equity funds) to Form PF. See May 2023 SEC Form PF Amending Release,
supra footnote 4, at section V for proposed and final estimates for current reporting and private equity event
reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and
are not adopting any changes to these sections in this Release.
Table 9--Annual Monetized Time Burden for Transition Filings, Final Filings, and Temporary Hardship Requests
----------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Filing type \1\ Per response number of monetized
responses \2\ time burden
----------------------------------------------------------------------------------------------------------------
Transition Filing from Quarterly to Annual:
Proposed Estimate................................. \3\ $19.25 x 68 = $1,309
Final Estimate.................................... \4\ 20.50 x 69 = 1,414.50
Previously Approved............................... 20.50 x 71 = 1,455.50
Change............................................ 0 (2) (41)
----------------------------------------------------------------------------------------------------------------
Final Filings:
Proposed Estimate................................. \5\ 19.25 x 233 = 4,485.25
Final Estimate.................................... \3\ 20.50 x 243 = 4,981.50
Previously Approved............................... 20.50 x 235 = 4,817.50
Change............................................ 0 8 164
----------------------------------------------------------------------------------------------------------------
Temporary Hardship Requests:
Proposed Estimate................................. \7\ 237.50 x 3 = 712.50
Final Estimate.................................... \8\ 252.38 x 4 = 1,009.52
Previously Approved............................... 252.38 x 4 = 1,099.52
[[Page 18057]]
Change............................................ 0 0 (90)
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ All changes are due to using updated data concerning wage rates and the number of responses.
\2\ See Table 5: Annual Hour Burden Estimates for Transition Filings, Final Filings, and Temporary Hardship
Requests.
\3\ In the case of the proposed estimates, we estimate that each transition filing will take 0.25 hours and that
a compliance clerk would perform this work at a cost of $77 an hour. (0.25 hours x $77 = $19.25.)
\4\ In the case of the final estimates, we estimate that each transition filing will take 0.25 hours and that a
compliance clerk would perform this work at a cost of $82 an hour. (0.25 hours x $82 = $20.50.)
\5\ In the case of the proposed estimates, we estimate that each final filing will take 0.25 hours and that a
compliance clerk would perform this work at a cost of $77 an hour. (0.25 hours x $77 = $19.25.)
\6\ In the case of the final estimates, we estimate that each final filing will take 0.25 hours and that a
compliance clerk would perform this work at a cost of $82 an hour. (0.25 hours x $82 = $20.50.)
\7\ In the case of the proposed estimates, we estimate that each temporary hardship request will take 1 hour. We
estimate that a compliance manager would perform five-eighths of the work at a cost of $339 and a general
clerk would perform three-eighths of the work at a cost of $68. (1 hour x ((\5/8\ of an hour x $339 = $212) +
(\3/8\ of an hour x $68 = $25.50)) = $237.50 per response.
\8\ In the case of the final estimates, we estimate that each temporary hardship request will take 1 hour. We
estimate that a compliance manager would perform five-eighths of the work at a cost of $360 and a general
clerk would perform three-eighths of the work at a cost of $73. (1 hour x ((\5/8\ of an hour x $360 = $225) +
(\3/8\ of an hour x $73 = $27.38)) = $252.38 per response.
e. Annual External Cost Burden Estimates
Below are tables with annual external cost burden estimates for (1)
initial filings, (2) ongoing annual and quarterly filings, and (3)
current reporting and private equity event 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.
Table 10--Annual External Cost Burden for Ongoing Annual and Quarterly Filings as well as Initial Filings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
External Aggregate
Number of External cost of external cost
responses Filing Total cost of initial Number of of initial Total
Respondent \1\ per fee per filing initial filing initial filing aggregate
respondent filing fees filing amortized filings amortized external cost
\2\ \3\ \4\ over 3 \6\ over 3 years \8\
years \5\ \7\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate............................................. 1 x $150 = $150 $10,000 / 3 = $3,333 x 309 = $1,029,897 \9\ $1,388,997
Final Estimate................................................ 1 x 150 = 150 10,000 / 3 = 3,333 x 374 = 1,246,542 \10\ 1,659,042
----------------------------------------------------------------------
Previously Approved........................................... 1 x 150 = 150 Not Applicable 392,400
----------------------------------------------------------------------
Change........................................................ 0 0 0 Not Applicable 1,266,642
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate............................................. 4 x 150 = 600 50,000 / 3 = 16,667 x 15 = 250,005 \11\ 605,205
Final Estimate................................................ 4 x 150 = 600 70,000 / 3 = 23,333 x 14 = 326,662 \12\ 668,662
Previously Approved........................................... 4 x 150 = 600 50,000 / 3 = 16,667 x 16 = 266,672 625,472
Change........................................................ 0 0 0 20,000 6,666 (2) 59,990 43,190
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Large Liquidity Fund Advisers:
Proposed Estimate............................................. 4 x 150 = 600 50,000 / 3 = 16,667 x 1 = 16,667 \13\ 31,067
Final Estimate................................................ 4 x 150 = 600 50,000 / 3 = 16,667 x 1 = 16,667 \14\ 29,267
Previously Approved........................................... 4 x 150 = 600 50,000 / 3 = 16,667 x 1 = 16,667 29,867
Change........................................................ 0 0 0 0 0 0 0 (600)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
Proposed Estimate............................................. 1 x 150 = 150 50,000 / 3 = 16,667 x 13 = 216,671 \15\ 272,021
Final Estimate................................................ 1 x 150 = 150 50,000 / 3 = 16,667 x 18 = 300,006 \16\ 367,656
Previously Approved........................................... 1 x 150 = 150 50,000 / 3 = 16,667 x 17 = 283,339 348,589
Change........................................................ 0 0 0 0 0 9 16,667 19,067
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ We estimate that advisers would incur the cost of filing fees for each filing. For initial filings, advisers may incur costs to modify existing systems or deploy new systems to support
Form PF reporting, acquire or use hardware to perform computations, or otherwise process data that Form PF requires.
\2\ Smaller private fund advisers and large private equity fund advisers file annually. Large hedge fund advisers and large liquidity fund advisers file quarterly.
\3\ The SEC established Form PF filing fees in a separate order. Since 2011, filing fees have been and continue to be $150 per annual filing and $150 per quarterly filing. See Order Approving
Filing Fees for Exempt Reporting Advisers and Private Fund Advisers, Advisers Act Release No. 3305 (Oct. 24, 2011) [76 FR 67004 (Oct. 28, 2011)].
[[Page 18058]]
\4\ In the previous PRA submission for the rules, staff estimated that the external cost burden for initial filings would range from $0 to $50,000 per adviser. This range reflected the fact
that the cost to any adviser may depend on how many funds or the types of funds it manages, the state of its existing systems, the complexity of its business, the frequency of Form PF
filings, the deadlines for completion, and the amount of information the adviser must disclose on Form PF. Staff also estimated that smaller private fund advisers would be unlikely to bear
such costs because the information they must provide is limited and will, in many cases, already be maintained in the ordinary course of business. Given the proposed amendments, we estimate
that the external cost burden for smaller private fund advisers would range from $0 to $10,000, per smaller private fund adviser. This range reflects the amendments and is designed to
reflect that the cost to any smaller private fund adviser may depend on how many funds or the type of funds it manages, the state of its existing systems, and the complexity of its business.
We use the upper range to calculate the estimate for smaller private fund advisers: $10,000. Also, given the amendments, in our proposed estimates, we estimated that the external cost burden
for initial filings for large hedge fund advisers, large liquidity fund advisers, and large private equity fund advisers would continue to range from $0 to $50,000 for the same reasons as
the current estimates for those types of advisers. We used the upper range to calculate the estimates: $50,000. After considering comments we received, we estimate a range from $0 to $70,000
for large hedge fund advisers. We use the upper range to calculate cost burden for initial filings for large hedge fund advisers estimates: $70,000. We continue to estimate that the external
cost burden for initial filings for large liquidity fund advisers, and large private equity fund advisers would continue to range from $0 to $50,000 for the same reasons as the current
estimates for those types of advisers. We used the upper range to calculate the estimates: $50,000.
\5\ We amortize the external cost burden of initial filings over three years, as we do with other initial burdens in this PRA, because we believe that most of the burden will be incurred in
the initial filing.
\6\ See Table 2: Annual Hour Burden Estimates for Initial Filings.
\7\ Changes to the aggregate external cost of initial filings, amortized over three years are due to (1) the proposed amendments and (2) using updated data.
\8\ Changes to the total aggregate external cost are due to (1) the amendments, (2) using updated data, (3) the amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposing
Release, and (4) comments we received to our estimates.
\9\ In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers filed Form PF in the third quarter of 2021. (2,394 smaller private fund advisers x
$150 total filing fees) + $1,029,897 aggregate external cost of initial filing amortized over three years = $1,388,997 total aggregate external cost.
\10\ In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed Form PF in the first quarter of 2023. (2,750 smaller private fund advisers x
$150 total filing fees) + $1,246,542 aggregate external cost of initial filing amortized over three years = $1,659,042 total aggregate external cost.
\11\ In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed Form PF in the third quarter of 2021. (592 large hedge fund advisers x $600 total
filing fees) + $250,005 aggregate external cost of initial filing amortized over three years = $605,205 total aggregate external cost.
\12\ In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form PF in the first quarter of 2023. (570 large hedge fund advisers x $600 total
filing fees) + $326,662 aggregate external cost of initial filing amortized over three years = $668,662 total aggregate external cost.
\13\ In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed Form PF in the third quarter of 2021. (24 large liquidity fund advisers x $600
total filing fees) + $16,667 aggregate external cost of initial filing amortized over three years = $31,067 total aggregate external cost.
\14\ In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed Form PF in the first quarter of 2023. (21 large liquidity fund advisers x $600
total filing fees) + $16,667 aggregate external cost of initial filing amortized over three years = $29,267 total aggregate external cost.
\15\&thnsp;In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers filed Form PF in the third quarter of 2021. (369 large private equity
fund advisers x $150 total filing fees) + $216,671 aggregate external cost of initial filing amortized over three years = $272,021 total aggregate external cost.
\16\ In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers filed Form PF in the first quarter of 2023. (450 large private equity fund
advisers x $150 total filing fees) + $300,006 aggregate external cost of initial filing amortized over three years = $367,506 total aggregate external cost.
Table 11--Annual External Cost Burden for Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
Cost of outside
Aggregate counsel per Aggregate One-time Total
Respondent number of current report or cost of cost of aggregate
responses private equity outside system external cost
event report counsel changes
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate......... Not Applicable
---------------------------------------------------------------------------------
Final Estimate............ 20 x $1,695 = $33,900 $15,000 $48,900
Previously Approved....... 20 x 1,695 = 33,900 15,000 48,900
Change.................... 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
Proposed Estimate......... Not Applicable
---------------------------------------------------------------------------------
Final Estimate............ 60 x 1,695 = 101,700 15,000 116,700
Previously Approved....... 60 x 1,695 = 101,700 15,000 116,700
Change.................... 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund
Advisers:
Proposed Estimate......... Not Applicable
---------------------------------------------------------------------------------
Final Estimate............ 20 x 1,695 = 33,900 15,000 48,900
Previously Approved....... 20 x 1,695 = 33,900 15,000 48,900
Change.................... 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Advisers pay filing fees, the amount of which will be determined in a separate action.
----------------------------------------------------------------------------------------------------------------
Note:
\1\ Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added
Form PF section 5 (Current report for large hedge fund advisers to qualifying hedge funds) and section 6
(Quarterly report for advisers to private equity funds) to Form PF. See May 2023 SEC Form PF Amending Release,
supra footnote 4, at section V for proposed and final estimates for current reporting and private equity event
reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and
are not adopting any changes to these sections in this Release.
f. Summary of Estimates and Change in Burden
[[Page 18059]]
Table 12--Aggregate Annual Estimates
----------------------------------------------------------------------------------------------------------------
Proposed Previously
Description \1\ estimates Final estimates approved Change
----------------------------------------------------------------------------------------------------------------
Respondents................... 3,379 3,791 3,671 120 respondents.\4\
respondents \2\. respondents \3\. respondents.
Responses..................... 5,483 responses 5,935 responses 5,907 responses. 28 responses.\7\
\5\. \6\.
Time Burden................... 463,296 hours 524,376 hours 451,012 hours... 73,364 hours.
\8\. \9\.
Monetized Time Burden $140,305,194 $169,094,737.02 $145,721,172.52. $23,373,564.50.
(Dollars). \10\. \11\.
External Cost Burden (Dollars) $2,297,290 \12\. $2,938,977 \13\. $1,610,828...... $1,328,149.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Changes are due to (1) the amendments, (2) using updated data, and (3) in the case of the final estimates
subsequent Form PF amendments adopted after the 2022 Joint Form PF Proposing Release and comments we received
to our estimates, as described in this PRA.
\2\ In the case of the proposed estimates, Private Funds Statistics show the following advisers filed Form PF in
the third quarter of 2021: 2,394 smaller private fund advisers + 592 large hedge fund advisers + 24 large
liquidity fund advisers + 369 large private equity fund advisers = 3,379 advisers.
\3\ In the case of the final estimates, Private Funds Statistics show the following advisers filed Form PF in
the first quarter of 2023: 2,750 smaller private fund advisers + 570 large hedge fund advisers + 21 large
liquidity fund advisers + 450 large private equity fund advisers = 3,791 advisers.
\4\ Changes are due to using updated data.
\5\ In the case of the proposed estimates, for initial filings (Table 2): (309 smaller private fund adviser
responses + 15 large hedge fund adviser responses + 1 large liquidity fund adviser response + 13 large private
equity fund adviser responses = 338 responses.) For ongoing annual and quarterly filings (Table 7): (2,085
smaller private fund adviser responses + 2,308 large hedge fund adviser responses + 92 large liquidity fund
adviser responses + 356 large private equity fund adviser responses = 4,841 responses.) (338 responses for
initial filings + 4,841 responses for ongoing annual and quarterly filings + 68 responses for transition
filings + 233 responses for final filings + 3 responses for temporary hardship requests = 5,483 responses.)
\6\ In the case of the final estimates, for initial filings (Table 2): (374 smaller private fund adviser
responses + 14 large hedge fund adviser responses + 1 large liquidity fund adviser response + 18 large private
equity fund adviser responses = 407 responses.) For ongoing annual and quarterly filings (Table 7): (2,376
smaller private fund adviser responses + 2,224 large hedge fund adviser responses + 80 large liquidity fund
adviser responses + 432 large private equity fund adviser responses = 5,112 responses.) For current reporting
and private equity event reporting (Table 8): (20 smaller private fund adviser responses + 60 large hedge fund
adviser responses + 20 large private equity fund adviser responses = 100 responses) (407 responses for initial
filings + 5,112 responses for ongoing annual and quarterly filings + 100 responses + 69 responses for
transition filings + 243 responses for final filings + 4 responses for temporary hardship requests = 5,935
responses.)
\7\ Changes are due to using updated data concerning the number of filers and, in the case of the final
estimates, the inclusion of current reporting and private equity event reporting, which was adopted after the
2022 Joint Form PF Proposing Release, and comments we received to our estimates.
\8\ In the case of the proposed estimates, for initial filings: (5,253 hours for smaller private fund advisers +
1,725 hours for large hedge fund advisers + 70 hours for large liquidity fund advisers + 910 hours for large
private equity fund advisers = 7,958 hours). For ongoing annual and quarterly filings: (41,700 hours for
smaller private fund advisers + 369,280 hours for large hedge fund advisers + 6,900 for hours large liquidity
fund advisers + 37,380 hours for large private equity fund advisers = 455,260 hours). (7,958 hours for initial
filings + 455,260 for ongoing annual and quarterly filings + 17 hours for transition filings + 58.25 hours for
final filings + 3 hours for temporary hardship requests = 463,296 hours.
\9\ In the case of the final estimates, for initial filings: (6,732 hours for smaller private fund advisers +
1,778 hours for large hedge fund advisers + 76 hours for large liquidity fund advisers + 1,692 hours for large
private equity fund advisers = 10,278 hours). For ongoing annual and quarterly filings: (52,272 hours for
smaller private fund advisers + 391,424 hours for large hedge fund advisers + 6,880 for hours large liquidity
fund advisers + 62,640 hours for large private equity fund advisers = 513,216 hours). For current reporting
and private equity event reporting: (100 hours for smaller private fund adviser + 600 hours for large hedge
fund adviser + 100 hours for large private equity fund adviser = 800 hours) (10,278 hours for initial filings
+ 513,216 for ongoing annual and quarterly filings + 800 hours for current reporting and private equity event
reporting + 17.25 hours for transition filings + 60.75 hours for final filings + 4 hours for temporary
hardship requests = 524,376 hours.
\10\ In the case of the proposed estimates, for initial filings: ($1,879,647 for smaller private fund advisers +
$593,400 for large hedge fund advisers + $24,080 for large liquidity fund advisers + $313,040 for large
private equity fund advisers = $2,810,167). For ongoing annual and quarterly filings: ($12,593,400 for smaller
private fund advisers + $111,522,560 for large hedge fund advisers + $2,083,800 for large liquidity fund
advisers + $11,288,760 for large private equity fund advisers = $137,488,520). ($2,810,167 for initial filings
+ $137,488,520 for ongoing annual and quarterly filings + $1,309 for transition filings + $4,485.25 for final
filings + $712.50 for temporary hardship requests = $140,305,194.
\11\ In the case of the final estimates, for initial filings: ($2,660,262 for smaller private fund advisers +
$649,040 for large hedge fund advisers + $27,931 for large liquidity fund advisers + $617,202 for large
private equity fund advisers = $3,954,435). For ongoing annual and quarterly filings: ($16,779,312 for smaller
private fund advisers + $125,647,104 for large hedge fund advisers + $2,208,480 for large liquidity fund
advisers + $20,107,440 for large private equity fund advisers = $164,742,336). For current reporting and
private equity event reporting: ($40,480 for smaller private equity fund advisers + $309,600 for large hedge
fund advisers + $40,480 for large private equity fund advisers = $390,560). ($3,954,435 for initial filings +
$164,742,336 for ongoing annual and quarterly filings + $390,560 for current reporting and private equity
event reporting + $1,414.50 for transition filings + $4,982 for final filings + $1,009.52 for temporary
hardship requests = $169,094,737.02.
\12\ In the case of the proposed estimates, for the external cost burden: $1,388,997 for smaller private fund
advisers + $605,205 for large hedge fund advisers + $31,067 for large liquidity fund advisers + $272,021 for
large private equity fund advisers = $2,297,290.
\13\ In the case of the final estimates, for external cost burden for annual, quarterly, and initial filing
($1,659,042 for smaller private fund advisers + $668,662 for large hedge fund advisers + $29,267 for large
liquidity fund advisers + $367,506 for large private equity fund advisers = $2,724,477). For current
reporting: ($48,900 for smaller private fund advisers + $116,700 for large hedge funds + $48,900 for large
private equity fund advisers = $214,500). $2,724,477 + $214,500 = $2,938,977.
VI. Regulatory Flexibility Act Certification
CFTC
The Regulatory Flexibility Act (``RFA'') requires that when Federal
agencies publish a proposed rulemaking pursuant to section 553 of the
Administrative Procedure Act, they consider whether the final rule will
have a significant economic impact on a substantial number of ``small
entities.'' \701\
---------------------------------------------------------------------------
\701\ 5 U.S.C. 601, et. seq.
---------------------------------------------------------------------------
Registered CPOs and CTAs that are dually registered as investment
advisers with the SEC are only required to file Form PF with the SEC
pursuant to the Advisers Act. While CFTC rule 4.27(d) provides that
dually registered CPOs and CTAs that file Form PF with the SEC will be
deemed to have filed Form PF with the CFTC, for purposes of any
enforcement action regarding any false or misleading statement of
material fact in Form PF, the CFTC is not imposing any additional
obligation herein beyond what is already required of these entities
when filing Form PF with the SEC.
Entities impacted by the Form PF are the SEC's regulated entities
and no small entity on its own would meet the
[[Page 18060]]
Form PF's minimum reporting threshold of $150 million in regulatory
assets under management attributable to private funds. Also, any
economic impact imposed by Form PF on small entities registered with
both the CFTC and the SEC has been accounted for within the SEC's
regulatory flexibility analysis regarding the impact of this collection
of information under the RFA. Accordingly, the Chairman, on behalf of
the CFTC, hereby certifies pursuant to 5 U.S.C. 605(b) that the final
rules will not have a significant economic impact on a substantial
number of small entities.
SEC
Pursuant to section 605(b) of the Regulatory Flexibility Act of
1980 (``Regulatory Flexibility Act''),\702\ the SEC certified 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. The SEC included this certification in
section V of the 2022 Joint Form PF Proposing Release. As discussed in
more detail in the 2022 Joint Form PF Proposing Release, 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.\703\
---------------------------------------------------------------------------
\702\ 5 U.S.C. 601, et. seq.
\703\ 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 December 2022, 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, the SEC stated in the 2022
Joint Form PF Proposing Release there would be no significant economic
impact on a substantial number of small entities from the proposed
amendments to Advisers Act rule 204(b)-1 and Form PF.
The SEC requested comment on its certification in section V of the
2022 Joint Form PF Proposing Release. While some commenters addressed
the potential impact of the proposed amendments on smaller or mid-size
private funds,\704\ no commenters responded to this request for comment
regarding the SEC's certification. We are adopting the amendments
largely as proposed, with certain modifications from the proposal, as
discussed more fully above in section II, that do not affect the
Advisers Act rule 204(b)-1 and Form PF's minimum reporting threshold.
We do not believe that these changes alter the basis upon which the
certification in the 2022 Joint Form PF Proposing Release was made.
Accordingly, the SEC certifies that the final amendments to Advisers
Act rule 204(b)-1 and Form PF will not have a significant economic
impact on a substantial number of small entities.
---------------------------------------------------------------------------
\704\ See, e.g., AIC Comment Letter I; AIMA/ACC Comment Letter;
USCC Comment Letter.
---------------------------------------------------------------------------
Statutory Authority
CFTC
The CFTC authority for this rulemaking is provided by 15 U.S.C.
80b-11.
SEC
The SEC is amending 17 CFR 275.204(b)-1 pursuant to its authority
set forth in sections 204(b) and 211(e) of the Advisers Act [15 U.S.C.
80b-4 and 15 U.S.C. 80b-11], respectively.
The SEC is amending 17 CFR 279.9 pursuant to its authority set
forth in sections 204(b) and 211(e) of the Advisers Act [15 U.S.C. 80b-
4 and 15 U.S.C. 80b-11], respectively.
List of Subjects in 17 CFR Parts 275 and 279
Reporting and recordkeeping requirements, Securities.
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:
0
a. Revising paragraph (f)(2)(i) by removing the phrases ``in paper
format,'' and ``, Item A of Section 1a and Section 5 of Form PF,
checking the box in Section 1a indicating that you are requesting a
temporary hardship exemption'';
0
b. Redesignating paragraph (f)(4) as paragraph (f)(5); and
0
c. Adding new paragraph (f)(4).
The addition reads as follows:
Sec. 275.204(b)-1 Reporting by investment advisers to private funds.
* * * * *
(f) * * *
(4) A request for a temporary hardship exemption is considered
filed upon the earlier of the date the request is postmarked or the
date it is received by the Commission.
* * * * *
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.
0
4. Revise Form PF (referenced in Sec. 279.9).
Note: Form PF is attached as Appendix A to this document. Form
PF will not appear in the Code of Federal Regulations.
By the Commissions.
Dated: February 8, 2024.
Christopher Kirkpatrick,
Secretary, Commodity Futures Trading Commission.
Vanessa A. Countryman,
Secretary, Securities and Exchange Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
BILLING CODE 8011-01-P
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BILLING CODE 8011-01-C
Note: The following Commodity Futures Trading Commission (CFTC)
appendices will not appear in the Code of Federal Regulations.
CFTC Appendices to Form PF; Reporting Requirements for All Filers and
Large Hedge Fund Advisers--CFTC Voting Summary and Commissioners'
Statements
CFTC Appendix 1--Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson and
Goldsmith Romero voted in the affirmative. Commissioners Mersinger and
Pham voted in the negative.
CFTC Appendix 2--Statement of Commissioner Kristin N. Johnson
Transparency is an integral component of the regulatory framework
that ensures the safety and soundness and enduring preeminence of our
financial markets. Our statutory mandate expressly directs the
Commodity Futures Trading Commission's (Commission or CFTC) mission to
``ensure the financial integrity of all transactions subject to [the
Commodity Exchange Act] and the avoidance of systemic risk'' and today,
consistent with this mandate, the Commission seeks to enhance oversight
and improve visibility through well-calibrated data collection
approaches.\1\
---------------------------------------------------------------------------
\1\ 7 U.S.C. 5(b).
---------------------------------------------------------------------------
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) incorporated innovative regulatory features for
promoting the stability of the U.S. financial system, including
establishing the Financial Stability Oversight Council (FSOC) to
monitor for emerging systemic risks that may significantly impact our
financial markets and American consumers. Congress, in drafting the
Dodd-Frank Act, recognized that systemic risks are best monitored
through collaboration among prudential and market regulators, each
endowed with distinct regulatory mandates and empowered to leverage
their expertise to support FSOC's systemic risk oversight objectives.
Specifically, Section 404 of the Dodd-Frank Act amends Section 204
of the Investment Advisers Act of 1940 (Advisers Act) and grants the
Securities and Exchange Commission (SEC) the power to require an SEC-
registered investment adviser to file with the SEC reports regarding
``private funds advised by the investment adviser, as necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of systemic risk by the [FSOC].'' \2\ Section 406
of the Dodd-Frank Act, which amends Section 211 of the Advisers Act,
instructs the SEC and Commission, after consultation with FSOC, to
``jointly promulgate rules to establish the form and content of the
reports required to be filed'' with the SEC and Commission by
investment advisers registered both under the Advisers Act and the
Commodity Exchange Act.\3\
---------------------------------------------------------------------------
\2\ 15 U.S.C. 80b-4(b).
\3\ 15 U.S.C. 80b-11(e).
---------------------------------------------------------------------------
As directed by the Dodd-Frank Act, in 2011, the Commission and SEC
jointly issued rules to provide FSOC with important information about
private fund operations and strategies through Form PF.\4\ Form PF is a
confidential form for certain SEC-registered investment advisers to
private funds, including those that may also be dually registered with
the Commission as a commodity pool operator (CPO) or commodity trading
advisor (CTA).\5\ In 2022, the Commission and SEC adopted proposed
amendments to Form PF.\6\ As noted in the preamble, the Commission is
adopting the joint final rule to amend Form PF (Final Rule) in an
effort to address information gaps and improve the Commissions' and
FSOC's understanding of the private fund industry and the potential
systemic risk posed by it. The Final Rule seeks to clarify aspects of
the form and instructions as well as remove certain questions to
streamline reporting.
---------------------------------------------------------------------------
\4\ Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, 76 FR 71128, 71129 (Nov. 16, 2011).
\5\ In 2020, the Commission adopted amendments to Form CPO-PQR
for CPOs, which is used by CPOs and CTAs for reporting purposes. In
lieu of filing the CFTC's Form CPO-PQR, CPOs and CTAs may file NFA
Form PQR, a comparable form required by the National Futures
Association.
\6\ Form PF; Reporting Requirements for All Filers and Large
Hedge Fund Advisers, 87 FR 53832 (Sept. 1, 2022).
---------------------------------------------------------------------------
Appropriately-tailored regulatory disclosure is a powerful tool in
identifying vulnerabilities and trends in our markets, mitigating
systemic risk, and addressing financial stability concerns. Disclosure
of financial information to market regulators is critical to the
regulatory oversight of our financial markets, particularly when such
disclosure is accurate, timely, robust, and usable. Effective
disclosure enables regulators to monitor market activities and take
swift, decisive action to prevent or manage market stresses and crises.
I support today's Final Rule and the careful consideration of both
agencies that it reflects.
I commend the work of the staff of the Market Participants
Division--Amanda Olear, Pamela Geraghty, Michael Ehrstein, Elizabeth
Groover, and Andrew Ruggiero--for their careful work on the Final Rule.
CFTC Appendix 3--Dissenting Statement of Commissioner Caroline D. Pham
I respectfully dissent from the Joint Final Rule on Form PF and
Reporting Requirements for All Filers and Large Hedge Fund Advisers
that is being issued together with the U.S. Securities
[[Page 18161]]
and Exchange Commission (SEC) (SEC-CFTC Joint Final Rule on Form PF or
Joint Final Rule) because, overall, the rule does not achieve its
stated purpose to improve systemic risk monitoring because it will
obscure hidden risks and unacceptably increase costs for American
savers.
When this proposal was adopted in August 2022, I raised my concerns
that in a time of economic challenges, including rising inflation, we
must be careful when considering proposals that could inhibit positive
economic activity that supports American businesses and jobs.\1\ The
SEC-CFTC Joint Final Rule on Form PF charges ahead on the wrong path
with no consideration for these concerns.
---------------------------------------------------------------------------
\1\ Dissenting Statement of Commissioner Caroline D. Pham
Regarding the Proposed Amendments to Form PF (Aug. 10, 2022). I also
continue to believe the cost-benefit analysis in the Final Rule is
insufficient.
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Astoundingly, all rules since the financial crisis have been based
on aggregating data for better risk management.\2\ Yet the SEC-CFTC
Joint Final Rule on Form PF continues to mandate double, and sometimes
triple, reporting,\3\ without being based on any demonstrated data or
evidence that it will improve systemic risk monitoring. To the
contrary, it will hinder the ability of both firms and regulators to
truly identify hidden risk. Effective risk management requires
aggregation to understand the risk exposure. Indeed, this is a key
pillar of Dodd-Frank reforms. But the Joint Final Rule will force firms
to disaggregate risk monitoring and reporting to the individual fund
level--obscuring the full picture.
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\2\ See e.g., Prohibitions and Restrictions on Proprietary
Trading and Certain Interests in, and Relationships With, Hedge
Funds and Private Equity Funds, 79 FR 5808 (Jan. 31, 2014),
available at https://www.federalregister.gov/documents/2014/01/31/2013-31476/prohibitions-and-restrictions-on-proprietary-trading-and-certain-interests-in-and-relationships-with; Bank for International
Settlements (BIS) Basel Committee on Banking Supervision, Standards
for Minimum Capital Requirements for Market Risk (Jan. 2016),
available at https://www.bis.org/bcbs/publ/d352.pdf. BIS revised the
Standards in 2019. BIS Basel Committee on Banking Supervision,
Standards for Minimum Capital Requirements for Market Risk (Jan.
2019; rev. Feb. 2019), available at https://www.bis.org/bcbs/publ/d457.pdf.
\3\ An overriding basis for the CFTC and SEC joint final rule in
2011 was to support the Financial Stability Oversight Council
(FSOC), but three overlapping, or identical, data sets across the
three entities raises confidentiality and data protection concerns,
along with inefficiency issues. See Joint Final Rule, Reporting by
Investment Advisers to Private Funds and Certain Commodity Pool
Operators and Commodity Trading Advisors on Form PF, 76 FR 71128,
71129 (Nov. 16, 2011), available at https://www.federalregister.gov/documents/2011/11/16/2011-28549/reporting-by-investment-advisers-to-private-funds-and-certain-commodity-pool-operators-and-commodity;
see also Authority To Require Supervision and Regulation of Certain
Nonbank Financial Companies, 77 FR 21637, 21644 (Apr. 11, 2012),
available at https://www.federalregister.gov/documents/2012/04/11/2012-8627/authority-to-require-supervision-and-regulation-of-certain-nonbank-financial-companies.
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Even worse, the SEC-CFTC Joint Final Rule on Form PF will create a
flood of new information of dubious utility that will generate too much
noise and is detrimental to data quality, also making it harder to see
real risk positions. And, the Joint Final Rule does nothing to address
the many operational and practical implementation issues that will
unacceptably increase costs for American savers who have worked hard to
earn their retirement investments.
For all these reasons, I cannot support the SEC-CFTC Joint Final
Rule on Form PF and must dissent. This is an unacceptable backsliding
on the progress made since the Dodd-Frank Act to strengthen our
financial system, mitigate systemic risk, and promote financial
stability.
I appreciate the time that the staff spent with my office on this
rulemaking. I would like to thank the CFTC team of Andrew Ruggiero,
Elizabeth Groover, Michael Ehrstein, and Pamela Geraghty in the Market
Participants Division for their efforts.
[FR Doc. 2024-03473 Filed 3-11-24; 8:45 am]
BILLING CODE 8011-01-P; 6351-01-P
