2026-07993
[Federal Register Volume 91, Number 79 (Friday, April 24, 2026)]
[Proposed Rules]
[Pages 22232-22391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-07993]
[[Page 22231]]
Vol. 91
Friday,
No. 79
April 24, 2026
Part II
Commodity Futures Trading Commission
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17 CFR Part 4
Securities and Exchange Commission
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17 CFR Parts 275 and 279
Form PF; Reporting Requirements for All Filers; Proposed Rule
Federal Register / Vol. 91, No. 79 / Friday, April 24, 2026 /
Proposed Rules
[[Page 22232]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AF68
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 275 and 279
[Release No. IA-6959; File No. S7-2026-13]
RIN 3235-AN64
Form PF; Reporting Requirements for All Filers
AGENCY: Commodity Futures Trading Commission and Securities and
Exchange Commission.
ACTION: Joint proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (the ``CFTC'') and
the Securities and Exchange Commission (the ``SEC'') (collectively,
``we'' or the ``Commissions'') are proposing to amend 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 (a ``CPO'') or a commodity
trading advisor (a ``CTA''). The proposed amendments would eliminate
certain filing and reporting obligations, streamline certain
requirements, and make corrections and other revisions. The proposed
amendments are designed to eliminate certain burdens, among other
things.
DATES: This proposal was published in the Federal Register on April 24,
2026. Comments should be received on or before June 23, 2026.
ADDRESSES: Comments may be submitted by any of the following methods.
CFTC: Comments may be submitted to the CFTC by any of the following
methods.
CFTC Comments Portal: https://comments.cftc.gov. Follow
the instructions for submitting comments through the website.
Mail: Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Follow the same instructions as for
Mail above.
Please submit your comments using only one method. To avoid
possible delays with mail or in-person deliveries, submissions through
the CFTC website are encouraged. ``Form PF'' must be in the subject
field of comments submitted via email, and clearly indicated on written
submissions. All comments must be submitted in English, or if not,
accompanied by an English translation. Comments will be posted as
received to www.cftc.gov. You should submit only information that you
wish to make available publicly. If you wish the CFTC to consider
information that may be exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the established procedures in
17 CFR 145.9.
The CFTC reserves the right, but shall have no obligation, to
review, prescreen, filter, redact, refuse, or remove any or all of your
submission from www.cftc.gov that it may deem to be inappropriate for
publication, including, but not limited to, obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act, 5 U.S.C. 552, et seq. (``FOIA'').
SEC: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/comments/s7-2026-13/form-pf-reporting-requirements-all-filers); or
Send an email to [email protected]. Please include
File Number S7-2026-13 on the subject line.
Paper Comments
Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-2026-13. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (https://www.sec.gov/rules-regulations/rulemaking-activity). Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (https://www.sec.gov/rules-regulations/2026/04/s7-2026-13).
FOR FURTHER INFORMATION CONTACT: CFTC: Michael Ehrstein or Elizabeth
Groover, Special Counsels, at (202) 418-6700, Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC
20581. SEC: Alexis Palascak, Janet Jun, and Daniel Levine, Senior
Counsels; Adele Kittredge Murray, Private Funds Attorney Fellow; or
Robert Holowka, Acting Assistant Director, Investment Adviser
Regulation Office, at (202) 551-6787, Division of Investment
Management, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The CFTC and SEC are requesting public
comment on the following under the Investment Advisers Act of 1940 [15
U.S.C. 80b] (``Advisers Act'').\1\
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\1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the
Advisers Act, or any section of the Advisers Act, we are referring
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we
refer to rules under the Advisers Act, or any section of these
rules, we are referring to title 17, part 275 of the Code of Federal
Regulations [17 CFR 275], and when we refer to forms under the
Advisers Act, we are referring to title 17, part 279 of the Code of
Federal Regulations [17 CFR 279], in which these rules and forms are
published.
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Agency Reference CFR citation
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CFTC & SEC...................... Form PF........... 17 CFR 279.9.
SEC............................. Rule 204(b)-1..... 17 CFR 275.204(b)-
1.
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Table of Contents
I. Introduction
II. Discussion
A. Increase the Filing Threshold for All Form PF Filers
B. Increase the Reporting Threshold for Large Hedge Fund
Advisers
C. Disregarded Feeder Funds
D. Eliminate the Look Through Requirement
E. Trading Vehicles
F. Eliminate Form PF Question 23(c) Volatility Reporting
G. Eliminate Certain Trading and Clearing Reporting
[[Page 22233]]
H. Eliminate Form PF Question 32(b)(2) Adjusted Exposure
Reporting Based on Internal Methodology
I. Eliminate Form PF Question 34 Monthly Asset Turnover
Reporting
J. Simplify Industry Concentration Reporting in Form PF Question
36
K. Eliminate Certain Questions Concerning Qualifying Hedge
Funds' Exposures to Reference Assets
L. Simplify Large Hedge Fund Adviser Counterparty Exposure
Reporting
M. Eliminate Rehypothecation Reporting
N. Amendments to Large Hedge Fund Adviser Current Reporting
1. Modify the Current Reporting Filing Deadline
2. Eliminate Current Reporting for Notice of Margin Default or
Determination of Inability To Meet a Call for Margin, Collateral or
Equivalents
3. Streamline Reporting of ``Operations Events''
4. Eliminate Current Reporting for Inability To Satisfy
Redemption Requests
O. Eliminate Form PF Private Equity Quarterly Reporting in
Section 6
P. Other Corrections and Revisions
Q. Request for Comments on Private Credit Reporting
R. Proposed Transition Period
III. Economic Analysis
A. Introduction
B. Baseline
1. Regulatory Baseline
2. Affected Parties
C. Benefits and Costs
1. General Considerations
2. Increase the Filing Threshold for All Form PF Filers
3. Increase the Reporting Threshold for Large Hedge Fund
Advisers
4. Disregarded Feeder Funds
5. Eliminate the Look Through Requirement
6. Trading Vehicles
7. Eliminate Form PF Question 23(c) Volatility Reporting
8. Eliminate Certain Trading and Clearing Reporting
9. Eliminate Form PF Question 32(b)(2) Adjusted Exposure Netting
Based on Internal Methodologies
10. Eliminate Form PF Question 34 Monthly Asset Turnover
Reporting
11. Simplify Industry Concentration Reporting in Form PF
Question 36
12. Eliminate Certain Questions Concerning Qualifying Hedge
Funds' Exposures To Reference Assets
13. Simplify Large Hedge Fund Adviser Counterparty Exposure
Reporting
14. Eliminate Rehypothecation Reporting
15. Amendments to Large Hedge Fund Adviser Current Reporting
16. Eliminate Form PF Private Equity Quarterly Reporting in
Section 6
17. Other Corrections and Revisions
18. Quantification of Benefits
D. Present Values and Annualized Values of Monetized Benefits
and Costs
E. Effects on Efficiency, Competition, and Capital Formation
F. Reasonable Alternatives
1. Filing Threshold
2. Reporting Threshold for Large Hedge Fund Advisers
3. Disregarded Feeder Fund
4. Industry Concentration Reporting
5. Hedge Fund Adviser Counterparty Exposure Reporting
6. Private Equity Quarterly Event Reporting
7. Private Credit Reporting
G. Request for Comment
IV. Paperwork Reduction Act
A. Form PF
1. Purpose and Use of the Information Collection
2. Confidentiality
3. Burden Estimates
B. Request for Comments
V. Regulatory Flexibility Act Certification
VI. Congressional Review Act
VII. Other Matters
VIII. Statutory Authority
I. Introduction
The Commissions are proposing to amend Form PF, the confidential
reporting form that certain SEC-registered investment advisers,
including those that also are registered with the CFTC as a CPO or a
CTA, use to report information about the private funds they advise.\2\
Form PF is a joint form between the SEC and the CFTC with regard to
sections 1 and 2. Sections 3, 4, 5 and 6 were adopted solely by the
SEC. For this proposal, the SEC and the CFTC are jointly amending the
joint sections of the form and the SEC is amending the SEC-only
sections of the form. The proposed amendments would eliminate filing
obligations for certain advisers, eliminate and streamline certain
reporting requirements, and make corrections as well as other
revisions. The proposed amendments are designed to eliminate certain
burdens, among other things, while ensuring Form PF continues to
collect information necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk in the U.S. financial system by the Financial Stability Oversight
Council (``FSOC'').\3\
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\2\ 15 U.S.C. 80b-2(a)(29) (defining ``private fund'').
\3\ See 15 U.S.C. 80b-(b)(1)(A) and 15 U.S.C. 80b-4(b)(5).
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In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the ``Dodd-Frank Act'') mandated that the SEC and the
CFTC, after consultation with FSOC, jointly promulgate rules to
establish the form and content of private fund reports required to be
filed with the SEC under the Advisers Act, and with the CFTC by
investment advisers that are registered both under the Advisers Act and
the Commodity Exchange Act.\4\ The Advisers Act further mandates that
an adviser must maintain records and reports for each private fund it
advises, that include a description of the following: (1) the amount of
assets under management and use of leverage, including off-balance-
sheet leverage; (2) counterparty credit risk exposure; (3) trading and
investment positions; (4) valuation policies and practices of the fund;
(5) types of assets held; (6) side arrangements or side letters,
whereby certain investors in a fund obtain more favorable rights or
entitlements than other investors; (7) trading practices; and (8) such
other information as the SEC, in consultation with FSOC, determines is
necessary and appropriate in the public interest and for the protection
of investors or for the assessment of systemic risk, which may include
the establishment of different reporting requirements for different
classes of fund advisers, based on the type or size of private fund
being advised.\5\
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\4\ Public Law 111-203, 124 Stat. 1376 (2010); 15 U.S.C. 80b-
11(e).
\5\ 15 U.S.C. 80b-(b)(3).
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In response to these mandates, the Commissions adopted Form PF in
2011 and have amended Form PF multiple times, including substantively
in 2023 and 2024.\6\ In 2023, among other things, the SEC added
requirements for (1) large hedge fund advisers to submit current
reports about certain events at their qualifying hedge funds, and (2)
private equity fund advisers to submit certain quarterly reports.\7\
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\6\ Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, Release No. IA-3308 (Oct. 31, 2011), [76 FR 71128 (Nov. 16,
2011)] (``2011 Form PF Adopting Release''); Form PF; Reporting
Requirements for All Filers and Large Hedge Fund Advisers, Release
No. IA-6546 (Feb. 8, 2024), [89 FR 17984 (Mar. 12, 2024)] (``2024
Form PF Adopting Release''); Form PF; Reporting Requirements for All
Filers and Large Hedge Fund Advisers, IA-6865 (Mar. 19, 2025), [90
FR 15394 (Apr. 11, 2025)]; Money Market Fund Reforms; Form PF
Reporting Requirements for Large Liquidity Fund Advisers; Technical
Amendments to Form N-CSR and Form N-1A, Release No. IA-6344 (Jul.
12, 2023), [88 FR 51404 (Aug. 3, 2023)]; Form PF; Event Reporting
for Large Hedge Fund Advisers and Private Equity Fund Advisers;
Requirements for Large Private Equity Fund Adviser Reporting,
Release No. IA-6297 (May 3, 2023), [88 FR 38146 (Jun. 12, 2023)]
(``May 2023 Form PF Adopting Release''); Money Market Fund Reform;
Amendments to Form PF, Release No. IA-3879 (Jul. 23, 2014), [79 FR
47736 (Aug. 14, 2014)].
\7\ May 2023 Form PF Adopting Release; Form PF sections 5 and 6;
Glossary of Terms for the definition of ``qualifying hedge fund.''
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In 2024, the Commissions comprehensively amended Form PF (the
``2024 amendments''), but delayed the compliance date several times,
including most recently until October 1, 2026.\8\ As a result, advisers
have been
[[Page 22234]]
allowed to continue to file the version of Form PF in effect before the
adoption of the 2024 amendments. The Commissions delayed the compliance
date to (1) address certain challenges associated with the reporting
cycle timing, (2) provide the industry more time to comply with the
2024 amendments, and (3) provide the Commissions time to complete a
review in accordance with a Presidential Memorandum issued by President
Donald J. Trump.\9\ Specifically, on January 20, 2025, the President
issued a Presidential Memorandum directing agencies to consider
postponing the effective date of any rules that had been published in
the Federal Register, or that were issued but had not yet taken effect,
for the purpose of reviewing any questions of fact, law, and policy
that the rules may raise. The Presidential Memorandum further provides
that, for those rules that raise substantial questions of fact, law, or
policy, agencies should provide notice and take further appropriate
action.
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\8\ 2024 Form PF Adopting Release; Form PF; Reporting
Requirements for All Filers and Large Hedge Fund Advisers; Further
Extension of Compliance Date, Release No. IA-6919 (Sept. 17, 2025),
[90 FR 45131 (Sept. 19, 2025)]; see also, Form PF; Reporting
Requirements for All Filers and Large Hedge Fund Advisers; Further
Extension of Compliance Date, Release No. IA-6883 (June 11, 2025),
[90 FR 25140 (June 16, 2025)]; Form PF; Reporting Requirements for
All Filers and Large Hedge Fund Advisers; Extension of Compliance
Date, Release No. IA-6838 (Jan. 29, 2025), [90 FR 9007 (Feb. 5,
2025)] (``January 2025 Form PF Extension Release'').
\9\ See id.; Regulatory Freeze Pending Review (Jan. 20, 2025)
[90 FR 8249 (Jan. 28, 2025)], available at https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/ (the ``Presidential Memorandum'').
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In accordance with the Presidential Memorandum, the Commissions
determined to conduct a comprehensive review that extended to the
entire form. As a result of this comprehensive review, we are proposing
several changes to Form PF that are designed to eliminate certain
burdens, streamline certain requirements, and make corrections, as well
as other revisions:
First, we propose to eliminate filing requirements for smaller
advisers, irrespective of the categories of private funds they advise.
Specifically, we propose to raise the filing threshold for all filers,
from $150 million in private fund assets under management to $1
billion.\10\ We estimate that this proposed change would eliminate
filing obligations for almost half of the advisers that currently must
file Form PF.\11\ We further estimate that with this proposed filing
threshold, Form PF would continue to obtain information on over 90
percent of private fund gross asset value that advisers report.\12\
Therefore, this proposed change is designed to eliminate filing burdens
for smaller advisers, while continuing to collect data on a significant
percentage of private fund assets.
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\10\ Proposed rule 204(b)-1(a); proposed Form PF General
Instruction 1; Form PF Glossary of Terms (defining ``private fund
assets under management'').
\11\ See infra, Table 2.
\12\ See infra, Table 2.
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Second, we propose to eliminate certain reporting requirements for
smaller hedge fund advisers. Specifically, we propose to raise the
reporting threshold for large hedge fund advisers from $1.5 billion in
hedge fund assets under management to $10 billion.\13\ We estimate that
this proposed change would eliminate certain reporting obligations for
almost two-thirds of advisers that currently must report as large hedge
fund advisers.\14\ We estimate that with this proposed reporting
threshold, Form PF would continue to obtain information quarterly on
over 80 percent of hedge fund gross asset value that advisers
report.\15\ Therefore, this proposed change is designed to eliminate
certain reporting burdens for smaller hedge fund advisers, while
continuing to obtain information on a substantial portion of the assets
of the hedge fund industry.
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\13\ Form PF General Instruction 3.
\14\ See infra, Table 4.
\15\ Id.
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Third, we propose to eliminate certain requirements, including
quarterly event reporting, certain current reporting, and other
requirements, as well as streamline certain requirements, and make
corrections and other revisions.
Table 1a summarizes the proposed changes to the filing threshold
for all Form PF filers and the reporting threshold for large hedge fund
advisers:
Table 1a--Proposal To Increase Certain Thresholds
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Eliminate filing requirements for We propose to increase the filing
smaller advisers. threshold for all filers from $150
million in private fund assets
under management to $1 billion.
(Rule 204(b)-1(a) and General
Instruction 1.)
Eliminate certain reporting We propose to increase the
requirements for smaller hedge reporting threshold for large
fund advisers. hedge fund advisers from $1.5
billion in hedge fund assets under
management to $10 billion.
(General Instruction 3.)
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Table 1b summarizes the proposed changes to the reporting
obligations:
Table 1b--Proposed Changes To Reporting Obligations
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Eliminate separate reporting for Currently, filers must separately
certain feeder funds. report each component fund of
master-feeder arrangements and
parallel fund structures, except
under certain limited
circumstances.
We propose to eliminate this
separate reporting requirement for
any feeder fund that has de
minimis holdings outside a single
master fund, U.S. treasury bills,
and/or cash and cash equivalents.
(General Instruction 6.)
Eliminate ``look through'' Currently, Form PF provides
requirements. instructions for where a filer
should ``look through'' a
reporting fund's investments in
other private funds and entities.
We propose to eliminate the
prescriptive ``look through''
requirements and allow filers to
report indirect exposures based on
reasonable estimates that are
consistent with their internal
methodologies and the conventions
of service providers. (General
Instructions 7 and 8, and
conforming amendments to certain
questions and asset classes in the
Glossary of Terms.)
Eliminate identification Currently, if a reporting fund
requirements for certain trading holds assets, incurs leverage, or
vehicles. conducts trading or other
activities through a trading
vehicle, the adviser must provide
identifying information about each
such trading vehicle.
We propose to narrow the universe
of trading vehicles that advisers
must identify. (Question 9.)
[[Page 22235]]
Eliminate certain performance Currently, if an adviser calculates
volatility reporting requirements. a market value on a daily basis
for any position in the reporting
fund's portfolio, it must report
certain volatility information
including aggregated calculated
values, monthly annualized
volatility of returns, and other
data associated with the daily
rates-of-return.
We propose to eliminate these
requirements. (Question 23(c).)
Eliminate certain trading and Currently, filers must report how
clearing reporting requirements. they use trading and clearing
mechanisms, including the value
traded over the reporting period
and the value of positions at the
end of the reporting period.
We propose to eliminate the
requirement to report the value of
positions at the end of the
reporting period. (Questions 29
and 30.)
Streamline adjusted exposure Currently, large hedge fund
reporting. advisers must report their
qualifying hedge funds' monthly
adjusted exposures using multiple
methods.
We propose to eliminate one of the
methods, so advisers would no
longer be required to report
additional adjusted exposure based
on the adviser's internal
methodologies. (Question 32.)
Eliminate portfolio turnover Currently, large hedge fund
reporting. advisers must report the value of
their qualifying hedge funds'
monthly turnover by asset class.
We propose to eliminate this
question. (Question 34.)
Reduce burdens associated with Currently, large hedge fund
reporting North American Industry advisers must report their
Classification System (``NAICS'') qualifying hedge funds' monthly
codes. industry exposures when they
exceed a certain amount, using the
six-digit NAICS code that best
describes a company's primary
business activity and principal
source of revenue.
We propose to provide flexibility
to allow filers to report fewer
digits of the NAICS codes for
industry exposures. (Question 36;
see the Glossary of Terms
(defining ``NAICS code.'')
Eliminate certain reporting Currently, large hedge fund
concerning qualifying hedge funds' advisers must report details about
monthly exposures to reference their qualifying hedge funds'
assets and, instead, include monthly concentrated exposure to
streamlined exposure reporting specific, position-level reference
under an existing extraordinary assets.
loss current report trigger. We propose to eliminate those
questions. Instead, if large hedge
fund advisers file a current
report about their qualifying
hedge funds' extraordinary
investment losses, they would
include a description of the
largest exposure contributing to
the loss. (Questions 39 and 40,
and section 5, Item B.)
Simplify certain large hedge fund Currently, large hedge fund
counterparty exposure reporting. advisers must report in a
consolidated counterparty exposure
table their qualifying hedge
funds' borrowing, collateral
received, lending, and posted
collateral, all aggregated across
all counterparties as of the end
of each month.
We propose to eliminate this table
and direct large hedge fund
advisers to: (1) complete the more
simplified table in Question 26
for their qualifying hedge funds;
and (2) report all borrowings to
significant counterparties under
Questions 42 and 43, and (3)
categorize significant borrowing
entries in Question 42. (Questions
41 and 42, and conforming
amendments to Questions 18, 26,
43, and the Glossary of Terms.)
Eliminate rehypothecation reporting Currently, large hedge fund
advisers must report the total
amount of collateral posted by
counterparties to the qualifying
hedge fund that may be and has
been rehypothecated by the
qualifying hedge fund.
We propose to eliminate these
questions. (Question 45.)
Modify the current reporting Currently, section 5 requires large
trigger for all current reports. hedge fund advisers to file a
current report ``as soon as
practicable, but no later than 72
hours'' upon the occurrence of
certain events at their qualifying
hedge fund.
The SEC proposes to modify the
reporting trigger by removing the
requirement to report as soon as
practicable. Under the proposal,
large hedge fund advisers would
have the full 72 hours to file a
current report. (Section 5.)
Eliminate current reporting for Currently, large hedge fund
large hedge fund advisers advisers are required to report
concerning certain margin defaults. within 72 hours if their
qualifying hedge fund is in margin
default or is unable to meet a
call for margin, collateral, or
equivalents.
The SEC proposes to eliminate this
requirement. (Section 5, Item D.)
Eliminate current reporting for Currently, large hedge fund
certain operations events. advisers are required to report
within 72 hours if their
qualifying hedge fund client
experiences an operations event
(i.e., a significant disruption or
degradation of the fund's
``critical operations''). Form PF
defines ``critical operations'' as
operations necessary for (1) the
investment, trading, valuation,
reporting, and risk management of
the reporting fund; or (2) the
operation of the reporting fund in
accordance with the Federal
securities laws and regulations.
The SEC proposes to eliminate the
second element. (Section 5, Item
G, and the Glossary of Terms.)
Eliminate current reporting related Currently, large hedge fund
to the inability to satisfy advisers are required to report
redemption requests. within 72 hours if their
qualifying hedge fund (1) is
unable to pay redemption requests
or (2) has suspended redemptions
and the suspension lasts for more
than five consecutive business
days.
The SEC proposes to eliminate the
first element. (Section 5, Item
I.)
Eliminate quarterly event reporting Currently, all private equity fund
for all private equity fund advisers must submit quarterly
advisers. reports about adviser-led
secondary transactions, general
partner removals, termination of
investment periods, and fund
terminations.
The SEC proposes to eliminate this
requirement. (Section 6.)
Corrections and other revisions.... We propose to make corrections and
other revisions to help ensure
filers clearly understand Form PF
requirements.
Request for comments on private We are requesting comment on
credit reporting. whether to modify the information
that advisers must report about
private credit funds.
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The Commissions have consulted with FSOC to gain input on this
proposal, and to help ensure that Form PF continues to provide FSOC
with information it needs to carry out its monitoring obligations and
its assessment of systemic risk while also not requiring the reporting
of information that is not useful to FSOC in carrying out these
responsibilities.
II. Discussion
A. Increase the Filing Threshold for All Form PF Filers
The Commissions propose to increase Form PF's filing threshold for
all filers. Currently, SEC-registered advisers must
[[Page 22236]]
file Form PF 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.\16\ We propose
to increase this filing threshold from $150 million to $1 billion.\17\
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\16\ Rule 204(b)-1(a); Form PF General Instruction 1.
\17\ Proposed rule 204(b)-1(a); proposed Form PF General
Instruction 1.
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When the Commissions adopted Form PF in 2011, the Commissions set a
filing threshold of $150 million in private fund assets under
management, which aligned with the private fund adviser registration
exemption that the Dodd-Frank Act created.\18\ The Commissions stated
that the filing threshold, based on an adviser's private fund assets
under management, would adequately differentiate between advisers with
only smaller funds and those with significant fund assets.\19\ Since
then, Form PF has provided the Commissions with a greater ability to
analyze and understand data on private fund advisers. With over a
decade of experience reviewing Form PF data, we can more accurately
determine an appropriate filing threshold for assessing systemic risk.
Indeed, Form PF data show that the private fund industry has grown
dramatically. For example, from 2013 to the first quarter of 2025, the
aggregated private fund gross asset value that advisers reported on
Form PF more than tripled, from $8 trillion to over $25 trillion.\20\
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\18\ See 15 U.S.C. 80b-3(m); 17 CFR 275.203(m)-1; 2011 Form PF
Adopting Release.
\19\ 2011 Form PF Adopting Release at n.54.
\20\ SEC staff Private Fund Statistics (Dec. 15, 2015) and SEC
staff Private Fund Statistics (First Calendar Quarter 2025),
available at https://www.sec.gov/data-research/statistics-data-visualizations/private-fund-statistics. 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.
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As Table 2 shows, we estimate that the proposed filing threshold
would continue to allow Form PF to obtain information on approximately
94 percent of the most recent aggregate private fund gross asset value
reported, while reducing the percentage of advisers that are required
to file by almost half. Therefore, this proposed change is designed to
better differentiate those advisers with significant private fund
assets, consistent with the Commissions' original intent for the filing
threshold.\21\
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\21\ 2011 Form PF Adopting Release at n.54.
Table 2--Comparing the Current Filing Threshold to the Proposed Filing Threshold \1\
----------------------------------------------------------------------------------------------------------------
Current
$150 Proposed $1
million billion Impact \2\
threshold threshold
(%) (%)
----------------------------------------------------------------------------------------------------------------
Percent of All SEC-Registered Advisers to 70 40 43% fewer advisers would file.
Private Funds.
Percent of All Private Funds Reported by SEC- 83 68 18% fewer private funds' data would be
Registered Advisers \3\. reported.
Percent of Private Fund Gross Assets Reported 96 94 2% less gross asset value would be
by SEC-Registered Advisers \3\. reported.
----------------------------------------------------------------------------------------------------------------
Notes:
1. Form PF data as of the first quarter of 2025 and Form ADV data as of December 2024.
2. Impact Column = (Current Threshold Column-Proposed Threshold Column)/Current Threshold Column.
3. Denominators for the Current Threshold Column and the Proposed Threshold Column calculations include private
funds reported on Form PF and Form ADV by SEC-Registered Advisers.
In determining how to propose re-calibrating the filing threshold,
the Commissions considered the alternatives outlined in Table 3 and the
distribution of private fund assets across advisers with the goal of
ensuring coverage of a significant percentage of private fund industry
managed assets, while at the same time minimizing filing burdens on
private fund advisers where their smaller size may both
disproportionately increase the burdens of reporting and reduce their
likelihood of having a meaningful effect on the assessment of systemic
risk.\22\
---------------------------------------------------------------------------
\22\ See also infra section III.C.2 for a more detailed
discussion of benefits and costs of increasing the filing threshold
for all Form PF filers.
---------------------------------------------------------------------------
As evidenced by Table 3, the percentage of private fund gross
assets reported by SEC-registered advisers is concentrated with the
largest private fund advisers (measured by assets) of the private fund
industry as a whole, which would allow us to raise the reporting
threshold while maintaining substantial reporting coverage of the
private fund industry by assets. However, setting the threshold too
high has the potential to narrow the field of reporting advisers to a
degree that they skew or fail to represent the range of private fund
strategies and activities that may materially inform systemic risk
assessment and investor protection efforts. Therefore, as Table 3
highlights, the proposed filing threshold is designed to strike a
balance between reducing the percentage of advisers that would be
required to file, and the associated burdens, while helping ensure that
Form PF would continue to collect information about a significant
percentage of private fund gross assets appropriately to inform the
assessment of systemic risk.
By increasing the Form PF filing threshold as proposed, the burdens
of Form PF's section 1 collection of information would be more focused
on advisers that manage private fund assets representing a significant
percentage of the private fund industry and, thus, providing a diverse
and representative view of private fund advisers for systemic risk
assessment, while recognizing that Form PF can be burdensome for
smaller advisers that the Commissions understand generally have fewer
resources available to fulfil the reporting requirements of Form PF and
who are less likely to have systemic risk impact.
As Table 3 indicates, by raising the filing threshold to $1
billion, we would be able to maintain insight into the potential
systemic risk implications of private funds while eliminating filing
burdens for many advisers.
[[Page 22237]]
Table 3--Alternative Filing Thresholds \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of all SEC- Percent of all private funds Percent of private fund
Filing threshold registered advisers to reported by SEC-registered gross assets reported by SEC-
private funds advisers \2\ registered advisers \2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current $150 Million.......................................... 70 83 96
Alternative $250 Million...................................... 64 83 96
Alternative $500 Million...................................... 53 76 95
Proposed $1 Billion........................................... 40 68 94
Alternative $2 Billion........................................ 30 60 91
Alternative $3 Billion........................................ 25 55 89
Alternative $4 Billion........................................ 22 51 87
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes
\1\ Form PF Data as of the First Quarter of 2025 and Form ADV data as of December 2024.
\2\ Denominators for the calculations include private funds reported on Form PF and Form ADV by SEC-Registered Advisers.
SEC-registered advisers that would no longer meet the Form PF
filing threshold, and as a result, would no longer be required to
report on Form PF, would nonetheless continue to publicly report
certain information about their private funds on 17 CFR 279.1 (Form
ADV), as all SEC-registered advisers of such funds are required to do.
Form ADV, which is publicly available, provides the SEC and investors
with information about advisers (including private fund advisers) and
the funds they manage, and is designed to provide the SEC with
information necessary to its investor protection efforts. In contrast,
Form PF is primarily designed to facilitate FSOC's assessment of
systemic risk, although it is available to assist the Commissions in
their regulatory programs for the protection of investors.\23\
Accordingly, the proposed changes would not eliminate all private fund
data reporting for the affected advisers. Any SEC-registered adviser
that would no longer be required to file Form PF would nonetheless
continue to report information about its private funds on Form ADV.\24\
---------------------------------------------------------------------------
\23\ See 15 U.S.C. 80b-4(b)(1)(A);15 U.S.C. 80b-4(b)(5); Form
PF.
\24\ These advisers also must continue to comply with the
Adviser Act's mandate to maintain certain enumerated records and
reports for each private fund. See 15 U.S.C. 80b-4(b)(3).
---------------------------------------------------------------------------
We request comment on the proposed change to the filing threshold:
1. Should the Commissions increase the filing threshold for all
private fund advisers as proposed? If not, should the current filing
threshold be kept constant, increased less than the proposed threshold,
or increased more than the proposed threshold? Should the Commissions
adopt any of the alternative thresholds presented in Table 3? For
example, should the Commissions adopt a filing threshold of $250
million, $500 million, $2 billion, or $3 billion? If the threshold
should be changed, what is the appropriate threshold and why?
2. Would the proposal to increase the filing threshold sufficiently
alleviate burdens on private fund advisers? Please provide quantitative
and qualitative data to support your conclusion.
3. Would the proposed filing threshold result in Form PF collecting
information about the private fund industry necessary and appropriate
in the public interest and for the protection of investors, or for the
assessment of systemic risk?
4. Should the Commissions also adopt a filing threshold that
adjusts for inflation? If the Commissions should adopt an inflation
adjustment for the filing threshold, how should the Commissions measure
the inflation adjustment? For example, should the Commissions measure
the inflation adjustment from the time of the filing threshold's
original adoption in 2011, or from the date the inflation adjustment
would be adopted, or from another date? Is there a price index, such as
the Personal Consumption Expenditures Chain-Type Price Index, the
Consumer Price Index for All Urban Consumers, the Producer Price Index,
or the GDP Price Deflator, that would be best suited for this
adjustment? Would using a securities market index such as the S&P 500
or the NYSE Composite Index, which is not based on inflation, be a
better way to adjust the filing threshold on an ongoing basis? At what
cadence should the inflation be adjusted? For example, yearly, or every
ten years, or any other cadence?
B. Increase the Reporting Threshold for Large Hedge Fund Advisers
The Commissions also propose to increase Form PF's reporting
threshold for large hedge fund advisers. Currently, to qualify as a
large hedge fund adviser, a Form PF filer and its related persons must
have, collectively, 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 their most recently completed fiscal quarter and
manage a qualifying hedge fund.\25\ We propose to increase the large
hedge fund reporting threshold from $1.5 billion to $10 billion.\26\
---------------------------------------------------------------------------
\25\ Form PF General Instruction 3; Form PF Glossary of Terms
(defining ``hedge fund assets under management'').
\26\ Proposed Form PF General Instruction 3.
---------------------------------------------------------------------------
If an adviser qualifies as a large hedge fund adviser, it must file
section 1 quarterly, instead of annually as it would if it were a hedge
fund adviser that did not qualify as a large hedge fund adviser.\27\
Section 1a requires all advisers to report general identifying
information about themselves and the private funds they advise,
including a breakdown of regulatory assets under management and net
assets under management. Section 1b requires all advisers to report
information about each private fund they advise, including the
following: (1) the private fund type; (2) assets, financing, and
investor concentration; and (3) performance. Section 1c requires all
advisers to report information about each hedge fund they advise,
including the following: (1) investment strategies; (2) exposures; (3)
counterparties; and (4) trading and clearing mechanisms.
---------------------------------------------------------------------------
\27\ Form PF General Instruction 9.
---------------------------------------------------------------------------
If an adviser qualifies as a large hedge fund adviser, it also must
file Form PF section 2 quarterly with respect to each qualifying hedge
fund that it advises, including the following: (1) identifying
information; (2) exposures and trading; (3) risk metrics and
performance; (4) financing information; and (5) investor
information.\28\
---------------------------------------------------------------------------
\28\ Form PF General Instruction 3 and Form PF section 2.
---------------------------------------------------------------------------
If an adviser qualifies as a large hedge fund adviser, it is also
subject to Form PF Section 5 reporting, which requires a large hedge
fund adviser to report information as soon as practicable, but no later
than 72 hours upon the occurrence of certain events at qualifying hedge
funds it advises,
[[Page 22238]]
including the following: (1) extraordinary investment losses; (2)
margin, collateral, or equivalent increases; (3) notice of margin
default or determination of inability to meet a call for margin,
collateral, or equivalents; (4) counterparty defaults; (5) prime broker
relationships that have been terminated or materially restricted; (6)
operations events; (7) withdrawals and redemptions; and (8) if the
qualifying hedge fund is unable to satisfy redemptions or suspends
redemptions.
Therefore, an adviser that would no longer qualify as a large hedge
fund adviser under the proposed threshold would file section 1
annually, instead of quarterly, and would not file section 2 or be
subject to section 5 current reporting, absent any other
requirements.\29\ While the quarterly section 1, quarterly section 2,
and section 5 current reporting are important for the largest hedge
fund advisers that are more likely to be systemically important, they
can impose disproportionate burdens on smaller advisers that are less
likely to be systemically important.\30\ Any SEC-registered adviser
would continue to report information about its private funds on Form
ADV.\31\
---------------------------------------------------------------------------
\29\ For example, large liquidity fund advisers must file
section 1 quarterly, among other requirements. See Form PF General
Instruction 9.
\30\ See infra section III.C.3 for a more detailed discussion of
benefits and costs of increasing the reporting threshold for large
hedge fund advisers.
\31\ See supra footnote 24.
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When Form PF was originally adopted, the Commissions stated that
the reporting thresholds were designed so that the group of large
private fund advisers (including large hedge fund advisers) filing Form
PF would be relatively small in number but would represent a
substantial portion of the assets of their respective industries.\32\
At that time, the Commissions estimated that advisers each managing at
least $1.5 billion in hedge fund assets represented over 80 percent of
the U.S. hedge fund industry based on assets under management.\33\
---------------------------------------------------------------------------
\32\ 2011 Form PF Adopting Release at text after n.87.
\33\ 2011 Form PF Adopting Release at n.88 and accompanying
text.
---------------------------------------------------------------------------
As Table 4 shows, we estimate that the proposed higher threshold
would still result in Form PF obtaining information quarterly on over
80 percent of hedge fund gross asset value that advisers report, while
reducing the percentage of advisers that are required to file as large
hedge fund advisers by almost two-thirds. Therefore, the proposed
change is designed to continue to obtain information on a substantial
portion of the assets of the hedge fund industry, consistent with the
Commission's original intent for the large hedge fund reporting
threshold, while reducing burdens on hedge fund advisers.
Table 4--Comparing the Current Large Hedge Fund Reporting Threshold to the Proposed Reporting Threshold \1\
----------------------------------------------------------------------------------------------------------------
Current $1.5 Proposed $10
billion billion Impact \2\
threshold (%) threshold (%)
----------------------------------------------------------------------------------------------------------------
Percent of SEC-registered advisers 26 9 65% fewer advisers would be
reporting as large hedge fund advisers. required to report as large hedge
fund advisers.
Percent of hedge funds reported by large 49 34 Data on 31% fewer hedge funds would
hedge fund advisers related to those be reported under the large hedge
reported by all SEC-registered advisers fund adviser requirements, and
\3\. instead would be reported under
other requirements, as applicable.
Percent of hedge fund gross assets reported 92 81 12% less of hedge fund gross asset
by large hedge fund advisers related to value would be reported under the
those reported by all SEC-registered large hedge fund adviser
advisers \3\. requirements, and instead would be
reported under other requirements,
as applicable.
----------------------------------------------------------------------------------------------------------------
Notes:
1. Form PF data as of the first quarter of 2025 and Form ADV data as of December 2024.
2. Impact Column = (Current Threshold Column-Proposed Threshold Column)/Current Threshold Column.
3. Denominators for the Current Threshold Column and the Proposed Threshold Column calculations include hedge
funds reported on Form PF and Form ADV by SEC-Registered Advisers.
We chose the proposed reporting threshold in light of the
alternatives outlined below in Table 5, with the goal of helping ensure
that Form PF would continue to collect information necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of systemic risk, while reducing burdens on hedge
fund advisers.\34\ As in the past, the proposed amended reporting
threshold is designed so that the group of large hedge fund advisers
filing Form PF would be relatively small in number but represent a
substantial portion of hedge fund assets.\35\ In determining where to
propose re-calibrating the reporting threshold, the Commissions
considered the alternatives outlined in Table 5 and the distribution of
hedge fund assets with the goal of ensuring coverage of a substantial
portion of hedge fund assets, while at the same time minimizing filing
burdens on hedge fund advisers where their smaller size may both
increase the burdens of reporting and reduce their likelihood of having
a meaningful effect on the assessment of systemic risk.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 80b-4(b)(1)(A) and 15 U.S.C. 80b-4(b)(5).
\35\ See 2011 Form PF Adopting Release at text following n.87.
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As evidenced by Table 5, the percent of hedge fund gross assets
reported by SEC-registered hedge fund advisers is concentrated at the
largest hedge fund advisers, which would allow us to raise the
reporting threshold while maintaining substantial reporting coverage of
the hedge fund industry assets. However, setting the threshold too high
has the potential to narrow the field of large hedge fund advisers to a
degree that they skew or fail to represent the range of hedge fund
strategies and activities that may materially inform systemic risk
assessment. As a result, FSOC and the Commissions could miss emerging
trends in the hedge fund industry. Furthermore, too few hedge fund
advisers subject to quarterly reporting, instead of annual reporting,
as well as enhanced Form PF reporting in sections 2 and 5, could result
in
[[Page 22239]]
FSOC and the Commissions being alerted in a less timely manner to
certain events that may indicate significant stress at a hedge fund
that could signal risk in the broader financial system. Therefore, as
Table 5 highlights, the proposed reporting threshold is designed to
strike the appropriate balance between reducing the percentage of hedge
fund advisers that would be required to file as large hedge fund
advisers, while helping ensure that Form PF would continue to collect
information on a substantial portion of the assets of the hedge fund
industry.
In addition, the SEC is proposing to require its staff to report to
the SEC on each filing and reporting threshold in the form, assessing
whether any should be adjusted, approximately five years after the
compliance date for the amendments to the form and approximately every
five years thereafter.\36\ These staff reports would help the SEC
periodically evaluate the continued appropriateness of the filing and
reporting thresholds in all respects, including whether proposing
revisions to the thresholds would be appropriate. In producing this
report, the staff would be directed to consider data collected by the
SEC pursuant to Form PF, as well as any other applicable information as
the staff may determine to be appropriate for its analysis. As the
private fund adviser industry grows and changes, such a report and
related review would be designed to ensure that the form continues to
impose minimal filing burdens for small advisers, while continuing to
collect data on a significant percentage of private fund assets.\37\
---------------------------------------------------------------------------
\36\ Proposed rule 204(b)-1(h).
\37\ See also 15 U.S.C. 80b-4(b)(3)(H) (providing that the
reports required by an investment adviser for each private fund
advised by the investment adviser, among other matters, may include
the establishment of different reporting requirements for different
classes of fund advisers, based on the type or size of private fund
being advised).
Table 5--Alternative Large Hedge Fund Reporting Thresholds \1\
----------------------------------------------------------------------------------------------------------------
Percent of hedge
Percent of all Percent of all fund gross Percent of hedge
SEC-registered hedge funds assets reported fund gross assets
Reporting threshold advisers to reported by SEC- quarterly by SEC- reported as QHFs
hedge funds registered registered by SEC-registered
advisers \2\ advisers \2\ advisers \2\ \3\
----------------------------------------------------------------------------------------------------------------
Current $1.5 Billion.................. 26 49 92 84
Alternative $2 Billion................ 22 47 91 83
Alternative $3 Billion................ 19 44 90 82
Alternative $5 Billion................ 14 41 86 79
Alternative $7.5 Billion.............. 11 37 83 76
Proposed $10 Billion.................. 9 34 81 74
Alternative $15 Billion............... 7 29 77 70
Alternative $20 Billion............... 6 27 74 68
----------------------------------------------------------------------------------------------------------------
Notes:
1. Form PF Data as of the First Quarter of 2025 and Form ADV data as of December 2024.
2. Denominators for the calculations include hedge funds reported on Form PF and Form ADV by SEC-Registered
Advisers.
3. Reported by SEC-registered advisers for qualifying hedge funds (QHFs) on Form PF section 2.
We request comment on the proposed change to the large hedge fund
reporting threshold:
5. Should the Commissions increase the large hedge fund adviser
reporting threshold, as proposed? If not, should the current reporting
threshold be kept constant, increased less than the proposed threshold,
or increased more than the proposed threshold? Instead of the proposed
reporting threshold, should the Commissions adopt one of the
alternative thresholds listed in Table 5? For example, should the
Commissions adopt a reporting threshold of $2 billion, $3 billion, $15
billion, or $20 billion? If the threshold should be changed, what is
the appropriate threshold and why?
6. Would the proposal to increase the reporting threshold
sufficiently alleviate burdens on hedge fund advisers? Please provide
quantitative and qualitative data.
7. Would the proposed reporting threshold result in Form PF
collecting information about the hedge fund industry necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of systemic risk?
8. The SEC is proposing to require its staff to report to the SEC
on each filing and reporting threshold in the form, assessing whether
any should be adjusted, approximately five years after the compliance
date for the amendments to the form and approximately every five years
thereafter. Alternatively, should the Commissions adopt a large hedge
fund adviser reporting threshold that adjusts for inflation? If so,
should the Commissions adopt the same inflation adjustment for all or
just certain reporting thresholds in Form PF, or only for the large
hedge fund adviser threshold? If the Commissions should adopt an
inflation adjustment for any reporting threshold on Form PF, how should
the Commissions measure the inflation adjustment? For example, should
the Commissions measure the inflation adjustment from the time of the
reporting threshold's original adoption in 2011, or from the date the
inflation adjustment would be adopted, or from another date? Is there a
price index, such as the Personal Consumption Expenditures Chain-Type
Price Index, the Consumer Price Index for All Urban Consumers, the
Producer Price Index, or the GDP Price Deflator, that would be best
suited for this adjustment? Would using a securities market index such
as the S&P 500 or the NYSE Composite Index, which is not based on
inflation, be a better way to adjust the reporting threshold on an
ongoing basis? At what cadence should the inflation be adjusted? For
example, yearly, or every ten years, or any other cadence?
9. Should the Commissions increase the qualifying hedge fund
threshold? Why or why not? What is the appropriate qualifying hedge
fund threshold (e.g., a net asset value of $750 million or $1 billion)?
The qualifying hedge fund threshold is based on net asset value, while
the large hedge fund adviser threshold is based on gross asset
[[Page 22240]]
value. Under the proposed amendments this construction would have two
results: (1) it identifies and requires more detailed and frequent
reporting for hedge fund advisers that manage several large hedge funds
and (2) it identifies and requires more detailed and frequent reporting
for hedge fund advisers that manage hedge funds with significant use of
leverage. Is there an alternative approach to ensure hedge funds using
significant leverage are reporting in the more detailed section 2 on a
quarterly basis? If we increased the qualifying hedge fund threshold,
should we change the threshold to measure on a gross asset value basis
so that it does not disproportionately eliminate more frequent and
detailed reporting from more leveraged hedge funds?
10. Should the Commissions increase the large liquidity fund
adviser threshold? Why or why not? If so, what is the appropriate
threshold for large liquidity fund advisers (e.g., $2 billion, $3
billion, $5 billion)?
11. Should the Commissions increase the large private equity fund
adviser threshold? Why or why not? If so, what is the appropriate
threshold for large private equity fund advisers (e.g., $3 billion, $5
billion)?
C. Disregarded Feeder Funds
The Commissions propose to allow advisers not to separately report
feeder funds with minimal holdings outside of a feeder fund's interest
in a master fund. Specifically, the Commissions propose to revise
General Instruction 6 to permit advisers to treat a feeder fund as
``disregarded'' if it invests not more than five percent of its gross
asset value in investments that are not in a single master fund, U.S.
treasury bills, and/or cash and cash equivalents.\38\ This proposed
change is designed to reduce filing burdens on advisers and better
balance against the need for the Commissions and FSOC to understand the
reporting fund's structure and the risk exposure of its component
funds.\39\
---------------------------------------------------------------------------
\38\ See proposed Form PF General Instruction 6.
\39\ See infra section III.C.4 for a more detailed discussion of
the benefits and costs of the proposed change to Form PF General
Instruction 6.
---------------------------------------------------------------------------
Prior to the 2024 amendments, Form PF provided 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 did so consistently throughout Form PF.
This resulted in some advisers reporting in aggregate and some advisers
reporting separately, and consequently, obscured risk profiles (e.g.,
with respect to leverage, counterparty exposure, investor liquidity)
and created difficulties when comparing complex structures.\40\
---------------------------------------------------------------------------
\40\ See 2024 Form PF Adopting Release at section II.A.1.
---------------------------------------------------------------------------
In 2024, the Commissions adopted amendments to Form PF that
generally require separate reporting for every component fund of a
master-feeder arrangement and parallel fund structure.\41\ By
prescribing the way advisers report master-feeder arrangements and
parallel fund structures, the 2024 amendments were intended to provide
the Commissions and FSOC with better insight into the risks and
exposures of these arrangements. The 2024 amendments, however, required
disregarded feeder funds to be aggregated in the reporting about
master-feeder arrangements and parallel fund structures. Defined in
General Instruction 6 as a feeder fund that invests all of its assets
in a single master fund, U.S. treasury bills,\42\ and/or cash and cash
equivalents, a ``disregarded feeder fund'' effectively invests only
through its associated master fund, and the Commissions stated that
separate reporting of these funds is not necessary for data analysis
purposes because it would not convey additional information about their
exposures.\43\
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\41\ See current Form PF General Instruction 6.
\42\ See 2024 Form PF Adopting Release at n.25 (explaining that
U.S. treasury bills, which are direct obligations of the U.S.
Government with a maturity of one year or less, are ``sufficiently
cash-like'' for purposes of the Commissions' reporting and data
analysis).
\43\ See 2024 Form PF Adopting Release at section II.A.1.
---------------------------------------------------------------------------
Since the adoption of the 2024 amendments, industry members have
highlighted the significance of the burdens associated with
disaggregating feeder funds in their reporting.\44\ In communications
with the SEC staff, several filers have stated that many private funds
utilize complex master-feeder arrangements, and that separate reporting
of feeder funds without additional exceptions would cause substantial
burdens because it requires the collection of many more data points
about many more fund entities in these private fund structures.\45\
Some filers said feeders that hold minimal holdings outside of the
master fund should be disregarded, as the de minimis amount of these
outside assets do not alter the risk picture of the feeder. These
filers stated that disaggregated reporting does not reflect how
advisers typically manage risk and liquidity for these funds, and that
reporting instructions should align with advisers' typical risk
management practices in order to result in meaningful and accurate
data.\46\
---------------------------------------------------------------------------
\44\ See, e.g., Comment Letter of the Alternative Investment
Management Association (June 10, 2025).
\45\ See, e.g., Comment Letter of Managed Funds Association
(Mar. 11, 2025).
\46\ See id.
---------------------------------------------------------------------------
In response to these concerns, we are proposing to change General
Instruction 6 to allow advisers to aggregate in their reporting about
master-feeder arrangements feeder funds that hold a de minimis amount
of investments outside of the master fund.\47\ Under the proposed
change to General Instruction 6, advisers would be able to treat a
feeder fund that invests not more than five percent of its gross asset
value \48\ in other investments that are not in a single master fund,
U.S. treasury bills, and/or cash and cash equivalents, as a disregarded
feeder fund. Accordingly, advisers would be permitted to aggregate such
feeder funds in their reporting about master-feeder arrangements on
Form PF. In our view, five percent is an appropriate threshold because
it parallels the threshold used in other parts of Form PF to represent
a fund's material exposure and a level of exposure that could be
significant enough to present broader systemic risk and contagion
risk.\49\ The proposed change seeks to better align the Form PF
reporting requirements with the way advisers typically track and manage
the risk profile of feeder funds while preserving the Commissions and
FSOC's ability to obtain a clear understanding of fund structures and
the risk exposure of their component funds.\50\
---------------------------------------------------------------------------
\47\ The proposal also includes changes to Example 1 in General
Instruction 6 to illustrate the application of the proposed de
minimis exception.
\48\ Form PF instructs advisers to calculate gross asset value
in accordance with Part 1A, Instruction 6.e(3) of Form ADV, which
requires using regulatory assets under management. Instructions for
calculating regulatory assets under management are found in Part 1A,
Instruction 5.b of Form ADV. See ``gross asset value'' and
``regulatory assets under management'' as defined in Form PF
Glossary of Terms; Form ADV: Instructions for Part 1A, Instruction
5.b and Instruction 6.e(3). 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.
\49\ See, e.g., current Questions 27, 28, 32, 33, 35, 36, 42,
43, 44, 57 of Form PF; 2024 Form PF Adopting Release at section
II.B.3 and section II.C.2. See also infra section III.F.3for a
discussion of reasonable alternatives to this threshold and infra
section III.C.4 for further discussion of the benefits and costs of
the proposed de minimis exception.
\50\ See also infra section III.C.4 (explaining that the impact
of the proposed change would be mitigated by the ``look through''
requirements we are retaining for reporting at the master fund
level).
---------------------------------------------------------------------------
We request comment on the proposed change to General Instruction 6:
[[Page 22241]]
12. Would the proposed change to General Instructions 6
sufficiently alleviate burdens on private fund advisers?
13. Would the proposed change to General Instruction 6 result in
the collection of information about private fund structures and the
risk exposure of their component funds necessary and appropriate in the
public interest and for the protection of investors, or for the
assessment of systemic risk?
14. Would the proposed change to General Instruction 6 result in
certain feeder funds that are necessary to assess systemic risk not
being identified in the form? If so, how?
15. Is five percent the appropriate threshold for disregarding
feeder funds with minimal holdings outside of the master fund? Why or
why not? What other percentages (e.g., three percent, ten percent) or
methods should the Commissions consider for purposes of identifying
disregarded feeder funds that are not necessary and appropriate for the
assessment of systemic risk? For example, should we allow filers to
treat any feeder fund as disregarded if the filer does not separately
consider the feeder fund and its exposures for its risk management
purposes? Should we allow, as was the case prior to the 2024
amendments, filers to choose whether to respond to questions in the
aggregate or separately, as long as they did so consistently through
Form PF? Why or why not?
16. Is ``gross asset value,'' as defined in the Form PF Glossary of
Terms, the appropriate denominator for disregarding feeder funds with
minimal holdings outside of the master fund? Why or why not? What
alternatives should the Commissions consider as the denominator for
purposes of disregarding feeder funds that are not necessary and
appropriate for the assessment of systemic risk?
17. Are there types of investments or features of feeder funds that
should be considered in permitting aggregation?
18. Is the proposed change to the definition of disregarded feeder
fund in General Instruction 6 sufficiently clear? Would this raise any
questions about how to determine which feeder funds should be
disregarded for purposes of General Instruction 6? Should we provide
any additional clarification regarding which feeder funds should be
disregarded for purposes of General Instruction 6?
D. Eliminate the Look Through Requirement
The Commissions propose changes to Form PF that would allow
advisers to report indirect exposures based on reasonable estimates
that are consistent with their internal methodologies and the
conventions of service providers when responding to certain questions
that currently require looking through the reporting fund's
investments. Specifically, the Commissions propose to eliminate from
General Instructions 7 and 8 the prescriptive requirement that advisers
``look through'' the reporting fund's investments when reporting
indirect exposures and to instead allow advisers to rely on reasonable
estimates consistent with their internal methodologies and conventions
of service providers when reporting indirect exposures.\51\ The
Commissions also propose conforming amendments to the instructions for
Questions 32, 33, 35, 36, and 47, and to amend the definitions of
certain asset classes in the Glossary of Terms, to allow advisers to
report indirect exposures consistent with the amended General
Instructions 7 and 8. These changes are intended to reduce and better
balance the filing burdens on advisers against the need to obtain clear
and comparable data across advisers.
---------------------------------------------------------------------------
\51\ This proposal, however, would retain the instruction in
current General Instruction 7 that advisers must include (look
through to) the trading vehicle's holdings for all questions
answered by the reporting fund.
---------------------------------------------------------------------------
In 2024, the Commissions adopted amendments to General Instructions
7 and 8 to provide that, when responding to questions, advisers
generally must not ``look through'' a reporting fund's investments in
other funds or entities (other than a trading vehicle), unless the
question instructs the adviser to report exposure obtained indirectly
through the reporting fund's positions in such other funds or entities.
In reporting indirect exposures of the reporting fund in response to
certain questions (Questions 32, 33, 35, 36 and 47), General
Instruction 7 requires advisers to ``look through'' the reporting
fund's investments in internal private funds and external private
funds. Likewise, General Instruction 8 requires advisers to ``look
through'' the reporting fund's investments in other funds or entities
when reporting indirect exposures in response to those same questions.
Prior to the 2024 amendments, Form PF generally did not address how
to report indirect exposures resulting from positions held through
other entities, and advisers were not required to (although they had
the option to) look through a reporting fund's investments in another
entity, unless the form specifically requested information regarding
that entity.\52\ As a result, some advisers were reporting indirect
exposures, while others were not, leading to incomplete and unclear
data, inconsistent comparisons, and less precise analysis across
advisers. The 2024 amendments changed General Instructions 7 and 8 to
direct advisers to report indirect exposures in response to certain
questions by mandatorily looking through the reporting fund's
investments in private funds and other entities. These changes were
designed to promote FSOC's effective systemic risk assessments and the
Commissions' investor protection efforts by reducing issues of data
quality and incomparability with respect to data regarding indirect
exposures of private funds.
---------------------------------------------------------------------------
\52\ See 2024 Form PF Adopting Release at section II.A.2.
---------------------------------------------------------------------------
After the adoption of the 2024 amendments, however, industry
members reported that the rigid and granular reporting required via
this mandatory look-through would create significant burdens and in
many cases would be operationally difficult.\53\ For example, several
filers noted that looking through a reporting fund's investment in an
exchange-traded fund (an ``ETF'') to calculate the reporting fund's
indirect exposure to each underlying investment in the ETF could be
particularly burdensome in instances where the ETF tracks and
continuously rebalances a broad index comprising potentially hundreds
of underlying investments. Other filers stated that the methodology for
determining the exact composition of an index may be proprietary and
not controlled by the adviser.
---------------------------------------------------------------------------
\53\ See, e.g., Comment Letter of the Alternative Investment
Management Association (Sept. 5, 2025) (``AIMA Letter II'').
---------------------------------------------------------------------------
We also heard concerns that looking through the reporting fund's
investments in other entities, such as investments in another private
fund that in turn invests in portfolio companies, private credit
instruments, or securitized assets, could be operationally challenging,
if the adviser does not control those entities and therefore has
limited access to information regarding the underlying investments, or
the data that the adviser does obtain does not align with the timing
and reporting requirements of Form PF.
In consideration of these concerns, we are now proposing changes to
General Instructions 7 and 8 to eliminate the prescriptive requirement
that advisers ``look through'' the reporting fund's investments when
reporting indirect exposures and to instead allow advisers to report
required indirect exposures based on reasonable estimates that are
consistent with the adviser's internal
[[Page 22242]]
methodologies and conventions of service providers. We are also
proposing amendments to Questions 32, 33, 35, 36 and 47 to remove
instructions that reasonable estimates used to report indirect
exposures, and that indirectly held entity positions in a sub-asset
class and instrument type, must ``best represent'' the exposure of the
entity \54\ or the sub-asset class exposure of the indirectly held
entity.\55\ The prescriptive look-through requirement in General
Instructions 7 and 8 as well as the ``best represent'' standard in the
specific questions' instructions for reporting indirect exposures would
create burdens for advisers to conduct look-through for assessing
indirect exposures even though they may reasonably and more efficiently
estimate such indirect exposures in their own portfolio and risk
management processes. The proposed changes are intended to provide
advisers the ability to rely on reasonable estimates to report indirect
exposures, provided they are consistent with their internal
methodologies and the conventions of service providers.\56\ For
example, with respect to a reporting fund's investment in a gold ETF,
the proposed changes would allow advisers to estimate the reporting
fund's exposure through an ETF more broadly (e.g., ``gold commodities''
sub-asset class) to the extent consistent with their own portfolio and
risk management processes.
---------------------------------------------------------------------------
\54\ See proposed Questions of 33, 35, 36, and 47 of Form PF.
\55\ See proposed Question 32 of Form PF.
\56\ See infra section III.C.5 for further discussion of the
anticipated cost savings to advisers that would result from the
proposed changes to General Instructions 7 and 8.
---------------------------------------------------------------------------
Relatedly, the Commissions propose conforming amendments to align
other parts of the form with the proposed General Instructions 7 and 8.
The proposed changes would include conforming amendments to Question 32
and Question 47 to remove certain references to indirectly held
``positions.'' \57\
---------------------------------------------------------------------------
\57\ See proposed Question 32 and Question 47 of Form PF.
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The Commissions also propose to revise definitions of certain asset
classes in the Form PF's Glossary of Terms to explicitly subject those
definitions to proposed General Instructions 7 and 8.\58\ As part of
the 2024 amendments, Form PF defined these asset classes also requiring
the reporting fund to look through to indirect exposures to such assets
held through another entity. The proposed definitional changes are
intended to allow advisers, consistent with General Instructions 7 and
8, to use their reasonable estimates that are consistent with the
adviser's internal methodologies and conventions of service providers
for such indirect exposures. These proposed changes would also help to
resolve any inconsistencies between the instructions in the definitions
of these terms and General Instructions 7 and 8.
---------------------------------------------------------------------------
\58\ See proposed Form PF Glossary of Terms (definitions of
``agency securities,'' ``commodities,'' ``convertible bonds,''
``corporate bonds,'' ``GSE bonds,'' ``leveraged loans,'' ``listed
equity,'' ``other commodities,'' ``sovereign bonds,'' ``unlisted
equity,'' and ``US treasury securities'').
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Furthermore, the Commissions propose to make a conforming change to
the definition of ``reference asset'' in the Form PF Glossary of Terms
by removing the phrase ``and do not conflict with any instructions or
guidance relating to this Form,'' which would be unnecessary with the
proposed changes to General Instructions 7 and 8 that would allow for
the use of reasonable estimates consistent with internal methodologies
to report indirect exposures.\59\
---------------------------------------------------------------------------
\59\ See proposed Form PF Glossary of Terms (definition of
``reference asset''). The Commissions also propose to revise the
definition of ``reference asset'' to add ``e.g.,'' in front of
``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-U.S. registered investment companies,
internal private funds, external private funds, commodity pools, or
other companies, fund or entities))'' in order to help filers
understand that these are examples, not a prescriptive nor
comprehensive list, of ways a reporting fund may have exposure to a
reference asset.
---------------------------------------------------------------------------
Although the proposed changes to General Instructions 7 and 8 (and
related conforming changes) would lead to more filers using their
internal practices to report indirect exposures and to do so less
precisely, thus potentially reducing the level of specificity and
comparability of indirect exposures through fund or entity holdings
reported by advisers on Form PF,\60\ we anticipate that these changes
would not undermine FSOC's systemic risk assessment and the
Commission's investor protection efforts. Based on input received from
filers, we understand that the operational challenges posed by the
strict look-through requirement, such as lack of the advisers' control
of or access to granular position data of underlying fund or entity
investments from third party entities or third party data that comports
with the reporting requirements of Form PF, would likely, in practice,
result in advisers having to rely on internal assumptions to comply
with Form PF's requirements. As such, the prescriptive look-through
requirements in General Instructions 7 and 8 would likely not achieve
the intended outcome, making any greater granularity and comparability
unjustified in light of the apparent significant filing burdens on
advisers.\61\ Our proposal, however, would retain questions mandating
the reporting of indirect exposures and thus preserve the objective of
the 2024 amendments to address issues of data quality and comparability
that had resulted from some advisers providing indirect exposures while
others did not.
---------------------------------------------------------------------------
\60\ See id.
\61\ See id.
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Moreover, the proposed changes would preserve FSOC's ability to
assess systemic risk and the Commissions' ability to protect investors
by collecting data based on advisers' portfolio risk management
processes, which themselves are designed to capture material risk
exposures from investments.
We request comment on the proposed changes to General Instructions
7 and 8, the definitions of certain asset classes in the Form PF
Glossary of Terms, and other conforming changes:
19. Would the proposed changes to General Instructions 7 and 8, the
definitions of asset classes including ``reference asset,'' and other
conforming changes sufficiently alleviate burdens on private fund
advisers?
20. Would the proposed changes to General Instructions 7 and 8 and
the definitions of asset classes including ``reference asset'' result
in the collection of information about the reporting fund's indirect
exposure necessary and appropriate for investor protection and the
assessment of systemic risk?
21. Should the ``look through'' requirement for certain, or all,
questions be eliminated entirely, as proposed, and allow advisers to
instead rely on reasonable estimates that are consistent with their
internal methodologies and conventions of service providers? If not,
why not?
22. Are certain questions easy to ``look through'' funds, entities
and investments than others? If so, which ones and why?
23. Are there certain types of funds or entities that are easy to
``look through''? If so, which ones and why?
24. Are there certain types of reference assets that are easy to
report on a ``look through'' basis? If so, which ones and why?
25. Should the form require a ``look through'' for certain, or all,
types of funds, entities or reference assets? If so, which ones and
why?
[[Page 22243]]
E. Trading Vehicles
The Commissions propose to amend Question 9 under section 1b of the
Form PF to reduce the scope of trading vehicles that advisers must
specifically identify. The proposed new scope focuses solely on trading
vehicles that face counterparties and creditors or are reported on Form
ADV as a private fund. This proposed change is intended to reduce the
burdens on advisers with respect to identifying trading vehicles while
still supporting the need for the Commissions and FSOC to understand
the reporting fund's use of trading vehicles relevant to identifying
systemic risk and investor protection efforts.\62\
---------------------------------------------------------------------------
\62\ See infra section III.C.6 for a detailed discussion of the
benefits and costs of the proposed change to Question 9 of Form PF.
---------------------------------------------------------------------------
Before the 2024 amendments, Form PF did not require advisers to
identify trading vehicles, even though private funds often use trading
vehicles to trade, incur leverage, and bear counterparty and credit
exposures as part of their investment strategy.\63\ In 2024, the
Commissions adopted amendments to section 1b to obtain a clear view of
the reporting fund's use of trading vehicles in this manner and
therefore to enhance FSOC's ability to monitor systemic risk and the
Commissions' ability to protect investors by better assessing the scope
of the reporting fund's position sizes and counterparty exposures that
are attributable to the trading vehicle and identifying areas in need
of outreach, examination or investigation. The broad definition of
``trading vehicle'' in the final form was intended to ensure that such
trading vehicles were captured,\64\ and Question 9 was designed to
obtain identifying information about any trading vehicle used by the
reporting fund that met this definition.\65\
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\63\ See 2024 Form PF Adopting Release at section II.A.2
(discussing the various ways private funds may use trading vehicles
for their investment activities).
\64\ 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'').
\65\ See current Question 9 of Form PF. 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.
---------------------------------------------------------------------------
Since the adoption of the 2024 amendments, filers have highlighted
the broad scope of trading vehicles that would need to be identified on
the form and the significance of the burden on advisers of having to
meet this requirement.\66\ Private funds may use trading vehicles for a
wide variety of purposes other than trading and bearing counterparty
exposure. Consequently, the broad definition of ``trading vehicle,''
which includes an entity that ``holds assets'' and conducts ``other
activities'' as part of the reporting fund's investment activities,
potentially captures passive entities (e.g., tax blockers, liability
blockers, aggregator vehicles used to consolidate investments from
investors in private funds, passive holding companies formed to hold
portfolio investments) that are commonly used by private funds for
structuring, tax and/or other operational efficiencies. Many of these
passive entities, however, may not otherwise actively trade nor engage
in other activities directly related to the fund's counterparty or
credit exposures in a manner that creates interconnectedness of the
trading vehicle to the broader financial services industry, a critical
part of systemic risk assessment and investor protection efforts. Some
filers have expressed concern that under the current ``trading
vehicle'' definition, they would have to report hundreds of entities in
certain private fund structures, imposing significant burdens on those
advisers.\67\
---------------------------------------------------------------------------
\66\ See, e.g., Comment Letter of Investment Adviser Association
(May 1, 2025), available at https://www.investmentadviser.org/wp-content/uploads/2025/05/IAA-Letter-to-SEC-Chairman-Atkins-5.1.25.pdf?t=6813b4b033567 (``IAA Letter'').
\67\ See, e.g., IAA Letter.
---------------------------------------------------------------------------
After considering the scope of trading vehicles that must be
reported under Question 9 in light of systemic risk assessment and
investor protection efforts, as well as the significance of the burdens
on advisers raised by the current instructions, we propose to reduce
the scope of trading vehicles that must be reported under Question 9 to
focus on trading vehicles that face counterparties and creditors or are
reported on Form ADV as a private fund.
Specifically, the proposed changes to Question 9 would limit
trading vehicles that must be identified by name and legal entity
identifier (``LEI''), if any, to those that are (i) listed or required
to be listed on Section 7.B. of Schedule D of the adviser's or another
adviser's Form ADV,\68\ or (ii) included or required to be included in
a response to Questions 27, 28, 42, 43, or 44 of the Form PF,\69\ which
require advisers to identify the relevant party (including any trading
vehicles) that bears counterparty and credit exposures.\70\
---------------------------------------------------------------------------
\68\ Because trading vehicles may be partially owned by the
filing adviser with another adviser, the proposed changes would
require the identification of any partially-owned trading vehicles
reported on another adviser's Form ADV.
\69\ Questions 27 and 28 of Form PF must be completed separately
for each hedge fund that an adviser advises. Questions 42, 43, and
44 must be completed separately by large hedge fund advisers for
each qualifying hedge fund that they advise. These questions require
the adviser to identify significant creditors or counterparties to
which a fund is exposed. For example, Question 42 requires the
adviser to identify and provide information about each creditor or
other counterparty to which the reporting qualifying hedge fund owed
an amount in respect of cash borrowing entries which is equal to or
greater than either (1) 5 percent of net asset value or (2) $1
billion. The proposed amendments would modify Questions 42 and 43.
See infra section II.L. Amended Questions 42 and 43 would still
require advisers to identify significant creditors or counterparties
to which a fund is exposed. See infra section III.C.6.
\70\ The proposed change would not impact General Instructions 7
and 8 that direct advisers to look through trading vehicles and to
their holdings when responding to certain questions (e.g., Question
26, which requires advisers to provided consolidated counterparty
exposures of the reporting fund aggregated across all creditors and
counterparties).
---------------------------------------------------------------------------
The proposed changes would entail a conforming amendment to General
Instruction 7 with the same instruction limiting the scope of trading
vehicles that must be identified in response to Question 9 to those
that are listed on the adviser's Form ADV or in response to Questions
27, 28, 42, 43 or 44. As discussed above, the broad definition of
``trading vehicle'' may cover passive entities commonly used in private
fund structures but do not directly interact with the market in a
manner that may pose systemic risk such as by trading, taking on
leverage, or bearing counterparty and credit exposures. Furthermore, as
emphasized by some filers, the burden on advisers of having to identify
each passive entity in the reporting fund's structure that meets the
broad definition of ``trading vehicle'' may be significant.
Although the current instructions would have provided a more
comprehensive visibility into the wide variety of ways trading vehicles
are incorporated into private fund structures, they would have
primarily captured passive trading vehicles, and reducing the scope of
trading vehicles would not materially affect the Commissions' and
FSOC's systemic risk oversight and investor protection efforts. The
proposed changes to Question 9 would reduce the scope of trading
vehicles that advisers must identify to those that are more directly
relevant and meaningful to the Commissions' and FSOC's oversight and
investor protection efforts. Section 7.B. of Schedule D of Form ADV
requests important information about the private funds managed by
advisers but does not specify whether the private funds
[[Page 22244]]
reported therein are trading vehicles. The proposed changes would
therefore facilitate our staff's ability to identify trading vehicles
reported on Form ADV and the scope of trading vehicles' potential
effects on systemic risk and investor protection.
Furthermore, the revised Question 9 would require advisers to
identify those trading vehicles that they have included in response to
questions on the form that address how the reporting fund uses trading
vehicles to bear counterparty and credit exposures (Questions 27, 28,
42, 43, or 44). Hence, any trading vehicle that incurs leverage or
conducts trading or other activities as part of a hedge fund's
investment activities resulting in significant exposure to creditors or
counterparties is currently identified by advisers in those questions
and would therefore continue to be included in Question 9 under the
proposed change.
Trading vehicles included in response to these questions (which may
overlap with those reported on Form ADV) would provide the Commissions
and FSOC with transparency into the reporting fund's risk profile and
interconnectedness of private funds with the broader financial services
industry. Moreover, although we propose to limit the scope of trading
vehicles that must be specifically identified, General Instructions 7
and 8 would continue to require advisers to look through certain
trading vehicles and to their specific holdings, which would capture
their counterparty and creditor exposures.\71\ These proposed changes
would therefore not have a significant effect on the Commissions' and
FSOC's ability to assess relevant information for purposes of their
risk assessment and investor protection efforts, as the form would
continue to obtain relevant information about operationally active
trading vehicles that do engage in activities that could impact the
broader financial services industry.\72\
---------------------------------------------------------------------------
\71\ See proposed General Instructions 7 and 8 of Form PF.
\72\ See infra section III.C.6 for a more detailed discussion of
benefits and costs of the proposed changes to Question 9.
---------------------------------------------------------------------------
We request comment on the proposed changes to Question 9 of Section
1b:
26. Would the proposed changes to Question 9 sufficiently alleviate
burdens on private fund advisers?
27. Do you agree that the current definition of ``trading vehicle''
covers entities that do not directly interact with the market in a
manner that may pose systemic risk such as by trading, taking on
leverage, or bearing counterparty and credit exposures? Would the
proposed changes to Question 9 result in the collection of information
about trading vehicles necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk?
28. Would the proposed changes to Question 9 result in certain
trading vehicles that are necessary to assess systemic risk not being
identified in the form? Should such trading vehicles continue to be
identified in the form? If so, which ones?
29. Should we instead amend Form PF so that private fund advisers
are not required to identify any trading vehicles? Is the
identification of trading vehicles relevant to the assessment of
systemic risk? Why or why not?
F. Eliminate Form PF Question 23(c) Volatility Reporting
The Commissions propose to eliminate Question 23(c) in its entirety
for all private fund filers.\73\ Question 23(c) requires private funds
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. Such information includes: (1) the
``reporting fund aggregate calculated value'' at the end of the
reporting period; (2) the reporting fund's volatility of the natural
log of the ``daily rate-of-return'' for each month of the reporting
period; (3) whether the daily return rates are reported to current or
prospective investors; and (4) whether the reporting fund had one or
more days with a negative daily rate of return during the reporting
period and related information.
---------------------------------------------------------------------------
\73\ See Form PF section 1(b), Item C, Question 23(c)(i), (ii),
(iii), and (iv) (``Question 23(c)''). We also propose to remove any
other references to Question 23(c) throughout the form.
---------------------------------------------------------------------------
We added Question 23(c) in the 2024 amendments to allow the
Commissions and FSOC to compare return volatility more accurately
across different private fund types to identify market trends, for
systemic risk assessment, and for investor protection efforts.\74\ This
measure quantifies the degree to which a portfolio's logarithmic
returns fluctuate around their average, with higher values indicating
greater risk of large gains or losses and uncertainty in an
investment's value.
---------------------------------------------------------------------------
\74\ See 2024 Form PF Adopting Release at section II.B.2.
---------------------------------------------------------------------------
However, during implementation of this new question, it is our
understanding that numerous advisers encountered challenges and
significant costs in preparing to respond to this question. Some
advisers calculate this information in the ordinary course of their
business for certain funds but not all private funds, or only at the
level of the master fund. Other advisers use an internal methodology
that does not necessarily align with what we ask under Question 23(c),
so they have had to design complicated and bespoke calculations based
on approximations of the same data points. Industry members have
further pointed out that there are many investing strategies involving
less liquid or illiquid assets that have less volatility and could mute
or otherwise skew volatility data, so capturing intra-month volatility
about them is less valuable but more burdensome, even if they can be
reported.
We now propose to delete Question 23(c). Based on our review, the
data captured by other questions in the form can assist in
contextualizing performance-related volatility, such as the monthly
performance reporting in Question 23(a) and (b) or extraordinary losses
reported in current reports.\75\ Although deleting Question 23(c) would
result in less detailed performance-related volatility information,
such that the Commissions and FSOC may lose insight into significant
performance volatility swings occurring on an intra-month basis, intra-
month performance-related data for less liquid or illiquid investment
strategies can have limited utility when evaluating performance
volatility.\76\ Further, we understand that funds are making
assumptions in calculating this information, which undermines its
comparability.
---------------------------------------------------------------------------
\75\ See Form PF section 5, Item B and Form PF Glossary of Terms
(definitions of ``holding period return'' and ``daily rate-of-
return'').
\76\ See infra section III.C.7 for a more detailed discussion of
benefits and costs of eliminating Question 23(c).
---------------------------------------------------------------------------
Given the burdens associated with calculating this information, and
that information related to performance-related volatility can be
gathered from other existing parts of the form, we propose to eliminate
Question 23(c) from Form PF.
We request comment on the proposed removal of Question 23(c):
30. Should the Commissions eliminate Question 23(c)? Why or why
not?
31. Would the proposed deletion of Question 23(c) impede our
ability to appropriately collect information necessary and appropriate
in the public interest and for the protection of investors, or for the
assessment of systemic risk? Why or why not?
32. Alternatively, should we move Question 23(c) to section 2? Is
it important to capture this information regarding qualifying hedge
funds? Why
[[Page 22245]]
or why not? Do you agree that data captured by other questions in the
form can assist in contextualizing performance-related volatility?
33. Do advisers calculate a daily market value for certain fund
portfolios or strategies? If yes, is it an estimated market value?
34. Do advisers calculate the volatility of the natural log of the
daily rate-of-return for a reporting fund, computed as the standard
deviation of the natural log of one plus each of the daily rates-of
return, on either a monthly or quarterly basis? If not, what are the
challenges encountered by advisers in calculating this information for
a reporting fund?
35. Is it easier to track this information for certain types of
funds or fund strategies compared to others?
36. Would removing Question 23(c) sufficiently alleviate burdens on
private fund advisers?
37. Alternatively, should we move Question 23(c) to section 2 so
that only large hedge fund advisers must complete it? Why or why not?
G. Eliminate Certain Trading and Clearing Reporting
We propose to eliminate certain trading and clearing reporting.
Specifically, we propose to eliminate the requirements to report the
value of positions at the end of the reporting period in Question
29(ii) and Question 30(b). Currently, all filers that advise hedge
funds must report how they use trading and clearing mechanisms in
Questions 29 and 30 for each hedge fund they advise, including the
value of their reporting fund's positions at the end of the reporting
period. The Commissions adopted this requirement in an effort to
provide the Commissions and FSOC with data that can be more efficiently
compared and aggregated among advisers and other data sources.\77\
However, filers have expressed concern that they do not otherwise
calculate the value of positions at the end of the reporting period by
trading mode for each position using the calculations Form PF requires,
and it is burdensome to track, calculate, and report such data solely
for purposes of Questions 29(ii) and 30(b). If we remove Questions
29(ii) and 30(b), Questions 29 and 30, nonetheless, would continue to
require all filers to report the value the reporting fund traded during
the reporting period, specified by instrument category and trading
mode, which should be sufficient for purposes of evaluating use of
trading and clearing mechanisms across hedge fund advisers.
Furthermore, FSOC and the Commissions could infer the value of the
positions at the end of the reporting period requested in Questions
29(ii) and 30(b) from Question 32. For example, Question 32(a) requires
reporting of various sub-asset classes related to listed and unlisted
equity which gives FSOC and the Commissions an indication as to whether
the securities were traded on an exchange or over the counter.
Accordingly, we are proposing to remove the requirements to report the
value of positions at the end of the reporting period in Question
29(ii) and Question 30(b) because we are concerned that the data
aggregation and comparison benefits of this reporting may not be
justified by the burdens.\78\
---------------------------------------------------------------------------
\77\ 2024 Form PF Adopting Release at n.249 and accompanying
text.
\78\ See also infra section III.C.8 for a more detailed
discussion of benefits and costs of the proposal to revise Questions
29 and 30.
---------------------------------------------------------------------------
The Commissions also propose to remove erroneous and unnecessary
instructions in Questions 29. The current instructions in Question 29
provide that the ``value traded'' for certain instruments is the total
value, but then erroneously require filers to calculate the total value
by using a weighted average. We propose to remove this instruction,
which would remove the error.\79\ With this correction, the specific
instructions about how to calculate value traded for proposed Questions
29 and 30 would be unnecessary because General Instruction 15 and the
table would sufficiently instruct advisers on how to report the value
traded. Therefore, this proposed change would simplify the form, by not
repeating the instructions. We also propose to remove the specific
instructions for column (ii). These instructions would be no longer
relevant because we propose to remove column (ii).
---------------------------------------------------------------------------
\79\ Proposed Question 29.
---------------------------------------------------------------------------
We request comment on the proposal to revise Questions 29 and 30:
38. Should we revise Questions 29 and 30, as proposed?
39. Should we eliminate the requirement for advisers to report the
value of positions at the end of the reporting period in Questions 29
and 30, as proposed? Do you agree that the information reported in
other requirements in Questions 29 and 30 is sufficient to analyze data
on trading and clearing mechanisms?
40. Do you agree with our characterization of the benefits and
burdens that Questions 29 and 30 present? Are there more, less, or
additional types of benefits or burdens? Please quantify the burdens.
41. Should we remove the specific instructions for calculating
``value traded,'' as proposed? Does General Instruction 15 and the
table itself sufficiently instruct filers about how to report value
traded? Is there a clearer way to instruct filers about how to
calculate value traded? Or is there a more appropriate calculation that
the instructions should use? For example, should the instructions to
Question 29 direct filers to use the gross notional values for options
and interest rate derivatives in addition to other derivatives, rather
than the calculations that General Instruction 15 specifies?
42. Is there a clearer way to instruct filers about how to
categorize each trade into the value traded column? For example, if a
bond is traded through a registered alternative trading system, should
that be included in the regulated exchange category or over the
counter?
H. Eliminate Form PF Question 32(b)(2) Adjusted Exposure Reporting
Based on Internal Methodology
The Commissions propose to eliminate Question 32(b)(2) for large
hedge fund advisers.\80\ The Commissions added Question 32(b) to Form
PF in 2024 to require advisers to report the adjusted exposure of long
and short positions for each sub-asset class in which a fund has a
reportable position.\81\ At that time, the Commissions explained that
gross exposure reporting by itself presents an incomplete picture that
poses a significant data gap for systemic risk analysis. Question 32(b)
requires large hedge fund advisers to report adjusted exposures in two
ways. In Question 32(b)(1), advisers have to calculate and report
adjusted exposure of long and short positions for each sub-asset class
by netting positions that have the same underlying reference asset
across instrument type and, for fixed income positions, within the same
term using the following maturity buckets: 0-1 year, 1-2 years, 2-5
years, 5-10 years, 10-15 years, 15-20 years, and 20+ years.
---------------------------------------------------------------------------
\80\ See Form PF section 2, Item B, Question 32(b)(2). We also
propose to remove any other references to Question 32(b)(2)
throughout the form.
\81\ See 2024 Form PF Adopting Release at section II.C.2.a.
---------------------------------------------------------------------------
In Question 32(b)(2), if, under its methodologies for internal
reporting and reporting to investors, an adviser does not net all
positions across all instrument types in monitoring the economic
exposure of the reporting fund's investment positions, then the adviser
must report adjusted exposure based on its internal methodology; the
adviser must also describe in Question 4 how its internal methodology
differs
[[Page 22246]]
from the calculations required in Question 32(b)(1). At the time, the
Commissions explained that this additional information in Question
32(b)(2) would 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 the Commissions'
and FSOC's ability to aggregate and compare the data across funds.\82\
---------------------------------------------------------------------------
\82\ See id.
---------------------------------------------------------------------------
After the adoption of the 2024 amendments, filers raised concerns
that Question 32(b)(2) is substantially duplicative of Question
32(b)(1) and therefore unnecessarily burdensome to produce. They stated
that these two sub-questions require them to calculate and report
adjusted exposure for each sub-asset class in which the fund holds
positions twice with non-meaningful differences in risk information
conveyed.
Upon review, we agree that Question 32(b)(2), given its similarity
to what funds will likely report under Question 32(b)(1), does not
appear sufficiently necessary to justify the burdens associated with
this additional reporting. While adjusted exposure reporting continues
to be important for FSOC's assessment of systemic risk, eliminating
Question 32(b)(2) in consideration of the concerns raised by filers, as
proposed, would help further alleviate burdens on large hedge fund
filers by removing duplicative reporting that does not materially build
upon the quality or usefulness of data already received from Question
32(b)(1).\83\
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\83\ See infra section III.C.9 for a more detailed discussion of
benefits and costs of eliminating Question 32(b)(2).
---------------------------------------------------------------------------
Relatedly, we propose to delete the word ``counterparties'' from
the last sentence in Question 32(b)(1). This instructional sentence
provides that, in reporting adjusted exposure under Question 32(b)(1),
the fund may net counterparties consistent with the information it
reports internally and to current and prospective investors. Based on
discussions with filers, we understand that the inclusion of
``counterparties'' in this sentence has created confusion because
netting in this section is intended to be associated with exposures
rather than limiting netting specifically to counterparties. Moreover,
combined with the elimination of Question 32(b)(2), this deletion would
be a conforming change to simplify the adjusted exposure calculations.
We request comment on the proposal to eliminate Question 32(b)(2):
43. Should the Commissions eliminate Question 32(b)(2)? Why or why
not?
44. Would the proposed deletion of Question 32(b)(2) impede our
ability to appropriately collect information about adjusted exposure in
qualifying hedge funds necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk? Why or why not?
45. Would removing Question 32(b)(2) meaningfully alleviate burdens
on large hedge fund advisers?
46. If Question 32(b)(2) is retained, should it be modified? If so,
how?
47. Should the format of Question 32(b)(1) (and Question 32(b)(2)
if it is retained) be revised for clarity (for example, by using charts
instead of sentences, or putting instructions and responses in
different colors like the PQR form)?
I. Eliminate Form PF Question 34 Monthly Asset Turnover Reporting
The Commissions propose to eliminate Question 34 for large hedge
fund advisers.\84\ Question 34 requires advisers to report the value of
turnover in certain asset classes (including listed equities, corporate
bonds, sovereign bonds, as well as various types of derivatives and
consolidated foreign exchange and currency swaps) in their hedge funds'
portfolios for each month during the quarterly reporting period.
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\84\ See Form PF section 2, Item B, Question 34. We also propose
to remove any other references to Question 34 throughout the form.
---------------------------------------------------------------------------
The Commissions included this question on the original 2011 Form PF
(then Question 27) to provide an indication of a large hedge fund
adviser's frequency of trading in particular asset class markets and
the amount of liquidity hedge funds contribute to those markets.\85\ We
then amended Question 34 in 2024 in two ways. First, in connection with
the move to disaggregate reporting, we required reporting turnover on a
per fund basis explaining that this change would provide more detailed
information to the Commissions and FSOC while simplifying reporting
because advisers do not generally aggregate turnover-related
information among funds.\86\ Second, we added new categories to better
capture turnover of potentially relevant securities. We referenced how,
during the March 2020 COVID-19-related market turmoil, we were unable
to obtain a complete picture of market activity relating to treasuries
and treasury futures given that turnover reporting was highly
aggregated across funds.
---------------------------------------------------------------------------
\85\ See 2011 Form PF Adopting Release at section II.C.2.a.
\86\ See 2024 Form PF Adopting Release at section II.C.2.d.
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While the turnover of specific asset classes can be helpful to
identify the frequency of hedge fund trading activity in those asset
classes, we have observed from our review that turnover data can be an
imprecise signal of systemic risk or market turmoil.\87\ Asset turnover
might simply reflect that many large hedge funds make frequent trades
as part of an investment strategy rather than suggesting issues in a
given market. Conversely, a reduction in asset turnover could reflect a
strategy responding to normal market conditions as opposed to an
episode of stress in a market where a reduction in liquidity constrains
a fund's trading. Additionally, ensuing discussions with industry
members have revealed unanticipatedly high burdens in monitoring and
producing the data to complete Question 34. For example, because a
large hedge fund can complete upwards of ten thousand trades in a
single day, tracking so many transactions and breaking them down on a
per-fund basis is time- and labor-intensive.
---------------------------------------------------------------------------
\87\ See infra section III.C.10 for a more detailed discussion
of benefits and costs of eliminating Question 34.
---------------------------------------------------------------------------
Furthermore, we are also able to approximate the data collected in
Question 34 based on filers' responses to other questions, such as the
asset class exposure table in Question 32, which while not providing
the frequency of trading in particular asset class markets, does
provide the size of their exposures in those markets, combined with the
information about investment strategies reported in Question 25,\88\ as
some hedge fund strategies inherently involve higher trading activity.
In addition, certain information relating to trading activity is still
provided in Question 29.\89\
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\88\ See Form PF section 1c, Item B, Question 25.
\89\ Question 29 (as proposed) would still require reporting
about the volume of transactions for certain asset classes during
intra-quarter periods.
---------------------------------------------------------------------------
Therefore, removing Question 34 should reduce the burdens for
filers while the Commissions can rely on other questions for
information relating to hedge funds with significant exposures in
various asset classes where there may be significant trading and
liquidity provision.
We request comment on the proposal to eliminate Question 34:
48. Should the Commissions eliminate Question 34 on monthly asset
turnover information? Why or why not?
49. Would the proposed deletion of Question 34 impede our ability
to
[[Page 22247]]
collect information necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk? Why or why not?
50. Would removing Question 34 meaningfully alleviate burdens on
large hedge fund advisers?
51. Do you agree that information from Questions 25, 29, and 32
would help FSOC assess and monitor turnover or trading activity and
liquidity provision of qualifying hedge funds for systemic risk
implications? Are there any other alternative ways?
J. Simplify Industry Concentration Reporting in Form PF Question 36
The Commissions propose to amend Form PF Question 36 by permitting
filers to report at a simpler level of classification within the NAICS
code system.\90\ Form PF Question 36 requires filers to report the
relevant industry exposures of their reporting funds using NAICS codes.
The Commissions added Question 36 in 2024 to ``allow for identification
of industry concentrations and help assess the potential impact of
market events on industries.'' \91\ NAICS codes are used to describe a
company's primary business activity and principal source of revenue and
generally can be specified up to six digits. The full set of NAICS code
options is free to access online. However, some investment instruments
may not have codes readily available, as discussed below. NAICS codes
are often the standard used by certain Federal agencies for classifying
entities by industry.\92\ Currently filers responding to Question 36
are required to report at the six-digit level, national industry, NAICS
code.
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\90\ See Form PF Question 36 and Form PF Glossary of Terms. The
five NAICS code classification levels are: (1) sector two-digit
code, (2) subsector three-digit code, (3) industry group four-digit
code, (4) NAICS industry five-digit code, (5) national industry six-
digit code.
\91\ 2024 Form PF Adopting Release at section II.C.2.d.
\92\ See id. (referencing SBA Small Business Size Regulations,
13 CFR 121.101 (2023)).
---------------------------------------------------------------------------
The purpose of requiring advisers to respond to this question based
on the NAICS codes is to 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. In adopting this question, we stated that NAICS codes
would be useful for monitoring systemic risk, particularly if multiple
funds have significant concentrations in industries that are
experiencing periods of stress or disruption.\93\
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\93\ See id. SEC staff also published an FAQ attempting to
clarify how filers can better respond to this question. See SEC
staff Form PF Frequently Asked Questions; Form PF: Question 36
(updated Apr. 4, 2025), available at https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/form-pf-faq.
---------------------------------------------------------------------------
However, through subsequent discussions with industry members, we
have come to understand certain difficulties in reporting the NAICS
codes, particularly at the six-digit national industry level. The
industry generally does not use NAICS codes for reporting industry
concentration to investors or counterparties. In addition, certain
instruments, including foreign instruments, do not have a NAICS code.
We heard from multiple industry members who more commonly use the
Bloomberg Industry Classification Standard (``BICS'') or Global
Industry Classification Standard (``GICS''), though the BICS and GICS
codes are not publicly available and involve license fees and other
costs and expenses to access them. As a result, in order to comply with
the NAICS code requirement, advisers would need to assign a NAICS code
to an instrument that does not have one, which generally would require
advisers to develop data systems or pay third parties to supply or
track this information and could lead to inconsistent reporting across
filers. However, Form PF already requires the use of NAICS codes in
Questions 81 and 82, so some filers already use NAICS codes.
Additionally, we understand that allowing advisers to report NAICS
industry codes at less granular levels would reduce burdens for filers
because less specific options would result in less time and precision
needed to assign a code. For example, this proposed change would
significantly streamline filers' options by allowing them to select
from approximately twenty two-digit sector NAICS codes instead of the
more than one thousand six-digit national industry codes as currently
required. The proposed change would continue to maintain the
Commissions' and FSOC's ability to gain insight into hedge fund
industry exposures, including concentrated exposures, at a level that
would facilitate the assessment of systemic risk, while meaningfully
reducing reporting burdens for filers.\94\
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\94\ See infra section III.C.11 for a more detailed discussion
of benefits and costs of simplifying industry concentration
reporting in Question 36.
---------------------------------------------------------------------------
Therefore, the Commissions propose to amend Question 36 by giving
filers the flexibility to choose any level of classification within the
NAICS hierarchal code system. We believe that this change would allow
us to continue receiving important industry-specific exposure data
while reducing the burdens and costs filers face in responding to this
question.
We request comment on the proposed change to the NAICS code
reporting requirement:
52. Should the Commissions allow filers to use their preferred
specificity of NAICS codes between two and six digits? Why or why not?
53. Would two-digit NAICS codes sufficiently allow FSOC to monitor
for industry exposure to systemic risk?
54. Would allowing for additional NAICS code levels sufficiently
alleviate burdens on private fund advisers?
55. Is there an alternate classification standard, such as BICS or
GICS, that would be easier or less expensive for filers to use in
providing this information? Why or why not? If we were to switch to a
different classification system, should we also do so for Questions 81
and 82?
56. Should the Commissions create a list of categories from which
filers can select their most appropriate industry, similar to how
commodity pool operators file Form PQR? \95\ If so, what categories
should we use?
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\95\ See, e.g., Pool Quarterly Report for Commodity Pool
Operators, Question 11 Pool Schedule of Investments, available at
https://www.nfa.futures.org/electronic-filing-systems/CPO-PQR-Template-Help-Text.pdf.
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57. Is it more difficult to obtain NAICS code information for
certain instruments (e.g. broadly syndicated loans) as compared to
others? If yes, please describe.
58. Should this question be deleted entirely? Why or why not?
K. Eliminate Certain Questions Concerning Qualifying Hedge Funds'
Exposures to Reference Assets
We propose to remove Questions 39 and 40, which require large hedge
fund advisers to report detailed information about their qualifying
hedge funds' monthly portfolio exposure to reference assets.\96\ To
mitigate the impact of losing this data, the SEC proposes to add
streamlined exposure reporting to section 5, Item B.
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\96\ To accommodate this proposed change, we also propose to
remove ``netted exposure'' from the Glossary of Terms because Form
PF would no longer use that term without Questions 39 and 40. We
also propose to remove any other references to Questions 39 and 40
throughout the form.
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Question 32(b)(1) requires large hedge fund advisers to report, for
each qualifying hedge fund they advise except as otherwise instructed,
the reporting fund's exposure to specified sub-asset classes for each
month of the reporting period adjusted by netting
[[Page 22248]]
positions in the same underlying reference asset across instrument
type, among other things. In addition, Question 39 requires large hedge
fund advisers to report certain information about their qualifying
hedge funds' long and short netted exposure to reference assets at the
end of each month in the reporting period. In particular, it requires
the following reporting:
(1) the total number of reference assets to which the reporting
fund holds long and short netted exposure;
(2) the percent of net asset value represented by the aggregated
netted exposures of reference assets with the top five long and short
netted exposures; and
(3) the percent of net asset value represented by the aggregate
netted exposures of reference assets representing the top ten long and
short netted exposures.
Question 40 requires large hedge fund advisers to report certain
detailed information about their qualifying hedge funds' monthly gross
exposure, among other things, to reference assets that equal or exceed
any of the following thresholds: \97\
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\97\ Large hedge fund advisers must report the following: (1)
the dollar value (in U.S. dollars) of all long positions with legal
and contractual rights that provide exposure to the reference asset;
(2) the dollar value (in U.S. dollars) of all short positions with
legal and contractual rights that provide exposure to the reference
asset; (3) the netted exposure to the reference asset (as defined by
current Question 39 Instructions); (4) the sub-asset class and
instrument type; (5) the title or description of the reference
asset; (6) the reference asset issuer (if any) name and LEI; (7) the
CUSIP (if any), and at least one of the following other identifiers:
ISIN, Ticker if ISIN is not available, other unique identifier (if
ticker and ISIN are not available); (8) for reference assets with no
CUSIP or other identifier, advisers must describe the reference
asset; (9) if the reference asset is a debt security, size of issue;
(10) if the reference asset is a listed equity, average daily
trading volume, measured over 90 days preceding the reporting date;
and (11) the FIGI (optional).
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(1) One percent of the net asset value, if the reference asset is a
debt security and the fund's gross exposure to it exceeds 20 percent of
the size of the overall debt security issuance;
(2) One percent of the net asset value, if the reference asset is a
listed equity and the fund's gross exposure to it exceeds 20 percent of
average daily trading volume measured over 90 days preceding the
reporting date; or
(3) Either five percent of the fund's net asset value or $1
billion.
The Commissions adopted Question 39 to provide a holistic view of a
reporting fund's portfolio concentration and provide insight into the
extent of a reporting fund's portfolio concentration and large
exposures to any reference assets.\98\ The Commissions adopted Question
40 to improve their ability to assess the magnitude of hedge fund
portfolio concentration, as well as to identify directional exposure.
The Commissions also stated that Question 40 was designed to allow the
Commissions and FSOC to link the information reported in Question 40 to
exposure reporting in Question 32, which is designed to 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. The Commissions stated that the
combination of information reported in Question 32 and Question 40 is
designed to, among other things, provide better insight into 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.
---------------------------------------------------------------------------
\98\ See generally 2024 Form PF Adopting Release at section
II.C.2.a for a discussion of why the Commissions adopted Questions
39 and 40.
---------------------------------------------------------------------------
Based on filer feedback, however, we are concerned about the
burdens associated with collecting the information for Questions 39 and
40. Both Questions 39 and 40 require advisers to use specific
methodologies to calculate and report monthly exposures to reference
assets, and Question 40 includes three separate reporting thresholds
that can be difficult to assess in practice due to the multiple steps
embedded in each threshold and multiple data inputs required for each
step. Filers have expressed concern that they do not otherwise create
and maintain data using the specific calculations set forth in
Questions 39 and 40, and it is burdensome to calculate the multiple
data points necessary to determine the population of reportable
reference assets, and report such data solely for purposes of Form PF.
For example, some hedge funds may have dozens of positions that must be
analyzed both collectively when calculating the thresholds and
separately if the reference asset is reportable under Questions 40.
Specifically, the first and second threshold require multiple
calculations for a potentially significant number of positions and the
calculations require inputs such as total issuance size and an average
daily trading volume metric that may not be tracked or collected in the
ordinary course of the filer's management of the portfolio. We are also
concerned that these calculation challenges could create reliability
and comparability challenges that could undermine the utility of the
data.
Questions 39 and 40 were intended to provide a holistic view of a
reporting fund's portfolio concentration based on commonly used
industry metrics for assessing portfolio concentration levels.\99\
However, other data reported on the form, combined with the SEC's
proposed enhanced current reporting, should sufficiently allow the
Commissions and FSOC to assess portfolio concentration in furtherance
of systemic risk assessment and investor protection efforts, as
applicable. We will still receive information through responses to
Question 32 on adjusted investment exposures netted across instrument
type representing the same reference asset by sub-asset class, which
provides information on concentrated exposures.
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\99\ See 2024 Form PF Adopting Release at n.329 and accompanying
text.
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In addition, the SEC proposes to add an additional reporting field
to section 5, Item B, which requires large hedge funds to file a
current report no later than 72 hours after their qualifying hedge fund
experiences an extraordinary investment loss.\100\ Under the SEC's
proposal, if a large hedge fund adviser files such a current report, it
would be required to describe the largest exposure contributing to the
reported loss, including the dollar amount and certain identifying
information.\101\ This proposed change is tailored to help ensure Form
PF collects sufficient information to assess systemic risk and further
investor protection efforts related to qualifying hedge funds'
concentrated portfolio exposures without the significant burdens
associated with completing Questions 39 and 40.\102\ Therefore,
Questions 32, along with proposed section 5, Item B, should help ensure
Form PF collects information sufficient to assess systemic risk of
exposures and further investor protection efforts.
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\100\ See proposed section 5, Item B. In connection with this
proposed change, the SEC proposes to redesignate Questions 5-4
through 5-7 to accommodate the additional reporting field.
\101\ Identifying information would include a subset of
information that advisers would have reported in Question 40,
including the sub-asset class, instrument type, title or description
of the asset, issuer name, LEI (if any), CUSIP (if any), if no
CUSIP, then at least one of the following other identifiers: ISIN,
Ticker if ISIN is not available, other unique identifier.
\102\ See also infra section III.C.12 for a more detailed
discussion of benefits and costs of these proposed amendments.
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We request comment on the proposal to remove Questions 39 and 40,
and the SEC requests comment on the proposal
[[Page 22249]]
to add the proposed requirement to section 5, Item B:
59. Should we remove Questions 39 and 40, as proposed?
60. Do you agree with our characterization of the benefits and
burdens that Questions 39 and 40 present? Are there more, less, or
additional types of benefits or burdens? Please quantify the benefits
and burdens.
61. Instead, should we keep either Question 39 or 40, but revise
them to make them less burdensome? For example, should we keep Question
40, but simplify or raise the reporting thresholds? Please provide
example language. Should we reduce the reporting frequency from monthly
to quarterly?
62. Is there an alternative way to collect information on
concentration at the portfolio level and market level? Which is more
important for systemic risk assessment? Is there an alternative way to
collect information on position-level exposures to reference assets
that would aid FSOC in assessing systemic risk and the SEC's investor
protection efforts, but would be less burdensome than Questions 39 and
40, and better than our proposed approach of relying on adjusted
exposure information reported under Question 32 combined with current
reporting with the proposed revision to extraordinary investment loss
event question?
63. Should the SEC add a requirement to the current report in
section 5, Item B, as proposed? If the Commissions do not eliminate
Questions 39 or 40, should the SEC nonetheless adopt the proposed
requirements in section 5, Item B? Should the SEC add more or modify
any proposed requirements to the current report in section 5, Item B?
64. Do you agree that proposed section 5, Item B, together with
Question 32 would provide sufficient information to assess systemic
risk of exposures? Would Question 32 alone, without proposed section 5,
Item B provide sufficient information to assess systemic risk of
exposures? If so, should the Commissions eliminate Questions 39 and 40
without amending section 5, Item B?
L. Simplify Large Hedge Fund Adviser Counterparty Exposure Reporting
The Commissions propose to simplify the reporting on counterparty
exposures for large hedge fund advisers.
Specifically, the Commissions propose to remove Question 41 from
section 2 and to require advisers to qualifying hedge funds to complete
the simpler consolidated counterparty exposure table in Question 26,
which all filers complete for hedge funds they advise, except
qualifying hedge funds would provide monthly data points. For more
detailed information on counterparty exposures, the Commissions would
instead rely on the data filed in response to Questions 42 and 43,
which provide information on borrowing arrangements with significant
counterparties and creditors of large hedge funds.
To retain important information relating to counterparty exposure
for all borrowings to significant counterparties and creditors of
qualifying hedge funds, which is relevant to monitoring and assessing
systemic risk, the Commissions propose to amend Question 42 to require
large hedge fund advisers to report on all borrowings from significant
counterparties and creditors of qualifying hedge funds rather than only
cash borrowings and to categorize those borrowing entries by type.
Furthermore, the Commissions request comment on ways to alleviate
burdens on advisers with respect to netting counterparty exposures in
response to certain questions.\103\ Through these actions, the
Commissions seek to better balance filing burdens on advisers against
the Commissions' and FSOC's need to obtain clear and comparable data
regarding hedge funds' use of collateral and credit exposure to
counterparties.
---------------------------------------------------------------------------
\103\ See Question 26, Question 27, Question 28, Question 42 and
Question 43 of Form PF.
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The Commissions also propose the following minor revisions to the
instructions in Question 42, none of which will substantively change
the form: (1) correcting a reference to a column (from column (c) to
column (b)) in subsection (b) where the LEI for a counterparty should
be provided, and (2) removing a sentence that instructs filers to
provide a counterparty's legal name and LEI in subsection (b) in
columns (vi) and (vii), which do not exist in subsection (b).
In 2024, the Commissions adopted amendments to Form PF that
included the new consolidated counterparty exposure tables, which were
designed to collect specific data on hedge funds' borrowing and
financing arrangements with central clearing counterparties (``CCPs'')
and other counterparties.\104\ The new tables require advisers to
report a hedge fund's borrowing, lending, and similar transactions with
creditors and other counterparties by type of borrowing, lending 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),\105\ and the collateral posted or
received by a reporting fund in connection with each type of borrowing,
lending or other transaction. The consolidated counterparty tables were
designed to enhance the Commissions' and FSOC's understanding of hedge
funds' counterparty risk exposure, which is needed for systemic risk
assessment because of the potential contagion risks of both the
reporting fund and counterparty failure.\106\
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\104\ See Question 26 and Question 41 of Form PF; see generally
2024 Form PF Adopting Release at section II.B.3 and section II.C.2
for a discussion of the Commissions' rationale for the new
consolidated counterparty exposure tables.
\105\ See current Question 26 and Question 41 of Form PF.
\106\ See 2024 Form PF Adopting Release at section II.B.3.
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For hedge funds other than qualifying hedge funds, the consolidated
counterparty exposure table in section 1c (Question 26) 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.\107\ Qualifying hedge funds must
complete a separate consolidated counterparty exposure table in section
2 (Question 41), which requires additional detail. Specifically, unlike
the table in Question 26, the table in Question 41 directs advisers to
qualifying hedge funds to 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) and to provide
additional classifications of collateral by type (e.g., by breaking out
government securities from other securities, and identifying other
types of collateral or credit support (including the face amount of
letters of credit and similar third party credit support)).\108\ The
table in Question 41 also requires reporting of the qualifying hedge
fund's aggregated borrowing and collateral received and lending and
posted collateral as of the end of each month of its reporting period,
as opposed to as of the end of the reporting period required in
Question 26 for smaller hedge funds. Furthermore, advisers to
[[Page 22250]]
qualifying hedge funds must report in this table 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.\109\ The Commissions adopted this requirement to
allow for an assessment of qualifying hedge funds' vulnerability to
changes in financing costs and identification of funds that are most
sensitive to potential margin changes.\110\ The requirement was also
designed to 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.\111\
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\107\ See General Instruction 9 of Form PF for applicable
reporting periods for large hedge fund advisers and all other
advisers. Large hedge fund advisers must update the Form PF within
60 calendar days after the end of each calendar quarter. All other
advisers must file annual updates to their Form PF within 120 days
after the end of their fiscal year.
\108\ See Question 41 of Form PF. See also 2024 Form PF Adopting
Release at section II.C.2.b.
\109\ See Form PF Question 41, subsections (b)(vii), (c)(vi),
(d)(vi), (e)(vi), and (f)(viii). In some subsections, the
instructions appear to mistakenly require advisers to report the
expected change in collateral if the required margin increases by
one percent, rather than by one percent of the position size.
\110\ 2024 Form PF Adopting Release at section II.C.2.b.
\111\ Id.
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Since the adoption of the 2024 amendments, filers have highlighted
significant challenges associated with completing the new consolidated
counterparty exposure tables, particularly the table in Question 41
which requires more granular reporting by collateral type (e.g.
government securities, securities and other collateral) for each type
of borrowing, lending or transaction (e.g. borrowing via prime
brokerage or repo and reverse repo) than Question 26. Several filers
voiced concerns that prime brokers report collateral on a pooled basis
to funds and do not generally unbundle classifications of collateral by
asset type.\112\ For example, prime brokers may not break out
government securities from other types of securities when reporting
collateral, as required by Question 41. As such, the operational
burdens of providing classifications of collateral for each type of
borrowing, lending or transaction may be particularly pronounced for
Question 41 because it requires additional unbundling and tracing of
collateral in a manner that does not align with the typical practices
of prime brokers. Filers also expressed that it is burdensome to report
the expected increase in collateral from the one percent margin
increase, because it necessitates hundreds or potentially even
thousands of calculations. Furthermore, filers emphasized the
significant difficulty of interpreting and responding with granular
accuracy to the detailed sub-parts of Question 41.
---------------------------------------------------------------------------
\112\ See, e.g., AIMA Letter II.
---------------------------------------------------------------------------
In responding to these concerns, the Commissions propose to remove
Question 41 from section 2 and to instead require qualifying hedge
funds to complete the simpler consolidated counterparty exposure table
in Question 26. By completing the table in Question 26, large hedge
fund advisers to qualifying hedge funds would report each type of
collateral based on fewer classifications within each borrowing,
lending or transaction type in the consolidated counterparty exposure
table.\113\ Moreover, qualifying hedge funds would not be required to
report the expected increase in collateral from the one percent margin
increase that is currently required to be reported in Question 41.\114\
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\113\ But see proposed Question 18 of Form PF which requires all
reporting funds to report the value of the reporting fund's total
borrowings and to classify creditors by type (i.e., U.S. depository
institutions, U.S. creditors that are not U.S. depository
institutions, and non-U.S. creditors).
\114\ See supra footnote 108 and accompanying text.
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Unlike other hedge funds, however, qualifying hedge funds would be
required to report in Question 26 collateral posted and received as of
the end of each month of their reporting period, consistent with the
reporting intervals in the table in the current Question 41. We propose
to retain the monthly reporting of collateral obligations for
qualifying hedge funds because the size of large hedge funds and
therefore their broader interconnectedness to the financial markets
merit more regular reporting to aid the FSOC's ability to monitor
interim changes in exposures that may be relevant to systemic risk
assessment that are not visible from less than monthly data.
The elimination of Question 41 would not significantly diminish the
Commissions' and FSOC's ability to monitor systemic risk and protect
investors because Questions 26, 42 and 43 along with other questions on
Form PF, would continue to facilitate the tracking of large hedge
funds' collateral practices and their credit exposure to counterparties
as well as the exposure that creditors and other counterparties have to
large hedge funds.\115\ For more detailed information on counterparty
exposures, the Commissions and FSOC would instead rely on the data
filed in response to Questions 42 and 43, which, with certain proposed
amendments specified below, would provide information on borrowing
arrangements with significant counterparties and creditors of large
hedge funds while reducing reporting burdens associated with Question
41.\116\
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\115\ See infra section III.C.13 for a more detailed discussion
of the benefits and costs of the proposed changes to counterparty
exposure reporting by large hedge fund advisers, and infra section
III.F.5 for the reasonable alternatives considered.
\116\ See current Questions 42 and 43 of Form PF. Question 42
currently requires advisers, for each of their qualifying hedge
funds, to identify significant creditors and counterparties. In
current subsection (a) of Question 42, advisers must complete a
detailed individual counterparty exposure table, which includes a
break out of borrowings and lending by type, for the top five
creditors and counterparties to which the reporting fund owed the
greatest dollar amount in cash borrowing entries. In current
subsection (b) of Question 42, advisers must identify and provide
less detailed information (for example, unlike subsection (a),
current subsection (b) does not require advisers to categorize
borrowings by type) about 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 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. As discussed
below, the proposed changes to Question 42 would direct advisers to
report on all borrowings (as opposed to cash borrowing entries) from
significant counterparties and creditors of qualifying hedge funds.
See proposed Question 42 of Form PF. In current Question 43,
advisers are 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. As discussed below, proposed changes
to Question 43 would direct advisers to calculate net mark-to-market
counterparty credit exposure using borrowing entries (as opposed to
cash borrowing entries) and lending entries (as opposed to cash
lending entries). See proposed Question 43 of Form PF and infra
footnote 123.
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In connection with the proposal to remove Question 41, we propose a
conforming amendment to Question 18 in section 1b, which is required
for all hedge funds, so that advisers to large hedge funds must report
there information regarding the value of the reporting fund's total
borrowings and classify creditors by type (i.e., U.S. depository
institutions, U.S. creditors that are not U.S. depository institutions,
and non-U.S. creditors).\117\
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\117\ See proposed Question 18 of Form PF.
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We also propose amendments to conform Question 42 and Question 43
to the table in Question 26, as responses to these questions are based
on calculations performed to complete the consolidated counterparty
exposure table.\118\ The conforming changes to subsection (a) of
Question 42 would result in less burdensome breakdown of
[[Page 22251]]
collateral required of the top five counterparties of the reporting
fund in response to both Questions 42 and 43.
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\118\ See proposed Question 42 of Form PF. The individual
counterparty exposure table in proposed Question 42 would remove
references to the additional classifications of collateral that the
consolidated counterparty exposure table in Question 26 does not
have. Revisions to Question 43, which flows from the individual
counterparty exposure table in Question 42, would be reflected in
the schema for Question 43.
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Relatedly, we propose conforming amendments to amend instructions
for Questions 42 and 43 as a result of the proposed elimination of the
consolidated counterparty exposure table under Question 41 as well as
conforming amendments to certain definitions in the Form PF Glossary of
Terms to remove references to Question 41.\119\
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\119\ See proposed Form PF Glossary of Terms (definitions of
``cash borrowing entries,'' ``cash lending entries,'' ``consolidated
counterparty exposure table'', ``collateral posted entries'' and
``collateral received entries''). In addition, the definition of
``individual counterparty exposure table'' would be amended to
correct an error. The definition currently mistakenly refers to
Question 41 in addition to Question 42. Under the proposed
amendments, this error would be corrected to refer to Questions 42
and 43.
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In addition to the removal of Question 41 and related conforming
amendments discussed above, the Commissions propose amendments to
Question 42 and conforming changes to Question 43 in order to retain
detailed information on counterparty exposures relevant to monitoring
and assessing systemic risk.\120\ To retain information on the type of
counterparty exposure for all borrowings to significant counterparties
and creditors of qualifying hedge funds, which is important to
monitoring and assessing systemic risk, the Commissions propose to
amend Question 42 to require large hedge fund advisers to report on all
borrowings \121\ rather than only cash borrowings, and to categorize in
subsection (b) of Question 42 the borrowing entries by type (i.e.,
unsecured borrowing, secured borrowing (prime brokerage or other
brokerage agreement), secured borrowing via repo and reverse repo,
other secured borrowing, derivative positions cleared and uncleared by
a CCP) \122\ from all significant counterparties and creditors of
qualifying hedge funds.\123\ Relatedly, we propose conforming changes
to the instructions for calculating the reporting fund's net mark to
market counterparty credit exposure in Question 43 to revise references
to ``cash borrowing entries'' to ``borrowing entries'' and ``cash
lending entries'' to ``lending entries''.\124\
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\120\ See proposed Question 42 of Form PF.
\121\ See proposed Form PF Glossary of Terms (definition of
``borrowing entries''). In current Question 42 of Form PF, the
instructions for completing subsection (b) state that advisers must
report ``cash borrowing entries'' in column (d), whereas column (d)
of the table in subsection (b) refers to ``Borrowing''. The proposed
change would reconcile this difference by amending the instructions
for completing subsection (b) of Question 42 to instruct filers to
report all borrowings (i.e., ``borrowing entries'' as defined in the
proposed Form PF Glossary of Terms) in column (d) of subsection (b).
\122\ Instructions for completing subsection (b) of Question 42
would be amended to direct advisers to report ``the dollar amount of
each type of borrowing in rows (d)(1) through (d)(6).'' See proposed
Question 42 of Form PF.
\123\ A counterparty or creditor is significant if the reporting
fund borrows from such counterparty an amount that is equal to or
greater than either five percent of its net asset value as of the
data reporting date or $1 billion. See proposed Question 42 of Form
PF.
\124\ See proposed Question 43 of Form PF; proposed Form PF
Glossary of Terms (definition of ``lending entries''). Under
proposed Question 43, for counterparties to which the reporting fund
had net borrowing exposure, the reporting fund's net mark to market
counterparty credit exposure before collateral would equal the
reporting fund's borrowing entries, and the reporting fund's net
mark to market counterparty credit exposure after collateral would
be the amount (if any) by which the collateral posted entries exceed
such borrowing entries. See supra footnote 120. For counterparties
to which the reporting fund had net lending exposure, the reporting
fund's net mark to market counterparty credit exposure before
collateral would mean the lending entries. The reporting fund's net
mark to market counterparty credit exposure after collateral would
equal the amount (if any) by which the reporting fund's lending
entries exceed the collateral received entries.
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Information on all borrowings and borrowing types are requested on
a consolidated basis under current Question 41, which would be removed
under this proposal. Because this information provides critical insight
into large hedge funds' interconnectedness to the broader financial
system and is often integrated with other data sets that enhance
systemic risk assessment, we propose to retain this information for
qualifying hedge funds' significant counterparty exposures. Proposed
Question 42 would provide reporting that corresponds to Question 41,
but only for significant counterparties of the qualifying hedge fund,
without the margin increase reporting, and with the less burdensome
collateral breakdown required only for the top five counterparties of
the qualifying hedge fund. As a result, the proposed counterparty
reporting would provide the information the Commissions and FSOC should
need to assess systemic risk or investor protection concerns relating
to counterparty exposures and borrowing but with substantially limited
reporting burdens.
We do not expect any significant impacts from these proposed
changes to simplify large hedge fund reporting on the Commissions' and
the FSOC's ability to monitor and identify systemic risk and to protect
investors because the Commissions and FSOC have alternative means by
which information is collected on large hedge funds' counterparty
exposures.\125\ For example, the information Question 26 collects would
facilitate the Commissions' and FSOC's understanding of large hedge
funds' borrowing and financial relationships, counterparty exposures,
collateral practices, and the interconnectedness of large hedge funds
within the broader financial services industry. Importantly, the table
in Question 26 would obtain information regarding both borrowing and
lending practices of large hedge funds and their collateral obligations
on a monthly basis. This information would provide the Commissions and
FSOC with a bilateral picture of large hedge funds' borrowing and
financing arrangements and sufficiently granular data to be able to
monitor potential contagion risks of any particular counterparty
failure in rapidly changing markets and portfolios, to assess who may
be impacted by a reporting fund's failure. Although we recognize that
the classifications of collateral within each borrowing, lending or
transaction category as required in Question 26 may be challenging in
some instances for advisers to the extent counterparties do not track
this information, the burdens should be mitigated by the simplification
of consolidated counterparty exposure reporting by eliminating Question
41. To the extent Question 26 may nevertheless continue to pose
challenges for advisers, we request comment on ways to alleviate
burdens while retaining the information necessary to fulfill the
Commissions' and the FSOC's systemic risk assessment and investor
protection objectives.
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\125\ See infra section III.C.13 for a more detailed discussion
of the benefits and costs of these proposed changes to counterparty
exposure reporting by large hedge fund advisers.
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The Commissions and FSOC would also receive, through proposed
Question 18, information on large hedge funds' total borrowings and
creditor types broken out into the same categories that the table in
Question 41 had requested (i.e., U.S. depository institutions, U.S.
creditors that are not U.S. depository institutions, and non-U.S.
creditors).\126\ Moreover, as discussed above, the proposed changes to
Question 42 would collect more detailed information such as types of
borrowing from significant counterparties and creditors of large hedge
funds. In the absence of Question 41, the aggregate reporting under
Question 18 combined with reporting under Question 26 and proposed
Question 42 would still be appropriate and sufficient for purposes of
the Commissions' and FSOC's ability to monitor borrowing practices
across the private fund industry and the level of
[[Page 22252]]
interconnectedness of large hedge funds to banks and the broader
financial system. Moreover, Question 42 and Question 43 would continue
to obtain other detailed information about qualifying hedge funds'
significant individual counterparties,\127\ which should help the
Commissions and FSOC to localize accurately a large hedge fund's risk
exposure in the event of a particular counterparty failure.\128\
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\126\ See proposed Question 18 of Form PF.
\127\ See proposed Question 42 and Question 43 of Form PF. See
also infra III.C.13 for a more detailed discussion of the benefits
and costs of the proposed changes to counterparty exposure reporting
by large hedge fund advisers.
\128\ See 2024 Form PF Adopting Release at section II.C.2.d.
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We also have alternative means through which we can sufficiently
determine a reporting fund's sensitivity to margin increases from other
questions on Form PF.\129\ These alternate means afford FSOC the
ability to collect and determine information relevant to monitoring
systemic risk. For example, the following questions concerning
liquidity would help identify funds that are sensitive to potential
margin changes: Question 20, which requires advisers to report assets
and liabilities categorized by the fair valuation hierarchy, and
Question 37, which requires advisers to report the percentage by value
of the reporting fund's positions that may be liquidated within certain
specified periods. Together these questions help identify funds that
are sensitive to potential margin changes because they help identify
the ability of a reporting fund to meet a margin call by selling liquid
assets. These alternative ways provide FSOC with sufficient information
to monitor and assess systemic risk.
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\129\ See also infra section III.C.13 for a more detailed
discussion of the benefits and costs of the proposed changes to
counterparty exposure reporting by large hedge fund advisers.
---------------------------------------------------------------------------
The Commissions also seek comment on the burdens on advisers with
respect to netting counterparty exposures and cross-margining in
response to Question 26, Question 27, Question 28, Question 42 and
Question 43. Question 26 directs advisers to net the reporting fund's
exposure to each counterparty and among affiliated entities of a
counterparty and associated collateral. Hedge fund advisers that are
not large hedge fund advisers are required to report certain
significant individual counterparty exposures including borrowing and
collateral posted by the reporting fund in response to Question 27 and
Question 28, whereas large hedge fund advisers to qualifying hedge
funds must report on the fund's significant individual counterparty
exposures in response to Question 42 and Question 43. These questions
also include detailed instructions on netting the exposure to each
counterparty, which were designed to help ensure data quality and
comparability.\130\
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\130\ See 2024 Form PF Adopting Release at n.227.
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For example, in Question 26, 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.\131\ Since the
adoption of the 2024 amendments, however, several members of the
industry highlighted the significant burdens of answering these
questions and continued interpretive challenges with the netting
instructions in the form. In particular, reporting netted individual
counterparty exposure may be operationally challenging with respect to
blended margin arrangements (e.g., cross-margining agreements).
Although Form PF provides instructions on how to net exposures and
account for cross-margining agreements,\132\ these instructions have
not alleviated interpretive challenges because advisers cannot
necessarily align associated collateral with the borrowing, lending or
transaction categories in the counterparty exposure tables (e.g.,
breaking out netted counterparty exposures by different transaction
type and type of collateral as requested by Question 26 and the
following questions on individual counterparty exposures in Question
27, Question 28, Question 42 and Question 43). Filers have also
expressed difficulty with interpreting the netting instruction in
Question 26 mentioned above as it relates to reporting prime brokerage
and repo/reverse repo transactions.
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\131\ See Question 26 of Form PF.
\132\ For example, 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).'' See also
2024 Form PF Adopting Release at n.402 and accompanying text.
---------------------------------------------------------------------------
The concerns raised by members of the industry indicate that
adjustments to the instructions may be needed to better align them with
how counterparty balances are reported to advisers in practice and to
better balance the filing burdens on advisers and the need for the
Commissions and FSOC to collect information necessary to monitor hedge
funds' borrowings and counterparty credit exposures.
We request comment on the proposal to eliminate Question 41, as
well as the proposed changes to Question 42 and Question 43, and to the
conforming amendments to certain terms in the Form PF Glossary of Terms
and to Question 42 and Question 43 to align them with Question 26; we
also request comment on reporting netted consolidated and individual
counterparty exposures in response to Question 26, Question 27,
Question 28, Question 42 and Question 43:
65. Should the Commissions eliminate Question 41? Why or why not?
66. Would the proposed deletion of Question 41 impede our ability
to appropriately collect information about counterparty exposures in
the large hedge fund industry necessary and appropriate for the
assessment of systemic risk? Why or why not?
67. Would removing Question 41 meaningfully alleviate burdens on
large hedge fund advisers? Why or why not? Should any adjustments be
made to Question 26 to alleviate burdens on large hedge fund advisers?
68. Are any additional amendments or clarifications needed for
Question 42, Question 43 and certain definitions in the Form PF
Glossary of Terms discussed above, in light of the proposed removal of
Question 41?
69. Should the Commissions amend Question 42 as proposed? Why or
why not?
70. Are any clarifications or adjustments needed to the definitions
of ``borrowing entries'' and ``lending entries'' added to the Form PF
Glossary of Terms in light of the proposed changes to Question 42?
71. Would the proposed changes to Question 42 help our ability to
appropriately collect information about counterparty exposures in the
large hedge fund industry necessary and appropriate for the assessment
of systemic risk? Why or why not?
72. Would the proposed changes to Question 42 increase burdens on
large hedge fund advisers? Why or why not? Should any adjustments be
made to Question 42 to alleviate burdens on large hedge fund advisers?
73. Should the proposed changes to the borrowing column in
subsection (b) of Question 42 include classifications for derivatives
positions? Why or why not? Would requiring classifications for
derivatives positions increase burdens on large hedge fund advisers?
Why or why not? Should advisers instead be allowed to include
derivatives positions under ``other secured borrowing'' or
alternatively under a new category ``other borrowing''?
[[Page 22253]]
74. Should the proposed changes to subsection (b) of Question 42
include a requirement to provide lending (in U.S. dollars) by the
reporting fund to other creditors and counterparties identified therein
and classifications of such lending (in U.S. dollars) (e.g., secured
lending (prime brokerage or other brokerage agreement), secured lending
via repo and reverse repo, other secured lending, derivative positions
cleared by a CCP, and derivative positions not cleared by a CCP)? Why
or why not?
75. Should the data reported in column (d), subsection (b) of
Question 43 be amended to categorize the type of borrowings (e.g., via
repo/reverse repo, prime brokerage, etc.) from all significant
counterparties and creditors of qualifying hedge funds? Why or why not?
76. Should any of the types of borrowing, lending or transactions
(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) be eliminated, separated or consolidated in
Question 26, Question 27, Question 28, Question 42 and Question 43? Why
or why not?
77. Should any of the classifications of collateral (e.g., cash and
cash equivalents, government securities and other securities) be
eliminated or consolidated in Question 26, Question 27, Question 28,
Question 42 and Question 43? Why or why not?
78. Are the instructions around netting counterparty exposures in
Question 26, Question 27, Question 28, Question 42 and Question 43
burdensome and/or unclear? If so, how should the Commissions modify
these instructions to alleviate burdens on large hedge fund advisers or
provide greater clarity? Are the instructions around netting
counterparty exposures inconsistent with respect to affiliates? If so,
how?
79. In light of the information required to be reported in response
to Questions 18, 26, 27, and 28, should qualifying hedge funds respond
to Questions 27 and 28 instead of Questions 42 and 43? Do the benefits
of the requested information in Questions 42 and 43 outweigh their
costs, taking into account the information provided in response to
Questions 18, 26, 27, and 28?
80. Alternatively, should the Commissions eliminate Question 27 and
Question 28 to focus significant counterparty exposure reporting on
large hedge fund advisers? As another alternative, should the
Commissions eliminate Question 28 to focus the more complicated netted
significant counterparty exposure reporting on large hedge fund
advisers? Why or why not?
81. Do cross-margining agreements make it difficult for an adviser
to trace what collateral has been posted or received for certain
transactions? Why or why not?
82. Should counterparty exposure reporting be based on net
exposures as proposed, or instead gross exposures? Why or why not?
83. Instead of the current netting and cross-margining
instructions, should filers be permitted to use their own internal
methodologies with respect to netting and cross-margining agreements?
If filers would be permitted to use their own such internal
methodologies, would that provide better or worse insight into
counterparty exposures and counterparty interconnectedness than the
proposed instructions? If filers were permitted to use their own
internal methodologies, would that provide better or worse ability to
compare and aggregate counterparty exposures across advisers?
84. Is there a better way to determine whether the reporting fund
and its counterparties are either overcollateralized or
undercollateralized? If so, please describe how and provide example
language.
85. When reporting prime brokerage and repo/reverse repo
transactions, do the instructions in Question 26 that require netting
to reflect net cash borrowed from or lent to a counterparty but do not
require filers to offset securities borrowed and lent against one lead
to inconsistent, inaccurate or misleading information necessary to
monitor for the assessment of systemic risk? Why or why not?
86. Would these netting instructions in Question 26 lead to
inconsistent, inaccurate or misleading information when comparing
reported data across Question 26, Question 42 or 43?
87. Do the netting instructions in Question 26 lead to the accurate
identification of material counterparties reported in Question 42 and
43? Why or why not?
88. Should the netting instructions in Question 26 require netting
of both cash and securities in order to identify counterparty credit
risk? Why or why not?
89. Proposed instructions for completing subsection (a) of Question
42 would direct advisers to complete the individual counterparty
exposure table for the five creditors and counterparties to which the
reporting fund owed the greatest dollar amount in borrowing entries
(before posted collateral). Instructions in proposed Question 43 would
direct advisers to 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,
calculated using borrowing entries and lending entries. Will amending
the instructions in Question 42 and Question 43 from identifying each
creditor or other counterparty to which the reporting fund owed an
amount in respect of cash borrowing entries to all borrowing entries,
and amending the instructions for calculating net mark to market
counterparty exposure for purposes of Question 43(a) to refer to
borrowing entries (as opposed to cash borrowing entries) and lending
entries (as opposed to cash lending entries), result in a different set
of top five counterparties required to be reported in subsection (a) of
Question 42 and top five counterparties required to be reported in
subsection (a) of Question 43? If so, please describe how.
90. Should the instructions to Question 27, Question 28, Question
42, and Question 43 reference only cash borrowing entries, or all
borrowings of the reporting fund (both cash and non-cash)? Why or why
not?
91. Should the definition of ``collateral posted entries'' \133\ be
amended to include additional entries or to remove certain entries from
the reporting fund's consolidated counterparty exposure table? For
example, should all cash collateral entries be included in ``collateral
posted entries''? Why or why not?
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\133\ See Form PF Glossary of Terms (definition of ``collateral
posted entries'').
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M. Eliminate Rehypothecation Reporting
The Commissions propose to remove Question 45 of Form PF,
eliminating the requirement that advisers to qualifying hedge funds
report the percentage of the total amount of collateral and other
credit support that counterparties have posted to the reporting fund
that may be rehypothecated and that the reporting fund has
rehypothecated. To date, the reporting for Question 45 has not resulted
in reliable data, and it continues to be operationally challenging and
burdensome for advisers to obtain the required information.
Since 2011, Form PF has required advisers to qualifying hedge funds
to
[[Page 22254]]
report certain information regarding rehypothecation of the reporting
fund's aggregate collateral. Specifically, Question 38 of Form PF prior
to the 2024 amendments required qualifying hedge funds to provide the
percentage of the total amount of collateral and other credit support
that counterparties had posted to the reporting fund that may be
rehypothecated and that the reporting fund had rehypothecated.\134\
Qualifying hedge funds were also required to provide the percentage of
the total amount of collateral and other credit support that the
reporting fund had posted to counterparties that may be
rehypothecated.\135\ This information was designed to assist FSOC in,
among other things, monitoring the liquidity of hedge fund exposures as
well as hedge funds' ability to respond to market stresses and their
interconnectedness to counterparties.\136\ As part of the 2024
amendments (which redesignated Question 38 as Question 45), the
Commissions eliminated the requirement for large hedge fund advisers to
report the percentage of the total amount of collateral and other
credit support that the reporting fund had posted to counterparties
that may be re-hypothecated. The Commissions adopted this change
because such reporting was burdensome for advisers, and the data that
was obtained was generally not reliable.\137\ This was because advisers
could not easily collect and report the required information as re-
hypothecation commonly occurs from omnibus accounts into which advisers
generally do not have visibility.\138\ The 2024 amendments, however,
retained the requirement that large hedge fund advisers report
information regarding the rehypothecation of collateral and other
credit support that counterparties have posted to the reporting
fund.\139\
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\134\ See Question 38(a)(i) and Question 38(a)(ii) of the Form
PF prior to the 2024 amendments, available at https://www.sec.gov/files/rules/final/2011/ia-3308-formpf.pdf.
\135\ See Question 38(b) of the Form PF prior to the 2024
amendments, available at https://www.sec.gov/files/rules/final/2011/ia-3308-formpf.pdf.
\136\ See Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, Investment Advisers Act Release No. 3145 (Jan. 26, 2011),
76 FR 8068 (Febr. 11, 2011) at section II.C.2.b.
\137\ See 2024 Form PF Adopting Release at section II.C.2.b.
\138\ See id.
\139\ Because counterparties typically do not track
rehypothecation of cash collateral, the SEC staff retained its FAQ
permitting advisers not to include cash collateral when responding
to questions regarding the rehypothecation of collateral and other
credit support by the reporting fund. See SEC staff Form PF
Frequently Asked Question 45.1, available at https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/form-pf-faq; see also Historical SEC
staff Form PF Frequently Asked Question 38.1, available at https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/historical-form-pf-faqs.
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Although the burdens on advisers were expected to be reduced by the
elimination of rehypothecation reporting with respect to collateral
posted by the reporting fund, filers continued to identify data
challenges as they prepared to implement reporting under Question 45.
Filers have highlighted the operational challenges of identifying the
exact percentages of rehypothecated collateral after disregarding cash
collateral per SEC staff FAQs, and due to the fact that agreements with
counterparties typically do not stipulate the exact percentages at
which posted collateral may be rehypothecated (for example,
counterparty agreements may have a rehypothecation limit stated as a
maximum percentage of the reporting fund's total indebtedness to a
counterparty, rather than as a percentage of the total collateral
posted). Moreover, data received in response to Question 38
(redesignated as Question 45 as part of the 2024 amendments) have
generally been imprecise and not comparable, as advisers have typically
answered with rough estimates, e.g., ``0%'' or ``100%'', with
accompanying assumptions based on the parameters set by their
counterparty agreements. The operational challenges in responding to
Question 38 (currently Question 45 after the 2024 amendments) has
resulted in data that does not provide an accurate picture of hedge
funds' counterparty exposures in a manner that is meaningful to
monitoring the level of their interconnectedness to the financial
markets.
The Commissions therefore believe the question is unnecessary and
that removing this question would not significantly impact FSOC's
ability to monitor systemic risk and financial stability.\140\
---------------------------------------------------------------------------
\140\ See infra section III.C.14 for a more detailed discussion
of the benefits and costs of eliminating Question 45.
---------------------------------------------------------------------------
We request comment on the proposal to eliminate Question 45:
92. Should the Commissions, as proposed, eliminate Question 45 in
its entirety? If not, what information should be retained? If Question
45 is retained, should the Commissions alter the type of information
required in this question?
93. Would removing Question 45 meaningfully alleviate burdens on
private fund advisers?
94. Would the proposed elimination of Question 45 impede our
ability to appropriately collect information about the private fund
industry necessary and appropriate in the public interest and for the
protection of investors, or for the assessment of systemic risk?
95. Is there an alternative way that the SEC should identify the
amount of rehypothecation that occurs with respect to collateral posted
to the reporting fund?
N. Amendments to Large Hedge Fund Adviser Current Reporting
The SEC proposes to amend certain items within section 5, the
section of Form PF that requires large hedge fund adviser current
reporting. Currently, section 5 requires large hedge fund advisers to
report the occurrence of extraordinary investment losses, certain
margin events, counterparty defaults, material changes in prime broker
relationships, operations events, and certain events associated with
redemptions ``as soon as practicable, but no later than 72 hours''
after the occurrence of the event or when the adviser reasonably
believes the event occurred.
The SEC is proposing to (1) remove the requirement to file a
current report ``as soon as practicable'' so that large hedge fund
advisers are afforded a full 72 hours to file a current report; (2)
remove Item D, the current reporting obligation for margin default or
determination of inability to meet a call for margin, collateral or
equivalents; (3) amend Item G to narrow the meaning of an ``operations
event'' by deleting the second prong of the definition of ``critical
operations;'' and (4) remove the requirement to file a current report
if a qualifying hedge fund is unable to pay a redemption request under
Item I. The SEC is also requesting comment on whether the agency should
revise the reporting trigger for section 5 Item I or remove this
question.
1. Modify the Current Reporting Filing Deadline
The SEC proposes to remove the requirement to file a section 5
current report ``as soon as practicable'' after a reportable event so
that large hedge fund advisers would only be required to file no later
than 72 hours after the reportable event.\141\ Currently, upon the
occurrence of any event specified in section 5, a large hedge fund
adviser to a qualifying hedge fund must file a current report ``as soon
as practicable,
[[Page 22255]]
but no later than 72 hours'' after the reportable event.
---------------------------------------------------------------------------
\141\ See Form PF section 5.
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The SEC added section 5 current reporting in 2023 to receive timely
notice of certain critical hedge fund events to better allow the SEC
and FSOC to assess the need for potential regulatory action in response
to any harm to investors or potential risks to financial stability on
an expedited basis before they worsen.\142\ The SEC adopted the ``as
soon as practicable, but no later than 72 hours'' timing standard in a
change from its proposal to require filing within one business day,
explaining that the extended window would provide advisers with
sufficient time to identify events and conduct sufficient analysis to
review and file timely current reports.\143\
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\142\ See May 2023 Form PF Adopting Release at section II.A.1.
\143\ See id.
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However, since current reporting has come into effect, industry
members have noted that this standard is inconsistent with the filing
deadline used on other SEC forms. Such forms also have similar time-
based filing deadlines, but they do not include an additional
obligation to file ``as soon as practicable.'' \144\
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\144\ See, e.g., Form N-CR, Form N-RN, and Form 8-K.
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Industry members have explained that the ``as soon as practicable''
standard creates unnecessary burdens around the determination of when
to file a current report while the adviser is already under time-
sensitive and potentially stressed circumstances. An adviser might need
to expend additional resources on internal and external counsel for
guidance regarding when it is required to file a current report.
Practically, such adviser might need to weigh the risk of filing a
potentially inaccurate current report in advance of 72 hours because it
is ``practicable'' against the risk of taking more time to file a more
accurate report and have it deemed late even though it was filed with
72 hours. A definite 72-hour deadline would reduce the need for an
adviser, already under potentially stressed conditions, to expend
resources on counsel to help guide it through this analysis.
While the removal of the ``as soon as practicable'' standard may
result in some current reports being filed later than under the
existing standard (but still no later than 72 hours after a reportable
event), the SEC expects that any difference in filing time between ``as
soon as practicable'' and 72 hours would not significantly hinder its
ability to respond.\145\ The SEC anticipates that the improvement in
the completeness and quality of information in the current reports
would further support FSOC's assessment of systemic risk and the SEC's
investor protection efforts, while reducing filers' burdens.
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\145\ See infra section III.C.15 for a more detailed discussion
of benefits and costs of modifying the section 5 filing deadline.
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The SEC requests comment on the proposed change to the current
reporting filing deadline:
96. Should the SEC delete the language ``as soon as practicable''
from the filing deadline? Why or why not?
97. Is the SEC's description of how filers attempt to comply with
the ``as soon as practicable'' standard accurate? Why or why not? Do
filers in fact expend meaningful resources on internal and external
counsel for guidance to help determine the appropriate time to file a
current report?
98. Is the 72-hour filing deadline too short or too long? Why or
why not? Should the filing deadline instead be expressed in business
days, such as three business days? Why or why not?
99. Should the Commissions eliminate the current reporting
requirements?
2. Eliminate Current Reporting for Notice of Margin Default or
Determination of Inability To Meet a Call for Margin, Collateral or
Equivalents
The SEC proposes to eliminate from section 5 the obligation for an
adviser to report a qualifying hedge fund's margin default or inability
to meet a call for margin, collateral, or an equivalent (``Item
D'').\146\
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\146\ See Form PF section 5, Item D.
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The SEC adopted this item in 2023 because qualifying hedge funds
that default or that are unable to meet a call for margin are at risk
of the counterparty liquidating that fund's assets, which to the SEC
presents serious risks to the fund's investors, its counterparties, and
potentially the broader financial system.\147\ At that time, the SEC
declined to limit the reporting trigger only to ``large'' margin
defaults or to certain trades, strategies, or positions based on an
understanding that such limits could hinder the SEC's or FSOC's ability
to receive sufficiently early or fulsome information to identify and
help prevent potential contagion.\148\
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\147\ See May 2023 Form PF Adopting Release at section II.A.3.b.
\148\ See id.
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Since the 2023 adoption, the SEC has observed that reporting of
material margin default events are likely to overlap with other
triggers that large hedge fund advisers also report, such as
extraordinary investment losses or margin increases, in Items B and C,
respectively. For example, a fund's inability to meet margin calls due
to an adverse market move against a concentrated position may trigger
extraordinary investment losses reporting under Item B in section 5,
margin increase reporting under Item C in section 5, or potentially
both. Additionally, the SEC understands that some large hedge fund
advisers have found it operationally burdensome to monitor for Item D
on a continuous basis due to the lack of a materiality threshold and
the difficulty in determining what constitutes the inability to meet a
call for margin, collateral, or equivalents.\149\ Therefore, to the
extent a margin default would be captured by other requirements of Form
PF, removing Item D would result in reduced burdens for filers while
still retaining an alternative route to obtaining information about a
material margin event from qualifying hedge funds.
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\149\ See infra section III.C.15 for a more detailed discussion
of benefits and costs of deleting Item D.
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The SEC requests comment on the proposed change to eliminate the
current reporting obligation for a fund's margin default or inability
to meet a call for margin, collateral, or an equivalent:
100. Should the SEC remove Item D in its entirety? Why or why not?
101. If Item D should not be removed in its entirety, should it be
revised? If so, how? For example, should the SEC add a threshold to
narrow the reporting requirement to material margin defaults? If so,
how should that threshold be calculated? Or could the SEC include a
trigger, such as limiting reporting only to written notices of default
as per an adviser's counterparty agreements?
102. Are the reporting requirements in Item B and C of section 5
sufficient to identify qualifying hedge funds that are experiencing
stress relating to margin or collateral?
3. Streamline Reporting of ``Operations Events''
The SEC proposes to amend section 5 Item G (``Item G'') by
narrowing what constitutes an ``operations event'' that triggers
current reporting.\150\ Currently, large hedge fund advisers to
qualifying hedge funds must file Item G if an ``operations event''
occurs. An ``operations event'' occurs when ``a reporting fund or
private fund adviser experiences a significant disruption or
[[Page 22256]]
degradation of the reporting fund's critical operations.'' The current
form defines ``critical operations'' to mean the ``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.''
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\150\ See Form PF section 5, Item G and Form PF Glossary of
Terms.
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The SEC proposes to streamline the definition of an ``operations
event'' by incorporating the first prong of ``critical operations''
directly into the definition of an ``operations event'' while
eliminating the second prong of ``critical operations,'' and removing
all other references to ``critical operations,'' including in the
Glossary of Terms. As a result, the proposed definition of an
``operations event'' would capture when the reporting fund or private
fund adviser experiences a significant disruption or degradation of the
operations necessary for the investment, trading, valuation, reporting,
and risk management of the reporting fund, whether as a result of an
event at a service provider to the reporting fund, the reporting fund,
or the adviser.
The SEC added Item G in 2023 because an operations event involving
a qualifying hedge fund can have systemic risk implications if the fund
is not able to trade as a result of such an event, or notice of
operation events from multiple advisers could provide an early
indicator of market-wide operations events.\151\ While the first prong
of the ``critical operations'' definition captures specific ``key
operations'' that could be critical, the second prong is a broader
catchall for other situations that might directly or indirectly cause a
fund or adviser to be unable to comply with laws and regulations such
as an adviser's fiduciary duty. In the 2022 proposal, the SEC explained
that the definition implied that both prongs must be met to trigger a
reportable event, but the final amendments changed the conjunction
between the two prongs from ``and'' in the proposal to ``or'' in the
2023 release to specify that the SEC ``intended for each provision of
the definition to be considered a key operation.'' \152\
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\151\ See May 2023 Form PF Adopting Release at section II.A.6.
\152\ See id. at n. 119.
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However, since current reporting came into effect, large hedge fund
advisers have had difficulty interpreting the scope of the second prong
and therefore whether certain types of operations events would require
them to file a current report for Item G. For example, it is unclear if
a large hedge fund adviser is required to report under the second prong
if it experiences an outage that may have an indirect effect on the
advisers' ongoing compliance program. Deleting the second prong while
keeping the first prong--operations necessary for the investment,
trading, valuation, reporting, and risk management of the reporting
fund--would focus the scope of the reporting trigger and help large
hedge fund advisers to understand exactly what is included in the
definition of an ``operations event.''
Removing the second prong and retaining the items delineated in the
first prong is sufficient to identify systemic risk that may be
triggered by an operations event at an adviser relative to the burden
of retaining the second prong.\153\ Therefore, the SEC proposes to
delete ``or (ii) the operation of the reporting fund in accordance with
the Federal securities laws and regulations'' from the definition of
``critical operations'' and fold the simpler definition into the
``operations event'' trigger definition to help reduce burdens and
confusion for filers when determining if an operations event has
occurred that triggers a filing. In addition, the SEC proposes to
delete the bulleted item ``Disruption or degradation of your ability to
comply with applicable laws, rules, and regulations'' from the options
listed in Question 5-29. This change would align Question 5-29 with the
proposed change to the definition of ``operations event.''
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\153\ See infra section III.C.15 for a more detailed discussion
of benefits and costs of focusing the definition of ``operations
event.''
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The SEC requests comment on the proposed change to the definition
of an ``operations event'':
103. Should the SEC delete the second prong of ``critical
operations'' and remove references to ``critical operations'' entirely?
Why or why not?
104. Should the SEC delete the operations event current reporting
trigger entirely? Why or why not?
105. If this second prong language is deleted, would the definition
of ``operations event'' become focused enough for advisers to
understand if one has occurred and sufficiently lessen the burden to
monitor for such operations event? If not, how should the definition of
``operations event'' be modified?
106. Are there other terms or situations that the SEC should
address to further specify what constitutes an ``operations event''?
107. Would the proposed change to the definition of ``operations
event'' unduly weaken investor protection or systemic risk monitoring
efforts?
4. Eliminate Current Reporting for Inability To Satisfy Redemption
Requests
The SEC proposes to amend section 5 Item I (``Item I'') to remove
the requirement to file a current report if a qualifying hedge fund is
unable to pay a redemption request.\154\ Currently, Item I requires a
current report to be filed if a 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.
---------------------------------------------------------------------------
\154\ See Form PF section 5, Item I. In addition, the SEC
proposes to delete ``was unable to pay or'' in Question 5-34 and
``and not yet paid'' in Question 5-35 to align with this proposed
change to the reporting requirement in Item I.
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The SEC added Item I in 2023 to allow it and FSOC to identify
stress at a reporting fund and evaluate the effects of these
circumstances on fund investors and the markets more broadly.\155\ The
SEC stated that the inability to satisfy redemptions or a prolonged
suspension of redemptions would provide a potential early warning of a
fund's liquidation and potentially allow the SEC or FSOC to analyze or
respond to any perceived harm to investors or systemic risks on an
expedited basis before they worsen.\156\
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\155\ See May 2023 Form PF Adopting Release at section II.A.7.b.
\156\ See id.
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Filers have raised concerns, in particular, around interpreting and
applying the first prong of this trigger, i.e., determining when a
reporting fund is ``unable to pay a redemption request.'' Some filers
have asked whether the intent of this prong is to capture all
circumstances in which a fund does not fulfill a redemption request in
cash. Other filers have stated that it is unclear whether a current
report is required to be filed if a fund redeems an investor by
providing securities (including limited partnership interests in other
funds) as a matter of course or at investor request to avoid negative
tax consequences. Other investors have stated that this reporting
trigger, as currently worded, does not align with industry practice
because an ``in-kind redemption'' generally is not considered a failure
to satisfy a redemption request under fund partnership agreements or
similar types of contractual arrangements.
Relatedly, in the SEC's experience, reporting under the first prong
of Item I has been inconsistent across large hedge fund advisers. Some
filers have interpreted this reporting trigger broadly while others
have interpreted it
[[Page 22257]]
narrowly, leading to inconsistent information that can be difficult to
compare across large hedge fund advisers. Furthermore, certain other
current reporting requirements--including for extraordinary investments
losses in Item B and for redemption suspensions lasting more than 5
consecutive business days in the second prong of Item I--already assist
the SEC and FSOC with identifying liquidity stress at a qualifying
hedge fund. As a result, the filings received under the first prong of
Item I generally have not been beneficial to the SEC or FSOC's investor
protection efforts or systemic risk assessment. Deleting the first
prong of Item I would reduce burdens for filers without significant
impact to the SEC or FSOC's investor protection efforts or assessment
of systemic risk.
The SEC requests comment on the proposed deletion of the first
prong of Item I:
108. Should the first prong of Item I be removed? Why or why not?
109. Does the first prong of Item I, as currently worded, align
with industry practice and understanding? Why or why not? Are there
certain industry practices that the first prong of Item I should be
revised to better reflect?
110. Instead of removing the first prong of Item I, should it be
modified to explicitly require reporting if a reporting fund is unable
to pay redemption requests in cash? If the first prong of Item I were
so modified, should an exception be made if a reporting fund's
partnership agreement explicitly permits non-cash redemptions?
111. If the first prong of Item I is not removed, should a
reporting adviser be required to make an Item I current report filing
automatically in the event that a redemption request is paid in-kind?
112. Should Item I in its entirety by removed?
O. Eliminate Form PF Private Equity Quarterly Reporting in Section 6
The SEC proposes to eliminate Form PF private equity quarterly
reporting (``section 6'') in its entirety.\157\ Currently, advisers to
private equity funds that undergo an adviser-led secondary transaction,
general partner removal, termination of the investment period, or
termination of fund (a ``private equity event'') must report in section
6 information about such private equity event within sixty calendar
days after the end of each calendar quarter. If a private equity event
did not occur within the quarter, then the adviser does not need to
file under section 6.
---------------------------------------------------------------------------
\157\ See Form PF General Instruction 3. We also propose to
remove any other references to section 6 throughout the form as well
as the definitions of ``adviser-led secondary transaction,''
``private equity event reports,'' and ``private equity reporting
event'' from the Glossary.
---------------------------------------------------------------------------
The SEC added section 6 to Form PF in 2023 based on the expectation
that receiving these reports on a quarterly basis would provide timely
notice of these private equity events and important information in
connection with the SEC's regulatory programs, including examinations,
investigations, investor protection efforts, and policy relating to
private fund advisers.\158\ At that time, the SEC stated that it
expected this section to improve the SEC's and FSOC's ability to
evaluate material changes in market trends at the reporting funds by
providing information about certain events that could significantly
affect both investors and markets more broadly.
---------------------------------------------------------------------------
\158\ See generally May 2023 Form PF Adopting Release at section
II.B for a discussion of the SEC's rationale for this section and
its reporting events.
---------------------------------------------------------------------------
The SEC has now received these private equity quarterly reports for
more than two years. In that time, we have observed that the events
reported in section 6 have proven less impactful for investor
protection efforts and monitoring systemic risk in the private equity
markets than anticipated. The events reported in section 6 have
reflected more idiosyncratic, firm-specific events that are not
necessarily an indicator of broader urgent harm. For example,
continuation funds have become increasingly common as an industry
trend, but an adviser might raise one for any number of reasons, many
of which do not signal systemic risk, such as continuing to maximize
the value of a high performing asset or providing existing investors
liquidity while attracting new investors.
Based on the relatively infrequent number of section 6 filings
received to date--combined with the reasons discussed above--the
information lost in section 6 for investor protection or the assessment
of systemic risk is likely to be small.\159\ Meanwhile, section 6 must
be filed on a timeframe outside of the regular Form PF reporting
frequency for private equity funds, which can be burdensome on affected
advisers relative to the reports' low observed relationship in
contributing towards investor protection and identifying systemic risk
in the private equity markets. Our proposed change to eliminate section
6 would streamline the form by removing information that is not as
critical to investor protection or identifying systemic risk as
initially expected, further reducing unnecessary burdens on private
equity fund advisers.
---------------------------------------------------------------------------
\159\ See infra section III.C.16 for a more detailed discussion
of benefits and costs of eliminating section 6.
---------------------------------------------------------------------------
We request comment on the proposal to eliminate section 6:
113. Should the Commissions, as proposed, remove section 6 in its
entirety? If not, what information should be retained? If section 6 is
retained, should the Commissions alter the type of information required
in the section or the frequency of reporting?
114. Would removing section 6 meaningfully alleviate burdens on
private equity fund advisers?
115. Would the proposed elimination of section 6 result in
appropriately collecting information about the private equity fund
industry necessary and appropriate in the public interest and for the
protection of investors, or for the assessment of systemic risk?
116. Is there an alternative way that the SEC should identify the
private equity events in section 6 such as by requiring reporting of
these events annually rather than quarterly? In particular, general
partner removals are rare but can raise investor protection concerns.
If the SEC were to eliminate section 6, should the SEC move this
specific question to section 1 and make it applicable to any type of
filing adviser to be reported on an annual basis? Why or why not? What
would be the additional burden of responding to this question annually?
P. Other Corrections and Revisions
The Commissions, and the SEC separately, as applicable, propose to
make the following corrections and other revisions in Form PF: \160\
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\160\ See also infra section III.C.17 for a more detailed
discussion of benefits and costs of these proposed amendments.
---------------------------------------------------------------------------
The Commissions and the SEC, as applicable, propose to
revise certain section headings to ensure they follow a consistent
format.\161\ Specifically, each section heading would specify which
types of advisers are required to complete the section, in a consistent
format. This proposed change is not intended to alter the substance of
which advisers complete the relevant sections of the form.
---------------------------------------------------------------------------
\161\ Proposed sections 2, 3, and 4.
---------------------------------------------------------------------------
The SEC proposes to correct instructions in sections 3 and
4, and the Commissions propose to simplify the instructions in section
2. Instructions in sections 3 and 4 mistakenly state that, with respect
to master-feeder arrangements and parallel fund structures, filers may
report collectively or separately about the component funds as provided
in the General
[[Page 22258]]
Instructions. However, General Instruction 6 requires filers to report
such component funds separately, subject to specified exceptions.\162\
The SEC proposes to correct this mistake by removing the erroneous
instruction in sections 3 and 4, and instead relying on General
Instruction 6 to instruct filers about how to report component funds.
The Commissions also propose to remove the instructions in section 2
about how to report component funds, and instead rely on General
Instruction 6 to instruct filers about how to report component funds,
to ensure that instructions in sections 2, 3, and 4 follow a consistent
format.
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\162\ See 2024 Form PF Adopting Release at section II.A.1.
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The Commissions propose to simplify instructions for
Question 25, by moving certain instructions from General Instruction 15
directly to Question 25. Currently, General Instruction 15 provides
that for Question 25 in particular, the numerator that advisers use to
determine the percentage of net asset value should be measured on the
same basis as gross asset value. General Instruction 15 further
provides that responses to Question 25 may total more than 100 percent.
We propose to move these instructions, which are specific to Question
25, directly to Question 25, to help ensure that instructions to
Question 25 are presented in an efficient manner that helps reduce the
amount of cross-referencing filers must do to understand the
instructions to Question 25.\163\ This proposed change does not alter
the substance of any instructions.
---------------------------------------------------------------------------
\163\ Proposed General Instruction 15 and proposed Question 25.
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The Commissions propose to correct current Questions 27
and 42. These two questions, along with current Questions 28 and 43,
instruct filers not to treat affiliated counterparty entities as a
single group, except that, if the applicable contractual and legal
documentation requires cross margining, filers must report certain
identifying information. While the instructions in current Questions 28
and 43 specify that filers must report the legal entity name, the
instructions in current Questions 27 and 42 mistakenly do not. To
correct this mistake, the Commissions propose to include the
instruction to report a legal entity name.\164\ These proposed
amendments are designed to help identify counterparties.
---------------------------------------------------------------------------
\164\ Proposed Question 27; proposed Question 42.
---------------------------------------------------------------------------
The Commissions propose to correct current Question
33(a).\165\ Current Question 33(a)'s table and instructions appear to
be inconsistent, because the table requires filers to report both the
``long value'' and ``short value'' of certain currency exposures, while
the instructions require filers to report the ``net long value'' and
``net short value'' of certain currency exposures. To solve this
inconsistency, the Commissions propose to correct the instructions to
help ensure filers understand that they must report the long value and
short value separately, without netting the two values together.\166\
This proposed change would be consistent with General Instruction 15,
which requires filers not to net long and short positions, unless
otherwise specifically indicated.
---------------------------------------------------------------------------
\165\ Proposed Question 33(a).
\166\ Proposed Question 33.
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The Commissions propose to add an instruction to current
Question 47.\167\ Current Question 47 requires filers to separate the
effects of certain market factors on their portfolio into long and
short components. Filers have questioned how to report such components
either (1) by indicating the long and short components with positive
and negative signs, respectively; or (2) by reporting the absolute
value of each of the long and short components. To help ensure advisers
understand the instructions and help ensure data is consistent and
comparable, we propose to instruct filers to indicate a negative effect
of the market factor change on the long and short components with a
negative sign and a positive effect of the market factor change on the
long and short components with a positive sign.\168\
---------------------------------------------------------------------------
\167\ Proposed Question 47.
\168\ Proposed Question 47.
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The Commissions propose to correct an error in the
definition of ``large private equity fund adviser'' in the Glossary of
Terms. The 2024 amendments inadvertently included an ``a'' after
``section 4,'' and as a result, this definition appears to direct
filers to a section 4a, instead of section 4. There is no section 4a;
therefore, we propose to correct the error so the term ``large private
equity fund adviser'' correctly references section 4.
The Commissions and the SEC, as applicable, request comment on the
proposed corrections and other revisions.
117. Should the Commissions, and the SEC, as applicable, adopt the
proposed corrections and other revisions, as proposed?
118. Is there an alternative way to correct the mistakes or help
ensure filers understand the questions?
119. Are there additional mistakes or clarifications that we should
consider? For example, for Question 25, should the numerator or
denominator change?
Q. Request for Comments on Private Credit Reporting
We are requesting comment on whether to modify the information that
advisers report about private credit funds on Form PF. Currently, the
Form PF Glossary of Terms does not specifically define ``private
credit'' or ``private credit fund.'' Private credit is an available
strategy option listed in the drop-down menu in Question 25, but
otherwise private credit fund advisers must follow the same
instructions as any other private fund when determining which sections
of the form must be completed for a particular private credit fund.
The private credit industry has grown significantly since the form
was adopted in 2011 and has grown quickly even since the 2024
Amendments.\169\ Some industry members have suggested that private
credit funds should report in a new section that is tailored to the
risk profile and investor protection concerns of private credit
strategies and assets. Others have suggested that new or modified
questions should be developed specifically for private credit fund
filers.
---------------------------------------------------------------------------
\169\ See, e.g., 2025 Private Credit Market Outlook--Part I,
Private Credit Market Trends: From Originations to Bank Partnerships
and Insurance, Paul Weiss, Mar. 10, 2025, https://www.paulweiss.com/media/oejpsdor/part-i-private-credit-market-trends_-from-originations-to-bank-partnerships-and-insurance.pdf (``Private
credit is a rapidly expanding sector that has grown nearly tenfold
to reach $1.5 trillion in 2024 and this remarkable growth trajectory
is expected to continue, reaching an estimated US$3.5 trillion by
2028.''). See also Understanding Private Credit's Rapid Growth,
Morgan Stanley, Oct. 3, 2025, https://www.morganstanley.com/ideas/private-credit-outlook-considerations (``The size of private credit
at the start of 2025 was $3 trillion, compared to about $2 trillion
in 2020, and it is estimated to grow to approximately $5 trillion by
2029.'').
---------------------------------------------------------------------------
We request comment on all aspects of private credit reporting on
Form PF, including the following items:
120. Should a new private credit Form PF section be added? If so,
what should the reporting threshold be? What data should be collected
on the fund? What data should be collected on the investments of the
fund? How, if at all, should the data collected address (a) credit
strategy, (b) gross and net assets under management, (c) leverage, (d)
financing counterparties, (e) loan maturity, (f) investor liquidity,
(g) liquidity management framework, (h) credit quality, and (i) credit
loan exposures? Are there other areas for which data should be
collected to better capture the operation and strategies of private
credit funds? Relatedly, should the section focus on funds making only
[[Page 22259]]
private credit investments or on any fund that has an investment that
is deemed to be private credit?
121. Should a new private credit subsection be added to an existing
section? If so, which section? If private credit is added as a
subsection to an existing section, should private funds that invest in
broadly syndicated loans be required to report in this new subsection?
Why or why not? If a private credit subsection is added to an existing
section, should it include both open-end and closed-end private funds
that invest in private credit? Why or why not? Should private funds
that invest in private credit be required to submit current reports
under section 5?
122. Where should private funds that employ short selling as part
of a private credit strategy report? Should such private funds report
in an existing section? Why or why not? Or, should such private funds
report in a new section or subsection? Why or why not?
123. Should we specifically define ``private credit''? Why or why
not? What should the definition be? Should any specific types of loans
be excluded from the definition? Why or why not?
124. Should we specifically define ``private credit fund''? Why or
why not? What should the definition be? Should securitized asset funds
that invest in private credit be included in the definition of a
private credit fund? Why or why not? Should any of the definitions of
the current types of funds, including the definitions for hedge funds
and private equity funds, be modified to include or exclude funds that
invest in private credit? Should a definition of a private credit fund
include funds that use or may use leverage? If yes, how should leverage
be calculated? Should the definition include funds that are not
permitted to use leverage?
125. If a new section for private credit is not created, should we
add new questions for private credit-related filers? If so, in which
section should additional questions be added? Or should we exempt them
from certain existing questions? Should such questions focus on funds
making only private credit investments or on any fund that has an
investment that is deemed to be private credit? Should we require
advisers to private credit funds to report under only certain questions
from each of sections 3 and 4 if they meet the size thresholds for
those sections and if so which ones?
126. What are the greatest risks from private credit or private
credit funds from a systemic risk perspective?
R. Proposed Transition Period
We propose to provide a minimum 12-month transition period from the
date of publication in the Federal Register for filers to comply with
the proposed amendments, if adopted, with some filers having longer to
accommodate their reporting cycle.\170\ Given the nature of the
proposed amendments, such as eliminating many requirements, a 12-month
transition period should provide filers with sufficient time to
implement system changes, test them, and come into compliance with the
proposed requirements. We are mindful that the compliance date for the
2024 amendments is October 1, 2026, and the Commissions will consider
how the timing of any amendments that the Commissions may adopt will
relate to that timing.\171\
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\170\ See January 2025 Form PF Extension Release at section I
for a discussion of compliance date alignment with reporting cycles.
\171\ See supra footnote 8.
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We request comment on the proposed transition period:
127. Would the proposed transition period provide filers with
enough time to comply with the proposed amendments? Should it be longer
or shorter? For example, should it be six months or 18 months, instead
of 12 months?
128. Instead of the proposed transition period, should the
transition period differ for certain proposed amendments? For example,
should the SEC's proposed amendments have a longer or shorter
transition period from the jointly proposed amendments? Should either
or both of the proposed threshold amendments have a shorter or longer
transition period than the other proposed amendments? For example,
should the proposed filing threshold have a compliance date that is the
same as the adopting release's publication in the Federal Register,
while the other proposed amendments would have a 12-month transition
period?
III. Economic Analysis
A. Introduction
The SEC is mindful of the economic effects, including the costs and
benefits, of the proposed amendments. Section 202(c) of the Advisers
Act provides that when the 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.\172\ The
analysis below addresses the likely economic effects of the proposed
amendments, including the anticipated and estimated benefits and costs
of the amendments and their likely effects on efficiency, competition,
and capital formation. The SEC also discusses the potential economic
effects of certain alternatives to the approaches taken in this
proposal.
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\172\ 15 U.S.C. 80b-2(c).
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The Commissions are proposing amendments that would:
1. eliminate filing obligations for smaller advisers, irrespective
of the categories of private funds they advise;
2. eliminate certain reporting obligations for smaller hedge fund
advisers;
3. eliminate certain other requirements, including quarterly event
reporting, certain current reporting, and other requirements; and
4. streamline certain requirements and make corrections as well as
other revisions.
The proposed amendments are designed to eliminate certain burdens,
among other things, while ensuring Form PF continues to collect
information necessary and appropriate in the public interest and for
the protection of investors or for the assessment of systemic risk in
the U.S. financial system by FSOC.\173\
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\173\ See supra section I.
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The compliance date for the 2024 Form PF amendments has been
postponed multiple times.\174\ Since the adoption of the 2024
amendments, industry members have provided feedback regarding some of
these requirements, stating that some have been particularly
challenging to implement.\175\
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\174\ See supra footnote 8 and accompanying text.
\175\ See, e.g., supra footnotes 53 and 66; sections II.F, II.K.
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Many of the benefits and costs discussed below are difficult to
quantify. 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. For example, while we
anticipate that the quantified cost-savings estimates would apply
broadly for each category of private fund adviser, these estimates
depend on many factors that could differ across reporting persons,
including advisers' existing systems and the nature and degree of
advisers' efforts to prepare for the postponed compliance dates for the
2024 amendments, and for which we do not have data.\176\ Further, we
are unable
[[Page 22260]]
to quantify costs arising from any increase in systemic risk that could
result from the proposed amendments, although we are able to describe
mitigating factors and expect that the practical effects of the
amendments on systemic risk monitoring would be small.\177\ While the
SEC has attempted to quantify economic effects where possible, much of
the discussion of economic effects is thus qualitative in nature.
Accordingly, the SEC seeks comment on all aspects of the economic
analysis, especially any data or information that would enable a
quantification of the proposal's economic effects.\178\
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\176\ See infra footnotes 240 and 241 and accompanying text.
\177\ See infra section III.C.1.
\178\ See infra section III.G.
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B. Baseline
The baseline against which the costs, benefits, and the effects on
efficiency, competition, and capital formation of the proposed
amendments are measured consists of the current state of the market,
Form PF filers' current practices, and the current regulatory
framework.\179\
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\179\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-14 (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.'').
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1. Regulatory Baseline
General Background. Form PF is filed by investment advisers to
provide the Commissions and FSOC with information on the private funds
they advise. 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.\180\ Advisers generally file
at quarterly or annual frequencies and fill out different sections of
the form depending on their assets under management and the types of
private funds they manage. All private fund advisers that are required
to file Form PF must complete sections 1a and 1b.\181\ In addition, all
private fund advisers that are required to file Form PF and that advise
one or more hedge funds must complete section 1c.\182\ Large hedge fund
advisers, defined as any private fund advisers that are required to
file Section 2 of Form PF for a qualifying hedge fund, must file at a
quarterly frequency and complete section 2 for each qualifying hedge
fund that they advise.\183\ Similarly, large liquidity fund advisers,
defined as any private fund advisers that are required to file section
3 of Form PF, must file at a quarterly frequency and complete section 3
for each liquidity fund they advise.\184\ Large private equity fund
advisers, defined as any private fund advisers that are required to
file section 4 of Form PF, file at an annual frequency and are required
to complete section 4 for each private equity fund they advise.\185\ In
sections 2, 3, and 4, advisers generally provide more granular
information about the qualifying hedge funds, liquidity funds, and
private equity funds that they advise, respectively.\186\ In addition,
as discussed below, large hedge fund advisers and advisers to private
equity funds must file sections 5 and 6, respectively, upon the
occurrence of certain events.\187\ Lastly, smaller private fund
advisers are considered to be all other advisers required to file Form
PF that do not meet the definition of large hedge fund adviser, large
liquidity fund adviser, or large private equity fund adviser. Smaller
private fund advisers must file Form PF annually.\188\ The thresholds
used to define the different categories of advisers were introduced
when Form PF was initially adopted in 2011.
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\180\ Private fund assets under management are the portion of an
adviser's regulatory assets under management that are attributable
to private funds it advises. A private fund is 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)(1) or 3(c)(7) of that Act.
See Form PF Glossary of Terms (definitions of ``private fund assets
under management'' and ``private fund'').
\181\ See Form PF General Instruction 3.
\182\ Id.
\183\ A private fund adviser is required to file section 2 of
Form PF for each qualifying hedge fund it advises if (collectively
with its related persons) it 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 its most recently completed
fiscal quarter. A qualifying hedge fund is any hedge fund with 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 adviser's
fiscal quarter immediately preceding its most recently completed
fiscal quarter. See Form PF General Instructions 3 and 9; Form PF
Glossary of Terms (definitions of ``large hedge fund adviser'' and
``qualifying hedge fund'').
\184\ A private fund adviser is required to file section 3 of
Form PF if it advises one or more liquidity funds and it
(collectively with its related persons) had at least $1 billion in
combined money market and liquidity fund assets under management as
of the last day of any month in the fiscal quarter immediately
preceding its most recently completed fiscal quarter, See Form PF
General Instructions 3 and 9; Form PF Glossary of Terms (definition
of ``large liquidity fund adviser'').
\185\ A private fund adviser is required to file section 4 of
Form PF if it (collectively with its related persons) had at least
$2 billion in private equity fund assets under management as of the
last day of its most recently completed fiscal year. See Form PF
General Instructions 3 and 9; Form PF Glossary of Terms (definition
of ``large private equity fund adviser''). See also infra section
III.C.17.
\186\ See Form PF sections 2, 3, and 4.
\187\ See Form PF General Instruction 3; Form PF sections 5 and
6.
\188\ See Form PF General Instruction 9.
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All private fund advisers required to file Form PF are investment
advisers registered or required to be registered with the SEC. As such,
they are also required to file Form ADV.\189\ In addition to providing
information about themselves, investment advisers to private funds
report on Form ADV general information about the private funds that
they advise, including organizational and operational information, as
well as information about the funds' key service providers. Hence, Form
ADV provides the SEC and investors with information about advisers
(including private fund advisers) and the funds they manage. It is
designed to provide the SEC with information necessary for its investor
protection efforts. In contrast, Form PF is primarily designed to
facilitate FSOC's assessment of systemic risk, although it is available
to assist the Commissions in their regulatory programs for the
protection of investors.\190\
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\189\ 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/.
\190\ See 15 U.S.C. 80b-4(b)(1)(A) and 15 U.S.C. 80b-4(b)(5).
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Past Form PF Amendments. Since its adoption in 2011 pursuant to the
Dodd-Frank Act,\191\ Form PF has been amended several times, including
in 2023 and 2024.\192\ The 2023
[[Page 22261]]
amendments added sections 5 and 6 to Form PF requiring, respectively,
large hedge fund advisers and all private equity fund advisers to
report the occurrence of certain events to the SEC. Section 5 requires
large hedge fund advisers to report as soon as practicable (but no
later than 72 hours) the occurrence of extraordinary investment losses,
certain margin events, counterparty defaults, material changes in prime
broker relationships, operations events, and certain events associated
with redemptions.\193\ Section 6 directs advisers to private equity
funds to report on adviser-led secondary transactions, general partner
removal, termination of the investment period, or termination of the
fund within 60 days of the end of each calendar quarter.\194\
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\191\ See 2011 Form PF Adopting Release.
\192\ 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 Adopting Release. In July
2023, the SEC amended Form PF section 3 in connection with certain
money market fund reforms. See July 2023 Form PF Amending Release.
In February 2024, the SEC and CFTC jointly adopted amendments to
Form PF to enhance information advisers file on Form PF and to
improve data quality. See 2024 Form PF Adopting Release. In
addition, in July 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, Release No. IA-3879 (Jul. 23,
2014), [79 FR 47736 (Aug. 14, 2014)].
\193\ See Form PF section 5.
\194\ Advisers are not required to file a section 6 quarterly
report if a private equity reporting event did not occur during that
calendar quarter. See Form PF section 6.
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The 2024 amendments, the compliance date of which has been extended
multiple times since their adoption,\195\ added new questions and
modified existing questions to collect more granular data.\196\ The
following subsections describe questions that constitute a relevant
baseline to the proposed amendments to Form PF.
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\195\ See supra footnote 8.
\196\ These unimplemented amendments should be considered as
part of the regulatory baseline as they are set to be implemented on
October 1, 2026 in the absence of the adoption of the proposed
amendments. The effective date for the 2024 amendments was March 12,
2025.
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Form PF Instructions. The 2024 amendments changed Form PF's General
Instructions, which are applicable to all filers. General Instruction 6
requires advisers to report separately each component fund of master-
feeder arrangements, except for feeder funds that invest all of their
assets in (i) a single master fund, (ii) U.S. treasury bills, and/or
(iii) cash and cash equivalent.\197\ General Instruction 7 indicates
that advisers must identify any trading vehicles for which the
reporting fund holds assets, incurs leverage, or conducts trading or
other activities.\198\ Additionally, General Instructions 7 and 8
describe when and how an adviser must ``look through'' a reporting
fund's investments in other entities for the purpose of completing
various Form PF questions. General Instructions 7 and 8 direct advisers
to not look through the reporting fund's investments in other funds or
entities (not including trading vehicles) when answering questions,
unless the question instructions direct the adviser to do so.\199\
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\197\ See Form PF General Instruction 6.
\198\ See Form PF General Instruction 7; Question 9.
\199\ See Form PF General Instructions 7 and 8. The questions
for which advisers must look through are explicitly identified in
General Instructions 7 and 8 as Questions 32, 33, 35, 36, and 47.
The instructions to these questions indicate that reasonable
estimates used to report indirect exposures reported in these
questions are permissible. The Glossary of Terms includes certain
asset class definitions (e.g., ``commodities''), as well as the
definition of a reference asset, which also pertain to indirect
exposures. See infra footnote 295.
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Counterparties. The 2024 amendments introduced new requirements for
hedge fund counterparty exposure reporting.\200\ Specifically, the
amendments added requirements for advisers of hedge funds to complete a
consolidated counterparty exposure table where they must detail a
fund's borrowing, collateral received, lending, and posted collateral
for different types of borrowing, lending, and similar transactions,
aggregated across all of the fund's counterparties. Question 26
requires a version of this consolidated counterparty exposure table for
all hedge fund advisers, except for qualifying hedge funds advised by
large hedge fund advisers. Question 41 contains a consolidated
counterparty exposure table with more granular requirements than
Question 26 and is required to be completed only by large hedge fund
advisers for each qualifying hedge fund they advise.\201\ Additional
questions ask for more detailed information on hedge funds' most
important ``debtor'' and ``creditor'' counterparties. Question 42
requires advisers to identify and provide information on counterparties
to which reporting funds owed an amount in respect of cash borrowing
entries (before posted collateral) equal to or greater than certain
thresholds.\202\ Question 43 requires advisers to identify and provide
information on counterparties to which reporting funds had net mark to
market counterparty credit exposure, after taking into account
collateral received or posted by the reporting fund, equal to or
greater than certain thresholds.
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\200\ The 2024 amendments also amended Question 18 (then
Question 12), which requires filing advisers to provide information
on their funds' total borrowing and the types of creditors from
which this borrowing is obtained. Large hedge fund advisers are not
currently required to complete Question 18 for their qualifying
hedge funds.
\201\ See supra section II.L; infra section III.C.13.
\202\ Questions 42 and 43 are required for qualifying hedge
funds advised by large hedge fund advisers. Questions 27 and 28 are
similar to Questions 42 and 43 and are required for all hedge fund
advisers, except for qualifying hedge funds advised by large hedge
fund advisers.
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Moreover, Form PF requires large hedge fund advisers to report the
percentages of the total amount of collateral and other credit support
that counterparties have posted to each of their qualifying hedge funds
that (i) may be rehypothecated and (ii) that the reporting fund has
rehypothecated.\203\
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\203\ See Form PF Question 45. This question was not modified by
the 2024 amendments and has been in Form PF since its inception.
---------------------------------------------------------------------------
Gross and Netted Investment Exposure. The 2024 amendments increased
the amount of information that is required to be reported by advisers
to hedge funds regarding their investment exposures. Amendments to
section 1c require all hedge fund advisers to report both value traded
(in U.S. dollars) and value as of the end of the reporting period for
different types of instruments, categorized by trading mode where
applicable.\204\ For large hedge fund advisers, the 2024 amendments
require additional information about each qualifying hedge fund's long
and short positions by sub-asset class and instrument type.\205\ Large
hedge fund advisers must report the dollar value of the qualifying
hedge fund's long and short positions as well as its adjusted (or
netted) exposure of long and short positions. The 2024 amendments also
require large hedge fund advisers to report industry exposure
information via six-digit NAICS codes at the level of each qualifying
hedge fund's investment instruments,\206\ as well as information on the
fund's netted and gross exposure to reference assets for each month of
the reporting period.\207\
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\204\ See Form PF Questions 29 and 30.
\205\ See Form PF Question 32.
\206\ See Form PF Question 36.
\207\ See Form PF Question 39 and 40.
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Turnover and Volatility. The 2024 amendments also require large
hedge fund advisers to report turnover information by asset class at a
monthly frequency for each qualifying hedge fund they advise.\208\ The
2024 amendments also augmented the collection of performance data for
all reporting funds by requiring aggregated calculated value and
monthly volatility of daily log returns if an adviser calculates a
market value on a daily basis for any position in the reporting fund's
portfolio.\209\ This new question also asks whether the daily return
rates are reported to current or prospective investors and requires
information about drawdowns for the reporting fund.
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\208\ See Form PF Question 34.
\209\ See Form PF Question 23(c).
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Miscellaneous Instructions. Form PF includes instances of errors or
inconsistencies between the General Instructions and individual
questions.
[[Page 22262]]
Filers have also indicated certain elements of Form PF that they
believe do not provide adequate instruction. These instances constitute
part of the relevant baseline to the proposed amendments to Form PF, as
described below.
For example, the header for some (but not all) of the sections
includes a parenthetical statement indicating the type of filer
required to complete the section. Currently, the headings for sections
2 and 3 do not specify who must complete these sections, while the
heading for section 4 erroneously indicates that it must be completed
by all large private fund advisers. In addition, the instructions for
sections 3 and 4 of Form PF mistakenly state that filers may report
collectively or separately about the component funds of master-feeder
fund structures, as provided in the General Instructions,\210\ while
General Instruction 6 requires filers to report such component funds
separately, subject to some exceptions. Further, the definition of
large private equity fund adviser in the Glossary of Terms erroneously
refers to section 4a of Form PF, which does not exist.
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\210\ See Form PF sections 3 and 4. The instructions for section
2 specify that for such arrangements and structures that comprise
qualifying hedge funds, filers must report the component funds as
provided in General Instructions 3, 5, and 6. See Form PF section 2.
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General Instruction 15 states that, for Question 25, the numerator
used to determine the percentage of net asset value should be measured
in the same basis as gross asset value. The placement of this
instruction inadvertently creates potentially error-inducing cross
references between the Question 25 instructions and the General
Instructions. Separately, the instructions in Questions 27 and 42
mention the LEI, but not the legal entity name, of the entities in
connection with affiliated counterparties, in contrast to the
instructions to Questions 28 and 43. The omission of the legal entity
name in these instructions is inconsistent with the inclusion of
counterparty legal entity name in the tables included in Questions 27
and 42. In addition, Question 33 asks large hedge fund advisers to
report monthly information on the qualifying hedge funds' currency
exposure arising from foreign exchange derivatives and all other assets
and liabilities of the funds that are denominated in a currency other
than the reporting fund's base currency. However, the table in Question
33(a) requires advisers to report both the ``long value'' and the
``short value,'' while the question text mistakenly requires advisers
to report the ``net long value'' and the ``net short value.'' Finally,
Question 47, which requires large hedge fund advisers to separate the
effects of certain market factors on their qualifying hedge funds'
portfolios into long and short components, does not include an
instruction on appropriate mathematical signage. Some advisers have
questioned whether to report short values with a negative value or as
an absolute value.\211\
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\211\ See supra section II.P.
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2. Affected Parties
The proposed amendments would amend reporting requirements for
advisers to private funds and could also affect service providers
engaged by private funds or their advisers.
Private fund advisers would be directly affected by the proposed
amendments. Advisers that are registered or required to be registered
with the SEC and have private fund assets under management of at least
$150 million file Form PF. The filing cadence and the sections
completed depend both on the type of funds advised by an adviser and
the adviser's assets under management.\212\ All private fund advisers
that file Form PF submit more general information in sections 1a and 1b
of the form about the private funds they advise.\213\ Advisers to hedge
funds complete section 1c for each hedge fund they advise.\214\ Form PF
solicits more detailed information on qualifying hedge funds managed by
large hedge fund advisers,\215\ liquidity funds managed by large
liquidity fund advisers,\216\ and private equity funds managed by large
private equity fund advisers.\217\
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\212\ See supra section III.B.1.
\213\ Id.
\214\ Id.
\215\ Id. A qualifying hedge fund is a hedge fund that has a net
asset value of at least $500 million. See Form PF Glossary of Terms
(definition of ``qualifying hedge fund''). Large hedge fund advisers
are also subject to current event reporting under section 5.
\216\ See supra section III.B.1.
\217\ Id. Private equity fund advisers are also subject to
quarterly event reporting under section 6.
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Advisers manage assets on behalf of the private funds they advise
and typically cover fund operating costs out of these assets. Fees
charged to the fund lower the net return that investors receive from
the fund. Investors in private funds are thus affected by any
regulatory changes, including the reporting requirements of Form PF,
affecting the fund adviser's costs to the extent that cost savings or
increases are passed through to the funds.\218\
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\218\ See infra footnote 230 and accompanying text.
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As of the first quarter of 2025,\219\ the universe of Form PF
filers consists of 3,999 advisers that advise 54,039 private funds with
approximately $25.49 trillion in gross asset value (``GAV'') and $16.43
trillion in net assets value (``NAV'').\220\
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\219\ Here and throughout this economic analysis, Form PF
statistics account for filers whose fiscal year (quarter) does not
align with calendar year (quarter) and filers with different
reporting cadences (annual vs quarterly). For a description of how
these filers are handled, see Private Fund Statistics as of calendar
quarter 1 of 2025, https://www.sec.gov/files/investment/private-funds-statistics-2025-q1.pdf at Appendix 11.2.
\220\ See Private Fund Statistics as of calendar quarter 1 of
2025, https://www.sec.gov/files/investment/private-funds-statistics-2025-q1.pdf at Table 1.3, Table 1.1, Table 2.1 and Table 2.3,
respectively.
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Among the private funds managed by advisers registered with the SEC
and filing Form PF, hedge funds are the largest category by GAV: hedge
fund assets total $12.59 trillion in aggregate GAV and $5.42 trillion
in aggregate NAV.\221\ These totals are aggregated over 9,822 funds
advised by 1,830 advisers.\222\ Of those, 2,076 are qualifying hedge
funds advised by large hedge fund advisers and have an aggregate GAV
(NAV) of $10.76 trillion ($4.33 trillion) managed by 617 advisers.\223\
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\221\ Id. at Table 2.1 and Table 2.3, respectively.
\222\ Id. at Table 1.1 and Table 1.3, respectively.
\223\ Id. at Table 1.2, Table 2.2, Table 2.4 and Table 1.3,
respectively.
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Private equity funds are the largest category when measured by the
number of funds, with 24,986 funds advised by 1,935 advisers.\224\
Private equity funds also constitute a sizable portion of private fund
assets under management, with an aggregate GAV (NAV) of $7.94 trillion
($7.28 trillion).\225\ Among these advisers, 541 meet the definition of
large private equity fund advisers, managing 10,349 private equity
funds with an aggregate GAV (NAV) of $6.46 trillion ($6.01
trillion).\226\
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\224\ Id. at Table 1.1 and Table 1.3, respectively.
\225\ Id. at Table 2.1 and Table 2.3, respectively.
\226\ Id. at Table 1.3, Table 1.2, Table 2.2 and Table 2.3,
respectively.
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The remaining categories of funds reported on Form PF are real
estate funds, securitized asset funds, liquidity funds, venture capital
funds, and other private funds. There are 19,231 such funds.\227\ These
funds have $4.96 trillion ($3.73 trillion) in aggregate GAV (NAV).\228\
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\227\ Id. at Table 1.1 (obtained by summing across these
remaining categories). As many advisers manage assets for more than
one type of private fund reported on Form PF, the number of advisers
to these remaining categories cannot be obtained by summing across
fund types in Table 1.3.
\228\ Id. at Table 2.1 and Table 2.3, respectively. Each dollar
amount is obtained by summing across these remaining categories in
these Tables.
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[[Page 22263]]
The proposed amendments to Form PF may also affect service
providers that private funds or their advisers hire to perform
functions related to completing and filing Form PF. These service
providers may assist advisers in populating the form, provide software
to compute certain statistics required by the form, or may provide data
solutions, among other possible services. Advisers generally choose to
retain the services of a service provider when it is more cost
effective for the adviser than performing a particular function
themselves. Some advisers may reevaluate their choice to retain service
providers to assist in filing Form PF in light of the lower expected
burdens of the proposed amendments.
C. Benefits and Costs
1. General Considerations
The benefits and costs relative to the baseline are discussed for
each of the proposed amendments in the subsections below.\229\ In
general, the amendments would reduce costs for advisers to private
funds that file Form PF, which could ultimately lead to lower fees for
investors in these funds. Specifically, the proposed amendments would
reduce the set of advisers that would be required to file Form PF,
reduce the set of advisers that would be required to complete certain
sections of Form PF, and reduce the burden of filing Form PF for
advisers that would continue to file the form. Any portion of the
associated cost savings of filing Form PF that would not be absorbed by
advisers would be passed on to investors via reductions in
expenses.\230\
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\229\ While the proposed amendments could also affect the
usefulness of this data for the CFTC, this economic analysis does
not include the benefits and costs associated with the CFTC's use of
Form PF reporting.
\230\ Depending on the agreement between the fund's general
partner and limited partners, the way a fund's costs are reflected
in its expenses may be direct or indirect. To the extent that the
proposed amendments would lower costs to advisers of filing Form PF,
including the costs associated with hiring service providers to
perform functions related to completing and filing Form PF, these
cost-savings could be passed on to investors.
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The proposed amendments would bring cost reductions to private fund
advisers. These benefits would result from (1) fewer advisers that
would have Form PF reporting obligations and (2) reduced burdens for
advisers that would continue to file Form PF. Burden reduction for
private fund advisers would take the form of fewer resources that would
be devoted to monitoring, collecting, and reporting information to meet
Form PF reporting obligations. This burden reduction is quantified
later in this section.\231\
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\231\ See infra section III.C.18.
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The extent of the reduction in costs resulting from the proposed
amendments for a specific adviser would also be affected by the number
of private funds managed by the adviser.\232\ Advisers managing many
funds are likely to spend more time and resources on filing Form PF,
particularly if many of the funds have characteristics that require
individualized attention to file accurate reports. At the same time,
advisers managing multiple funds are likely to spread some of the costs
associated with filing Form PF across multiple funds. Hence, the
reduction in costs per adviser that could result from the proposed
amendments may not be proportional to the number of private funds that
an adviser manages.\233\
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\232\ While advisers managing many private funds generally have
more private assets under management than advisers managing fewer
private funds, the scale and complexity considerations discussed
here are distinct from the advisers' Form PF filing obligations that
would result from the proposed filing and reporting thresholds. See
infra section III.C.18 for quantification of cost reductions
resulting from the proposed threshold changes.
\233\ For example, if an adviser manages several funds that
share service providers and infrastructure, the compliance costs of
filing Form PF may be better shared among these funds. The cost
savings associated with the proposed amendments would likely be
smaller for such funds.
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The proposed amendments would reduce the number of advisers that
would file Form PF and would eliminate certain questions that would be
reported under the baseline.\234\ These changes would thus result in
less data being available to the regulators that use Form PF.\235\ In
principle, the loss of this data could affect the monitoring of
potential systemic risk and investor protection efforts relating to
activities in the private fund industry to the extent that information
relevant for such purposes would not be collected under the proposed
amendments. However, we expect that the practical effects of the
amendments on systemic risk monitoring and investor protection efforts
would be small. This is because the vast majority of private fund
assets under management are held in private funds advised by advisers
that would continue to file Form PF under the proposed $1 billion
threshold.\236\ Similarly, the proposed large hedge fund adviser
reporting threshold of $10 billion would have a limited effect on Form
PF's coverage of hedge fund assets held in funds advised by large hedge
fund advisers.\237\ Lastly, the responses to many of the questions that
would be eliminated under the proposed amendments carry limited
information relevant for systemic risk monitoring,\238\ or could
partially be inferred from responses to other Form PF questions.\239\
Hence, we do not expect that systemic risk monitoring and investor
protection efforts would be significantly affected by the proposed
amendments.
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\234\ As noted above, the SEC is also proposing to require its
staff to report to the SEC on each filing and reporting threshold in
the form, assessing whether any should be adjusted, approximately
five years after the compliance date for the amendments to the form
and approximately every five years thereafter. See supra footnote
36. These staff reports would help the SEC periodically evaluate the
continued appropriateness of the filing and reporting thresholds in
all respects, including whether proposing revisions to the
thresholds would be appropriate. This report and related review
would be designed to ensure that the form continues to impose
minimal filing burdens for small advisers, while continuing to
collect data on a significant percentage of private fund assets.
\235\ To the extent that SEC staff currently use information on
Form PF that would no longer be reported under the proposed
amendments to assist with regulatory programs for the protection of
investors, the loss of this information could impact staff's ability
to implement such activities efficiently. See supra text
accompanying footnote 190. If staff are unable to substitute other
sources of information, including from Form ADV, this could
ultimately affect advisers and investors.
\236\ See infra footnote 244.
\237\ See infra footnote 260.
\238\ See e.g. infra sections III.C.9, III.C.14, and III.C.16.
\239\ See, e.g., infra sections III.C.7, III.C.10, and III.C.12.
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In the analysis below, we assume that advisers have already
incurred the one-time costs necessary to comply with the 2024
amendments.\240\ However, we recognize that this may not fully be the
case for all advisers and that the cost savings associated with the
proposed modifications of certain questions may depend on the specific
steps an individual adviser has taken in preparation for these
amendments ahead of the compliance date.\241\ We also recognize that
there might be one-time costs for existing filers of Form PF associated
with modifying their systems to reflect the reduced granularity or
outright removal of certain information to be reported under the
proposed amendments. However, we anticipate that these costs would be
insignificant,
[[Page 22264]]
particularly compared to the cost savings that would ultimately result
from these changes.
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\240\ See 2024 Form PF Adopting Release at section IV.C.2. One
exception is in the analysis of cost savings from the proposed
amendments to industry concentration reporting in Question 36. For
this question, we understand that many large hedge fund advisers
have been unable to map some assets to 6-digit NAICS codes. See
infra section III.C.11.
\241\ For example, an adviser that had fully prepared to report
question 23(c) would not avoid the one-time costs associated with
its preparation. Except for the proposed increases in filing and
large hedge fund adviser reporting thresholds, this analysis does
not explicitly consider the likely effects of proposed amendments on
future one-time cost savings of advisers that are not currently
subject to the requirements being amended.
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2. Increase the Filing Threshold for All Form PF Filers
Currently, advisers that are registered or required to be
registered with the SEC and that manage one or more private funds must
file Form PF if they, collectively with their related persons, have at
least $150 million in private fund assets under management as of the
last day of their most recently completed fiscal year.\242\ The
proposed amendments would increase this threshold to $1 billion.\243\
As a result, a number of advisers required to file Form PF under the
current Form PF instructions would not be required to file Form PF
under the proposed change in filing threshold. Based on Form PF data
for the first quarter of 2025, we estimate that the number of Form PF
filers would decrease from 3,999 to approximately 2,280.\244\ The
corresponding percentage of private fund gross assets managed by
investment advisers registered with the SEC that would be reported on
Form PF would decrease from approximately 96 percent to approximately
94 percent.
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\242\ See Rule 204(b)-1(a); Form PF General Instruction 1.
\243\ See proposed Rule 204(b)-1(a); proposed Form PF General
Instruction 1.
\244\ Based on data for the first quarter of 2025, 3,999
advisers reported 54,039 private funds on Form PF. These funds
collectively held $25,491 billion in gross assets, representing
approximately 96 percent of the private fund gross assets reported
by registered investment advisers. We estimate that under the
proposed increase in filing threshold, 2,280 advisers would have
reported 44,312 private funds on Form PF. These funds collectively
held $24,981 billion in gross assets, representing 94 percent of the
private fund gross assets reported by registered investment
advisers.
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Benefits
The main benefit of this proposed increase to the Form PF filing
threshold would be to eliminate the burden for advisers that would not
have to file Form PF under the proposed threshold but who must file
Form PF under the current threshold.\245\ The increased filing
threshold would reduce the set of advisers that incur the compliance
costs associated with filing Form PF.\246\ All advisers with private
fund assets under management between $150 million and $1 billion would
save on the costs associated with the ongoing filing of Form PF.\247\
In addition, advisers that are not currently required to file Form PF
because their private fund assets under management are below $150
million would avoid the one-time costs associated with filing Form PF
for the first time when their private fund assets under management
reach this threshold, if this were to occur.\248\ Advisers below this
threshold would also avoid ongoing costs associated with monitoring
their private fund assets under management to the extent they keep this
amount beneath the current $150 million filing threshold so that they
are not required to file Form PF.\249\
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\245\ See supra footnote 244 and accompanying text.
\246\ See infra section III.C.18 at Table 7. Under the proposed
amendments, we estimate that the compliance costs of filing Form PF
for smaller private fund advisers would be $31,677 per adviser for
initial filings and $8,700 per adviser for ongoing filings. These
costs, and therefore the estimated cost savings per adviser
attributable to the proposed filing threshold increase, are averages
for smaller private fund advisers and would generally scale with the
number of private funds managed. Cost savings would also be higher
for smaller private fund advisers that advise more hedge funds
relative to those that advise fewer, as advisers must complete
section 1c for each hedge fund they advise. See also infra section
IV.A.3.
\247\ Additionally, the SEC anticipates receiving fewer final
filings and temporary hardship requests on an ongoing basis due to
the reduced set of advisers that would file Form PF under the
proposed filing threshold. The cost savings that would be associated
with this decrease are estimated to be $5,901 (calculated as $4,879
saved in final filing costs plus $1,022 saved in temporary hardship
costs). See infra section III.C.18 at Table 11. But see infra
footnote 255 and accompanying text.
\248\ For advisers with private assets under management that
would eventually exceed the proposed $1 billion filing threshold,
these one-time costs associated with filing Form PF for the first
time would be delayed rather than eliminated.
\249\ But see supra footnote 248.
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Costs
The proposed change in the Form PF filing threshold would result in
advisers with private fund assets under management below the proposed
threshold no longer submitting information on Form PF to the SEC.\250\
As a result, the proposed amendments could, in theory, affect the
understanding and monitoring of systemic risk relating to the private
fund industry. However, we expect that this effect would be minimal
since the advisers that would no longer be required to file Form PF
under the proposed threshold are relatively small and do not manage a
significant percentage of private fund assets. We estimate that the
percentage of private fund gross assets managed by registered
investment advisers reported on Form PF would decrease from
approximately 96 percent to approximately 94 percent, or by $510
million.\251\ A reduction of two percentage points of private fund
gross assets reported on Form PF appears to be de minimis in the
context of monitoring for systemic risk.
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\250\ In the first quarter of 2025, the SEC received Form PF
filings covering 54,039 funds managed by 3,999 advisers. This
represents approximately 83 percent of private funds managed by
registered investment advisers and 70 percent of registered private
fund advisers, respectively. We estimate that under the proposed
filing threshold, the SEC would have received Form PF filings
covering 44,312 funds managed by 2,280 advisers. This represents 68
percent of private funds managed by registered investment advisers
and 40 percent of registered private fund advisers. See supra
section II.A.
\251\ See supra footnote 244.
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The proposed increase in the filing threshold would reduce the
number of advisers that would file Form PF.\252\ We anticipate that any
cost to investor protection efforts resulting from this reduction would
be small. This is because each adviser that currently files Form PF but
would not do so under the proposed threshold would continue to report
information about its private funds on Form ADV.\253\ Additionally,
advisers that would no longer file Form PF would continue to be
required under the Adviser's Act to maintain certain enumerated records
and reports for each private fund they advise.\254\
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\252\ See supra footnote 244 and accompanying text.
\253\ Form ADV is designed to provide the SEC with information
necessary to its investor protection efforts. See supra section
II.A.
\254\ See 15 U.S.C. 80b-4(b)(3).
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Any adviser that is currently filing Form PF but would not be
required to under the proposed amendments would have to make a final
filing with the SEC indicating that it would no longer be subject to
Form PF's reporting requirements. These final filings are not subject
to Form PF requirements, do not carry a filing fee, and entail a small
hour burden.\255\
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\255\ We estimate that the compliance cost associated with final
filings is approximately $41 per filing. See infra section IV.A.3.c)
at Table 9. As this cost would be incurred by the approximately
1,719 advisers with private fund assets under management of at least
$150 million and less than $1 billion, the aggregate cost of these
final filings is estimated to be $41 x 1,719 = $70,479.
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3. Increase the Reporting Threshold for Large Hedge Fund Advisers
Currently, advisers that have at least $1.5 billion in hedge fund
assets under management on the last day of any month in the fiscal
quarter immediately preceding their most recently completed fiscal
quarter and that advise at least one qualifying hedge fund (i.e., large
hedge fund advisers) must file Form PF on a quarterly basis.
Additionally, they must complete section 2 for each qualifying hedge
fund that they advise.\256\ They must also complete
[[Page 22265]]
section 5 upon certain current reporting events with respect to the
qualifying hedge funds that they advise.\257\ The proposed amendments
would increase this threshold to $10 billion.\258\ As a result, a
number of advisers required to file Form PF quarterly and to complete
section 2 under the current Form PF instructions would instead be
required to file Form PF annually, as applicable, and would not be
required to complete section 2. Additionally, these advisers would no
longer be subject to section 5 current reporting. Based on data for the
first quarter of 2025, we estimate that the number of large hedge fund
advisers would decrease from 617 to 227. The percentage of all hedge
fund assets managed by registered investment advisers that would be
held in hedge funds managed by large hedge fund advisers would decrease
from 92 percent to 81 percent.\259\ The percentage of hedge fund assets
managed by registered investment advisers that would be reported in
section 2 would decrease from 84 percent to 74 percent.\260\ The
proposed increase in the reporting threshold would also likely decrease
the number of section 5 reports filed with the SEC. The exact decrease
would depend on the number of reportable events and how these are
distributed across large hedge fund advisers by size.\261\
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\256\ Hedge fund assets under management are the portion of an
adviser's regulatory assets under management that are attributable
to hedge funds that it advises. See Form PF General Instruction 3;
Form PF Glossary of Terms (definitions of ``hedge fund assets under
management'' and ``qualifying hedge fund'').
\257\ See Form PF General Instruction 3.
\258\ See supra section II.B.
\259\ See supra section II.B at Table 4. This represents a
decrease in hedge fund gross assets managed by large hedge fund
advisers from $11,801 billion to $10,435 billion. The corresponding
number of hedge funds advised by large hedge fund advisers would
decrease from 6,087 to 4,265. Each fund affected by this change
would be reported on Form PF annually rather than quarterly.
Additionally, affected hedge funds that are also qualifying hedge
funds would no longer be reported on section 2 of Form PF. See infra
footnote 260.
\260\ See supra section II.B at Table 5. In the first quarter of
2025, 617 advisers reported 2,076 qualifying hedge funds on Form PF.
These funds collectively held $10,759 billion in gross assets,
representing approximately 84 percent of the hedge fund gross assets
reported by registered investment advisers. We estimate that under
the proposed increase in threshold, 227 advisers would have reported
1,378 qualifying hedge funds on Form PF. These funds collectively
held $9,493 billion in gross assets, representing approximately 74
percent of the hedge fund gross assets reported by registered
investment advisers.
\261\ We estimate that increasing the reporting threshold would
reduce the number of section 5 reports from approximately 258 to
approximately 94 per year. See infra section III.C.18 at Table 9.
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Benefits
The proposed increase in the large hedge fund adviser reporting
threshold would reduce the set of advisers that are subject to the
additional requirements accompanying that designation. Advisers that
would no longer meet the large hedge fund adviser threshold would file
annually instead of quarterly and would no longer complete section 2 or
be subject to section 5 current event reporting. The cost savings
resulting from each of these filing changes that would result from the
proposed increase in large hedge fund reporting threshold would be
substantial.
We estimate that 390 advisers with hedge fund assets under
management between $1.5 billion and $10 billion would no longer incur
the costs associated with the ongoing filing of section 2 of Form PF
for any qualifying hedge funds they advise.\262\ While approximately
one in every three hedge funds advised by a large hedge fund adviser is
a qualifying hedge fund,\263\ the requirements associated with
completing section 2 are substantially higher than those associated
with completing section 1.\264\ We therefore anticipate that a
substantial portion of the cost savings that would result from
increasing the large hedge fund adviser threshold would be due to the
reduction in the number of section 2 filings.
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\262\ 390 is obtained as the difference between 617 and 227. See
supra footnote 260 and accompanying text. Additionally, the SEC
anticipates receiving fewer transition filings on an ongoing basis
due to the reduced set of advisers that would be classified as large
hedge fund advisers under the proposed reporting threshold. The cost
savings that would be associated with this decrease are estimated to
be $1,230. See infra section III.C.18 at Table 11. But see infra
footnote 282 and accompanying text.
\263\ This would be true under both the baseline and the
proposed reporting threshold. Under the baseline, large hedge fund
advisers complete section 2 of Form PF for 2,076 of the 6,087 hedge
funds they advise. Under the proposed amendments, we estimate that
large hedge fund advisers would complete section 2 for 1,378 of the
4,265 hedge funds they advise. See supra footnotes 259 and 260.
\264\ For instance, large hedge fund advisers must provide the
effect of several market factor changes on the long and short
components of the portfolio net asset value for each qualifying
hedge fund they advise. See Form PF Question 47. No analogous
information is required about non-qualifying hedge funds in section
1c. See also infra footnote 273.
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In addition, hedge fund advisers that are not currently required to
complete section 2 because their hedge fund assets under management are
below $1.5 billion would avoid the one-time and ongoing costs
associated with completing section 2 if their hedge fund assets under
management reach this threshold. Similarly, large hedge fund advisers
with less than $10 billion in hedge fund assets under management that
do not advise any qualifying hedge funds would avoid the one-time and
ongoing costs associated with completing section 2 if any of their
hedge funds become qualifying hedge funds.\265\ Finally, advisers below
the current $1.5 billion threshold would also avoid ongoing costs
associated with monitoring their hedge fund assets under management to
the extent they keep this amount beneath the current $1.5 billion
filing threshold so that they are not required to complete section 2
(and section 5, when applicable) of Form PF or to file Form PF
quarterly.
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\265\ See supra footnote 215.
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Hedge fund advisers that are classified as large hedge fund
advisers under the current threshold would also benefit from the
proposed threshold increase by lowering the frequency with which they
file Form PF to the extent such advisers would not fall into the
category of large hedge fund advisers under the proposed threshold.
Specifically, large hedge fund advisers must file Form PF quarterly for
each private fund they advise.\266\ The burden reductions that would
result from no longer filing section 1 on a quarterly basis would be
substantial for large hedge fund advisers that manage multiple non-
qualifying hedge funds or private funds that are not hedge funds.\267\
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\266\ See Form PF General Instruction 9.
\267\ See infra section III.C.18 at Table 6. Under the proposed
amendments, we estimate that the compliance cost of an ongoing
filing for smaller private fund advisers, that is, for advisers that
are required to complete only section 1 of Form PF, would be $8,700.
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Lastly, large hedge fund advisers are required to submit section 5
reports following the occurrence of certain events at their qualifying
hedge funds, including extraordinary investment losses, certain margin
events, counterparty defaults, material changes in prime broker
relationships, operations events, and certain events associated with
redemptions.\268\ Increasing the threshold which defines a large hedge
fund adviser would result in fewer advisers being subject to section 5
reporting. As a result, advisers with hedge fund assets under
management between $1.5 billion and $10 billion and advising at least
one qualifying hedge fund would save on the ongoing costs of collecting
and reporting information on these events.\269\
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\268\ See Form PF section 5.
\269\ See infra section III.C.18 at Table 9. Advisers with
between $1.5 billion and $10 billion in hedge fund assets under
management would save approximately $8,873 each time one of their
qualifying hedge funds experiences an event that would require them
to file a section 5 report under the baseline but not under the
proposed amendments.
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In total, we estimate that the reduction in per-adviser compliance
costs of filing Form PF for advisers that currently meet the definition
of large hedge fund advisers but that would not
[[Page 22266]]
under the proposed amendments would be $49,875 per filing.\270\
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\270\ See infra section III.C.18 at Tables 6 and 7. We estimate
that the reduction in compliance costs of filing Form PF for
advisers that currently meet the definition of large hedge fund
advisers but that would not under the proposed amendments would be
$49,875 ($58,575 minus $8,700) per adviser for ongoing filings.
These estimated cost savings are derived from averages for large
hedge fund advisers as well as smaller private fund advisers and
would generally scale with the number of private funds managed. See
also infra section IV.A.3.
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Costs
The proposed amendments would reduce the set of large hedge fund
advisers.\271\ Private fund advisers with hedge fund assets under
management that exceed the current large hedge fund adviser threshold
but are below the proposed threshold would no longer be required to
complete section 2,\272\ which requires more granular information for
each of their qualifying hedge funds.\273\ In addition, the Commissions
and FSOC would receive information annually rather than quarterly for
approximately 1,124 non-qualifying hedge funds that are managed by
advisers that would no longer be considered large hedge fund advisers
under the proposal.\274\ Both of these reductions would reduce the
information available to monitor risks in the hedge fund industry,
which could, in principle, affect the monitoring of systemic risk. For
example, hedge funds advised by smaller private fund advisers may, in
some cases, experience liquidity stress sooner than the hedge funds
advised by advisers that would continue to meet the definition of large
hedge fund advisers,\275\ or they could have returns that are
sufficiently correlated with each other to collectively carry systemic
risk concerns.\276\
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\271\ As of the first quarter of 2025, the SEC received Form PF
filings from 617 large hedge fund advisers, representing 26 percent
of registered investment advisers that advise hedge funds. We
estimate that under the proposed reporting threshold for large hedge
fund advisers, the SEC would have received 227 filings from large
hedge fund advisers, representing 9 percent of registered investment
advisers that advise hedge funds.
\272\ As of the first quarter of 2025, the SEC received Form PF
filings for 2,076 qualifying hedge funds. This represents 17 percent
of hedge funds advised by registered investment advisers. We
estimate that under the proposed reporting threshold for large hedge
fund advisers, the SEC would have received filings for 1,378
qualifying hedge funds. This represents 11 percent of hedge funds
advised by registered investment advisers.
\273\ For instance, while some information on counterparty
exposure is collected from all hedge funds managed by private fund
advisers that file Form PF (Questions 26 and 27), a large hedge fund
adviser reports more granular counterparty information in section 2
(Questions 42 and 43) for each counterparty to which the adviser's
qualifying hedge funds face exposures exceeding certain levels.
While the questions relating to counterparty exposures would be
modified under the proposed amendments, this would continue to be
true. Additionally, large hedge fund advisers report exposure to
various sub-asset classes on section 2 (Question 32) by instrument
type for each of their qualifying hedge funds, while section 1c
contains only information on how hedge fund exposures are financed
(Questions 18, 19, and 26).
\274\ Under the current large hedge fund adviser threshold, of
the 6,087 hedge funds advised by large hedge fund advisers, 2,076
are qualifying hedge funds and 4,011 are not qualifying hedge funds.
Under the proposed large hedge fund adviser reporting threshold,
there would be 4,265 hedge funds advised by large hedge fund
advisers, of which 1,378 would be qualifying hedge funds and 2,887
would not be qualifying hedge funds. The number of hedge funds for
which large hedge fund advisers currently file quarterly for section
1 only but would be reported annually under the proposed threshold
increase is therefore 1,124 (4,011 minus 2,887).
\275\ See, e.g., Mathis S. Kruttli et al., The Life of the
Counterparty: Shock Propagation in Hedge Fund-Prime Broker Credit
Networks (Off. Fin. Rsch., Working Paper No. 19-03, 2019), available
at https://www.financialresearch.gov/working-papers/files/OFRwp-19-03_the-life-of-the-counterparty.pdf (finding that large hedge funds
can more easily obtain borrowing from alternate prime brokers
following a prime broker liquidity shock). Large hedge fund
advisers' hedge funds are generally larger than smaller private fund
advisers' hedge funds (averaging $0.9 billion in GAV for advisers
with hedge fund assets under management between $1.5 billion and $10
billion and advising at least one qualifying hedge fund vs $2.1
billion in GAV for advisers with hedge fund assets under management
above $10 billion and advising at least one qualifying hedge fund).
\276\ Large hedge fund advisers that complete Form PF for
qualifying hedge funds implementing equity strategies (equity long/
short and/or equity market neutral) for more than 50% of their
assets would be disproportionately affected by the proposed increase
in threshold compared to funds that follow other strategies. While
the total number of funds reported on section 2 would decrease by
34%, from 2,076 to 1,378, under the proposed increase in the large
hedge fund adviser reporting threshold, the number of equity funds
reported on section 2 would decrease by 56%, from 530 to 234. To the
extent that these funds hold similar positions, their returns may be
sufficiently correlated to collectively carry systemic risk
concerns.
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However, we expect that the potential effect on systemic risk
monitoring would be mitigated by the fact that the section 2 filings
would still cover a large percentage of hedge fund assets reported by
registered investment advisers.\277\ A still larger percentage of those
assets would continue to be reported quarterly on section 1 of Form PF
as they would be advised by advisers with hedge fund assets under
management of at least $10 billion.\278\ In addition, filing advisers
with hedge fund assets under management that are less than $10 billion
would continue to provide information in section 1c about the hedge
funds they advise on an annual basis.\279\
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\277\ See supra footnote 260.
\278\ See supra footnote 259.
\279\ See Form PF section 1c.
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Additionally, under the proposed large hedge fund adviser
threshold, advisers with hedge fund assets under management between
$1.5 billion and $10 billion would not submit section 5 reports.
Visibility into the events that trigger these reports and that may have
implications for systemic risk monitoring would thus be reduced. For
instance, a qualifying hedge fund that experiences a margin increase of
20 percent of its average daily aggregate calculated value would not be
visible via Item C of section 5 if its adviser manages less than $10
billion in hedge fund assets. As a result, regulators could, in
principle, miss an early signal of a broader trend or circumstance
affecting multiple hedge funds and which could ultimately contribute to
systemic events.\280\ However, we expect this effect would be mitigated
due to the relatively modest drop in aggregate hedge fund assets
managed by advisers that would be affected by the proposed increased
threshold.\281\ For instance, in the example given above, if the margin
increase is the result of market factors that affect other qualifying
hedge funds, it is more likely that the event would be captured by
current event reports filed by hedge funds managed by advisers with
private fund assets under management above the proposed reporting
threshold.
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\280\ See supra footnotes 275 and 276.
\281\ See supra footnote 260.
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Lastly, any adviser that is currently filing Form PF as a large
hedge fund adviser but would not meet the definition of large hedge
fund adviser under the proposed amendments would have to make a
transition filing with the SEC indicating that it would no longer be
obligated to report on a quarterly basis. These transition filings are
not subject to Form PF requirements, do not carry a filing fee, and
entail a small hour burden.\282\
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\282\ We estimate that the compliance cost associated with
transition filings is approximately $41 per filing. See infra
section IV.A.3.c) at Table 9. As this cost would be incurred by the
approximately 390 advisers with hedge fund assets under management
of at least $1.5 billion and less than $10 billion and advising at
least one qualifying hedge fund, the aggregate cost of these
transition filings is estimated to be $41 x 390 = $15,990. See supra
footnote 262 and accompanying text.
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We anticipate that any adverse effect to investor protection
resulting from the proposed increase in the large hedge fund adviser
threshold would be small. This is because advisers with hedge fund
assets under management above the current $1.5 billion threshold and
below the proposed $10 billion threshold would file section 1 of Form
PF annually, providing information about the hedge funds they advise.
These advisers would also continue to report on Form ADV information
about the private funds they advise. Hence the SEC would continue to
receive
[[Page 22267]]
information supporting its investor protection efforts.
4. Disregarded Feeder Funds
The Commissions are proposing to amend General Instruction 6 to
include a de minimis threshold when determining whether a feeder fund
is separately reportable or could be disregarded. Currently, advisers
to funds structured as master-feeder arrangements must separately
report each component fund except for feeder funds that invest only in
(i) a single master fund, (ii) U.S. treasury bills, and/or (iii) cash
and cash equivalents (a disregarded feeder fund). The proposed
amendments to General Instruction 6 would permit an adviser to apply
the exception from separate reporting if the feeder fund does not
invest more than five percent of its gross asset value in investments
that are not in a single master fund, U.S. treasury bills, and/or cash
and cash equivalents.\283\
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\283\ See supra section II.C.
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Benefits
The proposed amendments to General Instruction 6 could decrease the
number of feeder funds that would be reported separately on Form PF,
which would decrease the burden for advisers that would no longer need
to report their master funds' feeders separately.\284\ The extent of
this reduction would depend on the number of feeder funds that make
non-zero but no more than five percent of their gross asset value in
investments outside of a single master fund, U.S. treasury bills, and/
or cash and cash equivalents and on the number of advisers that would
choose to not report separately these feeder funds as a result of the
proposed amendment. For instance, the decrease in the number of feeder
funds that would be reported separately would be limited if most feeder
funds invest either entirely in the current categories for disregarded
funds or do not fall within the proposed de minimis category. However,
the cost savings for advisers to feeder funds that are not disregarded
feeder funds under the current requirements but that would fall within
the proposed de minimis category could be substantial as these advisers
would no longer need to disaggregate these feeder funds in their
reporting and would no longer need to complete their applicable Form PF
sections in their entirety for these funds.\285\
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\284\ General Instruction 6 applies to all private fund advisers
filing Form PF. Under the proposed amendments, we estimate that
there would be approximately 2,280 such advisers, advising
approximately 44,312 private funds. See supra sections III.B.2 and
III.C.2. We estimate that approximately 19 percent of private funds
advised by registered investment advisers are either a master or a
feeder in a master-feeder structure.
\285\ Industry members have highlighted that the burdens of
disaggregating feeder funds in their reporting can be significant.
See supra section II.C. In addition, see infra section III.C.18 for
estimates of cost savings associated with no longer filing Form PF.
---------------------------------------------------------------------------
The cost savings that would accrue from reducing the number of
feeder funds that would be reported separately would be partially
mitigated by the ``look through'' requirements associated with
reporting at the level of the master fund. Specifically, General
Instruction 6 requires that advisers ``look through'' to any
disregarded feeder funds' investors in responding to several Form PF
questions.\286\ For instance, even if a feeder fund falls within the de
minimis category and would not have to be reported separately under the
proposed amendments to General Instruction 6, the adviser would still
need to look through to the disregarded feeder's investors when
specifying the approximate percentage of the master fund's equity that
is beneficially owned by various categories of investors.\287\
---------------------------------------------------------------------------
\286\ These questions are Questions 21-22, 51-53, and 59-64. See
Form PF General Instruction 6.
\287\ See Form PF Question 22.
---------------------------------------------------------------------------
Costs
The proposed amendments would permit advisers of feeder funds with
investments of no more than five percent of the feeder fund's gross
asset value in assets other than a single master fund, U.S. treasury
bills, and/or cash and cash equivalents to aggregate their reporting in
the master fund's reporting rather than reporting separately. As a
result, there would be reduced visibility into the exposures of feeder
funds that would be aggregated under the proposed amendments, which
could, in principle, limit access to information potentially relevant
to systemic risk monitoring. For instance, current Form PF includes
certain counterparty exposure information for any feeder fund that
makes investments outside of a single master fund, U.S. treasury bills,
and/or cash and cash equivalents.\288\ Under the proposed amendments,
if these investments account for no more than five percent of the
feeder fund's gross asset value, the adviser could choose to aggregate
the feeder fund's investments with the master fund's investments for
the purpose of reporting this counterparty exposure information. Such
aggregation could, in principle, obscure visibility into the risk
profiles of certain complex fund structures and thus could affect
systemic risk monitoring.\289\ However, the proposed five percent
threshold is de minimis, and therefore it is unlikely that aggregation
would meaningfully obscure counterparty or other types of risk in
master-feeder fund structures, particularly given the requirement that
advisers ``look through'' to any disregarded feeder funds' investors in
responding to several Form PF questions.\290\ Additionally, since the
adoption of the 2024 amendments, filers have indicated that
disaggregated reporting of master-feeder funds in these de minimis
cases would not reflect how advisers to these structures manage risk
internally, which could affect the accuracy of the reported data.\291\
Accordingly, the value of disaggregated reporting for systemic risk
monitoring may be muted, particularly for investment exposures of less
than five percent of the feeder fund's gross asset value. Hence, we do
not expect that the cost of the proposed amendment to allow greater
aggregation would be significant.
---------------------------------------------------------------------------
\288\ See Form PF Question 26.
\289\ See 2024 Form PF Adopting Release, section II.A.1.
\290\ See supra footnote 286.
\291\ See supra section II.C.
---------------------------------------------------------------------------
5. Eliminate the Look Through Requirement
The Commissions are proposing to amend General Instructions 7 and
8, the instructions to Questions 32, 33, 35, 36, and 47, and certain
definitions in the Glossary of Terms that refer to positions held
indirectly.\292\ In reporting indirect exposures of the reporting fund
in response to Questions 32, 33, 35, 36, and 47, General Instructions 7
and 8 require advisers to ``look through'' the reporting fund's
investments in certain entities.\293\ By contrast, the instructions
under each of these questions indicate that reasonable estimates that
``best represent'' the exposures reported in these questions are
permissible.\294\ Additionally, the Glossary of Terms includes
definitions that direct advisers to look through to indirect exposures
to such assets held through another entity.\295\ Moreover, the Glossary
of
[[Page 22268]]
Terms defines a reference asset as a security or other investment asset
to which a fund is exposed, for example through direct ownership,
synthetically, or through indirect ownership. Advisers can identify
reference assets based on their internal methodologies and the
conventions of service providers, as long as the methodologies and
conventions are consistently applied and do not conflict with any
instructions or guidance relating to Form PF and reported information
is consistent with information reported internally and to investors and
counterparties.
---------------------------------------------------------------------------
\292\ See supra section II.D.
\293\ The look through requirement in General Instruction 7
pertains to a fund's investments in private funds and trading
vehicles, while the look through requirement in General Instruction
8 pertains to a fund's investments in funds or other entities that
are not private funds or trading vehicles. Before the 2024
amendments, advisers were not required to but had the option to
``look through'' a reporting fund's investments in other entities.
See supra section II.D.
\294\ See Instructions to Questions 32, 33, 35, 36, and 47.
\295\ See Form PF Glossary of Terms (definitions of ``agency
securities,'' ``commodities,'' ``convertible bonds,'' ``corporate
bonds,'' ``GSE bonds,'' ``leveraged loans,'' ``listed equity,''
``other commodities,'' ``sovereign bonds,'' ``unlisted equity,'' and
``U.S. treasury securities'').
---------------------------------------------------------------------------
Under the proposed amendments to General Instructions 7 and 8,
where selected questions require advisers to report indirect exposure
resulting from positions held in other entities (including other
private funds), advisers would be permitted to provide indirect
exposures based on reasonable estimates that are consistent with their
internal methodologies and conventions of service providers.\296\ The
Commissions also propose conforming amendments to the instructions on
reporting indirectly held exposure under these questions. Specifically,
the Commissions propose to remove the instructions that reasonable
estimates used to report indirect exposures and that an indirectly held
entity position in a sub-asset class and instrument type must ``best
represent'' the exposure of the entity or the sub-asset class exposure
of the indirectly held entity.\297\ Additionally, the Commissions
propose to revise definitions of certain asset classes in the Form PF
Glossary of Terms to explicitly subject those definitions to the
proposed General Instructions 7 and 8.\298\ The Commissions also
propose to amend the Form PF Glossary of Terms to remove the words
``and do not conflict with any instructions or guidance relating to
this Form'' in the definition of reference asset.\299\
---------------------------------------------------------------------------
\296\ These questions are Questions 32, 33, 35, 36, and 47. See
proposed Form PF General Instructions 7 and 8. The proposed
amendments would eliminate Question 32(b)(2) of Form PF, but the
amendments to the ``look through'' requirements would still apply to
the remaining part of Question 32. See supra section II.H; infra
section III.C.9. In addition, Questions 39 and 40 require reporting
of exposure to reference assets, which are defined to include
exposure obtained indirectly. See Form PF Glossary of Terms
(definition of ``reference asset''). These two questions would be
eliminated under the proposed amendments. See supra section II.K;
infra section III.C.12. This proposal, however, would retain the
instruction in current General Instruction 7 that advisers must
include (look through to) the trading vehicle's holdings for all
questions answered by the reporting fund.
\297\ See proposed Form PF Questions 32, 33, 35, 36, and 47.
\298\ See proposed Form PF Glossary of Terms (definitions of
``agency securities,'' ``commodities,'' ``convertible bonds,''
``corporate bonds,'' ``GSE bonds,'' ``leveraged loans,'' ``listed
equity,'' ``other commodities,'' ``sovereign bonds,'' ``unlisted
equity,'' and ``US treasury securities''). Relatedly, the
Commissions propose conforming amendments to Questions 32 and 47 to
align them with the proposed General Instructions 7 and 8. See supra
footnote 57 and accompanying text.
\299\ In addition, the Commissions propose to further amend the
definition of reference asset in order to help filers understand
that the list given in the definition contains examples, and not a
prescriptive or comprehensive list, of ways a reporting fund may
have exposure to a reference asset. See supra footnote 59.
---------------------------------------------------------------------------
Benefits
Removing the requirement in the instructions to Questions 32, 33,
35, 36, and 47 that reasonable estimates of indirect exposures ``best
represent'' the exposure of the entity would result in cost savings for
large hedge fund advisers.\300\ Specifically, an estimate that ``best
represents'' a fund's indirect exposure for the purposes of these
questions is likely to be more costly for the fund's adviser to compute
than would be an estimate not requiring this standard. Therefore,
eliminating the ``best represent'' standard in the specific questions
could decrease the cost burden of completing Form PF.\301\
---------------------------------------------------------------------------
\300\ Instruction on ``look through'' apply to all private fund
advisers filing Form PF. Under the proposed amendments, we estimate
that there would be approximately 2,280 such advisers, advising
approximately 44,312 private funds. See supra sections III.B.2 and
III.C.2. See also infra section III.C.18 for estimates of cost
savings associated with the proposed amendments.
\301\ The conforming changes to certain related definitions
would have similar effects. See supra footnote 298 and text
accompanying footnote 299.
---------------------------------------------------------------------------
More generally, Form PF General Instructions 7 and 8 currently
indicate that advisers must look through the fund or entity (as
applicable) when answering these questions. Accordingly, some advisers
have expressed concern that looking through a position in another
entity to identify and calculate a particular exposure is costly and
not always feasible.\302\ For instance, Question 32(b)(1) asks for
information on adjusted exposure to fixed income reference assets
grouped by maturity buckets, where the definition of a reference asset
includes assets owned indirectly.\303\ Advisers have indicated that
assessing indirect exposure to each underlying investment of an ETF
that tracks a broad index could require analyzing dozens or hundreds of
assets.\304\ Aside from the burdens of this analysis, some advisers
have indicated that the information required to complete these
questions is outside of the adviser's control, and that they have
limited access to information about underlying investments of third
party entities that a reporting fund may be invested in.\305\
Therefore, specifying in General Instructions 7 and 8 that advisers may
provide reasonable estimates of indirect exposures that are consistent
with their existing internal methodologies and the conventions of their
service providers would substantially reduce large hedge fund advisers'
cost burden associated with completing these questions. The proposed
amendments to certain asset definitions and the definition of
``reference asset'' would likewise apply the reasonable estimates that
would be permitted by General Instructions 7 and 8 with respect to
these definitions as well.\306\ The Commissions also propose to amend
the Form PF Glossary of Terms to remove the words ``and do not conflict
with any instructions or guidance relating to this Form'' in the
definition of reference asset. We expect that this proposed amendment
would help filers understand the requirements, which could decrease
their compliance costs associated with the relevant questions.
---------------------------------------------------------------------------
\302\ See supra section II.D.
\303\ See Form PF Glossary of Terms (definition of ``reference
asset'').
\304\ See supra section II.D.
\305\ Id.
\306\ See supra footnote 298.
---------------------------------------------------------------------------
Costs
The proposed changes to General Instructions 7 and 8 and to various
question instructions and definitions relating to reference assets or
indirectly held positions in the Glossary of Terms would permit
advisers to report indirect exposures in response to certain questions
based on reasonable estimates that are consistent with the adviser's
internal methodologies and conventions of service providers. The
proposed changes therefore would likely result in less granular
reporting relative to the baseline. This change could, in principle,
result in a decrease in the level of specificity and comparability of
indirect exposures reported by advisers on Form PF, which in turn could
reduce the utility of this information in some cases. For instance, if
an adviser used a reasonable estimate under the proposed changes to the
Form instructions that would result in substantially less granular
information being reported relative to what it would have reported
under the current instructions, that information could be less useful
for systemic risk analysis. However, based on input received from
filers, we understand that the operational
[[Page 22269]]
challenges posed by the current look-through instructions would likely,
in practice, result in advisers relying on internal assumptions and
estimates to comply with Form PF's requirements.\307\ As a result, the
current look-through requirements in General Instructions 7 and 8 and
the instructions to Questions 32, 33, 35, 36, and 47 may not in
practice result in greater granularity and comparability of the
resulting data, limiting its incremental value for systemic risk
analysis. Hence, we do not expect that these proposed changes would
adversely limit the utility of these questions for systemic risk
monitoring. For the same reason, we likewise anticipate that the
proposed changes to the ``look through'' instructions would not
adversely affect investor protection.
---------------------------------------------------------------------------
\307\ See supra section II.D.
---------------------------------------------------------------------------
6. Trading Vehicles
Question 9 must be completed by all Form PF filers and it must be
completed separately for each private fund that an adviser advises. It
was added to Form PF as part of the 2024 amendments.\308\ The question
requires advisers to provide information about each trading vehicle
through which a fund holds assets, incurs leverage, or conducts trading
or other activities.\309\ The information required includes identifying
information such as legal name, as well as information on the type of
activity performed by the fund through the trading vehicle. The
proposed amendments would reduce the scope of trading vehicles for
which advisers must complete Question 9. Specifically, the proposed
amendments would require advisers to identify only trading vehicles
that are (1) listed or required to be listed in section 7.B. of
Schedule D of Form ADV (either the adviser's or another adviser's) or
(2) included or required to be included in a response to Questions 27,
28, 42, 43, or 44 of Form PF.\310\
---------------------------------------------------------------------------
\308\ See supra section II.E.
\309\ See Question 9 of Form PF.
\310\ See supra section II.E. Under the proposed amendments,
General Instruction 7 would also be amended to conform with the
amended instruction to Question 9.
---------------------------------------------------------------------------
Benefits
The proposed change to Question 9 would reduce the burden for
advisers by narrowing the set of trading vehicles that would need to be
identified on this question.\311\ In general, the cost savings to each
adviser from this amendment to Question 9 would depend on the number of
trading vehicles used by each fund it advises. We understand that some
funds have structures that involve multiple trading vehicles, including
potentially several hundred of them.\312\ This could result in
significant compliance costs for advisers as Question 9 requires
advisers to enter individualized information about each trading
vehicle. We also understand that many of these trading vehicles are
passive entities, and that, as such, they are unlikely to be reported
either on Form ADV or elsewhere on Form PF.\313\ Hence, we expect that
the decrease in the cost for advisers of completing Question 9
resulting from the proposed change would be most significant for those
advisers that advise funds with a large number of trading vehicles that
are not listed (or required to be listed) in section 7.B. of Schedule D
of Form ADV or included (or required to be included) in a response to
Questions 27, 28, 42, 43, or 44 of Form PF. Conversely, the decrease in
cost would be least significant or non-existent for advisers that
advise funds with only a few or no such trading vehicles.\314\
---------------------------------------------------------------------------
\311\ Question 9 applies to all private funds advisers that are
required to file Form PF. Under the proposed amendments, we expect
that there would be approximately 2,280 such advisers, advising
approximately 44,312 private funds. See supra sections III.B.2 and
III.C.2.
\312\ See supra section II.E.
\313\ Id.
\314\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
---------------------------------------------------------------------------
Costs
The proposed change to Question 9 would result in no information
being reported by private fund advisers on some trading vehicles they
use to hold assets, incur leverage, or conduct trading or other
activities. It would therefore result in reduced visibility into
private funds' structure and reliance on trading vehicles. Because more
fulsome visibility can enhance systemic risk assessment and investor
protection efforts, the decrease in information could impact these
activities.
However, we expect that this cost would be substantially mitigated
by the fact that advisers would still provide information on trading
vehicles that also appear (or are required to appear) in Questions 27,
28, 42, 43, or 44 of Form PF.\315\ Questions 27 and 28 of Form PF must
be completed separately for each hedge fund that an adviser advises.
Questions 42, 43, and 44 must be completed separately by large hedge
fund advisers for each qualifying hedge fund that they advise. These
questions require the adviser to identify significant creditors or
counterparties to which a fund is exposed.\316\ The questions also
require the adviser to indicate the name and the LEI of the entity that
has direct exposure to the creditor or counterparty. Hence, any trading
vehicle that incurs leverage or conducts trading or other activities as
part of a hedge fund's investment activities resulting in significant
exposure to creditors or counterparties is currently required to be
identified by advisers in those questions and would therefore continue
to be included in Question 9 under the proposed change.
---------------------------------------------------------------------------
\315\ Advisers would also continue to report information on
trading vehicles that also appear in section 7.B of Schedule D of
Form ADV. This information is useful to determine whether a fund
identified by an adviser as a private fund in Form ADV is the
trading vehicle of a private fund for which Form PF has been filed.
\316\ For example, Question 42 requires the adviser to identify
and provide information about each creditor or other counterparty to
which the reporting qualifying hedge fund owed an amount in respect
of cash borrowing entries which is equal to or greater than either
(1) 5 percent of net asset value or (2) $1 billion. The proposed
amendments would modify Questions 42 and 43. Amended Questions 42
and 43 would still require advisers to identify significant
creditors or counterparties to which a fund is exposed. See supra
section II.L; infra section III.C.13.
---------------------------------------------------------------------------
We also anticipate that the reduced scope resulting from the
proposed amendment to Question 9 would exclude trading vehicles whose
reporting provides limited utility to systemic risk monitoring and
investor protection efforts. Private funds are typically structured
using various legal entities to limit liability of fund advisers and
investors, enhance tax efficiency for the fund's varied investor base,
and for other purposes.\317\ The details of these structures may not be
beneficial for a complete understanding of a fund's exposures or other
considerations pertinent to an analysis of systemic risk or as a signal
of potential investor harm.\318\ Hence, we do not expect that this
proposed change would significantly affect the assessment and
monitoring of systemic risk or investor protection.
---------------------------------------------------------------------------
\317\ For instance, a special purpose entity or special purpose
vehicle may hold assets so that they are bankruptcy remote.
\318\ For instance, a master fund in a master-feeder structure
would typically be the counterparty for its trading activity and
associated use of leverage. Any trading vehicles in which the master
fund holds assets for an ancillary purpose (e.g., for tax
efficiency) is less likely to be pertinent to analyzing systemic
risk or for investor protection. If, on the other hand, the master
fund uses a trading vehicle to actively trade and incur leverage,
that trading vehicle would potentially be relevant to analyzing
systemic risk.
---------------------------------------------------------------------------
7. Eliminate Form PF Question 23(c) Volatility Reporting
Question 23(c) is in section 1b of Form PF, which applies to all
filing private fund advisers and must be completed separately for each
private fund that an adviser advises. Question
[[Page 22270]]
23(c) more specifically must be completed by advisers that calculate a
market value on a daily basis for any position in a private fund's
portfolio.\319\ The question, which was adopted in the 2024 Form PF
amendments, requires advisers to report (1) the ``reporting fund
aggregate calculated value'' at the end of the reporting period and (2)
the reporting fund's volatility of the natural log of its daily rate-
of-return for each month of the reporting period. \320\ The question
also asks for other statistics derived from the fund's daily rate-of-
return. The proposed amendments would eliminate Question 23(c) of Form
PF.\321\
---------------------------------------------------------------------------
\319\ Advisers that do not calculate a market value on a daily
basis for any of the positions in a fund's portfolio are not
required to complete Question 23(c) for this fund.
\320\ See supra section II.F.
\321\ See id.
---------------------------------------------------------------------------
Benefits
All filing advisers that calculate market values for any of their
funds' portfolio positions daily would benefit from this proposed
change via lower costs.\322\ The proposed elimination of Question 23(c)
would reduce the costs associated with completing Question 23(c). These
costs include the time and resources spent by advisers to compute a
prescribed value for the positions of the fund's portfolio. Question
23(c) requires the calculation of the reporting fund's aggregate
calculated value, which is the value of every position in the
portfolio, including the value of cash and cash equivalents, short
positions, and any fund-level borrowing. For the positions that are
valued less frequently than daily, advisers are instructed to carry
forward the last price. For positions that are not valued in U.S.
dollars, a daily foreign exchange rate can be applied to the carried-
forward price.\323\ The costs also include the time and resources to
calculate the aggregated value of the portfolio from the individual
position values and to compute the daily rate-of-return and other
statistics to be reported in the question. Industry members have
indicated that completing Question 23(c) can be burdensome for
advisers, especially for those that calculate this information for
master-feeder structures at the master fund level or have to translate
the information from an internal methodology to comport with the
methodology prescribed in this question.\324\ We expect that the
decrease in costs resulting from the proposed elimination of Question
23(c) would be most significant for such advisers.\325\ We expect that
there would be no decrease in costs for advisers that do not calculate
a market value on a daily basis for any position in their funds, since
these advisers are not required to complete Question 23(c).\326\
---------------------------------------------------------------------------
\322\ Question 23(c) applies to all private fund advisers filing
Form PF. Under the proposed amendments, we estimate that there would
be approximately 2,280 such advisers, advising approximately 44,312
private funds. See supra sections III.B.2 and III.C.2. Because the
compliance date of the 2024 amendments has been extended to October
1, 2026, we do not have data on the number of advisers that
calculate market values for any of their funds' portfolio positions
daily, which would necessitate their completion of Question 23(c)
under the baseline. See supra footnote 8.
\323\ See Form PF Glossary of Terms (definition of ``reporting
fund aggregate calculated value'').
\324\ See supra section II.F.
\325\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
\326\ We do not have an estimate of the number of advisers that
would complete Question 23(c) were it to remain in Form PF. See
supra footnote 322.
---------------------------------------------------------------------------
The cost savings that would accrue from the proposed elimination of
Question 23(c) could be mitigated for some advisers by some of the
requirements in section 5 of Form PF. Large hedge fund advisers to
qualifying hedge funds are required to file a current report with the
SEC when their qualifying hedge funds experience certain stress
events.\327\ One such stress event is an extraordinary investment loss.
If, on any business day, the 10-business day holding period return of a
fund is less than or equal to negative 20 percent, the fund's adviser
is required to file a current report.\328\ The holding period return is
calculated from the daily rate-of-return, which is itself calculated
from the aggregate calculated value of the reporting fund.\329\ Hence,
to the extent that large hedge fund advisers to qualifying hedge funds
would use identical or similar calculations when monitoring
extraordinary investment losses requiring the filing of section 5 and
for completing Question 23(c), the decrease in costs resulting from the
proposed elimination of Question 23(c) would not be as significant for
these advisers as for other advisers.
---------------------------------------------------------------------------
\327\ See Form PF section 5.
\328\ See Form PF section 5, Item B.
\329\ See Form PF Glossary of Terms (definitions of ``holding
period return'' and ``daily rate-of-return'').
---------------------------------------------------------------------------
Costs
The proposed elimination of Question 23(c) would result in advisers
submitting less information about private funds' performance compared
to the current requirements. Under the baseline, Question 23(c) would
give insight into significant volatility swings occurring over a period
of a month. Under the proposed amendments, volatility would be observed
over longer time frames. As a result, these swings could be masked,
obscuring the assessment of systemic risk. Under the baseline, the
information reported in Question 23(c) would also provide context to
the monthly return values reported in Question 23(a), providing
information on fund returns on a risk-adjusted basis. In addition, it
would allow for the comparison of volatility across fund types for
systemic risk assessment.\330\ Because more detailed information on the
volatility of funds' performance can enhance systemic risk assessment
efforts, the reduction in information collected that would result from
the proposed elimination of Question 23(c) could impact systemic risk
monitoring.
---------------------------------------------------------------------------
\330\ For example, comparing volatility across different fund
types allows for the identification of market trends and of
strategies that are the most volatile and therefore pose the
greatest risk to counterparties.
---------------------------------------------------------------------------
However, the utility of the data obtained from Question 23(c), and
therefore the potential cost of eliminating it, is limited by the
quality and comparability of the responses submitted by advisers.
Industry members have indicated that different advisers could answer
this question using different methodologies that do not necessarily
align with what is required under Question 23.\331\ In addition,
because Question 23(c) is not required in the case where the adviser
does not calculate market value on a daily basis for any of the
positions in the fund, the coverage of the question across funds could
be incomplete.\332\ These challenges could reduce the ability to infer
volatility of returns on a wider scale and affect systemic risk
monitoring. The costs of eliminating this question could thus be lower
than they would be in the absence of these challenges.
---------------------------------------------------------------------------
\331\ Form PF allows for the aggregate calculated value of a
fund to 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. See Form
PF Glossary of Terms (definition of ``reported fund aggregate
calculated value''). See also supra section II.F.
\332\ Because the compliance date for the 2024 amendments has
been delayed to October 1, 2026, we do not have an estimate of the
number of funds for which Question 23(c) would not be completed even
if it were to be kept in Form PF. See supra footnote 322.
---------------------------------------------------------------------------
We anticipate that any remaining costs of the proposed elimination
of Question 23(c) would be substantially mitigated by two factors.
First, advisers would submit information on monthly or quarterly
performance reporting in Questions 23(a) and 23(b), which would help
with the assessment, over longer timeframes than under the baseline, of
performance-related volatility that can
[[Page 22271]]
contribute to systemic risk. Second, large hedge fund advisers are
required to file a current report with the SEC if the return on a
qualifying hedge fund's portfolio is less than or equal to negative 20
percent.\333\ Hence, for qualifying hedge funds, there would continue
to be information available about periods of large negative returns
even if Question 23(c) were to be eliminated. Even though the current
reporting does not apply to other types of funds, we expect that
qualifying hedge funds, by their size and investment strategies, are
the most likely to see volatility of returns of a magnitude that could
contribute to systemic risk.\334\ However, to the extent that other
types of funds or hedge funds that do not meet the definition of
qualifying hedge funds also show volatility that could contribute to
systemic risk, or to the extent that periods of high volatility in
daily rate-of-return that do not result in the filing of current
reports could contribute to systemic risk, the ability to assess
systemic risk could be reduced under the proposed change compared to
the current requirements.
---------------------------------------------------------------------------
\333\ See Form PF section 5. See also supra text accompanying
footnote 328.
\334\ Hedge funds often conduct large, highly leveraged trades
to attempt to profit from small price discrepancies in certain
markets. Adverse market movements can lead to hedge funds facing
margin calls or having to rapidly unwind their positions. Many also
offer liquidity to fund investors, which can lead to forced sales in
response to sustained redemption pressures. See, e.g., John Kambhu,
Til Schuermann & Kevin J. Stiroh, Hedge Funds, Financial
Intermediation, and Systemic Risk, 13 Fed. Res. Bank of N.Y. Econ.
Pol'y Rev. 1 (Dec. 2007), available at https://www.newyorkfed.org/medialibrary/media/research/epr/07v13n3/0712kamb.pdf. These
scenarios can affect market liquidity and prices more broadly,
particularly if many hedge funds are concentrated in the same or
similar positions. See, e.g., Crowded trades and consequences,
Macrosynergy Rsch. Blog (Jan. 4, 2025), https://macrosynergy.com/research/crowded-trades-and-consequences/#crowded-trades-and-consequences. By contrast, private equity funds typically require
investor capital to be committed for the duration of the fund's
life. In addition, their investments are often infrequently
appraised. Similarly, liquidity funds invest in lower-risk assets
and employ minimal leverage. Hedge funds are also the largest
category of private fund by both NAV and GAV, at $5.42 trillion and
$12.59 trillion, respectively. See supra section III.B.2.
---------------------------------------------------------------------------
We expect that any effect on investor protection from the proposed
elimination of Question 23(c) would be minimal. As with systemic risk
monitoring, information relevant to investor protection resulting from
this question would likely be limited due to data quality and
comparability concerns.
8. Eliminate Certain Trading and Clearing Reporting
Questions 29 and 30 must be completed by all filing advisers that
advise hedge funds and must be completed separately for each hedge fund
that such advisers advise. Question 29 requires advisers to report
values for securities (other than derivatives), interest rate
derivatives, derivatives (other than interest rate derivatives), and
repo/reverse repos trades, categorized by trading mode (e.g., ``on a
regulated exchange''). In column (i), advisers must report the value
traded during the reporting period (in U.S. dollars). In column (ii),
advisers must report the value of positions as of the end of the
reporting period. Question 30 requires advisers to report values for
transactions that are not described in any of the categories listed in
Question 29. As with Question 29, advisers must report the value traded
during the reporting period in U.S. dollars (in Question 30(a)) and the
value of positions as of the end of the reporting period (in Question
30(b)). The proposed amendments would remove column (ii) of Question 29
and item (b) of Question 30.\335\
---------------------------------------------------------------------------
\335\ Relatedly, the proposed amendments would also remove the
specific instructions for the column (ii) that are given in Question
29. See supra section II.G.
---------------------------------------------------------------------------
Currently, Question 29 includes an instruction on how filers must
calculate the value traded of transactions in different transaction
categories and trading modes. The current instruction in Question 29
provides that the 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. It also specifies how filers
must determine this value for different types of derivatives trades.
For derivatives trades other than options and interest rate
derivatives, it erroneously requires filers to calculate the total
value by using a weighted average. General Instruction 15 also includes
instructions on how filers are required to calculate the value of
different types of derivatives trades, unless otherwise specifically
indicated. For derivatives other than options and interest rate
derivatives, it requires filers to use the gross notional value. The
proposed amendments would remove the specific instruction in Question
29 concerning how to calculate the value traded, which would remove the
error. Without these specific instructions, advisers would rely on
General Instruction 15 and the table to calculate the value traded for
proposed Questions 29 and 30.\336\
---------------------------------------------------------------------------
\336\ See supra section II.G.
---------------------------------------------------------------------------
Benefits
The proposed elimination of column (ii) of Question 29 and item (b)
of Question 30 would lower the burden on all investment advisers
required to complete Questions 29 and 30.\337\ Since these questions
were added as part of the 2024 amendments to Form PF, some industry
participants have expressed that they do not otherwise calculate the
value of positions at the end of the reporting period by trading mode
for each position using the calculations Form PF requires and that it
is burdensome to track, calculate, and report such data solely for
purposes of completing column (ii) in Question 29 and Questions
30(b).\338\ Thus, advisers would likely benefit from cost savings
associated with removing this reporting requirement.\339\
---------------------------------------------------------------------------
\337\ Questions 29 and 30 apply to all private fund advisers
filing Form PF and advising hedge funds. Under the proposed
amendments, we estimate that there would be approximately 1,048 such
advisers, advising approximately 7,977 hedge funds. See supra
sections III.B.2 and III.C.2.
\338\ See supra section II.G.
\339\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
---------------------------------------------------------------------------
Advisers would also benefit from the elimination of the specific
instruction in Question 29 concerning how to calculate the value
traded. The current instruction for derivatives that are not options or
interest rate derivatives specifies erroneously that the value traded
should be calculated using the weighted average notional amount of the
reporting fund's aggregate derivatives transactions during the
reporting period. However, the same instruction also specifies that the
value traded is the total value of the reporting fund's transactions
during the report period. The proposed removal of the specific
instructions in Question 29 about how to calculate value traded would
therefore reduce confusion for advisers.\340\ In addition, because the
current error in the instructions could result in different advisers
calculating these values using different methodologies based on their
understanding of the requirements, the proposed removal of the
instruction in Question 29 could result in improved data quality, which
would support systemic risk monitoring by improving the information
available on the use of different types of trading and clearing
mechanisms by hedge funds.
---------------------------------------------------------------------------
\340\ General Instruction 15 and the table in Question 29 would
sufficiently instruct advisers how to report the value traded.
---------------------------------------------------------------------------
[[Page 22272]]
Costs
Eliminating column (ii) of Question 29 and Question 30(b) would
reduce the amount of information that advisers report regarding hedge
funds' positions by investment category compared to the current
requirements. These questions provide a snapshot of hedge funds' gross
market footprint across varying trading modes. Removing these questions
could, in principle, reduce visibility into large positions in certain
categories and venues that may implicate systemic risk. For instance,
information on end-of-period repo/reverse repo positions that are not
centrally cleared would not be reported,\341\ which could limit the
effectiveness of systemic risk monitoring.
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\341\ See Form PF Question 29(d) column (ii).
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Two factors would mitigate this potential cost of eliminating these
items. First, the data reported in column (ii) of Question 29 and in
Question 30(b) may have limited utility for systemic risk assessment as
the snapshot provided as of the end of the period may not provide a
representative picture of a fund's use of trading and clearing
mechanisms. Second, the form would continue to collect related relevant
information. For example, Question 32(a) requires monthly long and
short position values by more granular sub-asset class for each
qualifying hedge fund advised by a large hedge fund adviser.\342\ The
instructions to Question 29 indicate that for filers that also complete
section 2 for a reporting fund, the sum of the fund's end-of-period
position value by category should be consistent with the sum of the
long and short positions across the fund's sub-asset classes in
Question 32. Thus, while Question 32 does not directly include
information on trading mode, it retains end-of-period category position
values for qualifying hedge funds advised by large hedge fund advisers,
which could provide an indication as to whether the securities were
traded on an exchange or over the counter. In addition, column (i) of
Question 29 and Question 30(a) require the total U.S. dollar value of
the reporting fund's transactions by investment category and trading
mode (for column (i) of Question 29) during the fund's reporting
period. This information offers a more relevant measure of hedge funds'
use of trading and clearing mechanisms. Hence, we expect that the
effect of the proposed elimination of column (ii) of Question 29 and of
Question 30(b) on systemic risk monitoring would be minimal.
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\342\ Question 29 is in section 1c of Form PF, while Question 32
is in section 2. We estimate that under the proposed amendments,
1,048 advisers would be required to complete section 1c but not
section 2 for 6,599 hedge funds (with aggregate gross assets of
$2,816 billion) and that 227 large hedge fund advisers would
complete both section 1c and section 2 for 1,378 hedge funds (with
aggregate gross assets of $9,493 billion).
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We do not expect that the elimination of the instruction in
Question 29 on how to calculate the value traded would impose costs on
advisers. Advisers would be able to rely on the table in Question 29
and on General Instruction 15 to understand how to complete the
proposed table in Question 29. The required information would be no
more burdensome to report than what is currently erroneously specified
in the instruction to Question 29.\343\
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\343\ Advisers that would be reporting derivatives trades in
Question 29 would also report them in Question 32. Since General
Instruction 15 on the calculation of the value of derivatives trades
applies to Question 32, we expect that these advisers would already
be familiar with this part of General Instruction 15.
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9. Eliminate Form PF Question 32(b)(2) Adjusted Exposure Netting Based
on Internal Methodologies
Question 32 must be completed by large hedge fund advisers and
separately for each qualifying hedge fund that such advisers advise. It
was amended as part of the 2024 amendments.\344\ The question requires
advisers to report information on a fund's long and short positions, by
sub-asset class and instrument type, where applicable. In section (a),
advisers must report the dollar value of the fund's long and short
positions. In section (b), advisers must report the fund's adjusted
exposure of long and short positions. In subsection (b)(1), advisers
are instructed to calculate adjusted exposure by netting positions in
the same underlying reference asset across instrument types. For fixed
income assets, advisers are instructed to net positions within the same
term, using the listed maturity buckets.\345\ Advisers must also
complete subsection (b)(2) if, under their methodologies for internal
reporting and reporting to investors, they do not net all positions
across all instrument types. Subsection (b)(2) requires advisers to (i)
report adjusted exposure for each sub-asset class calculated using the
adviser's internal methodologies and (ii) describe in Question 4 how
their internal methodologies differ from the calculations required in
subsection (b)(1). Under the proposed amendments, subsection (b)(2)
would be eliminated.\346\
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\344\ See supra section II.H.
\345\ The question specifies that advisers ``may net
counterparties consistent with the information [they] report
internally and to current and prospective investors.'' See Form PF
Question 32(b)(1). The proposed amendments would remove the word
``counterparties'' from this sentence. See supra section II.H. We do
not expect that this change would have significant economic effects.
\346\ See supra section II.H. In addition, the responses
submitted by advisers to Question 32(b)(1) may be impacted by the
proposed changes to how advisers are required to ``look through'' a
fund's investments when considering positions held indirectly. See
supra sections II.D and III.C.5.
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Benefits
All large hedge fund advisers that would have completed Question
32(b)(2) under the current requirements would benefit from the proposed
elimination of this question via lower compliance costs.\347\ These
costs include the time and resources spent by advisers to compute the
adjusted exposure for each sub-asset class using their own
methodologies and to describe in Question 4 how their internal
methodologies differ from the calculations required by Question
32(b)(1). Among the advisers that would have to complete Question
32(b)(2) under the current requirements, these costs are likely to be
higher for advisers of funds that have a large number of positions in a
large number of sub-asset classes.\348\ We expect that the decrease in
costs resulting from the proposed elimination of Question 32(b)(2)
would be most significant for such advisers.\349\ We expect that there
would be no decrease in costs for advisers with internal methodologies
that align with the requirements in Question 32(b)(1), since these
advisers are not required to complete Question 32(b)(2).
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\347\ Question 32(b)(2) is in section 2 of Form PF and applies
to all qualifying hedge funds advised by large hedge fund advisers.
Under the proposed amendments, we estimate that there would be
approximately 227 such advisers advising approximately 1,378
qualifying hedge funds. See supra sections III.B.2 and III.C.3.
Because the compliance date of the 2024 amendments has been extended
to October 1, 2026, we do not have data on the number of large hedge
fund advisers to qualifying hedge funds whose internal methodology
makes them required to complete Question 32(b)(2) under the
baseline. See supra footnote 8.
\348\ While data from Question 32(b)(2) is not available due to
the extension of the 2024 amendments to October 1, 2026, Questions
30 and 34 of the version of Form PF that advisers are currently
required to file inform the number of positions and unique sub-asset
classes, respectively, held by qualifying hedge funds. We estimate
that under the proposed reporting threshold for large hedge fund
advisers, 304 qualifying hedge funds (representing 22.1% of
qualifying hedge funds) advised by 108 large hedge fund advisers
(representing 47.6% of large hedge fund advisers) would hold at
least 500 open positions across 10 or more unique sub-asset classes,
while 278 qualifying hedge funds (representing 20.2% of qualifying
hedge funds) advised by 77 large hedge fund advisers (representing
33.9% of large hedge fund advisers) would hold less than 100 open
positions across fewer than 5 unique sub-asset classes.
\349\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
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[[Page 22273]]
Costs
The proposed elimination of Question 32(b)(2) would result in FSOC
receiving less information on how large hedge fund advisers to
qualifying hedge funds report economic exposure of the funds'
investment positions internally and to investors. This change could
reduce FSOC's understanding of how advisers internally categorize their
economic exposure to sub-asset classes across instrument types to the
extent that this information differs from the prescriptive approach
required in 32(b)(1). We do not expect that this would lead to a
significant reduction in FSOC's ability to monitor systemic risk since
it would still collect relevant information in Question 32(b)(1).
Moreover, based on feedback received from filers following the adoption
of the 2024 amendments to Form PF, the additional information required
by Question 32(b)(2) would likely yield non-meaningful differences in
risk information conveyed.\350\ Therefore, we anticipate the costs of
eliminating this question would be minimal.
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\350\ See supra section II.H.
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10. Eliminate Form PF Question 34 Monthly Asset Turnover Reporting
Question 34 appears in section 2 of Form PF and must be completed
by large hedge fund advisers and separately for each qualifying hedge
fund that such advisers advise. It was amended as part of the 2024
amendments and was previously numbered as Question 27.\351\ The
question requires advisers to report turnover information by asset
class for each month during the quarterly reporting period.\352\ Under
the proposed amendments, Question 34 would be eliminated.\353\
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\351\ See supra section II.I.
\352\ The categories of assets listed in Question 34 include
equity, corporate bonds, convertible bonds, sovereign bonds and
municipal bonds, listed equity derivatives, interest rate
derivatives, foreign exchange derivatives, derivative exposure to
U.S. treasury securities, derivative exposure to sovereign bonds
issued by G10 countries other than U.S., derivative exposure to
other sovereign bonds, and other derivatives. Some of these
categories contain more narrowly defined asset classes.
\353\ See supra section II.I.
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Benefits
Eliminating Question 34 would benefit large hedge fund advisers by
reducing the amount of turnover information they must collect and
report for each of their qualifying hedge funds.\354\ Currently, this
information is reportable at the asset class level for each month,
requiring large hedge fund advisers to compute up to 90 data points for
each quarterly filing for each of their qualifying hedge funds.\355\
Industry participants have indicated that these data points are
particularly burdensome to monitor and produce in order to complete
Question 34.\356\ The burden of completing the question is likely
highest for advisers to funds that make hundreds or even thousands of
trades each day. Thus, the cost savings are likely to be the largest
for such advisers.\357\
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\354\ Under the proposed amendments, we estimate that there
would be approximately 227 large hedge fund advisers advising
approximately 1,378 qualifying hedge funds. See supra sections
III.B.2 and III.C.3.
\355\ This number is computed as 30 asset classes times 3 months
per quarter.
\356\ See supra section II.I.
\357\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
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Costs
The proposed elimination of Question 34 would result in advisers
reporting less information on qualifying hedge funds' asset turnover.
As a result, regulators could have diminished visibility into the role
of private funds' trading activity and contribution of trading
liquidity in certain market events. To the extent that the granular
turnover data required in Question 34 would support analyses that
improve regulators' ability to evaluate market risk and industry trends
in future crises, its removal could affect systemic risk assessment.
However, asset turnover may be an imprecise signal of market turmoil. A
high level of trading could primarily reflect a fund's investment
strategy and not a particular issue in a given market.\358\ In
addition, a reduction in trading could reflect a fund's strategy in
response to normal market conditions or could instead reflect an
episode of stress in a given market where a reduction in liquidity
constrains a fund's trading. These factors may limit the utility of
this item to monitor systemic risk.
---------------------------------------------------------------------------
\358\ See supra section II.I.
---------------------------------------------------------------------------
To the degree that visibility into asset turnover is useful to
monitor systemic risk, two factors could mitigate the potential costs
of eliminating Question 34. First, large hedge fund advisers would
still report long and short positions by sub-asset class (and
instrument type, if applicable) at a monthly frequency for their
qualifying hedge funds.\359\ This information, combined with the
information about investment strategies reported in Question 25, would
continue to provide visibility into qualifying hedge funds' exposure by
sub-asset class at a monthly frequency and may serve as a substitute
for trading volume data that would be removed from Form PF. In
addition, certain information relating to trading activity would still
be provided in Question 29. Second, large hedge fund advisers to
qualifying hedge funds would still need to file section 5 current
reports upon extraordinary investment losses or substantial increases
in margin, collateral, or equivalent.\360\ While these reports do not
provide specific data on trading or turnover, they may still provide
information that may be used to ascertain a timeline following
instances of severe market turmoil involving hedge funds.
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\359\ See Form PF Question 32. While under the proposed
amendments some parts of Question 32 would be eliminated, this
requirement would remain. See supra section II.H; supra section
III.C.9.
\360\ See Form PF section 5 Items B and C.
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11. Simplify Industry Concentration Reporting in Form PF Question 36
Question 36 must be completed by large hedge fund advisers and
separately for each qualifying hedge fund that such advisers advise. It
was added to Form PF as part of the 2024 amendments.\361\ The question
requires advisers to identify the fund's exposure by industry, based on
the NAICS code of the underlying exposures, if the exposure is equal to
or exceeds either (1) five percent of the reporting fund's net asset
value or (2) $1 billion. The adviser must also report the long and
short dollar value of these exposures in U.S. dollars. Currently,
advisers are required to report the NAICS code at the six-digit
level.\362\ The proposed amendments would give advisers the flexibility
to choose any level of classification within the NAICS hierarchical
code system. That is, advisers would be able to choose any NAICS code
with between two and six digits.
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\361\ See supra section II.J.
\362\ See Form PF Glossary of Terms (definition of ``NAICS
code''). See also supra footnote 90 and accompanying paragraph for a
description of the NAICS code classification. The proposed
amendments would also modify the definition of ``NAICS code'' in the
Glossary of Terms to specify that advisers must report at the six-
digit level unless otherwise specifically indicated.
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Benefits
The main benefit of the proposed change to Question 36 would be to
reduce the burden for advisers.\363\ The proposed amendment to Question
36 would reduce the different types of costs associated with completing
Question 36. These costs include the time and resources spent by the
adviser
[[Page 22274]]
to assign a NAICS code to a fund's assets that meet the specified
threshold and to keep track of such assignment over time. We understand
that, while a six-digit NAICS code may be readily available for many
assets from third parties, for other assets, such as those issued
outside of North America, a NAICS code is not readily available. In
these cases, the adviser must either develop an internal system or find
a third party that would be able to assign NAICS codes. Hence, the cost
to the adviser to perform this task is significantly higher. Under the
proposed amendments, a NAICS code would still need to be assigned.
However, the adviser would have the possibility to choose between, for
example, approximately twenty two-digit industry codes instead of more
than one thousand six-digit industry codes. We expect that this would
significantly reduce the burden to advisers to qualifying hedge funds
of assigning a NAICS code for those assets that do not have a six-digit
NAICS code readily available.\364\ This reduction in costs would apply
to large hedge fund advisers to qualifying hedge funds.
---------------------------------------------------------------------------
\363\ Question 36 appears in section 2 of Form PF and applies to
qualifying hedge funds advised by large hedge fund advisers. Under
the proposed amendments, we estimate that there would be
approximately 227 large hedge fund advisers advising approximately
1,378 qualifying hedge funds. See supra sections III.B.2 and
III.C.3.
\364\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
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The proposed change to Question 36 could also reduce the occurrence
of instruments being assigned inconsistent NAICS codes. Industry
members have indicated that assigning a six-digit NAICS code to an
instrument can be challenging or infeasible.\365\ This can result in
different advisers assigning different NAICS codes to the same
instrument, which could affect FSOC's assessment of the exposure of
qualifying hedge funds to specific industries, and consequently its
ability to monitor systemic risk. Fewer and broader industry categories
would likely lead to fewer inconsistent NAICS code assignments, which
would increase the reliability of the information reported in this
question and thus its utility for systemic risk monitoring.
---------------------------------------------------------------------------
\365\ See supra section II.J.
---------------------------------------------------------------------------
Costs
The proposed change to Question 36 would result in FSOC receiving
less precise information on qualifying hedge funds' exposure by
industry, which could, in principle, impact its monitoring of systemic
risk. For instance, if a significant event affecting a specific
industry were to occur, less granular reporting on industry exposures
could, in principle, result in FSOC obtaining a less precise estimate
of the number of qualifying hedge funds that could be affected or of
the magnitude of the potential effects, which in turn could reduce its
ability to assess systemic risk. This effect is mitigated by a number
of factors, however. For example, industry members have indicated that
complying with the current NAICS code requirement would necessitate
assigning NAICS codes to instruments that do not have them, which could
lead to inconsistent reporting across filers.\366\ This inconsistency
may lower the value of this information, and hence the cost of the
proposed lower granularity, to FSOC's monitoring of systemic risk.
Additionally, we expect that any effect would be mitigated by the fact
that FSOC would still have access to qualifying hedge funds' exposures
to industry, as more broadly defined in the two-digit NAICS code
classification, which could be sufficient for systemic risk monitoring.
Further, to the extent that advisers continue to provide six-digit
NAICS code for the assets for which such a code is readily
available,\367\ the effective decrease in information available to FSOC
would be limited. Hence, we expect that the effect of the proposed
amendment to Question 36 on FSOC's ability to monitor systemic risk
would be limited.
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\366\ See supra text accompanying footnote 365; section II.J.
\367\ A six-digit NAICS code could be readily available for a
specific asset because the adviser has already paid a service
provider to obtain it or because the adviser has developed an
internal methodology to assign one, for example.
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12. Eliminate Certain Questions Concerning Qualifying Hedge Funds'
Exposures to Reference Assets
The proposed amendments to Form PF would eliminate Questions 39 and
40.\368\ These questions require large hedge fund advisers to provide
information about each of their qualifying hedge funds' netted and
gross exposure to reference assets for each month of the reporting
period. Question 39 requires monthly long and short entries of: (i) the
total number of reference assets to which the reporting fund holds
netted exposure; (ii) the percent of net asset value represented by the
aggregated netted exposures of reference assets with the top five long
and short netted exposures; and (iii) the percent of net asset value
represented by the aggregate netted exposures of reference assets
representing the top ten long and short netted exposures. Question 40
requires identifying and descriptive information for each of the
reporting fund's reference assets whose gross exposure equals or
exceeds certain thresholds for each month of the reporting period.
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\368\ See supra section II.K. In addition, the proposed
amendments would remove the definition of ``netted exposure'' from
the Glossary of Terms since this term would not appear in Form PF.
We do not expect this propose change to the Glossary of Terms to
have economic effects.
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Benefits
Removing Questions 39 and 40 would substantially lower the
reporting burden for large hedge fund advisers.\369\ Both questions
require a multi-step analysis of the reference assets in a reporting
fund's portfolio at a monthly frequency. These exercises may be
especially costly for advisers to qualifying hedge funds with large,
complex portfolios in which exposure to reference assets is achieved
via direct and indirect ownership and across various instruments.
---------------------------------------------------------------------------
\369\ Questions 39 and 40 appear in section 2 of Form PF and
apply to all qualifying hedge funds advised by large hedge fund
advisers. Under the proposed amendments, we estimate that there
would be approximately 227 large hedge fund advisers advising
approximately 1,378 qualifying hedge funds. See supra sections
III.B.2 and III.C.3.
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As a preliminary step, Question 39 requires advisers to account for
all of a reporting fund's reference assets with net long or net short
exposure which may contribute to the fund's portfolio directly or
indirectly across multiple financial instruments.\370\ Answering parts
(b) and (c) of Question 39 requires the adviser to determine the top
five and top ten reference assets by both long and short netted
exposure for each month of the reporting period. We thus anticipate
that eliminating this question would result in substantial cost savings
to advisers to qualifying hedge funds.
---------------------------------------------------------------------------
\370\ For instance, a fund may have economic exposure to a
particular listed equity via direct ownership, futures contract,
options, or other derivatives.
---------------------------------------------------------------------------
Question 40 requires detailed information by month for reference
assets which account for exposure exceeding any of three
thresholds.\371\ Industry participants have indicated that this
question requires specific and numerous calculations that are both
particularly burdensome and not otherwise used by the funds.\372\ We
anticipate that substantial burden reductions would result from
removing this question, due in part to the operational complexity of
monitoring whether exposures to each reference asset exceeds these
thresholds. This
[[Page 22275]]
complexity, and thus the gains from the question's removal, is further
elevated to the extent a fund obtains exposure to a reference asset
indirectly through one or more entities. Removing Question 40 would
decrease the burden associated with estimating exposures to reference
assets obtained through entities that the adviser does not control.
Moreover, advisers would not have to report for these reference assets
the dollar value of long and short exposures, netted exposure, sub-
asset class and instrument type, title or description, unique
identifier, size of issuance of debt securities, and listed equity
average daily trading volume. We expect there would be substantial
burden reduction to advisers to qualifying hedge funds associated with
discontinuing the collection of this information.\373\
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\371\ These thresholds are: (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) five percent of the reporting fund's net asset value or
(2) $1 billion.
\372\ See supra section II.K.
\373\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
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Costs
Removing Questions 39 and 40 would eliminate a source of data on
concentrated netted exposure and material gross exposures to reference
assets, respectively. The loss of this data could impact FSOC in
monitoring systemic risk. In particular, removing Question 39 could
affect FSOC's ability to obtain information on concentration in fund
net positions, while removing Question 40 could reduce its visibility
into the overall market footprint of large positions. Removing
Questions 39 and 40 could also therefore impact regulators' ability to
prepare retrospective analyses into the causes of instances of major
market turmoil.
Two factors could mitigate the potential costs of eliminating
Questions 39 and 40. First, the substantial burden associated with
completing these questions could reduce the reported data's reliability
and comparability across advisers, which could reduce its utility for
systemic risk monitoring.\374\ Second, other information reported on
Form PF could mitigate the reduction in efficacy of systemic risk
monitoring that could result from removing Questions 39 and 40.
Question 32 requires large hedge fund advisers to qualifying hedge
funds to report certain information on their reporting fund's long and
short positions by sub-asset class and instrument type.\375\ The
required information includes the dollar value of long and short
positions, the adjusted exposure for fixed income assets binned by
reference asset maturity, and 10-year bond equivalent long and short
position dollar values for each sub-asset class with interest rate
risk. While the information reported in Question 32 is less granular
than the information required in Questions 39 and 40, it nonetheless
provides insight into the risk exposure and footprint of qualifying
hedge funds at the sub-asset level. Finally, the proposed addition of
requirements in Item B of section 5 would recover identifying
information and investment sizes of the asset with the largest
contribution to a qualifying hedge fund's loss of 20 percent or more in
a rolling 10-day business-day period.\376\ We thus expect the effect of
the removal of Questions 39 and 40 on systemic risk monitoring to be
limited.
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\374\ See supra section II.K.
\375\ This would remain true under the proposed amendment to
Question 32. See supra sections II.H and III.C.9.
\376\ See infra section III.C.15.
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We do not expect a cost to investor protection resulting from the
proposed elimination of these questions. As discussed, issues with data
reliability and comparability may result from the substantial burden
associated with these questions under the baseline. As such, any signal
relevant for investor protection that these questions provide may
likewise be unreliable. Also as discussed, other information reported
on Form PF would be available for investor protection efforts.
13. Simplify Large Hedge Fund Adviser Counterparty Exposure Reporting
Questions 26 and 41 contain consolidated counterparty exposure
tables where advisers are required to report their funds' borrowing
(and collateral received) as well as lending (and posted collateral)
for different types of borrowing, lending, and similar transactions
with creditors and other counterparties, aggregated across all
counterparties. Both questions were added to Form PF as part of the
2024 amendments.\377\ All private fund advisers must complete Question
26 for each hedge fund that they advise that is not a qualifying hedge
fund.\378\ It must be completed as of the end of the reporting
period.\379\ Question 41 must be completed by large hedge fund advisers
for each qualifying hedge fund that they advise and it must be
completed as of the end of each month of the reporting period.\380\ It
requires more granular detail and more information than Question 26.
First, for several types of borrowing, lending, and similar
transactions, Question 41 requires advisers to provide details on a
larger number of categories of collateral types associated with each
type of borrowing, lending, or other transactions than Question
26.\381\ Second, Question 41 requires advisers to break down different
types of borrowing across different types of creditors (U.S. depository
institutions, U.S. creditors that are not U.S. depository institutions,
and non-U.S. creditors).\382\ Third, for several types of borrowing,
lending, and similar transactions, Question 41 requires advisers to
specify the expected increase in collateral required to be posted by
the fund if the required margin increases by one percent of position
size.\383\ Question 26 does not include these last two requirements.
The proposed amendments would eliminate Question 41 and require that
advisers complete Question 26 for all hedge funds, including qualifying
hedge funds.\384\
[[Page 22276]]
The proposed amendments would also require large hedge fund advisers to
report in Question 26 as of the end of each month of the reporting
period for the qualifying hedge funds that they advise.
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\377\ See supra section II.L.
\378\ Large hedge fund advisers are not currently required to
complete Question 26 for their qualifying hedge funds, for which
they are required to complete Question 41 instead.
\379\ For large hedge fund advisers, the reporting period is the
fund's calendar quarter. For hedge fund advisers that do not meet
the definition of large hedge fund advisers, the reporting period is
the fund's fiscal year. See supra section III.B.1; see also Form PF
General Instruction 9; Form PF Glossary of Terms (definition of
``reporting period'').
\380\ For large hedge fund advisers, the reporting period is the
fund's calendar quarter. See supra section III.B.1; see also Form PF
General Instruction 9; Form PF Glossary of Terms (definition of
``reporting period'').
\381\ For example, for secured borrowing and lending via prime
brokerage or other brokerage agreement, Question 26 asks the amount
of borrowing (and collateral received) and lending (and collateral
posted) for the following types of collateral: (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; and (iii) government securities and other
securities received and posted by the reporting fund. For the same
category of lending and borrowing, Question 41 asks for the amounts
for the following categories: (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 (other than cash and cash equivalents)
received and posted by the reporting fund; (iv) securities (other
than cash and cash equivalents and government securities) received
and posted by the reporting fund; and (v) 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.
\382\ See Form PF Question 41 subsections (a), (b)(vi), (c)(v),
(d)(v), and (f)(vii).
\383\ See Form PF Question 41, subsections (b)(vii). (c)(vi),
(d)(vi), (e)(vi), and (f)(viii). In some subsections, the
instructions appear to mistakenly require advisers to report the
expected change in collateral if the required margin increases by
one percent, rather than by one percent of the position size.
\384\ The definitions of ``cash borrowing entries,'' ``cash
lending entries,'' and ``consolidated counterparty exposure table''
in the Glossary of Terms would also be amended to remove references
to Question 41. In addition, the definition of ``individual
counterparty exposure table'' would be amended to correct an error.
The definition currently mistakenly refers to Question 41 in
addition to Question 42. Under the proposed amendments, this error
would be corrected to refer to Questions 42 and 43. See supra
footnote 119 and accompanying text; Form PF Glossary of Terms
(definition of ``individual counterparty exposure table'').
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Separately, Question 42 must be completed by large hedge fund
advisers for each qualifying hedge fund that they advise. It was added
to Form PF as part of the 2024 amendments.\385\ The question requires
advisers to identify and provide information on each creditor or other
counterparty (including CCPs) to which reporting funds owed an amount
in respect of cash borrowing entries (before posted collateral) which
is equal to or greater than either (1) five percent of net asset value
as of the data reporting date, or (2) $1 billion. For the top five
creditors or counterparties that meet this threshold, the adviser is
required to provide details on the amount of borrowing or lending for
different types of borrowing or lending positions and for different
types of collateral in Question 42(a). The different types of
collateral categories for each type of borrowing or other transaction
are aligned with the requirements in Question 41. In Question 42(b),
the adviser must identify all other creditors or counterparties
(including CCPs) that meet the specified threshold but that are not the
top five listed in Question 42(a). For each of these creditors or
counterparties, the adviser must report, among other things, the cash
borrowing entries and the collateral posted entries of the reporting
fund,\386\ but is not required to provide information as granular as in
Question 42(a). The proposed amendments to Question 42 would require
advisers to identify each creditor or other counterparty (including
CCPs) to which reporting funds owed an amount in respect of borrowing
entries (instead of in respect of cash borrowing entries) that is equal
to or above the specified threshold.\387\ The proposed amendments would
also modify Question 42(a) to align it with the less granular reporting
categories in Question 26. Finally, the proposed amendments would
modify Question 42(b) to require advisers to categorize borrowings
reported in column (d) by type: unsecured borrowing, secured borrowing
(prime brokerage or other brokerage agreement), secured borrowing via
repo and reverse repo (including tri-party repo), other secured
borrowing, derivative positions cleared by a CCP, and derivative
positions that are not cleared by a CCP.\388\
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\385\ See supra section II.L.
\386\ See proposed Form PF Glossary of Terms (definition of
``borrowing entries''). In current Question 42 of Form PF, the
instructions for completing subsection (b) state that advisers must
report ``cash borrowing entries'' in column (d), whereas column (d)
of the table in subsection (b) refers to ``Borrowing.'' The proposed
amendments would reconcile this difference by amending the
instructions for completing subsection (b) of Question 42 to
instruct filers to report all borrowings (i.e., ``borrowing
entries'' as defined in the proposed Form PF Glossary of Terms) in
column (d) of subsection (b). See supra footnote 121; infra footnote
387 and accompanying text.
\387\ The proposed amendments would also include ``borrowing
entries'' as a defined term in the Glossary of Terms. See proposed
Form PF Glossary of Terms (definition of ``borrowing entries'').
\388\ See proposed Form PF Question 42(b); supra section II.L.
Instructions for completing subsection (b) of Question 42 would be
amended to direct advisers to report ``the dollar amount of each
type of borrowing in rows (d)(1) through (d)(6).'' See proposed Form
PF Question 42; supra footnote 122. In addition, the proposed
amendments would correct two minor revisions to the instructions to
Question 42. See supra section II.L. We do not expect that these
corrections would have economic effects as we expect that advisers
already understand the correct current requirements.
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In addition, Question 43 must be completed by large hedge fund
advisers for each qualifying hedge fund that they advise. It was added
to Form PF as part of the 2024 amendments.\389\ The question requires
advisers to identify and provide information on each counterparty to
which reporting funds 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) five
percent of net asset value as of the data reporting date, or (2) $1
billion. For this question, the counterparty credit exposure relates to
cash borrowing entries or cash lending entries.\390\ For the top five
counterparties that meet this threshold, the adviser is required to
provide details on the amount of borrowing or lending for different
types of borrowing or lending positions and for different types of
collateral in Question 43(a). The different types of collateral
categories for each type of borrowing, lending, or other transaction
are aligned with the requirements in Question 41. In Question 43(b),
the adviser must identify all other counterparties that meet the
specified threshold but that are not the top five listed in Question
43(a). For each counterparty identified, the adviser must report, among
other things, the net mark to market exposure before collateral and the
net mark to market exposure after collateral but is not required to
provide information as granular as in Question 43(a). Under the
proposed amendments, counterparty credit exposure would relate to all
borrowing entries or all lending entries,\391\ instead of only cash
borrowing entries or cash lending entries.\392\ The proposed amendments
would also modify Question 43(a) to align it with the less granular
reporting categories in Question 26.\393\
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\389\ See supra section II.L.
\390\ For counterparties to which the reporting fund had net
borrowing exposures, the reporting fund's net mark to market
counterparty credit exposure before collateral equals the reporting
fund's cash borrowing entries and the reporting fund's net mark to
market counterparty credit exposure after collateral equals 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 and 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.
\391\ The proposed amendments would also include ``lending
entries'' as a defined term in the Glossary of Terms. See proposed
Form PF Glossary of Terms (definition of ``lending entries'').
\392\ Under the proposed amendments, for counterparties to which
the reporting fund had net borrowing exposures, the reporting fund's
net mark to market counterparty credit exposure before collateral
would equal the reporting fund's borrowings and the reporting fund's
net mark to market counterparty credit exposure after collateral
would equal the amount (if any) by which the collateral posted
entries exceed such borrowings. For counterparties to which the
reporting fund had net lending exposure, the reporting fund's net
mark to market counterparty credit exposure before collateral would
mean the lending entries and the reporting fund's net mark to market
counterparty credit exposure after collateral would equal the amount
(if any) by which the reporting fund's lending entries exceed the
collateral received entries. See proposed Form PF Question 43.
\393\ The definitions of ``collateral posted entries'' and
``collateral received entries'' in the Glossary of Terms would also
be amended to reflect the amended requirements for Questions 42 and
43. See supra footnote 119 and accompanying text.
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Finally, Question 18 requires filing advisers to provide
information on each of their funds' borrowings and types of creditors.
Large hedge fund advisers are not currently required to complete
Question 18 for their qualifying hedge funds. Applicable advisers must
report the dollar amount of a fund's total borrowing, as well as the
percentage of this borrowing that is borrowed from (i) U.S. depository
institutions, (ii) U.S. creditors that are not U.S. depository
institutions, and (iii) non-U.S. creditors. Under the proposed
amendments, large hedge fund advisers would be required
[[Page 22277]]
to complete Question 18 for their qualifying hedge funds.\394\
---------------------------------------------------------------------------
\394\ All filing advisers would therefore be required to
complete Question 18 for all of their funds, except for the funds
for which they complete Question 71.
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Benefits
The main benefit of these proposed changes would be to reduce the
burden for large hedge fund advisers.\395\ The proposed amendments
would reduce the costs associated with completing the parts of Question
41 that are not required in Question 26. They would also reduce the
costs associated with completing Questions 42(a) and 43(a) for the
different categories of collateral, since the granularity of these
categories would decrease to align with those in Question 26. These
cost savings would include those related to the time and resources
spent by advisers to compute the required information. We expect that
these would be higher for the advisers of qualifying hedge funds that
utilize several types of borrowing, lending, and similar transactions
with creditors or other counterparties that correspond to the different
subsections of Questions 41. We also expect that they would be higher
for the advisers of qualifying hedge funds that have a larger number of
counterparties, since advisers are required to aggregate their
responses across all counterparties in Question 41.\396\ We understand
that some advisers find the requirements in Questions 41
burdensome.\397\ Hence, we expect that the proposed changes to these
questions would result in a significant reduction in costs for large
hedge fund advisers.\398\
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\395\ Questions 41, 42, and 43 appear in section 2 of Form PF
and apply to qualifying hedge funds advised by large hedge fund
advisers. Under the proposed amendments, we estimate that there
would be approximately 227 large hedge fund advisers advising
approximately 1,378 qualifying hedge funds. See supra sections
III.B.2 and III.C.3.
\396\ See instructions to Question 41 of Form PF.
\397\ See supra section II.L.
\398\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
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These cost reductions could be mitigated by the proposed changes to
Questions 18, 42, and 43. The proposed requirements to make Question 18
required for qualifying hedge funds could result in higher costs for
their advisers since this question is not currently required for these
funds. However, Question 41 requires advisers to break out different
types of borrowings by type of creditor (U.S. depository institutions,
U.S. creditors that are not U.S. depository institutions, and non-U.S.
creditors) and on a monthly basis. Question 18 requires this
information in aggregated form across all of the fund's borrowings and
on a quarterly basis for large hedge fund advisers. Hence, advisers are
likely to have this information, or to have systems in place to collect
this information. Aggregating it to complete Question 18 is unlikely to
result in significant costs.
Similarly, the proposed change to Question 42(a) to include the
requirement to report amounts for different types of borrowings
reported in column (d) could increase costs to advisers since they
would have to break out the individual counterparty exposure by the
type of the borrowing exposure, whereas this question currently
requires exposure aggregated across all borrowing types within a
counterparty. However, Question 41 (and Question 26, which would be
required instead of Question 41 under the proposed amendments) requires
this information aggregated across all counterparties. To complete
Question 41, advisers would have to collect information for each
counterparty to be able to aggregate it. Hence, we expect that advisers
already collect or already have systems in place to collect the
information at the counterparty level. If not, advisers would have to
collect this information in order to be able to complete Question 26
under the proposed amendments. Overall, we do not expect that the
increase in costs that could result from this proposed change to
Question 42(a) would be significant.
Finally, the proposed change to require advisers to consider all
borrowing entries and lending entries when determining which
counterparties meet the materiality thresholds in Questions 42 and 43,
instead of considering only cash borrowing entries and cash lending
entries, as is currently required, could lead to advisers having to
complete Questions 42(b) and 43(b) for a larger number of
counterparties, thereby increasing their costs.\399\ However, as with
the proposed change to Question 42(a), advisers should already collect
this information or have systems in place to collect this information
at the counterparty level for Question 41. If not, they would have to
collect it to be able to complete Question 26 under the proposed
amendments. Nevertheless, completing Questions 42 and 43 could still be
more costly than under the baseline, as advisers could be required to
complete more line items depending on their fund's borrowing entries.
---------------------------------------------------------------------------
\399\ This proposed change could also result in some advisers
having to complete Questions 42(a) and 43(a) for additional
counterparties, to the extent that they do not have five
counterparties meeting the current specified thresholds (which
relate to cash entries only).
---------------------------------------------------------------------------
Despite these potential mitigating factors, we expect that the
reduction in costs that would result from the proposed amendments to
Questions 18, 26, 41, 42, and 43 for advisers of qualifying hedge funds
would be significant. This is because advisers would need to collect
less information under the proposed amendments than under the current
requirements. In addition, the elements that they would no longer be
required to collect under the proposed changes include elements that
filers have identified as being particularly burdensome to collect and
report.\400\
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\400\ For example, filers have expressed that prime brokers
report to funds collateral on a pooled basis and do not generally
unbundle classification of collateral by asset type. This makes it
challenging for them to complete Question 41. See supra footnote 112
and accompanying text. Filers have also expressed that reporting the
expected increase in collateral from a one percent margin increase,
also required in Question 41, is particularly burdensome. See supra
section II.L. Under the proposed amendments, both of these
requirements would be eliminated.
---------------------------------------------------------------------------
Costs
Taken together, these proposed changes would result in advisers
reporting less information on qualifying hedge funds' exposure to
counterparties, which could affect systemic risk monitoring and
investor protection efforts. The proposed reduction in the number of
categories of collateral for which advisers must provide details within
several types of borrowing or other transaction would result in
advisers reporting less granular information on qualifying hedge funds'
collateral with different types of counterparties.\401\ This could
reduce the SEC's and FSOC's ability to assess qualifying hedge funds'
vulnerability to certain types of risk, including contagion risk that
could result from a counterparty's failure, which could reduce FSOC's
ability to assess systemic risk compared to the current requirements.
However, we do not expect that these effects would be significant.
Advisers would report detailed information on qualifying hedge funds'
most important counterparties and associated collateral in Questions 42
and 43. In addition, they would report information on these funds'
consolidated exposure in Questions 18 and 26. Therefore, we expect that
FSOC would be able to have visibility into potential counterparty
[[Page 22278]]
risk, including contagion risk, to support its monitoring of systemic
risk.
---------------------------------------------------------------------------
\401\ For example, with respect to consolidated counterparty
exposures, the SEC and FSOC would not be able to distinguish between
government securities and other securities received and posted as
collateral by qualifying hedge funds.
---------------------------------------------------------------------------
The proposed elimination of the requirement for advisers to specify
the expected increase in collateral required to be posted by the fund
if required margin increases by one percent of position size could
reduce regulators' ability to assess qualifying hedge funds'
vulnerability to changes in financing costs and sensitivity to margin
changes, which could impact FSOC's ability to assess systemic risk. We
expect that this effect would be mitigated by the possibility to assess
qualifying hedge funds' sensitivity to market conditions by considering
the liquidity of the assets held by the funds. For example, Question 37
requires large hedge fund advisers to report the percentage (by value)
of a qualifying hedge fund's positions that could be liquidated within
specific periods.\402\ A fund able to liquidate assets in shorter
periods is likely to be better able to meet an increase in required
margin on short notice, making it more resistant to market conditions.
Hence, we expect that regulators would continue to be able to assess
qualifying hedge funds' sensitivity to changes in required margins
under the proposed change.
---------------------------------------------------------------------------
\402\ In addition, Question 20, which must be completed by all
filing advisers and separately for all private funds that such
advisers advise, requires an adviser to classify a fund's assets and
liabilities into different categories capturing different valuation
methods. Regulators can infer from this question the liquidity of a
fund's assets. For example, assets that are valued with quoted
prices in active markets (``Level 1'' assets) are likely to be more
liquid than assets valued using an adviser's own assumptions
(``Level 3'' assets). Relatedly, under the current Form PF, large
hedge fund advisers are required to report to the SEC a qualifying
hedge fund's margin default or inability to meet a call for margin,
collateral, or equivalent. See Form PF section 5 Item D. Under the
proposed amendments, this requirement would be eliminated. See supra
section II.N.1 infra section III.C.15.
---------------------------------------------------------------------------
The proposed elimination of the requirement for advisers to break
down different types of borrowing across different types of
counterparties (U.S. depository institutions, U.S. creditors that are
not U.S. depository institutions, and non-U.S. creditors) would result
in less information being reported on the type of creditors used by
qualifying hedge funds for different types of borrowing. This could
affect the assessment of qualifying hedge funds' vulnerability to
certain types of risk, which could impact the assessment of systemic
risk. For example, regulators would have less visibility into the
amount of different types of borrowings that is obtained from non-U.S.
creditors by qualifying hedge funds. This could affect their ability to
assess whether certain events affecting hedge funds could destabilize
financial markets.\403\
---------------------------------------------------------------------------
\403\ For example, certain events can affect some hedge funds'
ability to borrow abroad, which could result in these funds
resorting to selling assets in a short time frame.
---------------------------------------------------------------------------
We expect that this potential cost would be mitigated by two
factors. First, under the proposed amendments, large hedge fund
advisers would be required to complete Question 18 for their qualifying
hedge funds.\404\ Hence, the SEC and FSOC would have information on a
fund's total borrowings broken down by the same three types of
counterparties.\405\ However, this mitigation would be partial. While
the information from Question 18 would be available from large hedge
fund advisers for the reporting period (that is, for a quarter),
Question 41 must be completed as of the end of each of the months of
the reporting period. In addition, this information would only be
available for funds' total borrowings and would not be available by
type of borrowing.
---------------------------------------------------------------------------
\404\ See supra footnote 394 and accompanying text. We do not
expect that the amendment to Question 18 would result in additional
costs for large hedge fund advisers since they are likely to already
have collected the required data for their qualifying hedge funds,
or to already have set up a system to collect such data, to be able
to complete Question 41. See supra text accompanying footnote 240.
\405\ Question 18 requires advisers to report a fund's total
borrowings in dollars as well as the percentage that is borrowed
from U.S. depository institutions, U.S. creditors that are not U.S.
depository institutions, and non-U.S. creditors.
---------------------------------------------------------------------------
Second, this cost would be mitigated by the proposed amendments to
Question 42(b) under which, for the creditors or other counterparties
to which reporting funds owed amounts above certain thresholds,
advisers would be required to indicate the type of borrowing or other
transaction.\406\ In addition, when identifying these creditors or
other counterparties, funds would have to consider all of their
borrowing entries instead of only cash borrowing entries, resulting in
potentially more creditors or other counterparties being identified and
reported on. The SEC and FSOC would be able to use other information
reported in Question 42(b), such as legal entity name and LEI, to
classify identified creditors and other counterparties by type (U.S.
depository institutions, U.S. creditors that are not U.S. depository
institutions, and non-U.S. creditors). Hence, while the SEC and FSOC
would lose access to monthly data on qualifying hedge funds' total
borrowing broken down by type of borrowing and type of creditor or
other counterparty under the proposed amendments, they would receive
this information at a disaggregated level at a quarterly frequency and
for creditors or other counterparties reaching materiality thresholds.
As a result, while FSOC's ability to monitor systemic risk could be
affected by these proposed amendments, we do not expect that this
effect would be significant.
---------------------------------------------------------------------------
\406\ For the top five creditors identified in Queston 42(a),
indicating the type of borrowing or other transaction is currently
required and would continue to be under the proposed amendments.
---------------------------------------------------------------------------
Overall, the proposed elimination of Question 41 would result in
the SEC and FSOC receiving less granular data on each qualifying hedge
fund's aggregated exposure to counterparties. This could affect
systemic risk assessment and monitoring. However, the proposed
amendments to Questions 42 and 43 would result in additional and
potentially more relevant data on individual counterparties that reach
certain materiality thresholds. The proposed amendments to require
advisers to consider all borrowing entries (for Question 42) and all
borrowing or lending entries, as relevant, (for Question 43) instead of
only cash borrowing entries and cash lending entries when determining
which counterparties reach the materiality thresholds would result in
the SEC and FSOC having a more complete picture of qualifying hedge
funds' exposures to individual counterparties. While cash borrowing and
lending entries are likely to capture unsecured borrowing and lending,
which may represent higher counterparty risk for funds, other types of
borrowing and lending also entail risk and are therefore important to
analyze. For example, these proposed amendments would allow an easier
assessment of whether a specific fund is under- or over-collateralized.
In addition, these amendments would preserve the alignment between
Questions 42 and 43,\407\ which allows the SEC and FSOC to have a more
complete picture of a fund's exposure to counterparties. Hence, these
amendments would support FSOC's assessment of systemic risk and
mitigate the potential impact of the proposed elimination of Question
41.
---------------------------------------------------------------------------
\407\ As opposed to, for example, amending Question 42 to
require advisers to consider all borrowing entries while leaving the
current requirement in Question 43 that advisers consider only cash
borrowing and lending entries, as relevant.
---------------------------------------------------------------------------
For these reasons, we expect that any effect on the SEC's investor
protection efforts that could result from the proposed amendments to
large hedge fund adviser counterparty exposure reporting would be
minimal. While the
[[Page 22279]]
proposed elimination of Question 41 would result in some information
being unavailable, the proposed amendments to other questions would
ensure the SEC retains access to information on counterparty exposure
that is necessary for investor protection efforts.
14. Eliminate Rehypothecation Reporting
Question 45 must be completed by large hedge fund advisers and
separately for each qualifying hedge fund that such advisers advise.
The question requires advisers to report the percentages of the total
amount of collateral and other credit support that counterparties have
posted to the reporting fund that may be rehypothecated (subsection
(a)(i)) and that the reporting fund has rehypothecated (subsection
(a)(ii)). Under the proposed amendments, Question 45 would be
eliminated.\408\
---------------------------------------------------------------------------
\408\ See supra section II.M.
---------------------------------------------------------------------------
Benefits
All large hedge fund advisers to qualifying hedge funds would
benefit from this proposed change via lower costs.\409\ The proposed
elimination of Question 45 would reduce the costs associated with
completing Question 45. These costs include the time and resources
spent by advisers to keep track of the portion of the collateral and
other credit support that their funds' counterparties have posted to
the funds that may be rehypothecated and that have been rehypothecated.
We understand from industry members that computing this data is
operationally challenging.\410\ The costs of computing the required
data are likely to be higher for advisers of funds that have collateral
or other types of credit support posted by a large number of
counterparties. Hence, we expect that the decrease in cost is likely to
be larger for such advisers.\411\
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\409\ Under the proposed amendments, we estimate that there
would be approximately 227 large hedge fund advisers advising
approximately 1,378 qualifying hedge funds. See supra sections
III.B.2 and III.C.3.
\410\ See supra section II.M.
\411\ See infra section III.C.18 for estimates of cost savings
associated with the proposed amendments.
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Costs
The proposed elimination of Question 45 would result in FSOC
receiving no information on the amount of collateral and other credit
support that counterparties have posted to qualifying hedge funds and
that can be or have been rehypothecated. However, the data received for
this question so far has proven unreliable,\412\ likely because of the
challenges faced by advisers to fulfill the requirements.\413\ Hence,
we do not expect that this proposed amendment would have significant
effects on FSOC's ability to monitor systemic risk.
---------------------------------------------------------------------------
\412\ Before the 2024 amendments, the requirements appeared
under the question that was previously numbered as Question 38. See
supra section II.M.
\413\ See supra section II.M.
---------------------------------------------------------------------------
15. Amendments to Large Hedge Fund Adviser Current Reporting
Since December 2023, large hedge fund advisers have had to file a
current report with the SEC when their qualifying hedge funds
experience certain stress events: (1) extraordinary investment losses,
(2) significant margin events and default events, (3) a prime broker
relationship being terminated or materially restricted, (4) operations
events, and (5) certain events associated with withdrawals and
redemptions at the reporting hedge fund. The report must be filed as
soon as reasonably practicable, but no later than 72 hours after a
reportable event.\414\ The proposed amendments would instead simply
allow for the report to be submitted no later than 72 hours after a
reportable event.\415\ Furthermore, the proposed amendments would
revise the section 5 filing triggers in three ways. First, the
amendments would eliminate section 5 Item D--the obligation for an
adviser to report a fund's margin default or inability to meet a call
for margin, collateral, or equivalent.\416\ Second, the amendments
would modify the reporting trigger related to operations events.\417\
Currently, section 5 Item G specifies that an ``operations event''
occurs when ``a reporting fund or private fund adviser experiences a
significant disruption or degradation of the reporting fund's critical
operations'' and that ``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.'' The proposed amendments would remove ``(ii) the
operation of the reporting fund in accordance with the Federal
securities laws and regulations'' from the definition of ``operations
events'' and would make other streamlining changes including removing
references to ``critical operations'' in the form.\418\ Third, the
proposed amendments would modify the reporting trigger related to the
inability to satisfy redemptions. Currently, section 5 Item I requires
large hedge fund advisers to submit a current report when a qualifying
hedge fund it advises (1) is unable to pay redemption requests, or (2)
has suspended redemptions and the suspension lasts for more than five
consecutive business days. The proposed amendments would eliminate the
first prong requiring advisers to file section 5 if the fund is unable
to pay redemption requests.\419\
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\414\ See Form PF section 5.
\415\ See supra section II.N.1.
\416\ See supra section II.N.2.
\417\ See supra section II.N.3.
\418\ Relatedly, the bulleted item ``Disruption or degradation
of your ability to comply with applicable laws, rules, and
regulations'' would also be removed from Question 5-29 in section 5
of Form PF under the proposed amendments. See supra section II.N.3.
\419\ The proposed amendments would also include conforming
changes to Questions 5-34 and 5-35. See supra section II.N.4.
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Separately, in connection with the proposed removal of Questions 39
and 40, which require large hedge fund advisers to report detailed
information about their qualifying hedge funds' monthly portfolio
exposure to reference assets,\420\ the SEC proposes including
additional information to Item B of section 5. Large hedge fund
advisers would provide asset-level details regarding the largest
exposure contributing to an extraordinary investment loss.
---------------------------------------------------------------------------
\420\ See supra sections II.K and III.C.12.
---------------------------------------------------------------------------
Benefits
The main benefit of these proposed amendments to Items D, G, and I
of Form PF section 5 would be to reduce the burden for advisers that
would have to file section 5 absent the proposed changes.\421\
Separately, the proposed amendments to Item B would provide FSOC with
targeted information regarding qualifying hedge funds' extraordinary
investment losses, which would give timely notice of events that could
potentially indicate broader market stress, supporting FSOC's
monitoring of systemic risk.
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\421\ Section 5 applies to qualifying hedge funds advised by
large hedge fund advisers. Under the proposed amendments, we
estimate that there would be approximately 227 such advisers
advising approximately 1,378 qualifying hedge funds. See supra
sections III.B.2 and III.C.3.
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The proposed amendments would remove the requirement that section 5
reports be filed with the SEC as soon as practicable, but no later than
72 hours upon the occurrence of the event, and would instead give a
deadline of 72 hours after the triggering event.\422\ This change would
benefit large hedge fund advisers to the extent that they would
otherwise divert additional resources to determine when to file a
current report within the 72-hour period or to report the event sooner
than the maximum
[[Page 22280]]
deadline. For instance, under the baseline, an adviser whose qualifying
hedge fund experiences a holding period return of less than negative 20
percent may opt to utilize resources and personnel to file the current
report within a short period after the loss. The proposed amendments
would benefit the adviser by allowing more flexibility to report the
loss. The additional flexibility that would be afforded by the
amendments could also improve the quality of the data contained in the
reports,\423\ which would improve its utility for FSOC's monitoring of
systemic risk and the SEC's investor protection efforts.
---------------------------------------------------------------------------
\422\ See supra section II.N.1.
\423\ See supra section II.N.1.
---------------------------------------------------------------------------
Additionally, the proposed amendments to section 5 would reduce the
costs associated with monitoring for occurrences that trigger current
reporting requirements for large hedge fund advisers to qualifying
hedge funds. For the purposes of section 5 current reporting, these
advisers would not need to continuously monitor occurrences that
trigger Item D reporting or constitute an operations event in Item G
solely via the second prong of the definition. Large hedge fund
advisers would likely still monitor for significant events in the
absence of the current reporting requirement, which would mitigate the
cost-savings benefit associated with the proposed amendments to section
5.\424\ However, some large hedge fund advisers have indicated since
the requirement was adopted that monitoring for Item D continuously is
operationally burdensome due to its lack of a materiality
threshold.\425\ Hence, some large hedge fund advisers may realize
larger ongoing cost savings from the proposed elimination of this Item.
Similarly, some large hedge fund advisers have had difficulty
interpreting the scope of the second prong of the definition of
``operations event'' in Item G, which refers to the reporting fund's
operation in accordance with Federal securities laws and regulations in
the definition of ``critical operations.'' \426\ This difficulty may
increase the current burden associated with determining whether an
incident meets the definition of an operations event, which would
further contribute to the ongoing costs of large hedge fund advisers.
Thus, we anticipate meaningful ongoing cost savings from the proposed
amendments to Items D and G of Form PF section 5.
---------------------------------------------------------------------------
\424\ See 2023 Form PF Adopting Release section IV.C.2.
\425\ See supra section II.N.2.
\426\ See supra section II.N.3.
---------------------------------------------------------------------------
In addition to monitoring for specific events, the compliance costs
associated with section 5 reporting also include the costs to complete
the report when reportable events occur.\427\ The extent to which these
compliance costs would decrease under the proposed changes depends on
the occurrence of reporting events that would result in advisers filing
section 5 under the current version of Form PF but not under the
proposed changes. Under the proposed changes, the SEC would not receive
any Item D filings and potentially fewer Item G filings. Given that
there have been relatively few section 5 filings related to Item D or
Item G,\428\ the aggregate reduction in costs associated with these
proposed changes to section 5 is likely to be small.
---------------------------------------------------------------------------
\427\ See infra section III.C.18. We estimate that the reduction
in compliance costs associated with the elimination of Item D and
the modification of Item G would be $8,873 per filing that would be
submitted under the current requirements but not under the proposed
amendments. See also infra section IV.A.3. The additional proposed
amendments to section 5, relating to Item B, are discussed below.
\428\ Items D and G have been infrequently filed with the SEC.
---------------------------------------------------------------------------
Eliminating the inability to pay redemption requests as a reporting
trigger for Item I would modestly lower the number of current reports
filed by large hedge fund advisers for this item.\429\ Advisers with
qualifying hedge funds that cannot pay redemption requests but do not
need to suspend redemptions for more than five consecutive business
days would save on the costs associated with submitting a current
report for Item I. Additionally, some filers have raised concerns
regarding the interpretation and application of this prong of the Item
I trigger.\430\ Some filers have asked whether the trigger includes all
circumstances in which a fund does not fulfill a redemption request in
cash. For instance, some hedge funds currently meet investor redemption
requests with in-kind payments of underlying portfolio securities,
sometimes at the request of fund investors to avoid negative tax
consequences or as a matter of course. Some large hedge fund advisers
may conservatively interpret the scope of this trigger as including
some or all of these circumstances, leading to additional compliance
burdens for these advisers. Eliminating this element of the Item I
trigger could therefore modestly lower ongoing costs, including in
cases when the fund is able to fulfill redemption requests in
kind.\431\
---------------------------------------------------------------------------
\429\ Item I has been infrequently filed with the SEC under this
prong.
\430\ See supra section II.N.4.
\431\ See supra footnote 429.
---------------------------------------------------------------------------
The proposed amendments would also require that large hedge fund
advisers provide specific information in conjunction with a section 5
Item B filing indicating a qualifying hedge fund's holding period
return of less than or equal to negative 20 percent. The new sub-
question would request identifying and descriptive information for the
largest exposure contributing to the reported loss, including the
dollar amount of the exposure, sub-asset class, instrument type, a
title or description of the asset, and identifying information about
the asset's issuer. The information introduced by this proposed
amendment overlaps with reference asset information that would not be
received due to the proposed elimination of Question 40.\432\ In
contrast with Question 40, which applies to any of the reporting fund's
reference assets with gross exposure equal to or exceeding certain
thresholds, the proposed additional information in section 5, Item B
would only be reported by large hedge fund advisers for a single asset
contributing to their qualifying hedge fund's extraordinary investment
loss. Thus, while these filings would be less frequent and
comprehensive than the information currently reported in Question 40,
they would provide FSOC with more timely indicia of acute market
stress, substantially mitigating the cost of eliminating Question
40.\433\
---------------------------------------------------------------------------
\432\ See supra section II.K.
\433\ See supra section III.C.12.
---------------------------------------------------------------------------
Costs
The proposed amendment to modify the requirement that section 5
reports be filed with the SEC as soon as practicable, but no later than
72 hours upon the occurrence of the event to instead give a deadline of
72 hours after the triggering event could delay the SEC's receipt of
section 5 reports. We expect that any such delay would not
significantly affect FSOC's ability to monitor systemic risk or the
SEC's investor protection efforts given that the deadline would still
be limited to 72 hours.
The proposed elimination of Item D could, in principle, result in
less information available to the SEC and FSOC on funds' events of
margin default or inability to meet a call for margin, collateral, or
equivalent, to the extent that these events would not be captured by
other requirements of Form PF. However, given the potential overlap in
the information provided by Items B, C, and D,\434\ we do not
anticipate that the
[[Page 22281]]
removal of Item D would significantly hinder detection of margin stress
in qualifying hedge funds which could contribute to systemic risk. In
particular, if a fund is unable to meet a margin call, there is a
higher probability that the fund has suffered a large investment loss
or has faced a large margin, collateral, or equivalent increase. On the
other hand, a fund can experience a large investment loss or face a
large margin, collateral, or equivalent increase without defaulting on
the margin call. That is, Items B and C are likely to be more sensitive
triggers with respect to margin stress at a hedge fund. Therefore, it
is unlikely that the proposed elimination of Item D would affect
systemic risk monitoring or investor protection.
---------------------------------------------------------------------------
\434\ Large hedge fund advisers must file an Item B report when
one of their qualifying hedge funds experiences an extraordinary
loss and an Item C report when one of their qualifying hedge funds
experiences a significant margin, collateral, or equivalent
increase. See Form PF section 5.
---------------------------------------------------------------------------
Removing the second prong from Item G would narrow the scope of
what constitutes ``critical operations.'' However, we expect that this
proposed change would only modestly decrease the number of reports
filed, which the SEC already receives only infrequently.\435\ Compared
to the first prong, the second prong is a broader catchall for other
situations that might cause a fund or adviser to be unable to comply
with rules or violate a fiduciary duty. Therefore, we do not expect
that its elimination would lead to a significant reduction in the
number of reports relevant for systemic risk assessment or investor
protection received by the SEC and FSOC because most situations would
likely be captured by the first prong.
---------------------------------------------------------------------------
\435\ See supra footnote 428.
---------------------------------------------------------------------------
Removing the first prong from Item I would narrow the scope of
events that would require a section 5 filing under Item I. Temporary
events in which funds are unable to meet certain redemption requests
but do not suspend redemption requests for more than five consecutive
days would not be reported. Thus, the removal of this prong could, in
principle, eliminate an early indicator of stress in broader market
liquidity that could support FSOC's monitoring of systemic risk. For
the same reasons, the proposed change could also affect the SEC's
investor protection efforts. However, filers have indicated that it is
unclear whether a current report is required to be filed if a fund
redeems an investor by providing securities as a matter of course or at
investor request to avoid negative tax consequences.\436\ Filers have
also stated that the first prong of Item I, as currently worded, does
not align with industry practice because an ``in-kind redemption''
generally is not considered a failure to satisfy a redemption request
under fund partnership agreements or similar types of contractual
arrangements. Relatedly, reporting under the first prong of Item I has
been inconsistent across large hedge fund advisers, limiting its use
for systemic risk monitoring and investor protection efforts. Current
reporting under the second prong of item I as well as other current
reporting requirements such as those related to extraordinary
investment losses in Item B could be stronger signals of systemic
events or investor harm, mitigating the costs of removing the first
prong.
---------------------------------------------------------------------------
\436\ See supra section II.N.4.
---------------------------------------------------------------------------
Finally, the proposed amendments to Item B of section 5 would
impose some costs on large hedge fund advisers. Proposed Item B would
require specific identifying and descriptive information regarding the
largest exposure contributing to an extraordinary investment loss. We
do not anticipate that these costs would be significant, as the new
question would not change whether a large hedge fund adviser must file
section 5. Moreover, fund managers are likely aware of the identity and
dollar size of the largest exposure which contributes to substantial
fund losses. We therefore do not expect that identifying and reporting
the new information that would be required in this Item would lead to a
substantial new burden for large hedge fund advisers.\437\
---------------------------------------------------------------------------
\437\ In addition, advisers are likely to already have in place
systems to collect at least some of this information in order to be
able to complete Question 40. See supra section III.C.12; see also
supra text accompanying footnote 240.
---------------------------------------------------------------------------
16. Eliminate Form PF Private Equity Quarterly Reporting in Section 6
Since December 2023, advisers to private equity funds have had to
file quarterly reports with the SEC within 60 days of the end of each
calendar quarter during which a private equity reporting event
occurs.\438\ The events that trigger section 6 reporting are the
occurrence of an adviser-led secondary transaction, general partner
removal, termination of the investment period, or termination of
fund.\439\ The proposed amendments would eliminate section 6 from Form
PF.\440\ The SEC has received approximately 176 section 6 filings per
year since December 2023.
---------------------------------------------------------------------------
\438\ See supra section II.O.
\439\ See Form PF section 6.
\440\ See supra section II.O.
---------------------------------------------------------------------------
Benefits
This proposed amendment would result in advisers to private equity
funds no longer submitting quarterly reports to the SEC indicating the
occurrence of a private equity reporting event.\441\ Benefits would
accrue to advisers to private equity funds in the form of cost savings.
The proposed removal of section 6 would eliminate the ongoing costs
associated with filing section 6 quarterly reports. These ongoing costs
include the costs associated with monitoring private equity reporting
events during each calendar quarter and compliance costs associated
with actual filings. The cost of monitoring for section 6 reporting is
likely to be small, as private equity fund advisers would be aware of
the occurrence of an adviser-led secondary transaction, general partner
removal, termination of the investment period, or termination of fund
even in the absence of the reporting requirement. The main cost saving
that would result from the proposed elimination of section 6 would
therefore come from the elimination of filing costs due to the time
required to complete the relevant item.\442\ Given that there have been
relatively few section 6 quarterly reports filed with the SEC,\443\ the
aggregate cost savings to eliminating section 6 is also likely to be
small.\444\
---------------------------------------------------------------------------
\441\ Section 6 applies to private equity fund advisers that are
required to file Form PF. Under the proposed amendments, we estimate
that there would be approximately 1,143 such advisers, advising
approximately 19,620 private equity funds. See supra sections
III.B.2 and III.C.2.
\442\ Section 6 filings must be filed on a timeframe outside of
the regular Form PF reporting frequency for private equity funds,
which can add to the burden for filing advisers.
\443\ There have been approximately 176 section 6 reports filed
with the SEC per year since the December 2023 compliance date of the
2023 Form PF amendments. Dividing 176 reports per year by 24,986
private equity funds as reported on Form PF as of the first quarter
of 2025 corresponds to fewer than 1% of private equity funds filing
reports per year.
\444\ See infra section III.C.18. We estimate that the reduction
in compliance costs associated with the elimination of section 6
would be $5,508 per report that would be submitted under the current
requirements but not under the proposed amendments. See also infra
section IV.A.3.
---------------------------------------------------------------------------
Costs
Section 6 of Form PF informs the SEC and FSOC of the removal of a
private equity fund's general partner, the termination of a private
equity fund or its investment period, or the occurrence of an adviser-
led secondary transaction. Eliminating section 6 could reduce the
efficiency with which the SEC and FSOC identify significant changes in
some types of private equity market trends and potential growing risks
to
[[Page 22282]]
investors and broader financial markets, to the extent that these
relevant market trends and risks are not captured by answers to
questions in section 1 and section 4 of Form PF. For instance, without
the information on a private equity fund's adviser-led secondary
transaction, the SEC and FSOC would have limited visibility into
changes in the prevalence of private equity continuation funds, which
may carry investor protection as well as systemic risk concerns.\445\
---------------------------------------------------------------------------
\445\ A continuation fund is raised by a private fund adviser to
provide exit liquidity to limited partners in an existing private
fund by purchasing some of the fund's portfolio companies. See,
e.g., Antoine Guera & Ivan Levingston, ``Private equity firms flip
assets to themselves in record numbers'', Fin. Times, July 23, 2025,
available at https://www.ft.com/content/88a4e3e3-cefb-48d8-ab81-75cf85039b83. This may raise investor protection concerns as the
same private fund adviser is party to both sides of the transaction,
and the adviser's carry in both funds may be influenced by the terms
of the transaction. An increase in the use of continuation funds in
private equity may also signal underlying stress in the market.
---------------------------------------------------------------------------
We anticipate the impact of eliminating section 6 reports on market
risks monitoring and investor protection efforts would likely be
limited due to two factors. First, section 6 reports may be an
imprecise signal of systemic risk, which could limit their efficacy for
systemic risk monitoring efforts. An adviser-led secondary transaction
in some instances may indicate an attempt to restructure a struggling
investment portfolio, but alternatively it may indicate strength in a
particular investment or simply be an adviser providing investors a
chance to get liquidity while attracting new investors.\446\ Second,
section 6 reports have occurred relatively infrequently since the
reporting requirement was implemented.\447\ Combined with the
imprecision of the reports as a signal for systemic risk, this
infrequency suggests that the amount of information loss relevant for
this purpose that would result from the proposed elimination of section
6 is likely to be small. Overall, we therefore anticipate that the loss
of information relevant to systemic risk monitoring and investor
protection efforts that would result from the proposed elimination of
section 6 would be minimal.
---------------------------------------------------------------------------
\446\ See May 2023 Form PF Adopting Release at section II.B.1.
\447\ See supra footnote 443.
---------------------------------------------------------------------------
17. Other Corrections and Revisions
The proposed amendments include additional changes to make
corrections and other small revisions to Form PF.\448\ These changes
include (1) revising some of the section headings; (2) correcting the
instructions in sections 3 and 4 and simplify the instructions in
section 2; (3) simplifying instructions about Question 25; (4)
correcting Questions 27 and 42; (5) correcting Question 33(a); (6)
adding an instruction to Question 47; and (7) correcting an error in
the definition of ``large private equity fund adviser'' in the Glossary
of Terms.
---------------------------------------------------------------------------
\448\ See supra section II.P.
---------------------------------------------------------------------------
Under the proposed amendments, the heading of section 2 would be
modified to specify that section 2 must be completed by large hedge
funds advisers, the heading of section 3 would be modified to specify
that section 3 must be completed by large liquidity fund advisers, and
the heading of section 4 would be modify to specify that section 4 must
be completed by large private equity fund advisers.\449\ We expect that
these changes would have minimal economic effect, since General
Instruction 9 describes clearly the types of advisers that are required
to complete each section of Form PF. Hence, we do not expect that this
change would result in fewer or additional sections of Form PF being
completed.
---------------------------------------------------------------------------
\449\ The current headings for sections 2 and 3 do not specify
who must complete these sections. The heading for section 4
currently erroneously indicates that it must be completed by all
large private fund advisers. See Form PF sections 2, 3, and 4.
---------------------------------------------------------------------------
Under the proposed amendments, instructions to sections 2, 3, and 4
would be modified. Currently, the instructions for sections 3 and 4
erroneously state that, with respect to master-feeder arrangements and
parallel fund structures, filers may report collectively or separately
about the component funds, as provided in the General
Instructions.\450\ However, General Instruction 6 requires filers to
report such component funds separately, subject to some exceptions.
Under the proposed amendments, the instructions to sections 3 and 4
would be modified to be consistent with General Instruction 6. The
proposed amendments would remove instructions in section 2 about how to
report component funds and instead rely on General Instruction 6 to
instruct filers about how to report component funds, to ensure that the
instructions for sections 2, 3, and 4 follow a consistent format. We do
not expect that these changes would have significant economic effects
since current General Instruction 6 indicates that each component fund
of a master-feeder structure or parallel fund structure must be
reported separately. However, the proposed change could result in
reduced compliance costs for advisers by facilitating their
understanding of how to report the components of such structures in
Form PF. In addition, to the extent that some advisers concluded that
the component funds could be reported on collectively in sections 3 and
4, the proposed changes could result in improved data quality and finer
granularity of information available, as all component funds would be
reported on consistently across advisers, which could improve systemic
risk monitoring and investor protection efforts. However, this could
also result in additional costs for advisers, to the extent that
reporting for each component separately is more costly than reporting
collectively for all components.
---------------------------------------------------------------------------
\450\ See Form PF sections 3 and 4. The instructions for section
2 specify that for such arrangements and structures that comprise
qualifying hedge funds, filers must report the component funds as
provided in General Instructions 3, 5, and 6. See Form PF section 2.
---------------------------------------------------------------------------
Under the proposed amendments, General Instruction 15 and the
instructions to Question 25 would be modified. Currently, General
Instruction 15 states that for Question 25, the numerator used to
determine the percentage of net asset value should be measured in the
same basis as gross asset value. It also states that the response to
this question may total more than 100 percent.\451\ Under the proposed
amendments, the section of General Instruction 15 that is specific to
Question 25 would be moved to Question 25.\452\ We do not expect that
this change would have significant economic effect as it does not alter
the substance of any instructions. However, the proposed change could
result in reduced costs for advisers by facilitating their
understanding of the requirements for Question 25.
---------------------------------------------------------------------------
\451\ See Form PF General Instruction 15.
\452\ See supra section II.P.
---------------------------------------------------------------------------
Under the proposed amendments, the instructions in Questions 27 and
42 would be modified to state that advisers report a legal entity name
for certain affiliated counterparty entities of qualifying hedge funds.
Currently, the instructions to these questions mention the LEI of the
entities, but not the legal entity name. The tables to be filled in
those questions include columns for ``legal entity name,'' and so we
expect that filers already understand the requirement and would most
likely fill the legal entity name under the current instructions.
Hence, we expect the effect of this proposed change would be minimal.
Question 33 asks large hedge fund advisers to report monthly
information on their qualifying hedge funds' currency exposure arising
from foreign
[[Page 22283]]
exchange derivatives and all other assets and liabilities of the funds
that are denominated in a currency other than the reporting fund's base
currency. The table in Question 33(a) requires advisers to report both
the ``long value'' and the ``short value,'' while the question text
erroneously requires advisers to report the ``net long value'' and the
``net short value.'' Under the proposed change, the question text would
be corrected to ask for the ``long value'' and ``short value,''
consistent with the table. The proposed change could result in reduced
costs for advisers by facilitating their understanding of the
requirements. However, we expect the reduced costs to be minimal as we
expect most advisers already understand the correct requirement. To the
extent that it would result in different data being reported by
advisers, the proposed change would also improve data quality compared
to the current requirements by ensuring consistent responses across
filers. This would improve the SEC's and FSOC's understanding of
qualifying hedge funds' currency exposure and support the
identification of sources of systemic risk. To the extent that this
proposed change would result in advisers reporting different data, we
do not expect that the corrected data point would be more costly for
advisers to compute since long and short values are required to
calculate net values.
Question 47 requires large hedge fund advisers to separate the
effects of certain market factors on their qualifying hedge funds'
portfolios into long and short components. The proposed change would
add an instruction to require filers to indicate a negative effect of
the market factor change on the long and short components with a
negative sign and a positive effect of the market factor change on the
long and short components with a positive sign.\453\ We expect that
this proposed change would result in benefits for advisers and improve
the quality of information submitted. Under the current question, some
advisers have questioned whether to report short values with a negative
value or as an absolute value.\454\ The proposed change would result in
advisers not having to spend time and compliance resources determining
how to answer the question, including by contacting the SEC. The
proposed change would also result in improved data quality by helping
ensure that all advisers report the effect of market factor changes on
the long and short components of their portfolio consistently, which
would help with data interpretation and aggregation. This would
facilitate regulators' assessment of the sensitivity of qualifying
hedge funds to certain market factors, which would help systemic risk
monitoring and assessment. We do not expect that this proposed change
would result in additional costs for advisers of qualifying hedge funds
as the information to be computed to answer the questions would remain
unchanged. Only the way to report them in the form could change,
depending on how advisers currently understand the question.
---------------------------------------------------------------------------
\453\ See proposed Form PF Question 47.
\454\ See supra section II.P.
---------------------------------------------------------------------------
Lastly, the proposed amendments would correct an error in the
definition of ``large private equity fund adviser'' in the Glossary of
Terms.\455\ Specifically, the definition would be amended to refer to
section 4 rather than section 4a, as there is no section 4a on Form PF.
We expect that this change would have negligible economic effect, as
General Instruction 3 correctly directs large private equity fund
advisers to complete section 4. We therefore do not believe the current
erroneous reference is causing meaningful confusion and do not expect
the change would result in fewer or additional sections of Form PF
being completed.
---------------------------------------------------------------------------
\455\ Id.
---------------------------------------------------------------------------
18. Quantification of Benefits
We quantify the reductions in costs that would result from the
proposed amendments.\456\ These analyses are structured based on the
analysis in the Paperwork Reduction Act section in this release and the
corresponding previously approved estimates described in the 2024 Form
PF Adopting Release or the May 2023 Form PF Adopting Release, as
relevant. Estimates for initial filings represent effects for new
filers of Form PF, whereas estimates for ongoing filings represent
effects for existing filers of the form.
---------------------------------------------------------------------------
\456\ These reductions in cost are obtained by comparing the
cost of filing the current version of Form PF with the estimated
cost of filing the version of Form PF under the proposed amendments.
For both versions, we use the methodology described in section
IV.A.3 below. See infra footnote 534. In all tables in this section,
negative numbers are indicated in parentheses and capture reductions
in costs. In addition, we quantify some costs of the proposed
amendments above. Specifically, any adviser that is currently filing
Form PF but would not be required to under the proposed amendments
would have to make a final filing with the SEC indicating that it
would no longer be subject to Form PF's reporting requirements. The
cost of these final filings is estimated to be $70,479 ($41 per
filing multiplied by 1,719 advisers). See supra footnote 255 and
accompanying text. Similarly, any adviser that is currently filing
Form PF as a large hedge fund adviser but would not meet the
definition of large hedge fund adviser under the proposed amendments
would have to make a transition filing with the SEC indicating that
it would no longer be obligated to report on a quarterly basis. The
cost of these transition filings is estimated to be $15,990 ($41 per
filing multiplied by 390 advisers). See supra footnote 282 and
accompanying text. These quantified costs total $86,469 ($70,479 +
$15,990).
---------------------------------------------------------------------------
We provide estimates of the cost reductions for each type of
adviser, since different types of advisers complete different sections
of Form PF and would therefore experience different cost reductions
under the proposed amendments.\457\ We also distinguish between regular
filings (those including sections 1 to 4 of Form PF, as relevant for
each adviser),\458\ the filings for sections 5 and 6,\459\ as well as
transition and final filings and temporary hardship requests.\460\ For
regular filings, we distinguish between initial and ongoing filings
since we expect that initial filings are and would continue to be more
costly for advisers to complete.\461\
---------------------------------------------------------------------------
\457\ See supra section III.B.1.
\458\ See infra Tables 6-8.
\459\ See infra Tables 9-10.
\460\ See infra Table 11.
\461\ An adviser filing Form PF for the first time has to
familiarize itself with the form and may need to configure its
systems in order to efficiently gather the required information,
which is likely to result in higher costs.
---------------------------------------------------------------------------
[[Page 22284]]
Tables 6 and 7 below provide separate estimates of the annual cost
reductions that would result from (1) the proposed changes in the
general filing threshold and the large hedge fund adviser reporting
threshold and (2) the other proposed amendments, respectively.\462\
Table 8 presents the aggregate annual cost savings for initial and
ongoing filings by adviser type and is obtained by summing the
aggregate effects in Tables 6 and 7.\463\
---------------------------------------------------------------------------
\462\ Advisers that would no longer be required to file Form PF
due to the proposed filing threshold increase would experience cost
savings equal to their baseline cost of filing the form. Advisers
that would continue to be required to file the same sections at the
same frequency (notwithstanding the higher proposed thresholds)
would experience cost savings due to the other proposed amendments
to Form PF. Advisers that meet the current definition of large hedge
fund advisers but would be smaller private fund advisers under the
proposed amendments would experience cost savings due to the
difference between the baseline cost of filing for large hedge fund
advisers and the baseline cost for smaller private fund advisers, as
well as cost savings due to the estimated reduction in the cost of
filing section 1 that would result from the proposal. Table 6
reports the aggregate cost savings due to threshold effects by type
of adviser and accounts for changes in type that some large hedge
fund advisers would experience due to the proposed large hedge fund
adviser threshold increase. Table 7 reports the aggregate cost
savings that advisers would experience due to amendments to sections
1 and 2 of Form PF. See also infra note 8 in Table 6.
\463\ The total reduction in costs for a particular type of
adviser and a particular type of filing that would result from the
proposed amendments is the difference between (1) the cost per
filing the current version of Form PF times the number of filings
that would be made under the current requirements (denoted
CostBaseline x NBaseline) and (2) the estimated cost per filing
under the proposed amendments times the number of filings that would
be made under the proposed amendments (CostProposal x NProposal).
This difference can be expressed as the sum of (1) the reduction in
costs that would result from the proposed threshold changes,
CostBaseline x (NBaseline-NProposal), and (2) the estimated
reduction in costs that would result from the other proposed
amendments for filers unaffected by the proposed threshold
increases, NProposal x (CostBaseline-CostProposal).
Table 6--Threshold Effect (Sections 1-4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decrease in
Number of Number of Decrease in number of Cost per
filers under filers under number of filings per filing under Aggregate
Type of adviser Type of filing current proposed filers under year under current form effect \6\
thresholds \1\ thresholds \2\ proposed proposed \5\
amendments \3\ amendments \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller private fund advisers.... Initial.............. 466 244 222 222 \7\ $41,308 ($9,170,265)
Ongoing.............. 2,429 \8\ 1,272 1,157 1,157 \9\ 10,600 (12,264,200)
Large hedge fund advisers........ Initial.............. 14 5 9 9 \10\ 260,796 (2,347,164)
Ongoing.............. 603 222 381 \11\ 1,524 \12\ 83,750 (127,635,000)
Large liquidity fund advisers.... Initial.............. 1 1 .............. .............. \13\ 165,039 0
Ongoing.............. 19 19 .............. .............. \14\ 41,000 0
Large private equity fund Initial.............. 30 30 .............. .............. \15\ 191,128 0
advisers. Ongoing.............. 511 511 .............. .............. \16\ 69,025 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. These estimates are based on Form PF data as of the first quarter of 2025.
2. See infra section IV.A.3, Tables 2 and 3.
3. This column is calculated as the difference between the preceding two columns.
4. Large hedge fund advisers and large liquidity fund advisers file Form PF quarterly. Smaller private fund advisers and large private equity fund
advisers file Form PF annually. See Form PF General Instruction 9.
5. This cost is calculated as the previously approved estimate of burden hours monetized using the new methodology. Previously approved estimates of
burden hours are described in the 2024 Form PF Adopting Release, section V. See infra footnotes 533 and 534.
6. The aggregate effect is obtained by multiplying the cost per filing under the current Form by the decrease in number of filings per year under the
proposed amendments.
7. This includes $31,158 in internal costs, $10,000 in external costs, and a $150 filing fee. For internal costs, the hour burden is 55 hours, which is
divided equally between a financial manager at $731 per hour and a financial risk specialist at $402 per hour (0.5 x 55 x 731 + 0.5 x 55 x 402 =
31,158).
8. This number includes the 390 hedge fund advisers that are currently large hedge fund advisers but that would not be under the proposed amendment to
the reporting threshold for large hedge fund advisers. See supra section III.C.3.
9. This includes $10,450 in internal costs and a $150 filing fee. For internal costs, the hour burden is 22 hours, which is divided between a financial
manager (25%) at $731 per hour, a financial examiner (25%) at $365 per hour, and a financial risk specialist (50%) at $402 per hour (0.25 x 22 x 731 +
0.25 x 22 x 365 + 0.5 x 55 x 402 = 10,450).
10. This includes $190,646 in internal costs, $70,000 in external costs, and a $150 filing fee. For internal costs, the hour burden is 380 hours, which
is divided between a financial manager (30%) at $731 per hour, a financial risk specialist (30%) at $402 per hour, a software developer (20%) at $462
per hour, and a computer systems analyst (20%) at $347 per hour (0.3 x 380 x 731 + 0.3 x 380 x 402 + 0.2 x 380 x 462 + 0.2 x 380 x 347 = 190,646).
11. This is calculated as the decrease in the number of filers in the preceding column times 4 to reflect the quarterly filing requirement for large
hedge fund advisers.
12. This includes $83,600 in internal costs and a $150 filing fee. For internal costs, the hour burden is 176 hours, which is divided between a
financial manager (25%) at $731 per hour, a financial examiner (25%) at $365 per hour, and a financial risk specialist (50%) at $402 per hour (0.25 x
176 x 731 + 0.25 x 176 x 365 + 0.5 x 176 x 402 = 83,600).
13. This includes $114,889 in internal costs, $50,000 in external costs, and a $150 filing fee. For internal costs, the hour burden is 229 hours, which
is divided between a financial manager (30%) at $731 per hour, a financial risk specialist (30%) at $402 per hour, a software developer (20%) at $462
per hour, and a computer systems analyst (20%) at $347 per hour (0.3 x 229 x 731 + 0.3 x 229 x 402 + 0.2 x 229 x 462 + 0.2 x 229 x 347 = 114,889).
14. This includes $40,850 in internal costs and a $150 filing fee. For internal costs, the hour burden is 86 hours, which is divided between a financial
manager (25%) at $731 per hour, a financial examiner (25%) at $365 per hour, and a financial risk specialist (50%) at $402 per hour (0.25 x 86 x 731 +
0.25 x 86 x 365 + 0.5 x 86 x 402 = 40,850).
15. This includes $140,978 in internal costs, $50,000 in external costs, and a $150 filing fee. For internal costs, the hour burden is 281 hours, which
is divided between a financial manager (30%) at $731 per hour, a financial risk specialist (30%) at $402 per hour, a software developer (20%) at $462
per hour, and a computer systems analyst (20%) at $347 per hour (0.3 x 281 x 731 + 0.3 x 281 x 402 + 0.2 x 281 x 462 + 0.2 x 281 x 347 = 140,978).
16. This includes $68,875 in internal costs and a $150 filing fee. For internal costs, the hour burden is 145 hours, which is divided between a
financial manager (25%) at $731 per hour, a financial examiner (25%) at $365 per hour, and a financial risk specialist (50%) at $402 per hour (0.25 x
145 x 731 + 0.25 x 145 x 365 + 0.5 x 145 x 402 = 68,875).
Table 7--Threshold Effect (Sections 1-4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decrease in
Number of Number of Decrease in number of Cost per
filers under filers under number of filings per filing under Aggregate
Type of adviser Type of filing current proposed filers under year under current form effect \6\
thresholds \1\ thresholds \2\ proposed proposed \5\
amendments \3\ amendments \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller private fund advisers.... Initial.............. 244 244 $41,308 $31,677 $9,631 ($2,349,842)
Ongoing.............. 1,272 1,272 10,600 8,700 1,900 (2,416,800)
Large hedge fund advisers........ Initial.............. 5 5 260,796 205,609 55,187 (275,935)
Ongoing.............. 222 888 83,750 58,575 25,175 (22,355,400)
[[Page 22285]]
Large liquidity fund advisers.... Initial.............. 1 1 165,039 156,478 8,561 (8,561)
Ongoing.............. 19 76 41,000 39,100 1,900 (144,400)
Large private equity fund Initial.............. 30 30 191,128 182,534 8,594 (257,811)
advisers. Ongoing.............. 511 511 69,025 67,125 1,900 (970,900)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. See infra section IV.A.3, Tables 2 and 3.
2. Large hedge fund advisers and large liquidity fund advisers file Form PF quarterly. Smaller private fund advisers and large private equity fund
advisers file Form PF annually. See Form PF General Instruction 9.
3. See notes 7-16 in Table 6.
4. This is the sum of internal costs, external costs, and a $150 filing fee. See infra section IV.A.3 at Tables 6, 7, and 10.
5. This column is calculated as the difference between the preceding two columns.
6. The aggregate effect is obtained by multiplying the decrease in cost per filing under the proposed amendments by the number of filings per year under
the proposed thresholds.
Table 8--Total Effect (Sections 1-4)
------------------------------------------------------------------------
Type of adviser Type of filing Aggregate effect
------------------------------------------------------------------------
Smaller private fund advisers Initial.............. ($11,520,107)
Ongoing.............. (14,681,000)
Large hedge fund advisers.... Initial.............. (2,623,099)
Ongoing.............. (149,990,400)
Large liquidity fund advisers Initial.............. (8,561)
Ongoing.............. (144,400)
Large private equity fund Initial.............. (257,811)
advisers. Ongoing.............. (970,900)
------------------------------------------------------------------------
Tables 9 and 10 below present estimates of annual cost reductions
that would result from the proposed amendments to section 5 of Form PF
and from the proposed elimination of section 6 of Form PF,
respectively. The estimated cost reductions in Table 9 are due to the
estimated decrease in the number of section 5 reports that would be
filed by advisers under the proposed amendments.\464\ The estimated
cost reductions in Table 10 would result from smaller private fund
advisers that advise private equity funds and large private equity fund
advisers no longer submitting section 6 filings during fiscal quarters
in which private equity reporting events occur.\465\
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\464\ This would result from both the decrease in the number of
filers required to file section 5 under the proposed amendments as
well as proposed changes to the requirements within section 5. As
discussed above, we do not expect that the proposed amendments to
Item B of section 5 and to the current reporting filing deadline
would result in significantly different costs for advisers. See
supra sections III.C.3 and III.C.15.
\465\ See supra section III.C.16.
Table 9--Total Effect (Section 5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
Number of reports reports under Cost per report Cost per report Aggregate
Type of adviser under current proposed under current Form under proposed effect \5\
Form \1\ amendments \2\ \3\ amendments \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Large hedge fund advisers................................... 258 94 $8,873 $8,873 ($1,445,213)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. These estimates are based on Form PF data as of the first quarter of 2025.
2. See infra section IV.A.3 at Table 4.
3. This cost is calculated as the previously approved estimate of burden hours monetized using the new methodology. Previously approved estimates of
burden hours are described in the May 2023 Form PF Adopting Release, section V. See infra footnotes 533 and 534. This cost captures an internal burden
of ten hours, which is divided between a legal professional (5.5 hours) at $744 per hour, a financial risk specialist (2.25 hours) at $402 per hour,
and a financial manager (2.25 hours) at $731 per hour (5.5 x 744 + 2.25 x 402 + 2.25 x 731 = 6,641).
4. This is the sum of internal costs and external costs. See infra section IV.A.3 at Tables 8 and 11.
5. The aggregate effect is obtained by calculating the difference between (1) the number of reports under the current Form multiplied by the cost per
report under the current Form and (2) the number of reports under the proposed amendments multiplied by the cost per report under the proposed
amendments.
Table 10--Total Effect (Section 6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Decrease in number
Number of reports under of reports under Cost per report Aggregate
Type of adviser reports under proposed proposed amendments under current effect \4\
current Form \1\ amendments \2\ Form \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller private fund advisers.................................... 132 0 132 $5,508 ($727,089)
[[Page 22286]]
Large private equity fund advisers............................... 44 0 44 5,508 (242,363)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. These estimates are based on Form PF data as of the first quarter of 2025.
2. This column is calculated as the difference between the preceding two columns.
3. This cost is calculated as the previously approved estimate of burden hours monetized using the new methodology. Previously approved estimates of
burden hours are described in the May 2023 Form PF Adopting Release, section V. See infra footnotes 533 and 534. For both types of advisers, this cost
captures an internal burden of five hours, which is divided between a legal professional (2.5 hours) at $744 per hour, a financial risk specialist
(1.25 hour) at $402 per hour, and a financial manager (1.25 hour) at $731 per hour (2.5 x 744 + 1.25 x 402 + 1.25 x 731 = 3,276).
4. The aggregate effect is obtained by multiplying the decrease in number of reports under the proposed amendments by the cost per report under the
current Form.
Table 11 below presents estimates of annual cost reductions related
to transition filings, final filings, and temporary hardship requests
that would result from the proposed changes in the filing threshold and
in the large hedge fund adviser reporting threshold. The estimated cost
reductions are due to the estimated decrease in the number of these
types of filings that would be filed by advisers under the proposed
amendments.\466\
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\466\ See supra footnotes 247 and 262.
Table 11--Transitional and Final Filings; Temporary Hardship Requests
----------------------------------------------------------------------------------------------------------------
Number of Number of Decrease in number
filings under filings under of filings under Cost per Aggregate
Type of filing current proposed proposed amendments filing effect \5\
thresholds \1\ thresholds \2\ \3\ \4\
----------------------------------------------------------------------------------------------------------------
Transition Filings (Quarterly to \6\ 43 \7\ 16 27 $41 ($1,107)
Annual)..........................
Final Filings..................... \8\ 276 \9\ 157 119 41 (4,879)
Temporary Hardship Requests....... \10\ 4 \11\ 2 2 511 (1,022)
----------------------------------------------------------------------------------------------------------------
Notes:
1. These estimates are based on Form PF data as of the first quarter of 2025.
2. See infra section IV.A.3.b) at Table 5.
3. This column is calculated as the difference between the two preceding columns.
4. This is composed of internal costs. See infra section IV.A.3.c) at Table 9. Transition filings, final
filings, and temporary hardship requests would not be amended under the proposed amendments, Hence, the cost
per filing would remain the same.
5. The aggregate effect is obtained by multiplying the decrease in the number of filings under the proposed
amendments by the cost per filing.
6. This is computed as 617 large hedge fund advisers times an estimated 7% incidence of transition filings. See
infra note 4 of Table 5 in section IV.A.3.b).
7. This is computed as 227 large hedge fund advisers times an estimated 7% incidence of transition filings. See
supra footnote 260; infra note 4 of Table 5 in section IV.A.3.b).
8. This is computed as 3,999 private fund advisers times an estimated 6.9% incidence of final filings. See infra
note 5 of Table 5 in section IV.A.3.b).
9. This is computed as 2,280 private fund advisers times an estimated 6.9% incidence of final filings. See supra
footnote 244; infra note 5 of Table 5 in section IV.A.3.b).
10. This is computed as 3,999 private fund advisers times an estimated 0.1% incidence of temporary hardship
exemption requests. See infra note 6 of Table 5 in section IV.A.3.b).
11. This is computed as 2,280 private fund advisers times an estimated 0.1% incidence of temporary hardship
exemption requests. See supra footnote 244; infra note 6 of Table 5 in section IV.A.3.b).
D. Present Values and Annualized Values of Monetized Benefits and Costs
In addition to discussing the benefits, costs, and reasonable
alternatives in the Economic Analysis in Section III, consistent with
the requirements of Executive Order 12866, and estimating burdens under
the PRA in Section V, the Commission estimates total monetized benefits
and costs for all affected entities in two ways specified in OMB
Circular A-4.\467\ These additional analyses include only benefits and
costs that are monetized in the Economic Analysis and thus do not
encompass all of the proposed amendments' benefits and costs. The two
presentations are intended to address the fact that the various
benefits and costs of the proposed amendments would not accrue at the
same point in time; rather, benefits and costs that accrue sooner are
generally more valuable than those that occur later in time.\468\
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\467\ See E.O. 12866 (Sept. 30, 1993), 58 FR 51735, 51741 (Oct.
4, 1993) (requiring agencies to provide an analysis of benefits,
costs, and regulatory alternatives to OIRA for significant
regulatory actions); OMB, Circular A-4, at 31-34, 45 (Sept. 17,
2003) (providing guidance to agencies regarding compliance with
Executive Order 12866); see also E.O. 14215 (Feb. 18, 2025), 90 FR
10447, 10448 (Feb. 24, 2025) (requiring independent agencies to
comply with E.O. 12866). In addition, Executive Order 14192 requires
agencies to provide their best approximation of the total costs or
savings associated with each new regulation or repealed regulation
consistent with the analyses required by Executive Order 12866. See
E.O. 14192 (Jan. 31, 2025), 90 FR 9065, 9066 (Feb. 6, 2025).
\468\ See Circular A-4, at 32.
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We report below (1) the present values of expected benefits and
costs that are monetized in our Economic Analysis, aggregated across
all affected entities, over a 10-year time horizon, starting in 2026,
as well as (2) the annualized values over the same time horizon that
are derived from the present values. This time horizon represents the
period over which the
[[Page 22287]]
principal benefits and costs that are monetized in the Economic
Analysis are expected to accrue.\469\ The present values and annualized
values account for the timing of benefits and costs through
discounting, which is a procedure that accounts for the time value of
money.\470\ The present values and annualized values are computed for
total monetized benefits and costs, combining one-time and recurring
monetized benefits and costs, across all affected entities over the
time horizon.
---------------------------------------------------------------------------
\469\ See id. at 31 (stating that ``[t]he ending point should be
far enough in the future to encompass all the significant benefits
and costs likely to result from the rule''). For the purposes of
this analysis, we assume the effective date of the amendments, as
well as the start year for the analysis's time horizon, is the
present year. The analysis uses calendar years and also accounts for
the compliance periods included in the release (see infra note 2 in
Table 12).
\470\ See id. at 32 (``The Rationale for Discounting'') and 45
(``Treatment of Benefits and Costs over Time''); see also OIRA,
Regulatory Impact Analysis: A Primer, at 11 (Aug. 15, 2011),
available at https://www.reginfo.gov/public/jsp/Utilities/circular-a-4_regulatory-impact-analysis-a-primer.pdf (``To provide an
accurate assessment of benefits and costs that occur at different
points in time or over different time horizons, an agency should use
discounting. Agencies should provide benefit and cost estimates
using both 3 percent and 7 percent annual discount rates expressed
as a present value as well as annualized.''); Harvey S. Rosen & Ted
Gayer, Public Finance 151 (McGraw Hill/Irwin 8th ed. 2008) (defining
present value as ``the value today of a given amount of money to be
paid or received in the future'').
---------------------------------------------------------------------------
Table 12 reports the present values of monetized benefits and costs
using annual real discount rates of 3 percent and 7 percent over a 10-
year time horizon, starting in 2026.\471\ Estimates of monetized
benefits are derived from ongoing cost savings aggregated across all
private fund advisers and reflect reduced costs per filing and fewer
filers that would result from the proposed amendments.\472\ The
resulting present value of monetized benefits is approximately $1.4
billion under a 3 percent real discount rate, and approximately $1.2
billion under a 7 percent real discount rate. Estimates of monetized
costs reflect one-time transitional filings and final filings that
would result from the proposed increases to the reporting threshold for
large hedge fund adviser and the filing threshold for all Form PF
filers, respectively.\473\ The present value of monetized costs is
approximately $86 thousand and is invariant to the discount rate
because the monetized costs are one-time in nature and assumed to be
incurred immediately.
---------------------------------------------------------------------------
\471\ This approach is consistent with OMB Circular A-4. See
Circular A-4, at 31-34 (stating that ``[f]or regulatory analysis,
[agencies] should provide estimates of net benefits using both 3
percent and 7 percent'' discount rates and discussing why those
rates are reasonable default rates). Also, we use a mid-year
discount rate. See OMB, Circular A-94, at 21-22 (Oct. 19, 1992)
(stating that, ``When costs and benefits occur in a steady stream,
applying mid-year discount factors is more appropriate.'').
\472\ Real aggregate annual benefits are estimated to be
$182,627,951 and would start in 2027 after the proposed 12-month
transition period. This estimate of annual benefits is computed as
the sum of the entries in the aggregate effects columns of Tables 8-
11. There are no one-time monetized benefits.
\473\ See supra footnote 456. There are no ongoing monetized
costs.
Table 12--Present Value of Monetized Benefits and Costs Over a 10-Year Time Horizon
[2025] Dollars \1\
----------------------------------------------------------------------------------------------------------------
Estimated effects \2\ 3% Real discount rate 7% Real discount rate
----------------------------------------------------------------------------------------------------------------
Benefits.................................................... $1,401,099,925 $1,150,284,480
Costs....................................................... 86,469 86,469
----------------------------------------------------------------------------------------------------------------
Notes:
1. This Table includes only benefits and costs that are monetized. As discussed in the Economic Analysis in
Section III, there are other benefits and costs that we are not able to monetize.
2. For each discount rate, the present value of monetized benefits or costs is calculated assuming that: (i) all
one-time monetized implementation benefits and costs are immediately incurred (i.e., these costs are not
discounted); (ii) recurring annual monetized benefits and costs start to be incurred as of the year in which
affected entities first comply; (iii) recurring annual monetized benefits and costs accrue mid-year, and we
use a mid-year discount rate. We are proposing a 12-month transition period. Correspondingly, for the purposes
of this calculation, we assume that filers would start complying with the proposed amendments in 2027.
Table 13 reports annualized monetized benefits and costs using real
discount rates of 3 percent and 7 percent over a 10-year horizon.\474\
The lump sum present values of aggregated monetized benefits and costs
reported in Table 12 are converted in Table 13 into a constant stream
of annualized benefits and costs over a 10-year time horizon, starting
in 2026.\475\ Annualized benefits and costs may differ from an
aggregation of the recurring annual benefits and costs discussed in the
Economic Analysis in Section III because they incorporate the timing of
benefits and costs, through discounting, and combine one-time and
recurring benefits and costs.\476\ Annualized monetized benefits are
approximately $161 million under a 3 percent real discount rate, and
approximately $158 million under a 7 percent real discount rate.\477\
Annualized monetized costs are approximately $10 thousand under a 3
percent discount rate and $12 thousand under a 7 percent discount rate.
---------------------------------------------------------------------------
\474\ This approach is consistent with the recommended treatment
of benefits and costs over time in Circular A-4. See Circular A-4,
at 45 (``You should present annualized benefits and costs using real
discount rates of 3 and 7 percent'').
\475\ For each discount rate, the annualized monetized benefits
(costs, respectively) in Table 13 represent the constant annual
stream of benefits (costs, respectively) whose present value over
the time horizon equates the corresponding present value in Table
12. See infra note 2, Table 13 for additional calculation details.
\476\ The annualized benefits and costs present these values
over the 10-year time horizon, starting in 2026, even if recurring
annual benefits and costs would actually start to be incurred at a
later date due to compliance periods.
\477\ The annualized monetized benefit is smaller than the
annual aggregate benefit (see supra footnote 472) because the
annuity calculation for the former assumes a constant stream of
benefits starting in 2026, while the lump sum present value of
benefits accounts for the 12-month transition period by assuming
benefits are equal to zero in 2026.
Table 13--Annualized Monetized Benefits and Costs Over a
10-Year Time Horizon
[2025] Dollars \1\
----------------------------------------------------------------------------------------------------------------
Estimated effects \2\ 3% Real discount rate 7% Real discount rate
----------------------------------------------------------------------------------------------------------------
Benefits.................................................... $161,841,964 $158,326,912
[[Page 22288]]
Costs....................................................... 9,988 11,902
----------------------------------------------------------------------------------------------------------------
Notes:
1. This Table includes only benefits and costs that are monetized. As discussed in the Economic Analysis in
Section III, there are other benefits and costs that we are not able to monetize.
2. For each discount rate, the annualized values are calculated by dividing the corresponding present values in
Table 12 by the sum of discount factors over the time horizon. The discount factor in year \t\ of the time
horizon is equal to 1/(1 + discount rate)\(t-0.5)\.
In sum, Tables 12 and 13 report in two alternative ways the
expected total benefits and costs across all affected entities, which
are monetized in our Economic Analysis in Section III, using real
discount rates of 3% and 7% over a 10-year time horizon.
E. Effects on Efficiency, Competition, and Capital Formation
We expect that the proposed amendments to Form PF would have a net
positive effect on market efficiency. On the one hand, the anticipated
burden reduction to private fund advisers that would result from the
proposed Form PF amendments would allow these advisers to more
efficiently use their resources to advise private funds. On the other
hand, Form PF provides the SEC and FSOC with information on
concentration, counterparty exposure, and other potential indicia of
systemic risk or investor protection concerns stemming from or flowing
through private funds. Regulatory oversight facilitated by Form PF may
serve to increase the stability of both private and public markets and,
in turn, the efficiency with which they operate. A reduction in both
the Form's granularity and coverage may therefore reduce the utility of
the data for assessing and attempting to mitigate systemic risk and for
responding to events that may have adverse market-wide effects or raise
investor protection concerns. However, the proposed amendments are
tailored to preserve the Form's utility for these purposes in three
ways. First, certain questions and sub-questions we propose to delete
are likely to have limited effect on efforts to assess systemic risk
and protect investors.\478\ Second, information reported in other
questions that we propose to remove could be inferred from responses to
other Form PF questions.\479\ Finally, the proposed filing and
reporting threshold changes would result in relatively modest declines
in Form PF's coverage of private fund assets under management and large
hedge fund assets under management, such that the SEC and FSOC would
continue to obtain information on a substantial portion of the U.S.
private funds and hedge fund industry.\480\
---------------------------------------------------------------------------
\478\ See, e.g., supra sections III.C.9, III.C.14, and III.C.16.
\479\ See, e.g., supra sections III.C.7, III.C.10, and III.C.12.
\480\ See supra sections III.C.2 and III.C.3.
---------------------------------------------------------------------------
We expect that the proposed amendments to the filing and large
hedge fund adviser reporting thresholds would result in increased
competition between private fund advisers. The compliance costs
associated with filing Form PF or with completing Form PF as a large
hedge fund adviser are likely to represent fixed costs for advisers,
which could result in smaller margins for advisers that are relatively
smaller in size. Removing these fixed costs for the advisers that
either would not have to file Form PF at all or would have to complete
a smaller portion of it and at a lower frequency as a result of the
proposed amendments would free up resources for these advisers. These
resources could be spent on activities that would increase returns for
investors,\481\ thereby making smaller advisers more competitive.
---------------------------------------------------------------------------
\481\ For example, these resources could be spent on researching
investment opportunities. Alternatively, the freed resources could
be passed on to investors via lower fees. See supra footnote 230.
---------------------------------------------------------------------------
With regard to the amendments to specific questions of the form, we
are unable to predict whether or in which direction they would affect
competition across advisers.\482\ Advisers of different sizes may
advise different numbers of private funds and, as such, spread the
costs associated with filing Form PF differently across funds.\483\
This could affect the fees charged by advisers to investors in these
funds and therefore affect competition between funds and, as a result,
between advisers.\484\ For example, during the process leading to the
adoption of the 2024 amendments, some industry commenters noted that
the Form PF amendments proposed in 2022 would have imposed compliance
costs that would have disproportionately affected smaller private fund
advisers, and thus put them at a competitive disadvantage.\485\
However, some private fund advisers have indicated since the adoption
of the 2024 amendments that the cost of completing certain questions as
amended in 2024 would be higher than anticipated for larger advisers
and those with more complex operations.\486\ Therefore, the effect of
the proposed amendments to specific questions of Form PF, which mostly
scale back some of the 2024 amendments, on competition between advisers
of different sizes is uncertain.
---------------------------------------------------------------------------
\482\ In the 2024 Form PF Adopting Release, we stated that we
did not anticipate significant benefits on competition in the
private fund industry resulting from the additional information
being provided by advisers as a result the 2024 amendments because
the additional information to be reported would have been generally
nonpublic. See 2024 Form PF Adopting Release at section IV.C.1. For
the same reasons, we do not expect that the reduction in information
received by the SEC under the proposed amendments would result in a
decrease in competition.
\483\ See supra section III.C.1.
\484\ See supra footnote 230 and accompanying text.
\485\ See, e.g., Comment Letter of Managed Funds Association,
Investment Adviser Association (Dec. 7, 2022); Comment Letter of
Alternative Investment Management Association Limited & Alternative
Credit Council (Oct. 11, 2022). In the 2024 Form PF Adopting
Release, we stated that the comments were made in the context of the
proposal, and the amendments made by the adopting release reduced
many of the costs of compliance relative to the proposal. See 2024
Form PF Adopting Release, at section IV.C.2. See also Form PF;
Reporting Requirements for All Filers and Large Hedge Fund Advisers,
Release No. IA-6083 (Aug. 10, 2022) [87 FR 53832 (Sept. 1, 2022)].
\486\ See, e.g., supra footnote 67 and accompanying text;
footnote 112 and accompanying text.
---------------------------------------------------------------------------
Lastly, the proposed amendments to Form PF could result in
improvements to capital formation. Specifically, we anticipate that the
cost burden to Form PF filers would be lower under the proposed
amendments. To the extent that these cost savings are passed through to
investors in private funds, lower fees to investors could attract
additional investment capital and facilitate capital formation.\487\
---------------------------------------------------------------------------
\487\ See supra footnote 230 and accompanying text.
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[[Page 22289]]
F. Reasonable Alternatives
1. Filing Threshold
The proposed amendments would increase the threshold at which
advisers to private funds must file Form PF from $150 million to $1
billion. As an alternative, the Commissions could increase this
threshold by a smaller or a larger amount. We have considered the
percentage of SEC-registered advisers to private funds, the percentage
of all private funds reported by SEC-registered advisers, and the
percentage of private fund gross assets reported by SEC-registered
advisers that would be captured on Form PF at various filing thresholds
between $250 million and $4 billion.\488\ Increasing the filing
threshold to a level below the proposed level of $1 billion would
result in a smaller decrease in the number of SEC-registered advisers
to private funds that would be required to file Form PF. Consequently,
the percentage of private funds and private fund gross assets
reportable by SEC-registered advisers on Form PF would decrease by a
smaller amount. For instance, if the filing threshold were instead
increased from $150 million to $250 million, coverage of SEC-registered
advisers to private funds would decline from 70 percent to 64 percent
as opposed to 40 percent under the proposed $1 billion threshold. Under
this alternative, there would be no discernable decrease in the
percentage of private funds or their gross assets reported by SEC-
registered advisers on Form PF.\489\ On the other hand, increasing the
filing threshold to $2 billion would lower the percentage of SEC-
registered private fund advisers required to file Form PF to 30
percent, resulting in a decline in the percentage of private funds and
private fund gross assets covered by Form PF from 83 percent and 96
percent to 60 percent and 91 percent, respectively. While this
alternative would lead to larger aggregate cost-savings to private fund
advisers that would otherwise have to file Form PF,\490\ this
additional decline in the burden would come at the cost of reducing
regulatory visibility of private fund assets, which could affect
systemic risk monitoring and investor protection efforts.
---------------------------------------------------------------------------
\488\ See supra section II.A at Table 3.
\489\ The decrease in these percentages is zero when the
percentages are rounded to the nearest whole number. See supra
section II.A at Table 3.
\490\ See supra section III.C.18. Under the proposed amendments,
we estimate that the compliance costs of filing Form PF for smaller
private fund advisers would be $31,677 per adviser for initial
filings and $8,700 per adviser for ongoing filings. See also infra
section IV.A.3.
---------------------------------------------------------------------------
2. Reporting Threshold for Large Hedge Fund Advisers
Advisers that meet the definition of large hedge fund advisers file
Form PF quarterly, and they are required to complete section 2 and
section 5 (as applicable) of Form PF for each of the qualifying hedge
funds that they advise.\491\ The proposed amendments would increase
Form PF's reporting threshold for large hedge fund advisers from $1.5
billion to $10 billion. As an alternative, the Commissions could
increase this threshold by a smaller or a larger amount. We have
considered the percentage of SEC-registered advisers to hedge funds,
the percentage of all hedge funds managed by SEC-registered advisers,
the percentage of hedge fund gross assets reported by SEC-registered
advisers that would be captured in sections 1 and 2 of Form PF
reporting by large hedge fund advisers, and the percentage of hedge
fund gross assets reported by SEC-registered advisers on section 2 of
Form PF at various filing thresholds between $2 billion and $20
billion.\492\ Increasing the reporting threshold for large hedge fund
advisers to a level below the proposed level of $10 billion would
result in a smaller decrease in the number of SEC-registered advisers
to private funds that would qualify as large hedge fund advisers. The
percentage of hedge funds and hedge fund gross assets reported by SEC-
registered advisers that would be covered by Form PF reporting by large
hedge fund advisers would decrease by a smaller amount. For instance,
if the reporting threshold for large hedge fund advisers were instead
increased from $1.5 billion to $5 billion, the fraction of SEC-
registered hedge fund advisers that would meet the definition of large
hedge fund advisers would decline from 26 percent to 14 percent as
opposed to 9 percent under the proposed $10 billion threshold. Under
this alternative, the percentage of all hedge funds reported by SEC-
registered advisers that would be reported in Form PF by large hedge
fund advisers would decline from 49 percent to 41 percent as opposed to
34 percent under the proposed threshold of $10 billion. Similarly,
hedge fund assets that would be reported by large hedge fund advisers
as a percentage of all hedge fund gross assets managed by SEC-
registered advisers would decline from 92 percent to 86 percent instead
of 81 percent. Finally, hedge fund assets that would be reported by
large hedge fund advisers on section 2 as a percentage of all hedge
fund gross assets managed by SEC-registered advisers would decline from
84 percent to 79 percent instead of 74 percent. While this alternative
would lead to a smaller aggregate loss in visibility, and therefore to
a smaller effect on systemic risk monitoring and investor protection
efforts, cost savings for SEC-registered advisers to hedge funds that
would otherwise qualify as large hedge fund advisers would be lower
than under the proposed threshold.\493\ On the other hand, further
increasing the reporting threshold for large hedge fund advisers to $15
billion would result in larger cost savings for advisers that would not
need to complete Form PF as large hedge fund advisers, but it would
also further decrease visibility into the percentage of qualifying
hedge funds advised by large hedge fund advisers (to 29 percent of all
hedge funds reported by SEC-registered advisers instead of 34 percent),
the aggregate quantity of gross assets they hold (77 percent of hedge
fund gross assets reported by SEC-registered advisers instead of 81
percent) and the aggregate quantity of gross assets they hold that
would be reported on section 2 of Form PF (70 percent of hedge fund
gross assets reported by SEC-registered advisers instead of 74
percent). These decreases could further reduce the utility of the
resulting data for systemic risk monitoring and investor protection
efforts.
---------------------------------------------------------------------------
\491\ Section 5 is only required upon the occurrence of certain
events. See supra section III.B.1; Form PF section 5.
\492\ See supra section II.B at Table 5.
\493\ See supra section III.C.18 for estimates of cost savings
associated with the proposed changes in thresholds.
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3. Disregarded Feeder Fund
The Commissions considered different thresholds for the proposed de
minimis exception in General Instruction 6.\494\ A higher threshold,
such as ten percent instead of five percent, would result in a larger
reduction in burden for advisers, since fewer feeder funds would have
to be reported separately. This burden reduction would result in
reduced visibility into feeder funds that invest in assets other than a
single master fund, U.S. treasury bills, and/or cash or cash
equivalents, as the information from such feeder funds would be
aggregated in the master fund's filing. This reduced visibility could
affect systemic risk monitoring. For instance, at a ten percent de
minimis threshold, larger counterparty exposure at the level of the
feeder fund could be obscured compared to the proposed five percent de
minimis threshold.\495\ On the other hand, a lower threshold (such as
one
[[Page 22290]]
percent) would result in more feeder funds with investments outside of
a single master fund, U.S. treasury bills, and/or cash or cash
equivalents being separately reportable. This would result in higher
visibility for the purpose of systemic risk monitoring compared to the
proposed five percent de minimis threshold, but the burden reduction
for advisers to funds with master-feeder structures would be lower.
---------------------------------------------------------------------------
\494\ See supra section III.C.4.
\495\ See Form PF Question 26.
---------------------------------------------------------------------------
4. Industry Concentration Reporting
The Commissions considered modifying the industry concentration
reporting in Question 36 by requiring that advisers identify funds'
exposure by industry based on an alternative classification, such as
the BICS or GICS classifications, instead of the NAICS code
classification.\496\ We have heard from industry members that the BICS
and GICS are classifications that are more commonly used than the NAICS
code classification.\497\ Amending the requirement to use one of these
two alternatives could benefit advisers by reducing the cost of
assigning a code to each of the fund's investment instruments, since
advisers may already have performed or acquired these assignments using
the BICS or the GICS from a vendor, or they may be able to more easily
find a third party to perform these assignments.\498\ This could lead
to increased consistency across filers in how certain assets are
assigned to industries. However, NAICS codes are already used in
Questions 81 and 82.\499\ Hence, some advisers already use this
classification. Also, obtaining industry concentration that is
similarly classified across fund types would increase the usefulness of
the data for the monitoring of systemic risk by allowing a better
understanding of the potential consequences of events affecting
specific industries.\500\ In addition, we expect that giving advisers
more flexibility in choosing the NAICS industry code level they report
in Question 36, as we are proposing, would reduce the cost to advisers
of assigning a NAICS code to their funds' assets and would reduce the
possibility of inconsistency of reporting across filers.\501\
Furthermore, unlike NAICS codes, the GICS and BICS classification
standards are privately developed and maintained. Requiring advisers to
use a particular commercial standard may increase the cost to these
advisers of acquiring licensing and associated services from the
providers.\502\
---------------------------------------------------------------------------
\496\ See supra section II.J.
\497\ Id.
\498\ For example, BICS codes are assigned to individual
securities for different asset classes including equities,
corporates, governments, loans, and preferred debt by the company
that has developed the classification. See Classification data,
Bloomberg Pro. Servs., https://data.bloomberglp.com/professional/sites/10/Classification-Data-Fact-Sheet.pdf (last visited Jan. 13,
2026). On the other hand, the NAICS classification was developed by
North American government statistical agencies, with a focus on
North American industries. See North American Industry
Classification System, U.S. Census Bureau (Jan. 13, 2026), https://www.census.gov/naics/. These government agencies do not assign NAICS
codes to individual companies or securities.
\499\ See Form PF Questions 81 and 82. The questions are
required for Form PF filers that advise private equity funds.
\500\ Requiring the NAICS code classification instead of an
alternative classification could also support FSOC's monitoring of
systemic risk since it is also the standard used by other U.S.
government agencies. See supra footnote 92 and accompanying text.
\501\ See supra section III.C.11.
\502\ For example, these providers could increase their prices
as a result of the competitive advantage they would gain from being
required for large hedge fund advisers advising qualifying hedge
funds.
---------------------------------------------------------------------------
The Commissions also considered giving the option to advisers to
report their funds' exposure by industry based on their choice among
multiple classifications, such as the NAICS, GICS, and BICS
classifications. This additional flexibility could reduce costs to
advisers as they would be able to use a classification that they are
already using or that may be available to them at the lowest cost.
However, this benefit may result in information that is difficult to
aggregate or compare, making it more difficult to predict and
understand the potential consequences of significant events affecting
specific industries.
5. Hedge Fund Adviser Counterparty Exposure Reporting
The Commissions considered eliminating only certain sections of the
consolidated counterparty exposure for qualifying hedge funds in
Question 41. The question requires advisers to report funds' borrowing
and collateral received as well as lending and posted collateral for
different types of borrowings and other transactions with creditors and
other counterparties, aggregated across all counterparties as of the
end of each month of the reporting period. For several types of
borrowings or other transactions, advisers are required to indicate the
expected increase in collateral required to be posted by the reporting
fund if the required margin increases by one percent of the position
size.\503\ The Commissions considered conserving the table but
eliminating this last requirement. This would have resulted in a
smaller reduction in costs for advisers, since the proposed amendments
eliminate this requirement as well as other requirements.\504\ It would
also have resulted in less information loss for the SEC and FSOC and
therefore smaller potential effects on systemic risk monitoring and
investor protection efforts. Requiring large hedge fund advisers to
qualifying hedge funds to complete the consolidated counterparty
exposure table in Question 26 instead of in Question 41, together with
continuing to require these advisers to complete Questions 42 and 43
along with the proposed modifications to those questions, should
provide sufficient information for systemic risk monitoring and
investor protection efforts.
---------------------------------------------------------------------------
\503\ See Form PF Question 41, subsections (b)(vii), (c)(vi),
(d)(vi), (e)(vi), and (f)(viii). In some subsections, the
instructions appear to mistakenly require advisers to report the
expected change in collateral if the required margin increases by
one percent, rather than by one percent of the position size.
\504\ See supra section III.C.13.
---------------------------------------------------------------------------
The Commissions also considered amendments with respect to netting
counterparty exposures and cross-margining in response to Questions 26,
27, 28, 42, and 43. Question 26 directs hedge fund advisers to net the
reporting fund's exposure to each counterparty and among affiliated
entities of a counterparty and associated collateral.\505\ It also
specifies 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. The netting methodology prescribed
in Question 26 would affect the information reported by hedge fund
advisers in Question 26 by affecting the dollar amounts that advisers
report as borrowing (and collateral received) and as lending (and
posted collateral) in the different sub-questions. The netting
methodology would also affect the counterparties reported in Questions
27 and 28 (for hedge funds that are not qualifying hedge funds) and in
Questions 42 and 43 (for qualifying hedge funds). In these questions,
advisers would be required to identify and provide information on each
creditor or other counterparty (including CCPs) to which a fund had an
exposure above certain thresholds.\506\ The Commissions considered
amending the netting methodology prescribed in
[[Page 22291]]
Question 26, which would apply to all hedge fund advisers.\507\ For
example, the Commissions considered requiring advisers to net neither
cash nor securities, that is, to report the gross exposure to
counterparties. This would have the benefit of potentially reducing
costs for advisers, as we have heard from filers that netting
counterparty exposure can be particularly burdensome.\508\ However,
this could also result in FSOC having a less clear view of hedge funds'
counterparty exposure risk, which could affect its ability to monitor
systemic risk. As a second example, the Commissions considered
requiring advisers to net both cash and securities borrowed or lent
instead of only cash. This would have the benefit of potentially
reducing costs for advisers, as this could align more closely with how
counterparty balances are reported to advisers in practice. However,
this alternative could also result in FSOC having a less clear view of
hedge funds' counterparty exposure risk, which could affect its ability
to monitor systemic risk. As a third example, the Commissions
considered permitting advisers to use their own internal methodologies
regarding the netting of their exposure to counterparties. This
alternative would have the benefit of reducing costs for advisers as it
would allow them to report values that they are likely to already
report internally instead of requiring them to calculate values solely
for the purpose of reporting on Form PF.\509\ It would also likely
result in advisers reporting counterparty exposure that is the most
relevant to monitor for their specific funds. However, the type of
counterparty risk that is the most relevant for hedge fund advisers
when monitoring their own funds may not be the most useful for FSOC's
monitoring of systemic risk. In addition, allowing advisers to use
their own methodology would result in the SEC and FSOC receiving data
that is difficult to compare and aggregate across funds, which could
affect their systemic risk monitoring and investor protection efforts.
---------------------------------------------------------------------------
\505\ Under the proposed amendments, Question 26 would be
required to be completed by all hedge fund advisers and separately
for each hedge fund that they advise. See supra sections II.L and
III.C.13.
\506\ See supra sections II.L and III.C.13. For example, under
the proposed amendments, a fund's exposure to a given counterparty
may reach the specified threshold. This may not be the case under a
different netting methodology.
\507\ Under the proposed amendments, Question 41 would be
eliminated, and Question 26 would be required for all filing
advisers that advise hedge funds. See supra sections II.L and
III.C.13.
\508\ Filers have indicated that completing the questions on
counterparty exposure, including interpreting and satisfying the
netting instructions, is challenging and burdensome. See supra
section II.L.
\509\ See supra footnote 508.
---------------------------------------------------------------------------
6. Private Equity Quarterly Event Reporting
The proposed amendments would eliminate section 6 of Form PF, which
requires advisers to private equity funds to file quarterly reports
with the SEC within 60 days of the end of each calendar quarter during
which a private equity reporting event occurs.\510\ As an alternative,
the SEC could have proposed to modify section 6 to reduce its burden to
private equity fund advisers without entirely eliminating the section.
For instance, the SEC could have proposed that only certain events that
currently trigger section 6 reporting be eliminated. As a specific
example, the SEC could have proposed that current event reports be
required upon the occurrence of an adviser-led secondary transaction,
but not upon general partner removal, termination of the investment
period, or termination of the fund. In this case, the cost savings to
advisers to private equity funds would not be as large as they would be
under the proposed elimination of section 6. However, the SEC and FSOC
would still become aware of an adviser-led secondary transaction within
60 calendar days after the end of the quarter in which the event takes
place. As a result, they would retain a signal that may be useful for
systemic risk monitoring and investor protection efforts.
---------------------------------------------------------------------------
\510\ See supra section II.O.
---------------------------------------------------------------------------
The SEC alternatively could have proposed that section 6 be
reported annually instead of quarterly during years in which a private
equity fund experiences a reporting event. This approach would lower
the burden of section 6 reporting on private equity fund advisers by
allowing advisers more time to consolidate information to report
following an adviser-led secondary transaction, general partner
removal, termination of the fund's investment period, or termination of
the fund. The reduction in burden under this alternative would not be
as large as it would be under the proposed elimination of section 6.
However, this alternative would retain for the SEC and FSOC visibility
into the occurrence of reporting events at private equity funds managed
by registered investment advisers. While the timeliness of section 6
filings would decrease under this alternative relative to the baseline,
the total number of reporting events captured by these filings would
not, preserving for the SEC and FSOC information that could be used to
monitor systemic risk and for investor protection efforts.
Finally, in connection with eliminating section 6, the SEC could
have proposed to include a question relating to the removal of the
fund's general partner in section 4 of Form PF. Under this alternative,
rather than requiring private equity fund advisers to periodically file
section 6 if fund investors have removed the adviser or its affiliate
as the general partner or similar control person of the reporting fund,
Form PF would require all large private equity fund advisers filing
Form PF to provide this information annually in section 4. Relative to
the proposed elimination of section 6, this alternative would have the
benefit of providing information on a salient reporting event to the
SEC and FSOC, which could aid in systemic risk monitoring and investor
protection efforts.\511\ However, large private equity fund advisers
would experience lower cost savings for the private equity funds they
advise relative to the proposed elimination of section 6.\512\
---------------------------------------------------------------------------
\511\ Compared to the baseline, however, this alternative would
result in less information being available to the SEC and FSOC since
it would apply only to large private equity fund advisers and not
all filing advisers that advise private equity funds. It would also
result in less timely information as section 4 of Form PF is
submitted annually by advisers to large private equity funds. See
supra section III.B.1
\512\ For private equity fund advisers that do not meet the
definition of large private equity fund advisers, and therefore are
not required to complete section 4, this alternative would result in
the same cost savings as the proposed elimination of section 6.
---------------------------------------------------------------------------
7. Private Credit Reporting
Currently, the Form PF Glossary of Terms does not define ``private
credit fund,'' and advisers to private funds with private credit
strategies must follow the same instructions as other advisers when
determining which sections of the form must be completed for the
reporting funds they advise.\513\ The Commissions considered modifying
the information that advisers report on Form PF about the private
credit funds they advise. Specifically, the Commissions considered
defining ``private credit fund'' in the Form PF Glossary of Terms and
requiring information on private credit funds, for example by creating
new questions or a new section that would be required to be completed
by advisers of private credit funds.\514\ This alternative would have
the benefit of providing information that would allow the
identification of potential risks and challenges that are specific to
private
[[Page 22292]]
credit strategies.\515\ This information would support the SEC's and
FSOC's understanding and monitoring of potential systemic and investor
protection risks relating to activities in the private credit fund
industry. However, requiring this new information would add new
compliance costs to advisers that advise funds that would meet the
definition of private credit funds. In addition, as this is a newer
investment strategy, the Commissions may benefit from additional
development to determine the nature and scope of appropriate data to
collect to inform systemic risk assessment for these particular funds.
---------------------------------------------------------------------------
\513\ See supra section II.Q.
\514\ Some industry members have suggested these approaches. See
supra section II.Q.
\515\ See, e.g., Jos[eacute] L. Fillat et al., Could the Growth
of Private Credit Pose a Risk to Financial System Stability?, (Fed.
Rsrv. Bank of Boston Current Policy Perspectives No. 25-8, 2025),
available at https://www.bostonfed.org/publications/current-policy-perspectives/2025/could-the-growth-of-private-credit-pose-a-risk-to-financial-system-stability.aspx.
---------------------------------------------------------------------------
G. Request for Comment
The SEC requests comment on all aspects of our economic analysis,
including the potential costs and benefits of the proposed amendments
and alternatives thereto, and whether the amendments, if the SEC were
to adopt them, would promote efficiency, competition, and capital
formation. In addition, the SEC requests comments on our selection of
data sources, empirical methodology, and the assumptions the SEC has
made throughout the analysis. Commenters are requested to provide
empirical data, estimation methodologies, and other factual support for
their views, in particular, on costs and benefits estimates. In
addition, the SEC requests comment on:
129. Whether there are any additional benefits and costs associated
with the proposed amendments to Form PF that we should include in our
analysis. What additional materials and data should the SEC consider
for estimating these benefits and costs?
130. Whether our assumptions about the benefits and costs
associated with the proposal are accurate. For example, is it accurate
to assume that any sunk costs advisers have incurred to prepare for
previous compliance dates of the 2024 Form PF amendments can be ignored
for the purposes of assessing the cost-savings to advisers that would
result from the proposed amendments? Is it accurate to assume that
certain costs may be mitigated as a result of other questions in the
form?
131. Whether there are any unintended consequences to systemic risk
or investor protection that could result from the proposed changes in
the filing thresholds and in the reporting threshold for large hedge
fund advisers.
132. Whether our description of the effects on efficiency,
competition, and capital formation that would result from the proposed
amendments is accurate. For example, would the proposed changes to
specific questions of the Form result in an increase or decrease in
competition between advisers?
133. Whether there are any additional benefits or costs associated
with the reasonable alternatives considered that should be included.
134. The likely cost ranges for assigning industry codes using a
different standard (such as BICS or GICS), and the extent to which
these cost ranges vary with adviser size or other factors.
IV. 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 \516\ 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.\517\
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\516\ 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.
\517\ 44 U.S.C. 3501 through 3521.
---------------------------------------------------------------------------
SEC
The proposal would revise an existing ``collection of information''
within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\518\ The SEC is submitting the collection of information to
the Office of Management and Budget (``OMB'') for review and approval
in accordance with the PRA.\519\ The title for the collection of
information we propose to amend is ``Form PF and Rule 204(b)-1'' (OMB
Control Number 3235-0679). 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.
---------------------------------------------------------------------------
\518\ Id.
\519\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------
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).\520\ 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). As discussed more fully in section II above and as
summarized in sections IV.A.1 and IV.A.3 below, the proposal would
eliminate certain burdens and revise how respondents report certain
information on Form PF.
---------------------------------------------------------------------------
\520\ See 17 CFR 275.204(b)-1.
---------------------------------------------------------------------------
[[Page 22293]]
A. Form PF
1. 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.\521\ The information collected on Form PF is designed to
facilitate FSOC's obligations under the Dodd-Frank Act to monitor
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 financial companies.\522\ 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.\523\
---------------------------------------------------------------------------
\521\ See 15 U.S.C. 80b-4(b) and 15 U.S.C. 80b-11(e).
\522\ See Form PF.
\523\ Id.
---------------------------------------------------------------------------
The proposed amendments would (1) eliminate filing obligations for
smaller advisers; (2) eliminate certain reporting obligations for
smaller hedge fund advisers; (3) eliminate certain other requirements,
including quarterly event reporting, certain current reporting, and
other requirements; and (4) streamline certain requirements and make
corrections as well as other revisions.\524\ The proposed amendments
are designed to eliminate certain burdens, among other things, while
ensuring Form PF continues to collect information necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of systemic risk in the U.S. financial system by
FSOC.
---------------------------------------------------------------------------
\524\ The proposal would: (1) amend the form's general
instructions; (2) amend section 1 of Form PF, which would apply to
all Form PF filers; (3) amend section 2 of Form PF, which would
apply to large hedge fund advisers that advise qualifying hedge
funds; (4) amend section 5 of Form PF, which would apply to large
hedge fund advisers to qualifying hedge funds; (5) remove section 6
of Form PF, which would eliminate quarterly event reporting for
advisers to private equity funds; and (6) amend the form's Glossary
of Terms.
---------------------------------------------------------------------------
2. Confidentiality
Responses to the information collection will be kept confidential
to the extent permitted by law.\525\ 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.\526\ 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.\527\ 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.\528\ 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.\529\ The Advisers Act
requires the SEC to make Form PF information available to FSOC.\530\
For advisers that are also commodity pool operators or commodity
trading advisers, filing Form PF through the Form PF filing system is a
filing with both the SEC and CFTC.\531\ 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.\532\
---------------------------------------------------------------------------
\525\ See 5 CFR 1320.5(d)(2)(vii) and (viii).
\526\ See 15 U.S.C. 80b-10(c) and 15 U.S.C. 80b-4(b).
\527\ 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.
\528\ See 15 U.S.C. 80b-4(b)(8).
\529\ See 15 U.S.C. 80b-4(b)(9).
\530\ See 15 U.S.C. 80b-4(b)(7).
\531\ See 2011 Form PF Adopting Release at n.17.
\532\ See 5 CFR 1320.5(d)(2)(viii).
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3. Burden Estimates
We are revising our total burden estimates to reflect the proposed
amendments, updated data, and new methodology for calculating
occupational hourly rates.\533\ The tables below map out the Form PF
requirements as they apply to each group of respondents and detail our
burden estimates.
---------------------------------------------------------------------------
\533\ For the previously approved estimates, see ICR Reference
No. 202405-3235-009 (conclusion date July 2, 2024), available at
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202405-3235-009.
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(a) Proposed Form PF Requirements by Respondent
PRA Table 1--Proposed Form PF Requirements by Respondent
----------------------------------------------------------------------------------------------------------------
Large private
Form PF Smaller private Large hedge fund Large liquidity equity fund
fund advisers \1\ 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.
Section 3 (additional No................ No................ Quarterly......... No.
information concerning
liquidity funds) No proposed
substantive revisions.
[[Page 22294]]
Section 4 (additional No................ No................ No................ Annually.
information concerning private
equity funds) No proposed
substantive revisions.
Section 5 (current reporting No................ No later than 72 No................ No.
concerning qualifying hedge hours.
funds) Proposed revisions.
Section 6 (event reporting for N/A............... N/A............... N/A............... N/A.
private equity fund advisers)
Proposed deletion.
Section 7 (temporary hardship Optional, if they Optional, if they Optional, if they Optional, if they
request) No proposed revisions. qualify. qualify. qualify. qualify.
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.
----------------------------------------------------------------------------------------------------------------
Notes:
1. Smaller private fund advisers are considered all other advisers required to file Form PF that do not meet the
definition of large hedge fund adviser, large liquidity fund adviser, or large private equity fund adviser.
(b) Annual Hour Burden Proposed 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.
PRA Table 2--Annual Hour Burden Estimates for Initial Filings
----------------------------------------------------------------------------------------------------------------
Number of Hours per
respondents = Hours per response Aggregate hours
Respondent \1\ aggregate number response amortized over 3 amortized over 3
of responses \2\ \3\ years \4\ years \5\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Requested..................... \6\ 244 38 / 3 = 13 3,172
Previously Approved........... 374 55 / 3 = 18 6,732
Change........................ (130) (17) (5) (3,560)
Large Hedge Fund Advisers:
Requested..................... \7\ 5 270 / 3 = 90 450
Previously Approved........... 14 380 / 3 = 127 1,778
Change........................ (9) (110) (37) (1,328)
Large Liquidity Fund Advisers:
Requested..................... \8\ 1 212 / 3 = 71 71
Previously Approved........... 1 229 / 3 = 76 76
Change........................ No change (17) (5) (5)
Large Private Equity Advisers:
Requested..................... \9\ 30 264 / 3 = 88 2,640
Previously Approved........... 18 281 / 3 = 94 1,692
Change........................ 12 (17) (6) 948
----------------------------------------------------------------------------------------------------------------
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 changes
are due to using updated data to estimate the number of advisers.
3. Hours per response changes are due to the proposed amendments.
4. We propose to 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 and responses and
(2) the proposed amendments.
6. We estimate based on Form PF data that 1,516 smaller private fund advisers would have filed Form PF in the
first quarter of 2025 if the proposed revised reporting thresholds were in effect. Based on filing data from
the last five years, an average of 16.1 percent of them would not have filed for the previous due date. (1,516
x 0.161 = 244 advisers.)
7. We estimate based on Form PF data that 227 large hedge fund advisers would have filed Form PF in the first
quarter of 2025 if the proposed revised reporting thresholds were in effect. Based on filing data from the
last five years, an average of 2.3 percent of them would not have filed for the previous year. (227 x 0.023 =
5 advisers.)
8. We estimate based on Form PF data that 20 large liquidity fund advisers would have filed Form PF in the first
quarter of 2025 if the proposed revised reporting thresholds were in effect. Based on filing data from the
last five years, an average of 1.5 percent of them would not have filed for the previous year. (20 x 0.015 =
0.3 advisers, rounded up to 1 adviser.)
[[Page 22295]]
9. We estimate based on Form PF data that 541 large private equity advisers would have filed Form PF in the
first quarter of 2025 if the proposed revised reporting thresholds were in effect. Based on filing data from
the last five years, an average of 5.6 percent of them would not have filed for the previous due date. (541 x
0.056 = 30 advisers.)
PRA Table 3--Annual Hour Burden Estimates for Ongoing Annual and Quarterly Filings
----------------------------------------------------------------------------------------------------------------
Number of
Respondent \1\ respondents \2\ Number of Hours per Aggregate
(advisers) responses \3\ response \4\ hours \5\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Requested...................... \6\ 1,272 x 1 x 18 = 22,896
Previously Approved............ 2,376 x 1 x 22 = 52,272
Change......................... (1,104) No change (4) (29,376)
Large Hedge Fund Advisers:
Requested...................... \7\ 222 x 4 x 123 = 109,224
Previously Approved............ 556 x 4 x 176 = 391,424
Change......................... (334) No change (53) (282,200)
Large Liquidity Fund Advisers:
Requested...................... \8\ 19 x 4 x 82 = 6,232
Previously Approved............ 20 x 4 x 86 = 6,880
Change......................... (1) No change (4) (648)
Large Private Equity Advisers:
Requested...................... \9\ 511 x 1 x 141 = 72,051
Previously Approved............ 432 x 1 x 145 = 62,640
Change......................... 79 No change (4) 9,411
----------------------------------------------------------------------------------------------------------------
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 advisers file annually. Large hedge fund advisers and
large liquidity fund advisers file quarterly.
4. Hours per response changes are due to the proposed amendments.
5. Changes to the aggregated hours are due to (1) using updated data to estimate the number of advisers and (2)
the proposed amendments.
6. We estimate based on Form PF data that 1,516smaller private fund advisers would have filed Form PF in the
first quarter of 2025 if the proposed revised reporting thresholds were in effect. We estimated that 244 of
them would have filed an initial filing, as discussed in PRA Table 2: Annual Hour Burden Estimates for Initial
Filings. (1,516 total smaller advisers-244 advisers that made an initial filing = 1,272 advisers that make
ongoing filings.)
7. We estimate based on Form PF data that 227 large hedge fund advisers would have filed Form PF in the first
quarter of 2025. We estimated that 5 of them would have filed an initial filing, as discussed in PRA Table 2:
Annual Hour Burden Estimates for Initial Filings. (227 total large hedge fund advisers-5 advisers that made an
initial filing = 222 advisers that make ongoing filings.)
8. We estimate based on Form PF data that 20 large liquidity fund advisers would have filed Form PF in the first
quarter of 2025. We estimated that one of them would have filed an initial filing, as discussed in PRA Table
2: Annual Hour Burden Estimates for Initial Filings. (20 total large liquidity fund advisers-1 adviser that
made an initial filing = 19 advisers that make ongoing filings.)
9. We estimate based on Form PF data that 541 large private equity advisers would have filed Form PF in the
first quarter of 2025. We estimated that 30 of them would have filed an initial filing, as discussed in PRA
Table 2: Annual Hour Burden Estimates for Initial Filings. (541 total large private equity advisers-30
advisers that made an initial filing = 511 advisers that make ongoing filings.)
PRA Table 4--Annual Hour Burden Estimates for Current Reporting and Private Equity Event Reporting
----------------------------------------------------------------------------------------------------------------
Aggregate number Hours per Aggregate
Respondent \1\ of responses response hours
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Requested..................................... 0 x 0 = 0
Previously Approved........................... 20 x 5 = 100
Change........................................ (20) (5) (100)
Large Hedge Fund Advisers:
Requested..................................... \2\ 94 x 10 = 940
Previously Approved........................... 60 x 10 = 600
Change........................................ 34 No change \3\ 340
Large Private Equity Advisers:
Requested..................................... 0 x 0 = 0
Previously Approved........................... 20 x 5 = 100
Change........................................ (20) (5) (100)
----------------------------------------------------------------------------------------------------------------
Notes:
1. Under our proposal, section 6 (private equity event reporting) would be eliminated, removing this filing
obligation for private fund advisers that advise private equity funds. Large hedge fund advisers would still
file current reports in section 5.
2. We estimate based on Form PF data from the last two years that large hedge fund advisers would have filed an
average of 94 current reports annually if the proposed revised reporting thresholds were in effect.
3. Changes are due to using updated data to estimate the number of advisers and number of responses.
[[Page 22296]]
PRA 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\ 16 x 0.25 = 4
Previously Approved............................... 69 x 0.25 = 17
Change............................................ (53) No change (13)
Final Filings:
Proposed Estimate................................. \5\ 157 x 0.25 = 39
Previously Approved............................... 243 x 0.25 = 61
Change............................................ (86) No change (22)
Temporary Hardship Requests:
Proposed Estimate................................. \6\ 2 x 1 = 2
Previously Approved............................... 4 x 1 = 4
Change............................................ (2) No change (2)
----------------------------------------------------------------------------------------------------------------
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.
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, we estimate based on Form PF data that 227 advisers would have filed
quarterly reports in the first quarter of 2025. Based on filing data from the last five years, we estimate an
average of 7% would have filed a transition filing. (227 x 0.07 = 16 responses.)
5. In the case of the proposed estimates, we estimate based on Form PF data that 2,280 advisers would have filed
Form PF in the first quarter of 2025. Based on filing data from the last five years, an average of 6.9% of
them would have filed a final filing. (2,280 x 0.069 = approximately 157 responses.)
6. In the case of the proposed estimates, based on experience receiving temporary hardship requests, we estimate
that 1 out of 1,000 advisers would have filed a temporary hardship exemption annually. We estimate based on
Form PF data that 2,280 advisers would have filed Form PF in the first quarter of 2025. (2,280/1,000 =
approximately 2 responses.)
(c) Annual Monetized Time Burden Estimates
Below are tables with annual monetized time burden estimates for
(1) initial filings, (2) ongoing annual and quarterly filings, (3)
current reporting and private equity event reporting, and (4)
transition filings, final filings, and temporary hardship
requests.\534\
---------------------------------------------------------------------------
\534\ To calculate the occupational hourly rates used in this
release, the Commission uses occupation-specific mean hourly wage
data from the Occupational Employment and Wage Statistics (OEWS)
program of the Bureau of Labor Statistics (BLS) for the securities
industry (NAICS 523). See Occupational Employment and Wage
Statistics, U.S. Bureau of Labor Statistics, https://www.bls.gov/oes/; see also Standard Occupational Classification, U.S. Bureau of
Labor Statistics, https://www.bls.gov/soc/ (describing occupational
classification system used by BLS); Exec. Off. of the President,
Off. of Mgmt. & Budget, North American Industry Classification
System (2022), available at https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf (describing the industry
classification system used by BLS and other agencies). To account
for any changes in wages between the data reference period and when
the data is released, the mean hourly wage for each occupation is
multiplied by the seasonally adjusted employment cost index for
private wages and salaries. See Employment Cost Index, U.S. Bureau
of Labor Statistics, https://www.bls.gov/eci/. The adjusted mean
hourly wage is then multiplied by a factor that accounts for nonwage
costs, such as bonuses, benefits, and overhead. The nonwage cost
adjustment factor is calculated as an average over the 10 most
recently available years of data of the ratio of the Bureau of
Economic Analysis's annual gross output data for the securities
industry to total annual wages across all occupations for the
securities industry's OEWS data. See Gross Output by Industry, U.S.
Bureau of Economic Analysis, https://www.bea.gov/data/industries/gross-output-by-industry; Occupational Employment and Wage
Statistics, U.S. Bureau of Labor Statistics, https://www.bls.gov/oes/. The final product is the occupational hourly rate. See
generally Updated Methodology for Calculating Occupational Hourly
Rates (Dec. 19, 2025), available at https://www.sec.gov/files/method-occupational-hourly-rates.pdf.
PRA Table 6--Annual Monetized Time Burden of Initial Filings
----------------------------------------------------------------------------------------------------------------
Aggregate
Per Per response Aggregate monetized time
Respondent \1\ response amortized over 3 number of burden
\2\ years \3\ responses amortized over
\4\ 3 years
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Requested................... \5\ $21,527 / 3 = $7,176 x 244 = $1,750,944
Previously Approved......... 21,340 / 3 = 7,113 x 374 = 2,660,262
Change...................... 187 63 (130) (909,318)
Large Hedge Fund Advisers:
Requested................... \6\ 135,459 / 3 = 45,153 x 5 = 225,765
Previously Approved......... 139,080 / 3 = 46,360 x 14 = 649,040
Change...................... (3,621) (1,207) (9) (423,275)
Large Liquidity Fund Advisers:
Requested................... \7\ 106,329 / 3 = 35,443 x 1 = 35,443
[[Page 22297]]
Previously Approved......... 83,792 / 3 = 27,931 x 1 = 27,931
Change...................... 22,537 7,512 No change 7,512
Large Private Equity Advisers:
Requested................... \8\ 132,384 / 3 = 44,128 x 30 = 1,323,840
Previously Approved......... 102,868 / 3 = 34,289 x 18 = 617,202
Change...................... 29,516 9,839 12 706,638
----------------------------------------------------------------------------------------------------------------
Notes:
1. We expect that the monetized time burden will be most significant for the initial report, for the same
reasons discussed in PRA Table 2: Annual Hour Burden Estimates for Initial Filings. Accordingly, we anticipate
that the initial report will require more attention from senior personnel, including financial managers and
financial risk specialists, than will ongoing annual and quarterly filings. Changes are due to using (1)
updated hours per response estimates, as discussed in PRA Table 2: Annual Hour Burden Estimates for Initial
Filings, (2) updated aggregate number of responses, as discussed in PRA Table 2: Annual Hour Burden Estimates
for Initial Filings, and (3) updated wage estimates.
2. For the hours per response in each calculation, see PRA Table 2: Annual Hour Burden Estimates for Initial
Filings.
3. We propose to 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 would be incurred in the initial
filing. The previously approved burden estimates did not calculate this.
4. See PRA Table 2: Annual Hour Burden Estimates for Initial Filings.
5. For smaller private fund advisers, we estimate that the initial report will most likely be completed equally
by a financial manager at a cost of $731 per hour and a financial risk specialist at a cost of $402 per hour.
(($731 per hour x 0.5) + ($402 per hour x 0.5)) x 38 hours per response = $21,527.
6. For large hedge fund advisers, we estimate that for the initial report, of a total estimated burden of 270
hours, approximately 60 percent will most likely be performed by compliance professionals and 40 percent will
most likely be performed by programmers working on system configuration and reporting automation (that is
approximately 162 hours for compliance professionals and approximately 108 hours for programmers). Of the work
performed by compliance professionals, we anticipate that it will be performed equally by a financial manager
at a cost of $731 per hour and a financial risk specialist at a cost of $402 per hour. Of the work performed
by programmers, we anticipate that it will be performed equally by a software developer at a cost of $462 per
hour and a computer systems analyst at a cost of $347 per hour. (($731 per hour x 0.5) + ($402 per hour x
0.5)) x 162 hours = $91,773. (($462 per hour x 0.5) + ($347 per hour x 0.5)) x 108 hours = $43,686. $91,773 +
$43,686 = $135,459.
7. For large liquidity fund advisers, we estimate that for the initial report, of a total estimated burden of
212 hours, approximately 60 percent will most likely be performed by compliance professionals and
approximately 40 percent will most likely be performed by programmers working on system configuration and
reporting automation (that is approximately 127 hours for compliance professionals and 85 hours for
programmers). Of the work performed by compliance professionals, we anticipate that it will be performed
equally by a financial manager at a cost of $731 per hour and a financial risk specialist at a cost of $402
per hour. Of the work performed by programmers, we anticipate that it will be performed equally by a software
developer at a cost of $462 per hour and a computer systems analyst at a cost of $347 per hour. (($731 per
hour x 0.5) + ($402 per hour x 0.5)) x 127 hours = $71,946. (($462 per hour x 0.5) + ($347 per hour x 0.5)) x
85 hours = $34,383. $71,946 + $34,383 = $106,329.
8. For large private equity advisers, we expect that for the initial report, of a total estimated burden of 264
hours, approximately 60 percent will most likely be performed by compliance professionals and approximately 40
percent will most likely be performed by programmers working on system configuration and reporting automation
(that is approximately 158 hours for compliance professionals and 106 hours for programmers). Of the work
performed by compliance professionals, we anticipate that it will be performed equally by a financial manager
at a cost of $731 per hour and a financial risk specialist at a cost of $402 per hour. Of the work performed
by programmers, we anticipate that it will be performed equally by a software developer at a cost of $462 per
hour and a computer systems analyst at a cost of $347 per hour. (($731 per hour x 0.5) + ($402 per hour x
0.5)) x 158 hours = $89,507. (($462 per hour x 0.5) + ($347 per hour x 0.5)) x 106 hours = $42,877. $89,507 +
$42,877 = $132,384.
PRA Table 7--Annual Monetized Time Burden of Ongoing Annual and Quarterly Filings
----------------------------------------------------------------------------------------------------------------
Per Aggregate Aggregate
Respondent \1\ response number of monetized time
\2\ responses burden
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Requested.............................................. \3\ $8,550 x \4\ 1,272 = $10,875,600
Previously Approved.................................... 7,062 x 2,376 = 16,779,312
Change................................................. 1,488 (1,104) (5,903,712)
Large Hedge Fund Advisers:
Requested.............................................. \5\ 58,425 x \6\ 888 = 51,881,400
Previously Approved.................................... 56,496 x 2,224 = 125,647,104
Change................................................. 1,929 (1,336) (73,765,704)
Large Liquidity Fund Advisers:
Requested.............................................. \7\ 38,950 x \8\ 76 = 2,960,200
Previously Approved.................................... 27,606 x 80 = 2,208,480
Change................................................. 11,344 (4) 751,720
Large Private Equity Advisers:
Requested.............................................. \9\ 66,975 x \10\ 511 = 34,224,225
Previously Approved.................................... 46,545 x 432 = 20,107,440
Change................................................. 20,430 79 14,116,785
----------------------------------------------------------------------------------------------------------------
Notes:
[[Page 22298]]
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 PRA Table 3: Annual Hour Burden Estimates for Ongoing
Annual and Quarterly 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 PRA Table 3: Annual Hour Burden Estimates for Ongoing
Annual and Quarterly Filings, and (3) updated number of respondents, as discussed in PRA Table 3: Annual Hour
Burden Estimates for Ongoing Annual and Quarterly Filings.
2. For all types of respondents, we estimate that both annual and quarterly reports would be completed (1) 25
percent by a financial manager at a cost of $731 per hour, (2) 25 percent by a financial examiner at a cost of
$365, and (3) 50 percent by a financial risk specialist at a cost of $402 per hour. ($731 x 0.25 = $182.75) +
($365 x 0.25 = $91.25) + ($402 x 0.5 = $201) = $54.50) = $475. To calculate the cost per response for each
respondent, we used the hours per response from PRA Table 3: Annual Hour Burden Estimates for Ongoing Annual
and Quarterly Filings.
3. Cost per response for smaller private fund advisers: ($475 per hour x 18 hours per response = $8,550 per
response.)
4. (1,272 smaller private fund advisers x 1 response annually = 1,272 aggregate responses.)
5. Cost per response for large hedge fund advisers: ($475 per hour x 123 hours per response = $58,425 per
response.)
6. (222 large hedge fund advisers x 4 responses annually = 888 aggregate responses.)
7. Cost per response for large liquidity fund advisers: ($475 per hour x 82 hours per response = $38,950 per
response.
8. (19 large liquidity fund advisers x 4 responses annually = 76 aggregate responses.)
9. Cost per response for large private equity advisers: ($475 per hour x 141 hours per response = $66,975 per
response.)
10. (511 private equity advisers x 1 response annually = 511 aggregate responses.)
PRA Table 8--Annual Monetized Time Burden of Current Reporting and Private Equity Event Reporting
----------------------------------------------------------------------------------------------------------------
Aggregate
Per number of Aggregate
Respondent \1\ response responses monetized time
\2\ burden
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Requested.............................................. $0 x 0 = $0
Previously Approved.................................... 2,024 x 20 = 40,480
Change................................................. (2,024) (20) (40,480)
Large Hedge Fund Advisers:
Requested.............................................. \3\ 6,644 x 94 = 624,536
Previously Approved.................................... 5,160 x 60 = 309,600
Change................................................. 1,484 34 314,936
Large Private Equity Advisers:
Requested.............................................. 0 x 0 = 0
Previously Approved.................................... 2,024 x 20 = 40,480
Change................................................. (2,024) (20) (40,480)
----------------------------------------------------------------------------------------------------------------
Notes:
1. Under our proposal, section 6 (private equity event reporting) would be eliminated, removing any filing
obligations for advisers that advise private equity funds. Large hedge fund advisers would still file current
reports under section 5.
2. See PRA Table 4: Annual Hour Burden Estimates for Current Reporting.
3. For the cost per response for large hedge fund advisers, we estimate that, depending on the circumstances,
different legal professionals and financial professionals at the advisers would work on the section 5 current
report because the reporting events may require both legal and quantitative analysis. We estimate that the
time costs for a legal professional to be approximately $744. We estimate that the time costs for a financial
professional to be approximately $567, which is a blended average hourly rate for a financial risk specialist
($402) and a financial manager ($731). Of the total 10 hours that a section 5 current report would take, we
estimate that an adviser would spend on average 5.5 hours of lawyer time and 4.5 hours of financial
professional time to prepare, review, and submit a current report pursuant to section 5. (5.5 hours x $744 per
hour for a legal professional = $4,092) + (4.5 hours x $567 per hour for a financial professional = $2,552) =
$6,644.
PRA Table 9--Annual Monetized Time Burden for Transition Filings, Final Filings, and Temporary Hardship Requests
----------------------------------------------------------------------------------------------------------------
Aggregate
Per number of Aggregate
Filing type \1\ response responses monetized time
\2\ burden
----------------------------------------------------------------------------------------------------------------
Transition Filing from Quarterly to Annual:
Proposed Estimate...................................... \3\ $41 x 16 = $656
Previously Approved.................................... 21 x 69 = 1,415
Change................................................. 20 (53) (759)
Final Filings:
Proposed Estimate...................................... \4\ 41 x 157 = 6,437
Previously Approved.................................... 21 x 243 = 5,103
Change................................................. 20 (86) 1,334
Temporary Hardship Requests:
Proposed Estimate...................................... \5\ 511 x 2 = 1,022
Previously Approved.................................... 252 x 4 = 1,008
Change................................................. 259 ... (2) ... 14
----------------------------------------------------------------------------------------------------------------
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.
2. See PRA 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 bookkeeping, accounting, and auditing clerk would perform this work at a cost of $164 an hour. (0.25 hours x
$164 = $41).
[[Page 22299]]
4. In the case of the proposed estimates, we estimate that each final filing will take 0.25 hours and that a
bookkeeping, accounting, and auditing clerk would perform this work at a cost of $164 an hour. (0.25 hours x
$164 = $41).
5. In the case of the proposed estimates, we estimate that each temporary hardship request will take 1 hour. We
estimate that a financial manager would perform five-eighths of the work at a cost of $731 and a general clerk
would perform three-eighths of the work at a cost of $144. (1 hour x ((\5/8\ of an hour x $731 = $457) + (\3/
8\ of an hour x $144 = $54)) = $511 per response.
(d) 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.
PRA Table 10--Annual External Cost Burden for Ongoing Annual and Quarterly Filings as well as Initial Filings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
External
External cost of Aggregate
Number of Filing Total cost of initial Number of external cost Total
Respondent \1\ responses per fee per filing initial filing initial of initial aggregate
respondent\2\ filing fees filing amortized filings\6\ filing external
\3\ \4\ over 3 amortized over cost \8\
years \5\ 3 years \7\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate............................................ 1 x $150 = $150 $10,000 / 3 = $3,333 x 244 = $813,252 \9\
$1,040,652
Previously Approved.......................................... 1 x 150 = 150 10,000 / 3 = 3,333 x 374 = 1,246,542 1,659,042
Change....................................................... N/A N/A N/A N/A N/A (130) (433,290) (618,390)
Large Hedge Fund Advisers:
Proposed Estimate............................................ 4 x 150 = 600 70,000 / 3 = 23,333 x 5 = 116,665 \10\
252,865
Previously Approved.......................................... 4 x 150 = 600 70,000 / 3 = 23,333 x 14 = 326,662 668,662
Change....................................................... N/A N/A N/A N/A N/A (9) (209,997) (415,797)
Large Liquidity Fund Advisers:
Proposed Estimate............................................ 4 x 150 = 600 50,000 / 3 = 16,667 x 1 = 16,667 \11\ 28,667
Previously Approved.......................................... 4 x 150 = 600 50,000 / 3 = 16,667 x 1 = 16,667 29,267
Change....................................................... N/A N/A N/A N/A N/A N/A N/A (600)
Large Private Equity Fund Advisers:
Proposed Estimate............................................ 1 x 150 = 150 50,000 / 3 = 16,667 x 30 = 500,010 \12\
581,160
Previously Approved.......................................... 1 x 150 = 150 50,000 / 3 = 16,667 x 18 = 300,006 367,656
Change....................................................... N/A N/A N/A N/A N/A 12 200,004 213,504
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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)].
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 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. Additionally, given the amendments, in our proposed estimates, we estimate that the external cost burden
for initial filings for large hedge fund advisers would continue to range from $0 to $70,000 for the same reasons as the current estimates for those types of advisers. We used the upper
range to calculate the estimates: $70,000.
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 PRA 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 proposed amendments and (2) using updated data.
9. We estimate based on Form PF data that 1,516 smaller private fund advisers would have filed Form PF in the first quarter of 2025. (1,516 smaller private fund advisers x $150 total filing
fees) + $813,252 aggregate external cost of initial filing amortized over three years = $1,040,652 total aggregate external cost.
10. We estimate based on Form PF data that 227 large hedge fund advisers would have filed Form PF in the first quarter of 2025. (227 large hedge fund advisers x $600 total filing fees) +
$116,665 aggregate external cost of initial filing amortized over three years = $252,865 total aggregate external cost.
11. We estimate based on Form PF data that 20 large liquidity fund advisers would have filed Form PF in the first quarter of 2025. (20 large liquidity fund advisers x $600 total filing fees) +
$16,667 aggregate external cost of initial filing amortized over three years = $28,667 total aggregate external cost.
12. We estimate based on Form PF data that 541 large private equity advisers would have filed Form PF in the first quarter of 2025. (541 large private equity fund advisers x $150 total filing
fees) + $500,010 aggregate external cost of initial filing amortized over three years = $581,160 total aggregate external cost.
PRA Table 11--Annual External Cost Burden for Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
Aggregate Cost of outside
Respondent number of counsel per Total aggregate
responses current report external cost \2\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
Proposed Estimate........................... 0 x 0 = 0
Previously Approved......................... 20 x $1,695 = $33,900
Change...................................... (20) (1,695) (33,900)
Large Hedge Fund Advisers:
Proposed Estimate........................... 94 x \3\ 2,232 = 209,808
Previously Approved......................... 60 x 1,695 = 101,700
[[Page 22300]]
Change...................................... 34 537 108,108
Large Private Equity Fund Advisers:
Proposed Estimate........................... 0 x 0 = 0
Previously Approved......................... 20 x 1,695 = 33,900
Change...................................... (20) (1,695) (33,900)
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Advisers pay filing fees, the amount of which will be determined in a separate action.
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Notes:
1. Under our proposal, section 6 (private equity event reporting) would be eliminated, removing this filing
obligation for advisers that advise private equity funds. Large hedge fund advisers would still file current
reports in section 5.
2. (Aggregate number of responses) + (aggregate cost of outside counsel) = total aggregate external cost.
3. We estimate the cost for a lawyer is $744. We estimate that approximately 3 hours of the total legal
professional time that would otherwise be spent on current reporting would be shifted from in-house legal
professionals to outside lawyers. The hour estimate reflects our decreased hour burden for current reporting.
(3 hours x $744 for outside legal services = $2,232.)
(e) Summary of Estimates and Change in Burden
PRA Table 12--Aggregate Annual Estimates
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Description \1\ Requested Previously approved Change
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Respondents.......................... 2,280 respondents \2\.. 3,791 respondents...... (1,511) respondents.
Responses............................ 3,296 responses \3\.... 5,935 responses........ (2,639) responses.
Time Burden.......................... 217,721 hours \4\...... 524,376 hours.......... (306,655) hours.
Monetized Time Burden (Dollars)...... $103,911,068 \5\....... $169,094,737........... ($65,183,669).
External Cost Burden (Dollars)....... $2,113,152 \6\......... $2,938,977............. ($825,825).
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Notes:
1. Changes are due to (1) the proposed amendments, (2) using updated data, and (3) using different methodologies
to calculate certain estimates, as described in this PRA.
2. We estimate based on Form PF data that the following advisers would have filed Form PF in the first quarter
of 2025: 1,516 smaller private fund advisers + 227 large hedge fund advisers + 20 large liquidity fund
advisers + 541 large private equity advisers - 34 advisers in overlapping categories = 2,280 advisers.
3. Under our proposal, for initial filings (PRA Table 2): (244 smaller private fund adviser responses + 5 large
hedge fund adviser responses + 1 large liquidity fund adviser response + 30 large private equity adviser
responses = 280 responses.) For ongoing annual and quarterly filings (PRA Table 3): (1,272 smaller private
fund adviser responses + 888 large hedge fund adviser responses + 76 large liquidity fund adviser responses +
511 large private equity adviser responses = 2,747 responses.) For current reporting (PRA Table 4): (94 large
hedge fund adviser responses). (280 responses for initial filings + 2,747 responses for ongoing annual and
quarterly filings + 94 responses for current reports + 16 responses for transition filings + 157 responses for
final filings + 2 responses for temporary hardship requests = 3,296 responses.)
4. Under our proposal, for initial filings: (3,172 hours for smaller private fund advisers + 450 hours for large
hedge fund advisers + 71 hours for large liquidity fund advisers + 2,640 hours for large private equity
advisers = 6,333 hours). For ongoing annual and quarterly filings: (22,896 hours for smaller private fund
advisers + 109,224 hours for large hedge fund advisers + 6,232 for hours large liquidity fund advisers +
72,051 hours for large private equity advisers = 210,403). For current reporting: (940 hours for large hedge
fund advisers). (6,333 hours for initial filings + 210,403 for ongoing annual and quarterly filings + 940
hours for current reporting + 4 hours for transition filings + 39 hours for final filings + 2 hours for
temporary hardship requests = 217,721 hours.
5. Under our proposal, for initial filings: ($1,750,944 for smaller private fund advisers + $225,765 for large
hedge fund advisers + $35,443 for large liquidity fund advisers + $1,323,840 for large private equity advisers
= $3,335,992). For ongoing annual and quarterly filings: ($10,875,600 for smaller private fund advisers +
$51,881,400 for large hedge fund advisers + $2,960,200 for large liquidity fund advisers + $34,224,225 for
large private equity advisers = $99,941,425). For current reports: ($624,536for large hedge fund advisers).
($3,335,992 for initial filings + $99,941,425 for ongoing annual and quarterly filings + $624,536 for current
reports + $1,656 for transition filings + $6,437 for final filings + $1,022 for temporary hardship requests =
$103,911,068.
6. Under our proposal, for the external cost burden for annual, quarterly, and initial filings: ($1,040,652 for
smaller private fund advisers + $252,865 for large hedge fund advisers + $28,667 for large liquidity fund
advisers + $581,160 for large private equity advisers = $1,903,344). For current reporting: ($209,808 for
large hedge fund advisers). $1,903,344 + $209,808 = $2,113,152.
B. Request for Comments
We request comment on whether our estimates for burden hours and
external costs as described above are reasonable. Pursuant to 44 U.S.C.
3506(c)(2)(B), the SEC solicits comments in order to (1) evaluate
whether the proposed collection of information is necessary for the
proper performance of the functions of the SEC, including whether the
information will have practical utility; (2) evaluate the accuracy of
the SEC's estimate of the burden of the proposed collection of
information; (3) determine whether there are ways to enhance the
quality, utility, and clarity of the information to be collected; and
(4) determine whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
Persons wishing to submit comments on the collection of information
requirements of the proposed amendments should direct them to the OMB
Desk Officer for the Securities and Exchange Commission,
[email protected], and should send a copy to
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-2026-13. OMB
[[Page 22301]]
is required to make a decision concerning the collections of
information between 30 and 60 days after publication of this release;
therefore a comment to OMB is best assured of having its full effect if
OMB receives it within 30 days after publication of this release.
Requests for materials submitted to OMB by the Commission with regard
to these collections of information should be in writing, refer to File
No. S7-2026-13, and be submitted to the Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736.
V. Regulatory Flexibility Act Certification
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 proposed rule
will have a significant economic impact on a substantial number of
``small entities.'' \535\
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\535\ 5 U.S.C. 601, et. seq.
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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 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 proposed rules will not
have a significant economic impact on a substantial number of small
entities.
SEC
The Regulatory Flexibility Act of 1980 (``Regulatory Flexibility
Act'') \536\ requires the SEC to prepare and make available for public
comment an initial regulatory flexibility analysis that describes the
impact of the proposed rules on small entities, unless the SEC
certifies that the rules, if adopted, would not have a significant
economic impact on a substantial number of small entities.\537\ 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.\538\ Pursuant to section
605(b) of the Regulatory Flexibility Act, the SEC hereby certifies that
the proposed amendments to Advisers Act rule 204(b)-1 and Form PF would
not, if adopted, have a significant economic impact on a substantial
number of small entities. By definition, no small entity on its own
would meet the current minimum filing threshold of $150 million in
private fund assets under management, nor the proposed minimum filing
threshold of $1 billion in private fund assets under management. Based
on Form PF and Form ADV data as of the first quarter of 2025, the SEC
estimates that no small entity advisers are required to file current
Form PF, and no small entity advisers would be required to file Form PF
under the proposed amendments. The SEC does not have evidence to
suggest that any small entities are required to file Form PF but are
not filing Form PF. Therefore, there would be no significant economic
impact on a substantial number of small entities.
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\536\ 5 U.S.C. 601, et. seq.
\537\ See 5 U.S.C. 603(a) and 5 U.S.C. 605(b).
\538\ 17 CFR 275.0-7. In separate rulemaking, the SEC is
proposing to increase the thresholds for an investment adviser to
qualify as a small entity (the ``Small Entity Proposal''). Under the
Small Entity Proposal, an investment adviser would generally be a
small entity for purposes of the Advisers Act and the Regulatory
Flexibility Act if the adviser (1) has assets under management of
less than $1 billion, (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
$1 billion or more, or any person (other than a natural person) that
had total assets of $5 million or more on the last day of the most
recent fiscal year, all thresholds of which would have a mechanism
for future inflation adjustments. Therefore, no small entity, as
defined by the Small Entity Proposal, would meet the proposed
minimum filing threshold of $1 billion in private fund assets under
management if the Small Entity Proposal is adopted, as proposed,
prior to this rulemaking. See Amendments to the ``Small Business''
and ``Small Organization'' Definitions for Investment Companies and
Investment Advisers for Purposes of the Regulatory Flexibility Act,
Release No. IA-6935 (Jan. 7, 2026) and proposed 17 CFR 275.0-7.
---------------------------------------------------------------------------
The SEC encourages written comments on the certification.
Commentators are asked to describe the nature of any impact on small
entities and provide empirical data to support the extent of the
impact.
VI. Congressional Review Act
For purposes of Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (also known as the Congressional
Review Act),\539\ the SEC must seek OMB's determination as to whether a
final regulation constitutes a ``major'' rule. Under the Congressional
Review Act, a rule is considered ``major'' where, if adopted, it
results in or is likely to result in the following:
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\539\ See 5 U.S.C. chapter 8.
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An annual effect on the economy of $100 million or more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment, or
innovation.\540\
---------------------------------------------------------------------------
\540\ 5 U.S.C. 804(2) defining ``major rule.''
---------------------------------------------------------------------------
To help inform OMB's determination whether any final rule that
results from the proposal would be a ``major rule,'' we solicit comment
and data on the following:
The potential effect on the U.S. economy on an annual
basis;
Any potential increase in costs or prices for consumers or
individual industries; and
Any potential effect on competition, investment, or
innovation.
Commenters are requested to provide empirical data and other
factual support for their views to the extent possible.
VII. Other Matters
This action is an economically significant regulatory action under
section 3(f)(1) of Executive Order 12866, as amended, and has been
reviewed by the Office of Management and Budget. This action, if
finalized as proposed, is expected to be an Executive Order 14192
deregulatory action.
[[Page 22302]]
VIII. Statutory Authority
CFTC
The CFTC authority for this rulemaking is provided by 15 U.S.C.
80b-11.
SEC
The SEC is proposing to amend 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 proposing to amend 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
Investment advisers, Reporting and recordkeeping requirements,
Securities.
For the reasons set forth in the preamble, title 17, chapter II of
the Code of Federal Regulations is proposed to be 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,
1681w(a)(1), 6801-6809, and 6825, unless otherwise noted.
* * * * *
0
2. Amend Sec. 275.204(b)-1, paragraph (a), by removing the phrase
``$150 million'' and adding in its place ``$1 billion''.
0
3. Amend Sec. 275.204(b)-1 by redesignating paragraph (g) as paragraph
(h).
0
4. Amend Sec. 275.204(b)-1 by adding a new paragraph (g) as follows:
(g) Approximately five years after [insert date that is the
compliance date for the proposed amendments to Form PF], and
approximately every five years thereafter, Commission staff shall
report to the Commission on the filing threshold and each reporting
threshold in Form PF, assessing whether any should be adjusted. The
Commission intends to consider this report in reviewing the continued
appropriateness of the filing threshold and reporting thresholds and it
may be informative as to potential proposals to adjust them in Form PF.
In producing this report, the staff shall consider data collected by
the Commission pursuant to Form PF, as well as any other applicable
information as the staff may determine to be appropriate for its
analysis.
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: April 20, 2026
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.
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NOTE: The following Commodity Futures Trading Commission (CFTC)
appendix will not appear in the Code of Federal Regulations.
CFTC Appendix to Form PF; Reporting Requirements for All Filers--CFTC
Voting Summary
On this matter, Chairman Selig voted in the affirmative. No
Commissioner voted in the negative.
[FR Doc. 2026-07993 Filed 4-23-26; 8:45 am]
BILLING CODE 6351-01-P; 8011-01-P