[Federal Register Volume 89, Number 49 (Tuesday, March 12, 2024)]
[Rules and Regulations]
[Pages 17984-18161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03473]



[[Page 17983]]

Vol. 89

Tuesday,

No. 49

March 12, 2024

Part III





Commodity Futures Trading Commission





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17 CFR Chapter I





Securities and Exchange Commission





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17 CFR Parts 275 and 279





Form PF; Reporting Requirements for All Filers and Large Hedge Fund 
Advisers; Joint Final Rule

Federal Register / Vol. 89 , No. 49 / Tuesday, March 12, 2024 / Rules 
and Regulations

[[Page 17984]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

RIN 3038-AF31

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-6546; File No. S7-22-22]
RIN 3235-AN13


Form PF; Reporting Requirements for All Filers and Large Hedge 
Fund Advisers

AGENCY: Commodity Futures Trading Commission and Securities and 
Exchange Commission.

ACTION: Joint final rule.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'') and the 
Securities and Exchange Commission (``SEC'') (collectively, ``we'' or 
``Commissions'') are adopting amendments to Form PF, the confidential 
reporting form for certain SEC-registered investment advisers to 
private funds, including those that also are registered with the CFTC 
as a commodity pool operator (``CPO'') or commodity trading adviser 
(``CTA''). The amendments are designed to enhance the Financial 
Stability Oversight Council's (``FSOC's'') ability to monitor systemic 
risk as well as bolster the SEC's regulatory oversight of private fund 
advisers and investor protection efforts. In connection with the 
amendments to Form PF, the SEC is amending a rule under the Investment 
Advisers Act of 1940 (``Advisers Act'') to revise instructions for 
requesting a temporary hardship exemption.

DATES: 
    Effective date: This rule is effective March 12, 2025.
    Compliance date: See section II.F of this final rule.

FOR FURTHER INFORMATION CONTACT: CFTC: Pamela Geraghty, Acting Deputy 
Director; Michael Ehrstein, Special Counsel; Elizabeth Groover, Special 
Counsel; or Andrew Ruggiero, Special Counsel, at (202) 418-6700, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street NW, Washington, DC 20581. SEC: Neema Nassiri, Jill Pritzker, 
Senior Counsels; Tom Strumpf, Branch Chief; or Melissa Roverts Harke, 
Assistant Director, at (202) 551-6787 or <a href="/cdn-cgi/l/email-protection#327b7340475e5741724157511c555d44"><span class="__cf_email__" data-cfemail="94ddd5e6e1f8f1e7d4e7f1f7baf3fbe2">[email protected]</span></a>, Investment 
Adviser Regulation Office, Division of Investment Management, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-8549.

SUPPLEMENTARY INFORMATION: The Commissions are adopting amendments to 
Form PF [17 CFR 279.9] under the Advisers Act, and the SEC is adopting 
amendments to 17 CFR 275.204(b)-1 under the Advisers Act.\1\
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the 
Advisers Act, or any section of the Advisers Act, we are referring 
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we 
refer to rules under the Advisers Act, or any section of these 
rules, we are referring to title 17, part 275 of the Code of Federal 
Regulations [17 CFR 275], in which these rules are published.
    \2\ Congress enacted Sections 404 and 406 of the Dodd-Frank Act, 
which required that private fund advisers file reports and specified 
certain types of information that should be subject to reporting 
and/or recordkeeping requirements. With respect to such reports, the 
Dodd-Frank Act authorized the SEC to require that private fund 
advisers file such information ``as necessary and appropriate in the 
public interest and for the protection of investors, or for the 
assessment of systemic risk.'' The result of this enactment was Form 
PF, which is a joint form between the SEC and CFTC only with respect 
to sections 1 and 2 of the Form.

[[Page 17985]]



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             Agency                    Reference         CFR citation
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CFTC & SEC......................  Form PF \2\.......  17 CFR 279.9.
SEC.............................  Rule 204(b)-1.....  17 CFR 275.204(b)-
                                                       1.
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I. Introduction
II. Discussion
    A. Amendments to the General Instructions
    1. Reporting Master-Feeder Arrangements and Parallel Fund 
Structures
    2. Reporting Private Funds That Invest in Other Funds
    3. Reporting Timelines
    B. Amendments Concerning Basic Information About the Adviser and 
the Private Funds It Advises
    1. Amendments to Section 1a of Form PF--Identifying Information
    2. Amendments to Section 1b of Form PF--Concerning All Private 
Funds
    3. Amendments to Section 1c of Form PF--Concerning All Hedge 
Funds
    C. Amendments Concerning Information About Hedge Funds Advised 
by Large Private Fund Advisers
    1. Removal of Existing Section 2a
    2. Amendments to Section 2
    D. Amendments To Enhance Data Quality
    E. Additional Amendments
    F. Effective and Compliance Dates
III. Other Matters
IV. Economic Analysis
    A. Introduction
    B. Economic Baseline and Affected Parties
    1. Economic Baseline
    2. Affected Parties
    C. Benefits, Costs, and Effects on Efficiency, Competition, and 
Capital Formation
    1. Benefits
    2. Costs
    D. Reasonable Alternatives
    1. Alternatives to Amendments to General Instructions, 
Amendments To Enhance Data Quality, and Additional Amendments
    2. Alternatives to Amendments to Basic Information About the 
Adviser and the Private Funds It Advises
    3. Alternatives to Amendments to Information About Hedge Funds 
Advised by Large Private Fund Advisers
    4. Alternatives to the Definition of the Term ``Hedge Fund''
V. Paperwork Reduction Act
    A. Purpose and Use of the Information Collection
    B. Confidentiality
    C. Burden Estimates
VI. Regulatory Flexibility Act Certification
Statutory Authority

I. Introduction

    The Commissions are adopting amendments to sections of Form PF, the 
form that certain SEC-registered investment advisers, including those 
that also are registered with the CFTC as a CPO or CTA, use to report 
confidential information about the private funds that they advise.\3\ 
Form PF provides the Commissions and FSOC with important information 
about the basic operations and strategies of private funds and has 
helped establish a baseline picture of the private fund industry for 
use in assessing systemic risk. We now have more than a decade of 
experience analyzing the information collected on Form PF.\4\ In that 
time, the private fund industry has grown in size and evolved in terms 
of business practices, complexity of fund structures, and investment 
strategies and exposures.\5\ Based on this experience and in light of 
these changes, the Commissions and FSOC have identified significant 
information gaps and situations where revised information would improve 
the Commissions' and FSOC's understanding of the private fund industry 
and the potential systemic risk posed by it, as well as further 
investor protection efforts. Accordingly, to enhance FSOC's monitoring 
and assessment of systemic risk and to collect additional data and make 
data more useful for the Commissions' use in their respective 
regulatory programs,\6\ in August 2022, the Commissions proposed 
amendments to enhance the information advisers file on Form PF and 
improve data quality.\7\
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    \3\ See 17 CFR 275.204(b)-1. Advisers Act section 202(a)(29) 
defines the term ``private fund'' as an issuer that would be an 
investment company, as defined in section 3 of the Investment 
Company Act of 1940 (``Investment Company Act''), but for section 
3(c)(1) or 3(c)(7) of that Act. Section 3(c)(1) of the Investment 
Company Act provides an exclusion from the definition of 
``investment company'' for any issuer whose outstanding securities 
(other than short-term paper) are beneficially owned by not more 
than one hundred persons (or, in the case of a qualifying venture 
capital fund, 250 persons) and which is not making and does not 
presently propose to make a public offering of its securities. 
Section 3(c)(7) of the Investment Company Act provides an exclusion 
from the definition of ``investment company'' for any issuer, the 
outstanding securities of which are owned exclusively by persons 
who, at the time of acquisition of such securities, are qualified 
purchasers, and which is not making and does not at that time 
propose to make a public offering of such securities. The term 
``qualified purchaser'' is defined in section 2(a)(51) of the 
Investment Company Act. Any reference to the ``Commissions'' or 
``we,'' as it relates to the collection and use of Form PF data, are 
meant to refer to the agencies in their separate or collective 
capacities (as the context requires or permits), and such data from 
filings made pursuant to 17 CFR 275.204(b)-1, by and through Private 
Fund Reporting Depository, a subsystem of the Investment Adviser 
Registration Depository (``IARD''), and reports, analysis, and 
memoranda produced pursuant thereto.
    \4\ Form PF was adopted in 2011 as required by the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act''). Public Law 111-203, 124 Stat. 1376 (2010). See Reporting by 
Investment Advisers to Private Funds and Certain Commodity Pool 
Operators and Commodity Trading Advisors on Form PF, Advisers Act 
Release No. 3308 (Oct. 31, 2011) [76 FR 71128 (Nov. 16, 2011)], at 
section I (``2011 Form PF Adopting Release''). In 2014, the SEC 
amended Form PF section 3 in connection with certain money market 
fund reforms. See Money Market Fund Reform; Amendments to Form PF, 
Advisers Act Release No. 3879 (July 23, 2014) [79 FR 47736 (Aug. 14, 
2014)] (``2014 Form PF Amending Release''). In May 2023, the SEC 
amended Form PF section 4, added new sections 5 and 6, and 
redesignated prior section 5 as section 7 in connection with certain 
amendments to require event reporting for large hedge fund advisers 
and all private equity fund advisers and to revise certain reporting 
requirements for large private equity fund advisers. See Form PF; 
Event Reporting for Large Hedge Fund Advisers and Private Equity 
Fund Advisers; Requirements for Large Private Equity Fund Adviser 
Reporting, Advisers Act Release No. 6297 (May 3, 2023) [88 FR 38146 
(June 12, 2023)] (``May 2023 SEC Form PF Amending Release''). In 
July 2023, the SEC amended Form PF section 3 in connection with 
certain money market fund reforms. See Money Market Fund Reforms; 
Form PF Reporting Requirements for Large Liquidity Fund Advisers; 
Technical Amendments to Form N-CSR and Form N-1A, Advisers Act 
Release No. 6344 (July 12, 2023) [88 FR 51404 (Aug. 3, 2023)] 
(``July 2023 SEC Form PF Amending Release''). We are now adopting 
amendments to the general instructions, section 1, and section 2, 
and related amendments in the glossary of terms.
    \5\ The value of private fund net assets reported on Form PF has 
more than doubled, growing from $5 trillion (net) in 2013 to $14 
trillion (net) through the first quarter of 2023, while the number 
of private funds reported on the form has increased by nearly 130% 
in that time period. Unless otherwise noted, the private funds 
statistics used in this Release are from the Private Funds 
Statistics First Quarter of 2023. Division of Investment Management, 
Private Fund Statistics First Quarter 2023 (Oct. 16, 2023), 
available at https://www.sec.gov/files/investment/private-funds-statistics-2023-q1.pdf (``Private Fund Statistics Q1 2023''). Any 
comparisons to earlier periods are from the private funds statistics 
from that period, all of which are available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. SEC staff began 
publishing the private fund statistics in 2015, including data from 
2013. Therefore, many comparisons in this Release discuss the ten 
year span from the beginning of 2013 through the first quarter of 
2023. Some discussion in this Release compares data from a shorter 
time span because the SEC staff published such data later than 2013. 
Staff reports, statistics, and other staff documents (including 
those cited herein) represent the views of SEC staff and are not a 
rule, regulation, or statement of the SEC. The SEC has neither 
approved nor disapproved the content of these documents and, like 
all staff statements, they have no legal force or effect, do not 
alter or amend applicable law, and create no new or additional 
obligations for any person.
    \6\ Additionally, the Board of Governors of the Federal Reserve 
System (``FRB'') uses this data for research and analysis.
    \7\ Form PF; Reporting Requirements for All Filers and Large 
Hedge Fund Advisers, Advisers Act Release No. 6083 (Aug. 10, 2022) 
[87 FR 53832 (Sept. 1, 2022)] (``2022 Joint Form PF Proposing 
Release''). The Commissions voted to issue the 2022 Joint Form PF 
Proposing Release on Aug 10, 2022. The release was posted on each of 
the Commissions' websites that day (or shortly thereafter), and 
comment letters were received beginning that same date. The comment 
period closed on Oct. 11, 2022. We have considered all comments 
received since Aug. 10, 2022.

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    The Commissions received a number of comment letters on the 2022 
Joint Form PF Proposing Release.\8\ Some commenters generally supported 
the policy goals of the proposal, stating that the proposal would help 
the Commissions and FSOC assess and respond to systemic risk and the 
Commissions to achieve their investor protection goals.\9\ Certain 
commenters stated that the additional proposed reporting requirements 
are not necessary to identify systemic risk or protect investors.\10\ 
Some commenters stated that the economic analysis understates the costs 
of compliance due to the scope of proposed changes and expressed 
skepticism at the stated benefits.\11\ Some commenters criticized the 
proposed rulemaking for not considering the cumulative impact and costs 
of the amendments proposed in the 2022 Joint Form PF Proposing Release 
along with those proposed in the 2022 SEC Form PF Proposing 
Release,\12\ which the SEC proposed in January 2022 and adopted in May 
2023.\13\
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    \8\ The comment letters on the 2022 Joint Form PF Proposing 
Release (File No. S7-22-22) that the SEC received are available at 
https://www.sec.gov/comments/s7-22-22/s72222.htm. The comment 
letters that the CFTC received are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7312. Several 
comment letters are addressed jointly to the Commissions and appear 
in both comment files.
    \9\ See, e.g., Comment Letter of Americans for Financial Reform 
Education Fund (Oct. 11, 2022) (``AFREF Comment Letter I''); Comment 
Letter of Better Markets, Inc. (Oct. 11, 2022) (``Better Markets 
Comment Letter''); Comment Letter of FACT Coalition (Oct. 11, 2022) 
(``FACT Coalition Comment Letter''); Comment Letter of Global Legal 
Entity Identifier Foundation (Oct. 11, 2022) (``GLEIF Comment 
Letter''); Comment Letter of Americans for Financial Reform 
Education Fund, et al. (Feb. 21, 2023); Comment Letter of Andrew V. 
(Aug. 10, 2022).
    \10\ See, e.g., Comment Letter of American Investment Council 
(Oct. 11, 2022) (``AIC Comment Letter I''); Comment Letter of U.S. 
Chamber of Commerce (Oct. 11, 2022) (``USCC Comment Letter''); 
Comment Letter of Alternative Investment Management Association 
Limited & Alternative Credit Council (Oct. 11, 2022) (``AIMA/ACC 
Comment Letter''); Comment Letter of Securities Industry and 
Financial Markets Association (Oct. 11, 2022) (``SIFMA Comment 
Letter''); Comment Letter of Managed Funds Association (Dec. 7, 
2022) (``MFA Comment Letter II''). See infra at sections II and 
IV.C.1 of this Release for discussion of the benefits of the adopted 
amendments for systemic risk assessment and investor protection 
efforts.
    \11\ See, e.g., AIC Comment Letter I; SIFMA Comment Letter; 
Comment Letter of Managed Funds Association and National Association 
of Private Fund Managers (July 21, 2023) (``MFA/NAPFM Comment 
Letter''). See discussion infra at section IV.C of this Release.
    \12\ Amendments to Form PF to Require Current Reporting and 
Amend Reporting Requirements for Large Private Equity Advisers and 
Large Liquidity Fund Advisers, Advisers Act Release No. 5950 (Jan. 
26, 2022) [87 FR 9106 (Feb. 17, 2022)] (``2022 SEC Form PF Proposing 
Release'').
    \13\ See, e.g., AIC Comment Letter I; Comment Letter of Managed 
Funds Association, Investment Adviser Association, et al. (Sept. 14, 
2022) (``MFA Comment Letter I''); Comment Letter of Managed Funds 
Association (Mar. 16, 2023) (``MFA Comment Letter III''); SIFMA 
Comment Letter; Comment Letter of United States House of 
Representatives Committee on Financial Services (Sept. 26, 2023) 
(``Comment Letter of U.S. House of Representatives Committee on 
Financial Services''). See also May 2023 SEC Form PF Amending 
Release, supra footnote 4. See also Comment Letter of AIC (Aug. 8, 
2023) (``AIC Comment Letter II''). See infra section IV.C of this 
Release for discussion of costs and benefits.
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    We are adopting the amendments largely as proposed, but with 
certain modifications, in consideration of the comments we received:
    <bullet> First, we are adopting amendments to the form's general 
instructions, which apply to all Form PF filers, to improve data 
quality and comparability and to enhance investor protection efforts 
and systemic risk assessment. Amendments include:
    [cir] Reporting Master-Feeder and Parallel Fund Structures. As 
proposed, we are adopting amendments that will require separate 
reporting for each component fund of a master-feeder arrangement and 
parallel fund structure, other than a disregarded feeder fund (i.e., a 
feeder fund that invests all of its assets in a single master fund, 
U.S. treasury bills, and/or cash and cash equivalents \14\). In a 
change from the proposal, we are modifying the instructions to specify 
how a feeder fund is required to treat its equity in the master fund 
for the purpose of determining its reporting threshold and responding 
to certain questions.
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    \14\ As discussed in greater detail below, we are removing 
government securities from the definition of ``cash and cash 
equivalents'' and presenting government securities as its own line 
item in the Form PF Glossary of Terms. Thus, references herein to 
``cash and cash equivalents'' refer to the amended definition, 
unless otherwise indicated. The amended definition is intended to 
provide more granular detail on this reporting form and is not 
intended to change any commercial understanding or accounting 
treatment of cash equivalents. See infra section II.B.2 of this 
Release.
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    [cir] Reporting Fund of Funds. We are also adopting, with some 
modifications from the proposal, amendments to Form PF regarding how 
advisers report private fund investments in other funds. We are 
revising proposed Instruction 7 to require an adviser to include the 
value of investments in other private funds (including internal and 
external private funds) when determining whether the adviser is 
required to file Form PF, whether it meets the thresholds for reporting 
as a large hedge fund adviser, large liquidity fund adviser, or large 
private equity fund adviser, and whether a hedge fund is a qualifying 
hedge fund, rather than permit an adviser to either include or exclude 
the value of investments in other private funds for the purpose of 
determining its reporting threshold, as proposed.\15\
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    \15\ See Instruction 7.
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    [cir] Reporting Trading Vehicles. In a change from the proposal, we 
are adopting an amendment to require advisers to identify trading 
vehicles in section 1b of Form PF and report on an aggregated basis for 
the reporting fund and all trading vehicles (whether fully owned by the 
reporting fund or partially owned), rather than (i) permitting advisers 
to report fully owned trading vehicles on an aggregated or 
disaggregated basis and (ii) requiring advisers to report partially 
owned trading vehicles on a disaggregated basis, as proposed. In a 
change from the proposal, we are also adding an instruction for 
advisers to specify whether the reporting fund holds assets, incurs 
leverage, or conducts trading or other activities through a trading 
vehicle.
    [cir] Reporting Timelines. We are also adopting, as proposed, an 
amendment to the instructions that will require all quarterly filers to 
file on a calendar quarter basis, rather than on a fiscal quarter 
basis.\16\
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    \16\ The calendar quarter basis filing requirement does not 
apply to a private equity fund adviser filing a private equity event 
report as contemplated by section 6 of Form PF, which requires such 
adviser to file within 60 calendar days after the end of the 
applicable fiscal quarter upon the occurrence of a private equity 
reporting event. See May 2023 SEC Form PF Amending Release, supra 
footnote 4.
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    <bullet> Second, we are adopting amendments to sections 1a and 1b 
of Form PF, which apply to all Form PF filers, to provide greater 
insight into private funds' operations and strategies, and assist in 
identifying trends, including those that could create systemic risk and 
which are as such designed to enhance investor protection efforts and 
systemic risk assessment. The amendments are also designed to improve 
comparability across advisers, improve data quality, and reduce 
reporting errors. We are adopting, as proposed, amendments to collect 
additional identifying information regarding the adviser and its 
related persons, as well as their private fund assets under management. 
We are also adopting, largely as proposed, amendments to require 
advisers to report additional identifying information about the private 
funds they manage and other information about the

[[Page 17987]]

private funds' assets, financing, investor concentration, and 
performance.
    <bullet> Third, we are adopting amendments to section 1c of Form 
PF, which applies to private fund advisers that advise hedge funds. We 
are adopting, largely as proposed, amendments to require advisers to 
hedge funds to report certain additional information. As proposed, we 
are adopting amendments to require advisers to hedge funds to report on 
the fund's use of digital assets as an investment strategy, but in a 
modification from the proposal, we are not adopting the proposed 
definition of digital assets. We are also adopting, as proposed, 
amendments to remove certain questions to streamline reporting and to 
reduce reporting burdens.
    <bullet> Fourth, as proposed, we are redesignating existing section 
2a and 2b of Form PF as section 2, and we are adopting amendments to 
the new consolidated section 2, which applies to large hedge fund 
advisers that advise qualifying hedge funds (i.e., hedge funds that 
have a net asset value of at least $500 million). As proposed, we are 
removing aggregate reporting questions for large hedge fund advisers 
and requiring additional fund-level reporting to enhance investor 
protection efforts and systemic risk assessment.\17\ We are adopting, 
largely as proposed, amendments to require large hedge fund advisers to 
report more granular information about the reporting fund's investment 
exposure, open and large position reporting, borrowing and counterparty 
exposure, and market factor effects. In a change from the proposal, we 
are not adopting a proposed question about investment performance by 
portfolio correlation.
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    \17\ Unless stated otherwise, terms in this release that are 
defined in the Form PF Glossary of Terms are as defined therein.
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    <bullet> Finally, we are adopting, largely as proposed, certain 
additional amendments to improve data quality and accuracy of 
reporting.
    The amendments we are adopting are important enhancements to the 
ability to monitor and assess systemic risk and to determine whether 
and how to deploy the Commissions' or FSOC's regulatory tools. The 
amendments will also strengthen the effectiveness of the SEC's 
regulatory programs, including examinations, investigations, and 
investor protection efforts relating to private fund advisers. The 
Commissions consulted with FSOC to gain input on these amendments and 
to help ensure that Form PF continues to provide FSOC with information 
it can use to assess systemic risk.

II. Discussion

A. Amendments to the General Instructions

    We are adopting amendments to the Form PF general instructions 
designed to improve data quality and comparability and to enhance 
investor protection efforts and systemic risk assessment.\18\
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    \18\ Additional adopted changes to the General Instructions 
concerning amendments to enhance data quality methodologies and 
additional amendments are discussed in sections II.D and II.E of 
this Release. The amendments to Instruction 3 to reflect the removal 
of section 2a are discussed in section II.C.1 of this Release.
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1. Reporting Master-Feeder Arrangements and Parallel Fund Structures
    Private funds often use complex structures to invest, including 
master-feeder arrangements and parallel fund structures.\19\ We are 
adopting, largely as proposed, amendments to Form PF that generally 
require advisers to report separately each component fund of a master-
feeder arrangement and parallel fund structure.\20\ An adviser will 
continue to aggregate these structures, however, for purposes of 
determining whether the adviser meets a reporting threshold.\21\
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    \19\ A ``master-feeder arrangement'' is an arrangement in which 
one or more funds (``feeder funds'') invest all or substantially all 
of their assets in a single private fund (``master fund''). A 
``parallel fund structure'' is a structure in which one or more 
private funds (each, a ``parallel fund'') pursues substantially the 
same investment objective and strategy and invests side by side in 
substantially the same positions as another private fund. See Form 
PF Glossary of Terms.
    \20\ See Instruction 6. We also are amending Instruction 3, as 
proposed, to reflect the adopted approach for reporting master-
feeder arrangements and parallel fund structures. See infra footnote 
21.
    \21\ See Instruction 5. For example, an adviser would aggregate 
private funds that are part of the same master-feeder arrangement in 
determining whether the adviser is a large hedge fund adviser that 
must complete section 2 of Form PF. In connection with these 
changes, we are amending, as proposed, the term ``reporting fund'' 
and Instruction 3 so that they no longer discuss reporting 
aggregated information. Additionally, we are reorganizing current 
Instruction 5 and current Instruction 6 so that they reflect the 
adopted approach for when to aggregate certain funds. Current 
Instruction 5 instructs advisers about when to aggregate information 
about certain funds for purposes of reporting thresholds and 
responding to questions. Current Instruction 6 instructs advisers 
about how to aggregate information about certain funds. Instruction 
5, as amended, instructs advisers on when to aggregate information 
about certain funds for purposes of determining whether they meet 
reporting thresholds. Instruction 6, as amended, instructs advisers 
about how to report information about certain funds when responding 
to questions. Further, in a modification from the proposal, we have 
added a reference to section 5 (Current report for large hedge fund 
advisers to qualifying hedge funds), which a qualifying hedge fund 
would also be required to complete, as applicable, as a result of 
the amendments adopted in the May 2023 SEC Form PF Amending Release.
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    Currently, Form PF provides advisers with flexibility to respond to 
questions regarding master-feeder arrangements and parallel fund 
structures either in the aggregate or separately, as long as they do so 
consistently throughout Form PF.\22\ In adopting this approach in 2011, 
the Commissions stated that requiring advisers to aggregate or 
disaggregate funds in a manner inconsistent with their internal 
recordkeeping and reporting may impose additional burdens and that, as 
long as the structure of those arrangements is adequately disclosed, a 
prescriptive approach to aggregation was not necessary.\23\ However, 
based on experience reviewing Form PF data, we observed that when some 
advisers report in aggregate and some advisers report separately, this 
can result in obscured risk profiles (e.g., with respect to asset size, 
counterparty exposure, investor liquidity) and make it difficult to 
compare complex structures, undermining the utility of the data 
collected.\24\ Prescribing the way advisers report a master-feeder 
arrangement and parallel fund structure will provide better insight 
into the risks and exposures of these arrangements.
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    \22\ See current Instruction 5.
    \23\ 2011 Form PF Adopting Release, supra footnote 4, at text 
following n.332.
    \24\ For example, a feeder fund may have counterparty exposure 
rather than the entire fund in the aggregate. When this is the case, 
fewer assets (e.g., only those held at the feeder level) may be 
available as collateral and the counterparty may have greater risk.
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    Accordingly, we are amending the instructions to require an adviser 
to report each component fund of a master-feeder arrangement and 
parallel fund structure, except where a feeder fund invests all its 
assets in a single master fund, U.S. treasury bills, and/or ``cash and 
cash equivalents'' (i.e., is a disregarded feeder fund).\25\ In the 
case

[[Page 17988]]

of a disregarded feeder fund in Question 6, advisers instead will 
identify the disregarded feeder fund and look through to any 
disregarded feeder fund's investors in responding to certain questions 
regarding fund investors on behalf of the applicable master fund, as 
proposed. The master fund effectively is a conduit through which a 
disregarded feeder fund invests, and we do not believe separate 
reporting for such a feeder fund is necessary for data analysis 
purposes. In a modification from the proposal, we are adopting 
instructions to specify that a feeder fund should disregard any of its 
holdings in the master fund's equity for the purpose of determining its 
reporting threshold.\26\
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    \25\ See Instruction 6. We are also revising the term ``cash and 
cash equivalents,'' as described in section II.B.2 in this Release, 
to improve data quality and provide more granular detail of fund 
exposures to the Commissions and FSOC. In alignment with this 
revision, we have modified the term ``disregarded feeder fund'' for 
the purposes of Form PF to specifically include U.S. treasury bills. 
U.S. treasury bills are direct obligations of the U.S. Government 
with a maturity of one year or less. Because these short-term 
holdings are sufficiently cash-like for our reporting and data 
analysis purposes, separate reporting for a feeder fund that invests 
all of its assets in U.S. treasury bills (or some combination of 
U.S. treasury bills, ``cash and cash equivalents,'' and a single 
master fund) is not necessary. One commenter stated that the removal 
of government securities from the definition of cash and cash 
equivalents would reduce the number of funds that qualify as 
disregarded feeder funds. See AIMA/ACC Comment Letter. This 
commenter stated that the Commission should revise the definition to 
allow for disregarded feeder funds to invest in government 
securities. Id. The final amendments permit disregarded feeder funds 
to invest in U.S. treasury bills, but not other government 
securities. We believe this approach is appropriate because, as 
noted above and unlike certain other government securities, U.S. 
treasury bills are short-term holdings and sufficiently cash-like 
for our reporting and data analysis purposes. Further, U.S. treasury 
bills generally do not have the interest rate risk that longer-dated 
government securities have.
    \26\ See Instruction 6.
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    Some commenters generally supported the proposed amendments that 
require more granular reporting of private fund structures because this 
would allow FSOC to assess systemic risk and the Commissions to protect 
investors more effectively.\27\ Other commenters generally opposed the 
proposed amendments to require disaggregated reporting of master-feeder 
funds and parallel fund structures, stating that it would be overly 
burdensome for advisers to report this information and of limited 
benefit to the Commissions and/or FSOC.\28\
---------------------------------------------------------------------------

    \27\ See, e.g., AFREF Comment Letter I; Better Markets Comment 
Letter.
    \28\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
---------------------------------------------------------------------------

    Although we acknowledge that the requirement to report 
disaggregated data for parallel fund and master-feeder fund structures 
may increase the reporting burdens on certain advisers, we disagree 
that requiring disaggregated reporting would be significantly more 
burdensome than the existing requirements, because filers are already 
required to assemble aggregated data from the individual components of 
their fund structures to determine their reporting category on Form 
PF.\29\ Any increased burdens are justified because disaggregated data 
of these structures will provide the Commissions and FSOC with 
increased transparency into risk profiles and complex fund structures, 
which will improve our ability to monitor systemic risk and protect 
investors. We also disagree that disaggregated reporting of master-
feeder funds and parallel fund structures will be of limited value 
based on our experience with Form PF, which currently obscures our 
understanding of their fund structures and the risk exposure of their 
component funds. Some commenters opposed the proposed disaggregated 
reporting requirement, asserting that it would provide misleading 
information by reporting data in isolation as opposed to as part of an 
overall fund or investment program.\30\ However, rather than be 
misleading, the disaggregated reporting will allow for a clearer 
understanding of a fund's structure. Disaggregated data will not be 
misleading to the Commissions or FSOC in comparison to aggregated data 
because the disaggregated data can still be aggregated by FSOC and the 
Commissions if necessary to understand and assess the risk of the fund.
---------------------------------------------------------------------------

    \29\ See current Instruction 5.
    \30\ See, e.g., MFA Comment Letter II; USCC Comment Letter.
---------------------------------------------------------------------------

    One commenter stated that the disaggregated reporting requirement 
would be particularly burdensome for private equity fund advisers, as 
this commenter believed private equity funds pose less systemic 
risk.\31\ The existing reporting instructions allowing aggregated 
reporting result in an obscured risk profile of all types of private 
funds, including private equity funds. Although private equity funds 
may exhibit a different risk profile than hedge funds, we disagree with 
the commenter that understanding their structure is unimportant to 
assessing systemic risk. Understanding the full risk profile of private 
equity funds is an important component of the reporting on Form PF 
because of the growth in the private equity fund industry and its 
significance to financial markets.\32\ Additionally, the disaggregated 
reporting requirement is important for investor protection efforts due 
to the increased exposure of investors to the private equity industry 
through investments such as pension funds.\33\
---------------------------------------------------------------------------

    \31\ AIC Comment Letter I.
    \32\ Since 2013, the number of private equity funds has more 
than doubled from under 7,000 to over 20,000, private equity fund 
gross assets have quadrupled from $1.6 trillion to $6.6 trillion, 
and private equity fund net assets have also quadrupled, increasing 
from $1.5 trillion to $6 trillion. See Private Fund Statistics Q1 
2023, supra footnote 4.
    \33\ See, e.g., Public Plans Data (2022), available at https://publicplansdata.org/quick-facts/national/.
---------------------------------------------------------------------------

    One commenter stated that requiring disaggregated data would add a 
data security risk that sensitive information about a fund's strategy 
could be publicly exposed.\34\ We do not agree that requiring 
disaggregated reporting of component funds presents a significant 
increase in public disclosure risk, in part because the required 
information is no more granular than the information already required 
to be reported for other private funds without a master-feeder 
arrangement or parallel fund structure. The Commissions currently have 
robust data protection measures in place to protect all information 
filed on Form PF, which is filed on a non-public basis. Any limited 
increase in data security risk associated solely with the collection of 
more information is justified because of the importance of receiving 
this disaggregated information for FSOC and the Commissions' systemic 
risk monitoring and the Commissions' investor protection efforts. As 
discussed more fully above, this disaggregated data will provide 
increased transparency into complex fund structures and better insight 
into the risks presented by such arrangements. As discussed above, in 
response to commenters' concerns, we are modifying the instructions for 
how a feeder fund determines its reporting category to specify that the 
feeder fund should exclude any of its holdings in the master fund's 
equity when calculating its total asset value for the purpose of 
determining its reporting category.\35\ This modification will help 
avoid double counting of reported assets, given that data for the 
master fund will be separately reported on Form PF. It will also 
require a more appropriate level of information from feeder funds than 
we had proposed. As proposed, an adviser could have determined that a 
feeder fund is a qualifying hedge fund subject to additional reporting, 
even if the feeder fund's investments outside of its master fund were 
trivial. This level of reporting for such a feeder fund is not 
necessary for data analysis purposes, and the amended Form PF will 
accordingly only require this additional reporting for feeder funds 
that are determined to be qualifying hedge funds based on their 
investments made outside of their master funds. Some commenters 
recommended adopting an instruction for disregarded feeder fund 
reporting obligations that allows for a de minimis amount of a 
disregarded feeder fund's investments to be in other assets, such as up 
to 10 or 20 percent of a fund's capital, rather than the proposed 
instruction, which would require all of the disregarded feeder fund's 
assets to be invested in a single master fund, U.S. treasury bills, or 
cash and cash

[[Page 17989]]

equivalents.\36\ We do not believe that these recommended exceptions 
would be appropriate. The adopted instruction, which provides that a 
feeder fund that invests all of its assets in a single master fund, 
U.S. treasury bills, or cash and cash equivalents is a disregarded 
feeder fund, is more appropriate because such a feeder fund is 
effectively investing only through its associated master fund. 
Disaggregated reporting of such a disregarded feeder fund is not 
necessary for data analysis purposes, because such reporting would not 
convey additional information about the feeder fund's exposures, as the 
feeder fund's investments are limited to its investments through its 
master fund, which are required to be reported on the amended Form PF. 
In contrast, a feeder fund that does not invest all of its assets in a 
single master fund, U.S. treasury bills, or cash and cash equivalents 
operates and invests in a different manner, and it is critical to our 
understanding of these funds and the risks that they may pose to 
receive disaggregated reporting of these fund arrangements because such 
feeder funds will generally have distinct risk exposures than their 
associated master funds. Further, the modified instructions we are 
adopting, which provide that a reporting feeder fund is to disregard 
its holdings in the master fund's equity for the purpose of determining 
its reporting threshold, are responsive to commenter concerns that the 
burdens on feeder funds with de minimis non-cash or cash equivalent 
holdings would be significant. For example, under the adopted 
instructions, a feeder fund with minimal holdings outside of the master 
fund's equity may only be required to complete section 1 of Form PF, 
when it may have otherwise been required to complete additional 
sections if its holdings in the equity of the master fund were included 
in its reporting threshold determination, as proposed. The modified 
instructions take into consideration the potential burden of reporting 
feeder funds on a separate basis and allows the Commissions to receive 
important reporting on the exposures of feeder funds other than to its 
equity in its master fund.
---------------------------------------------------------------------------

    \34\ USCC Comment Letter.
    \35\ See Instruction 6.
    \36\ See AIMA/ACC Comment Letter; MFA Comment Letter II.
---------------------------------------------------------------------------

    In addition, we are adopting, as proposed, an amendment to no 
longer allow advisers to separately report any ``parallel managed 
accounts'' (which is distinguished from a ``parallel fund structure''), 
provided that advisers will continue to be required to report the total 
value of all parallel managed accounts related to each reporting 
fund.\37\ Including parallel managed accounts in the reporting may 
reduce the quality of data for our analyses while also imposing 
additional burdens on advisers.\38\ Data regarding the total value of 
parallel managed accounts, however, will allow FSOC to take into 
account the greater amount of assets an adviser may be managing using a 
given strategy for purposes of analyzing the data reported on Form PF 
for systemic risk purposes.
---------------------------------------------------------------------------

    \37\ See Instruction 6. A ``parallel managed account'' is any 
managed account or other pool of assets managed by the adviser that 
pursues substantially the same investment objective and strategy and 
invests side by side in substantially the same positions as the 
identified private fund. See Form PF Glossary of Terms.
    \38\ See 2011 Form PF Adopting Release, supra footnote 4, at 
n.334, and accompanying text (the Commissions were persuaded that 
aggregating parallel managed accounts for reporting purposes would 
be difficult and ``result in inconsistent and misleading data'' 
because the characteristics of parallel managed accounts are often 
somewhat different from the funds with which they are managed). For 
example, in a separately managed account a client generally selects 
an adviser's strategy but tailors it to the client's own investment 
guidelines.
---------------------------------------------------------------------------

    We are adopting, as proposed, an instruction to provide that a 
dependent parallel managed account must be aggregated with the largest 
private fund to which it relates and, unchanged from the current Form 
PF, with respect to any private fund, a ``dependent parallel managed 
account'' remains defined as any related parallel managed account other 
than a parallel managed account that individually (or together with 
other parallel managed accounts that pursue substantially the same 
investment objective and strategy and invest side by side in 
substantially the same positions) has a gross asset value greater than 
the gross asset value of such private fund (or, if the private fund is 
a parallel fund, the gross asset value of the parallel fund 
structure).\39\ One commenter sought clarification that a parallel 
managed account should be aggregated with the single largest private 
fund to which it relates.\40\ We continue to believe that this approach 
will more effectively support systemic risk analyses and our investor 
protection efforts, particularly given the growth in parallel managed 
accounts in recent years.\41\
---------------------------------------------------------------------------

    \39\ See Instruction 5; Form PF Glossary of Terms.
    \40\ AIMA/ACC Comment Letter.
    \41\ See David C. Johnson & Francis A. Martinez, Form PF 
Insights on Private Equity Funds and Their Portfolio Companies, 
Office of Financial Research, June 14, 2018, at 3-4, available at 
https://www.financialresearch.gov/briefs/files/OFRBr_2018_01_Form-PF.pdf (stating that fund investments in other funds increased from 
$227 billion in 2013 to $319 billion in 2016 and noting that the 
existing reporting on parallel managed accounts may be underreported 
because parallel managed accounts are not currently required to be 
reported).
---------------------------------------------------------------------------

2. Reporting Private Funds That Invest in Other Funds
    We are adopting amendments to Form PF regarding how advisers report 
private fund investments in other private funds, trading vehicles, and 
other funds that are not private funds.
    Investments in other private funds. We are adopting, with 
modifications from the proposal, amendments to Instruction 7, which 
addresses how advisers treat private fund investments in other private 
funds (e.g., a ``fund of funds''). Currently, advisers include the 
value of private fund investments in other private funds in determining 
whether the adviser meets the filing threshold to file Form PF.\42\ 
This requirement is implicit in the current form, and we are amending 
this aspect of Instruction 7, as proposed, to make it explicit. 
Further, current Form PF generally permits an adviser to disregard the 
value of a private fund's equity investments in other private funds for 
purposes of both the form's reporting thresholds (e.g., whether it 
qualifies as a large hedge fund adviser) and responding to questions on 
Form PF, as long as the adviser does so consistently throughout Form 
PF, subject to certain exceptions.\43\ We proposed continuing to permit 
an adviser to either include or exclude the value of such investments 
for the purpose of determining its reporting thresholds but requiring 
an adviser to include the value of such investments for the purpose of 
responding to questions on Form PF.
---------------------------------------------------------------------------

    \42\ Form PF Instruction 1 provides that certain advisers meet 
the filing threshold if they and their related persons, 
collectively, had at least $150 million in private fund assets under 
management as of the last day of their most recently completed 
fiscal year.
    \43\ For example, under the current instructions, an adviser is 
not permitted to disregard any liabilities of the private fund, even 
if incurred in connection with an investment in other private funds. 
See current Instruction 7.
---------------------------------------------------------------------------

    In a modification from the proposal, we are adopting an amendment 
to Instruction 7 to require an adviser to include the value of 
investments in other private funds (including internal and external 
private funds) when determining whether the adviser is required to file 
Form PF, whether it meets the thresholds for reporting as a large hedge 
fund adviser, large liquidity fund adviser, or large private equity 
fund adviser, and whether a hedge fund is a qualifying hedge fund, 
rather than permit an adviser to either include or exclude the value of 
investments in other private funds for the purpose of determining its 
reporting threshold, as

[[Page 17990]]

proposed.\44\ As discussed further below, as proposed, an adviser will 
no longer have flexibility on whether to include or exclude a reporting 
fund's investments in other private funds for purposes of responding to 
questions on Form PF.\45\ Instead, we are amending Instruction 7 to 
require an adviser to include the value of a reporting fund's 
investments in other private funds when responding to questions on Form 
PF, unless otherwise directed by the instructions to a particular 
question.
---------------------------------------------------------------------------

    \44\ See Instruction 7. In connection with this Instruction 7, 
we are also not adopting the proposed revision to the definition of 
``qualifying hedge fund,'' which would have instructed advisers that 
they may exclude the fund's investments in other private funds in 
determining whether a hedge fund meets the ``qualifying hedge fund'' 
definition. See Form PF Glossary of Terms.
    \45\ Id.
---------------------------------------------------------------------------

    Requiring advisers to report fund of funds arrangements in a more 
consistent manner will allow the Commissions and FSOC to understand 
these fund structures more effectively by providing greater insight 
into the scale of reporting funds' exposures. The form's current 
flexibility on whether to disregard underlying funds for the purpose of 
determining a reporting fund's reporting threshold and when responding 
to questions provides unclear and inconsistent reporting and data on 
the scale of reporting funds' exposures.
    One commenter stated that allowing an adviser to determine whether 
to include or exclude a reporting fund's investment in other private 
funds could result in distortions in the data collected on Form PF.\46\ 
This commenter recommended revising the instructions to prohibit an 
adviser from including a reporting fund's investment in other private 
funds for the purpose of determining its reporting threshold. We agree 
with this commenter that permitting advisers the flexibility to include 
or exclude the value of the reporting fund's investment in other 
private funds could result in distortions in the data and inconsistent 
reporting. Therefore, we have modified the instructions to remove this 
proposed flexibility. However, we have modified the instructions to 
provide that an adviser must include the reporting fund's investment in 
other private funds for determining its reporting threshold. For the 
same reasons that Instruction 7 currently (and will continue to) 
provide that an adviser must include the reporting fund's investments 
in other private funds in determining whether it is required to file 
Form PF, we believe it is appropriate for an adviser to use this same 
approach to determine the reporting fund's appropriate reporting 
category. This modification will provide for consistent treatment of 
investments in other private funds for all Form PF purposes by 
specifying that these investments should be included for the purpose of 
determining reporting threshold, determining filing threshold, and 
responding to questions on Form PF (unless otherwise instructed by a 
particular question). We do not believe that this modification will 
materially increase filing burdens because advisers are currently (and 
will continue to be) required to include the value of the reporting 
fund's investments in other private funds for the purpose of 
determining whether it is required to file Form PF and, as discussed 
further below, will be required, as proposed, to include the value of 
the reporting fund's investments in other private funds in answering 
questions on Form PF (unless otherwise instructed by a particular 
question). Some commenters opposed the proposed amendment to include 
the value of a reporting fund's investment in other external private 
funds when responding to questions because of the burden of obtaining 
information about the underlying investments and their view on the 
limited value of the data.\47\ Data about underlying investments in 
external private funds is important to provide the Commissions and FSOC 
with sufficient information to understand a fund structure to be able 
to assess systemic risk. We disagree that reporting the value of a 
reporting fund's investments in other external private funds is 
significantly more burdensome to report because an adviser is currently 
required to calculate the value of its investment in other private 
funds in determining whether the adviser meets the threshold to file 
Form PF. One commenter stated that investments in private funds should 
be treated like a disregarded feeder fund and not require disaggregated 
reporting.\48\ We disagree that a fund of funds structure presents the 
same risks as a disregarded feeder fund because, in a fund of funds 
structure, the feeder fund is itself engaging in direct investment, 
whereas a disregarded feeder fund invests its assets at the master fund 
level.
---------------------------------------------------------------------------

    \46\ AIMA/ACC Comment Letter.
    \47\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
    \48\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------

    Currently, Instruction 7 specifies that, in the case of a fund that 
invests substantially all of its assets in other private funds and, 
other than its investments in other private funds, only holds cash and 
cash equivalents and instruments acquired for the purpose of hedging 
currency exposure, an adviser is only required to complete section 1b 
of Form PF for that fund.\49\ One commenter recommended modifying this 
instruction to replace the reference to ``substantially all of its 
assets'' in other private funds to 80% of its assets and to remove the 
reference to only holding cash and cash equivalents and instruments 
acquired for the purpose of hedging currency exposure.\50\ This 
commenter stated that there are circumstances that may cause an adviser 
to invest a small portion of a fund of fund's assets directly, such as 
for tax purposes or for an investor's preference, which would cause the 
fund to no longer be considered a fund that invests substantially all 
of its assets in other private funds for purposes of Form PF, which 
allows the adviser to only complete section 1b for that fund.\51\ 
Although we agree that the meaning of ``substantially all of its 
assets'' should be clarified for purposes of this form, so as to 
generally improve data quality and comparability, we disagree that the 
reference to only holding cash and cash equivalents and instruments 
acquired for the purpose of hedging currency exposure should be 
removed. The exclusion from completing section 1c is intended to be 
limited to funds that invest only through other private funds for which 
we receive separate reporting. Allowing an exclusion for funds that 
invest in investments other than private funds would create a data gap 
because we would not receive separate reporting about investments that 
are not private funds. Accordingly, in a change from the proposal, we 
are modifying Instruction 7 only to replace the instruction 
``substantially all of its assets'' to ``80% or more of its assets.'' 
This modification will help clarify which funds will need to complete 
only section 1b of Form PF.
---------------------------------------------------------------------------

    \49\ See current Instruction 7.
    \50\ AIMA/ACC Comment Letter.
    \51\ Id.
---------------------------------------------------------------------------

    Currently, advisers are not required to, but nonetheless have the 
option to, ``look through'' a reporting fund's investments in any other 
entity (including other private funds), except in instances when the 
form directs otherwise.\52\ As a result, some advisers may ``look 
through'' a reporting fund's investments in other entities, while 
others do not, leading to unclear data, inconsistent comparisons, and 
less precise analysis across advisers. Therefore, we are amending, 
largely as proposed, Instruction 7 to provide that, when responding to 
questions, advisers must not ``look through'' a reporting fund's 
investments in internal private

[[Page 17991]]

funds or external private funds (other than a trading vehicle, as 
described below), unless the question instructs the adviser to report 
exposure obtained indirectly through positions in such funds or other 
entities.\53\ In a modification from the proposal, we are adding an 
instruction that provides if an adviser cannot avoid ``looking 
through'' to the reporting fund's investments in internal private funds 
or external private funds in responding to a particular question, then 
the adviser must provide an explanation of its responses in Question 4. 
This instruction is responsive to certain commenters' concerns 
regarding the burden of disaggregated reporting where look-through 
aggregation may be unavoidable and will provide additional context for 
the data reported. Further, after consideration of commenter 
recommendations, in a modification from the proposal, we are revising 
certain questions related to exposures to instruct advisers to select 
the exposure that ``best represents'' the indirect investment of the 
reporting fund, as discussed more fully below in section II.C.\54\ This 
modification will reduce the burden on advisers in reporting exposure 
information about these investments in private funds, while providing 
reporting on indirect investments that is important for effective 
systemic risk assessment and investor protection efforts.
---------------------------------------------------------------------------

    \52\ See current Instruction 8.
    \53\ See Instruction 7. For example, advisers will not ``look 
through'' to the creditors of or counterparties to other private 
funds in responding to questions that ask about a reporting fund's 
borrowings and counterparty exposures. See Question 18 (concerning 
borrowings) and Questions 27 and 28 (concerning counterparty 
exposures). However, selected questions in section 2 of the form 
require advisers to report indirect exposure resulting from 
positions held through other entities including private funds, and 
advisers will ``look through'' the reporting fund's investments in 
internal private funds and external private funds in responding to 
those questions. See, e.g., Question 32 (concerning reporting fund 
exposures).
    \54\ See Questions 33, 35, 36, and 47.
---------------------------------------------------------------------------

    As discussed further below, we are modifying from the proposal the 
reporting instructions for trading vehicles to require an adviser to 
``look through'' trading vehicles for all questions. Given this 
modification, we are also adopting amendments to Instruction 8 to 
exclude trading vehicles from the general requirement that an adviser 
must not ``look through'' a reporting fund's investments in funds or 
other entities unless the question instructs the adviser to report 
exposure obtained indirectly through positions in such funds or other 
entities. These amendments are designed to improve data quality and 
comparisons, so the Commissions and FSOC understand what Form PF data 
is from advisers ``looking through'' a reporting fund's investments, 
which will lead to more effective systemic risk assessments and 
investor protection efforts.
    Trading vehicles. Some private funds wholly or partially own 
separate legal entities that hold assets, incur leverage, or conduct 
trading or other activities as part of the private fund's investment 
activities, but do not operate a business (each, a ``trading 
vehicle'').\55\ Private funds may use trading vehicles for various 
purposes, including (1) for jurisdictional, tax, or other regulatory 
purposes or (2) to ``ring-fence'' assets in light of liability or 
bankruptcy concerns associated with a particular investment (i.e., 
structure assets so counterparties would only have recourse against the 
trading vehicle and not against the private fund). Currently, Form PF 
does not require advisers to identify trading vehicles. As a result, 
Form PF does not provide a clear window into the existence or use of 
trading vehicles and the risks that they present. Because private funds 
may use trading vehicles for a wide variety of purposes, more complete 
and accurate visibility into asset class exposures, position sizes, and 
counterparty exposures relied on by trading vehicles can enhance the 
Commissions' and FSOC's systemic risk and financial stability 
assessment efforts and the Commissions' efforts to protect investors by 
identifying areas in need of outreach, examination, or investigation. 
We are adopting amendments designed to address these concerns by 
requiring advisers to identify any trading vehicles of the reporting 
fund, how the reporting fund uses the trading vehicle, and the position 
sizes and counterparty exposures of the reporting fund that are 
attributable to the trading vehicle.
---------------------------------------------------------------------------

    \55\ We are adopting a definition of ``trading vehicle'' to the 
Form PF Glossary of Terms. In a modification from the proposed 
definition, we are specifying that a trading vehicle may be wholly 
or partially owned by a reporting fund. See Form PF Glossary of 
Terms (definition of ``trading vehicle''). The concept of a 
partially owned trading vehicle (i.e., if the reporting fund is not 
the trading vehicle's only equity owner) was implicit in the 
proposed instructions, which would have provided for different 
treatment for a wholly owned or partially owned trading vehicle. See 
proposed Instruction 7. We are modifying the definition of ``trading 
vehicle'' to make this explicit.
---------------------------------------------------------------------------

    We are adopting amendments, with certain modifications from the 
proposal, to Form PF's general instructions to explain how advisers 
report information if the reporting fund uses a trading vehicle.\56\ 
Specifically, if the reporting fund uses a trading vehicle, the adviser 
will be required to identify the trading vehicle in section 1b and 
report answers on an aggregated basis for the reporting fund and such 
trading vehicle.\57\ Advisers will be instructed to ``look through'' 
the trading vehicle's holdings on Form PF, adjusted for the reporting 
fund's percentage ownership interest of the trading vehicle, in 
responding to questions on Form PF for the reporting fund, as discussed 
further below.\58\ As discussed more fully in section II.B below, an 
adviser will also be required to specify if the reporting fund holds 
assets through a trading vehicle, incurs leverage through a trading 
vehicle, or conducts trading or other activities through a trading 
vehicle.\59\ Finally, advisers will be required to report trading 
vehicles on a consolidated basis but in response to certain questions 
will be required to identify the positions and counterparty exposures 
that are held through a trading vehicle, which will help differentiate 
the reporting fund's exposures and risks from those of its trading 
vehicles, as discussed more fully in sections II.B.3 and II.C.2 
below.\60\
---------------------------------------------------------------------------

    \56\ See Instruction 7. We are also making a conforming change 
to Instruction 8 to reference this new instruction.
    \57\ We proposed the following for reporting requirements for 
trading vehicles: if the reporting fund uses a trading vehicle, and 
the reporting fund is its only equity owner, the adviser would have 
been required to either (1) identify the trading vehicle in section 
1b and report answers on an aggregated basis for the reporting fund 
and such trading vehicle, or (2) report the trading vehicle as a 
separate reporting fund. An adviser would have been required to 
report the trading vehicle separately if the trading vehicle holds 
assets, incurs leverage, or conducts trading or other activities on 
behalf of more than one reporting fund. If reporting separately, (1) 
advisers would have been required to report the trading vehicle as a 
hedge fund if a hedge fund invests through the trading vehicle; (2) 
advisers would have been required to report the trading vehicle as a 
qualifying hedge fund if a qualifying hedge fund invests through the 
trading vehicle; or (3) otherwise, advisers would have been required 
to report the trading vehicle as a liquidity fund, private equity 
fund, or other type of fund based on its activities.
    \58\ See Instruction 7. We had proposed to permit disaggregated 
reporting for wholly-owned trading vehicles and to require 
disaggregated reporting for partially-owned trading vehicles. As 
discussed below, the final amendments will instead require advisers 
to report all trading vehicles, whether wholly or partially owned, 
on a consolidated basis. In connection with this change, the final 
amendments specify that an adviser must adjust trading vehicle 
information to reflect the reporting fund's percentage ownership 
interest of the trading vehicle.
    \59\ See Questions 9(d) through (f). A trading vehicle is 
defined as a separate legal entity, wholly or partially owned by one 
or more reporting funds, that holds assets, incurs leverage, or 
conducts trading or other activities as part of a reporting fund's 
investment activities but does not operate a business. See Form PF 
Glossary of Terms (definition of ``trading vehicle''). Questions 
9(d) through (f) ask the reporting fund to identify the vehicle's 
activities that results in it being a ``trading vehicle,'' as 
defined in the Form PF Glossary of Terms.
    \60\ See, e.g., Questions 27 and 28, which are required for all 
hedge fund advisers, and Questions 42, 43, and 44, which are 
required for large hedge fund advisers.

---------------------------------------------------------------------------

[[Page 17992]]

    We are not adopting proposed amendments that would have permitted 
an adviser to select whether to report a wholly owned trading vehicle 
on either a consolidated or disaggregated basis and would have required 
advisers to report a partially owned trading vehicle on a disaggregated 
basis. One commenter stated the proposed disaggregated reporting for 
trading vehicles would provide the Commissions and FSOC with insights 
into a private fund's assets and activities that are not currently 
reported on Form PF, which would support assessment of potential 
systemic risk.\61\ Other commenters opposed the proposed requirements 
to disclose trading vehicles on a disaggregated basis because of the 
significant cost and burdens for such reporting and their view on the 
limited benefit of such reporting to the Commissions.\62\ Some 
commenters stated that disaggregated reporting of trading vehicles 
would be misleading because advisers do not account for risk on a 
disaggregated basis.\63\ Another commenter stated that allowing 
consolidated reporting of trading vehicles would provide the 
Commissions with a clearer and more accurate depiction of a fund's 
characteristics and exposures than disaggregated reporting.\64\ Some 
commenters stated that separate reporting for trading vehicles is not 
necessary because trading vehicles are often used for administrative 
purposes, such as for tax or efficiency purposes, but are managed on a 
consolidated basis and regarded as a single entity for investment 
purposes.\65\ Another commenter recommended limiting disaggregated 
reporting of trading vehicles to only vehicles that engage in leverage 
or borrowing to reduce the cost of implementation of separate 
reporting.\66\ Another commenter recommended that we focus on specific 
questions on Form PF to gain information about trading vehicles instead 
of requiring full separate reporting of trading vehicles to reduce 
burdens and provide clearer reporting.\67\ Another commenter 
recommended permitting aggregated reporting for trading vehicles that 
are at least 90% owned by a single reporting fund.\68\
---------------------------------------------------------------------------

    \61\ NASAA Comment Letter.
    \62\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
SIFMA Comment Letter.
    \63\ See, e.g., MFA Comment Letter II; MFA/NAPFM Comment Letter.
    \64\ AIMA/ACC Comment Letter.
    \65\ See, e.g., MFA Comment Letter II; Schulte Comment Letter.
    \66\ SIFMA Comment Letter.
    \67\ Schulte Comment Letter.
    \68\ MFA Comment Letter II.
---------------------------------------------------------------------------

    After considering such comments, we are not adopting the proposed 
requirement that would have permitted advisers to report fully owned 
trading vehicles on a disaggregated basis and required them to do so in 
the case of partially owned trading vehicles. Instead, we are requiring 
advisers to report all trading vehicles, whether wholly owned or 
partially owned, on a consolidated basis. Requiring advisers to instead 
``look through'' the reporting fund's investment in all trading 
vehicles on a consistent basis is appropriate because receiving 
disaggregated data for some but not all trading vehicles could result 
in distorted data. Requiring all reporting funds to report their 
trading vehicles, whether fully or partially owned, on an aggregated 
basis will improve data comparability and allow us to better understand 
the holdings and exposures of the fund structure for our assessments of 
potential systemic risk. We also understand from commenters that a 
consolidated reporting better aligns with how advisers regard trading 
vehicles internally. However, after considering a commenter's 
recommendation to include specific questions on trading vehicles rather 
than full disaggregated reporting,\69\ we are adopting amendments to 
include specific questions relating to a reporting fund's trading 
vehicle use and a trading vehicle's position size and risk exposure, as 
opposed to requiring the greater burden of full separate reporting on 
Form PF for trading vehicles. We are also requiring advisers to 
identify the relevant party that bears certain risk exposures, which 
will allow us to understand how the reporting fund makes use of its 
fund structure, including any trading vehicles.\70\ This approach will 
result in greater insight into the overall fund structure and support 
of FSOC's systemic risk assessments than under the existing reporting 
requirements, and it will also be less burdensome than the approach we 
had proposed to require separate full reporting for certain trading 
vehicles. We disagree that any trading vehicle reporting should be 
limited to only vehicles that are used for leverage and borrowing 
activities because the amendments are intended to support systemic risk 
assessments more broadly on and provide insight into how trading 
vehicles are used, which includes trading vehicles that are used for 
other purposes, such as holding assets or trading. This reporting is 
important for systemic risk assessment because it provides visibility 
into private funds' operations and can assist the Commissions and FSOC 
in identifying trends across the industry.
---------------------------------------------------------------------------

    \69\ Schulte Comment Letter.
    \70\ See, e.g., Questions 27 and 28, which are applicable to all 
hedge funds, and Questions 42, 43, and 44, which are applicable to 
only large hedge funds.
---------------------------------------------------------------------------

    Investments in funds that are not private funds. Advisers will 
continue to include the value of the reporting fund's investments in 
funds and other entities that are not private funds, in determining 
reporting thresholds and responding to questions, unless otherwise 
directed, as Form PF currently requires.\71\ For the reasons discussed 
above, we are revising the instructions, substantially as proposed, to 
indicate that, when responding to questions, however, advisers must not 
``look through'' a reporting fund's investments in funds or other 
entities that are not private funds, or trading vehicles, unless the 
question instructs the adviser to report exposure obtained indirectly 
through positions in such funds or other entities.\72\
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    \71\ See Instruction 8. In a modification from the proposal, we 
are removing the erroneous reference to Questions 39 and 40 from 
Instructions 7 and 8, which implied that these questions require 
advisers to look-through the reporting fund's investments.
    \72\ We are also specifying that advisers should ``look 
through'' trading vehicles for all questions, as provided in 
Instruction 7 and discussed above.
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3. Reporting Timelines
    We are amending, as proposed, Instruction 9 to require large hedge 
fund advisers and large liquidity fund advisers to update Form PF 
within a certain number of days after the end of each calendar quarter, 
rather than after each fiscal quarter, as Form PF currently 
requires.\73\ One commenter stated that for quarterly filers who have a 
fiscal year ending in a non-calendar quarter month, the proposed 
instructions do not specify the procedure for a filer who, during the 
transition from fiscal to calendar quarter reporting, would otherwise 
be required to report twice in one calendar quarter.\74\ As suggested 
by this commenter, we are requiring that such filers transition to the 
new timing requirement by their first calendar quarter-end filing for 
the first full quarterly reporting period after the compliance 
date.\75\
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    \73\ Large hedge fund advisers generally are required to file 
within 60 calendar days after the end of each calendar quarter and 
large liquidity fund advisers generally are required to file within 
15 calendar days after the end of each calendar quarter. See 
Instruction 9.
    \74\ AIMA/ACC Comment Letter.
    \75\ See infra section II.F (Effective and Compliance Dates).

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[[Page 17993]]

    All other advisers will continue to file annual updates within 120 
calendar days after the end of their fiscal year.\76\ Private equity 
fund advisers will continue to file any required quarterly private 
equity event reports on a fiscal quarter basis, as applicable.\77\ Form 
PF will continue to require all advisers to use fiscal quarters and 
years to determine filing thresholds because advisers already make such 
calculations under 17 CFR 279.1 (``Form ADV''), which requires annual 
updates based on fiscal year.\78\
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    \76\ We also are adopting amendments to the term ``data 
reporting date'' to reflect this approach. See Form PF Glossary of 
Terms.
    \77\ See Form PF Section 6 and Instruction 9.
    \78\ See Form PF Instructions 1 and 3; Form ADV and [17 CFR 
275.204-1] Advisers Act rule 204-1 (amendments to Form ADV).
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    Currently, routine fiscal quarter reporting by large hedge fund 
advisers and large liquidity fund advisers significantly delays the 
time at which the Commissions and FSOC receive a complete data set for 
a calendar quarter. For example, large hedge fund advisers whose first 
fiscal quarter ends on the calendar quarter end of March, would file 
data covering January, February, and March by the end of May.\79\ 
However, large hedge fund advisers whose fiscal quarter ends in May 
would not file their March data until the end of July, delaying 
Commission and FSOC access to full calendar quarter data by all large 
hedge fund advisers by four months. The adopted changes are designed to 
provide a more complete data set sooner to improve the efficiency and 
effectiveness of investor protection efforts and systemic risk 
assessment. Based on Form ADV data as of December 2022, 99.6 percent of 
private fund advisers already effectively file Form PF on a calendar 
basis because their fiscal quarter or year ends on the calendar quarter 
or year end, respectively.\80\ The 0.4 percent of private fund advisers 
that have a non-calendar fiscal approach, which could cause a temporary 
data gap, represents approximately 224 private funds, totaling 
approximately $80 billion in gross asset value. Calendar quarter 
reporting also will more closely align with reporting on Form CPO-
PQR,\81\ which requires calendar quarterly reporting, allowing easier 
integration of these data sets.
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    \79\ See current Instruction 9 (requiring large hedge fund 
advisers to update Form PF within 60 calendar days after the end of 
their first, second, and third fiscal quarters, among other things).
    \80\ We are presenting data from all private fund advisers, not 
just those who would file their routine filings on a quarterly basis 
(i.e., large hedge fund advisers and large liquidity fund advisers), 
to avoid potentially disclosing proprietary information of 
individual Form PF filers, and to be inclusive considering that the 
population of quarterly filers versus annual filers may change over 
time.
    \81\ See 17 CFR pt 4, app A.
---------------------------------------------------------------------------

    In response to a request for comment whether reporting deadlines 
for large hedge fund advisers to complete their routine annual filing 
should be shortened to 30 calendar days (from 60 calendar days) after 
the end of each quarter, one commenter stated that shorter reporting 
timelines would provide FSOC and the Commissions with the most current 
information to monitor systemic risk.\82\ Another commenter opposed 
shortened reporting timelines and stated that the existing requirements 
are already burdensome and requiring shorter deadlines could undermine 
data quality.\83\ After the 2022 Joint Form PF Proposing Release, the 
SEC adopted amendments to Form PF, which require large hedge fund 
advisers to file current reports and private equity fund advisers to 
file event reports upon the occurrence of certain events.\84\ The 
amendment to require calendar quarter, rather than fiscal quarter, 
basis reporting will improve data comparability and will provide the 
Commissions with more timely information for those large hedge advisers 
that currently do not report on a calendar quarter basis.
---------------------------------------------------------------------------

    \82\ Comment Letter of Mohammed R. (Sept. 9, 2022).
    \83\ Schulte Comment Letter.
    \84\ May 2023 SEC Form PF Amending Release, supra footnote 4.
---------------------------------------------------------------------------

B. Amendments Concerning Basic Information About the Adviser and the 
Private Funds It Advises

    Each adviser required to file Form PF must complete all or part of 
section 1. We are adopting amendments to section 1 to provide greater 
insight into private funds' operations and strategies and to assist in 
identifying trends, including those that could create systemic risk and 
which are as such designed to enhance investor protection efforts and 
systemic risk assessment. The amendments are designed to improve 
comparability across advisers, improve data quality, and reduce 
reporting errors, based on our experience with Form PF filings.
1. Amendments to Section 1a of Form PF--Identifying Information
    Section 1a requires an adviser to report identifying information 
about the adviser and the private funds it manages. We are adopting, as 
proposed, several amendments to collect additional identifying 
information regarding the adviser, its related persons, and their 
private fund assets under management.
    Legal entity identifiers. We are adopting, as proposed, amendments 
to the definition of ``LEI'' to exclude the use of any non-LEI 
identifier, such as an RSSD ID, as a substitute for LEI. Legal entity 
identifiers, or ``LEIs,'' help identify entities and link data from 
different sources that use LEIs.\85\ These amendments will improve data 
quality because, based on our experience with the current form, 
reporting RSSD IDs as LEIs makes it more difficult for our staff to 
link data efficiently and effectively.
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    \85\ Form PF generally defines ``LEI'' as, with respect to any 
company, the ``legal entity identifier'' assigned by or on behalf of 
an internationally recognized standards setting body and required 
for reporting purposes by the U.S. Department of the Treasury's 
Office of Financial Research or a financial regulator. See Form PF 
Glossary of Terms (definition of ``LEI'').
---------------------------------------------------------------------------

    Current Form PF requires advisers to report the LEI for certain 
entities, such as for the reporting fund, and any parallel funds if 
they have an assigned LEI. It currently instructs advisers, in the case 
of an entity that is a financial institution and does not have an 
assigned LEI, to provide the RSSD ID assigned to the financial 
institution by the National Information Center of the FRB.\86\ We are 
adopting an amendment to the definition of ``LEI'' to remove the 
instruction that an adviser provide an RSSD ID with respect to an 
entity that is a financial institution and that has not been assigned 
an LEI. Accordingly, an adviser will no longer be permitted to 
substitute an RSSD ID or any other financial identifier for any 
requirement in Form PF to provide an LEI, if one has been assigned.\87\ 
An adviser may continue to use an RSSD ID, if the financial institution 
has one, or another financial identifier for any question that requires 
an adviser to report other identifying information, where the form of 
identifying information is not specified.\88\
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    \86\ Currently, if an adviser has not been assigned an LEI and 
does not have an RSSD ID, then the adviser would leave that line 
blank.
    \87\ See, e.g., Questions 5(d) and 7(e).
    \88\ See, e.g., Question 9(c). We also added ``RSSD ID'' to the 
Form PF Glossary of Terms and have defined it as the identifier 
assigned by the National Information Center of the Board of 
Governors of the Federal Reserve System, if any. See Form PF 
Glossary of Terms.
---------------------------------------------------------------------------

    We are also adopting, as proposed, an amendment to require advisers 
to provide LEIs for themselves and their ``related persons,'' if they 
have an LEI.\89\

[[Page 17994]]

This amendment will help identify advisers and their related persons 
and link data from other data sources that use LEI as an identifier.
---------------------------------------------------------------------------

    \89\ See Question 1. We are also adopting amendments to require 
advisers to provide the LEI for other entities, if the other 
entities have one, including internal private funds (see Question 7 
and Question 15), trading vehicles (see Question 9), and 
counterparties (see Question 27 and Question 28). A ``related 
person'' has the meaning provided in Form ADV. See Form PF Glossary 
of Terms. Form ADV defines a ``related person'' as any advisory 
affiliate and any person that is under common control with the 
adviser. See Form ADV Glossary of Terms.
---------------------------------------------------------------------------

    One commenter supported an expanded use of LEI as a legal 
identifier in Form PF and stated that more comprehensive inclusion of 
LEI would create a more complete identification scheme for the 
Commissions.\90\ The commenter also stated that the LEI field in the 
existing Form PF should be used only for an LEI and not substitute any 
other identifier for an LEI.\91\ The commenter also supported the 
creation of a separate field for the RSSD ID.\92\ Another commenter 
stated that requirements in Form PF to use a particular financial 
identifier may increase costs and reduce innovation and competition 
among financial identifier providers and that increased competition 
among financial identifiers would improve overall transparency and data 
quality and reduce costs.\93\ As stated above, based on our experience 
with the current form, however, permitting the reporting of other 
financial identifiers (namely, RSSD IDs) as LEIs has generally made it 
more difficult for our staff to link data efficiently and effectively. 
The amendments to the ``LEI'' definition will thus improve data quality 
and comparability on Form PF, which supports effective assessment of 
systemic risk and investor protection efforts. Additionally, Form PF 
continues to not require an adviser to obtain or use LEI or any other 
particular financial identifier (other than private fund identification 
numbers for reporting funds), as our amendments provide only that any 
identifier that does not meet the definition of ``LEI'' may not be 
substituted for an LEI where a question requests an LEI. Form PF 
continues to permit advisers to use other financial identifiers 
elsewhere on Form PF where the reporting of LEI is either not specified 
or not required. The amendments to Form PF we are adopting do not 
require any entity that does not already have an LEI to obtain one and 
clarifies that an identifier that does not meet the ``LEI'' definition 
may not be substituted for an LEI where an LEI, if available, is 
requested on Form PF.
---------------------------------------------------------------------------

    \90\ See GLEIF Comment Letter.
    \91\ See id.
    \92\ Id.
    \93\ See Comment Letter of Bloomberg, L.P. (Oct. 13, 2022) 
(``Bloomberg Comment Letter'').
---------------------------------------------------------------------------

    Assets under management. We are adopting, substantially as 
proposed, amendments to Question 3 to revise how advisers report assets 
under management attributable to certain private funds. Current 
Question 3 requires advisers to provide a breakdown of regulatory 
assets under management and net assets under management. These data are 
designed to show the size of the adviser and the nature of the 
adviser's activities. We did not receive comment on the proposed 
amendments to Question 3. We are amending the instructions to direct 
advisers to exclude the value of private funds' investments in other 
internal private funds to avoid double counting of fund of funds 
assets, as proposed.\94\ Advisers are required to include the value of 
trading vehicle assets because, under the amended instructions for 
reporting trading vehicle assets, as discussed more fully in section 
II.A.2 above, advisers are required to ``look through'' the reporting 
fund's investment in any trading vehicles.\95\ We did not receive 
comment on the proposed change in instructions to Question 3. These 
amendments are designed to provide a more accurate view of the assets 
managed by the adviser and its related persons, as well as the general 
distribution of those assets among various types of private funds, 
because accurately viewing the scale of these managed assets is 
important to effectively assess systemic risk and further investor 
protection efforts.
---------------------------------------------------------------------------

    \94\ See Question 3.
    \95\ Id. We have also modified the proposed instructions to 
Question 3 to remove a reference to the proposed requirement to 
report trading vehicles on a disaggregated basis, which we are not 
adopting in this Release. See also Form PF Glossary of Terms.
---------------------------------------------------------------------------

    Explanation of assumptions. We are amending, as proposed, Question 
4, which advisers use to explain assumptions that they make in 
responding to questions on Form PF, to add an instruction directing 
advisers to provide the question number when the assumptions relate to 
a particular question. We did not receive comments on this change. This 
amendment is designed to help assess data more efficiently and improve 
comparability, based on experience with the form.
    We asked in the proposal whether there are other data sources we 
should use to link entities across forms and to assess data more 
efficiently. In a further modification from the proposal, we are 
adopting an amendment to require an adviser to indicate whether it, or 
any of its related persons, is registered or required to be registered 
as a CPO and/or a CTA and to provide the legal name of the entity.\96\ 
This information will help more accurately and efficiently identify 
dual registrants, including those that might be implicated in the 
identification of threats to financial stability, increase the 
usefulness and interoperability of the data collected by the 
Commissions on Form PF and by the CFTC on Form CPO-PQR, and facilitate 
collaboration between the Commissions with respect to dual registrants.
---------------------------------------------------------------------------

    \96\ See Question 1(c).
---------------------------------------------------------------------------

2. Amendments to Section 1b of Form PF--Concerning All Private Funds
    Section 1b requires advisers to report certain identifying and 
other basic information about each private fund the adviser manages. We 
are adopting, largely as proposed, amendments to section 1b to require 
advisers to report additional identifying information about the private 
funds they manage as well as other basic information about the private 
funds' assets, financing, investor concentration, and performance. The 
amendments are designed to provide greater insight into private funds' 
operations and strategies and assist in identifying trends, which will 
enhance investor protection efforts and FSOC's systemic risk 
assessment. At the same time, the amendments will help improve data 
quality and comparability, based on our experience with Form PF.
    Type of private fund. We are adopting several amendments to 
identify different types of reporting funds more effectively and to 
help better isolate data according to fund type, in order to allow for 
more targeted analysis. Currently, advisers indicate a reporting fund's 
type on the Private Fund Reporting Depository (``PFRD'') filing system, 
and by filling out particular sections of the form, but they do not 
report on the form itself the type of fund.\97\ We have found 
instances, however, where advisers have identified a reporting fund 
differently on Form PF than on Form ADV, even though the definitions of 
each fund type are the same on both forms. This may be due to error, or 
may be due to the fund's characteristics changing between deadlines for 
Form ADV and Form PF. Accordingly, to help prevent reporting errors and 
help ensure accuracy concerning the reporting fund's type, we are 
adopting, as proposed, amendments to require advisers to identify the 
reporting fund by selecting one type of fund from the following list: 
hedge fund that is not a qualifying hedge fund, qualifying hedge fund, 
liquidity fund,

[[Page 17995]]

private equity fund, real estate fund, securitized asset fund, venture 
capital fund, or ``other.'' \98\ If an adviser identifies the reporting 
fund as ``other,'' the adviser will be required to describe the 
reporting fund in Question 4, including why it would not qualify for 
any of the other options. We did not receive comments on this 
amendment. This amendment will further improve data quality and data 
comparability, based on our experience with Form PF.
---------------------------------------------------------------------------

    \97\ For advisers that are also CPOs or CTAs, filing Form PF 
through PFRD is filing with both the SEC and CFTC. See Instruction 3 
(instructing advisers to file particular sections of Form PF, 
depending on their circumstances. For example, all Form PF filers 
must file section 1 and large hedge fund advisers also must file 
section 2).
    \98\ Question 6(a).
---------------------------------------------------------------------------

    In addition, we are adopting, as proposed, amendments to require an 
adviser to indicate whether the reporting fund is a ``commodity pool,'' 
which is categorized as a hedge fund on Form PF.\99\ Although the CFTC 
does not, as of the date of this Release, consider Form PF reporting on 
commodity pools as constituting substituted compliance with CFTC 
reporting requirements, some CPOs may continue to report such 
information on Form PF.\100\ This amendment will allow for analysis of 
hedge fund data both with and without commodity pools reported on the 
form. One commenter opposed the existing default treatment of a 
commodity pool as a hedge fund for purposes of Form PF and recommended 
allowing an adviser to categorize a commodity pool in the manner it 
determines most appropriate.\101\ The amendment we are adopting will 
improve data quality and comparability, based on our experience with 
Form PF, and enhance our understanding of the hedge fund data collected 
from Form PF by allowing for analysis of hedge fund data both including 
and excluding CPOs. Additionally, as it relates to the treatment of 
commodity pools as hedge funds for reporting purposes, such treatment 
further aligns the consistency of questions asked across these 
entities, both on Form PF, as well as on the CFTC's Form CPO-PQR.
---------------------------------------------------------------------------

    \99\ Question 6(b). Form PF defines ``commodity pool'' as 
defined in section 1a(10) of the U.S. Commodity Exchange Act, as 
amended. See Form PF Glossary of Terms.
    \100\ Previously, the CFTC permitted dually registered CPO-
investment advisers to submit Form PF in lieu of certain CFTC 
reporting requirements. See Compliance Requirements for Commodity 
Pool Operators on Form CPO-PQR (Oct. 9, 2020) [85 FR 71772 (Nov. 10, 
2020)] (``Form CPO-PQR Release'').
    \101\ See MFA Comment Letter II.
---------------------------------------------------------------------------

    Finally, we are adopting, with a modification from the proposal, 
amendments to require advisers to report whether a reporting fund 
operates as a UCITS or AIF.\102\ One commenter supported the 
requirement to report whether a fund is a UCITS or AIF and where a fund 
is domiciled, but not where the fund is ``marketed,'' because a fund 
could be marketed anywhere and a fund's marketing activity may change 
over time.\103\ Another commenter recommended that references to 
``marketing'' be reconsidered, because ``marketing'' is a defined term 
in the UCITS Directive applicable to a UCITS and in the AIFMD and UK 
AIFMR applicable to an AIF, and these definitions may differ in meaning 
from the rule's references to ``marketing.'' \104\ This commenter also 
stated that the references to ``marketing'' in the sense of rule 
206(4)-1 and concepts of ``offers'' or ``sales'' under the Securities 
Act of 1933 would be confusing in this question if the purpose of the 
proposed question is to determine whether a fund calls itself a money 
market fund or an equivalent term to prospective investors outside of 
the United States.\105\ After considering comments, we are modifying 
the question from the proposal to require reporting of a fund that 
``offers,'' rather than ``markets,'' itself as a money market fund 
outside the United States. This modification will more precisely 
capture the type of conduct that we intend to trigger a reporting 
requirement, and uses a term that we believe is commonly understood by 
the industry, and which we accordingly disagree would be 
confusing.\106\ Further, the modification will be less burdensome on 
advisers than the proposed use of ``marketing'' by clarifying the scope 
of information required to be reported and requiring a more limited 
subset of conduct to be reported. For example, a money market fund may 
engage in certain conduct that constitutes marketing in a particular 
jurisdiction but not an offering for purposes of the form.
---------------------------------------------------------------------------

    \102\ See Questions 6(c) through (f). We are adopting, as 
proposed, a definition for the term ``UCITS'' as Undertakings for 
Collective Investment in Transferable Securities, as defined in the 
UCITS Directive of the European Parliament and of the Council (No. 
2009/65/EC), as amended, or as captured by the Collective Investment 
Schemes (Amendment etc.) (EU Exit) Regulations 2019, as amended. We 
are adopting, as proposed, a definition for the term ``AIF'' as an 
alternative investment fund that is not regulated under the UCITS 
Directive, as defined in the Directive of the European Parliament 
and of the Council on alternative investment fund managers (No. 
2011/61/EU), as amended, or an alternative investment fund that is 
captured by the Alternative Investment Fund Managers (Amendment 
etc.) (EU Exit) Regulations 2019, as amended. See Form PF Glossary 
of Terms.
    \103\ See SIFMA Comment Letter.
    \104\ See AIMA/ACC Comment Letter.
    \105\ Id.
    \106\ ``Offer'' is defined in the Securities Act as ``every 
attempt or offer to dispose of, or solicitation of an offer to buy, 
a security or interest in a security, for value.'' 12 U.S.C. 
77b(a)(3). For purposes of this question, activity may constitute an 
``offer'' under this definition whether or not the offering is 
subject to the registration requirements of the Securities Act.
---------------------------------------------------------------------------

    One commenter stated that proposed Question 6(c) would not enhance 
the Commissions' knowledge about exposures to non-U.S. beneficial 
owners that is not already included in proposed Question 22 on Form 
PF.\107\ Question 6(c), however, is not intended to elicit the same 
information about exposures to non-U.S. beneficial owners as proposed 
Question 22, as discussed further below in section II.B.3. The 
amendments to Question 6 relate to the conduct and operations of the 
reporting fund, which are designed to allow the Commissions and FSOC to 
filter data for more targeted analysis to better understand to what 
extent and in what jurisdictions a reporting fund operates outside of 
the United States. This information can help the Commissions better 
understand the private fund's potential exposure to beneficial owners 
outside the United States and to identify potential systemic risk 
resulting from economic conditions or events in particular foreign 
jurisdictions. This reporting will also help avoid double counting when 
Form PF data is aggregated with other data sets that include UCITS, 
AIFs, and money market funds that are offered outside the United 
States. Proposed Question 22, as discussed further below in section 
II.B.3, requires an adviser to report more granular information about 
the fund's beneficial owners, including the percentage of beneficial 
owners that are non-U.S. persons.\108\
---------------------------------------------------------------------------

    \107\ AIMA/ACC Comment Letter.
    \108\ See Question 22.
---------------------------------------------------------------------------

    The amendments will improve the data we collect on fund operations 
and help us better understand a fund's potential exposure to beneficial 
owners outside the United States. The additional information is 
necessary for a more targeted analysis of risks presented in the United 
States from risks presented abroad.\109\ Another commenter stated that 
the proposed amendments do not specify what conduct constitutes 
operating as a UCITS or how to determine where a fund operates.\110\ A 
UCITS operates under the laws mandated by the member country of its 
headquarters when it is qualified as a UCITS and authorized by that 
jurisdiction. This commenter also stated that the meaning of money 
market fund in Question 6(g) is unclear, particularly for funds that 
are established and operate as money market funds outside of the United 
States. For purposes of this question, we have removed reference in 
Question 6 to

[[Page 17996]]

the defined term ``money market fund'' as included in the Form PF 
Glossary of Terms, which continues to have the meaning provided in rule 
2a-7 under the Investment Company Act.\111\ Instead, in a modification 
from the proposal, we have amended Question 6 to specify that a money 
market fund for purposes of Question 6 includes money market funds more 
generally, including those that operate outside of the United States in 
accordance with applicable non-U.S. laws, rather than being limited to 
only ``money market funds'' as defined in Form PF.
---------------------------------------------------------------------------

    \109\ See Fact Coalition Comment Letter (discussing the 
importance of collecting information on exposures outside of the 
United States).
    \110\ AIMA/ACC Comment Letter.
    \111\ See Form PF Glossary of Terms (definition of ``money 
market fund'').
---------------------------------------------------------------------------

    Master-feeder arrangements, internal private funds, external 
private funds, and parallel fund structures. We are adopting, as 
proposed, amendments to Form PF to require advisers to report 
identifying information about master-feeder arrangements and other 
private funds (e.g., funds of funds), including internal private funds, 
and external private funds.\112\ These changes to the form reflect that 
advisers will be required to report components of master-feeder 
arrangements and parallel fund structures separately, as discussed more 
fully in section II.A.1 above. Form PF currently requires advisers to 
report identifying information about parallel funds, and will continue 
to do so under the amended Form PF.\113\ The amendments will also 
require advisers to report the value of the reporting fund's 
investments in other private funds (e.g., for funds of funds) in more 
detail than is currently required.\114\ Specifically, the amendments 
will require advisers to report the value of the reporting fund's 
equity investments in external private funds and internal private funds 
(including the master fund and each internal private fund), which 
together make up the total investments in other private funds.\115\ 
These amendments are designed to help map complex fund structures and 
cross reference private fund information more effectively across Form 
PF filings, in order to provide more complete and accurate information 
about each fund's risk profile.
---------------------------------------------------------------------------

    \112\ For master-feeder arrangements, advisers will be required 
to report the name of the feeder fund, its private fund 
identification number, and whether the feeder fund is a separate 
reporting fund or a disregarded feeder fund. For internal private 
funds that invest in the reporting fund, advisers will be required 
to report the name of the internal private fund, its LEI, if it has 
one, and its private fund identification number. See Question 7. If 
the reporting fund invests in external private funds, advisers will 
be required to report the name of the master fund, its private fund 
identification number, and the master fund's LEI, if it has one. If 
the reporting fund invests in internal private funds, advisers will 
be required to report the internal private fund's name, its private 
fund identification number, and its LEI, if it has one. See Question 
15.
    \113\ See Question 7 and Question 8.
    \114\ See Question 15.
    \115\ Id.
---------------------------------------------------------------------------

    In connection with these amendments, in the Form PF Glossary of 
Terms, we are removing the terms ``investments in external private 
funds'' and ``investments in internal private funds,'' and replacing 
them with the terms ``external private funds'' (i.e., private funds 
that neither the adviser nor the adviser's related persons advise) and 
``internal private funds'' (i.e., private funds that the adviser or any 
of the adviser's related persons advise), respectively. The definitions 
do not direct advisers to exclude ``cash management funds,'' as is 
currently the case under the terms being removed, because we have 
observed that advisers determine whether a fund is a cash management 
fund inconsistently for purposes of Form PF, which reduces data 
quality.
    As discussed more fully above in section II.A.1, some commenters 
supported requiring disaggregated reporting of master-feeder 
arrangements and parallel fund structures, stating that it will allow 
the Commissions to identify potential systemic risk more effectively 
and increase the transparency of private fund holdings.\116\ Other 
commenters opposed the proposed amendments to require reporting of the 
components of parallel funds and master-feeder funds separately.\117\ 
We did not however receive specific comment on the proposed 
definitional changes. One commenter recommended including an exclusion 
in Questions 15(a) and 15(b), similar to the exclusion in Question 
15(c), to avoid potentially double counting any master funds that are 
external private funds.\118\ We believe the instruction in Question 
15(c) to exclude any funds disclosed in Question 15(b) is sufficient to 
avoid any double counting of assets in this set of questions.\119\ 
These amendments will improve data quality and comparability, based on 
our experience with Form PF and in light of adopted changes to master-
feeder and parallel fund structure reporting on Form PF.
---------------------------------------------------------------------------

    \116\ See, e.g., Better Markets Comment Letter; NASAA Comment 
Letter.
    \117\ See, e.g., AIC Comment Letter I; AIMA/ACC Comment Letter; 
MFA Comment Letter II.
    \118\ See AIMA/ACC Comment Letter.
    \119\ We do not believe an instruction in Question 15(c) to 
exclude funds reported in Question 15(a) is necessary because 
Question 15(a) relates to external private funds only.
---------------------------------------------------------------------------

    Withdrawal or redemption rights. We are also adopting, with 
modifications from the proposal, as specified below, amendments to 
change how advisers report withdrawal and redemption rights. Form PF 
currently requires only large hedge fund advisers to report whether 
each qualifying hedge fund provides investors with withdrawal or 
redemption rights in the ordinary course.\120\ We proposed adding a new 
Question 10(a) which would generally require all advisers to report 
whether a reporting fund provides investors with withdrawal and/or 
redemption rights in the ordinary course.\121\ In a modification from 
the proposal, we are adopting a modified Question 10, which instead 
requires all advisers to indicate whether the reporting fund is an 
open-end private fund in Question 10(a) or a closed-end private fund in 
Question 10(b).
---------------------------------------------------------------------------

    \120\ See current Question 49(a).
    \121\ See proposed Question 10(a).
---------------------------------------------------------------------------

    We are relatedly adopting new defined terms for ``open-end private 
fund'' and ``closed-end private fund'' and modifying Question 10 to ask 
whether the reporting fund is an ``open-end private fund'' or ``closed-
end private fund,'' rather than whether the reporting fund provides 
investors with withdrawal and/or redemption rights in the ordinary 
course. In discussing certain aspects of the proposal, some commenters 
distinguished between open-end and closed-end funds.\122\ One commenter 
indicated that the term ``closed-end fund'' refers to funds that do not 
offer withdrawal or redemption rights in the ordinary course.\123\ We 
are defining a ``closed-end private fund'' as any private fund that 
only issues securities, the terms of which do not provide a holder with 
any right, except in extraordinary circumstances, to withdraw, redeem, 
or require the repurchase of such securities, but which may entitle 
holders to receive distributions made to all holders pro rata.\124\ We 
are defining an ``open-end private fund'' as a private fund that offers 
redemption rights to its investors in the ordinary course, which may be 
paid in cash or in kind, irrespective of redemption frequency or notice 
periods and without regard to any suspensions, gates, lock-ups, or side 
pockets that may be employed by the fund.\125\ These terms are commonly 
used in the market,

[[Page 17997]]

based on staff experience, and will be used in place of the existing 
question that asks whether the reporting fund provides investors with 
withdrawal/redemption rights in the ordinary course.
---------------------------------------------------------------------------

    \122\ See, e.g., AIMA/ACC Comment Letter; Comment Letter of 
Ropes & Gray LLP (Oct. 11, 2022) (``Ropes & Gray Comment Letter'').
    \123\ AIMA/ACC Comment Letter.
    \124\ See Form PF Glossary of Terms (definition of ``closed-end 
private fund''). The definition of ``closed-end private fund'' is 
adapted from the definition of ``venture capital fund'' in rule 
203(l)-1 under the Advisers Act. See 17 CFR 275.203(l)-1.
    \125\ See Form PF Glossary of Terms (definition of ``open-end 
private fund'').
---------------------------------------------------------------------------

    Although the proposed question and the adopted question lead to 
substantively identical results in most cases, the adopted question 
will improve data quality by more precisely specifying what is meant by 
``offer[ing] withdrawal and/or redemption rights in the ordinary 
course'' and, accordingly, how an adviser should classify a reporting 
fund that offers limited withdrawal or redemption rights. In a 
modification from the proposal, an adviser that selects in Question 10 
that the reporting fund is neither an open-end private fund nor a 
closed-end private fund will be required to provide a detailed 
explanation of these responses in Question 4.\126\ We requested comment 
on whether we should include an additional category of ``other'' 
withdrawal and/or redemption frequency.\127\ Some commenters stated 
that the proposed question 10 was unclear on how to report withdrawal 
and redemption rights properly, particularly for funds with rights that 
do not fit within a single frequency category.\128\ Instead of 
including an ``other'' category, as stated above, advisers that respond 
``no'' to both Questions 10(a) and 10(b) will be required to provide a 
detailed explanation of these responses in Question 4, which will 
enable us to understand the circumstances of the fund's withdrawal and/
or redemption rights and will improve data quality. It will also help 
an adviser that might otherwise feel constrained by these two 
categories if the fund it advises does not fit into either. We are 
requiring advisers to identify whether a reporting fund is an open-end 
private fund or a closed-end private fund to inform the Commissions and 
FSOC better of all reporting funds' susceptibility to stress related to 
investor redemptions, in order to help identify more effectively how 
widespread the potential stress may be.\129\
---------------------------------------------------------------------------

    \126\ See Questions 10(a) and 10(b).
    \127\ See 2022 Joint Form PF Proposing Release supra footnote 4, 
at 32.
    \128\ See, e.g., AIMA/ACC Comment Letter; SIFMA Comment Letter.
    \129\ To implement this change, we have moved current Questions 
49(a) through (e) from section 2b, which required only large hedge 
fund advisers to report withdrawal and redemption information about 
qualifying hedge funds, to section 1b, which requires all advisers 
to report withdrawal and redemption information about all the 
reporting funds they advise, and we have redesignated Questions 
49(a) through (e) as part of new Question 10.
---------------------------------------------------------------------------

    In a modification from the proposal, if the reporting fund is an 
open-end private fund under Question 10(a), the adviser will be 
required to indicate (i) how often withdrawals or redemptions are 
permitted by selecting from a list of categories pursuant to Question 
10(c) \130\ and (ii) what percentage of the reporting fund's net asset 
value may be, or is, subject to a suspension of, or material 
restrictions on, investor withdrawals/redemptions by an adviser or fund 
governing body pursuant to Question 10(d).\131\ The adviser will be 
required to report this information regardless of whether there are 
notice requirements, gates, lock-ups, or other restrictions on 
withdrawals or redemptions.\132\ These amendments will allow the 
Commissions and FSOC to identify more effectively the reporting funds 
that may be affected by investor withdrawals during certain market 
events and/or are vulnerable to failure as a result of investor 
redemptions. This information will also provide insight into other data 
that all reporting funds report. For example, we understand that 
closed-end private equity funds may have certain patterns of 
subscriptions and withdrawals, despite not offering redemption rights 
in the ordinary course, and also may report performance to investors 
and prospective investors as an internal rate of return as opposed to 
as a measure of the changes in the fund's portfolio market value.
---------------------------------------------------------------------------

    \130\ See Question 10(c). The categories are: (1) on any 
business day, (2) at intervals of at least two business days and up 
to a month, (3) at intervals longer than monthly up to quarterly, 
(4) at intervals longer than quarterly up to annually, and (5) at 
intervals of more than one year.
    \131\ We are redesignating current Questions 49(a) through (e) 
as new Question 10. Currently, all advisers to qualifying hedge 
funds that provided investors with withdrawal/redemption rights in 
the ordinary course are required to respond to Questions 52(a) 
through (e) in section 2(b). We are moving proposed Questions 52(a) 
through (e) to section 1(b) and redesignating it as part of new 
Question 10, so that all advisers to open-end private funds, rather 
than only advisers to qualifying hedge funds that provide investors 
with withdrawal/redemption rights in the ordinary course, will need 
to respond to this question.
    \132\ For example, if the reporting fund allows quarterly 
redemptions that are subject to a gate, then the adviser would 
select ``at intervals longer than monthly up to quarterly.''
---------------------------------------------------------------------------

    One commenter stated that expanding the classes of private funds 
that are required to disclose withdrawal and redemption rights would 
allow FSOC to better identify systemic risks, particularly resulting 
from market events.\133\ Another commenter opposed the proposed 
requirement for all advisers to report on withdrawal and redemption 
rights, asserting that the data would be of limited benefit for 
systemic risk monitoring due to the inclusion of data from smaller 
funds, as well as that the types of withdrawal and redemption 
restrictions referenced in proposed Question 10(b) (which has been 
redesignated as Question 10(c)) do not reflect the practices of many 
hedge funds.\134\ A private fund of any size that provides for 
withdrawal or redemption rights may be affected by increased investor 
withdrawals during certain market events and/or vulnerable to failure 
as a result of investor redemptions. This reporting will allow the 
Commissions and FSOC to assess withdrawal and redemption patterns to 
identify potential signals of stress at a particular fund or across 
many funds, or related to a particular investment strategy or 
strategies, which is relevant for assessing broader systemic risk. 
Information on withdrawal and redemption rights from all private funds, 
including smaller private funds or funds that are not included in the 
definition of a ``hedge fund,'' will improve FSOC's ability to monitor 
potential systemic risk and support the Commissions' investor 
protection efforts.
---------------------------------------------------------------------------

    \133\ See Fact Coalition Comment Letter.
    \134\ See Schulte Comment Letter.
---------------------------------------------------------------------------

    Some commenters stated that the proposed Question 10(b) (which has 
been redesignated as Question 10(c)) does not address how to report a 
fund with multiple types of redemption rights.\135\ Some commenters 
recommended permitting an adviser to select multiple options for 
withdrawal and redemption rights in Question 10.\136\ However, it would 
not support or enhance our data analysis efforts to modify Question 
10(c) to allow for multiple selections, given that other questions on 
Form PF require reporting of a fund's withdrawal and redemption 
activity.\137\ Instead, we are modifying Question 10(c) to ask for the 
interval on which withdrawals or redemptions are ``most commonly'' 
permitted (i.e., with respect to most investors). We also encourage an 
adviser to report any additional details on a fund's withdrawal or 
redemption schedule in response to Question 4, as appropriate.
---------------------------------------------------------------------------

    \135\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter; 
USCC Comment Letter.
    \136\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
    \137\ See, e.g., Question 14.
---------------------------------------------------------------------------

    Trading vehicles. We are adopting, with modifications from the 
proposal as specified below, amendments to require advisers to provide 
identifying information for any trading vehicle in

[[Page 17998]]

which the reporting fund holds assets, incurs leverage, or conducts 
trading or other activities.\138\ Advisers will be required to disclose 
the trading vehicle's legal name; LEI, if it has one; and any other 
identifying information about the trading vehicle, such as the RSSD ID, 
if it has any. In a change from the proposal, an adviser will also be 
required to specify if the reporting fund holds assets through a 
trading vehicle, incurs leverage through a trading vehicle, or conducts 
trading or other activities through a trading vehicle.\139\ As 
discussed above, the final amendments will include specific questions 
to target specified information related to a reporting fund's use of 
trading vehicles, leveraging information used to answer Questions 9(a) 
through (c), as opposed to requiring a full separate reporting on Form 
PF for trading vehicles.\140\ These questions are intended to identify 
what conduct requires the vehicle to be reported as a trading vehicle 
for purposes of Form PF and will help improve our understanding of a 
reporting fund's trading vehicle use. This amendment will help the 
Commissions and FSOC understand the reporting fund's activities, 
including how it interacts with the market if the fund trades through a 
trading vehicle, as well as its related counterparty exposures. The 
identifying information will also allow comparisons of Form PF data 
with data from other sources that use such information to identify 
entities. Enhancing the ability to compare Form PF data in this way, 
including with respect to the use of trading vehicles, will provide a 
more comprehensive view of the market that enhances systemic risk 
assessment and our investor protection efforts.
---------------------------------------------------------------------------

    \138\ See Question 9.
    \139\ See Questions 9(d) through (f).
    \140\ See supra section II.A.2 of this Release for further 
discussion.
---------------------------------------------------------------------------

    As discussed more fully above in section II.A.2 of this Release, we 
received comments regarding proposed Instruction 7 regarding the 
proposed disaggregated reporting of trading vehicles. One commenter 
recommended that a threshold question of whether the reporting fund 
uses a trading vehicle should be added to proposed Question 9.\141\ 
Such an instruction is not necessary because it is generally understood 
that an adviser may leave blank any inapplicable question.
---------------------------------------------------------------------------

    \141\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------

    Gross asset value and net asset value. We are adopting, with 
changes from the proposal, several amendments to the way advisers 
report gross asset value and net asset value. We are adopting 
amendments to require large hedge fund advisers and large liquidity 
fund advisers to report net asset value and gross asset value (or, if 
such values are not calculated monthly, the reporting fund aggregate 
calculated value and the gross reporting fund aggregate calculated 
value, respectively) as of the end of each month of the reporting 
period in their quarterly filings, rather than only reporting the 
information as of the end of the reporting period, as Form PF currently 
requires.\142\ This amendment is designed to facilitate analysis of 
other monthly Form PF data, including certain fund performance and risk 
metrics.\143\
---------------------------------------------------------------------------

    \142\ See Questions 11 and 12. We also are adopting amendments 
to the instructions in Question 11 to correspond with the 
instructions that no longer allow advisers to aggregate master-
feeder arrangements, as discussed above. In a modification from the 
proposal, we are adding an instruction to specify that for feeder 
funds responding to Questions 11 and 12, the gross asset value or 
gross reporting fund aggregate calculated value and net asset value 
or reporting fund aggregate calculated value calculations should be 
inclusive of its equity holdings in the master fund, along with its 
other holdings, to more accurately represent the value of the feeder 
fund's holdings.
    \143\ See, e.g., Question 23 (requiring all private fund 
advisers to report monthly performance data, to the extent such 
results are calculated for the reporting fund).
---------------------------------------------------------------------------

    Some commenters expressed concerns that calculating net asset value 
(or gross asset value) on a monthly basis would be overly 
burdensome.\144\ Another commenter asserted that the net asset value or 
gross asset value of a fund or a fund's investments may not be 
available on a monthly basis in the case of investments made into other 
funds or entities that are not advised by the filer or its related 
persons, in which case the timing of the reporting may not match a 
monthly reporting obligation.\145\ One commenter recommended requiring 
reporting on net asset value and gross asset value on a quarterly, 
rather than monthly, basis to lessen the burden on advisers.\146\
---------------------------------------------------------------------------

    \144\ See, e.g., MFA Comment Letter II.
    \145\ See AIMA/ACC Comment Letter.
    \146\ See MFA Comment Letter II.
---------------------------------------------------------------------------

    Monthly asset value data is important to allow analysis of other 
monthly basis data collected on Form PF for systemic risk monitoring 
and to support our investor protection efforts. However, after 
considering comments, and in a change from the proposal, an adviser may 
report in response to Questions 11 and 12 a fund's ``gross reporting 
fund aggregate calculated value'' (``GRFACV'') or ``reporting fund 
aggregate calculated value'' (``RFACV''), rather than gross asset value 
or net asset value, respectively and as applicable, if its net asset 
value and gross asset value are not calculated on a monthly basis.\147\ 
Permitting an adviser to report GRFACV or RFACV will reduce the need 
for advisers to report the net asset value or gross asset value on a 
monthly basis, as proposed. As discussed more fully below, in 
connection with proposed amendments to fund performance reporting, we 
proposed adding a requirement for certain advisers to report additional 
performance information, including RFACV. We are adding the option for 
advisers to report RFACV for Question 12 and GRFACV for Question 11 
because use of RFACV and GRFACV will reduce burdens on advisers while 
allowing us to continue to receive useful monthly valuation data to 
allow for effective systemic risk monitoring and investor protection 
efforts.\148\ RFACV and GRFACV may be calculated using the adviser's 
own methodologies or those of its service providers, provided that the 
methodologies used to calculate RFACV and GRFACV are consistent with 
information reported internally.\149\ Advisers will be required to 
indicate whether the reported data represents RFACV or GRFACV, rather 
than a net asset value or gross asset value, as applicable, to maintain 
data comparability. Requiring monthly data will help facilitate 
analysis of the other monthly data reported on Form PF, such as fund 
performance, and help identify trends for systemic risk analysis and 
investor protection efforts.
---------------------------------------------------------------------------

    \147\ The amendments to Form PF adopted in the May 2023 SEC Form 
PF Amending Release, supra footnote 4, adopted a definition for 
``reporting fund aggregate calculated value.'' RFACV is defined as 
every position in the reporting fund's portfolio, including cash and 
cash equivalents, short positions, and any fund-level borrowing, 
with the most recent price or value applied to the position for 
purposes of managing the investment portfolio. See Form PF Glossary 
of Terms (definition of ``reporting fund aggregate calculated 
value''). Because we are now, after considering comments, adding the 
new GRFACV term, we are also modifying the definition of RFACV to 
clarify that it is a signed (i.e., positive or negative) value where 
all positions are summed. GRFACV, which is used solely in Question 
11 is calculated in the same manner as RFACV, except that instead of 
summing each position's signed value, GRFACV converts each 
position's value to an absolute value prior to summing these 
absolute values.
    \148\ This change is also consistent with the recent amendments 
adopted by the SEC which require a large hedge fund adviser to 
monitor and in certain instances report, the fund's RFACV in 
compliance with its current reporting obligation. See May 2023 SEC 
Form PF Amending Release, supra footnote 4.
    \149\ See Form PF Glossary of Terms. Advisers will continue to 
be required to report gross asset value and net asset value as of 
the end of the reporting period. See current Questions 8 and 9, 
which have been redesignated as Questions 11(a) and 12(a).
---------------------------------------------------------------------------

    We also are adopting, as proposed, amendments to add new Question 
13, which requires advisers to separately

[[Page 17999]]

report the value of unfunded commitments included in the net and gross 
asset values reported in Questions 12 and 11.\150\ Advisers that 
provide an RFACV or GRFACV in response to Questions 12 and 11 will 
report the value of unfunded commitments that are included in the RFACV 
or GFRACV figures. Current Questions 8 and 9 (which have been replaced 
by Questions 11 and 12) require valuations based on the instruction in 
Form ADV for calculating regulatory assets under management, which 
requires advisers to include the amount of any unfunded 
commitments.\151\ This approach reflects that, in the early years of a 
private fund's life, its adviser typically earns fees based on the 
total amount of capital commitments, which we presume reflects 
compensation for efforts expended on behalf of the fund in preparation 
for the investments.\152\ The asset value calculations in Questions 11 
and 12 should include unfunded commitments, so that Form PF data is 
comparable to Form ADV data. However, there are circumstances where 
understanding the amount represented by unfunded commitments will 
enhance our understanding of changes to a reporting fund's net and 
gross asset value over time, inform us of trends, and improve data 
comparability over the life of the fund. For example, knowing the value 
of uncalled commitments will help the Commissions and FSOC more 
accurately identify the leverage of a fund with uncalled commitments. 
We did not receive specific comment on the proposed addition of 
Question 13. We continue to believe that receiving this information on 
uncalled commitments will improve data accuracy and comparability, 
which is important for effective systemic risk assessment and investor 
protection efforts.
---------------------------------------------------------------------------

    \150\ We are adopting amendments to the definition of ``unfunded 
commitments'' as committed capital that has not yet been contributed 
to the reporting fund by investors. Currently, the definition refers 
only to private equity funds, and we are adopting amendments to 
amend the definition to refer to all reporting funds. Form PF 
defines ``committed capital'' as any commitment pursuant to which a 
person is obligated to acquire an interest in, or make capital 
contributions to, the private fund. See Form PF Glossary of Terms.
    \151\ Form PF requires advisers to calculate gross asset value 
and net asset value using regulatory assets under management, a 
regulatory metric from Form ADV. See ``gross asset value'' and ``net 
asset value'' as defined in Form PF Glossary of Terms; Form ADV: 
Instructions for Part 1A, Instruction 5.b. An adviser must calculate 
its regulatory assets under management on a gross basis, that is, 
without deduction of any outstanding indebtedness or other accrued 
but unpaid liabilities. In addition, an adviser must include the 
amount of any uncalled capital commitments made to a private fund 
managed by the adviser.
    \152\ Rules Implementing Amendments to the Investment Advisers 
Act of 1940, Advisers Act Release No. 3221 (June 22, 2011) [76 FR 
42950, 42956 (July 19, 2011)], at text accompanying n.90.
---------------------------------------------------------------------------

    Inflows and outflows. We are adopting, as proposed, an amendment to 
add a question requiring advisers to report information concerning the 
reporting fund's activity, including contributions to the reporting 
fund, as well as withdrawals and redemptions, which includes all 
withdrawals, redemptions, or other distributions of any kind to 
investors.\153\ Amended Form PF specifies that, for purposes of the 
question, advisers must include all new contributions from investors 
and exclude contributions of committed capital that they have already 
included in gross asset value calculated in accordance with Form ADV 
instructions.\154\ Large hedge fund advisers and large liquidity fund 
advisers are required to provide this information for each month of the 
reporting period. This requirement will facilitate analysis of other 
monthly Form PF data, including certain fund performance and risk 
metrics, improve data accuracy, and allow the Commissions and FSOC to 
analyze data more efficiently. Inflows and outflows inform the 
Commissions and FSOC of the relationship between flows and performance, 
changes to net and gross asset value, as well as trends in the private 
fund industry. Accordingly, this question will provide a more accurate 
baseline understanding of inflows and outflows, so the Commissions and 
FSOC can, for example, more accurately assess how much the private fund 
industry has grown from flows versus performance. Inflows and outflows 
also can indicate funding fragility, which can have systemic risk 
implications. Therefore, this amendment will provide more accurate data 
of inflows and outflows for systemic risk assessment and investor 
protection efforts, including identifying activity that may not match 
investor disclosures.
---------------------------------------------------------------------------

    \153\ See Question 14.
    \154\ Form PF, as amended, cites to Form ADV, Part 1A 
Instruction 6.e.(3).
---------------------------------------------------------------------------

    One commenter stated that recent global events have demonstrated 
the importance of FSOC's assessment of the potential systemic risks 
created by inflows into private investment markets.\155\ Another 
commenter stated that reporting inflows and outflows on a monthly basis 
would create additional burdens with limited benefits for systemic risk 
monitoring purposes and recommended an annual reporting 
requirement.\156\ However, based on our experience, receiving fund 
activity data on a monthly basis for large hedge fund advisers is 
important for systemic risk analysis and investor protection efforts. 
Currently, large hedge fund advisers file quarterly but only report 
changes in inflows or outflows on an annual basis, which causes this 
data to be stale and less effective than more frequently reported data 
for monitoring systemic risk. We also currently cannot differentiate 
between changes in value resulting from performance and changes in 
value resulting from inflows and outflows. Inflow and outflow 
information on a monthly basis will allow us to better understand the 
meaning of interim changes in investment inflows and outflows that may 
be relevant to systemic risk assessment. We also understand that 
advisers generally maintain this information on a monthly basis for 
internal recordkeeping purposes.
---------------------------------------------------------------------------

    \155\ Fact Coalition Comment Letter.
    \156\ Schulte Comment Letter.
---------------------------------------------------------------------------

    Base currency. We are adopting, as proposed, amendments to require 
all advisers to identify the base currency of all reporting funds, 
rather than only requiring large hedge fund advisers to identify this 
information for qualifying hedge funds.\157\ As discussed more fully in 
section II.D below, Instruction 15 will continue to require all 
advisers to convert monetary values reported on the form to U.S. 
dollars for any reporting fund that uses a base currency other than 
U.S. dollars.\158\ The Commissions and FSOC are able to currently 
identify whether monetary value information has been converted from 
another base currency and whether there may have been inconsistencies 
in the converted information only with respect to qualifying hedge 
funds reported by large hedge fund advisers in response to current 
Question 31. Therefore, this change will allow the Commissions and FSOC 
to interpret more accurately responses to questions regarding foreign 
exchange exposures and the effect of changes in currency rates on all 
reporting fund portfolios, which will aid systemic risk assessment and 
investor protection efforts across all reporting fund portfolios.
---------------------------------------------------------------------------

    \157\ To implement this, current Question 31 has been 
redesignated as Question 17 and has been moved from existing section 
2b, which required only large hedge fund advisers to report 
information about qualifying hedge funds, to section 1b, which 
requires all advisers to report information about all the reporting 
funds they advise. See Question 17.
    \158\ See Instruction 15. We are revising, as proposed, 
Instruction 15 to provide additional instructions concerning 
currency conversions. See section II.D (Amendments to Enhance Data 
Quality) of this Release.
---------------------------------------------------------------------------

    Although we received comments regarding the proposed amendment to 
require advisers to report using U.S.

[[Page 18000]]

dollars for any private fund that has a base currency other than U.S. 
dollars,\159\ we did not receive comments to the proposed amendment to 
require all advisers to report the reporting fund's base currency. We 
continue to believe our adopted approach will allow for more accurate 
responses to other questions on Form PF regarding currency exposures 
and improve data comparability to aid systemic risk assessment and our 
investor protection efforts.\160\
---------------------------------------------------------------------------

    \159\ See infra section II.D of this Release.
    \160\ As discussed more fully below in section II.C.2.a, we are 
also adopting amendments to require currency exposure reporting for 
qualifying hedge fund advisers.
---------------------------------------------------------------------------

    Borrowings and types of creditors. We are adopting, largely as 
proposed, amendments to revise how advisers report the reporting fund's 
``borrowings.'' First, we are revising the term ``borrowings'' to (1) 
specify that it includes ``synthetic long positions,'' which is defined 
in the Glossary of Terms, and (2) provide a non-exhaustive list of 
types of borrowings.\161\ This reporting approach is consistent with 
SEC staff Form PF Frequently Asked Questions.\162\ This amendment is 
designed to improve data quality, based on our experience with the 
form.
---------------------------------------------------------------------------

    \161\ ``Borrowings'' include, but are not limited to (1) cash 
and cash equivalents received with an obligation to repay; (2) 
securities lending transactions (count cash and cash equivalents and 
securities received by the reporting fund in the transaction, 
including securities borrowed by the reporting fund for short 
sales); (3) repo or reverse repo (count cash and cash equivalents 
and securities received by the reporting fund); (4) negative mark-
to-market of derivative transactions from the reporting fund's point 
of view; and (5) the gross notional value of ``synthetic long 
positions.'' The term ``synthetic long position'' is defined in the 
Form PF Glossary of Terms. We are adopting, with modifications from 
the proposal, the definition of ``synthetic long position'' based on 
our understanding of the instruments and to help ensure data quality 
to aid comparability.
    \162\ See SEC staff Form PF Frequently Asked Questions, 
available at https://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml (``Form PF Frequently Asked Questions''). See Form PF 
Frequently Asked Question 12.1 (which provides a non-exhaustive list 
of types of borrowings).
---------------------------------------------------------------------------

    Some commenters stated that it is not clear how an adviser should 
report cross-collateralized agreements.\163\ A modification to the 
instructions to address this comment is not warranted. The instructions 
to Questions 26 and 41,\164\ as applicable, specify how margin for 
these arrangements should be reported. For example, the instructions to 
these questions indicate that the adviser is to classify borrowing and 
collateral received and lending and posted collateral according to type 
and the governing legal agreement, such as a prime brokerage or other 
brokerage agreement, for cash margin and securities lending and 
borrowing. Additionally, the instructions for each of these questions 
allow respondents to indicate whether cross margining is in effect and 
indicate how to treat the collateral in such cases. One commenter 
stated that the Commissions should establish a threshold for when a 
position is considered ``deep-in-the-money'' and recommended including 
a definition for ``deep-in-the-money'' positions in the definitions of 
``synthetic long position'' and ``synthetic short position.'' \165\ In 
consideration of this comment and in order to improve data quality, we 
are revising the definitions of the ``synthetic long position'' and the 
``synthetic short position'' to more clearly specify, as an example, 
that a position with a delta of 98% or higher is considered to be 
``deep-in-the-money.'' \166\ Based on our experience, we believe that a 
delta of 98% or higher is typically the most appropriate threshold for 
both long and short expiry option exposures for reporting purposes and 
will furthermore be generally consistent with advisers' expectations 
and accommodate their internal practices, where many advisers already 
use a lower threshold. Although other thresholds could potentially be 
used, a delta of 98% or higher will generally provide us with more 
reliable and accurate information for systemic risk assessment 
purposes. If set lower than this level, the threshold could trigger 
inappropriately due to the impact of the delta's rate of change (i.e., 
its gamma) and capture options that should not constitute synthetic 
short or long positions, such as options with little time left to 
expiry that may be close to their strike level. If set higher (e.g., to 
99%), the threshold could miss longer-dated options that should 
constitute synthetic short positions, but where the lengthy time to 
expiry allows the possibility that the options will go unexercised, 
such that the threshold will not be met, and the options will 
inappropriately be not included.
---------------------------------------------------------------------------

    \163\ See AIMA/ACC Comment Letter; USCC Comment Letter.
    \164\ For hedge funds, other than qualifying hedge funds, 
advisers complete Question 26. For qualifying hedge funds, advisers 
complete Question 41.
    \165\ MFA Comment Letter II.
    \166\ See Form PF Glossary of Terms (definitions of ``synthetic 
long position'' and ``synthetic short position'').
---------------------------------------------------------------------------

    Second, we are adopting amendments to Question 18, which requires 
advisers to report the value of the reporting fund's borrowings and the 
types of creditors, to require advisers to indicate whether a creditor 
is based in the United States and whether it is a ``U.S. depository 
institution,'' rather than a ``U.S. financial institution'' as is 
currently required.\167\ This amendment will make the categories more 
consistent with the categories that the FRB uses in its reports and 
analysis, which will enhance systemic risk assessment. Advisers are not 
required to distinguish between non-U.S. creditors that are depository 
institutions and those that are not. We understand that it is difficult 
for advisers to distinguish non-U.S. creditors by type, which can 
result in inconsistent data that is less valuable for analysis. We did 
not receive specific comment on this amendment.
---------------------------------------------------------------------------

    \167\ See Question 18. Form PF defines ``U.S. depository 
institution'' as any U.S. domiciled depository institution, 
including any of the following: (1) a depository institution 
chartered in the United States, including any Federally-chartered or 
State-chartered bank, savings bank, cooperative bank, savings and 
loan association, or an international banking facility established 
by a depositary institution chartered in the United States; (2) 
banking offices established in the United States by a financial 
institution that is not organized or chartered in the United States, 
including a branch or agency located in the United States and 
engaged in banking not incorporated separately from its financial 
institution parent, United States subsidiaries established to engage 
in international business, and international banking facilities; (3) 
any bank chartered in any of the following United States affiliated 
areas: U.S. territories of American Samoa, Guam, and the U.S. Virgin 
Islands; the Commonwealth of the Northern Mariana Islands; the 
Commonwealth of Puerto Rico; the Republic of the Marshall Islands; 
the Federated States of Micronesia; and the Trust Territory of the 
Pacific Islands (Palau); or (4) a credit union (including a natural 
person or corporate credit union). Form PF defines ``U.S. financial 
institution'' as any of the following: (1) a financial institution 
chartered in the United States (whether Federally-chartered or 
State-chartered); (2) a financial institution that is separately 
incorporated or otherwise organized in the United States but has a 
parent that is a financial institution chartered outside the United 
States; or (3) a branch or agency that resides outside the United 
States but has a parent that is a financial institution chartered in 
the United States. See Form PF Glossary of Terms.
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    Fair value hierarchy. We are adopting, largely as proposed, a 
number of amendments to revise how advisers report fair value hierarchy 
in Question 20, to improve data quality and better understand the 
reporting fund's complexity and valuation challenges.\168\
---------------------------------------------------------------------------

    \168\ We have redesignated current Question 14 to Question 20.
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    First, we are adopting amendments that require advisers to indicate 
the date on which the categorization was performed. This amendment is 
designed to show how old the data is. Some advisers report current fair 
value hierarchy, while others report a prior year's fair value 
hierarchy if the current data is not yet available.\169\ This can

[[Page 18001]]

cause confusion when analyzing the data, because the fair value 
hierarchy data concerns a different time period than the other data 
advisers report on Form PF. Therefore, we believe that adding a 
categorization date will help prevent the data from being incorrectly 
categorized as applying to the wrong time period, and in turn, will 
allow the Commissions and FSOC to correlate data to other Form PF data 
and market events more accurately. We did not receive specific comment 
on this amendment.
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    \169\ Advisers are not required to update information that they 
believe in good faith properly responded to Form PF on the date of 
filing even if that information is subsequently revised for purposes 
of their recordkeeping, risk management, or investor reporting (such 
as estimates that are refined after completion of a subsequent 
audit). See Instruction 16.
---------------------------------------------------------------------------

    Second, we are adopting amendments to direct advisers to report the 
absolute value of all liabilities. Currently, advisers report 
liabilities inconsistently, with some reporting absolute values and 
others reporting negative values. This inconsistency causes errors when 
the Commissions and FSOC aggregate this data, and the amended 
instruction will help reduce aggregation errors. We did not receive 
specific comment on this amendment.
    Third, we are adopting amendments to direct advisers to provide an 
explanation in Question 4 if they report assets as a negative value. We 
have found that some advisers have reported negative values for assets 
in error.\170\ Therefore, this instruction is designed to reduce 
inadvertent errors. We did not receive specific comment on this 
amendment.
---------------------------------------------------------------------------

    \170\ We recognize that there may be cases when advisers 
correctly report negative values, such as when subtracting fund of 
fund investments.
---------------------------------------------------------------------------

    Fourth, we are adopting amendments to require advisers to 
separately report cash and cash equivalents. Currently, Form PF does 
not explain where advisers must report cash and cash equivalents in 
current Question 14. SEC staff have recommended that advisers generally 
should report cash in the cost based column and cash equivalents in the 
applicable column in the fair value hierarchy or the cost based column, 
depending on the nature of the cash equivalents, but now we are adding 
a separate column for cash and cash equivalents.\171\ The amended 
categorization is designed to differentiate reported holdings of cash 
and cash equivalents from harder-to-value assets that may be valued at 
cost, and in turn, improve data quality and comparability. We did not 
receive specific comment on this amendment.
---------------------------------------------------------------------------

    \171\ See Form PF Frequently Asked Question 14.3, Form PF 
Frequently Asked Questions, supra footnote 162.
---------------------------------------------------------------------------

    Fifth, we are adopting amendments to the definition of ``cash and 
cash equivalents.'' The current definition of ``cash and cash 
equivalents'' includes ``government securities.'' \172\ When reporting 
cash and cash equivalents, some advisers may include government 
securities with longer maturities, while others do not, which results 
in inconsistent reporting and may obscure our and FSOC's understanding 
of fund exposures. Therefore, to improve data quality, we are removing 
government securities from the definition of ``cash and cash 
equivalents'' and presenting government securities as its own line item 
in the Form PF Glossary of Terms.\173\ Some commenters opposed the 
proposed removal of government securities from the definition of ``cash 
and cash equivalents,'' stating that the revised definition is 
inconsistent with market practice and internal fund practices, which 
generally treat government securities as cash equivalents.\174\ One 
commenter recommended that the definition of ``cash and cash 
equivalents'' should include U.S. treasury securities with maturity of 
90 days or less to the extent that the adviser treats these as cash 
equivalents.\175\ We continue to believe that the removal of all 
government securities from the definition of ``cash and cash 
equivalents'' and requiring reporting of government securities holdings 
separately will improve data quality and our and FSOC's understanding 
of fund holdings. The amended definition is intended to provide more 
granular detail on a fund's exposure and is not intended to change any 
commercial understanding or accounting treatment of cash equivalents or 
result in any fund investment changes. It is appropriate to require 
advisers to list all government securities, including U.S. treasury 
securities with maturity of 90 days or less, under a separate category 
because they represent a different asset type and market that are 
relevant for purposes of assessing systemic risk.
---------------------------------------------------------------------------

    \172\ Form PF defines ``government securities'' as (1) U.S. 
Treasury securities, (2) agency securities, and (3) any certificate 
of deposit for any of the foregoing. See Form PF Glossary of Terms.
    \173\ We are adopting corresponding amendments to the definition 
of ``unencumbered cash'' to reflect that ``government securities'' 
are a distinct term from ``cash and cash equivalents.'' This 
amendment does not change the meaning of the term ``unencumbered 
cash.'' See Form PF Glossary of Terms.
    \174\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
    \175\ MFA Comment Letter II.
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    Further, we are adopting, as proposed, an amendment to the term 
``cash and cash equivalents'' that directs advisers to exclude digital 
assets when reporting cash and cash equivalents.\176\ One commenter 
recommended that the Commissions clarify how to report an asset that 
may be reasonably included in multiple categories and stated that, 
digital assets, as proposed to be defined, may overlap with multiple 
reporting categories.\177\ This amendment to the ``cash and cash 
equivalent'' definition will facilitate appropriate classifications.
---------------------------------------------------------------------------

    \176\ As discussed further in section II.B.3 of this Release, in 
a modification from the proposal, we are not adopting the proposed 
definition of ``digital asset.''
    \177\ MFA Comment Letter II.
---------------------------------------------------------------------------

    We are adopting amendments to add instructions directing advisers 
about how to report data if their financial statement's audit is not 
yet completed when Form PF is due. The instructions state that advisers 
should use the estimated values for the fiscal year and explain that 
the information is an estimate in Question 4. The instructions also 
provide that the adviser may, but is not required to, amend Form PF 
when the audited financial statements are complete.\178\ The 
instructions are consistent with responses to Form PF Frequently Asked 
Questions and are designed to provide the Commissions and FSOC with 
more recent information regarding the reporting fund than may be 
possible if the reporting fund relied solely on audited financial 
statement information (i.e., the reporting fund's previous fiscal 
year's audited financial statements).\179\ Given that advisers file 
Form PF sometimes months after their quarter and year ends, depending 
on their size and the type of funds they advise, the amended 
instruction balances reporting burdens with the need for more timely 
information for assessing potential systemic risk and investor 
protection concerns. We did not receive specific comment on this 
amendment.
---------------------------------------------------------------------------

    \178\ Instruction 16 continues to provide that an adviser is not 
required to update information that it believes in good faith 
properly responds to Form PF on the date of filing, even if that 
information is subsequently revised.
    \179\ See Form PF Frequently Asked Question A.11, Form PF 
Frequently Asked Questions, supra footnote 162.
---------------------------------------------------------------------------

    Beneficial Ownership of the Reporting Fund. Form PF currently 
requires advisers to specify the approximate percentage of the 
reporting fund's equity that is beneficially owned by different groups 
of investors. We are redesignating current Question 16 as Question 22 
and amending the question, as proposed, to require advisers to provide 
more granular information regarding the following groups of beneficial 
owners.

[[Page 18002]]

    <bullet> Advisers will be required to indicate whether beneficial 
owners that are broker-dealers, insurance companies, non-profits, 
pension plans, banking or thrift institutions are U.S. persons or non-
U.S. persons.\180\ This amendment will allow the Commissions and FSOC 
to conduct more targeted analysis about risks presented in the United 
States separate from risks presented abroad. With regard to pension 
plans, in particular, it is currently unclear whether advisers must 
report assets in non-U.S. pension plans as governmental pension plans 
or foreign official institutions. Therefore, this amendment also is 
designed to improve data quality, based on our experience with the 
form.
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    \180\ We understand that, in some cases, an adviser may not be 
able to determine what type of non-U.S. entity the investor is. 
Current Question 16 provides a category that addressed that scenario 
in certain circumstances, and we are maintaining this approach. If 
investors that are not United States persons and about which certain 
beneficial ownership information is not known and cannot reasonably 
be obtained because the beneficial interest is held through a chain 
involving one or more third-party intermediaries, advisers currently 
report this in current Question 16(m), which we redesignated as 
Question 22(s).
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    <bullet> Advisers will be required to indicate whether beneficial 
owners that are private funds are either internal private funds (i.e., 
managed by the adviser or its related persons) or external private 
funds. This amendment is designed to help the Commissions and FSOC 
understand the interconnectedness of private funds to each other, which 
will aid systemic risk assessment and investor protection efforts. 
Furthermore, this information will help the Commissions and FSOC 
understand a reporting fund's risk from investor demands for liquidity, 
because beneficial owners that are external private funds may have less 
predictable withdrawals than internal private funds.
    <bullet> We are specifying that ``state'' investors are U.S. state 
investors to improve data quality and reduce potential confusion.\181\
---------------------------------------------------------------------------

    \181\ As proposed, we are also including instructions to 
Question 22, as well as Question 21, which is current Question 15 
(concerning a certain percentage of beneficial ownership), providing 
that if the reporting fund is the master fund in a master-feeder 
arrangement, advisers must look through any disregarded feeder fund 
(i.e., a feeder fund that is not required to be separately 
reported). This amendment is designed to implement the adopted 
master-feeder reporting requirements. See section II.A.1 (Reporting 
Master-Feeder Arrangements and Parallel Fund Structures) of this 
Release.
---------------------------------------------------------------------------

    The amendments provide that if advisers report information in the 
``other'' category, they must describe in Question 4 the type of 
investor, why it would not qualify for any of the other categories, and 
any other information to explain the selection of ``other.'' This 
amendment is designed to improve data quality by providing context to 
the adviser's selection of the ``other'' category and help ensure that 
advisers do not inadvertently report information in the wrong category.
    One commenter stated that more granular reporting on beneficial 
ownership would support FSOC's analysis of potential sources of 
systemic risk.\182\ This commenter supported requiring additional 
disclosure of beneficial ownership and recommended requiring additional 
disclosures of any politically exposed persons and, for each private 
fund, the percentage of fund investors and fund equity that originated 
from certain countries. Another commenter recommended allowing advisers 
to report beneficial ownership on good faith estimates based on the 
data that they have from investors and stated that the Commissions had 
not provided a reasonable justification for requiring the proposed, 
more granular information.\183\ We understand from this commenter that 
advisers may not have information for all beneficial owners of a 
reporting fund by country and that it may be burdensome to obtain this 
information.
---------------------------------------------------------------------------

    \182\ Fact Coalition Comment Letter.
    \183\ MFA Comment Letter II.
---------------------------------------------------------------------------

    Country-level information on a fund's beneficial owners is not 
required to be reported on Form ADV. As proposed, we are thus not 
requiring reporting of this information on Form PF. We continue to 
believe that requiring reporting on percentage of the reporting fund's 
beneficial ownership that is held by U.S. and non-U.S. persons will 
improve data quality, based on our experience with the form, and will 
allow for more effective systemic risk analysis. For example, this 
information will increase the usefulness of the FRB's Financial 
Accounts, a tool that is used for evaluating trends in and risks to the 
U.S. financial system.\184\ If an adviser is unable to determine the 
required beneficial ownership data, the amendments specify that an 
adviser may provide additional explanatory information in its response 
to Question 4.
---------------------------------------------------------------------------

    \184\ See Financial Accounts of the United States, available at 
http://www.federalreserve.gov/releases/z1/.
---------------------------------------------------------------------------

    Fund Performance. We are adopting several amendments, with 
modifications, regarding fund performance reporting in current Question 
17, which we have redesignated as Question 23.\185\ We are adopting, as 
proposed, amendments to require all advisers to provide gross and net 
fund performance as reported to current and prospective investors, 
counterparties, or otherwise for specified fiscal periods using the 
table in redesignated Question 23 with added instructions specifying 
which lines to complete depending on whether the adviser is submitting 
an initial filing, annual update, or quarterly update.\186\ These 
amendments will improve data quality by specifying which fields an 
adviser should use to report fund performance for the specified filing 
period.
---------------------------------------------------------------------------

    \185\ In a separate release, the SEC adopted a new rule under 
the Advisers Act to require advisers to provide certain fund 
performance information to its private funds' investors in quarterly 
statements. See Private Fund Advisers; Documentation of Registered 
Investment Adviser Compliance Reviews, Advisers Act Release No. IA-
6383 (Aug. 23, 2023) [88 FR 63206 (Sept. 14, 2023)] (``SEC Private 
Fund Advisers Adopting Release'').
    \186\ As proposed, we also are reorganizing the table so 
monthly, quarterly, and yearly data is presented in separate 
categories, but this change will not affect reporting frequency; 
advisers will continue to report information according to the same 
intervals. We are also amending the table to refer to the end date 
of each applicable month, quarter, and year, rather than last day of 
the fiscal period, to reflect the amendments to the reporting 
period, as discussed above. See supra section II.A.3 (Reporting 
Timelines) of this Release, and Question 23(a).
---------------------------------------------------------------------------

    As discussed further below, the amendments will require an adviser 
to report its performance as a money-weighted internal rate of return 
(instead of a time-weighted return), if the reporting fund's 
performance is reported to investors, counterparties or otherwise as an 
internal rate of return since inception. This results from a 
modification from the proposal in which we added an instruction to 
proposed Question 23 to specify that the reporting fund may report 
performance as either a time-weighted return or an internal rate of 
return, but the methodology used for reporting performance should be 
consistent over time.
    In an additional modification from the proposal that is similarly 
intended to promote data quality through reporting comparability, we 
are amending the instructions to the table to specify that gross and 
net performance should be reported using the reporting fund's base 
currency. This instruction is implicit in the current form, which 
requires that performance data be provided as reported to investors or 
as calculated for other purposes, and we are amending the instruction 
to make it explicit. Accordingly, pursuant to this modification to the 
proposed instructions, for example, if a reporting fund uses Japanese 
yen as its base currency, the fund should report its performance using 
its base currency,

[[Page 18003]]

which is Japanese yen. We also are adopting, as proposed, amendments to 
require advisers to identify the currency in Question 4.\187\ This 
amendment is designed to inform the Commissions and FSOC of the 
currency the adviser used to report the reporting fund's gross and net 
performance, for more accurate and informed analysis.
---------------------------------------------------------------------------

    \187\ See Question 23(a).
---------------------------------------------------------------------------

    One commenter stated the proposed requirement does not specify 
whether net performance should be net of all fund fees and expenses or 
net of only management fees, incentive fees and allocations, which are 
referenced in the column header for net performance in Question 23(a); 
and that it is relatedly unclear whether gross performance should 
reflect the deduction of all other fund fees and expenses.\188\ This 
commenter suggested that such a result would be inconsistent with the 
treatment of gross performance in the SEC investment adviser marketing 
and the private fund adviser rules, which do not require that gross 
performance reflect the deduction of any fees or expenses. This 
commenter also stated that the Global Investment Performance Standards 
require that gross returns reflect the deduction of only transaction 
costs and that the deduction of any additional fees and expenses is 
optional. For purposes of Form PF, advisers must provide the net 
performance and gross performance information that they provide to 
investors, counterparties, or otherwise (or the most representative set 
of performance information if the adviser reports different fund 
performance results to different groups, with an explanation of its 
selection to be provided in Question 4). Consistent with the reference 
to management fees, incentive fees, and allocations in the column 
header for net performance in Question 23(a), net performance should 
always reflect the deduction of adviser compensation. In addition, Form 
PF provides confidential reporting to the Commissions, rather than 
reporting of performance information to current investors. Given these 
different purposes and audiences for the information, it is not 
necessary for us to further specify how to calculate gross performance 
or net performance for purposes of Form PF. These amendments are 
designed to allow the Commissions and FSOC to compare performance 
volatility to identify market trends for systemic risk analysis and 
investor protection efforts.
---------------------------------------------------------------------------

    \188\ Comment Letter of CFA Institute (Oct. 11, 2022) (``CFA 
Institute Comment Letter'').
---------------------------------------------------------------------------

    We are also adopting, as proposed, amendments to create an 
alternative to the gross and net performance tabular reporting. If the 
reporting fund's performance is reported to current and prospective 
investors, counterparties, or otherwise as an internal rate of return 
since inception, the adviser will be required to report its performance 
as an internal rate of return.\189\ If such information is reported to 
current and prospective investors, counterparties, or otherwise, in a 
currency other than U.S. dollars, advisers will be required to report 
the data using that currency, and identify the currency in Question 
4.\190\ This approach is designed to acknowledge that advisers 
calculate performance data differently for different types of private 
funds. For example, advisers of private equity funds may use a money-
weighted rate of return, such as an internal rate of return, to 
calculate performance data, while advisers to liquidity funds and hedge 
funds may use a time-weighted rate of return. These calculations may 
differ in the way they reflect the impact of the timing of external 
cash flows, among other things. Therefore, the adopted change will 
allow the Commissions and FSOC to improve the usefulness and quality of 
performance data to conduct more accurate analysis, including 
comparisons, and aggregations.
---------------------------------------------------------------------------

    \189\ See instructions to Question 23 and Question 23(b). 
Question 23(b) also requires that if the fund reports different 
performance results to different groups, advisers must provide the 
most representative results and explain their selection in Question 
4. The instructions to Question 23(b) specify that internal rates of 
return for periods longer than one year must be annualized, while 
internal rates of return for periods one year or less must not be 
annualized. This instruction is designed to help ensure consistent 
reporting for accurate comparisons.
    \190\ See supra in this section II.A.2 of the Release for 
further discussion of this amendment.
---------------------------------------------------------------------------

    One commenter noted that proposed Questions 23(a) (gross and net 
performance) and 23(b) (internal rate of return) may be mutually 
exclusive for some reporting funds.\191\ This commenter recommended 
allowing either Question 23(a) or Question 23(b) to be left blank, as 
appropriate. We do not believe such a specification is necessary 
because the instructions provide that an adviser should respond to 
either Question 23(a) or 23(b), as applicable, and it is generally 
understood that an adviser may leave blank any inapplicable question.
---------------------------------------------------------------------------

    \191\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------

    The instructions to Question 23 provide that an adviser may report 
the reporting fund's performance either as a time-weighted return or a 
money-weighted return, such as an internal rate of return.\192\ We are 
adopting defined terms for ``rate of return'' and ``internal rate of 
return'' in the Form PF Glossary of Terms. In a modification from the 
proposal, ``rate of return'' is generally defined as the percentage 
change in the reporting fund's net asset value (or, when a net asset 
value is not available, in the reporting fund aggregate calculated 
value) in the reporting fund's base currency from one date to another 
and adjusted for subscriptions and redemptions.\193\ Further, in a 
modification from the proposal, the rate of return for a portfolio 
position is defined as the percentage change in the position calculated 
value, adjusted for income earned and for changes in the quantity held 
resulting from activity, such as purchases, sales, or splits.\194\ As 
proposed, ``internal rate of return'' is defined as the discount rate 
that causes the net present value of all cash flows throughout the life 
of the fund to be equal to zero. One commenter supported the proposed 
``internal rate of return'' definition and recommended clarifying how 
the terms reporting fund aggregate calculated value and currency, which 
are referenced in the ``rate of return'' definition, apply to the 
``internal rate of return'' definition.\195\ ``Internal rate of 
return'' and ``rate of return'' are distinct defined terms in the Form 
PF Glossary of Terms, and reporting fund aggregate calculated value and 
currency are not referenced in and do not apply to the definition of 
``internal rate of return.'' \196\ Further, reporting fund aggregate 
calculated value is only used when a net asset

[[Page 18004]]

value is not available for calculation of a rate of return. In a 
modification from the proposal, we are adding an instruction to 
Questions 23(a) and 23(b) to specify that the reporting fund's 
performance should not be calculated using a reporting fund aggregate 
calculated value because this question is intended to report 
performance, as reported to investors. One commenter recommended 
requiring funds to consistently report the same type of returns over 
time and not switch between a rate of return calculation, which is time 
weighted, and an internal rate of return, which is money weighted.\197\ 
We agree with this commenter and believe that consistent reporting of 
returns is important for data comparability. Therefore, in a change 
from the proposal, Question 23 includes an instruction that the 
methodology used to report performance should remain consistent over 
time. One commenter stated the proposed definition does not specify 
whether to include the impact of subscription facilities \198\ in the 
internal rate of return calculation and requested that we specify 
whether returns should be reported with or without the impact of any 
subscription facilities.\199\ In a change from the proposal, we are 
requiring advisers in responding to Question 23 to indicate whether the 
reported internal rate of return includes or does not include the 
impact of subscription facilities to allow for improved data 
comparability. It is necessary for an adviser to specify whether the 
reported rate of return includes or excludes the impact of subscription 
facilities to be able to accurately compare data between reporting 
periods. For example, an adviser that reports an internal rate of 
return with the impact of fund-level subscription facilities in one 
reporting period but reported without the impact of subscription 
facilities in a prior period could report artificially increased 
performance metrics.
---------------------------------------------------------------------------

    \192\ See Question 23. The instructions provide that the 
methodology used for reporting performance (i.e., as a time-weighted 
return or money-weighted return, such as an internal rate of return) 
should be consistent over time.
    \193\ The proposed definition of ``rate of return'' was 
generally the percentage change in the reporting fund aggregate 
market value in the reporting fund's base currency from one date to 
another and adjusted for subscriptions and redemptions. The modified 
definition we are adopting includes reference to a change in the 
fund's net asset value and modifies the reference to reporting fund 
aggregate market value to use the defined term in Form PF, reporting 
fund aggregate calculated value.
    \194\ The proposed definition generally was that the rate of 
return for a portfolio position is the percentage change in the 
position market value, adjusted for income earned. One commenter 
recommended that we modify this definition stating that a position 
return cannot be calculated by considering only changes in a 
portfolio's position value adjusted for income and should also 
consider changes in quantity resulting from transactions. See CFA 
Institute Comment Letter. After considering comments, we have 
changed the reference to ``position market value'' in the adopted 
definition to refer instead to the defined term in Form PF, 
``position calculated value,'' and we have added reference to 
adjustments for changes in quantity resulting from activity such as 
purchases, sales, or splits.
    \195\ See CFA Institute Comment Letter.
    \196\ See Form PF Glossary of Terms (definitions of ``internal 
rate of return'' and ``rate of return'').
    \197\ See CFA Institute Comment Letter.
    \198\ Subscription facilities (or subscription lines) generally 
refer to credit lines that are guaranteed by committed but uncalled 
capital.
    \199\ See CFA Institute Comment Letter.
---------------------------------------------------------------------------

    We are also adopting amendments, as proposed except as indicated 
below, that require advisers to report additional performance-related 
information if the adviser calculates a market value on a daily basis 
for any position in the reporting fund's portfolio. In such a case, the 
adviser will be required to report several items. First, it would 
report the ``reporting fund aggregate calculated value'' at the end of 
the reporting period.\200\ Advisers that file a quarterly update also 
will report the reporting fund aggregate calculated value as of the end 
of the first and second month of the reporting period.\201\ Second, the 
adviser will report the reporting fund's volatility of the natural log 
of the daily ``rate of return'' for each month of the reporting period, 
following a prescribed methodology.\202\ Advisers will be required to 
report whether the reporting fund uses a different methodology than is 
prescribed in Form PF to report to current and prospective investors, 
counterparties, or otherwise, and if so, describe it in Question 
4.\203\ One commenter recommended requiring volatility measurements 
over longer periods, such as quarterly or annually, stating that 
requiring daily measurements would result in a smaller population size 
and less meaningful information.\204\ We believe receiving reporting on 
the volatility of daily returns on a monthly basis is important because 
significant volatility swings that occur over a short timeframe may not 
be discernible from quarterly or annual data but can pose systemic 
risk. Further, receiving higher frequency volatility data will give 
more context to a fund's reported monthly returns and will allow us to 
assess risk-adjusted returns. We understand that it is common practice 
for advisers to annualize volatility calculations and compare across 
different time intervals.\205\
---------------------------------------------------------------------------

    \200\ The amendments to Form PF adopted in the May 2023 SEC Form 
PF Amending Release, supra footnote 4, added a definition for 
``reporting fund aggregate calculated value.'' See Form PF Glossary 
of Terms. See also Question 23(c). We have modified the reference in 
the proposed Question to ``reporting fund aggregate market value'' 
to the defined term in Form PF, the reporting fund aggregate 
calculated value.
    \201\ See Question 23(c)(i).
    \202\ See discussion of definitions of ``rate of return'' and 
``position market value,'' supra footnotes 193 and 194. The 
prescribed methodology is the standard deviation of the natural log 
of one plus each of the daily rates of return in the month, 
annualized by the square root of 252 trading days. When calculating 
the natural log of a daily rate of return, the rate of return, which 
is expressed as a percent, must first be converted to a decimal 
value and then one must be added to the decimal value. See Form PF 
Glossary of Terms and Question 23(c)(ii). Although the reference to 
``of one plus each'' was in the proposing release, it was 
inadvertently left out of the proposed form. We are revising the 
form to include this language. To reduce potential confusion, we are 
also specifying in the instruction to this question that, when 
calculating the natural log of a daily rate-of-return, the rate of 
return, which is expressed as a percent, must first be converted to 
a decimal value and then one must be added to the decimal value.
    \203\ See Question 23(c)(iii).
    \204\ CFA Institute Comment Letter.
    \205\ We have also modified the table in Question 23(c)(ii) to 
refer to ``annualized'' volatility of returns, rather than monthly, 
as proposed, to correspond with the instructions which require the 
adviser to report the volatility data for each month of the 
reporting period, on an annualized basis.
---------------------------------------------------------------------------

    Third, the adviser must report whether the reporting fund had one 
or more days with a negative daily rate of return during the reporting 
period. If so, advisers will be required to report (1) the most recent 
peak to trough drawdown, and indicate whether the drawdown was 
continuing on the data reporting date, (2) the largest peak to trough 
drawdown, (3) the largest single day drawdown, and (4) the number of 
days with a negative daily rate of return in the reporting period.\206\ 
These measures are designed to help us and FSOC understand risk, 
particularly in reporting funds with unique return patterns that are 
poorly measured using volatility alone. We understand that advisers use 
drawdown metrics, therefore, this question also is designed to be more 
reflective of industry practice, and in turn improve data quality.
---------------------------------------------------------------------------

    \206\ See Question 23(c)(iv).
---------------------------------------------------------------------------

    Advisers are required to report these figures as an amount in the 
fund's base currency and, in a modification from the proposal, as a 
percentage in the fund's base currency. One commenter recommended 
changing amount in base currency to percent in base currency.\207\ We 
agree with requiring reporting of percent in base currency to improve 
data comparability, and we do not believe requiring percent in addition 
to amount is incrementally more burdensome to report because the 
adviser can leverage existing reporting of the amount in base currency 
and NAV to provide this metric. Requiring an adviser to also report the 
percent in base currency will improve data comparability because it 
will provide consistency across data reported by the adviser, rather 
than potentially using a different exchange rate than the adviser used. 
This commenter also recommended providing definitions and examples of 
how to calculate the most recent and largest peak-to-trough drawdown 
and provided a recommended definition. We do not believe it is 
necessary to specify a particular methodology to calculate these 
metrics, which we understand advisers commonly calculate for their 
funds. Together, the adopted changes are designed to allow the 
Commissions and FSOC to compare volatility more accurately across 
different fund types to identify market trends (e.g., volatility of a 
specific fund type), for systemic risk assessment and investor 
protection efforts. For example, if several reporting

[[Page 18005]]

funds that engage in similar trading activity experience a surge in 
volatility, the volatility itself or the reporting funds' response to 
the volatility may impact others who also are engaging in similar 
trading activity, which could pose systemic risk, and negatively affect 
investors.
---------------------------------------------------------------------------

    \207\ CFA Institute Comment Letter.
---------------------------------------------------------------------------

3. Amendments to Section 1c of Form PF--Concerning All Hedge Funds
    Section 1c requires advisers to report information about the hedge 
funds they advise. We are adopting, as proposed except as specified 
below, amendments to require advisers to report additional information 
about hedge funds to provide greater insight into hedge funds' 
operations and strategies, assist in identifying trends, and improve 
data quality and data comparability for purposes of systemic risk 
assessments and to further investor protection efforts. We are also 
removing certain questions where other questions provide the same or 
more useful data to streamline reporting and reduce reporting burdens 
without compromising investor protection efforts and systemic risk 
analysis.
    Investment Strategies. We are adopting, as proposed except as 
specified below, amendments to how advisers report hedge fund 
investment strategies.\208\ We are adopting, as proposed, amendments to 
require advisers to indicate which investment strategies best describe 
the reporting fund's strategies on the last day of the reporting 
period, rather than allowing advisers flexibility to report information 
as of the data reporting date or throughout the reporting period, as 
Form PF currently provides.\209\ This amendment is designed to improve 
data quality by specifying how to report information if the reporting 
fund changes strategies over time. Relatedly, in a modification from 
the proposal, we are also including an instruction that specifies the 
methodology an adviser uses for selecting reporting strategies should 
be consistent over time. This instruction is designed to improve data 
quality and comparability by specifying that an investment strategy 
should be categorized consistently from one reporting period to the 
next. This instruction will also simplify the categorization process 
for an adviser because it will require an adviser to only determine 
once how to categorize an ongoing investment strategy.
---------------------------------------------------------------------------

    \208\ We are amending current Question 20 and redesignating it 
as Question 25.
    \209\ See current Question 20.
---------------------------------------------------------------------------

    We also are adopting, as proposed except as specified below, 
amendments to update the strategy categories that advisers can select 
to reflect our understanding of hedge fund strategies better and to 
improve data quality and comparability, based on experience with the 
form. For example, we are including more granular categories for equity 
strategies, such as factor driven, statistical arbitrage, and emerging 
markets. Similarly, we are including more granular categories for 
credit strategies, such as litigation finance, emerging markets, and 
asset-backed/structured products. These more granular categories are 
designed to allow the Commissions and FSOC to conduct more targeted 
analysis and improve comparability among advisers and hedge funds, 
which the Commissions and FSOC can use to identify and address systemic 
risk and investor protection issues in times of stress more accurately. 
In a modification from the proposal, to facilitate completion of this 
question and alleviate challenges filers face in choosing among a 
limited list of investment strategy types, filers will be able to 
choose from a ``drop-down'' menu that includes all investment strategy 
categories for Form PF.\210\
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    \210\ For purposes of this question, investment strategies 
generally include equity (and associated sub-strategies such as 
long/short market neutral, long only, long/short short bias, and 
long/short long bias), macro (and associated sub-strategies such as 
active trading, commodity, currency, and global macro), convertible 
arbitrage, relative value (and associated strategies such as fixed 
income asset backed, fixed income convertible arbitrage, fixed 
income corporate, fixed income sovereign, fixed income arbitrage, 
and volatility arbitrage), event driven (and associated sub-sub-
strategies such as distressed, distressed/restructuring, risk 
arbitrage/merger arbitrage, equity special situations, and special 
situations), credit (and associated sub-strategies such as asset 
based lending, litigation finance, emerging markets, and asset 
backed/structured products), managed futures/CTA (and associated 
sub-strategies such as fundamental, quantitative), investment in 
other funds, private credit (and associated sub-strategies such as 
direct lending/mid-market lending, distressed debt, junior/
subordinate debt, mezzanine financing, senior debt, senior 
subordinated debt, special situations, venture debt, and other), 
private equity (and associated sub-strategies such as early stage, 
expansion/late stage, buyout, distressed, growth, private investment 
in private equity, secondaries, and turnaround), real estate, real 
estate investment trusts, real assets excluding real estate, annuity 
and life insurance policies, litigation finance, digital assets, 
general partner stakes investing, cash and cash equivalents, and 
other.
---------------------------------------------------------------------------

    We also are adding, as proposed, categories that have become more 
commonly pursued by hedge funds since Form PF was adopted, such as 
categories concerning real estate and digital assets.\211\ Currently, 
advisers may report information regarding these strategies in the 
``other'' category, resulting in less robust Form PF data for analysis, 
especially when such analysis filters results based on strategy.\212\ 
The additional categories are designed to improve reporting quality and 
data comparability across advisers, based on our experience with the 
form. If an adviser selects the ``other'' category, the adviser will be 
required to describe in Question 4 the investment strategy, why the 
reporting fund would not qualify for any of the other categories, and 
any other information to explain the selection of ``other.'' The 
requirement to provide an explanation in Question 4 is designed to 
improve data quality by providing additional context to the adviser's 
selection of the ``other'' category and will improve our understanding 
of the adviser's strategies, which may present systemic risk. It also 
is designed to help us ensure that advisers are not misreporting 
information in the ``other'' category when they should be reporting 
information in a different category.
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    \211\ For example, aggregate qualifying hedge fund gross 
notional exposure to physical real estate has grown by 47% from the 
second quarter 2021 through the first quarter 2023, to $191 billion. 
See Private Funds Statistics, supra footnote 5.
    \212\ The amount of hedge fund exposure that advisers attribute 
to the ``other'' category has grown by 30% to $114 billion, from the 
second quarter 2021 through the first quarter 2023. See Private 
Funds Statistics, supra footnote 5.
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    In addition to the investment strategy category additions described 
above that we are adopting as proposed, in a modification from the 
proposal, we are adopting certain additional strategy categories. We 
are adopting certain additional strategy categories that are currently 
included in the available categories in Question 66, which is 
structured similarly to Question 25 and is used to collect information 
about private equity fund investment strategies.\213\ To facilitate 
completion of Question 25 and alleviate challenges filers may face in 
choosing among a limited list of investment strategy types, in a 
modification from the proposal, filers will be able to choose from a 
drop-down menu that includes all investment strategy categories for 
Form PF. The inclusion of these additional categories recognizes that 
funds classified as hedge funds on Form PF may pursue

[[Page 18006]]

investment strategies more commonly associated with private equity 
funds and vice versa. This change will allow advisers to categorize 
their investment strategies more accurately and will improve data 
quality by reducing the number of strategies that would otherwise be 
categorized as ``other.'' For similar reasons, in a modification from 
the proposal, we are also retaining certain investment strategy 
categories that are included in the current Form PF, which we had 
proposed to remove, to provide more granular information and maintain 
existing data comparability.\214\ In addition, we are adopting strategy 
categories for ``Equity Long/Short Market Neutral,'' ``Equity Long/
Short Long Bias,'' and ``Equity Long/Short Short Bias,'' and adding 
separate categories for ``Equity Long Only'' and ``Credit Long/Short,'' 
as discussed further below.
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    \213\ The additional strategy categories are private credit (and 
associated sub-strategies such as direct lending/mid-market lending, 
distressed debt, junior/subordinate debt, mezzanine financing, 
senior debt, senior subordinated debt, special situations, venture 
debt, and other), private equity (and associated sub-strategies such 
as early stage, expansion/late stage, buyout, distressed, growth, 
private investment in private equity, secondaries, and turnaround), 
annuity and life insurance policies, litigation finance, and general 
partner stakes investing. See also May 2023 SEC Form PF Amending 
Release, supra footnote 4, at n. 216. Question 66 was added as a new 
question in the amendments adopted in the May 2023 SEC Form PF 
Amending Release.
    \214\ We are retaining the existing investment strategies listed 
in current Question 20 for the following categories: Macro, Active 
Trading; Macro, Commodity; Macro, Currency; Relative Value, Fixed 
Income Asset Backed; Relative Value, Fixed Income Convertible 
Arbitrage; Relative Value, Fixed Income Sovereign; Event Driven, 
Distressed/Restructuring; Event Driven, Equity Special Situations; 
and Credit, Long/Short. See Question 25.
---------------------------------------------------------------------------

    One commenter opposed including more granular strategy categories 
stating that some proposed categories are not clear and may require 
advisers to make subjective decisions on how to report a fund's 
strategy that could result in inconsistent reporting.\215\ This 
commenter recommended that the strategy categories be revised to better 
track industry conventions. The amended strategy categories conform 
more closely to industry conventions than the current categories and 
will allow advisers to categorize their strategies more accurately. One 
commenter opposed the increased granularity in strategy categories, 
stating they could disclose a fund's proprietary investment information 
and present data security concerns.\216\ The data reported on Form PF, 
which is filed on a non-public basis, is neither sufficiently detailed 
nor reported on such a frequent basis as to present risk of misuse or 
enable reverse engineering of a particular fund's investment strategy. 
One commenter recommended reverting the category for the ``Equity Long/
Short'' strategy from the proposed categories of ``Equity Long Bias'' 
and ``Equity Short Bias'' because of the burden and potential for 
misreporting of long/short equity funds or portfolios. In a change from 
the proposal, as recommended by this commenter, we are amending the 
proposed categories for ``Equity Long Bias'' and ``Equity Short Bias'' 
and replacing with ``Equity Long/Short Market Neutral,'' ``Equity Long/
Short Long Bias,'' and ``Equity Long/Short Short Bias,'' and adding 
separate categories for ``Equity Long Only'' and ``Credit Long/Short.'' 
We believe these additional categories better align the strategy 
categories with industry conventions and addresses the concern with 
appropriately reporting the strategy category for long/short equity 
funds or portfolios.
---------------------------------------------------------------------------

    \215\ MFA Comment Letter II.
    \216\ SIFMA Comment Letter.
---------------------------------------------------------------------------

    As proposed, digital assets will be included as a reportable 
investment strategy.\217\ In a change from the proposal, however, we 
are not adopting a defined term for ``digital assets'' in the Glossary 
of Terms. Some commenters supported adding a defined term for digital 
assets and emphasized the growing impact of digital assets on the 
financial sector more broadly and the systemic risk that they may 
pose.\218\ Other commenters stated that the proposed definition of 
digital asset is too broad and may overlap with other existing 
reporting categories.\219\ One commenter recommended excluding from the 
digital asset definition references to any specific types of digital 
assets because of the evolving terminology used in the sector.\220\ 
Another commenter recommended that the references to digital assets be 
consistent across usages by the SEC.\221\ This commenter also 
recommended adopting distinct defined terms for different types of 
digital assets to differentiate between different asset categories that 
may present different risks, such as differentiating between 
established digital assets and newer digital assets. Another commenter 
recommended distinguishing between so-called ``stablecoins'' and other 
digital assets on the basis that stablecoins may be less volatile than 
other digital assets.\222\
---------------------------------------------------------------------------

    \217\ As discussed further below in section II.C.2 of this 
Release, we are also adopting amendments to Question 32 to add 
digital assets as a reportable sub-asset class.
    \218\ See, e.g., Better Markets Comment Letter; NASAA Comment 
Letter.
    \219\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
USCC Comment Letter.
    \220\ Comment Letter of Rohan G. et al. (Dec. 8, 2022) (``Rohan 
G. Comment Letter'').
    \221\ NASAA Comment Letter.
    \222\ AFREF Comment Letter I.
---------------------------------------------------------------------------

    The Commissions and staff are continuing to consider the issues 
raised by these comments, and we are not adopting a definition as part 
of this rule at this time. However, we agree with commenters stating 
that certain strategies could be categorized as either a digital asset 
strategy or another listed strategy, and so in those instances the 
digital asset strategy is duplicative.\223\ Accordingly, we are 
including an instruction to Question 25 to specify that, if a 
particular strategy could be classified as both a digital asset 
strategy and another strategy, an adviser should report the strategy as 
the non-digital asset strategy. This is designed to reduce potential 
confusion and improve data quality.
---------------------------------------------------------------------------

    \223\ For example, a crypto asset security is not a separate 
type or category of security for purposes of Federal securities laws 
based solely on the use of distributed ledger technology. See 
Supplemental Information and Reopening of Comment Period for 
Amendments Regarding the Definition of ``Exchange,'' 88 FR 29448, 
29450 (May 5, 2023) (stating ``a crypto asset that is a security is 
not a separate type or category of security (e.g., NMS stock, 
corporate bond) for purposes of federal securities laws based solely 
on the use of DLT.'').
---------------------------------------------------------------------------

    Counterparty exposures. Counterparty exposure informs the 
Commissions and FSOC of the interconnectedness of hedge funds with the 
broader financial services industry, which is a critical part of 
systemic risk assessment and investor protection efforts. Understanding 
counterparty exposures allows the Commissions and FSOC to assess who 
may be impacted by a reporting fund's failure, and which reporting 
funds may be impacted by a counterparty's failure. Counterparty 
exposure concerning central clearing counterparties (``CCPs'') is of 
importance to FSOC's systemic risk assessment efforts as evidenced by 
the fact that FSOC has designated many CCP institutions as 
``systemically important,'' and recommended that regulators continue to 
coordinate to evaluate threats from both default and non-default losses 
associated with CCPs.\224\
---------------------------------------------------------------------------

    \224\ Form PF defines ``CCP'' as central clearing counterparties 
(or central clearing houses) (for example, CME Clearing, The 
Depository Trust & Clearing Corporation, Fedwire and LCH Clearnet 
Limited). See Financial Stability Oversight Council, 2012 Annual 
Report, Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf (concerning the designations); 
Financial Stability Oversight Council, 2021 Annual Report, p. 14, 
available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf (concerning the recommendation).
---------------------------------------------------------------------------

    We are adopting, as proposed except as indicated below, amendments 
to add Question 26 and revise current Questions 22 and 23, which have 
been redesignated as Questions 27 and 28, to provide better insight 
into hedge funds' borrowing and financing arrangements with 
counterparties, including CCPs. Question 26 requires advisers to hedge 
funds (other than qualifying hedge funds) to complete a new table 
(``consolidated counterparty exposure table'') concerning exposures 
that (1) the reporting fund has to creditors and

[[Page 18007]]

counterparties, and (2) creditors and other counterparties have to the 
reporting fund.\225\ Advisers will be required to report the U.S. 
dollar value of the reporting fund's ``borrowing and collateral 
received (B/CR),'' as well as its ``lending and posted collateral (L/
PC),'' aggregated across all counterparties, including CCPs, as of the 
end of the reporting period.\226\ The form explains what exposures to 
net.\227\ Advisers will be required to classify information according 
to type (e.g., unsecured borrowing, secured borrowing, derivatives 
cleared by a CCP, and uncleared derivatives) and the governing legal 
agreement (e.g., a prime brokerage or other brokerage agreement for 
cash margin and securities lending and borrowing, a global master 
repurchase agreement for repo/reverse repo, and International Swaps and 
Derivatives Association (``ISDA'') master agreement for synthetic long 
positions, ``synthetic short positions,'' and derivatives).\228\ 
Advisers will be required to report transactions under a master 
securities loan agreement as secured borrowings. Advisers will be 
required to check a box if one or more prime brokerage agreements 
provide for cross-margining of derivatives and secured financing 
transactions. If advisers check the box, the instructions specify how 
to report secured financing and derivatives in the consolidated 
counterparty exposure table.
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    \225\ Qualifying hedge funds are not required to complete this 
table because section 2, as revised, includes similar questions that 
require additional detail. See discussion at section II.C of this 
Release. Together the questions in section 1c and similar questions 
at section 2 will allow the Commissions and FSOC to consolidate 
information relating to hedge funds' and qualifying hedge funds' 
arrangements with creditors and other counterparties, to support 
systemic risk assessment and investor protection efforts. We are 
defining the term ``consolidated counterparty exposure table'' in 
the Form PF Glossary of Terms. For hedge funds other than qualifying 
hedge funds, it means the section 1c table (at Question 26) that 
collects the reporting fund's borrowing and collateral received and 
lending and posted collateral aggregated across all creditors and 
counterparties as of the end of the reporting period. For qualifying 
hedge funds, it means the section 2 table (at Question 41) that 
collects the reporting fund's borrowing and collateral received and 
lending and posted collateral aggregated across all creditors and 
counterparties as of the end of the reporting period.
    \226\ We are defining ``borrowing and collateral received (B/
CR)'' and ``lending and posted collateral (L/PC)'' in the Form PF 
Glossary of Terms. We are adopting these definitions based on our 
understanding of borrowing and lending and to help ensure data 
quality and comparability. We also are amending the term ``gross 
notional value'' to provide more detail on how to report it to aid 
advisers completing the consolidated counterparty exposure table. 
See Form PF Glossary of Terms.
    \227\ Advisers will net the reporting fund's exposure with each 
counterparty and among affiliated entities of a counterparty to the 
extent such exposures may be contractually or legally set-off or 
netted across those entities or one affiliate guarantees or may 
otherwise be obligated to satisfy the obligations of another under 
the agreements governing the transactions. Instructions provide that 
netting must be used to reflect net cash borrowed from or lent to a 
counterparty but must not be used to offset securities borrowed and 
lent against one another, when reporting prime brokerage and repo/
reverse repo transactions. These instructions are designed to help 
ensure data quality and comparability. See Question 26.
    \228\ We are adopting, as proposed, a definition of ``ISDA'' as 
the International Swaps and Derivatives Association. We are also 
adopting a definition of ``synthetic short positions'' in the Form 
PF Glossary of Terms (see the Form PF Glossary of Terms). We are 
adopting this definition based on our understanding of the 
instruments and to help ensure data quality to aid comparability. 
See supra footnote 161 (discussing the definition of ``synthetic 
long position'').
---------------------------------------------------------------------------

    Some commenters opposed more granular disclosure of counterparty 
exposures, stating that the information is burdensome to obtain and of 
limited value.\229\ One commenter stated that reporting on exposures to 
central clearing counterparties should be on an aggregate basis, rather 
than on an individual basis, because of the cost to report and limited 
value of the disaggregated data.\230\ We continue to believe that this 
additional information is important to understanding counterparty risk 
exposure, which is needed for systemic risk assessment because of the 
potential contagion risks of any particular counterparty failure, and 
that the value of this information justifies the associated burdens in 
reporting.\231\ We believe that the associated burdens are justified 
because detailed reporting of counterparty risk exposure will provide 
the Commissions and FSOC with increased transparency into risk profiles 
and the interconnectedness of hedge funds with the broader financial 
services industry, which will improve our ability to assess systemic 
risk and protect investors.
---------------------------------------------------------------------------

    \229\ See, e.g., AIMA/ACC Comment Letter.
    \230\ MFA Comment Letter II.
    \231\ See infra section IV.C of this Release for discussion of 
costs and benefits.
---------------------------------------------------------------------------

    We are adopting, largely as proposed, several amendments to 
Questions 26, 27 and 28, which require advisers to hedge funds to 
provide information about the reporting fund's counterparty exposure, 
as follows:
    <bullet> We are adopting, as proposed except as specifically 
indicated below, amendments to Questions 27 and 28 to provide more 
detailed instructions for advisers to use to identify the individual 
counterparties. For both Questions 27 and 28, advisers are instructed 
to use the calculations from the consolidated counterparty exposure 
table to identify the counterparties.\232\ This amendment is designed 
to help ensure that the Commissions' and FSOC's analysis can identify 
true data differences, without the distraction of methodology 
differences, which can suggest differences where there are none, and 
reduce circumstances where advisers misidentify lending relationships. 
In a modification from the proposal, we are adding an instruction to 
specify the entity that has the reported exposure.\233\ This 
modification will allow us to determine the relevant entity that bears 
such exposure (e.g., a trading vehicle), which will improve our data 
quality and our ability to monitor systemic risk.\234\ The amended 
instructions provide that if the entity that has the exposure is not 
the reporting fund, the filer must provide the legal name of the 
relevant entity and LEI, if available.\235\ This instruction will allow 
us to better understand the scope of the reporting fund's 
exposure.\236\ We did not receive specific comment on these amendments 
to the instructions. These amendments will improve data quality and 
comparability and reduce adviser burden.
---------------------------------------------------------------------------

    \232\ See Question 26 for the consolidated counterparty exposure 
table. We are also adopting, substantively as proposed, definitions 
for the following terms related to the consolidated counterparty 
exposure table: ``cash borrowing entries,'' ``cash lending 
entries,'' ``collateral posted entries,'' and ``collateral received 
entries.'' See Form PF Glossary of Terms.
    \233\ See Question 27.
    \234\ As discussed more fully above in section II.A.2, we are 
adopting amendments to include specific questions relating to a 
reporting fund's trading vehicle use and a trading vehicle's 
position size and risk exposure, as opposed to requiring full 
separate reporting on Form PF for trading vehicles. This 
modification will allow us to understand which entity holds the 
exposure.
    \235\ See Question 27.
    \236\ This modification is related to our modification from the 
proposal to require aggregated reporting and focusing certain 
questions on trading vehicles, rather than disaggregated reporting 
as proposed, discussed above in section II.A.2. This modification to 
the instructions will allow us to understand whether the reporting 
fund or a trading vehicle holds the exposure.
---------------------------------------------------------------------------

    <bullet> We are adopting, as proposed, amendments to add Question 
27, which requires advisers to identify each creditor or other 
counterparty (including CCPs) to which the reporting fund owes a 
certain amount (before posted collateral) equal to or greater than 
either (1) five percent of net asset value as of the data reporting 
date or (2) $1 billion. If there are more than five such 
counterparties, the adviser only will report the five counterparties to 
which the reporting fund owes the largest dollar amount, before taking 
into account collateral that the reporting fund posted. If there are 
fewer than five such counterparties, the adviser only will report the 
counterparties that meet the threshold. For example, if only three

[[Page 18008]]

counterparties meet the threshold, the adviser would report only three 
counterparties. This is a change from current Question 22, which 
required advisers to identify five counterparties to which the 
reporting fund has the greatest mark-to-market net counterparty credit 
exposure, regardless of the actual size of the exposure. The adopted 
threshold is designed to highlight two different, significant, 
potentially systemic risks: five percent of net asset value represents 
an amount of borrowing by a reporting fund that, if repayment was 
required, could be a significant loss of financing that could result in 
a forced unwind and forced sales from the reporting fund's portfolio. 
Additionally, the $1 billion represents an amount that, in the case of 
a very large fund, may not represent five percent of its net assets, 
but may be large enough to create stress for certain of its 
counterparties. One commenter recommended that the additional reporting 
on counterparties should be limited to a fund's three largest 
counterparties to reduce the burden on advisers but provide the 
Commissions with sufficiently detailed information on counterparty 
exposure.\237\ We continue to believe that requiring reporting of the 
five largest counterparties is appropriate and do not believe that 
limiting the required reporting to a fund's three largest 
counterparties would provide sufficient counterparty risk data for the 
purposes discussed above. Furthermore, we do not believe that reporting 
on a fund's five largest counterparties would be significantly more 
burdensome than reporting on the three largest counterparties because 
an adviser could leverage its systems for reporting on the three 
largest counterparties to provide reporting on the five largest 
counterparties.
---------------------------------------------------------------------------

    \237\ MFA Comment Letter II.
---------------------------------------------------------------------------

    <bullet> In a modification from the proposal, advisers will also be 
required to provide the legal name and the LEI, if any, of the entity 
that has the exposure. This information will allow us to determine the 
relevant entity that bears such exposure (e.g., a trading vehicle), 
which will improve our data quality and our ability to monitor systemic 
risk.\238\
---------------------------------------------------------------------------

    \238\ See also supra section II.A.2 of this Release for further 
discussion of trading vehicle reporting.
---------------------------------------------------------------------------

    <bullet> In a modification from the proposal, the instructions to 
Question 26 provide that an adviser is required to report the reporting 
fund's counterparty exposure without netting any trading vehicle 
exposures if the reporting fund does not guarantee and is not 
contractually obligated to fulfill those counterparty obligations.\239\ 
The instructions will further provide that if the reporting fund 
guarantees or is obligated to fulfill the trading vehicle's 
counterparty obligations, then those obligations must be reported net 
with the obligations of the reporting fund. These modified instructions 
are intended to address the aggregated reporting of trading vehicles 
and improve data quality by isolating only the reporting fund's 
counterparty exposures. In a modification from the proposal, the 
instructions also provide that any affiliated private fund should 
exclude any exposures that have been reported in the reporting fund's 
filing. This modified instruction is intended to reduce filing burdens 
by eliminating duplicate reporting and to improve data quality.
---------------------------------------------------------------------------

    \239\ See Question 26.
---------------------------------------------------------------------------

    <bullet> We are adopting, largely as proposed except as specified 
below, amendments to add Question 28, which requires advisers to 
provide information for counterparties to which the reporting fund has 
net mark-to-market counterparty credit exposure which is equal to or 
greater than either (1) five percent of the reporting fund's net asset 
value as of the data reporting date or (2) $1 billion, after taking 
into account collateral received or posted by the reporting fund. If 
there are more than five such counterparties, the adviser would only 
report the five to which the reporting fund has the greatest mark-to-
market exposure after taking into account collateral received. If there 
are fewer than five such counterparties, the adviser only would report 
the counterparties that meet the threshold. This is a change from 
current Question 23, which required advisers to identify five 
counterparties to which the reporting fund has the greatest mark-to-
market net counterparty credit exposure, regardless of the actual size 
of the exposure. The threshold is designed to represent an amount of 
lending from a reporting fund that, if a default occurred, could cause 
a significant loss that could result in a forced unwind and forced 
sales from the reporting fund's portfolio. Furthermore, we believe that 
the five percent threshold level is large enough to constitute a shock 
to a reporting fund's net asset value and is an often-used industry 
metric. The $1 billion threshold represents an amount that, in the case 
of a very large counterparty, may not represent five percent of its net 
assets, but may be large enough to create stress for the reporting 
fund. In a modification from the proposal, we are adding an instruction 
to specify the entity that has the reported exposure.\240\ The amended 
instructions provide that if the entity that has the exposure is not 
the reporting fund, the filer must provide the legal name of the 
relevant entity and LEI, if available. This instruction will allow us 
to better understand the scope of the reporting fund's exposure. One 
commenter recommended a threshold of 10 percent of a fund's net asset 
value, rather than five percent, for all reporting related to 
exposures, including counterparty exposure, on the basis that 10 
percent of net asset value better represents a magnitude that could 
have broader systemic effects and a five percent threshold would 
produce data that is not meaningful for risk assessments.\241\ We 
disagree and continue to believe that the impact on a fund's returns 
resulting from a counterparty exposure of greater than five percent 
could be significant enough to present systemic risk and contagion 
risk. Currently, advisers report exposures that the reporting fund has 
to counterparties as a percentage of the reporting fund's net asset 
value, and advisers report exposures that counterparties have to the 
reporting fund in U.S. dollars.\242\ We are adopting, as proposed, an 
amendment that requires advisers to report both data sets in U.S. 
dollars for consistency and comparability.\243\ We did not receive 
specific comment on this amendment.
---------------------------------------------------------------------------

    \240\ See Question 28.
    \241\ MFA Comment Letter II.
    \242\ See current Questions 22 and 23.
    \243\ See Questions 27 and 28.
---------------------------------------------------------------------------

    <bullet> We are adopting, as proposed, an amendment to require 
advisers to report the amount of collateral posted, to help inform the 
Commissions and FSOC of the potential impact of a reporting fund or 
counterparty default. We did not receive specific comment on this 
amendment.
    <bullet> We are adopting, as proposed, an amendment to require 
advisers to report the counterparty's LEI, if it has one, to help 
identify counterparties and more efficiently link data from other data 
sources that use this identifier. We did not receive specific comment 
on this amendment.
    <bullet> Advisers will continue to indicate if a counterparty is 
affiliated with a major financial institution, as Form PF currently 
provides.\244\ If the financial institution is not listed on Form PF, 
advisers would continue to have the option of selecting ``other'' and 
naming the entity in the chart, as Form PF currently provides. However, 
we are adopting, as proposed, an amendment to require advisers to 
describe the financial

[[Page 18009]]

institution in Question 4. This amendment is designed to help the 
Commissions and FSOC efficiently and accurately identify the entity, 
without having to contact advisers individually. We did not receive 
specific comment on this amendment.
---------------------------------------------------------------------------

    \244\ See current Questions 22 and 23.
---------------------------------------------------------------------------

    Together, the amendments are designed to allow the Commissions and 
FSOC to identify and align sources of borrowing and lending to identify 
significant counterparty exposures, so that different styles of 
borrowing will not be obscured by methodology differences or 
misidentified lending relationships, based on our experience with the 
form.
    Form PF continues to require advisers to report information about 
individual counterparties that present the greatest exposure to and 
from hedge funds.\245\ Under the amended Form PF, however, advisers to 
qualifying hedge funds will not be required to complete Questions 27 
and 28, if they complete certain similar questions in Form PF section 
2, to avoid duplication.\246\
---------------------------------------------------------------------------

    \245\ See Questions 27 and 28.
    \246\ See Questions 42 and 43 in Form PF section 2 and supra 
footnote 225.
---------------------------------------------------------------------------

    Trading and clearing mechanisms. We are adopting, as proposed, 
amendments to revise how advisers report information about trading and 
clearing mechanisms.\247\ These types of data inform the Commissions 
and FSOC of the extent of private fund activities that are conducted on 
and away from regulated exchanges and clearing systems, which is 
important to understanding systemic risk that could be transmitted 
through counterparty exposures.\248\ We are adopting amendments to 
require advisers to report (1) the value traded and (2) the value of 
positions at the end of the reporting period, rather than requiring 
advisers to report information as a percentage in terms of value and 
trade volumes, as Form PF currently requires.\249\ This change is 
designed to simplify reporting because advisers compute the value 
before they convert it into a percentage; therefore, this change 
eliminates an extra calculation for advisers. It also is designed to 
provide the Commissions and FSOC with data that can be more efficiently 
compared and aggregated among advisers and other data sources. With 
data in dollar values, the Commissions and FSOC could more effectively 
estimate the size, extent, and pace of each hedge fund's participation 
in activity on or away from regulated exchanges and clearing systems in 
relation to total values. Understanding the size of hedge fund 
participation in activity on and away from regulated exchanges and 
clearing systems is important to assessing systemic risk, because 
activity that takes place on regulated exchanges and clearing systems 
presents different risks than activity that takes places away from 
regulated exchange and clearing systems. For example, activity that 
takes place away from a regulated exchange or clearing system may be 
less transparent, and may present more credit risk, than activity that 
takes place on a regulated exchange and a clearing system that acts as 
a central counterparty that guarantees trades. Commenters generally 
supported amendments that simplify reporting requirements.\250\ This 
amendment will reduce burdens on advisers by eliminating an additional 
calculation and will improve data comparability.
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    \247\ See current Questions 24 and 25, which we redesignated as 
Questions 29 and 30.
    \248\ See supra footnote 224 and accompanying text (discussing 
the role of CCPs); 2011 Form PF Adopting Release, supra footnote 4, 
at n.228, and accompanying text.
    \249\ Question 29 specifies that ``value traded'' is the total 
value in U.S. dollars of the reporting fund's transactions in the 
instrument category and trading mode during the reporting period. 
Question 29 also specifies that, for derivatives, value traded is 
the weighted average of the notional amount of aggregate derivatives 
transactions entered into by the reporting fund during the reporting 
period, except for the following: (1) for options, advisers would 
use the delta adjusted notional value, and (2) for interest rate 
derivatives, advisers would use the ``10-year bond equivalent.'' 
This measurement is designed to track standard industry convention. 
We also are adding the term ``10-year bond equivalent'' to the Form 
PF Glossary of Terms, as discussed in section II.C.2 of this 
Release. See infra footnote 293.
    \250\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
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    We also are adopting amendments to require advisers to report 
information about trading and clearing mechanisms for transactions in 
interest rate derivatives separately from other types of derivatives. 
Form PF data show that interest rate derivatives represent the largest 
gross investment exposure of qualifying hedge funds.\251\ Therefore, 
this amendment is designed to help ensure that the Commissions and FSOC 
can identify risks of such a significant volume of activity on and away 
from regulated exchanges and clearing systems, without the data being 
obscured by other types of derivatives. Advisers will be required to 
report interest rate derivatives and other types of derivatives, by 
indicating the estimated amounts that were (1) traded on a regulated 
exchange or swap execution facility, (2) traded over-the-counter and 
cleared by a CCP, and (3) traded over the counter or bilaterally 
transacted (and not cleared by a CCP). These categories reflect our 
understanding of how derivatives may be traded.
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    \251\ See Private Funds Statistics, supra footnote 5.
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    Advisers continue to be required to report clearing information 
concerning repos, but we are adopting amendments to specify how to 
report sponsored repos and to specify that advisers must report reverse 
repos with repos.\252\ According to the Fixed Income Clearing 
Corporation (``FICC''), FICC's sponsored repo service has expanded in 
2017 and 2019, ultimately resulting in daily volume up to $300 million 
per day as of 2021, with a peak in June 2023 of $750 billion.\253\ 
Sponsored repos incorporate a different structure than other repos, in 
that FICC serves as a counterparty to any sponsored trade and the 
sponsored member bears responsibility for meeting the obligations of 
the sponsored member on all transactions that it submits for clearing. 
Adding a particular reference to sponsored repos ensures that advisers 
understand how sponsored repos cleared by a CCP should be reported, 
i.e., as trades cleared at a CCP.\254\ Therefore, we are providing a 
separate line item for sponsored repos. The amendment is designed to 
improve data quality concerning repos and sponsored repos to allow the 
Commissions and FSOC to conduct more accurate and targeted systemic 
risk assessments and analysis concerning investor protection efforts. 
We are also adopting amendments to specify that advisers must report 
reverse repos with repos. Current Question 24 required advisers to 
report ``repos,'' which some advisers could interpret to include 
reverse repos, while others could interpret as

[[Page 18010]]

excluding reverse repos. Therefore, this amendment is designed to 
improve data quality.\255\
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    \252\ The amendments also explain that ``repo'' means 
``securities in'' transactions and ``reverse repo'' means 
``securities out'' transactions. Sponsored repos and sponsored 
reverse repos apply to transactions in which the reporting fund has 
been sponsored by a sponsoring member of the Fixed Income Clearing 
Corporation. We have revised how Form PF explains tri-party repos to 
help ensure they do not exclude sponsored tri-party repos. 
Currently, Form PF explains that a tri-party repo applies where repo 
collateral is held at a custodian (not including a CCP) that acts as 
a third party agent to both the repo buyer and the repo seller. We 
are amending Form PF to explain that tri-party repo applies where 
the repo or reverse repo collateral is executed using collateral 
management and settlement services of a third party that does not 
act as a CCP. See Form PF Glossary of Terms (amended definitions of 
``repo'' and ``reverse repo'') and Question 29 instructions 
(discussing sponsored repos, sponsored reverse repos, and tri-party 
repos).
    \253\ See FICC Sponsored Repo in 2021, by DTCC Connection Staff 
(Feb. 9, 2021), available at https://www.dtcc.com/dtcc-connection/articles/2021/february/09/ficc-sponsored-repo-in-2021. See also DTC: 
DTCC's FICC Sponsored Service Reaches New Milestone Clearing Over 
USD$750 Billion in Daily Sponsored Activity (June 14, 2023), 
available at https://www.dtcc.com/news/2023/june/14/dtccs-ficc-sponsored-service-reaches-new-milestone.
    \254\ Current Question 24.
    \255\ See Question 29.
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    We are also adopting amendments to revise current Question 25, 
which requires advisers to report the percentage of the reporting 
fund's net asset value related to transactions not described in current 
Question 24, which we have redesignated as Question 29. Advisers will 
be required to report both the value traded and the position value as 
of the end of the reporting period for transactions not described in 
Question 29. These amendments are designed to make Question 30 data 
comparable with data from Question 29, so that together Questions 29 
and 30 will provide the Commissions and FSOC with a complete data set 
of the adviser's trading and clearing mechanisms during the reporting 
period. We did not receive comments on these proposed amendments.
    Removing Certain Questions Concerning Hedge Funds. We are removing, 
as proposed, current Questions 19 and 21 from the form. Current 
Question 19 required advisers to hedge funds to report whether the 
hedge fund has a single primary investment strategy or multiple 
strategies. Question 25, which requires hedge fund advisers to disclose 
certain information about each investment strategy, will provide this 
information, as discussed above in this section II.B.3 of the Release.
    We are also removing current Question 21, which required hedge fund 
advisers to approximate what percentage of the hedge fund's net asset 
value was managed using high frequency trading strategies. We believe 
the form's question on portfolio turnover, with the adopted revisions, 
will better inform our and FSOC's understanding of the extent of 
trading by large hedge fund advisers and will better show how larger 
hedge funds interact with the markets and provide trading 
liquidity.\256\
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    \256\ See revisions to current Question 27 (redesignated as 
Question 34), as discussed in section II.C of this Release.
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    Commenters generally supported amendments that eliminate questions 
and streamline reporting requirements.\257\ One commenter stated that, 
by eliminating the collection of duplicative data, FSOC will be better 
able to assess systemic risk and the Commissions will be better able to 
protect investors.\258\ One commenter supported removing current 
Question 21 regarding the percentage of a hedge fund's net asset value 
managed using high frequency trading strategies.\259\ We believe that 
removing certain questions concerning hedge funds will reduce the 
burdens on these advisers and the adoption of new and revised questions 
elsewhere on Form PF will improve our understanding of hedge fund 
operations to allow for systemic risk analysis and investor protection 
efforts.
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    \257\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
    \258\ Better Markets Comment Letter.
    \259\ MFA Comment Letter II.
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C. Amendments Concerning Information About Hedge Funds Advised by Large 
Private Fund Advisers

    We are adopting, as proposed except as specifically indicated 
below, several amendments to section 2, including amendments that 
remove aggregate reporting currently required in existing section 2a, 
which we have found to be less meaningful for analysis and more 
burdensome for advisers to report, while preserving and enhancing 
reporting on a per fund basis in existing section 2b, which we are 
redesignating as section 2. We are also retaining certain questions 
currently reported by advisers on an aggregate basis that are important 
for data analysis and systemic risk assessment but are requiring 
reporting on a per fund basis. Collectively, the changes to section 2 
are designed to provide better insight into the operations and 
strategies employed by qualifying hedge funds and their advisers and 
improve data quality and comparability to enable FSOC to monitor 
systemic risk better and enhance the Commissions' regulatory programs 
and investor protection efforts. Furthermore, we are also removing 
certain other reporting requirements that we have found to be less 
useful based on our experience with Form PF since adoption, which will 
help reduce reporting burdens for advisers while preserving the 
Commissions' and FSOC's regulatory oversight.
1. Removal of Existing Section 2a
    Removal of aggregate reporting. We are adopting, as proposed, 
amendments to eliminate the current requirement for large hedge fund 
advisers to report certain aggregated information about the hedge funds 
they manage.\260\ Based on our experience using data obtained from Form 
PF since its adoption, we have found that aggregated adviser level 
information combines funds with different strategies and activities, 
thus making analyses less meaningful. Aggregation can mask the 
directional exposures of individual funds (e.g., positions held by one 
reporting fund may appear to be offset by positions held in a different 
fund). Additionally, there can be inconsistencies between data 
currently reported in the aggregate in existing section 2a and on a per 
fund basis in existing section 2b (e.g., we have observed in some 
instances that the sum of fund exposures advisers report in current 
Question 30 on a per fund basis exceeds the aggregate figure reported 
in current Question 26). Aggregating information across funds may be 
burdensome for some advisers because certain advisers may keep fund 
records on different systems and ``rolling-up'' the data from different 
sources to report on the form may be complex and time consuming. While 
advisers may be required to aggregate certain types of investment 
holdings across their funds for other regulatory purposes (e.g., 
certain U.S. registered equities for Form 13F reporting), advisers 
generally do not aggregate all portfolio investment exposure 
information across their funds other than for Form PF reporting 
purposes, given that counterparties, markets, and investors tend to 
interact with funds on an individual basis and not in the aggregate at 
the adviser level.
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    \260\ We are removing existing section 2a and redesignating 
existing section 2b as section 2. In connection with the removal of 
section 2a, we are revising the general instructions to make 
corresponding changes (including amending Instruction 3 to reflect 
the removal of section 2a), and are revising current Question 27 
(reporting on the value of turnover in certain asset classes in 
advisers' hedge funds' portfolios) and current Question 28 
(reporting on the geographical breakdown of investments held by 
advisers' hedge funds), moving each of these questions to new 
section 2, and redesignating them as Question 34 and Question 35, 
respectively. Furthermore, in connection with these changes, we are 
revising the term ``sub-asset class'' to refer to Question 32, 
rather than current Question 26, which we have removed.
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    Commenters generally supported proposed amendments to eliminate 
questions and streamline reporting requirements.\261\ One commenter 
stated that the aggregate reporting of certain positions may make it 
difficult to understand the operations of hedge funds, especially 
during periods of market instability.\262\ Another commenter stated 
that reporting on an aggregate basis does not result in obscuring 
material data.\263\
---------------------------------------------------------------------------

    \261\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
    \262\ See Better Markets Comment Letter.
    \263\ See AIC Comment Letter I.
---------------------------------------------------------------------------

    We continue to believe that eliminating aggregate reporting 
questions for large hedge fund advisers will lessen the burden on these 
advisers and focus Form PF reporting on more valuable information for 
systemic risk assessment purposes. Removing existing

[[Page 18011]]

section 2a will not result in a meaningful deterioration in the 
information collected because the vast majority of gross hedge fund 
assets on which advisers currently report in the aggregate in section 
2a constitute the gross assets of qualifying hedge funds that will 
continue to be reported elsewhere in amended section 2. For example, 
large hedge fund advisers currently report total gross notional 
exposure for qualifying hedge funds in section 2b that constituted 
approximately 91 percent of the total gross notional exposure reported 
on an aggregate basis by large hedge fund advisers currently in section 
2a as of the same date.\264\ Furthermore, as discussed in section 
II.B.3 above, we are also adopting amendments to enhance reporting for 
all hedge funds in section 1 (particularly section 1c), which will 
mitigate against potential data gaps that could result from the removal 
of section 2a, given that advisers currently report information on all 
their hedge funds in section 2a but only report on qualifying hedge 
funds in section 2b. Additionally, certain information currently 
collected in section 2a is duplicative of information that will 
continue to be collected on a per fund basis in the consolidated 
section 2.\265\ By continuing to require reporting on a per fund basis, 
information reported elsewhere in the revised section 2 will allow the 
Commissions and FSOC to compile aggregate figures, as appropriate.\266\
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    \264\ As noted above, based on experience with Form PF since 
adoption, we have found information currently gathered in section 2a 
for the remaining 9% of funds to not be very useful given that it is 
aggregated data across different funds.
    \265\ For example, current Question 26 of section 2a requires 
large hedge fund advisers to report aggregated information on 
exposure to different types of assets, which is effectively the same 
exposure information that will be reported on a per fund basis for 
each qualifying hedge fund in Question 32 of section 2.
    \266\ Additionally, we are moving current Question 31 (base 
currency) and current Question 49 (withdrawals and redemptions) 
required only for qualifying hedge funds to section 1b, which is 
required to be completed by all advisers, and redesignating them as 
Question 17 and Question 10(d), respectively. We are also adopting 
amendments to enhance section 1c to require more detailed 
information about hedge funds' borrowing and financing arrangements 
(including posted collateral) and also revising current Question 26 
(redesignated Question 32) and current Question 27 (redesignated 
Question 34) to require end of period reporting of the value of 
certain instrument categories (including listed equities, interest 
rate derivatives and other derivatives, and repo/reverse repos).
---------------------------------------------------------------------------

2. Amendments to Section 2
    We are redesignating existing section 2b as section 2 and adopting, 
as proposed except as specified below, amendments to section 2 to do 
the following:
    (1) Enhance, expand, and simplify investment exposure reporting;
    (2) Revise open and large position reporting;
    (3) Revise borrowing and counterparty exposure reporting;
    (4) Revise market factor effects reporting; and
    (5) Make certain other changes designed to streamline and enhance 
the value of data collected on qualifying hedge funds by: (a) adding 
reporting on currency exposure, turnover, country, and industry 
exposure; (b) adding new reporting on CCPs; (c) streamlining risk 
metric reporting and collecting new information on investment 
performance by strategy; and (d) enhancing portfolio and financing 
liquidity reporting.
a. Investment Exposure Reporting
    We are adopting, largely as proposed except as specified below, 
amendments to: (1) replace the table format of current Question 30, 
which we are redesignating as Question 32, with narrative instructions 
and a ``drop-down'' menu while also revising the instructions to 
specify how to report certain positions, (2) require reporting based on 
``instrument type'' within sub-asset classes to identify whether the 
fund's investment exposure is achieved through cash or physical 
investment exposure, through derivatives or other synthetic positions, 
or indirectly (e.g., through a pooled investment such as an ETF, an 
investment company, or a private fund), (3) require the calculation of 
``adjusted exposure'' for each sub-asset class (i.e., require (in 
addition to value as currently reported) the calculation of ``adjusted 
exposure'' for each sub-asset class that allows netting across 
instrument types representing the same reference asset within each sub-
asset class, and, for fixed income, within a prescribed set of maturity 
buckets), (4) require uniform interest rate risk measure reporting for 
sub-asset classes that have interest rate risk (while eliminating the 
current option to report one of duration, weighted average tenor (WAT), 
or 10-year equivalents), and (5) amend the list of reportable sub-asset 
classes consistent with these other changes and collect enhanced 
information for some asset types.\267\
---------------------------------------------------------------------------

    \267\ In connection with the amendments, we are also removing 
current Question 44 because it is duplicative of the new reporting 
requirements in redesignated Question 32.
---------------------------------------------------------------------------

    Narrative reporting instructions and additional information on how 
to report.
    We are adopting, as proposed, amendments to the redesignated 
Question 32 which will require advisers to use a series of ``drop-
down'' menu selections for each sub-asset class and the applicable 
information required for each sub-asset class. These changes and new 
format will simplify and specify how to report the required information 
in redesignated Question 32. These changes will reduce filer burdens 
compared to the current format because advisers will only be required 
to provide information for sub-asset classes in which their qualifying 
hedge funds hold relevant positions. Furthermore, advisers will be 
required to report the absolute value of short positions, include 
positions held in side-pockets as positions of the reporting fund, and 
include any closed out and OTC forward positions that have not yet 
expired or matured. We did not receive comment on these amendments.
    We are adopting, as proposed, amendments to the instructions to 
redesignated Question 32 to specify how advisers should classify 
certain positions. This change is designed to instruct advisers how to 
classify positions that could be accurately classified in multiple sub-
asset classes and is consistent with SEC staff Form PF Frequently Asked 
Questions.\268\ Specifically, the instructions require advisers to 
choose the sub-asset class that describes the position with the highest 
degree of precision, which will result in more accurate classification 
of positions and therefore better data, rather than simply noting that 
any particular position should only be included in a single sub-asset 
class. We did not receive comment on this instruction.
---------------------------------------------------------------------------

    \268\ See Form PF Frequently Asked Questions, supra footnote 
162, Question 26.2.
---------------------------------------------------------------------------

    We are also adopting, as proposed, a new instruction that directs 
advisers to report cash borrowed via reverse repo as the short value of 
repos and refers advisers to the revised definitions of ``repo'' and 
``reverse repo'' in the Glossary of Terms, consistent with SEC staff 
Form PF Frequently Asked Questions.\269\ This change will help reduce 
confusion on how to report repo information and help reduce filer 
errors. We did not receive comment on this instruction or the revised 
definitions. Finally, the amended instructions also include a revised 
list of sub-asset classes.\270\
---------------------------------------------------------------------------

    \269\ See Form PF Frequently Asked Questions, supra footnote 
162, Question 26.5.
    \270\ The amendments to the sub-asset class list, as well as 
other changes to instructions in specific parts of Question 32, are 
discussed below.
---------------------------------------------------------------------------

    We are also adopting, as proposed, amendments to require advisers 
to

[[Page 18012]]

provide additional explanatory information in situations where a 
qualifying hedge fund reports long or short dollar value exposure to 
``catch-all'' sub-asset class categories \271\ equal to or exceeding 
either (1) five percent of the reporting fund's net asset value or (2) 
$1 billion.\272\ We have observed that some funds report significant 
amounts of assets in these ``catch-all'' categories. This new 
explanatory requirement will inform our understanding of significant 
exposure reported in these ``other'' sub-asset classes better, which is 
important for assessing systemic risk. One commenter recommended a 
threshold of 10 percent of a fund's net asset value, rather than five 
percent, for all reporting related to exposures, including to ``catch-
all'' sub-asset classes.\273\ We chose the five percent threshold level 
because it represents a level of exposure that is material to a fund's 
investment performance. We also continue to believe that the impact on 
a fund's returns resulting from an exposure of greater than five 
percent of its net asset value could be significant enough to present 
broader systemic risk and contagion risk. The $1 billion threshold 
represents a level for large funds (e.g., those with net asset values 
in excess of $20 billion) that is large enough so as to have potential 
systemic risk implications even if the position is less than five 
percent of the fund's net asset value.
---------------------------------------------------------------------------

    \271\ These sub-asset classes include loans (excluding leveraged 
loans and repo), other structured products, other derivatives, other 
commodities, digital assets, and investments in other sub-asset 
classes.
    \272\ Some filers report significant exposure to these ``other'' 
categories. For example, the public Private Fund Statistics Q1 2023 
(Table 46) shows about $153 billion in aggregate QHF GNE reported as 
``other loans,'' more than other asset categories of interest, such 
as ABS/structured products (ex. MBS but excluding CLO/CDOs) (about 
$56 billion) and convertible bonds ($122 billion) as of Q1 2023. See 
Private Fund Statistics Q1 2023, supra footnote 5.
    \273\ See MFA Comment Letter II.
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    Separate reporting for positions held physically, synthetically or 
through derivatives and indirect exposure. We are adopting, as proposed 
except as specifically indicated below, amendments to require advisers 
to report the dollar value of a qualifying hedge fund's long positions 
and the dollar value of the fund's short positions in certain sub-asset 
classes by ``instrument type'' (i.e., cash/physical instruments, 
futures, forwards, swaps, listed options, unlisted options, and other 
derivative products, ETFs, exchange traded products, U.S. registered 
investment companies (excluding ETFs and money market funds), non-U.S. 
registered investment companies, internal private fund or external 
private fund, commodity pool, or other company, fund, or entity).\274\ 
For each month of the reporting period, advisers will be required to 
report long and short positions in these sub-asset classes held 
physically, synthetically or through derivatives, and indirectly 
through certain entities, separately in order to provide the 
Commissions and FSOC sufficient information to understand, monitor, and 
assess qualifying hedge funds' exposures to certain types of assets and 
investment products. The current instructions (and the associated 
definitions) require advisers to combine exposures held physically, 
synthetically, or through derivatives when reporting certain fixed 
income and other sub-asset classes.\275\ Even when certain sub-asset 
classes currently separate physical and derivative exposures (e.g., 
listed equities), all derivative instrument types are currently 
combined regardless of each derivative instrument type's risk 
characteristics. Furthermore, the form's current instructions for 
reporting investment exposure obtained through funds or other entities 
are different. For example, the current instructions require advisers 
to categorize ETFs based on the assets the ETF holds, while other 
registered investment companies are reported as a separate sub-asset 
class and may obscure the extent of a reporting fund's exposure to 
particular sub-asset classes.
---------------------------------------------------------------------------

    \274\ See Form PF Glossary of Terms (definition of ``instrument 
type''). See also Question 32(a). Sub-asset classes that require 
reporting by instrument type (see Question 32(a)(1)) generally 
include: listed equity issued by financial institutions; American 
Depositary Receipts; other single name listed equity; indices on 
listed equity; other listed equity; unlisted equity issued by 
financial institutions; other unlisted equity; investment grade 
corporate bonds issued by financial institutions (other than 
convertible bonds); investment grade corporate bonds not issued by 
financial institutions (other than convertible bonds); non-
investment grade corporate bonds issued by financial institutions 
(other than convertible bonds); non-investment grade corporate bonds 
not issued by financial institutions (other than convertible bonds); 
investment grade convertible bonds issued by financial institutions; 
investment grade convertible bonds not issued by financial 
institutions; non-investment grade convertible bonds issued by 
financial institutions; non-investment grade convertible bonds not 
issued by financial institutions; U.S. Treasury bills; U.S. Treasury 
notes and bonds; agency securities; GSE bonds; sovereign bonds 
issued by G10 countries other than the U.S; other sovereign bonds 
(including supranational bonds); U.S. state and local bonds; MBS; 
ABCP; CDO (senior or higher); CDO (mezzanine); CDO (junior equity); 
CLO (senior or higher); CLO (mezzanine); CLO (junior equity); other 
ABS; other structured products; U.S. dollar interest rate 
derivatives; non-U.S. currency interest rate derivatives; foreign 
exchange derivatives; correlation derivatives; inflation 
derivatives; volatility derivatives; variance derivatives; other 
derivatives; agricultural commodities; crude oil commodities; 
natural gas commodities; power and other energy commodities; gold 
commodities; other (non-gold) precious metal commodities; base metal 
commodities; other commodities; real estate; digital assets; 
investments in other sub-asset classes. These sub-asset classes are 
reported at the sub-asset class level and not by instrument type 
(see Question 32(a)(2)): leveraged loans; loans (excluding leveraged 
loans and repo); overnight repo; term repo (other than overnight); 
open repo; sovereign single name CDS; financial institution single 
name CDS; other single name CDS; index CDS; exotic CDS; U.S. 
currency holdings; non-U.S. currency holdings; certificates of 
deposit; other deposits; money market funds; other cash and cash 
equivalents (excluding bank deposits, certificates of deposit, and 
money market funds). We are also amending the Glossary of Terms to 
(i) amend the definitions of agency securities, convertible bonds, 
corporate bonds, GSE bonds, leveraged loans, sovereign bonds, and 
U.S. Treasury securities, in each case to include positions held 
indirectly through another entity, (ii) remove the definitions of 
crude oil, derivative exposures to unlisted equities, gold, natural 
gas, and power, and (iii) amend the definitions of commodities and 
other commodities. See Form PF Glossary of Terms. Additionally, for 
foreign exchange derivatives, advisers will be required to report 
foreign exchange swaps and currency swaps separately, and in 
determining dollar value, will not net long and short positions 
within sub-asset classes or instrument types (with the exception of 
spot foreign exchange longs and shorts).
    \275\ Advisers are required to report the dollar value of long 
and short positions for the sub-asset class (and not instrument 
type) for the following sub-asset classes: leveraged loans, loans 
(excluding leveraged loans and repo); overnight repo, term repo 
(other than overnight), open repo, sovereign single name CDS, 
financial institution single name CDS, other single name CDS, index 
CDS, exotic CDS, U.S. currency holdings, non-U.S. currency holdings, 
certificates of deposit, other deposits, money market funds, and 
other cash and cash equivalents (excluding bank deposits, 
certificates of deposit, and money market funds). See Question 
32(a).
---------------------------------------------------------------------------

    As proposed, in determining the reporting fund's exposure to sub-
asset classes for positions held indirectly through entities, advisers 
are permitted to allocate the position among sub-asset classes and 
instrument types using reasonable estimates consistent with their 
internal methodologies and conventions of service providers. In a 
modification from the proposal, advisers are also permitted to report 
an entirely indirectly held entity position in one sub-asset class and 
instrument type that best represents the sub-asset class exposure of 
the indirectly held entity, unless the adviser would allocate the 
exposure of the indirectly held entity more granularly under its own 
internal methodologies and conventions of its service providers.\276\
---------------------------------------------------------------------------

    \276\ The proposed instructions would limit the ``best 
represents'' standard to reporting of positions that represent both 
less than (1) 5% of the reporting fund's net asset value and (2) $1 
billion. The adopted instruction removes the proposed position size 
condition and applies the ``best represents'' standard to all 
indirectly held exposures.
---------------------------------------------------------------------------

    Some commenters stated that obtaining information about a fund's 
indirect exposures through investments in other funds could be 
difficult or

[[Page 18013]]

burdensome.\277\ One commenter recommended allowing an adviser to 
select the sub-asset class that ``best represents'' the position.\278\ 
We believe that adopting a ``best represents'' standard, regardless of 
the position size, balances the importance of obtaining more accurate 
and granular data with a reporting standard that is less burdensome for 
advisers than the proposed standard.
---------------------------------------------------------------------------

    \277\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
    \278\ MFA Comment Letter II.
---------------------------------------------------------------------------

    The increased granularity in reporting will allow for a better 
understanding of the activities of qualifying hedge funds and increase 
the utility of data collected for purposes of understanding the role 
qualifying hedge funds play in certain market events. For example, when 
monitoring funds' activities during recent market events like the March 
2020 COVID-19 turmoil, the existing aggregation of U.S. treasury 
securities with related derivatives did not reflect the role hedge 
funds played in the U.S treasury market. Some commenters supported the 
proposed amendments to require hedge fund advisers to report their long 
and short holdings on a disaggregated basis.\279\ One commenter stated 
that requiring private fund advisers to report both long and short 
positions will allow FSOC to have a complete picture of the risk 
exposure across private funds.\280\ Another commenter supported 
disaggregated reporting of physical and synthetically held positions, 
stating that allowing advisers to aggregate their positions between 
physically held and synthetically held positions can make it difficult 
to understand the impact of hedge fund activity especially during 
periods of market instability.\281\ We agree that the existing 
reporting, which allows advisers to aggregate their physical and 
synthetically held positions, as well as long and short exposures, 
obscures our understanding of the fund's overall exposure because of 
the risk differences between such holdings, which reduces our ability 
to effectively assess systemic risk. One commenter stated that more 
granular disclosure of long and short holdings can help ensure that 
FSOC has a complete understanding of systemic risk across private 
funds.\282\ Another commenter opposed all proposed requirements to 
report additional monthly data, including the proposed requirement to 
provide additional monthly exposure reporting, on the basis that such 
monthly data would be costly to produce and would not be more 
beneficial than the existing quarterly basis reporting 
requirements.\283\ Obtaining more granular data on a hedge fund's long 
and short positions is needed in order to provide the Commissions and 
FSOC sufficient information to understand, monitor, and assess 
qualifying hedge funds' exposures and assess systemic risk. Further, 
receiving this data on a monthly basis, rather than only as of quarter 
end, will give us better insight into trends that may indicate systemic 
risk. One commenter recommended that the Commissions define ``synthetic 
long position'' and ``synthetic short position'' and include a 
threshold for when a position is considered deep-in-the-money.\284\ As 
discussed more fully in section II.B.2 above, we are adopting 
definitions for ``synthetic long position'' and ``synthetic short 
position'' in the Glossary of Terms and specifying as an example when a 
position is considered deep-in-the-money.
---------------------------------------------------------------------------

    \279\ See AFREF Comment Letter I; Better Markets Comment Letter.
    \280\ AFREF Comment Letter I.
    \281\ See Better Markets Comment Letter.
    \282\ AFREF Comment Letter I.
    \283\ SIFMA Comment Letter.
    \284\ MFA Comment Letter II.
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    Adjusted exposure reporting. While we will continue to require 
advisers to report ``gross'' long and short exposure, i.e., the dollar 
value of a qualifying hedge fund's long positions and dollar value of 
the fund's short positions for various sub-asset classes (and by 
instrument type for certain sub-asset classes as explained above), we 
are adopting, as proposed, amendments to require advisers to also 
report the ``adjusted'' exposure of long and short positions for each 
sub-asset class in which a fund has a reportable position.\285\ Based 
on our experience, we have found that gross exposure reporting, while 
useful because the information indicates fund size on a comparable 
basis among funds, may inflate some qualifying hedge funds' reported 
long and short exposures in a way that does not properly represent the 
economic exposure and market risk of a reporting fund's portfolio. For 
example, when only looking at gross exposure, certain relative value 
strategies that are designed to match long and short exposures in the 
same or similar (highly correlated) assets may reflect very high 
leverage, but not have the same level of risk as portfolios with less 
leverage but that are more exposed directionally. Furthermore, some 
advisers, for purposes of managing risk, do not view their portfolio on 
a ``gross'' basis because they do not believe it provides a meaningful 
measure of risk. ``Gross'' exposure reporting by itself presents an 
incomplete picture that represents a significant data gap for purposes 
of systemic risk analysis.
---------------------------------------------------------------------------

    \285\ Question 32(b). See also Form PF Glossary of Terms 
(definition of ``adjusted exposure'').
---------------------------------------------------------------------------

    Advisers will be required to determine adjusted exposure for each 
``sub-asset'' using a specified methodology that is designed to 
facilitate comparisons of the reported data, as proposed. Specifically, 
advisers will be required to calculate and report ``adjusted exposure'' 
of long and short positions for each sub-asset class by netting (1) 
positions that have the same underlying ``reference asset'' across 
``instrument type'' (i.e., cash/physical instruments, futures, 
forwards, swaps, listed options, unlisted options, other derivative 
products, and positions held indirectly through another entity such as 
ETFs, other exchange traded products,\286\ U.S. registered investment 
companies (excluding ETFs and money market funds), investments in non-
U.S. registered investment companies,\287\ other private funds, 
commodity pools, or other companies, funds or entities)and (2) fixed 
income positions that fall within certain predefined maturity buckets 
(i.e., 0 to 1 year, 1 to 2 year, 2 to 5 year, 5 to 10 year, 10 to 15 
year, 15 to 20 year, and 20+ year).\288\
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    \286\ In connection with this amendment, as proposed, we are 
also defining ``exchange traded product'' as ``an investment traded 
on a stock exchange that invests in underlying securities or assets, 
such as an ETF or exchange traded note.'' See Form PF Glossary of 
Terms. Given that the exchange traded product market has grown 
significantly since Form PF was first adopted, we believe that 
activity in exchange traded products may present different systemic 
risks than traditional listed equities and other instruments that 
might be used to obtain exposure to underlying assets owned within 
an ETF. Furthermore, we believe added insight into whether the 
underlying sub-asset class exposure is held through an ETF will 
enhance FSOC's analysis of systemic risk associated with this asset 
class.
    \287\ See Form PF Glossary of Terms (definition of ``investments 
in non-U.S. registered investment companies''). Furthermore, we are 
also removing the term ``U.S. registered investment companies'' from 
the Form PF Glossary of Terms.
    \288\ See Form PF Glossary of Terms. We are adopting, as 
proposed, a definition of ``reference asset'' as a security or other 
investment asset to which a fund is exposed through direct ownership 
(i.e., a physical or cash position), synthetically (i.e. the subject 
of a derivative or similar instrument held by the fund), or indirect 
ownership (e.g., through ETFs, other exchange traded products, U.S. 
registered investment companies, non-U.S. registered investment 
companies, internal private funds, external private funds, commodity 
pools, or other companies, funds, or entities). An adviser may 
identify a reporting fund's reference assets according to its 
internal methodologies and the conventions of service providers, 
provided that these methodologies and conventions are consistently 
applied, do not conflict with any instructions or guidance relating 
to Form PF and reported information is consistent with information 
it reports internally and to investors and counterparties. In a 
change from the proposal, we are modifying the defined maturity 
buckets to remove the 10 -year and 15-year buckets to reduce 
potential confusion.

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[[Page 18014]]

    For purposes of determining ``adjusted exposure,'' a fund may use 
cross counterparty netting consistent with information reported by the 
fund internally and to current and prospective investors, because we 
believe it better reflects the fund's economic exposure. For example, a 
fund with market-neutral trades may lose substantial amounts of capital 
in a period of market stress if prices diverge, regardless of the 
identities of the counterparties. Additionally, counterparty 
identification may be ambiguous for some positions, such as when a fund 
simply has a long position in an equity security traded over an 
exchange or purchased from a broker without the use of any financing.
    Finally, if a fund does not net across all instrument types in 
monitoring the economic exposure of the fund's investment positions for 
purposes of internal reporting and reporting to investors, we will (in 
addition to adjusted exposure determined as specified above) also 
require the adviser to report adjusted exposure based on an adviser's 
internal methodology and describe in Question 4 how the adviser's 
internal methodology differs from the standard approach in Question 32. 
This additional information will provide better insight into how these 
advisers assess the economic exposure of their reporting fund's 
portfolio, while still ensuring an adviser provides information that 
supports our and FSOC's ability to aggregate and compare the data 
across funds.
    One commenter stated that the prescribed methodology for 
calculating netted exposure would be burdensome and that the 
Commissions underestimated the costs associated with this 
calculation.\289\ One commenter stated that requiring monthly sub-asset 
class information, including adjusted exposure data, would not 
facilitate systemic risk monitoring because existing quarterly 
reporting provides the Commissions with similar information.\290\ 
Receiving exposure data on a monthly basis will allow us to better 
understand interim changes in exposures that may be relevant to 
systemic risk assessment that are not visible from the existing 
quarterly data.\291\ As discussed more fully in section IV.C below, 
identifying sub-asset classes will not be significantly burdensome 
because advisers will generally only need to make this determination 
once, with ongoing monitoring (and any reclassifications) relatively 
limited.\292\ Further, because a fund may use cross counterparty 
netting consistent with information reported by the fund internally for 
purposes of determining adjusted exposure, the adjusted exposure 
reporting should not be significantly burdensome, particularly for 
funds using common aggregator protocols, because a fund can leverage 
its existing internal reporting methodology.
---------------------------------------------------------------------------

    \289\ MFA Comment Letter II.
    \290\ SIFMA Comment Letter.
    \291\ See infra section IV.C of this Release for discussion of 
costs and benefits.
    \292\ Id. See also infra section V of this Release for 
discussion of our increased cost estimates.
---------------------------------------------------------------------------

    Require advisers to report a uniform interest rate risk measure. We 
are adopting, as proposed, amendments to require advisers to report the 
10-year zero coupon bond equivalent \293\ for all sub-asset classes 
with interest rate risk (by instrument type if applicable) \294\ rather 
than providing advisers with a choice to report duration, weighted 
average tenor (``WAT''), or an unspecified 10-year bond 
equivalent.\295\ Advisers will be required to report the 10-year zero 
coupon bond equivalent of the dollar value of long and short positions 
in each sub-asset class (and by instrument type, if applicable) as well 
as for the adjusted exposure of long and short exposures for each sub-
asset class for each monthly period.
---------------------------------------------------------------------------

    \293\ As discussed further below in section II.D of this 
Release, we are adopting, with a modification from the proposal, a 
new glossary definition of 10-year bond equivalent to explain that 
the term 10-year bond equivalent means ``the equivalent position in 
a 10-year zero coupon bond, expressed in U.S. dollars.'' See Form PF 
Glossary of Terms (definition of ``10-year bond equivalent''). We 
are also making a conforming change to the definition of interest 
rate derivative to use this new definition.
    \294\ We are adopting amendments to require advisers to report 
the 10-year zero coupon bond equivalent for the following sub-asset 
classes: investment grade corporate bonds issued by financial 
institutions (other than convertible bonds); investment grade 
corporate bonds not issued by financial institutions (other than 
convertible bonds); non-investment grade corporate bonds issued by 
financial institutions (other than convertible bonds); non-
investment grade corporate bonds not issued by financial 
institutions (other than convertible bonds); investment grade 
convertible bonds issued by financial institutions; investment grade 
convertible bonds not issued by financial institutions; non-
investment grade convertible bonds issued by financial institutions; 
non-investment grade convertible bonds not issued by financial 
institutions; U.S. Treasury bills; U.S. Treasury notes and bonds; 
U.S. agency securities; GSE bonds; sovereign bonds issued by G10 
countries other than the U.S; other sovereign bonds (including 
supranational bonds); U.S. state and local bonds; leveraged loans; 
loans (excluding leveraged loans and repo); overnight repo; term 
repo (other than overnight); open repo; MBS; ABCP; Senior or higher 
CDO; Mezzanine CDO; Junior equity CDO; Senior or higher CLO; 
Mezzanine CLO; Junior equity CLO; other ABS; other structured 
products ; U.S. dollar interest rate derivatives; non-U.S. currency 
interest rate derivatives; and certificates of deposit. See Question 
32(c).
    \295\ See Question 32(c).
---------------------------------------------------------------------------

    The amendment will improve reporting and allow us to obtain better 
data, because the current approach, while providing optionality, makes 
it difficult to compare and aggregate data reported by different funds 
effectively. Furthermore, the 10-year zero coupon bond equivalent is 
appropriate because it is commonly used by hedge fund advisers and will 
be a better and more consistent measure of interest rate risk than 
duration, WAT, or the current unspecified 10-year equivalent. WAT may 
be an incomplete measure because it does not always reflect the 
presence of options embedded in bonds or differing sensitivity to 
interest rate changes in circumstances where base currencies are 
subject to a higher or lower risk-free rate, and it also may not be 
meaningful for interest rate derivative products. Duration can tend 
toward infinity for certain derivatives and so can provide little 
meaning or utility. In addition, methodologies for calculations of 
duration and a 10-year equivalent (if not standardized to a zero coupon 
bond) may vary, which can result in variability among calculations, and 
requiring use of the 10-year zero coupon bond equivalent will provide 
comparability across the reported data. Therefore, eliminating 
additional reporting options and requiring the 10-year zero coupon bond 
equivalent will provide a common denominator across funds that advisers 
will be able to easily calculate and that will provide a consistent and 
comparable metric. In this regard, the requirement should not create an 
additional burden for advisers that currently report based on a 10-year 
equivalent for these types of assets, which we estimate represents 
roughly 42 percent of the total number of advisers responding to 
Question 32.\296\
---------------------------------------------------------------------------

    \296\ Based on analysis of Form PF data 2022Q4, 2021Q4, and 
2020Q4.
---------------------------------------------------------------------------

    One commenter stated that because the definition of ``10-year bond 
equivalent'' specifies the expression in the fund's base currency, for 
transactions not in the fund's base currency, there would need to be a 
foreign exchange conversion into the base currency and an additional 
conversion into U.S. dollars for certain questions, which would be 
burdensome.\297\ As discussed further below in section II.D below, we 
are modifying the ``10-year bond equivalent'' definition to reference 
U.S. dollars, rather than the reporting fund's base currency. 
Therefore, an adviser in this scenario would not be required to

[[Page 18015]]

perform any additional exchange conversions.
---------------------------------------------------------------------------

    \297\ See AIMA/ACC Comment Letter.
---------------------------------------------------------------------------

    Amended list of sub-asset classes.
    We are adopting, as proposed, amendments to the list of reportable 
sub-asset classes in Question 32 in two respects. First, some sub-asset 
classes are consolidated and tailored to reflect the adopted reporting 
of the dollar value of long and short positions by instrument type. For 
example, sub-asset classes for listed and unlisted equity derivatives 
are combined with sub-asset classes for listed and unlisted equities, 
and similarly, sub-asset classes for physical commodities and commodity 
derivatives are combined.\298\ Likewise, some current sub-asset classes 
will now be reflected as instrument types, such as internal private 
funds, external private funds, and registered investment companies (now 
separated into ETFs, U.S. registered investment companies, and non-U.S. 
registered investment companies). Second, we are adding new sub-asset 
classes to provide additional information to help the Commissions and 
FSOC better understand qualifying hedge funds' investment exposures to 
certain asset types and reduce reporting in certain ``catch-all'' sub-
asset classes, such as ``other listed equity.''
---------------------------------------------------------------------------

    \298\ In connection with these amendments, we are amending the 
definitions of ``listed equity'' and ``unlisted equity'' to reflect 
that filers should include synthetic or derivative exposure as well 
as positions held indirectly through another entity (e.g., through 
an ETF, exchange traded product, U.S.-registered investment 
companies, non-U.S. registered investment companies, internal 
private fund or external private fund, commodity pool, or other 
company, fund, or entity). Additionally, we are amending the 
definition of ``listed equity derivatives'' to include derivatives 
relating to ADRs, and other derivatives relating to indices on 
listed equities. See Form PF Glossary of Terms (definition of 
``listed equity,'' ``unlisted equity,'' and ``listed equity 
derivatives'').
---------------------------------------------------------------------------

    We are also adopting amendments to: (1) expand equity exposure 
reporting to add sub-asset classes for (a) listed equity securities 
(including new sub-asset classes for other single name listed equities 
and indices on listed equities), and (b) American depository receipts 
(``ADRs''); (2) add additional sub-asset classes for reporting ``repo'' 
and ``reverse repo'' positions, based on term; (3) add additional sub-
asset classes for asset backed securities (``ABS'') and other 
structured products; (4) add new sub-asset classes and revise existing 
sub-asset classes that capture certain derivatives, including certain 
credit derivatives and volatility and variance derivatives; (5) specify 
sub-asset classes pertaining to investments in cash and cash 
equivalents and commodities; and (6) add a new sub-asset class for 
digital assets.
    One commenter opposed requiring more detailed disclosure of a 
fund's holdings and recommended that the Commissions leverage existing 
data sources, such as existing Form PF, Form 13F and 13H, and CFTC Form 
CPO-PQR reporting, to obtain more granular information about a fund's 
holdings.\299\ We disagree that existing data sources can provide the 
amended fund-specific sub-asset class information. As discussed above, 
we have identified information gaps in the data reported on the 
existing Form PF based on our experience. From these data sets, we are 
unable to determine the full extent of a fund's exposure because the 
different types of exposures are combined, despite different exposures 
having differing risk characteristics.\300\ This commenter also stated 
that the requirement to report more granular sub-asset class data would 
be overly burdensome and costly to report and that we should use other 
data sources for this information.\301\ These amendments to the sub-
asset class list more accurately reflect a fund's holding than other 
data sources and current Form PF reporting, which does not provide this 
level of specificity. Identifying sub-asset classes will not be 
significantly burdensome to report because advisers will generally only 
have to make this determination once and their ongoing monitoring (and 
any reclassifications) should be relatively limited. This commenter 
also raised confidentiality concerns and stated that the detailed sub-
asset class data could enable a person with access to the data to 
recreate a private fund's investment strategy.\302\ The asset class 
level data reported on Form PF, which is filed on a non-public basis, 
is not sufficiently detailed or reported on a basis frequent enough to 
present significant risk of misuse or enable reverse engineering of a 
particular fund's investment strategy.
---------------------------------------------------------------------------

    \299\ See SIFMA Comment Letter.
    \300\ For example, Forms 13F and 13H do not collect fund-
specific information, and only a small sub-set of Form PF filers 
(commodity pool operators and commodity trading advisors) are 
required to file Form CPO-PQR. As discussed above, we have 
identified information gaps in the data reported on the existing 
Form PF based on our experience.
    \301\ See SIFMA Comment Letter. See also infra at section IV.C 
of this Release for discussion of costs and benefits.
    \302\ See SIFMA Comment Letter.
---------------------------------------------------------------------------

    Listed equity securities.
    We are adding, as proposed, new sub-asset classes for certain 
categories of listed equity securities, specifically, for other single 
name listed equities and indices on listed equities. This change will 
provide more granularity to reporting on listed equities \303\ given 
the potential impact of these new sub-asset classes from an overall 
systemic risk perspective, as the form currently only requires advisers 
to single out and report listed equities issued by financial 
institutions with all other listed equities reported in a catch-all 
category ``other listed equity.'' Identifying single equities 
separately from equity index exposure can help distinguish broadly 
diversified portfolios from those that could be more concentrated and 
also help to identify what strategies are being pursued by multi-
strategy funds. Additionally, single equity positions may be more 
vulnerable to short squeezes than index positions, so this level of 
granularity will help to better identify entities that may be affected 
during a short squeeze event.\304\
---------------------------------------------------------------------------

    \303\ See current Question 26 and Question 30, which required 
reporting on listed equities but did not separate out single names 
from indices. Investments in single name equities involve materially 
more idiosyncratic risks, such as the potential for more extreme 
price movements that are not correlated to other market movements, 
than investments in indices, and therefore we have adopted 
amendments to require separate reporting.
    \304\ A short squeeze is a type of manipulation in which prices 
are manipulated upward to force short sellers out of their 
positions, as short sellers are required by brokers to maintain 
margin above a certain level, and as prices rise short sellers must 
add cash to their margin accounts or close out their short 
positions. Single stock shorts often account for a higher portion of 
the available float and/or often have a larger period of days to 
cover (i.e., the number of trading days to cover a short) than do 
shorts on ETFs. As a result, a potential need to cover a short could 
generally have a more pronounced effect on single stocks.
---------------------------------------------------------------------------

    One commenter stated that the proposed instructions do not specify 
whether the reporting fund's listed equity security holdings should 
include both the reporting fund's holding in shares of an ETF as well 
as the listed equity holdings of the same ETF.\305\ Another commenter 
stated that the proposed question is unclear how advisers should report 
indirect holdings, such as positions held through entities such as 
ETFs, and recommended permitting advisers to allocate its exposures 
using any reasonable methodology.\306\ In consideration of this 
comment, we are adopting instructions to Question 32 to provide that in 
determining a reporting fund's exposure to sub-asset classes for 
positions held indirectly through entities, such as through an ETF, the 
adviser may allocate the position among sub-asset classes and 
instrument types using reasonable estimates consistent with the 
adviser's internal methodologies and conventions of service providers, 
and the adviser may

[[Page 18016]]

report an entirely indirectly held entity position in one sub-asset 
class and instrument type that best represents the sub-asset class 
exposure of the indirectly held entity unless the adviser would 
allocate the exposure of the indirectly held entity more granularly 
under the adviser's own internal methodologies and conventions of its 
service providers.\307\
---------------------------------------------------------------------------

    \305\ AIMA/ACC Comment Letter.
    \306\ MFA Comment Letter II.
    \307\ See Question 32.
---------------------------------------------------------------------------

    ADRs.
    We are adding, as proposed, a new sub-asset class for ADRs in line 
with how ADRs are reported on the CFTC's Form CPO-PQR.\308\ While ADRs 
are purchased in U.S. dollars, these instruments have currency risk 
because the underlying security is priced in its home country currency, 
and the ADR's U.S. dollar price fluctuates one-for-one with each 
movement in the home currency. Accordingly, advisers will be required 
to report ADRs separately from other listed equity instruments. This 
requirement also will help increase the utility of the information 
reported under the ``other listed equity'' sub-asset class on Form PF, 
which requires reporting of multiple other sub-asset classes. We did 
not receive comment on the proposed addition of an ADR sub-asset class.
---------------------------------------------------------------------------

    \308\ As noted above, where applicable, we are adopting 
amendments to align Form PF with Form CPO-PQR to (1) enable filers 
that currently are required to file both Form PF and Form CPO-PQR 
independently to compile and use similar data in completing both 
forms, and (2) enable users of the reported data (e.g., FSOC and 
other regulatory agencies) to (i) link data for funds that file both 
forms, and (ii) aggregate and compare data across data sets more 
easily.
---------------------------------------------------------------------------

    Repurchase Agreements (``Repos'').
    We are adding, as proposed, additional sub-asset classes to the 
``repos'' section of Question 32 to capture a breakdown of repos by 
term (e.g., overnight, other than overnight, and open term). Hedge 
funds often borrow cash overnight and pledge securities such as 
government bonds as collateral. Collecting more information on the 
different types of repos held by qualifying hedge funds will allow the 
Commissions and FSOC to understand better the role of these funds in 
potentially amplifying funding stresses and the risks associated with 
short-term funding for certain trading strategies, particularly in 
light of the issues the repo market experienced during the fall of 2019 
and in March 2020.\309\ We did not receive comment on adding sub-asset 
classes for repos.
---------------------------------------------------------------------------

    \309\ See, e.g., 2021 Financial Stability Oversight Council 
Annual Report at 12 and 159, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
---------------------------------------------------------------------------

    Asset Backed Securities (``ABS'')/structured products.
    As proposed, we are separating the collateralized debt obligation 
(``CDO'') and collateralized loan obligation (``CLO'') sub-asset class 
in Question 32 into two separate sub-asset classes (one for CDOs and 
one for CLOs), and further breaking out each of these new sub-asset 
classes based on the seniority of the instrument (e.g., senior, 
mezzanine, and junior tranches) similar to the reporting approach on 
the CFTC's Form CPO-PQR.\310\ The changes are designed to provide 
separate reporting for CDOs and CLOs, which is important because CDOs 
and CLOs are fundamentally different financial products and the current 
combined reporting obscures the specific attributes of each product.
---------------------------------------------------------------------------

    \310\ See Form PF Glossary of Terms (definitions of ``CDO'' and 
``CLO''). We are separating the current definition of ``CDO/CLO'' 
into a separate definition for each financial product. The 
definition of CDO only includes collateralized debt obligations 
(including cash flow and synthetic) and the definition of CLO 
includes collateralized loan obligations (including cash flow and 
synthetic) other than MBS and does not include any positions held 
via CDS. See also supra footnote 308 (regarding the alignment of 
Form PF with Form CPO-PQR).
---------------------------------------------------------------------------

    One commenter supported the disclosure of CDOs and CLOs as separate 
sub-asset classes because of the different investment and risk 
characteristics of these assets and the systemic risks associated with 
both asset classes.\311\ We agree. Furthermore, given the recent focus 
on CLOs by FSOC \312\ in monitoring systemic risk, having detailed 
product specific data for CDOs and CLOs is justified due to the 
potential value this information can provide for systemic risk 
monitoring.
---------------------------------------------------------------------------

    \311\ NASAA Comment Letter.
    \312\ See United States Government Accountability Office, Report 
to Agency Officials, ``FINANCIAL STABILITY Agencies Have Not Found 
Leveraged Lending to Significantly Threaten Stability but Remain 
Cautious Amid Pandemic,'' Dec. 2020, available at https://www.gao.gov/assets/gao-21-167.pdf.
---------------------------------------------------------------------------

    Credit, Foreign Exchange, Interest Rate, and Other Derivatives.
    We are revising, as proposed, the credit, foreign exchange, and 
interest rate and other derivative sub-asset classes to provide more 
detailed reporting. For example, with respect to credit derivatives, 
the amended sub-asset classes will collect more detail on single name 
CDS exposure to capture better information on risk signals from these 
instruments by adding separate sub-asset classes for sovereign single 
name CDS, financial institution single name CDS, and other single name 
CDS (to capture any credit derivatives that do not fall into the other 
enumerated CDS categories).\313\ An increase in single name CDS 
exposure may signify a bet against an entity or the market more 
generally, which may have significant systemic risk implications, 
particularly with respect to concentrated single-issuer positions that 
can drive more extreme price movements and face difficulties in the 
unwinding process, and for counterparties on the other side of highly 
leveraged trades when the market moves against these positions.\314\ 
Furthermore, single name CDS exposure can represent important, 
concentrated risk positions for a fund, similar to large single equity 
positions, which can be connected to market contagion events, and have 
systemic risk and market liquidity implications.
---------------------------------------------------------------------------

    \313\ See also Form PF Glossary of Terms (revised definition of 
``single name CDS''). We are also removing ``credit derivatives'' 
and ``risk limiting conditions'' as defined terms because they are 
no longer used in the form.
    \314\ The CFTC's Form CPO-PQR also requests information on 
single name financial CDS, and the revised IOSCO Global Fund 
Investment Survey also collects this information.
---------------------------------------------------------------------------

    Similarly, we are adding more detailed reporting for foreign 
exchange derivatives by adding separate sub-asset classes for foreign 
exchange swaps and currency swaps consistent with reporting to the Bank 
for International Settlements (``BIS''), while removing the less useful 
requirement of separate reporting for foreign exchange derivatives used 
for investment and hedging, as we have found the data of limited value 
because we do not believe that information is reported consistently 
across filers.\315\ Adding separate reporting for different types of 
foreign exchange instruments (e.g., foreign exchange swaps and currency 
swaps) is appropriate because they have materially different risk 
characteristics, including different maturity profiles, and may be 
executed under different documentation which could affect their ability 
to be netted against one another. We refer to the BIS framework because 
we understand that it reflects a commonly accepted industry approach 
for classifying these instruments. Furthermore, given the significance 
of hedge funds' exposure to these instruments, more granular 
information will better inform our understanding of systemic risk 
issues that may arise from

[[Page 18017]]

holdings in these different types of instruments.
---------------------------------------------------------------------------

    \315\ In connection with these changes, we are also adopting 
changes to the definition of ``foreign exchange derivative'' to 
improve data quality with respect to how advisers report foreign 
exchange derivative exposure. We are revising the definition to (1) 
now include any derivative whose underlying asset is a currency 
other than the base currency of the reporting fund, (2) provide 
additional information on the treatment of cross-foreign exchange 
versus regular foreign exchange, and (3) require reporting of both 
legs of cross currency foreign exchange derivatives to reflect 
exposures from such transactions. See Form PF Glossary of Terms 
(revised definition of ``foreign exchange derivative'').
---------------------------------------------------------------------------

    We are also dividing the current ``interest rate derivatives'' sub-
asset class into ``U.S. dollar interest rate derivatives'' and ``non-
U.S. currency interest rate derivatives.'' This added sub-asset class 
granularity is important because we have found that Form PF data 
consistently shows interest rate derivatives as the sub-asset class to 
which qualifying hedge funds have the greatest exposure over time. A 
better understanding of whether these exposures are related to the U.S. 
dollar yield curve or other countries' yield curves is important from a 
systemic risk analysis perspective. Finally, we are adding new sub-
asset classes for various types of derivatives that are regularly used 
by hedge funds including correlation derivatives, inflation 
derivatives, volatility derivatives, and variance derivatives, which 
will both provide additional insight into how qualifying hedge funds 
use these types of financial instruments and further limit the number 
and type of derivatives that advisers report in the ``catch-all'' 
``other derivatives'' category.\316\
---------------------------------------------------------------------------

    \316\ In connection with these amendments, we are also adding 
new definitions to the Glossary of Terms for ``correlation 
derivative,'' ``inflation derivative,'' ``volatility derivative,'' 
and ``variance derivative.'' See Form PF Glossary of Terms.
---------------------------------------------------------------------------

    More detailed reporting of currency exposure arising from foreign 
exchange derivatives is important for systemic risk. The requirement to 
select the sub-asset class that best represents the investment will 
address concerns about any burdens associated with obtaining this 
information.
    Although one commenter generally opposed the inclusion of 
additional sub-asset classes,\317\ we did not receive comment on these 
particular sub-asset class revisions. As discussed more fully above in 
the context of particular amendments to the sub-asset class list, the 
amendments to the sub-asset class list that we are adopting more 
accurately reflect a fund's holding than other data sources and current 
Form PF reporting and are important for systemic risk analysis. 
Understanding sub-asset class exposure on a more granular level will 
enhance our understanding of qualifying hedge funds' investment 
exposures to different asset classes and instruments that may present 
different systemic risks. These amendments will also enhance data 
quality by reducing the asset reporting that is currently made in 
``catch-all'' categories or less precise categories, such as a 
sovereign single name CDS that would currently be categorized more 
generically as a single name CDS.
---------------------------------------------------------------------------

    \317\ See SIFMA Comment Letter.
---------------------------------------------------------------------------

    Cash and Commodities.
    We are adopting, as proposed, revisions to the sub-asset class 
categories for cash and commodities. We are adopting amendments to 
require advisers to break out cash and cash equivalents \318\ between 
U.S. currency holdings and non-U.S. currency holdings, while also 
removing the current requirement to report on investments in funds for 
cash management purposes (other than money market funds) because in our 
experience advisers use inconsistent methods for determining whether a 
private fund investment is being used for cash management purposes and 
other information reported in section 2 is more useful for assessing 
liquidity management (e.g., Question 38 with respect to unencumbered 
cash).\319\
---------------------------------------------------------------------------

    \318\ Some advisers include treasuries in their reporting of 
``cash'' because it was part of the current definition of ``cash and 
cash equivalents.'' We are revising the definition of ``cash and 
cash equivalents'' to reflect that treasuries should not be included 
in the ``cash and cash equivalents'' sub-asset class. In connection 
with this change we also are adding a new separate definition for 
``government securities.'' See Form PF Glossary of Terms (revised 
definition of ``cash and cash equivalents'' and definition of 
``government securities''). See also discussion at section II.B.2 of 
this Release regarding the revised definitions of cash and cash 
equivalents and government securities.
    \319\ Additionally, in many cases we will be able to obtain more 
information about all internal fund investments (including whether a 
fund looks like a cash management vehicle) through the new 
information the amendments require to be reported in section 1b. See 
discussion at section II.B.2 of this Release.
---------------------------------------------------------------------------

    One commenter supported separate reporting of U.S. Treasury 
security holdings and cash and cash equivalents on the basis that 
including these asset classes together can obscure information about a 
fund's holdings.\320\ Another commenter opposed the proposed revision 
to the definition of ``cash and cash equivalents'' to remove treasury 
securities on the basis that such an exclusion would be inconsistent 
with market practice of treating short-term treasury securities as a 
cash equivalent for risk management and cash management purposes.\321\ 
It is important to understand a reporting fund's exposure to treasury 
securities distinct from its cash and cash equivalent holdings because 
of the different risk profiles of these asset categories, as 
demonstrated by recent market events.\322\ We continue to believe that 
removing the treasury securities from the definition of ``cash and cash 
equivalents'' is appropriate and will provide more useful data and 
promote consistency across filers.
---------------------------------------------------------------------------

    \320\ See AFREF Comment Letter I.
    \321\ MFA Comment Letter II.
    \322\ See, e.g., Group of Thirty Working Group on Treasury 
Market Liquidity, U.S. Treasury Markets: Steps Toward Increased 
Resilience, (2021), available at https://group30.org/publications/detail/4950 (discussing recent market stress events in the U.S. 
Treasury securities market).
---------------------------------------------------------------------------

    Additionally, we are broadening the current power commodity sub-
asset classes to also capture other energy commodities and add 
additional commodity sub-asset classes (e.g., other (non-gold) precious 
metals, agricultural commodities, and base metal commodities) to 
provide added granularity with respect to these financial products 
given their potential systemic risk implications and to better inform 
our and FSOC's understanding of the activities of hedge funds in these 
important commodities markets. We have found that a limitation of the 
current form is that very different commodities (e.g., wheat and 
nickel) are reported together in the same sub-asset class (i.e., 
``other commodities'') making the reported data less meaningful for 
analysis. With added granularity, we will be in a better position to 
identify concentrated exposures to particular commodities, data that 
could be valuable in the event of a dislocation in a particular 
commodity market.\323\ The additional commodity sub-asset classes that 
we are adding, i.e., other (non-gold) precious metals, agricultural 
commodities, and base metal commodities, were chosen because they are 
most relevant from a systemic risk perspective given the size of these 
markets and what we currently know of hedge fund exposures to these 
markets.\324\ We did not receive

[[Page 18018]]

comments on these proposed changes to the commodity sub-asset classes.
---------------------------------------------------------------------------

    \323\ For example, we believe the addition of a base metal 
commodities sub-asset class will allow for identification of large 
players in the base metals market (such as those impacted by the 
Mar. 2022 ``nickel squeeze''). During the Mar. 2022 ``nickel 
squeeze,'' the price of nickel rose unusually steeply and rapidly in 
response to commodity price increases caused by Russia's invasion of 
Ukraine, and this event, coupled with one or more market 
participants holding large short positions, caused prices to 
increase in an extreme manner (e.g., a one-day increase of 63% for 
the generic first futures contract on Mar. 7, 2022). See, e.g., 
Shabalala, Zandi, Nickel booms on short squeeze while other metals 
retreat, Reuters (Mar. 2022), available at https://www.reuters.com/markets/europe/lme-nickel-jumps-another-10-after-record-rally-supply-fears-2022-03-08/; Nagarajan, Shalini, Nickel Trading Halted 
at LME Until Friday After Wild Price Spike (businessinsider.com) 
(Mar. 2022), available at https://markets.businessinsider.com/news/
commodities/nickel-price-london-metal-exchange-suspends-trading-
shanghai-short-squeeze-2022-
3#:~:text=The%20London%20Metal%20Exchange%20has,17%25%20to%20their%20
daily%20limit.
    \324\ These adopted changes with respect to commodities sub-
asset classes will also better align Form PF with Form CPO-PQR.
---------------------------------------------------------------------------

    Digital Assets.
    We are adopting, as proposed, a new sub-asset class for digital 
assets. However, as discussed more fully above in section II.B.3 of 
this Release, we are not adopting the proposed definition of ``digital 
assets.'' \325\ We have observed the growth as well as the volatility 
of this asset class in recent years.\326\ We understand that many hedge 
funds have been formed recently to invest in digital assets, while many 
existing hedge funds are also allocating a portion of their portfolios 
to digital assets.\327\ Accordingly, it is important to collect 
information on funds' exposures to digital assets in order to 
understand better their overall market exposures. Although we are not 
adopting the proposed definition of ``digital assets'' at this time, we 
are adding an instruction to Question 32 that states if a particular 
asset could be classified as both a digital asset and another asset, 
the adviser should report the asset as the non-digital asset. For 
example, a money market fund that is traded on a blockchain should be 
reported as a money market fund, rather than as a digital asset. This 
is designed to reduce potential confusion, narrow the assets that are 
reported as digital assets under the form and improve data quality.
---------------------------------------------------------------------------

    \325\ See discussion at section II.B.3 of this Release.
    \326\ The global market for crypto assets is valued by some 
estimates at approximately $900 billion as of Dec. 2022. See, e.g., 
Global Cryptocurrency Market Cap Charts, CoinGecko, available at 
https://www.coingecko.com/en/global-charts (last visited on Oct. 12, 
2023). Volatility in the price of crypto assets has caused this 
number to fluctuate considerably over the past few years. For 
example, in July of 2020 the market was estimated to be worth 
approximately $276 billion, but went on to reach a peak value of 
approximately $3 trillion by Nov. 2021. Id.
    \327\ See C. Williamson, Managers Taking Bigger Steps Into 
Crypto, Pensions & Investments (Mar. 2022), available at at https://www.pionline.com/cryptocurrency/hedge-fund-managers-taking-bigger-steps-cryptocurrehttps://www.pionline.com/cryptocurrency/hedge-fund-managers-taking-bigger-steps-cryptocurrency.
---------------------------------------------------------------------------

    One commenter recommended requiring disclosure of digital asset 
exposure on a quarterly or biannual basis for all filers due to the 
general volatility of digital assets and the potential for systemic 
risk.\328\ All large hedge fund advisers are required to file Form PF 
on a quarterly basis, so we will receive data on digital asset exposure 
from these filers on a quarterly basis. In addition, as discussed more 
fully above in section II.B.3 of this Release, we are adopting 
amendments which require all hedge fund advisers, including large hedge 
fund advisers, to disclose the reporting fund's use of digital asset 
investment strategies.
---------------------------------------------------------------------------

    \328\ AFREF Comment Letter I.
---------------------------------------------------------------------------

    Open and Large Position Reporting.
    We are adopting, as proposed, amendments to require advisers to 
qualifying hedge funds to report the top five long and short netted 
positions and the top ten netted long and short positions. This 
amendment will provide a holistic view of a reporting fund's portfolio 
concentration. We also understand that these are commonly used industry 
metrics for assessing portfolio concentration levels. We are defining 
``netted exposure'' as the sum of all positions with legal and 
contractual rights that provide exposure to the same reference asset, 
taking into account all positions, including offsetting and partially 
offsetting positions, relating to the same reference asset (without 
regard to counterparties or issuers of a derivative or other instrument 
that reflects the price of the reference asset), as proposed.\329\ 
Currently, advisers to qualifying hedge funds are required to report 
(1) a fund's total number of ``open positions'' determined on the basis 
of each position and not with reference to a particular issuer or 
counterparty,\330\ and (2) the percentage of a fund's net asset value 
and sub-asset class for each open position that represents five percent 
or more of a fund's net asset value.\331\ Advisers to qualifying hedge 
funds will now be required to report (1) the total number of reference 
assets to which a fund holds long and short netted exposure, (2) the 
percentage of net asset value represented by the aggregate netted 
exposures of reference assets with the top five long and short netted 
exposures, and (3) the percentage of net asset value represented by the 
aggregate netted exposures of reference assets representing the top ten 
long and short netted exposures. These amendments are designed to 
provide insight into the extent of a fund's portfolio concentration and 
large exposures to any reference assets. We have found that advisers 
use different methods for identifying and counting their ``open 
positions,'' which has made making meaningful comparisons among funds 
difficult. This has also potentially obscured certain large exposures, 
which may make concentration assessments less exact. For example, an 
``open position'' might indicate a position held physically, or 
synthetically through derivatives, or both.
---------------------------------------------------------------------------

    \329\ Netted exposure to a reference asset may either be long or 
short, and advisers will be required to determine the value of each 
netted exposure to each reference asset in U.S. dollars, expressed 
as the delta adjusted notional value, or as the 10-year bond 
equivalent for reference assets that are fixed income assets. 
Advisers will not report exposure to cash and cash equivalents. See 
Question 39. See also Form PF Glossary of Terms (definition of 
``netted exposure'').
    \330\ Current Question 34.
    \331\ Current Question 35.
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    Advisers will also be required to provide certain information on a 
fund's reference asset to which the fund has gross exposure (as of the 
end of each month of the reporting period), largely as proposed, equal 
to or exceeding (1) one percent of net asset value, if the reference 
asset is a debt security and the reporting fund's gross exposure to the 
reference asset exceeds 20 percent of the size of the overall debt 
security issuance, (2) one percent of net asset value, if the reference 
asset is a listed equity and the reporting fund's gross exposure to the 
reference asset exceeds 20 percent of average daily trading volume 
measured over 90 days preceding the reporting date, or (3) (a) five 
percent of the reporting fund's net asset value or (b) $1 billion.\332\ 
Advisers will be required to report: (1) the dollar value (in U.S. 
dollars) of all long and the dollar value (in U.S. dollars) of all 
short positions with legal and contractual rights that provide exposure 
to the reference asset; (2) netted exposure to the reference asset; (3) 
sub-asset class and instrument type; (4) the title or description of 
the reference asset; (5) the reference asset issuer (if any) name and 
LEI; (6) CUSIP (if any); \333\ and (7) if the reference asset is a debt 
security, the size of issue, and if the reference asset is a listed 
equity, the average daily trading volume, measured over 90 days 
preceding the reporting date, as proposed. Additionally, advisers may 
at their option choose to provide the FIGI for the reference asset, but 
they are not required to do so.\334\ We are defining ``gross exposure'' 
to a ``reference asset'' as the sum of the absolute value of all long 
and short positions with legal and contractual rights that provide 
exposure to the reference asset, as proposed.\335\ We considered 
varying levels of thresholds and believe that the thresholds described 
above are appropriate based on the following

[[Page 18019]]

reasoning. First, the five percent threshold has been carried over from 
the current version of Form PF and is also a commonly used metric for 
identifying significant positions in a portfolio.\336\ In addition, 
while a portfolio is generally viewed as diversified when it holds at 
least 20 different positions, when a position goes above five percent 
it reduces portfolio diversification. Second, the $1 billion threshold 
represents a level for large funds (e.g., those with net asset values 
in excess of $20 billion) that is large enough so as to have potential 
systemic risk implications even if the position is less than five 
percent of the fund. Finally, the one percent of net asset value and 20 
percent of issuance or average trading volume thresholds are aimed at 
limiting filer burdens while still providing insight into the risks 
associated with a position that may be small relative to a fund's 
overall portfolio, but which constitutes a large fraction of the market 
for a particular holding, given that a liquidation by one fund can 
trigger a disorderly liquidation. A disorderly liquidation of this kind 
may raise systemic risk concerns as it may lead to liquidation losses 
at other funds for which the position is more impactful and possibly 
lead to a cascade of additional unwinds.
---------------------------------------------------------------------------

    \332\ In a modification from the proposal, the adopted 
instructions add reference to the size of the overall debt security 
issuance (emphasis added) to specify the appropriate calculation. 
Further, the reference to a ``listed equity security'' has been 
modified to ``listed equity'' to align with the defined term used in 
the Glossary of Terms.
    \333\ Advisers will also be required to provide at least one of 
the following other identifiers: (1) ISIN; (2) ticker if ISIN is not 
available); or (3) other unique identifier (if ticker and ISIN are 
not available). For reference assets with no CUSIP, or other 
identifier, advisers will be required to describe the reference 
asset. See Question 40(a).
    \334\ See Question 40(a)(xi).
    \335\ See Question 40 and Form PF Glossary of Terms (revised 
definition of ``gross exposure'').
    \336\ E.g., Schedule 13G/13D uses a 5% threshold.
---------------------------------------------------------------------------

    The purpose of these amendments is to improve our ability to assess 
the magnitude of hedge fund portfolio concentration, as well as to 
identify directional exposure. From a systemic risk and an investor 
protection perspective, high portfolio concentration carries the risk 
of amplified losses that can occur when a fund's investment represents 
a large portion of a particular investment, asset class, or market 
segment. Leveraged portfolios further amplify this risk. The amendments 
are designed to better capture a fund's concentration risk (e.g., where 
gross exposure to a reference asset is large compared to the fund's NAV 
and/or compared to the market for a reference security). Reporting 
positions that are large compared to market size also may provide some 
insight about whether multiple firms are ``crowding'' into trades in 
certain types of securities or other financial assets. Such 
``crowding'' may increase the risk that one fund's forced selling may 
trigger systemic effects across a particular market.
    Collecting information about the composition of exposure to a 
reference asset will allow us and FSOC to link the information reported 
in Question 40 to exposure reporting in Question 32, which will give 
the reported data added context and facilitate understanding of a 
fund's investment portfolio and assessment of any implications for 
systemic risk and investor protection purposes. For example, in a 
convertible arbitrage trade involving a position in a convertible bond 
and an offsetting position in the equity securities of the same issuer, 
reference asset exposure might be obtained by positions in two 
different sub-asset classes (i.e., investment grade convertible bonds 
and equities) and using a combination of instrument types (e.g., 
physical ownership and futures or a swap). The combination of 
information reported in Question 32 and Question 40 will facilitate our 
ability to identify this type of situation, better understand a 
qualifying hedge fund's investment approach and whether it is taking on 
concentrated positions (potentially with leverage), and assess whether 
or not a qualifying hedge fund's activities may have systemic risk or 
investor protection implications.
    One commenter stated that more granular disclosure of holdings, 
including both long and short positions, will provide a more complete 
picture of the risk exposure across private funds and can help the SEC 
enforce fraud and manipulation of security-based swaps.\337\ Some 
commenters opposed the requirements for more detailed disclosure of 
holdings on the basis that more granular disclosure would be costly to 
report and is not needed for systemic risk assessment.\338\ For reasons 
discussed above, more granular information about a fund's exposure to a 
reference asset will allow us and FSOC additional context to facilitate 
understanding of a fund's investment portfolio and assessment of any 
implications for systemic risk and investor protection purposes, which 
justifies any incremental cost to advisers. One commenter recommended 
not requiring reporting on exposures on a gross basis because of the 
potential for gross figures to overstate a fund's exposure.\339\ 
Advisers are required to report exposures on a gross and net basis 
because reporting on either a gross or net basis only would limit our 
understanding of the total risk exposure, for example any basis risk of 
the exposure.
---------------------------------------------------------------------------

    \337\ AFREF Comment Letter I.
    \338\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter; 
AIMA/ACC Comment Letter. See infra section IV.C of this Release for 
discussion of costs and benefits of the amendments.
    \339\ MFA Comment Letter II.
---------------------------------------------------------------------------

    In response to a request for comment in the proposing release 
regarding the use of FIGI as a substitute for CUSIP, one commenter 
recommended the inclusion of FIGI as an alternative financial 
identifier in lieu of CUSIP in Question 40, which requires advisers to 
report CUSIP information for each reference asset, if available.\340\ 
Two commenters opposed permitting the use of FIGI in lieu of CUSIP 
stating that CUSIP is a single fungible identifier, whereas FIGI is not 
a single fungible identifier and produces multiple identifiers 
depending on the venue of execution.\341\ We agree that, for reporting 
on Form PF, a fungible identifier is preferable because it will allow 
for more consistent reporting of assets than a nonfungible identifier 
regardless of the venue of execution, resulting in more effective 
monitoring and assessment of systemic risk. We are not adopting a 
change to permit the substitution of FIGI for CUSIP. Question 40 
continues to require advisers to report for each reference asset the 
CUSIP, if any, and at least one of the following identifiers: ISIN, 
ticker, if ISIN is not available, or other unique identifier, if ISIN 
and ticker are not available.\342\ Advisers may, on an optional basis, 
report for each reference asset the FIGI.\343\ For reference assets 
with no CUSIP or other identifier, advisers are required to describe 
the reference asset.\344\
---------------------------------------------------------------------------

    \340\ Bloomberg Comment Letter. Form PF Question 65 also 
requires large liquidity fund advisers to report the CUSIP number 
for each security held by the reporting fund and for each security 
subject to a repo.
    \341\ See, e.g., American Bankers Association Comment Letter 
(Oct. 11, 2022); Comment Letter of CUSIP Global Services (Oct. 11, 
2022).
    \342\ Question 40.
    \343\ Id.
    \344\ Id. We encourage advisers to obtain financial identifiers 
for all of their assets for the benefit of their investors when 
reporting their investments to regulatory authorities and others.
---------------------------------------------------------------------------

b. Borrowing and Counterparty Exposure
    Counterparty exposure. As noted above, we are revising and 
enhancing how advisers report information about their relationships 
with creditors and other counterparties (including CCPs) and the 
associated collateral arrangements for their hedge funds, largely as 
proposed.\345\ For qualifying hedge funds, we are adopting, as 
proposed, a new consolidated counterparty exposure table, similar to 
the new consolidated counterparty exposure table adopted for hedge 
funds in section 1c of the form,\346\ which will capture all cash, 
securities, and synthetic long and short positions by a reporting fund, 
a fund's credit exposure

[[Page 18020]]

to counterparties, and amounts of collateral posted and received. This 
table replaces the information currently required by current Questions 
43, 44, 45, and 47, each of which has been deleted.\347\ Questions 42 
and 43 will continue to collect information about a reporting fund's 
key individual counterparties, but in more detail. These revisions are 
designed to improve data quality and comparability, close data gaps, 
and provide better insight into qualifying hedge funds' borrowing and 
financing relationships, their credit exposure to counterparties and 
collateral practices. They also will enhance the Commissions' and 
FSOC's ability to assess the activities of qualifying hedge funds and 
their counterparties for investor protection purposes and in monitoring 
systemic risk.
---------------------------------------------------------------------------

    \345\ See discussion at section II.B.3 of this Release.
    \346\ Id.
    \347\ In connection with the removal of current Question 44, we 
have made a corresponding amendment to current Question 13 
(redesignated as Question 19), to remove an instruction that is no 
longer relevant.
---------------------------------------------------------------------------

    The new consolidated counterparty exposure table is designed to 
capture information on all non-portfolio credit exposure that a 
qualifying hedge fund has to its counterparties (including CCPs) and 
the exposure that creditors and other counterparties have to the fund, 
taking into account netting. The new table requires advisers to report 
in U.S. dollars, as of the end of each month of the reporting period, a 
qualifying hedge fund's borrowings and other transactions with 
creditors and other counterparties by type of borrowing or transaction 
(e.g., unsecured, secured borrowing and lending under a prime brokerage 
agreement, secured borrowing and lending via repo or reverse repo, 
other secured borrowing and lending, derivatives cleared by a CCP, and 
uncleared derivatives) and the collateral posted or received by a 
reporting fund in connection with each type of borrowing or other 
transaction.\348\ The table also requires advisers to qualifying hedge 
funds to (1) classify each type of borrowing by creditor type (i.e., 
U.S. depository institution, U.S. creditors that are not depository 
institutions, and non-U.S. creditors); (2) classify posted collateral 
by type (e.g., cash and cash equivalents, government securities, 
securities other than cash and cash equivalents and government 
securities and other types of collateral or credit support (including 
the face amount of letters of credit and similar third party credit 
support) received and posted by a reporting fund, and secured borrowing 
and lending (prime brokerage or other brokerage agreement)), and (3) 
report, at the end of each month of the reporting period, the expected 
increase in collateral required to be posted by the reporting fund if 
the margin increases by one percent of position size for each type of 
borrowing or other transaction, as proposed. Measuring the impact of a 
one percent margin change will allow for a meaningful assessment of 
qualifying hedge funds' vulnerability to changes in financing costs and 
identification of funds that are most sensitive to potential margin 
changes. We also believe that measuring this impact will provide a 
standardized way to obtain data on funds' vulnerability to margin 
increases that is easy to scale up for analysis purposes and allows for 
uniform comparisons across hedge funds to see which funds have lockup 
agreements and which funds do not. Furthermore, the table consolidates 
current Questions and provides more specific instructions in an effort 
to eliminate information gaps and improve the reliability of data 
collected. This new approach will collect better information about a 
qualifying hedge fund's borrowing and financing, cleared and uncleared 
derivatives positions, and collateral practices as well as a fund's 
credit exposure to counterparties resulting from excess margin, 
haircuts, and positive mark-to-market derivatives transactions, which 
will enhance FSOC's systemic risk assessments.
---------------------------------------------------------------------------

    \348\ The instructions direct advisers to classify borrowings 
and other transactions and associated collateral based on the 
governing legal agreement (e.g., a prime brokerage or other 
brokerage agreement for cash margin and securities lending and 
borrowing, a global master repurchase agreement for repo/reverse 
repo, and ISDA master agreement for synthetic long positions, 
synthetic short positions and other derivatives), and instruct 
advisers how to report when there is cross-margining under a fund's 
prime brokerage agreement. We are also adding new definitions of 
``synthetic long position'' and ``synthetic short position'' to the 
Glossary of Terms. See Form PF Glossary of Terms (definitions of 
``synthetic long position'' and ``synthetic short position''). 
Additionally, the instructions permit advisers to net a reporting 
fund's exposure with each counterparty and across affiliated 
entities of a counterparty to the extent such exposures may be 
contractually or legally set-off or netted across those entities 
and/or one affiliate guarantees or may otherwise be obligated to 
satisfy the obligations of another under the agreements governing 
the transactions. The instructions also direct advisers to classify 
borrowing by creditor type (e.g., percentage borrowed from U.S 
depository institutions, U.S. creditors that are not U.S depository 
institutions, non-U.S. creditors) based on the legal entity that is 
the contractual counterparty for such borrowing and not based on 
parent company or other affiliated group.
---------------------------------------------------------------------------

    Some commenters opposed the requirement to provide additional 
detail regarding counterparty exposure and stated that the information 
would be burdensome and costly to obtain.\349\ We continue to believe 
that disaggregated counterparty exposure is important to systemic risk 
monitoring efforts for the reasons discussed above. This information 
will not be significantly burdensome to produce as we understand 
knowledge of counterparties to be a component of a fund's basic risk 
management practices.
---------------------------------------------------------------------------

    \349\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
SIFMA Comment Letter.
---------------------------------------------------------------------------

    Significant counterparty reporting. We are adopting, as proposed 
except as specifically indicated below, amendments to require advisers, 
for each of their qualifying hedge funds, to identify all creditors and 
counterparties (including CCPs) where the amount a fund has borrowed 
(including any synthetic long positions) before posted collateral 
equals or is greater than either (1) five percent of the fund's net 
asset value or (2) $1 billion.\350\ This threshold is appropriate 
because it highlights two different but potentially significant risks. 
First, five percent of a fund's net asset value represents an amount of 
borrowing that, if repayment was required, could be a significant loss 
of financing that could result in a forced unwind and forced sales from 
the reporting fund's portfolio. Second, $1 billion represents an amount 
that, in the case of a very large fund, may not represent five percent 
of the fund's net asset value, but may be large enough to create stress 
for certain of its counterparties.
---------------------------------------------------------------------------

    \350\ See Question 42. Advisers will use calculations performed 
to complete the new table in Question 41 for purposes of identifying 
the counterparties to be reported in Question 42 and Question 43, 
and the calculation method is designed to be similar to the 
calculations used to identify counterparties in Question 27 and 
Question 28 in order to facilitate aggregation and analysis of data 
across hedge funds and qualifying hedge funds. Furthermore, if more 
than five counterparties meet the threshold, advisers will be 
required to complete an individual counterparty exposure table for 
the top five creditors or other counterparties to which a reporting 
fund owed the greatest amount in respect of cash borrowing entries 
(before posted collateral), and also identify all other creditors 
and counterparties (including CCPs) to which the reporting fund owed 
an amount in respect of cash borrowing entries (before posted 
collateral) equal to or greater than either (1) 5% of the reporting 
fund's net asset value as of the data reporting date or (2) $1 
billion. See also Form PF Glossary of Terms (definitions of ``cash 
borrowing entries'' and ``collateral posted entries'').
---------------------------------------------------------------------------

    This change is designed to specify how securities held should be 
treated, avoiding a common source of error in how advisers have 
completed the current form, and allowing both counterparty risks 
related to collateralized transactions to be viewed in one place, i.e., 
the risk that collateral will not be returned, and the risk that the 
borrower of cash will fail to repay the amount borrowed, risks that we 
have found cannot be fully observed

[[Page 18021]]

based on information collected on the current form. For the top five 
creditors and other counterparties from which a fund has borrowed the 
most (including any synthetic long positions) before posted collateral, 
advisers will be required to identify the counterparty (by name, LEI, 
and financial institutional affiliation) and to provide information 
detailing a fund's transactions and the associated collateral. We are 
adopting a ``top five'' reporting threshold as this level is consistent 
with the current threshold for reporting on collateral practices on 
Form PF, and it represents a level that indicates significant 
counterparty exposure.\351\
---------------------------------------------------------------------------

    \351\ See Question 42.
---------------------------------------------------------------------------

    Advisers will be required to present this information using an 
individual counterparty exposure \352\ table that follows the same 
format as the new consolidated counterparty exposure table described 
above for Question 41, including borrowings and other transactions by 
type and collateral posted and received by type. For all other 
creditors and counterparties from which the amount a fund has borrowed 
(including any synthetic long positions) before posted collateral that 
equals or is greater than either (1) five percent of the fund's net 
asset value or (2) $1 billion, advisers will be required to identify 
each counterparty (by legal name, LEI, and financial institution 
affiliation) and report the amount of such borrowings and the 
collateral posted by the fund in U.S. dollars.\353\
---------------------------------------------------------------------------

    \352\ In connection with the amendment, we are adding a new 
definition for ``individual counterparty exposure table'' to the 
Form PF Glossary of Terms.
    \353\ In a change from the proposal, we have modified the 
reference from name to legal name to specify that the adviser should 
report the relevant counterparty's legal name. This modification 
will improve data comparability by enhancing our ability to track 
any individual counterparty reporting across filings. Further, in a 
change from the proposal, we have modified the question to specify 
that the adviser should report the legal name of the counterparty, 
the counterparty LEI, if any, the borrowing by the reporting fund, 
the collateral posted by the reporting fund, and the legal name of 
the entity that has the exposure and its LEI, if any. This modified 
question aligns the question's wording with the information that is 
required to be reported in the individual counterparty exposure 
tables that follow in the form.
---------------------------------------------------------------------------

    As discussed more fully above in section II.A.2, we are adopting 
amendments that require advisers to report all trading vehicles on a 
consolidated basis. After considering one commenter's recommendation, 
we are tailoring certain questions about trading vehicles to help 
differentiate potential risks of the reporting fund from those of its 
trading vehicles.\354\ In a modification from the proposal, we are 
adding an instruction to require advisers to list counterparty 
exposures of trading vehicles owned by the reporting fund based on the 
reporting fund's percentage ownership of such trading vehicle without 
netting these exposures with those of the reporting fund if they are 
not guaranteed by the reporting fund or contractual obligations of the 
reporting fund.\355\ The amended instructions provide that the adviser 
must also report the legal name and LEI, if any, of the entity that has 
the counterparty exposure.\356\ This amended instruction will allow us 
to better understand the scope of the reporting fund's exposure and 
differentiate its exposures from those held by a separate entity, such 
as a trading vehicle.\357\
---------------------------------------------------------------------------

    \354\ See Schulte Comment Letter.
    \355\ See Question 42. See also Questions 43 and 44 (requiring 
providing the legal name and LEI, if any, of the relevant entity 
with the exposure).
    \356\ See Question 42. If the reporting fund guarantees or is 
contractually obligated to fulfill obligations of a trading vehicle 
or affiliated private fund, such exposures are required to be 
reported net with the exposures of the reporting fund. If an adviser 
to an affiliated private fund separately files Form PF, such adviser 
must exclude such exposures if they have been included in the 
reporting fund's filing. See Question 41.
    \357\ As discussed in section II.A.2 above, in a modification 
from the proposal, advisers report trading vehicles on a 
consolidated basis but in response to certain questions will be 
required to identify the positions and counterparty exposures that 
are held through a trading vehicle, which will help differentiate 
the reporting fund's exposures and risks from those of its trading 
vehicles.
---------------------------------------------------------------------------

    As proposed, advisers will be required, for each of their 
qualifying hedge funds, to identify all counterparties (including CCPs) 
to which a fund has net mark-to-market counterparty credit exposure 
after collateral that equals or is greater than either (1) five percent 
of the fund's net asset value or (2) $1 billion.\358\ This threshold is 
appropriate because both portions of the threshold highlight potential 
systemic risk: five percent of net asset value is a level that 
represents significant exposure (based on the impact on performance) in 
the event of counterparty default, and $1 billion, while it may not 
equal five percent of a large hedge fund's assets, may indicate a 
larger systemic stress involving a fund's counterparties. For the top 
five of these counterparties, advisers will be required to identify the 
counterparty (by name, LEI and financial institution affiliation) and 
provide information detailing a fund's relationship with these 
counterparties including associated collateral using the same table 
required for individual counterparty reporting.\359\ In a modification 
from the proposal, advisers will also be required to report the 
borrowing by the reporting fund and the collateral posted by the 
reporting fund. These modifications are intended to align the question 
text with the information that is required to be reported in the 
counterparty exposure table. Further, in a modification from the 
proposal, an adviser will also be required to report the legal name of 
the entity that has the counterparty exposure and its LEI, if any. This 
modification will allow us to better understand the scope of the 
reporting fund's exposure and differentiate its exposures from those 
held by a separate entity, such as a trading vehicle. As proposed, 
advisers to qualifying hedge funds will also be required to identify 
all other counterparties (by name, LEI, and financial institution 
affiliation) to which a fund has net mark-to-market exposure after 
collateral that equals or is greater than either (1) five percent of a 
fund's net asset value or (2) $1 billion and will require these 
advisers to report the amount of the exposure before and after 
collateral posted by either the counterparty or the reporting fund as 
applicable, as proposed. Further, in a modification from the proposal, 
advisers will also be required to report the name and LEI, if any, of 
the entity that has the counterparty exposure. The purpose of this new 
requirement is to enhance our ability to understand the impact of a 
particular counterparty failure, such as the counterparty failures that 
occurred during the 2008 financial crisis and in the period since 
(e.g., the failure of MF Global in 2011),\360\ which is important for 
systemic risk assessments and from an investor protection perspective. 
In assessing the risk to a fund of a counterparty default, the new data 
will demonstrate whether a fund has net borrowing exposure or net 
lending exposure to a counterparty. If the fund is a net borrower with 
respect to a counterparty, we will measure cash borrowed by the fund 
against collateral posted by fund. Alternatively, when the fund is a 
net lender with respect to a counterparty, we will measure cash loaned 
to the counterparty against collateral posted by the counterparty to 
assess whether the counterparty has

[[Page 18022]]

posted insufficient collateral (relative to the amount borrowed).\361\
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    \358\ See Question 43.
    \359\ Under the amendments, however, if an adviser completes the 
table in Question 42 for a particular counterparty, the adviser is 
not required to complete the table twice.
    \360\ See, e.g., Gapper, John and Kaminska, Izabella, Downfall 
of MF Global--US broker-dealer bankruptcy highlights global reach of 
eurozone crisis, Financial Times (Nov. 2011), available at https://www.ft.com/content/2882d766-06fb-11e1-90de-00144feabdc0.
    \361\ See Form PF Glossary of Terms (definitions of ``cash 
borrowing entries,'' ``collateral posted entries,'' ``cash lending 
entries,'' and ``collateral received entries'') for a detailed 
description of these calculations.
---------------------------------------------------------------------------

    These amendments are designed to streamline the form by 
consolidating information currently collected in Question 47 into 
Question 42, and to improve the quality and comparability of reported 
information and our ability to integrate the data obtained for analysis 
with other regulatory data sets by specifying how advisers determine 
borrowing and counterparty credit exposure.\362\ The changes, in 
conjunction with the new consolidated counterparty exposure table, will 
also provide a better overall view of hedge funds' borrowing and other 
financing arrangements and counterparty credit exposure and associated 
collateral, which will provide critical insight into (1) creditor and 
counterparty exposure to qualifying hedge funds through synthetic long 
positions through derivatives, (2) potential gaps in margin received by 
and posted by qualifying hedge funds and the size of any such gaps, (3) 
qualifying hedge funds' exposure to a large counterparty failure, and 
(4) the expected impact on a fund's financing arrangements of a change 
in margin requirements.
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    \362\ Advisers will be required to report the creditor legal 
name and LEI, which will aid in the identification of counterparties 
and facilitate analysis of the interconnectedness of market 
participants (e.g., Form N-PORT and Form N-CEN already collect LEI 
for registered investment company counterparties and including LEIs 
here will facilitate analysis across data sets).
---------------------------------------------------------------------------

    Finally, advisers will no longer be required to report the 
percentage of the total amount of collateral and other credit support 
that a fund has posted to counterparties that may be re-hypothecated as 
currently required in Question 38.\363\ We are adopting this change 
because this reporting is burdensome for advisers, and we have found 
that the data obtained is generally not reliable because advisers 
cannot easily collect and report the required information as re-
hypothecation commonly occurs from omnibus accounts into which advisers 
generally do not have visibility.\364\
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    \363\ We are redesignating current Question 38 as Question 45.
    \364\ See MFA Letter to Chairman Clayton, Sept. 17, 2018, 
available at https://www.managedfunds.org/wp-content/uploads/2020/04/MFA.Form-PF-Recommendations.attachment.final.9.17.18.pdf (noting 
the rehypothecated securities are taken out of an omnibus account, 
which makes reporting for advisers with any certainty difficult).
---------------------------------------------------------------------------

    Some commenters opposed the requirement to provide additional 
detail regarding counterparty exposure and state that the information 
would be burdensome and costly to obtain.\365\ One commenter 
recommended limiting the additional counterparty reporting to only a 
fund's top three counterparties, rather than top five as proposed.\366\ 
For reasons discussed above, disaggregated counterparty exposure is 
important to systemic risk monitoring efforts. This information will 
not be significantly burdensome to produce as we understand knowledge 
of counterparties to be a component of a fund's basic risk management 
practices. The additional systemic risk benefits described above of 
receiving data on a fund's five largest counterparties justify the 
modest additional incremental burden over reporting on the largest 
three counterparties, as recommended by one commenter.\367\
---------------------------------------------------------------------------

    \365\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
SIFMA Comment Letter.
    \366\ MFA Comment Letter II.
    \367\ See also infra section IV.C for further discussion of 
costs and benefits of the amendments.
---------------------------------------------------------------------------

c. Market Factor Effects
    We are adopting, as proposed except as specifically indicated 
below, amendments to require advisers to qualifying hedge funds to 
respond on Form PF to all market factors to which their portfolio is 
directly exposed, rather than allowing advisers to omit a response to 
any market factor that they do not regularly consider in formal testing 
in connection with the reporting fund's risk management, as Form PF 
currently provides.\368\ These changes are designed to enhance investor 
protection efforts and systemic risk assessment by allowing the 
Commissions and FSOC to track better common market factor 
sensitivities, as well as correlations and trends in those market 
factor sensitivities.
---------------------------------------------------------------------------

    \368\ See Question 47. For market factors that have no direct 
effect on a reporting fund's portfolio, we instruct filers to enter 
zero.
---------------------------------------------------------------------------

    We are also changing the stress thresholds to (1) require advisers 
to report one threshold for each market factor, rather than two as is 
currently required and (2) include different thresholds for certain 
market factors to capture stress scenarios that are plausible but still 
infrequent market moves.\369\ Information resulting from stress testing 
at thresholds in the current form (one low and one high) was not useful 
because the thresholds are either too frequent (for the lower 
threshold) or too extreme and may not result in accurate estimates (for 
the higher threshold). Based on our experience with this information, 
we do not believe that collecting data at multiple thresholds for each 
market factor is significantly more meaningful than collecting market 
factor sensitivity at a single plausible but still infrequent 
threshold.\370\
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    \369\ For example, advisers currently are required to report the 
effect of an increase or decrease in equity prices by 5% and by 20%, 
while under the amendments advisers will only report the effect of a 
10% increase or decrease, which is a more plausible but still 
infrequent scenario.
    \370\ See current Question 42.
---------------------------------------------------------------------------

    The amendments also add a market factor test concerning non-
parallel risk-free interest rate movements. It will test hedge fund 
exposure to changes in the slope of the yield curve, which is currently 
untested and can be a source of systemic risk when there are sudden 
interest rate changes. For example, this market factor will provide 
meaningful information on hedge funds that take complex positions, such 
as market neutral strategies (e.g., basis trading in particular) and 
other strategies that employ trades that take advantage of spreads in 
yield curves coupled with high use of leverage. In a modification from 
the proposal, we are removing the risk-free interest rates market 
factor reporting and instead adding an instruction to specify that, 
with respect to the market factor concerning non-parallel risk-free 
interest rate movements, the sum of all reported non-parallel risk-free 
interest rate sensitivities for a given rate movement should total the 
portfolio's sensitivity to a parallel risk-free interest rate movement 
of that magnitude to reduce burdens. This modification will reduce the 
burden on advisers by eliminating a required reporting item and will 
not diminish data quality because with the added instruction, we can 
derive the total parallel risk-free rate sensitivity from the non-
parallel risk-free interest rate movement market factor.
    We are also revising the instructions so advisers will be required 
to report the long component and short component consistently with 
market convention, rather than opposite from market convention, as Form 
PF currently requires, in order to reduce inadvertent mistakes in 
completing the form.\371\
---------------------------------------------------------------------------

    \371\ We are amending the instructions to provide that ``risk-
free interest rates'' include interest rate swap rates in which a 
fixed rate is exchanged for a risk-free floating rate such as the 
secured overnight financing rate (``SOFR'') or the sterling 
overnight index average (``SONIA''). Additionally, we are amending 
the instructions to specify that (1) for market factors involving 
interest rates and credit spreads, advisers should separate the 
effect on its portfolio into long and short components where (i) the 
long component represents the aggregate result of all positions 
whose valuation changes in the opposite direction from the market 
factor under a given stress scenario, and (ii) the short component 
represents the aggregate result of all positions whose valuation 
changes in the same direction as the market factor under a given 
stress scenario, and (2) for market factors other than interest 
rates and credit spreads, advisers should separate the effect on its 
portfolio into long and short components where (i) the long 
component represents the aggregate result of all positions whose 
valuation changes in the same direction as the market factor under a 
given stress scenario and (ii) the short component represents the 
aggregate result of all positions whose valuation changes in the 
opposite direction from the market factor under a given stress 
scenario. See Question 47.

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[[Page 18023]]

    We are making two modifications to the proposal. First, we are 
adding an instruction that when reporting exposures to changes in 
market factors for indirect positions, an adviser may use reasonable 
estimates that best represent the exposure to the market factor, 
consistent with the adviser's internal methodologies and conventions of 
service providers. This is responsive to commenters that suggested the 
proposal was unclear in certain questions as to whether an adviser is 
required to ``look through'' the fund's investments.\372\ Second, as 
discussed further above, we are removing the risk-free interest rates 
market factor and instead adding an instruction to specify that, with 
respect to the market factor concerning non-parallel risk-free interest 
rate movements, the sum of all reported non-parallel risk-free interest 
rate sensitivities for a given rate movement should total the 
portfolio's sensitivity to a parallel risk-free interest rate movement 
of that magnitude. Some commenters opposed the amendments requiring 
advisers to report on all listed market factors, including any market 
factors that the adviser does not regularly consider in its stress 
testing.\373\ Currently, the wording of the instructions allows an 
adviser to omit a response in the event the adviser tested a similar, 
but not identical, market factor. Accurate and complete reporting of 
all market factors will provide important systemic risk information. We 
do not believe this amended requirement will significantly burden 
advisers because an adviser will only be required to stress test risk 
factors to which their portfolios are directly exposed and are 
instructed to report zero for any inapplicable market factors. Further, 
the modified instruction we are adopting, which permits an adviser to 
use reasonable estimates that best represent the market factor exposure 
for indirectly held positions, will alleviate some of the burden of 
reporting this additional information.
---------------------------------------------------------------------------

    \372\ MFA Comment Letter III.
    \373\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
Schulte Comment Letter; USCC Comment Letter.
---------------------------------------------------------------------------

d. Additional Amendments to Section 2
    Currency exposure reporting. We are adopting, as proposed except as 
specifically indicated below, amendments to require qualifying hedge 
funds to report for each month of the reporting period, in U.S. 
dollars, (1) the net long value and short value of a fund's currency 
exposure arising from foreign exchange derivatives and all other assets 
and liabilities denominated in currencies other than a fund's base 
currency, and (2) each currency to which the fund has long dollar value 
or short dollar value exposure equal to or exceeding either (a) five 
percent of a fund's net asset value or (b) $1 billion.\374\ In 
responding, advisers will be required to include currency exposure 
obtained indirectly through positions held in other entities (e.g., 
investment companies, other private funds, commodity pools or other 
companies, funds, or entities) and may report reasonable estimates if 
consistent with internal methodologies and conventions of service 
providers.\375\ In a change from the proposal, we are adding an 
instruction to specify that an adviser may report the data that ``best 
represents'' the currency exposure from any indirect investments to 
lessen the reporting burden, as long as such estimates are consistent 
with the adviser's internal methodologies and conventions of service 
providers. This currency exposure requirement is designed to provide 
insight into whether notional currency exposures reported by qualifying 
hedge funds in Question 33 represent directional exposure or are hedges 
of equity and/or fixed income positions. This new question will allow 
us to understand whether a qualifying hedge fund's portfolio is exposed 
to a given currency, and it will also provide a view into the fund's 
currency exposure resulting from holdings in foreign securities (e.g., 
Eurobonds). While current Question 30 already requires advisers to 
separate currency exposure relating to hedging from other currency, we 
have found that this data has not been very useful for determining 
whether a currency position is speculative or a hedge. Additionally, it 
is important to consider a qualifying hedge fund's currency exposure to 
identify vulnerabilities to currency fluctuations and market events 
that affect different countries and regions. Finally, the threshold of 
either (1) five percent of a fund's net asset value or (2) $1 billion 
for reporting individual currency exposure is appropriate because it 
represents, in each prong of the threshold, a material level of 
portfolio exposure to currency risk at which a deterioration in the 
value of a particular currency could have a significant negative impact 
on a fund's investors. We also believe that if multiple large funds 
have significant exposure to a currency that is rapidly devaluing, this 
circumstance could raise financial stability concerns, and this 
reporting will better enable review of this type of situation. More 
broadly, we also will be able to use the information obtained to 
identify concentrations in particular currencies and assess the 
potential impact of market events that affect particular currencies.
---------------------------------------------------------------------------

    \374\ See Question 33.
    \375\ This instruction is designed to simplify and reduce the 
burdens of reporting sub-asset class exposures. Furthermore, 
advisers are permitted to provide good faith estimates and take 
currency hedges into account, if consistent with their internal 
methodologies and information reported internally and to investors.
---------------------------------------------------------------------------

    One commenter discussed the systemic risk concerns present in 
currency exposures, particularly as demonstrated by recent geopolitical 
events and resulting currency fluctuations.\376\ Other commenters 
opposed the proposed requirement to report currency exposure stating 
the information would be of limited value and burdensome to 
report.\377\ Some commenters stated that reporting indirect currency 
exposure accurately may be difficult because of potential variations in 
timing or foreign exchange rate sources, which could lead to inaccurate 
data and false indicators of risk.\378\ The modified instruction that 
we are adopting, which provides that an adviser may report the data 
that ``best represents'' the currency exposure from any indirect 
investments, clarifies the reporting requirement and will alleviate 
some of the reporting burden. More detailed reporting of currency 
exposure is important for systemic risk purposes. This belief is 
reinforced by recent experiences of currency fluctuation in the 
aftermath of geopolitical events that we have observed.
---------------------------------------------------------------------------

    \376\ Fact Coalition Comment Letter.
    \377\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
USCC Comment Letter.
    \378\ AIMA/ACC Comment Letter; MFA Comment Letter II.
---------------------------------------------------------------------------

    Turnover. We are adopting, as proposed, amendments, to require 
reporting on a per fund basis on the value of turnover in certain asset 
classes rather than on an aggregate basis as currently required.\379\ 
Requiring this reporting on a per fund basis will provide more detailed 
information to us and FSOC while at the same time

[[Page 18024]]

simplifying reporting for advisers. We understand that advisers do not 
currently aggregate turnover related information among funds. 
Aggregating solely for Form PF reporting is particularly burdensome as 
the required data is typically on separate reporting systems and 
advisers must ``roll-up'' data from these sources to report on the 
form.
---------------------------------------------------------------------------

    \379\ Question 34. In connection with amendments, reporting on 
the value of turnover in certain asset classes and the geographical 
breakdown of investments is moved from section 2a to section 2.
---------------------------------------------------------------------------

    We are also adding, as proposed, new categories for turnover 
reporting that disaggregate combined categories and better capture 
turnover of potentially relevant securities, such as various types of 
derivatives (e.g., listed equity, interest rate, foreign exchange), 
which will help support analysis of hedge fund market activity.\380\ 
Furthermore, we are adding a new consolidated foreign exchange and 
currency swaps category and making other changes, as proposed.\381\ 
During the March 2020 COVID-19-related market turmoil, FSOC sought to 
evaluate the role hedge funds played in disruptions in the U.S. 
treasury market by unwinding cash-futures basis trade positions and 
taking advantage of the near-arbitrage between cash and futures prices 
of U.S. Treasury securities.\382\ Because the current requirement 
regarding turnover reporting on U.S. Treasury securities is highly 
aggregated, the SEC staff, during retrospective analyses on the March 
2020 market events, was unable to obtain a complete picture of activity 
relating to long treasuries and treasury futures. Given the significant 
size of hedge funds' exposures to certain derivative products, it is 
important to gain more insight into trading activities with respect to 
these financial instruments to better enable the Commissions and FSOC 
to assess and monitor the activity of qualifying hedge funds for 
systemic risk implications.\383\ Expanded reporting on turnover also 
will provide better information for assessing trading frequency in lieu 
of requiring advisers to report what percentage of their hedge funds' 
net asset value is managed using high-frequency trading 
strategies.\384\
---------------------------------------------------------------------------

    \380\ We are also breaking out some categories by futures, 
swaps, and options as different types of derivatives have different 
risk profiles and implications for systemic risk, and to add a 
category for ``other derivative instrument types'' so that all 
derivatives are reported.
    \381\ We are revising the asset class categories to require 
advisers to report turnover in derivatives separately from turnover 
in physical holdings in Question 34 and are making other conforming 
changes to reflect changes to defined terms in the Form PF Glossary 
of Terms.
    \382\ See U.S. Credit Markets Interconnectedness and the Effects 
of the COVID-19 Economic Shock, U.S. Securities Exchange Commission, 
Oct. 2020, available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf. See also Financial Stability Oversight 
Council 2021 Annual Report, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
    \383\ As of the end of first quarter of 2023, interest rate 
derivatives currently make up approximately 30% of gross notional 
exposure (GNE) reported on Form PF, while foreign exchange 
derivatives make up approximately 13% of GNE. Additionally, 
commodity, credit, and other derivatives when combined make up 5% of 
GNE or over $1.3 trillion. See Private Fund Statistics Q1 2023, 
supra footnote 5.
    \384\ We are removing current Question 21 as it is redundant in 
light of the adopted expanded turnover reporting.
---------------------------------------------------------------------------

    Some commenters opposed the proposed requirement for disaggregated 
and more detailed reporting of turnover stating that such information 
is of limited value and burdensome to report.\385\ As discussed above, 
we continue to believe that turnover information is related to systemic 
risk and observing turnover data in particular categories can help 
identify affected funds and identify possible contagion risk. Moreover, 
the adopted requirement of disaggregated reporting is less burdensome 
than the existing reporting of turnover, which requires advisers to 
aggregate data that we understand they collect on a fund-level basis.
---------------------------------------------------------------------------

    \385\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
USCC Comment Letter.
---------------------------------------------------------------------------

    Country and industry exposure. We are adopting, as proposed except 
as specifically indicated below, amendments to require advisers to 
report all countries (by ISO country code \386\) to which a reporting 
fund has exposure equal to or exceeding either (1) five percent of its 
net asset value or (2) $1 billion, and to report the dollar value of 
long exposure and the dollar value of short exposure in U.S. dollars, 
for each monthly period to improve data comparability across 
funds.\387\ In a change from the proposal, we are adding an instruction 
to specify that advisers may report the data that best represents the 
country and industry exposure from any indirect investments and is 
consistent with the advisers' internal methodologies and conventions of 
services providers to lessen the reporting burden. Under the current 
approach, only certain regions were identified, and these regions were 
not uniformly defined, which resulted in data that was not 
consistent.\388\ In addition, at times we have needed to identify 
countries of interest not on this list. As such, we are adopting 
amendments to replace the country of interest and regional reporting 
with this new country level information. Finally, the threshold of 
either (1) five percent of net asset value or (2) $1 billion is 
appropriate because it represents a material level of portfolio 
exposure to risk relating to individual countries and geographic 
regions and is a level that could significantly impact a fund and its 
investors if, for example, there are currency fluctuations or 
geopolitical instability. Furthermore, the data obtained will allow for 
identification of industry concentrations in particular countries and/
or regions and help assess the potential impact of market events on 
these geographic segments. The five percent threshold level constitutes 
a reasonable shock to a fund's net asset value. For example, to the 
extent there is a market-wide event, a worst-case scenario would be for 
long positions to lose their full value, in this shock case at least 
five percent. Furthermore, and particularly for funds without a 
benchmark, five percent is often evaluated for industry, individual 
position, and country risk, and is a common and easy to measure 
threshold. With respect to the $1 billion threshold, it constitutes 
sufficiently large nominal value exposure from a risk perspective.
---------------------------------------------------------------------------

    \386\ This is similar to reporting on Form N-PORT and will 
improve the comparability of data between Form PF and Form N-PORT.
    \387\ Question 35. In connection with the amendments, reporting 
on geographical breakdown of investments has moved from current 
section 2a to section 2.
    \388\ Currently, consistent with staff Form PF Frequently Asked 
Questions 28.1 and 28.2, advisers are permitted to report 
geographical exposure based on internal methods and indicate in 
Question 4 if methods did not reflect risk and economic exposure. 
See Form PF Frequently Asked Questions, supra footnote 162.
---------------------------------------------------------------------------

    We are also adding a new question that requires advisers to provide 
information about each industry to which a reporting fund has exposure 
equal to or exceeding either (1) five percent of its net asset value or 
(2) $1 billion, as proposed.\389\ Advisers are required to report, for 
each monthly period, the long dollar value and short dollar value of a 
reporting fund's exposure by industry based on the NAICS \390\ code of 
the underlying exposure.\391\ The purpose of this new question is to 
collect information that will provide insight into hedge funds' 
industry exposures in a standardized way to allow for comparability 
among funds and meaningful aggregation of data to assess overall 
industry-specific concentrations. Further, the threshold of either (1) 
five percent of net asset value or (2) $1 billion is appropriate 
because it represents a material level of portfolio exposure to risk 
relating to individual

[[Page 18025]]

industries, and is a level that could significantly impact a fund and 
its investors if, for example, there are market or geopolitical events 
that affect performance by a particular industry, such as the burst of 
the ``tech bubble'' in the early 2000s or COVID-19's impact on airline, 
accommodation and food service industries. Furthermore, the data 
obtained will allow for identification of industry concentrations and 
help assess the potential impact of market events on industries. While 
we considered a lower threshold, we continue to believe that the 
adopted threshold strikes an appropriate balance between identifying 
significant industry exposure and the burdens of reporting this 
information on Form PF. This information will be useful to the 
Commissions and FSOC in monitoring systemic risk, particularly if 
multiple funds have significant concentrations in industries that are 
experiencing periods of stress or disruption.
---------------------------------------------------------------------------

    \389\ See Question 36.
    \390\ North American Industry Classification System.
    \391\ See United States Census Bureau, North American Industry 
Classification System, available at https://www.census.gov/naics/.
---------------------------------------------------------------------------

    When responding to these questions about country and industry 
exposure, advisers are required to include exposure obtained indirectly 
though positions held in other entities (e.g., investment companies, 
other private funds, commodity pools or other company, funds, or 
entities). Without this requirement, a fund's exposure to geographic 
regions and industries could be obscured and hinder the Commissions' 
and FSOC's ability to assess risks and the potential impact of events 
and trends that affect a particular industry or geographic region, both 
of which could have implications for investors. While advisers 
typically maintain this information, the instructions to these 
questions seek to minimize filer burdens by permitting advisers to 
report reasonable estimates if such reporting is consistent with 
internal methodologies and information reported internally and to 
investors.
    Some commenters opposed the proposed requirements for more granular 
reporting, including amendments to require more detailed reporting on 
country and industry exposure, stating that such information would be 
of limited value for systemic risk analysis and burdensome to 
report.\392\ Another commenter, however, discussed how geopolitical 
instability and industry disruptions can contribute to systemic 
risk.\393\ For reasons discussed above, country and industry exposure 
reporting is important for systemic risk, and exposures in excess of 
five percent of a fund's net asset value could be significant enough to 
pose contagion risks. In a modification from the proposal, we are 
adding an instruction to provide that an adviser is permitted to report 
reasonable estimates of a fund's country and industry exposure, 
provided such reporting is consistent with internal methodologies and 
information reported internally and to investors, which is intended to 
lessen the burden on advisers, while allowing us to continue to receive 
this reporting on country and industry exposure.
---------------------------------------------------------------------------

    \392\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
USCC Comment Letter.
    \393\ Fact Coalition Comment Letter.
---------------------------------------------------------------------------

    One commenter stated that requiring advisers to report industry 
exposure by NAICS is burdensome because funds may not currently collect 
this data and it may be costly to obtain.\394\ We disagree that NAICS 
information is significantly burdensome to obtain and report. NAICS 
codes are publicly available and is the standard used by certain 
Federal agencies for classifying entities by industry.\395\
---------------------------------------------------------------------------

    \394\ MFA Comment Letter II.
    \395\ See, e.g., SBA Small Business Size Regulations, 13 CFR 
121.101 (2023).
---------------------------------------------------------------------------

    Central clearing counterparty (CCP) reporting. We are adopting, as 
proposed except as specifically indicated below, amendments to require 
advisers to identify each CCP or other third party holding collateral 
posted by a qualifying hedge fund in respect of cleared exposures 
(including tri-party repo) equal to or exceeding either (1) five 
percent of a reporting fund's net asset value or (2) $1 billion.\396\ 
The new question excludes counterparties already reported in Question 
42 and Question 43,\397\ and requires advisers to provide information 
on: (1) the legal name of the CCP or third party; (2) LEI (if 
available); (3) whether the CCP or third party is affiliated with a 
major financial institution; (4) the reporting fund's posted margin (in 
U.S. dollars); and (5) the reporting fund's net exposure (in U.S. 
dollars), as proposed. In a modification from the proposal, we are also 
requiring advisers to provide information on the legal name of the 
collateral owner and the collateral owner LEI. This additional 
identifying information will allow us to understand the reporting 
fund's exposure by differentiating exposures of the reporting fund from 
exposures of other reporting entities. For example, as discussed more 
fully above in section II.A.2, advisers report on trading vehicles on a 
consolidated basis with the reporting fund, and without identifying 
information, we would be unable to differentiate a reporting fund's 
counterparty risk exposure from that of its trading vehicle.
---------------------------------------------------------------------------

    \396\ See Question 44.
    \397\ See discussion at section II.C.2.b of this Release.
---------------------------------------------------------------------------

    We are adopting this new question based on our experience with Form 
PF since adoption as we have found data gaps with respect to 
identifying qualifying hedge fund exposures to CCPs and other third 
parties that hold collateral in connection with cleared exposures. 
Furthermore, we understand that (1) many large hedge fund advisers 
already track margin posted for cleared exposures because margin 
requirements at any given time may well exceed the clearinghouse's 
exposure to a fund and therefore are an important credit risk exposure 
metric for a fund, and (2) that CCP recovery, resiliency and resolution 
also are current concerns for some advisers.\398\ Given these factors, 
the burden of this new question is justified by valuable insight the 
data obtained will provide into an area that could have significant 
implications from a systemic risk perspective. Additionally, we have 
chosen a reporting threshold of equal to or exceeding either (1) five 
percent of net asset value or (2) $1 billion to be consistent with the 
thresholds for other counterparty exposure questions,\399\ as a 
qualifying hedge fund is similarly exposed where a third party holds 
collateral irrespective of whether the third party is a CCP or other 
counterparty. We are also removing current Question 39, which required 
information about transactions cleared directly through a CCP, as the 
information collected is duplicative of information already collected 
in current Question 24 (redesignated Question 29).
---------------------------------------------------------------------------

    \398\ See ``A Path Forward For CCP Resilience, Recovery, And 
Resolution,'' Mar. 10, 2020, available at https://www.blackrock.com/corporate/literature/whitepaper/path-forward-for-ccp-resilience-recovery-and-resolution.pdf. See also J.P. Morgan Press Release, 
Mar. 10, 2020, available at https://www.jpmorgan.com/solutions/cib/markets/a-path-forward-for-ccp-resilience-recovery-and-resolution.
    \399\ See discussion at section II.C.2.b of this Release.
---------------------------------------------------------------------------

    One commenter recommended that exposures to CCPs should be reported 
on an aggregate basis, rather than on an individual CCP basis, because 
some advisers track these exposures on an aggregate basis and the 
Commissions have not explained why reporting on an aggregate basis is 
not sufficient and recommended clarifying whether the instruction in 
Question 43 to report information for counterparties that are CCPs or 
other third parties holding collateral in respect of ``cleared 
exposures'' is meant to refer to ``centrally cleared exposures.'' \400\ 
The references to cleared exposures in the instructions to Question 43 
are meant to

[[Page 18026]]

include centrally cleared exposures, as well as other cleared 
exposures. Receiving data on which individual CCPs are used for 
centrally cleared positions is important for understanding systemic 
risk resulting from a concentrated use of the same CCPs among different 
funds. Further, a CCP default may result in delayed receipt of funds 
that can create spillover effects at funds, particularly highly 
leveraged funds, that raise systemic risk and investor protection 
concerns. While the clearing system is highly risk reducing and 
transparent, default of a fund, or of a clearing member, could 
nonetheless cause temporary dislocations that can become significant at 
critical times. Transparency at this level is important in Form PF and 
is aligned with funds' own need to be aware of exposures to individual 
clearing members. For these reasons, it is appropriate to require this 
reporting as proposed. This commenter also argued that the requirement 
to report collateral posted by a fund to meet exchange requirements and 
separately report additional collateral collected by the prime broker 
would be difficult for advisers that do not actively monitor exchange 
margin requirements distinctively from prime broker margin 
requirements.\401\ We disagree that this information would be difficult 
for advisers to report because the instructions to Question 42 specify 
a simplified method of how to report such blended margin arrangements, 
including where collateral is not disaggregated.\402\ The commenter 
recommended that the Commissions instead require prime brokers to 
provide this information in standard form and permit advisers to rely 
on information provided by their prime broker.\403\ It is important for 
advisers to report this information aggregated for the reporting fund 
because individualized reporting from each prime broker may obscure the 
fund's counterparty risk. For example, a fund that has arrangements 
with multiple prime brokers may have a particular counterparty exposure 
across multiple prime brokerage arrangements, which may be obscured by 
separate reporting for each prime broker. Further, it is important for 
a reporting fund to understand its own counterparty risk, and we 
understand advisers monitor levels of counterparty concentration for 
risk management purposes. Therefore, we believe it is appropriate for 
advisers to report this information on Form PF with other exposure 
reporting. Individual reporting on CCPs is important because aggregated 
reporting would not provide sufficiently detailed information to allow 
us to identify potential risks. For example, in the event of a 
particular counterparty failure, we would be unable to accurately 
localize a fund's risk exposure to that counterparty.
---------------------------------------------------------------------------

    \400\ MFA Comment Letter II.
    \401\ Id.
    \402\ Specifically, Question 42(a)(iii) instructs as follows: 
``check this box if one or more prime brokerage agreements provide 
for cross-margining of derivatives and secured financing 
transactions. If you have checked this box, and collateral does not 
clearly pertain to secured financing vs. derivatives transactions, 
report exposures and collateral as follows: . . . enter any 
additional collateral gathered by the prime broker under a cross 
margining agreement on lines (iii)(B), (C), (D), and (E).
    \403\ MFA Comment Letter II.
---------------------------------------------------------------------------

    Risk metrics. We are adopting, as proposed, amendments to eliminate 
the requirement that an adviser indicate whether there are risk metrics 
other than, or in addition to, Value at Risk (``VaR'') that the adviser 
considers important to managing a reporting fund's risks.\404\ Advisers 
generally have not reported detailed information in response to this 
requirement. Currently, about 55 percent of advisers to qualifying 
hedge funds (representing about 75 percent of the aggregate gross asset 
value of qualifying hedge funds) report using VaR or market factor 
changes in managing their hedge funds.\405\ Instead, advisers will be 
required to provide additional information about a reporting fund's 
portfolio risk profile, investment performance by strategy, and 
volatility of returns and drawdowns.\406\ This amendment will expand 
the amount of data collected by collecting risk data in circumstances 
where advisers do not use VaR or market factor changes, and thus will 
provide insight across all (rather than only some) qualifying hedge 
funds. This new information will provide uniform and consistently 
reported risk information that will enhance our ability to monitor and 
assess investment risks of qualifying hedge funds to gauge systemic 
risk. In particular, volatility of returns and drawdown data is a 
simple measure of risk that enables us to monitor risk-adjusted 
returns, changes in volatility and thereby risk profiles. We did not 
receive specific comment on this amendment.
---------------------------------------------------------------------------

    \404\ See current Question 41.
    \405\ See Private Funds Statistics Q1 2023 (Table 58/59). 
Current Question 40 (redesignated Question 46) requires advisers to 
report certain risk data if the adviser regularly calculates VaR of 
the reporting fund. Current Question 42 (redesignated Question 47) 
requires advisers, for specific market factors, to determine the 
effect of specified changes on a reporting fund's portfolio but 
permits advisers to omit a response to any market factor that they 
do not regularly consider in formal testing in connection with a 
reporting fund's risk management.
    \406\ See Question 49 (investment performance breakdown by 
strategy), and Question 23(c) (volatility of returns and drawdown 
reporting). See discussion at section II.B.2 of this Release. We are 
also revising the title of Item C. of section 2 to ``Reporting fund 
risk metrics and performance'' to reflect the addition of new 
questions on performance to this section of the form.
---------------------------------------------------------------------------

    Investment performance by strategy. We are adopting, in a 
modification from the proposal, amendments to require to qualifying 
hedge funds that indicate more than one investment strategy for a fund 
in Question 25 to report monthly gross investment performance by 
strategy if the adviser reports this data for such fund, whether to 
current and prospective investors, counterparties, or otherwise, rather 
than if the adviser ``calculates and reports'' such information to 
third parties, as proposed.\407\ Advisers will not be required to 
respond to this question if the adviser reports performance for the 
fund as an internal rate of return, as proposed. This question is 
designed to integrate Form PF hedge fund data with the FRB's reporting 
on Financial Accounts of the United States, which the FRB uses to track 
the sources and uses of funds by sector, and which are a component of a 
system of macroeconomic accounts including the National Income and 
Product accounts and balance of payments accounts, all of which serve 
as a comprehensive set of information on the economy's performance. We 
also believe that this information will be helpful to the Commissions' 
and FSOC's monitoring and analysis of strategy-specific systemic risk 
in the hedge fund industry. One commenter recommended that the 
requirement be limited to reporting on investment strategies that the 
fund reports to third parties.\408\ This commenter also stated that the 
proposed instructions were not clear how an adviser should respond if 
it does not report such information to third parties. After considering 
comments, in a change from the proposal, advisers will be required to 
respond to this question only if they actually report investment 
performance to third parties; thus, advisers will not be required to 
respond to this question if they only calculate (but do not report) 
such information. This change will allow us to continue to receive 
strategy performance information that is reported to third parties 
while reducing the burden on

[[Page 18027]]

advisers. We understand that advisers may frequently calculate strategy 
performance for purposes other than reporting performance to third 
parties and that requiring reporting of each such calculation may be of 
more limited value and may be burdensome to report.
---------------------------------------------------------------------------

    \407\ Question 49. The strategies in Question 49 are based on 
the strategies included in the drop-down menu in Question 25 (we are 
also including a drop-down menu for the strategy categories in 
Question 25, to better reflect our understanding of hedge fund 
strategies and to improve data quality and comparability). See 
discussion at section II.B.3 of this Release.
    \408\ MFA Comment Letter II.
---------------------------------------------------------------------------

    Portfolio Correlation. In a change from the proposal, we are not 
adopting a proposed question on portfolio correlation to collect data 
on the effects of a breakdown in correlation. We received several 
comments stating that the proposed portfolio correlation question would 
impose significant burdens on advisers because portfolio correlation is 
not a commonly calculated risk measurement and can be complex to 
calculate.\409\ One commenter recommended only requiring an adviser to 
report portfolio correlation if correlation is a risk analysis metric 
that the adviser reports to its investors.\410\ In light of comments we 
received, we are persuaded that the complexity and corresponding 
increased burden associated with the proposed portfolio correlation 
question would be significant. The new and modified questions we are 
adopting in this Release will also enhance our leverage monitoring 
efforts and enhance our data insights on counterparty exposures without 
including the proposed portfolio correlation question.
---------------------------------------------------------------------------

    \409\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II.
    \410\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------

    Portfolio Liquidity. We are adopting, as proposed, amendments to 
require advisers to include cash and cash equivalents when reporting 
portfolio liquidity, rather than excluding them, as the question 
currently provides.\411\ We understand that reporting funds typically 
include cash and cash equivalents when analyzing their portfolio 
liquidity. This change will improve data quality by reducing 
inadvertent errors that result from requiring advisers to report in a 
way that is different from how they may report internally. This change 
is more reflective of industry practice, and it is preferable to 
receive reported data in a format that reflects how advisers typically 
analyze portfolio liquidity.
---------------------------------------------------------------------------

    \411\ See Question 37.
---------------------------------------------------------------------------

    We are also amending the form's instructions to allow advisers to 
assign each investment to more than one period, rather than directing 
advisers to assign each investment to only one period, as Question 32 
currently provides. We understand that directing advisers to assign an 
investment to only one period may make a reporting fund's portfolio 
appear less liquid than it is because it would not reflect that 
reporting funds may divide up sales in different periods (e.g., a 
reporting fund could sell off a portion in the first time period and 
sell of the remainder in subsequent time periods). Therefore, this 
change is designed to reflect the liquidity of a reporting fund's 
portfolio more accurately.
    While advisers will continue to be able to rely on their own 
methodologies to report portfolio liquidity, we are adding an 
instruction explaining that estimates must be based on a methodology 
that takes into account changes in portfolio composition, position 
size, and market conditions over time. Based on experience with the 
form, we have found that some advisers have used static methodologies 
that do not consider portfolio composition and position size relative 
to the market, and therefore do not reflect a reasoned view about when 
positions could be liquidated at or near carrying value. Therefore, 
this change will continue to allow advisers to use their own 
methodologies but improve data quality to ensure that the methodologies 
generate reporting that reflects a reasonable view of portfolio 
liquidity in light of changes in portfolio composition and size, and 
market conditions, over time.
    One commenter stated that portfolio liquidity is a metric that may 
create misleading impressions when assessed on a disaggregated fund by 
fund basis.\412\ As discussed more fully above in section II.A of the 
Release, disaggregated reporting, rather than being misleading, allows 
for a clearer understanding of the reporting fund's structure, 
including its portfolio liquidity, because we can observe liquidity on 
a fund by fund basis while continuing to allow aggregation of data 
across the fund structure for the broader context. This commenter also 
stated the proposed instruction regarding how to report the percentage 
of fund's net asset value that may be liquidated within each period if 
an investment is assigned to more than one period was unclear. In 
consideration of this comment, we are adding an instruction to specify 
that if an investment is assigned to more than one period, the adviser 
should reflect the percentage of NAV that might be liquidated within 
each period, rather than the percentage of NAV that the entire 
investment represents.\413\ The same commenter stated that we should 
clarify the meaning of the proposed instruction that estimates must be 
based on a methodology that takes into account changes in portfolio 
composition, position size, and market conditions over time. To address 
this comment, we are also revising the instructions to specify that, 
for example, estimates would change if the portfolio invests in more or 
less liquid assets, if/when the portfolio investments grow to a size 
relative to the liquidity of the markets in which it invests that 
requires more time to liquidate, and if liquidity characteristics 
change measurably and meaningfully for the assets in which the 
portfolio invests.\414\ This commenter also recommended that the total 
portfolio liquidity should not be expressed as a percentage of a fund's 
net asset value, in light of the instruction that suggests that the 
total may not add up to 100 percent.\415\ The instruction that the 
total percentages should add up to approximately 100 percent is 
appropriate because we recognize that rounding differences may result 
in a calculated total percentage that does not equal 100 percent. We 
continue to believe that portfolio liquidity should be expressed as a 
percentage of net asset value because net asset value is also the unit 
in which redemptions take place and would allow calculations in value, 
if needed.
---------------------------------------------------------------------------

    \412\ MFA Comment Letter II.
    \413\ Question 37.
    \414\ Id.
    \415\ MFA Comment Letter II. See also Question 37.
---------------------------------------------------------------------------

    Finally, to facilitate more accurate reporting, collect better 
data, and reduce filer errors, we are amending the table to be included 
in new Question 37 to reflect that information should be reported as a 
percentage of NAV consistent with SEC staff Form PF Frequently Asked 
Questions.\416\ We did not receive specific comment on this amendment.
---------------------------------------------------------------------------

    \416\ See Form PF Frequently Asked Questions, supra footnote 
162, Question 32.3.
---------------------------------------------------------------------------

    Financing and Investor Liquidity. Current Question 46 is designed 
to show the extent to which financing may become rapidly unavailable 
for qualifying hedge funds.\417\ We are adopting, as proposed, 
amendments to current Question 46 to improve data quality thereby 
supporting more effective systemic risk analysis.\418\ Advisers will be 
required to provide the dollar amount of financing that is available to 
the reporting fund, including financing that is available but not used, 
by the following types: (1) ``unsecured borrowing,'' (2) ``secured 
borrowing'' via prime brokerage, (3) secured borrowing via reverse 
repo, and

[[Page 18028]]

(4) other secured borrowings.\419\ Currently, the Commissions and FSOC 
infer this data from this question and current Question 43 (concerning 
the reporting fund's borrowings).\420\ However, these inferences may 
not be accurate given the number of assumptions that currently go into 
making such inferences. This information will help us understand the 
extent to which a fund's financing could be rapidly withdrawn and not 
replaced. We did not receive specific comment on this amendment. 
Current Question 50, which we have redesignated as Question 53, 
requires an adviser to report the percentage of the fund's net asset 
value that is subject to suspensions and restrictions on withdrawals/
redemptions for various time periods. In a modification from the 
proposal, we are amending Question 53 to instruct the adviser to make a 
good faith determination of the withdrawal and redemption restrictions 
that would likely be triggered during significant market stress 
conditions. This additional instruction addresses commenters' concerns 
by reducing the reporting burden for advisers that advise funds with 
varying redemption and withdrawal rights and improve data quality.\421\
---------------------------------------------------------------------------

    \417\ See 2011 Form PF Adopting Release, supra footnote 4, at 
text accompanying n.281.
    \418\ We redesignated current Question 46 as Question 50.
    \419\ Form PF defines ``unsecured borrowing'' as obligations for 
borrowed money in respect of which the borrower has not posted 
collateral or other credit support. Form PF defines ``secured 
borrowing'' as obligations for borrowed money in respect of which 
the borrower has posted collateral or other credit support. For 
purposes of this definition, reverse repos are secured borrowings. 
See Form PF Glossary of Terms. These categories are designed to be 
consistent with borrowing categories that qualifying hedge funds 
will report on the new counterparty exposure table.
    \420\ Current Question 43 collects data on the reporting fund's 
borrowing by type (e.g., unsecured, and secured by type, i.e., prime 
broker, reverse repo or other), while current Question 46 only 
collects a total amount of financing available, both used and 
unused, with no breakdown by type of financing.
    \421\ As discussed more fully above in section II.B.2 of this 
Release, some commenters stated that, in the context of proposed 
Question 10, the proposed amendments should permit reporting of 
multiple types of redemption and withdrawal rights. See, e.g., MFA 
Comment Letter II; SIFMA Comment Letter; USCC Comment Letter.
---------------------------------------------------------------------------

    Definition of ``Hedge Fund.'' We requested comment on whether we 
should amend the definition of ``hedge fund'' as it is defined in the 
Form PF Glossary of Terms. After considering comments, we are not 
adopting any amendments to the existing definition of ``hedge fund'' at 
this time. Certain commenters generally supported revising the 
definition of ``hedge fund'' to remove deemed hedge funds (i.e., a 
private fund reported as a ``hedge fund'' as Form PF directs because 
the fund's governing documents permit the fund to engage in certain 
borrowing and short selling (even though it did not do so at any time 
in the past)).\422\ These commenters supported revising the definition 
of ``hedge fund'' to exclude private funds that have an ability to use 
leverage or engage in shorting but do not do so in the ordinary course 
of business and that the market does not generally consider to be hedge 
funds. Some commenters recommended adopting a de minimis test, which 
would exclude any private fund from the definition that has not 
recently engaged in shorting or borrowing activity within a specified 
period, such as within the last 12 months, or has not engaged in these 
activities in excess of a specified amount, such as greater than 0.5% 
or 1% of the fund's net asset value.\423\ One commenter recommended an 
exclusion for any private fund whose borrowing activities are only 
related to real estate.\424\ Another commenter recommended including a 
rebuttable presumption in the definition that a private fund that holds 
itself out as a hedge fund is a hedge fund, while a private equity fund 
that holds itself out as pursuing a private equity strategy is not a 
hedge fund, similar to the venture capital exemption under the Advisers 
Act.\425\ Another commenter recommended specifying in the definition 
that only private funds that provide redemption rights in the ordinary 
course can be classified as hedge funds.\426\ One commenter recommended 
revising the definition to remove the default treatment of commodity 
pools as hedge funds.\427\
---------------------------------------------------------------------------

    \422\ See, e.g., AIC Comment Letter I; CFA Institute Comment 
Letter; Ropes & Gray Comment Letter; Schulte Comment Letter; SIFMA 
Comment Letter.
    \423\ See AIC Comment Letter I; Ropes & Gray Comment Letter.
    \424\ See SIFMA Comment Letter.
    \425\ See Ropes & Gray Comment Letter. 17 CFR 275.203(l)-1. See 
Exemptions for Advisers to Venture Capital Funds, Private Fund 
Advisers with Less than $150 Million in Assets Under Management, and 
Foreign Private Advisers, Advisers Act Release No. 3222 (June 22, 
2011) [76 FR 39646 (July 6, 2011)].
    \426\ See CFA Institute Comment Letter.
    \427\ See MFA Comment Letter II.
---------------------------------------------------------------------------

    The existing definition is designed to include any private fund 
having any one of three common characteristics of a hedge fund: (1) a 
performance fee that takes into account market value (instead of only 
realized gains); (2) leverage; or (3) short selling. We believe that 
any private fund that has one or more of these characteristics is an 
appropriate subject for the more detailed level of reporting that hedge 
funds are subject to on Form PF because the questions that hedge fund 
advisers are required to complete focus on these activities which bring 
funds within the ``hedge fund'' definition. Without classifying these 
funds as hedge funds for the purpose of Form PF, we would not receive 
important reporting on these activities which may contribute to 
systemic risk, particularly in the event of a fund that has the ability 
to engage in borrowing or short selling activities. Incorporating any 
carveouts in the definition, such as the recommended de minimis 
exception for borrowing or short selling, could cause further data 
mismatches and increase the burden on advisers because certain funds 
could be required to fluctuate between different reporting categories 
in different reporting periods depending on the fund's practices in any 
given period. In our experience, such an exclusion would eliminate only 
a limited number of private funds from the reporting category. We also 
believe that short selling and borrowing are important distinguishing 
characteristics of hedge funds and providing any exception for these 
activities, including a de minimis one, could have a significant, 
negative effect on reporting. Therefore, we do not believe that 
including responses from these private funds in the reporting 
information from hedge fund advisers impairs our data quality. We also 
believe adopting a rebuttable presumption is not appropriate because it 
would increase burdens on advisers by effectively requiring an adviser 
to produce evidence of its filing category. Further, this approach 
would effectively allow an adviser to determine whether it reports the 
additional information that hedge fund advisers are required to report 
on Form PF, which would diminish the quality and value of data 
collected on Form PF. Additionally, as it relates to the treatment of 
commodity pools as hedge funds for reporting purposes, such treatment 
further aligns the consistency of questions asked across these 
entities, both on this Form PF, as well as on the CFTC's Form CPO-PQR.

D. Amendments To Enhance Data Quality

    We are also adopting, as proposed except as specifically provided 
below, several amendments to the instructions to Form PF to enhance 
data quality.\428\ Specifically, we are adopting the following changes:
---------------------------------------------------------------------------

    \428\ Instruction 15 (provides guidelines for advisers in 
responding to questions on Form PF relying on their own 
methodology).
---------------------------------------------------------------------------

    Reporting of percentages. For questions that require information to 
be expressed as a percentage, we are adopting, as proposed, an 
amendment to

[[Page 18029]]

require that percentages be rounded to the nearest one hundredth of one 
percent rather than rounded to the nearest whole percent. This 
additional level of precision is important, especially for questions 
where it is common for filers to report low percentage values (e.g., 
risk metric questions such as Question 40 and Question 42) to avoid 
situations where advisers round to zero and no data is reported, 
potentially obscuring small changes that may be meaningful from a risk 
analysis or stress testing perspective. One commenter stated that the 
requirement to report information expressed as a percentage to the 
nearest one hundredth of one percent will significantly increase the 
costs and additional burdens for reporting advisers.\429\ This 
commenter also stated that, if the Commissions provide a basis for 
requiring additional granularity, the Commissions should amend the 
instruction to require reporting rounded to the nearest one tenth of 
one percent, rather than one hundredth of one percent.
---------------------------------------------------------------------------

    \429\ MFA Comment Letter II.
---------------------------------------------------------------------------

    Percentages rounded to the nearest one hundredth of one percent 
will allow the Commissions to obtain and analyze more precise 
information that may otherwise be obscured. For example, one one-
hundredth of one percent can represent a meaningful dollar amount 
depending on the size of the private fund. And, while we recognize that 
this may not be the case for smaller funds, when such amounts are taken 
together for a large group of smaller funds, the aggregate amount 
across the fund group can represent a meaningful dollar amount for data 
analysis purposes. Furthermore, as noted above, this level of detail is 
particularly important for questions where it is common for filers to 
report low percentage values to avoid situations where advisers round 
to zero and no data is reported. Finally, we understand that many 
advisers already use electronic spreadsheet programs and other tools to 
generate percentages and assist with rounding, which should limit the 
incremental burdens and costs on advisers. While we considered less 
granular reporting, such as rounding to the nearest one tenth of one 
percent, the adopted threshold strikes an appropriate balance between 
enhancing Form PF data quality and the burdens and costs of reporting 
this information on Form PF.
    Value of investment positions and counterparty exposures. We are 
amending, as proposed, the instructions to specify how private fund 
advisers determine the value of investment positions (including 
derivatives) and counterparty exposures. We are adopting amendments to 
require derivatives trades to be reported independently on a gross 
basis, consistent with derivatives reporting on Form N-PORT.\430\ We 
are also amending the instruction that for all positions reported on 
Form PF, to not include as ``closed-out'' a position if the position is 
closed out with the same counterparty and results in no credit or 
market exposure to the fund, making the approach on Form PF with 
respect to closed out positions consistent with rule 18f-4 of the 
Investment Company Act and our understanding of filers' current 
practices.\431\ We did not receive specific comment on these 
amendments. These changes will provide a more consistent presentation 
of reported information on investment and counterparty exposures to 
support more accurate aggregation and comparisons among private funds 
by us and FSOC in assessing systemic risk.
---------------------------------------------------------------------------

    \430\ Specifically, Instruction 15 requires that if a question 
in Form PF requests information regarding a ``position'' or 
``positions,'' advisers must treat legs of a transaction even if 
offsetting or partially offsetting, or even if entered into with the 
same counterparty under the same master agreement as two separate 
positions, even if reported internally as part of a larger 
transaction. See also instructions to N-PORT, General Instruction G.
    \431\ See Use of Derivatives by Registered Investment Companies 
and Business Development Companies, Release No. 34084 (Nov. 2, 2020) 
[85 FR 83162, 83210 (Dec. 21, 2020)]. See also Form PF Frequently 
Asked Questions, supra footnote 162, Question 44.1.
---------------------------------------------------------------------------

    Reporting of long and short positions. We are amending, as 
proposed, the instructions regarding the reporting of long and short 
positions on Form PF to improve the accuracy and consistency of 
reported data used for systemic risk analysis. The amended instructions 
specify that if a question requires the adviser to distinguish long 
positions from short positions, the adviser should classify positions 
based on the following: (1) a long position experiences a gain when the 
value of the market factor to which it relates increases (and/or the 
yield of that factor decreases), and (2) a short position experiences a 
loss when the value of the market factor to which it relates increases 
(and/or the yield of that factor decreases). Although some commenters 
supported the proposed amendments to require advisers to report their 
long and short holdings on a disaggregated basis \432\ and other 
commenters opposed the requirements for more detailed disclosure of 
holdings,\433\ we did not receive specific comment on the proposed 
change to the instructions defining long and short positions. The 
amended instructions will improve the data quality and comparability 
used for systemic risk analysis.
---------------------------------------------------------------------------

    \432\ See AFREF Comment Letter I; Better Markets Comment Letter. 
See supra section II.C.2.a.
    \433\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
SIFMA Comment Letter. See supra section II.C.2.a.
---------------------------------------------------------------------------

    Calculating certain derivative values. We are amending, with a 
modification from the proposal, the instruction to provide that, (1) 
for calculating the value of interest rate derivatives, ``value'' means 
the 10-year bond equivalent, and (2) for calculating the value of 
options, ``value'' means the delta adjusted notional value (expressed 
as a 10-year bond equivalent for options that are interest rate 
derivatives).\434\ In a change from the proposal, the amended 
instructions provide that the value should be expressed in U.S. 
dollars, rather than the base currency of the reporting fund, to 
maintain consistent currency reporting throughout Form PF. One 
commenter stated that the definition of ``10-year bond equivalent'' 
specifies the expression of the value in the fund's base currency, 
which could result in requiring multiple currency conversions for any 
transactions not in the fund's base currency.\435\ We are revising the 
``10-year bond equivalent'' definition to reference U.S. dollars, 
rather than the fund's base currency. We are making this change because 
it is important for metrics to be reported in a common currency for 
data quality and comparability purposes. The amended instruction also 
provides that in determining the value of these derivatives, advisers 
should not net long and short positions or offset trades but should 
exclude closed-out positions that are closed out with the same 
counterparty provided that there is no credit or market exposure to the 
fund. The amendments are designed to provide more consistent reporting 
by advisers, which will help support more accurate aggregation of data, 
better comparisons among funds, and a more accurate picture for 
purposes of assessing systemic risk.\436\
---------------------------------------------------------------------------

    \434\ See Form PF Glossary of Terms (definition of ``10-year 
bond equivalent'' specifies the 10-year zero coupon bond 
equivalent).
    \435\ AIMA/ACC Comment Letter.
    \436\ This is consistent with staff Form PF Frequently Asked 
Questions, see, e.g., supra footnote 162, Questions 24.3 and 26.1.
---------------------------------------------------------------------------

    Currency Conversions for Reporting in U.S. Dollars. We are 
amending, as proposed, Instruction 15 to specify that if a question 
requests a monetary value, advisers should provide the information

[[Page 18030]]

in U.S. dollars as of the data reporting date or other requested date 
(as applicable) and use a foreign exchange rate for the applicable 
date. We are also amending Instruction 15 to provide that if a question 
requests a monetary value for transactional data that covers a 
reporting period, advisers should provide the information in U.S. 
dollars, rounded to the nearest thousand, using foreign exchange rates 
as of the dates of any transactions to convert local currency values to 
U.S. dollars.\437\
---------------------------------------------------------------------------

    \437\ See Instruction 15.
---------------------------------------------------------------------------

    One commenter stated that private funds should be required to 
report their holdings in the fund's base currency, rather than convert 
to U.S. dollars, to allow for assessment of the extent of a fund's 
currency risk exposure.\438\ We agree that currency exposure reporting 
is important for understanding a fund's overall risk exposure and for 
systemic risk analysis and, as discussed more fully in section II.C 
above, we are adopting other amendments to Form PF that require large 
hedge fund advisers to report additional data on the fund's currency 
risk exposure.\439\ Regarding currency reporting, however, it is 
important for data comparability for advisers to report in a common 
currency, rather than in a fund's base currency, and for an adviser to 
determine foreign exchange rates consistent with its valuation policies 
because reporting in a common currency allows the Commissions to 
evaluate aggregate data, such as exposures, more readily. One commenter 
recommended specifying a required time of day and methodology for 
determining the applicable foreign exchange rate to avoid inconsistent 
data.\440\ Although specifying a time of day and methodology could 
improve data comparability, this would distort values reported on Form 
PF from what advisers calculate and report to their investors because 
these values are similar to prices on any other portfolio investment. 
For a foreign exchange rate, the adviser is valuing a currency, but 
generally should be doing so using the same source, time of day, or 
other methodology for capturing foreign exchange rates as is defined in 
the adviser's or fund's valuation policy. It is preferable for advisers 
to report values using the foreign exchange rate practices they use 
internally and to report to their investors.
---------------------------------------------------------------------------

    \438\ AFREF Comment Letter I.
    \439\ See Question 33.
    \440\ AIMA/ACC Comment Letter.
---------------------------------------------------------------------------

E. Additional Amendments

    We are adopting, as proposed except as indicated below, several 
additional amendments to the general instructions to Form PF. We are 
adopting an amendment to Instruction 14 to allow advisers to request a 
temporary hardship exemption electronically to make it easier to submit 
a temporary hardship exemption.\441\ We are also adopting an amendment 
to 17 CFR 275.204(b)-1(f) under the Advisers Act, that for purposes of 
determining the date on which a temporary hardship exemption is filed, 
``filed'' means the earlier of the date the request is postmarked or 
the date it is received by the Commission.\442\ We are adopting the 
latter change to assist advisers with determining what constitutes a 
``filed'' temporary hardship exemption in the context of the 
requirement that the request be filed no later than one business day 
after a filer's electronic Form PF filing was due as required under 
Instruction 14. We did not receive comments on these proposed 
amendments.
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    \441\ We are also adopting amendments to update the mailing 
address to which advisers requesting a temporary hardship exemption 
should mail their exemption filing, include the email address for 
submitting electronically the adviser's signed exemption filing in 
PDF format, and add an instruction noting that filers should not 
complete or file any other sections of Form PF if they are filing a 
temporary hardship exemption. See Instruction 14. The reference 
regarding the instruction pertaining to temporary hardship 
exemptions has also been amended to refer to Instruction 14 instead 
of Instruction 13 and, as a result of the amendments set forth in 
the May 2023 SEC Form PF Amending Release, to refer to section 7 
instead of section 5. See Form PF General Instruction 3, Section 7--
Advisers requesting a temporary hardship exemption.
    \442\ We are also adopting amendments to 17 CFR 275.204(b)-1(f) 
under the Advisers Act to remove certain filing instructions in the 
rule for temporary hardship exemptions and instead direct filers to 
the instructions in the form. See 17 CFR 275.204(b)-1(f)(2)(i) 
(indicating that advisers should complete and file Form PF in 
accordance with the instructions to Form PF, no later than one 
business day after the electronic Form PF filing was due).
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    Additionally, we are adopting, as proposed, amendments to 
Instruction 18 based on recent rule changes made by the CFTC with 
respect to Form CPO-PQR.\443\ While the CFTC no longer considers Form 
PF reporting on commodity pools as constituting substituted compliance 
with CFTC reporting requirements, some CPOs may continue to report such 
information on Form PF. Although some commenters recommended that the 
Commissions harmonize filing requirements between Form PF and Form CPO-
PQR,\444\ we did not receive comments on the proposed change to the 
instructions on substituted compliance.
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    \443\ See Form CPO-PQR Release, supra footnote 100.
    \444\ See, e.g., MFA Comment Letter II; SIFMA Comment Letter.
---------------------------------------------------------------------------

    We are adopting, as proposed, amendments to the defined term 
``G10,'' which Form PF defines as the Group of Ten, to (1) remove 
outdated country compositions and (2) include an instruction that if 
the composition of the G10 changes after the effective date of these 
amendments to Form PF, advisers should use the current composition as 
of the data reporting date. In a modification from the proposal, we are 
not adopting the proposed amendments to the defined term ``EEA,'' as 
this term is no longer used in the Form following the amendments we are 
adopting to current Question 28.\445\ We are also removing ``EEA'' as a 
defined term in the Glossary for the same reason. We did not receive 
comments on these proposed definitional changes.
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    \445\ See section II.C.2.d in this Release for further 
discussion of the amendments to current Question 28.
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    Additionally, the SEC is making a technical amendment to Section 5 
Item B ``Extraordinary Investment Losses'' to correct a mathematical 
error in the version of the form adopted as part of the May 2023 SEC 
Form PF Amending Release. \446\ Specifically, the SEC is revising the 
equation in the first sentence so that it accurately reflects that the 
10-business-day holding period return computation should be a 
percentage, rather than a value. To accomplish this, the SEC is 
deleting the phrase ``of reporting fund aggregate calculated value'' in 
Section 5 Item B ``Extraordinary Investment Losses'' current report for 
large hedge fund advisers to qualifying hedge funds.\447\
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    \446\ In May 2023, the SEC amended Form PF section 4, added new 
sections 5 and 6, and redesignated prior section 5 as section 7 in 
connection with certain amendments to require event reporting for 
large hedge fund advisers and all private equity fund advisers and 
to revise certain reporting requirements for large private equity 
fund advisers. See May 2023 SEC Form PF Amending Release.
    \447\ As revised, Section 5 Item B states: If on any business 
day the 10-business-day holding period return of the reporting fund 
is less than or equal to -20%, provide the information required by 
Questions 5-4 to 5-7, below. (Current reports should not be filed 
for overlapping 10-business-day periods.).
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F. Effective and Compliance Dates

    In order to provide time for advisers to prepare to comply with the 
amendments, including reviewing the requirements, building the 
appropriate internal reporting and tracking systems, and collecting the 
required information, as well as to simplify the compliance process and 
reduce potential confusion, the effective date for the amendments is

[[Page 18031]]

the same as the compliance date.\448\ The effective/compliance date is 
March 12, 2025, which is one year from the date of publication of the 
rules in the Federal Register. We recognize that the different 
effective/compliance date for these amendments from those adopted in 
the May 2023 SEC Form PF Amending Release and the July 2023 SEC Form PF 
Amending Release may lead to inconsistent reporting as well as 
additional compliance burdens because we are amending certain existing 
questions in Form PF.\449\ If a period exists during which some 
advisers may be completing the old version of these questions and other 
advisers are completing the amended versions, they may be providing 
different types of information. This information could be difficult to 
compare and thus would limit its value for the FSOC and our assessment 
of systemic risk. However, the amendments we are adopting relate to 
different sections of Form PF than those adopted in the May 2023 SEC 
Form PF Amending Release and the July 2023 SEC Form PF Amending 
Release. Therefore, we will continue to be able to review the data that 
is reported in sections 1 and 2 of Form PF during the period between 
the effective/compliance date of the amendments adopted in the May 2023 
SEC Form PF Amending Release and the July 2023 SEC Form PF Amending 
Release. For example, during the transition period between the 
effective/compliance date of the amendments adopted in May and July, 
the data reported on sections 1 and 2 of Form PF will retain its 
comparability as all filers will report on the same sets of questions 
in these sections.
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    \448\ With respect to the compliance period, several commenters 
requested the SEC consider interactions between the proposed rule 
and other recent SEC rules. In determining compliance periods, the 
SEC considers the benefits of the rules as well as the costs of 
delayed compliance periods and potential overlapping compliance 
periods. For the reasons discussed throughout this release, to the 
extent that there are costs from overlapping compliance periods, the 
benefits of the rule justify such costs. See sections IV.B.1 and 
IV.C.2 of this Release for a discussion of the interactions of the 
final rule with certain other Commission rules.
    \449\ For the amendments adopted in the May 2023 SEC Form PF 
Amending Release, the effective/compliance date for sections 5 and 6 
is Dec. 11, 2023, and the effective compliance/date for the amended, 
existing sections, is June 11, 2024. See May 2023 SEC Form PF 
Amending Release, supra footnote 4. For the amendments adopted in 
the July 2023 SEC Form PF Amending Release, the effective/compliance 
date for the amendments to Form PF is also June 11, 2024. See July 
2023 SEC Form PF Amending Release, supra footnote 4.
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    Some commenters recommended adopting the same effective and 
compliance date for the amendments proposed in the 2022 SEC Form PF 
Proposing Release and the 2022 Joint Form PF Proposing Release because 
it would be more efficient for advisers to implement a single set of 
changes to its systems.\450\ One commenter recommended that the 
Commissions provide sufficient time for advisers to comply with any new 
rules arising out of the 2022 SEC Form PF Proposing Release and the 
2022 Joint Form PF Proposing Release.\451\ One commenter recommended 
that the Commissions adopt concurrent and overlapping compliance and 
transition periods for each set of proposed amendments to lessen the 
burden and expense of compliance.\452\
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    \450\ See, e.g., MFA Comment Letter III; SIFMA Comment Letter. 
Subsequent to these comment letters, the SEC adopted amendments to 
section 3 of Form PF concerning liquidity funds. See July 2023 SEC 
Form PF Amending Release, supra footnote 4.
    \451\ SIFMA Comment Letter.
    \452\ AIMA/ACC Comment Letter.
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    We recognize that a single set of effective/compliance dates for 
each set of amendments could potentially provide certain efficiencies 
for advisers in modifying their existing systems. We considered earlier 
effective/compliance dates for the amendments adopted in this Release 
that would align with the effective/compliance dates adopted for the 
May/July amendments; however, we do not believe that either of the 
compliance/effective dates for the other amendments to Form PF would 
provide advisers with sufficient time to comply with the distinct set 
of amendments that are being adopted in this Release. The compliance/
effective dates for the distinct set of Form PF amendments that we are 
adopting, which apply to different sections of the Form than the May/
July amendments to Form PF, are later than the effective/compliance 
dates of the May/July amendments to allow advisers sufficient time to 
comply with the amendments that are being adopted in this Release, as 
well as the May/July amendments.
    One commenter recommended a transition period for the change from 
fiscal quarter to calendar quarter reporting for large hedge fund 
advisers and large liquidity fund advisers, as discussed more fully in 
section II.A.3 above.\453\ The commenter stated that for quarterly 
filers who have a fiscal year ending in a non-calendar quarter month, 
the proposed instructions do not specify the procedure for a filer who, 
during the transition from fiscal to calendar quarter reporting, would 
otherwise be required to report twice in one calendar quarter.\454\ The 
commenter recommended that such filers be required to file their first 
calendar quarter-end filing for the first full quarterly reporting 
period after the compliance date, to avoid requiring two filings in a 
single calendar quarter period.\455\ After considering comments, we 
confirm that such an adviser is not required to file its quarterly 
report more than once in a single calendar quarter as a result of this 
amendment because advisers are not required to transition to the new 
timing requirement until the first calendar quarter-end filing for the 
first full quarterly reporting period after the compliance date.
---------------------------------------------------------------------------

    \453\ Id.
    \454\ Id.
    \455\ Id.
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III. Other Matters

    Pursuant to the Congressional Review Act, the Office of Information 
and Regulatory Affairs has designated these rules as not a ``major 
rule'' as defined by 5 U.S.C. 804(2). If any of the provisions of these 
rules, or the application thereof to any person or circumstance, is 
held to be invalid, such invalidity shall not affect other provisions 
or application of such provisions to other persons or circumstances 
that can be given effect without the invalid provision or application.

IV. Economic Analysis

A. Introduction

    The SEC is mindful of the economic effects, including the costs and 
benefits, of the final amendments. Section 202(c) of the Advisers Act 
provides that when the SEC is engaging in rulemaking under the Advisers 
Act and is required to consider or determine whether an action is 
necessary or appropriate in the public interest, the SEC shall also 
consider whether the action will promote efficiency, competition, and 
capital formation, in addition to the protection of investors.\456\ The 
analysis below addresses the likely economic effects of the final 
amendments, including the anticipated and estimated benefits and costs 
of the amendments and their likely effects on efficiency, competition, 
and capital formation. The SEC also discusses the potential economic 
effects of certain alternatives to the approaches taken in this 
Release.
---------------------------------------------------------------------------

    \456\ 15 U.S.C. 80b-2(c).
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    As discussed in the proposing release, many of the benefits and 
costs discussed below are difficult to quantify. For example, in some 
cases, data needed to quantify these economic effects are not currently 
available and the SEC does not have information or data that would 
allow such quantification. While the SEC has attempted to quantify 
economic

[[Page 18032]]

effects where possible, much of the discussion of economic effects is 
qualitative in nature.

B. Economic Baseline and Affected Parties

1. Economic Baseline
    The baseline against which the costs, benefits, and the effects on 
efficiency, competition, and capital formation of the final amendments 
are measured consists of the current state of the market, Form PF 
filers' current practices, and the current regulatory framework. The 
economic analysis appropriately considers existing regulatory 
requirements, including recently adopted rules, as part of its economic 
baseline against which the costs and benefits of the final rule are 
measured.\457\
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    \457\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. 
Cir. 2022). This approach also follows SEC staff guidance on 
economic analysis for rulemaking. See SEC Staff, Current Guidance on 
Economic Analysis in SEC Rulemaking (Mar. 16, 2012), available at 
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic 
consequences of proposed rules (potential costs and benefits 
including effects on efficiency, competition, and capital formation) 
should be measured against a baseline, which is the best assessment 
of how the world would look in the absence of the proposed 
action.''); Id. at 7 (``The baseline includes both the economic 
attributes of the relevant market and the existing regulatory 
structure.''). The best assessment of how the world would look in 
the absence of the proposed or final action typically does not 
include recently proposed actions, because doing so would improperly 
assume the adoption of those proposed actions.
---------------------------------------------------------------------------

    Several commenters requested the Commission consider interactions 
between the economic effects of the proposed rule and other recent 
Commission proposals.\458\ Commenters indicated there could be 
interactions between this rulemaking and six proposals \459\ that have 
since been adopted: the May 2023 SEC Form PF Amending Release,\460\ SEC 
Private Funds Advisers Adopting Release,\461\ Beneficial Ownership 
Amending Release,\462\ Short Position Reporting Adopting Release,\463\ 
Securitizations Conflicts Adopting Release,\464\ Treasury Clearing 
Amending Release,\465\ and Dealer Definition Amending Release.\466\ 
These recently adopted rules were not included as part of the baseline 
in the 2022 Joint Form PF Proposing Release because they were not 
adopted at that time. In response to commenters, this economic analysis 
considers potential economic effects arising from the extent to which 
there is any overlap between

[[Page 18033]]

the compliance period for the final amendments and the compliance 
periods for each of these recently adopted rules.\467\
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    \458\ See, e.g., MFA Comment Letter III; SIFMA Comment Letter; 
AIC Comment Letter I; AIC Comment Letter II; MFA/NAPFM Comment 
Letter; Comment Letter of U.S. House of Representatives Committee on 
Financial Services.
    \459\ Amendments to Form PF to Require Current Reporting and 
Amend Reporting Requirements for Large Private Equity Advisers and 
Large Liquidity Fund Advisers, Release No. IA-5950 (Jan. 26, 2022) 
[87 FR 9106 (Feb. 17, 2022)] (see MFA/NAPFM Comment Letter at 20, 
n.21 and accompanying text; AIC Comment Letter II at 8, n.25); 
Private Fund Advisers; Documentation of Registered Investment 
Adviser Compliance Reviews, Release No. IA-5955 (Feb. 9, 2022) [87 
FR 16886 (Mar. 24, 2022)] (see MFA/NAPFM Comment Letter at 10-12; 
AIC Comment Letter II at 1, n.3, 8); Modernization of Beneficial 
Ownership Reporting, Release Nos. 33-11030, 34-94211 (Feb. 10, 2022) 
[87 FR 13846 (Mar. 10, 2022)] (see MFA/NAPFM Comment Letter at 14-
15); Short Position and Short Activity Reporting by Institutional 
Investment Managers, Release No. 34-94313 (Feb. 25, 2022) [87 FR 
14950 (Mar. 16, 2022)] (see MFA/NAPFM Comment Letter at 15-16); 
Prohibition Against Conflicts of Interest in Certain 
Securitizations, Release No. 33-11151 (Jan. 25, 2023) [88 FR 9678 
(Feb. 14, 2023)] (see MFA/NAPFM Comment Letter at 21-22); Standards 
for Covered Clearing Agencies for U.S. Treasury Securities and 
Application of the Broker-Dealer Customer Protection Rule With 
Respect to U.S. Treasury Securities, Release No. 34-95763 (Sept. 14, 
2022) [87 FR 64610 (Oct. 25, 2022)] (see July 2023 MFA and NAPFM 
Comment Letter at 16-17); Further Definition of ``As a Part of a 
Regular Business'' in the Definition of Dealer and Government 
Securities Dealer, Release No. 34-94524 (Mar. 28, 2022) [87 FR 23054 
(Apr. 18, 2022)] (see MFA/NAPFM Comment Letter at 12-13; AIC Comment 
Letter II at n.3, n.16, n.30).
    \460\ May 2023 SEC Form PF Amending Release, supra footnote 4. 
The Form PF amendments adopted in May 2023 require large hedge fund 
advisers and all private equity fund advisers to file reports upon 
the occurrence of certain reporting events. The May 2023 SEC Form PF 
Amending Release revised Form PF to (i) add new current reporting 
requirements for large hedge fund advisers to qualifying hedge funds 
upon the occurrence of key events (new section 5); (ii) add new 
quarterly reporting requirements for all private equity fund 
advisers upon the occurrence of key events (new section 6); and 
(iii) add and revise new regular reporting questions for large 
private equity fund advisers. The compliance dates are Dec. 11, 
2023, for the event reports in Form PF sections 5 and 6, and June 
11, 2024, for the remainder of the Form PF amendments in the May 
2023 SEC Form PF Amending Release.
    \461\ SEC Private Fund Advisers Adopting Release, supra footnote 
185. The Commission adopted five new rules and two rule amendments 
as part of the reforms. The compliance date for the quarterly 
statement rule and the audit rule is Mar. 14, 2025, for all 
advisers. For the adviser-led secondaries rule, the preferential 
treatment rule, and the restricted activities rule, the Commission 
adopted staggered compliance dates that provide for the following 
transition periods: for advisers with $1.5 billion or more in 
private funds assets under management, a 12-month transition period 
(ending on Sept. 14, 2024) and for advisers with less than $1.5 
billion in private funds assets, an 18-month transition period 
(ending on Mar. 14, 2025). The compliance date for the amended 
Advisers Act compliance rule was Nov. 13, 2023.
    \462\ Modernization of Beneficial Ownership Reporting, Release 
No. 33-11253 (Oct. 10, 2023) (``Beneficial Ownership Amending 
Release''). Among other things, the amendments generally shorten the 
filing deadlines for initial and amended beneficial ownership 
reports filed on Schedules 13D and 13G, and require that Schedule 
13D and 13G filings be made using a structured, machine-readable 
data language. The amendments are effective on Feb. 5, 2024. 
Compliance with the new filing deadline for Schedule 13G will not be 
required before Sept. 30, 2024, and the rule's structured data 
requirements have a one-year implementation period ending Dec. 18, 
2024. See Beneficial Ownership Amending Release, section II.G.
    \463\ Short Position and Short Activity Reporting by 
Institutional Investment Managers, Release No. 34-98738 (Oct. 13, 
2023) [88 FR 75100 (Nov. 1, 2023)] (``Short Position Reporting 
Adopting Release''). The new rule and related form are designed to 
provide greater transparency through the publication of short sale-
related data to investors and other market participants. Under the 
new rule, institutional investment managers that meet or exceed 
certain specified reporting thresholds are required to report, on a 
monthly basis using the related form, specified short position data 
and short activity data for equity securities. The compliance date 
for the rule is Jan. 2, 2025. In addition, the Short Position 
Reporting Adopting Release amends the national market system plan 
governing consolidated audit trail (``CAT'') to require the 
reporting of reliance on the bona fide market making exception in 
the Commission's short sale rules. The compliance date for the CAT 
amendments is July 2, 2025.
    \464\ Prohibition Against Conflicts of Interest in Certain 
Securitizations, Release No. 33-11254 (Nov. 27, 2023) [88 FR 85396 
(Dec. 7, 2023)] (``Securitizations Conflicts Adopting Release''). 
The new rule prohibits an underwriter, placement agent, initial 
purchaser, or sponsor of an asset-backed security (including a 
synthetic asset-backed security), or certain affiliates or 
subsidiaries of any such entity, from engaging in any transaction 
that would involve or result in certain material conflicts of 
interest. The compliance date is June 9, 2025.
    \465\ Standards for Covered Clearing Agencies for U.S. Treasury 
Securities and Application of the Broker-Dealer Customer Protection 
Rule with Respect to U.S. Treasury Securities, Release No. 34-99149 
(Dec. 13, 2023) [89 FR 2714 (Jan. 16, 2024)] (``Treasury Clearing 
Adopting Release''). Among other things, the rules require covered 
clearing agencies for U.S. Treasury securities to have written 
policies and procedures reasonably designed to require that every 
direct participant of the covered clearing agency submit for 
clearance and settlement all eligible secondary market transactions 
in U.S. Treasury securities to which it is a counterparty. The 
compliance dates are 60 days after publication in the Federal 
Register for each covered clearing agency to file any proposed rule 
changes pursuant to final Rule 17Ad-22(e)(6)(i), 17Ad-
22(e)(18)(iv)(c), and 15c3-3, and the rule changes must be effective 
by Mar. 31, 2025. With respect to the changes to Rule 17Ad-
22(e)(18)(iv)(A) and (B), (i) each covered clearing agency will be 
required to file any proposed rule changes regarding those 
amendments no later than 150 days after publication in the Federal 
Register, and the proposed rule changes must be effective by Dec. 
31, 2025, for cash market transactions encompassed by section (ii) 
of the definition of an eligible secondary market transaction, and 
by June 30, 2026, for repo transactions encompassed by section (i) 
of the definition of an eligible secondary market transactions. 
Compliance by the direct participants of a U.S. Treasury securities 
covered clearing agency with the requirement to clear eligible 
secondary market transactions would not be required until Dec. 31, 
2025 and June 30, 2026, respectively, for cash and repo 
transactions.
    \466\ Further Definition of ``As a Part of a Regular Business'' 
in the Definition of Dealer and Government Securities Dealer in 
Connection with Certain Liquidity Providers, Release No. 34-99477 
(Jan. 24, 2024) (``Dealer Definition Amending Release''). The dealer 
definition amendments define the phrase ``as a part of a regular 
business'' as used in the statutory definitions of ``dealer'' and 
``government securities dealer.'' The compliance date is one year 
from the effective date, or approximately Mar. 2025, for persons 
engaging in activities that meet the dealer registration 
requirements to register prior to the effective date of the final 
rules.
    \467\ In addition, commenters indicated there could also be 
overlapping compliance costs between the final amendments and 
proposals that have not been adopted. See, e.g., AIC Comment Letter 
II; MFA/NAPFM Comment Letter. To the extent those proposals are 
adopted, the baseline in those subsequent rulemakings will reflect 
the existing regulatory requirements at that time.
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    Form PF complements the basic information about private fund 
advisers and funds reported on Form ADV.\468\ As discussed above, the 
Commissions adopted Form PF in 2011, with additional amendments made to 
section 3 along with certain money market reforms in 2014,\469\ further 
amendments made to sections 3 and 4 in 2023, and new sections 5 and 6 
added in 2023 as well.\470\ Unlike Form ADV, Form PF is not an 
investor-facing disclosure form. Information that private fund advisers 
report on Form PF is provided to regulators on a confidential basis and 
is nonpublic.\471\ The purpose of Form PF is to provide the Commissions 
and FSOC with data that regulators can deploy in their regulatory and 
oversight programs directed at assessing and managing systemic risk and 
protecting investors.\472\
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    \468\ Investment advisers to private funds report on Form ADV, 
on a public basis, general information about private funds that they 
advise, including basic organizational, operational information, and 
information about the fund's key service providers. Information on 
Form ADV is available to the public through the Investment Adviser 
Public Disclosure System, which allows the public to access the most 
recent Form ADV filing made by an investment adviser. See, e.g., 
Form ADV, available at https://www.investor.gov/introduction-investing/investing-basics/glossary/form-adv; see also Investment 
Adviser Public Disclosure, available at https://adviserinfo.sec.gov/.
    \469\ See supra footnote 3. When the SEC adopted the amendments 
to section 3 in 2014 in connection with certain money market 
reforms, it noted that under the proposal it was concerned that some 
of the proposed money market reforms might result in assets shifting 
from registered money market funds to unregistered products such as 
liquidity funds, and that the proposed amendments were designed to 
help the SEC and FSOC track any potential shift in assets and better 
understand the risks associated with the proposed money market 
reforms. See, e.g., D. Hiltgen, Private Liquidity Funds: 
Characteristics and Risk Indicators (Jan. 27, 2017), available at 
https://www.sec.gov/files/2017-03/Liquidity%20Fund%20Study.pdf 
(``Hiltgen Paper''); 2011 Form PF Adopting Release, supra footnote 
4; 2014 Form PF Amending Release, supra footnote 4, at 466; 
Commissioner Luis Aguilar Statement, Strengthening Money Market 
Funds to Reduce Systemic Risk, SEC (July 23, 2014), available at 
https://www.sec.gov/news/public-statement/2014-07-23-open-meeting-statment-laa.
    \470\ May 2023 SEC Form PF Amending Release, supra footnote 4; 
July 2023 SEC Form PF Amending Release supra footnote 4.
    \471\ As discussed above, SEC staff publish quarterly reports of 
aggregated and anonymized data regarding private funds on the SEC's 
website. See supra footnote 5; see also Private Fund Statistics Q1 
2023.
    \472\ See supra section I.
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    Before Form PF was adopted, the SEC and other regulators, including 
the CFTC, had limited visibility into the economic activity of private 
fund advisers and relied largely on private vendor databases about 
private funds that covered only voluntarily provided private fund data 
and did not represent the total population.\473\ Form PF represented an 
improvement in available data about private funds, both in terms of its 
reliability and completeness.\474\ Generally, investment advisers 
registered (or required to be registered) with the SEC with at least 
$150 million in private fund assets under management must file Form PF. 
Smaller private fund advisers and all private equity fund advisers file 
annually to report general information such as the types of private 
funds advised (e.g., hedge funds, private equity funds, or liquidity 
funds), fund size, use of borrowings and derivatives, strategy, and 
types of investors.\475\ In addition, large private equity fund 
advisers provide data about each private equity fund they manage. Large 
hedge fund advisers and large liquidity fund advisers also provide data 
about each reporting fund they manage, and are required to file 
quarterly, currently after each fiscal quarter.\476\
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    \473\ See, e.g., SEC 2020 Annual Staff Report Relating to the 
Use of Form PF Data (Nov. 2020), available at https://www.sec.gov/files/2020-pf-report-to-congress.pdf.
    \474\ Id.
    \475\ Id.
    \476\ Id.; see also supra section II.A.3.
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    The SEC and other regulators now have almost a decade of experience 
with analyzing the data collected on Form PF. The collected data has 
helped FSOC establish a baseline picture of the private fund industry 
for the use in assessing systemic risk \477\ and improved the SEC's 
oversight of private fund advisers.\478\ Form PF data also has enhanced 
the SEC's and FSOC's ability to frame regulatory policies regarding the 
private fund industry, its advisers, and the markets in which they 
participate, as well as more effectively evaluate the outcomes of 
regulatory policies and programs directed at this sector, including the 
management of systemic risk and the protection of investors.\479\ 
Additionally, based on the data collected through Form PF filings, 
regulators have been able to regularly inform the public about ongoing 
private fund industry statistics and trends by generating quarterly 
Private Fund Statistics reports \480\ and by making publicly available 
certain results of staff research regarding the characteristics, 
activities, and risks of private funds.\481\ As discussed above, these 
data may also be used by the CFTC for the purposes of its regulatory 
programs, including examinations, investigations and investor 
protection efforts.\482\
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    \477\ See, e.g., OFR, 2021 Annual Report to Congress (Nov. 
2021), available at https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2021.pdf; Financial Stability 
Oversight Council, 2020 Annual Report, available at https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf.
    \478\ See, e.g., SEC 2020 Staff Report, supra footnote 473.
    \479\ See supra footnotes 477, 478.
    \480\ See supra footnote 471.
    \481\ See, e.g., David C. Johnson & Francis A. Martinez, Form PF 
Insights on Private Equity Funds and Their Portfolio Companies, OFR 
Brief Series No. 18-01 (June 14, 2018), available at https://www.financialresearch.gov/briefs/2018/06/14/form-pf-insights-on-private-equity-funds/; Hiltgen Paper, supra footnote 470; George 
Aragon, A. Tolga Ergun, Mila Getmansky & Giulio Girardi, Hedge 
Funds: Portfolio, Investor, and Financing Liquidity (May 17, 2017), 
available at https://www.sec.gov/files/dera_hf-liquidity.pdf; George 
Aragon, Tolga Ergun & Giulio Girardi, Hedge Fund Liquidity 
Management: Insights for Fund Performance and Systemic Risk 
Oversight (May 2017), available at https://www.sec.gov/files/dera_hf-liquidity-management.pdf; Mathis S. Kruttli, Phillip J. 
Monin & Sumudu W. Watugala, The Life of the Counterparty: Shock 
Propagation in Hedge Fund-Prime Broker Credit Networks (OFR Working 
Paper No. 19-03, Oct. 2019), available at https://www.financialresearch.gov/working-papers/files/OFRwp-19-03_the-life-of-the-counterparty.pdf; Mathias S. Kruttli, Phillip J. Monin, 
Lubomir Petrasek & Sumudu W. Watugala, Hedge Fund Treasury Trading 
and Funding Fragility: Evidence from the COVID-19 Crisis, Fed. Rsrv. 
Bd., Fin. and Econ. Discussion Series No. 2021-038 (Apr. 2021), 
available at https://www.federalreserve.gov/econres/feds/hedge-fund-treasury-trading-and-funding-fragility-evidence-from-the-covid-19-crisis.htm; Mathias S. Kruttli, Phillip J. Monin & Sumudu W. 
Watugala, Investor Concentration, Flows, and Cash Holdings: Evidence 
from Hedge Funds, Fed. Rsrv. Bd., Fin. and Econ. Discussion Series 
No. 2017-121 (Dec. 15, 2017), available at https://www.federalreserve.gov/econres/feds/investor-concentration-flows-and-cash-holdings-evidence-from-hedge-funds.htm.
    \482\ See supra section I.
---------------------------------------------------------------------------

    However, this decade of experience with analyzing Form PF data has 
also highlighted certain limitations of information collected on Form 
PF, including information gaps and situations where more granular and 
timely information would improve the SEC's and FSOC's understanding of 
the private fund industry and the potential systemic risk relating to 
its activities, and improve regulators' ability to protect 
investors.\483\ For example, as discussed above, when monitoring funds' 
activities during recent market events like the March 2020 COVID-19 
turmoil, the existing aggregation of U.S. Treasury securities with 
related derivatives did not reflect the role hedge funds played in the 
U.S. Treasury

[[Page 18034]]

market.\484\ Also during the COVID-19 market turmoil, FSOC sought to 
evaluate the role hedge funds played in disruptions in the U.S. 
Treasury market by unwinding cash-futures basis trade positions and 
taking advantage of the near-arbitrage between cash and futures prices 
of U.S. Treasury securities. Because the existing requirement regarding 
turnover reporting on U.S. Treasury securities is highly aggregated, 
the SEC staff, during retrospective analyses on the March 2020 market 
events, was unable to obtain a complete picture of activity relating to 
long treasuries and treasury futures.\485\ The need for more granular 
information collected on Form PF is further heightened by the 
increasing significance of the private fund industry to financial 
markets, and resulting regulatory concerns regarding potential risks to 
U.S. financial stability from this sector.\486\ The SEC's and FSOC's 
experiences analyzing Form PF data has also identified certain areas of 
Form PF where questions result in data received that is redundant to 
other questions, or instructions that result in unnecessary reporting 
burden for some advisers.\487\
---------------------------------------------------------------------------

    \483\ See supra section I.
    \484\ See supra section II.C.2.a.
    \485\ See supra section II.C.2.d. This also includes the SEC's 
and FSOC's experience analyzing data from multiple regulatory 
filings. For example, one SEC staff paper has used Form PF data and 
Form N-MPF data to study rule 2a-7 risk limits and implications of 
money market reforms. See, e.g., Hiltgen Paper, supra footnote 470.
    \486\ The private fund industry has experienced significant 
growth in size and changes in terms of business practices, 
complexity of fund structures, and investment strategies and 
exposures in the past decade. See supra footnote 5; see also 
Financial Stability Oversight Council Update on Review of Asset 
Management Product and Activities (2014), available at https://home.treasury.gov/system/files/261/Financial%20Stability%20Oversight%20Council%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf.
    \487\ Based on the analysis in section V.C., the current costs 
associated with filing Form PF report are estimated to be $4,815 
annually for smaller private fund advisers, $48,150 per quarterly 
filing or $192,600 annually for large hedge fund advisers, $22,470 
per quarterly filing or $89,880 annually for large liquidity fund 
advisers, and $41,730 annually for large private equity fund 
advisers. A 2018 industry survey of large hedge fund advisers 
observed filing costs that ranged from 35% to 72% higher than SEC 
cost estimates. See MFA Letter to Chairman Clayton, supra footnote 
164. However, a 2015 academic survey of SEC-registered investment 
advisers to private funds affirmed the SEC's cost estimates for 
smaller private fund advisers' Form PF compliance costs, and 
observed that the SEC overestimated Form PF compliance costs for 
larger private fund advisers. See Wulf Kaal, Private Fund 
Disclosures Under the Dodd-Frank Act, 9 Brooklyn J. Corp., Fin., and 
Com. L. 428 (2015).
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2. Affected Parties
    The final rule amends the general instructions and basic 
information reporting requirements facing all categories of private 
fund advisers. As discussed above, these include, but are not limited 
to, advisers to hedge funds, private equity funds, real estate funds, 
securitized asset funds, liquidity funds, and venture capital 
funds.\488\ The final rule further amends reporting requirements for 
large hedge fund advisers, including specific revisions for large hedge 
fund advisers to qualifying hedge funds.\489\
---------------------------------------------------------------------------

    \488\ See supra section I.
    \489\ Form PF currently defines ``hedge fund'' broadly to 
include any private fund (other than a securitized asset fund) that 
has any of the following three characteristics: (1) a performance 
fee or allocation that takes into account unrealized gains, or (2) a 
high leverage (i.e., the ability to borrow more than half of its net 
asset value (including committed capital) or have gross notional 
exposure in excess of twice its net asset value (including committed 
capital)), or (3) the ability to short sell securities or enter into 
similar transactions (other than for the purpose of hedging currency 
exposure or managing duration). Any non-exempt commodity pools about 
which an investment adviser is reporting or required to report are 
automatically categorized as hedge funds. Excluded from the ``hedge 
fund'' definition in Form PF are vehicles established for the 
purpose of issuing asset backed securities (``securitized asset 
funds''). See Form PF Glossary of Terms. ``Large'' hedge fund 
advisers are those, collectively with their related persons, with at 
least $1.5 billion in hedge fund assets under management as of the 
last day of any month in the fiscal quarter immediately preceding 
the adviser's most recently completed fiscal quarter. Qualifying 
hedge funds are hedge funds that have a net asset value 
(individually or in combination with any feeder funds, parallel 
funds and/or dependent parallel managed accounts) of at least $500 
million as of the last day of any month in the fiscal quarter 
immediately preceding the adviser's most recently completed fiscal 
quarter. See supra section II.C.
---------------------------------------------------------------------------

    Hedge funds, the focus of part of the release, are one of the 
largest categories of private funds,\490\ and as such play an important 
role in the U.S. financial system due to their ability to mobilize 
large pools of capital, take economically important positions in a 
market, and their extensive use of leverage, derivatives, complex 
structured products, and short selling.\491\ While these features may 
enable hedge funds to generate higher returns as compared to other 
investment alternatives, the same features may also create spillover 
effects in the event of losses (whether caused by their investment and 
derivatives positions or use of leverage or both) that might lead to 
significant stress or failure not just at the affected fund but also 
across financial markets.\492\
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    \490\ See infra footnote 493.
    \491\ See, e.g., Lloyd Dixon, Noreen Clancy & Krishna B. Kumar, 
Hedge Fund and Systemic Risk, RAND Corp. (2012); John Kambhu, Til 
Schuermann & Kevin Stiroh, Hedge Funds, Financial Intermediation, 
and Systemic Risk, Fed. Rsrv. Bank of NY's Econ. Policy Rev. (2007).
    \492\ See supra footnotes 477, 486.
---------------------------------------------------------------------------

    In the first quarter of 2023, there were 9,846 hedge funds reported 
on Form PF, managed by 1,856 advisers, with almost $9.5 trillion in 
gross assets under management, which represented almost half of gross 
assets reported by private fund advisers.\493\ Currently, hedge fund 
advisers with between $150 million and $2 billion in regulatory assets 
(that do not qualify as large hedge fund advisers) file Form PF 
annually, in which they provide general information about funds they 
advise such as the types of private funds advised, fund size, their use 
of borrowings and derivatives, strategy, and types of investors. Large 
hedge fund advisers (those with at least $1.5 billion in regulatory 
assets under management attributable to hedge funds) \494\ file Form PF 
quarterly, in which they provide data about each hedge fund they 
managed during the reporting period (irrespective of the size of the 
fund).\495\ Large hedge fund advisers must report more information on 
Form PF about qualifying hedge funds (those with at least $500 million 
as of the last day of any month in the fiscal quarter immediately 
preceding the adviser's most recently completed fiscal quarter) \496\ 
than other hedge funds they manage during the reporting period. In the 
first quarter of 2023, there were 2,034 qualifying hedge funds reported 
on Form PF, managed by 570 advisers, with almost $8 trillion in gross 
assets under management, which represented almost 84 percent of the 
reported hedge fund assets.\497\
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    \493\ In the first quarter of 2023, hedge fund assets accounted 
for approximately 46.3% of the gross asset value (``GAV'') ($9.5/
$20.5 trillion) and approximately 34.8% of the net asset value 
(``NAV'') ($4.9/14.0 trillion) of all private funds reported on Form 
PF. Private Fund Statistics Q1 2023, at 5.
    \494\ See supra footnote 489.
    \495\ Currently, Instruction 9 requires large hedge fund 
advisers to update Form PF within 60 days after the end of each 
fiscal quarter. See supra section II.A.3.
    \496\ Id.
    \497\ In the first quarter of 2023, qualifying hedge fund assets 
accounted for 84% of the GAV ($8.0/$9.5 trillion) and 79% of the NAV 
($3.9/$4.9 trillion) of all hedge funds reported on Form PF. Private 
Fund Statistics Q1 2023, at 4-5.
---------------------------------------------------------------------------

    Private equity funds are another large category of funds in the 
private fund industry. In the first quarter of 2023, there were 20,917 
private equity funds reported on Form PF, managed by 1,755 advisers, 
with $6.6 trillion in gross assets under management, which represented 
almost one third of the reported gross assets in the private fund 
industry.\498\ Many private equity funds focus on long-term returns by 
investing in a private, non-publicly traded

[[Page 18035]]

company or business--the portfolio company--and engage actively in the 
management and direction of that company or business in order to 
increase its value.\499\ Other private equity funds may specialize in 
making minority investments in fast-growing companies or startups.\500\
---------------------------------------------------------------------------

    \498\ In the first quarter of 2023, private equity assets 
accounted for 32.4% of the GAV ($6.6/$20.5 trillion) and 42.7% of 
the NAV ($6.0/$14.0 trillion) of all private funds reported on Form 
PF. Private Fund Statistics Q1 2023, at 5.
    \499\ After purchasing controlling interests in portfolio 
companies, private equity fund advisers frequently get involved in 
managing those companies by serving on the company's board; 
selecting and monitoring the management team; acting as sounding 
boards for CEOs; and sometimes stepping into management roles 
themselves. See, e.g., SEC, Private Equity Funds, Investor.gov, 
available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity.
    \500\ Id.
---------------------------------------------------------------------------

    For the remaining categories of funds (real estate funds, 
securitized asset funds, liquidity funds, venture capital funds, and 
other private funds), advisers required to file Form PF had, in the 
first quarter of 2023, investment discretion over almost $4.4 trillion 
in gross assets under management.\501\ These assets were managed by 
1,709 fund advisers managing 16,668 funds.\502\
---------------------------------------------------------------------------

    \501\ Private Fund Statistics Q1 2023, at 5.
    \502\ Private Fund Statistics Q1 2023, at 4.
---------------------------------------------------------------------------

    Private funds are typically limited to accredited investors and 
qualified clients such as pension funds, insurance companies, 
foundations and endowments, and high income and net worth 
individuals.\503\ Private funds that rely on the exclusion from the 
definition of ``investment company'' provided in section 3(c)(7) of the 
Investment Company Act are limited to investors that are also qualified 
purchasers (as defined in section 2(a)(51) of the Investment Company 
Act). Retail U.S. investors with exposure to private funds are 
typically invested in private funds indirectly through public and 
private pension plans and other institutional investors.\504\ In the 
first quarter of 2023, public pension plans had $1,905 billion invested 
in reporting private funds while private pension plans had $1,302 
billion invested in reporting private funds, making up 13.6 percent and 
9.3 percent of the overall beneficial ownership in the private fund 
industry, respectively.\505\ Private fund advisers have also sought to 
be included in individual investors' retirement plans, including their 
401(k)s.\506\
---------------------------------------------------------------------------

    \503\ See, e.g., Private Equity Funds, supra footnote 499; SEC, 
Hedge Funds, Investor.gov, available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds.
    \504\ See supra footnote 503.
    \505\ Private Fund Statistics Q1 2023, at 15.
    \506\ See, e.g., Dep't of Labor, Information Letter (June 3, 
2020), available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020.
---------------------------------------------------------------------------

C. Benefits, Costs, and Effects on Efficiency, Competition, and Capital 
Formation

1. Benefits
    The final amendments are designed to facilitate two primary goals 
the SEC sought to achieve with reporting on Form PF as articulated in 
the original adopting release, namely: (1) facilitating FSOC's 
understanding and monitoring of potential systemic risk relating to 
activities in the private fund industry and assisting FSOC in 
determining whether and how to deploy its regulatory tools with respect 
to nonbank financial companies; and (2) enhancing the SEC's abilities 
to evaluate and develop regulatory policies and improving the 
efficiency and effectiveness of the SEC's efforts to protect investors 
and maintain fair, orderly, and efficient markets.\507\
---------------------------------------------------------------------------

    \507\ See supra section I. While the final amendments are also 
designed to improve the usefulness of this data for the CFTC, this 
economic analysis does not include the benefits associated with 
enhancements to the CFTC's use of reporting on Form PF.
---------------------------------------------------------------------------

    The SEC believes the final amendments will accomplish these goals 
in three key ways, each discussed in detail in the following sections. 
First, the final amendments will provide solutions to potential 
reporting errors and issues of data quality when analyzing Form PF 
filings across advisers and when analyzing multiple different 
regulatory filings. Higher quality data across different funds and 
across different regulatory filings can allow the SEC and FSOC to 
develop an understanding of one set of advisers and apply it to other 
advisers more rapidly, or apply lessons from one financial market to 
other financial markets. This can help the SEC and FSOC develop more 
effective regulatory responses and oversight, and help the SEC protect 
investors by identifying areas in need of outreach, examinations, and 
investigations in response to potential systemic risks, conflicting 
arrangements between advisers and investors, and other sources of 
investor harm.
    Second, the final amendments will help Form PF more completely and 
accurately capture information relevant to ongoing trends in the 
private fund industry in terms of ownership, size, investment 
strategies, and exposures. This can improve the SEC's and FSOC's 
understanding of new developing systemic risks and potential 
conflicting arrangements, thereby further aiding in the development of 
regulatory responses, and also aiding the SEC in efforts to protect 
investors by identifying areas in need of outreach, examinations, and 
investigations.
    Third, the final amendments will take certain steps to streamline 
certain reporting and reduce certain reporting burdens without 
compromising investor protection efforts and systemic risk analysis. 
This will improve the efficiency and effectiveness of the SEC's efforts 
to protect investors and maintain fair, orderly and efficient markets.
    The SEC anticipates that the increased ability for the SEC's and 
FSOC's oversight, resulting from the final amendments, might promote 
better functioning and more stable financial markets, which may lead to 
efficiency improvements. The SEC does not anticipate significant 
benefits on competition in the private fund industry from the final 
amendments because the reported information generally will be nonpublic 
and similar types of advisers will have comparable burdens under the 
amended Form. For similar reasons, the SEC does not anticipate 
significant effects of the amendments on capital formation.
    Several of these amendments have been revised relative to the 
proposal. The revisions include changes to instructions for purposes of 
clarification, revising framing or explanation of questions where 
commenters made suggestions to improve data quality, revising 
instructions to avoid duplicative reporting or to otherwise ease 
burden, or forgoing adopting certain amendments entirely. We include in 
the discussion in this section how the benefits are impacted by changes 
made in response to commenters. In general, revisions either (1) 
enhance the benefits or (2) may reduce the benefits but substantially 
reduce the costs.\508\
---------------------------------------------------------------------------

    \508\ We discuss the impacts on costs below. See infra section 
IV.C.2.
---------------------------------------------------------------------------

    The final amendments revise the general instructions (as well as 
implement additional amendments), section 1 (requiring basic 
information about advisers and the private funds they advise), and 
section 2 (requiring information about hedge funds advised by large 
private fund advisers) of Form PF. The benefits associated with each of 
these specific elements are discussed in greater detail below.
a. Amendments to General Instructions, Amendments To Enhance Data 
Quality, and Additional Amendments
    The amendments update the Form PF general instructions to revise 
how all private fund advisers satisfy certain requirements on Form PF, 
issue a series of amendments to enhance data quality,

[[Page 18036]]

and issue a series of additional amendments.\509\ There are five 
categories of these amendments.
---------------------------------------------------------------------------

    \509\ See supra sections II.A, II.D, II.E.
---------------------------------------------------------------------------

    First, the amendments revise the general instructions for reporting 
of master-feeder arrangements and parallel fund structures.\510\ These 
revisions to the general instructions will improve consistency of 
reporting associated with measuring private fund interconnectedness and 
investment in other private funds by revising instructions for 
reporting of ownership structures and revising instructions that are 
currently ambiguous and result in reporting errors and issues of data 
quality across advisers. For example, as discussed above, Form PF 
currently provides advisers with flexibility to respond to questions 
regarding master-feeder arrangements, parallel fund structures either 
in the aggregate or separately, as long as they do so consistently 
throughout Form PF. The revised instructions will specify how to 
respond to these questions to prevent some advisers from responding in 
the aggregate and some advisers from responding separately.\511\ The 
revised instructions will also require reporting on the total value of 
parallel managed accounts.\512\ The SEC anticipates these improved data 
will assist the SEC and FSOC in assessing potential risks to financial 
stability resulting from increasingly complex ownership and investment 
structures of private funds. While master-feeder arrangements, parallel 
fund structures, and use of funds of funds all allow private funds to 
benefit from larger pools of capital, diversify risk, and enjoy shared 
returns,\513\ these same features have inherent risks of spillovers in 
losses, as losses in a master fund or underlying investment of a fund 
of funds cause losses in connected funds as well. Complex ownership 
structures may also create conflicts of interest when the same 
individuals serve as directors on boards of both master and feeder 
funds under a single owner,\514\ and may also mask instances of fraud 
and a private fund's methods for committing fraud.\515\ Investor 
protection efforts will therefore benefit from more consistent data 
providing connections from master funds to feeder funds and other 
ownership information.
---------------------------------------------------------------------------

    \510\ See supra section II.A.1. However, an adviser will 
continue to aggregate these structures for purposes of determining 
whether the adviser meets a reporting threshold.
    \511\ Similar benefits will be obtained from revisions to 
Instruction 7, which requires advisers to include the value of 
investments in other private funds when determining whether the 
adviser meets the thresholds for reporting as a large hedge fund 
adviser, large liquidity fund adviser, or large private equity fund 
adviser, and whether a private fund is a qualifying hedge fund; and 
generally requires an adviser to include the value of a reporting 
fund's investments in other private funds when responding to 
questions on Form PF. Other revisions could also provide benefits 
associated with consistency of reporting by revising instructions to 
avoid error across filers, including amending instructions to 
provide that advisers must not ``look through'' its investments in 
other private funds when responding to questions and adding an 
instruction when ``looking through'' cannot be avoided; providing 
general instructions to explain how advisers will report information 
if the reporting fund uses a trading vehicle; and amending 
instructions to indicate that advisers must not ``look through'' a 
reporting fund's investments in funds or other entities that are not 
private funds, or trading vehicles. See supra section II.A.2. 
Similar benefits will also be obtained from the amendments updating 
instructions to provide conformity with CFTC's amendments to Form 
CPO-PQR, including those that specify when advisers that are also 
CPOs should complete particular sections of Form PF. See supra 
section II.E; see also Revised Instruction 18.
    \512\ See supra section II.A.1.
    \513\ See, e.g., Robert Harris, Tim Jenkinson, Steven Kaplan & 
Ruediger Stucke, Financial Intermediation in Private Equity: How 
Well Do Funds of Funds Perform?, 129 J. Fin. Econ. 2, 287-305 (Aug. 
2018).
    \514\ See, e.g., Todd Ehret, Platinum Fraud Charges Shine Light 
On Cayman Director Responsibilities, Reuters Fin. Reg. Forum (Mar. 
30, 2017), available at https://www.reuters.com/article/bc-finreg-cayman-private-structure/platinum-fraud-charges-shine-light-on-cayman-director-responsibilities-idUSKBN17030J.
    \515\ See, e.g., Melvyn Teo, Lessons Learned from Hedge Fund 
Fraud, Eureka Hedge (Oct. 2009), available at https://www.eurekahedge.com/Research/News/506/Lessons-Learned-From-Hedge-Fund-Fraud.
---------------------------------------------------------------------------

    While some commenters supported the proposed amendments on this 
topic,\516\ other commenters opposed the proposed amendments as of 
limited benefit to the Commissions and/or FSOC.\517\ For example, as 
discussed above, disaggregated data of these structures will provide 
the Commissions and FSOC with increased transparency into risk profiles 
and complex fund structures, which will improve our ability to monitor 
systemic risk and protect investors.\518\ We also disagree that 
disaggregated reporting of master-feeder funds and parallel fund 
structures will be of limited value based on our experience with Form 
PF, which currently obscures our understanding of their fund structures 
and the risk exposure of their component funds.\519\ We also believe 
that the disaggregated reporting will allow for a clearer understanding 
of a fund's structure.\520\
---------------------------------------------------------------------------

    \516\ See supra section II.A.1; see also AFREF Comment Letter I; 
Better Markets Comment Letter.
    \517\ See supra section II.A.1; see also AIC Comment Letter I; 
AIMA/ACC Comment Letter; MFA Comment Letter II.
    \518\ See supra section II.A.1.
    \519\ Id.
    \520\ Id.
---------------------------------------------------------------------------

    Commenters also stated that disaggregated data would provide 
misleading information by reporting data in isolation as opposed to as 
part of an overall fund or investment program.\521\ We disagree, and 
think that disaggregated data will not be misleading to the Commissions 
or FSOC in comparison to aggregated data because the Commissions and 
FSOC could, if necessary, aggregate the data to understand the overall 
fund.\522\ Similarly, as another example, data regarding the total 
value of parallel managed accounts, however, will allow FSOC to take 
into account the greater amount of assets an adviser may be managing 
using a given strategy for purposes of analyzing the data reported on 
Form PF for systemic risk purposes.\523\
---------------------------------------------------------------------------

    \521\ See, e.g., MFA Comment Letter II; USCC Comment Letter.
    \522\ See supra section II.A.1.
    \523\ Id.
---------------------------------------------------------------------------

    Certain changes made in response to commenters' concerns will also 
enhance these benefits relative to the proposal. For example, by 
modifying the instructions for how a feeder fund determines its 
reporting category to specify that the feeder fund should exclude any 
of its holdings in the master fund's equity when calculating its total 
asset value for the purpose of determining its reporting category, the 
amendments will avoid double counting of reported assets, given that 
data for the master fund will be separately reported on Form PF.\524\
---------------------------------------------------------------------------

    \524\ Id.
---------------------------------------------------------------------------

    Second, the amendments revise the general instructions for 
reporting for private funds that invest in other funds or trading 
vehicles.\525\ Specifically, the amendments revise Instruction 7 and 8 
to require advisers to include information pertaining to their trading 
vehicles when completing Form PF.\526\

[[Page 18037]]

Because private funds may use trading vehicles for a wide variety of 
purposes, more complete and accurate visibility into asset class 
exposures, position sizes, and counterparty exposures relied on by 
trading vehicles can enhance the SEC's and FSOC's systemic risk and 
financial stability assessment efforts and the SEC's efforts to protect 
investors by identifying areas in need of outreach, examination, or 
investigation.
---------------------------------------------------------------------------

    \525\ These final amendments will include requiring advisers to 
include the value of investments in other private funds in 
determining whether the adviser is required to file Form PF and when 
determining whether the adviser meets the thresholds for reporting 
as a large hedge fund adviser, large liquidity fund adviser, or 
large private equity fund adviser, and whether a private fund is a 
qualifying hedge fund; generally requiring an adviser to include the 
value of a reporting fund's investments in other private funds when 
responding to questions on Form PF; provide that generally advisers 
must not ``look through'' its investments in other private funds 
(other than a trading vehicle) when responding to questions and 
adding an instruction to provide that advisers must provide an 
explanation if ``looking through'' cannot be avoided; amending the 
general instructions to explain how advisers will report information 
if the reporting fund uses a trading vehicle; requiring advisers to 
report all trading vehicles, whether wholly owned or partially 
owned, on a consolidated bases; and amending instructions to 
indicate that advisers must not ``look through'' a reporting fund's 
investments in funds or other entities that are not private funds or 
trading vehicles. See supra section II.A.2.
    \526\ See supra section II.A.2.
---------------------------------------------------------------------------

    Certain changes made in response to commenters' concerns will also 
enhance these benefits relative to the proposal. For example, one 
commenter stated that allowing an adviser to determine whether to 
include or exclude a reporting fund's investment in other private funds 
could result in distortions in the data collected on Form PF.\527\ By 
modifying the instructions to provide specific instructions, such 
distortion can be avoided, which will improve data quality.\528\
---------------------------------------------------------------------------

    \527\ See supra section II.A.2.
    \528\ Id.
---------------------------------------------------------------------------

    As another example, commenters opposed proposed amendments that 
would have permitted an adviser to select whether to report a wholly 
owned trading vehicle on either a consolidated or disaggregated basis 
and would have required advisers to report a partially owned trading 
vehicle on a disaggregated basis.\529\ These commenters questioned the 
benefits of these proposed amendments, for example stating that 
separate reporting for trading vehicles is not necessary because 
trading vehicles are often used for administrative purposes, such as 
for tax or efficiency purposes, but are managed on a consolidated basis 
and regarded as a single entity for investment purposes.\530\ By 
instead requiring advisers to report all trading vehicles, whether 
wholly owned or partially owned, on a consolidated basis, and by 
specific questions relating to a reporting fund's trading vehicle use 
and a trading vehicle's position size and risk exposure, we will 
improve data comparability and allow us to better understand the 
holdings and exposures of the fund structure for our assessments of 
potential systemic risk.
---------------------------------------------------------------------------

    \529\ Id.
    \530\ Id.; see also, e.g., MFA Comment Letter II; Schulte 
Comment Letter.
---------------------------------------------------------------------------

    Third, the amendments will revise the general instructions for 
reporting timelines by revising Instruction 9 to require large hedge 
fund advisers and large liquidity fund advisers to update Form PF 
within a certain number of days after the end of each calendar quarter, 
rather than each fiscal quarter, as Form PF currently requires.\531\ 
The SEC anticipates that these amendments will improve the consistency 
of reporting across different private fund advisers, across quarterly 
and annual filings, and across different regulatory forms,\532\ which 
may improve the ability of regulators to analyze filing data across 
fund advisers and across different regulatory forms by resolving 
reporting errors and issues of data quality. These data analyses are 
important contributors to the SEC's and FSOC's efforts to assess 
systemic risk and develop a complete picture of private fund markets. 
The SEC anticipates that these improved reporting alignments may 
enhance the SEC's and FSOC's abilities to assess potential risks 
presented by private funds.\533\ For example, as discussed above, 
academic research has used Form PF data and Form N-MPF data to study 
rule 2a-7 risk limits and implications of money market reforms.\534\ 
Standardizing data across regulatory filings can lead to further 
industry insights from combined regulatory filing data, and these 
industry insights may improve systemic risk assessment and regulator 
investor protection efforts. However, as discussed above, because 
almost all large hedge fund advisers and large liquidity fund advisers 
already effectively file on a calendar quarter basis because their 
fiscal quarter ends on the calendar quarter, the SEC anticipates that 
these benefits will be marginal.\535\
---------------------------------------------------------------------------

    \531\ See supra section II.A.3.
    \532\ Id.
    \533\ While the amendments to general instructions associated 
with reporting timelines will primarily offer economic benefits 
associated with improvement in data quality and resolutions to data 
gaps, the amendments to reporting timelines will also provide a 
potential improvement to regulators' ability to evaluate markets for 
investor protection efforts and systemic risk assessment, in that 
they accelerate the provision of data from quarterly reporting. See 
supra section II.A.3. Moreover, as the amendments will make 
reporting timelines more consistent, there could be reduced costs 
associated with regulatory filings, as private fund advisers reduce 
their need to track differentiated calendar quarter and fiscal 
quarter data.
    \534\ See supra section IV.B.1.
    \535\ See supra section II.A.3. Specifically, and as discussed 
above, based on staff analysis of Form ADV data as of Dec. 2021, 
99.2% of private fund advisers already effectively file on a 
calendar basis because their fiscal quarter or year ends on the 
calendar quarter or year end, respectively. The 0.8% of private fund 
advisers that have a non-calendar fiscal approach represents 
approximately 274 private funds, totaling $200 billion in gross 
asset value. See supra section II.A.3.
---------------------------------------------------------------------------

    Fourth, the amendments issue a series of revisions that impact 
several sections of Form PF, which will broadly enhance data quality, 
for example by potentially resolving reporting errors. These amendments 
will specify that reported percentages be rounded to the nearest one 
hundredth of one percent, provide consistent instruction for reporting 
of investment and counterparty exposures, provide consistent 
instruction on the reporting of long and short positions, and provide 
consistent instruction for reporting of derivative values.\536\ The 
resulting improved data quality will improve the ability of the SEC and 
FSOC to evaluate market risk and measure industry trends, thereby 
increasing the efficiency with which regulatory responses are 
developed, improving systemic risk assessment and regulator programs to 
protect investors.
---------------------------------------------------------------------------

    \536\ See supra section II.D.
---------------------------------------------------------------------------

    We did not receive specific comments on certain of these proposed 
amendments, such as the amended instructions to specify how private 
fund advisers determine the value of investment positions (including 
derivatives) and counterparty exposures.\537\ Some commenters expressed 
support for the amendments to require advisers to report their long and 
short holdings on a disaggregated basis,\538\ and other commenters 
opposed the requirements for more detailed disclosures of 
holdings.\539\
---------------------------------------------------------------------------

    \537\ Id.
    \538\ Id.
    \539\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
SIFMA Comment Letter. See supra section II.C.2.a.
---------------------------------------------------------------------------

    Certain changes made in response to commenters will enhance the 
benefits of these amendments. For example, one commenter stated that 
the definition of ``10-year bond equivalent'' specifies the expression 
of the value in the fund's base currency.\540\ By revising the ``10-
year bond equivalent'' definition to reference U.S. dollars, rather 
than the fund's base currency, resulting metrics will be reported in a 
common currency, which will enhance data quality and comparability 
purposes.\541\
---------------------------------------------------------------------------

    \540\ Id.; see also AIMA/ACC Comment Letter.
    \541\ See supra section II.D.
---------------------------------------------------------------------------

    Lastly, the amendments issue a series of additional revisions that 
will amend instructions related to temporary hardship exemptions, 
provide conformity with the CFTC's amendments to Form CPO-PQR 
(including those that specify when advisers that are also CPOs should 
complete particular sections of Form PF), and revise definitions of the 
terms EEA and G10 within Form PF.\542\ The additional amendments 
updating instructions to the temporary hardship exemption to Form PF, 
by way of an amendment to 17 CFR 275.204(b)-1(f) under the Advisers 
Act, will make it easier to submit a temporary hardship exemption and 
will assist advisers in

[[Page 18038]]

determining what constitutes a ``filed'' temporary hardship 
exemption.\543\ These amendments may facilitate more successful 
submissions of temporary hardship exemptions by private fund advisers 
who require one, and may thereby benefit those advisers, and by 
extension their investors, by reducing costs. Similarly, by providing 
conformity with the CFTC's amendments to Form CPO-PQR, including those 
that specify when advisers that are also CPOs should complete 
particular sections of Form PF, and revising definitions associated 
with the terms EEA and G10, the amendments may reduce confusion for 
advisers filing Form PF, thereby reducing the burden of filing.\544\ We 
did not receive comments on this aspect of the proposed changes.\545\
---------------------------------------------------------------------------

    \542\ See supra section II.E, Revised Instruction 18.
    \543\ See supra section II.E.
    \544\ See supra section II.E, Revised Instruction 18.
    \545\ See supra section II.E.
---------------------------------------------------------------------------

b. Amendments to Basic Information About the Adviser and the Private 
Funds It Advises
    The amendments to section 1, which requires all private fund 
advisers to report information about the adviser and the private funds 
they manage, include revisions to section 1a (concerning basic 
identifying information),\546\ revisions to section 1b (concerning all 
of a private fund adviser's private funds),\547\ and revisions to 
section 1c (more specifically concerning all of a private fund 
adviser's hedge funds).\548\ The changes will provide greater insight 
into all private funds' operations and strategies, and will further 
assist in assessing industry trends. This section discusses how the SEC 
believes the changes will thereby enhance the SEC's and FSOC's systemic 
risk assessment efforts and the SEC's efforts to protect investors by 
identifying areas in need of outreach, examination, or investigation. 
This will be accomplished in four key ways.
---------------------------------------------------------------------------

    \546\ See supra section II.B.1.
    \547\ See supra section II.B.2.
    \548\ See supra section II.B.3.
---------------------------------------------------------------------------

    First, the changes will provide more prescriptive requirements to 
improve comparability across advisers and reduce reporting errors and 
issues of data quality by aligning data across filers and across 
regulatory filings, based on our experience with the form. This greater 
alignment is designed to improve the efficiency with which the SEC and 
FSOC evaluate market risk and measure industry trends, thereby 
increasing the efficiency with which regulatory responses are 
developed, improving systemic risk assessment and regulator programs to 
protect investors. For example, revisions to section 1a (relating to 
adviser reporting of identifying information for all private funds they 
advise) will revise instructions on the use of LEIs and RSSD IDs for 
advisers and related persons, and might help link data more efficiently 
between Form PF and other regulatory filings that use these universal 
identifiers.\549\ Several revisions to section 1b (relating to adviser 
reporting of basic information for all private funds they advise) will 
modify instructions and might prevent advisers from inadvertently 
reporting different fund types on different regulatory filings (or, 
when different reporting on two different forms is appropriate, the 
revised instructions are designed to solicit the reason for 
differentiated reporting), facilitating more robust data analyses that 
use combined data from multiple regulatory forms.\550\ Revisions to 
section 1c will require advisers to indicate which investment 
strategies best describe the reporting fund's strategies on the last 
day of the reporting period, addressing any ambiguity about how to 
report information if the reporting fund changes strategies over 
time.\551\ The SEC believes these revisions to section 1, and 
others,\552\ will improve the accuracy and reliability of Form PF data, 
thereby potentially improving the SEC's and FSOC's efforts to assess 
developing systemic risks and FSOC's efforts to assess broader 
financial instability, as well as potentially improving the SEC's 
efforts to protect investors by identifying areas in need of outreach, 
examination, or investigation.
---------------------------------------------------------------------------

    \549\ See supra section II.B.1. For example, the reporting of a 
fund's and its adviser's LEI is consistent with the way fund 
relationships are reported in the Global LEI system. See, e.g., LEI 
ROC, Policy on Fund Relationships and Guidelines for the 
Registration of Investment Funds in the Global LEI System (May 20, 
2019), available at https://www.leiroc.org/publications/gls/roc_20190520-1.pdf.
    \550\ See supra section II.B.2. For example, the Division of 
Investment Management relies on Form PF and Form ADV filings in 
providing quarterly summaries of private fund industry statistics 
and trends. See, e.g., SEC, Division of Investment Management, 
Private Fund Statistics (Aug. 21, 2021), available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \551\ See supra section II.B.3.
    \552\ Other revisions that will provide this benefit include 
revising reporting of regulatory versus net assets under management; 
reporting of assumptions the adviser makes in responding to 
questions on Form PF; reporting of types of fund; reporting of 
master-feeder arrangements, internal/external private funds, and 
parallel fund structures; reporting of monthly gross and net asset 
values; reporting of the value of unfunded commitments; reporting on 
the value of borrowing activity; reporting of fair value hierarchy; 
reporting of beneficial ownership; reporting of fund performance; 
more granular reporting of hedge fund strategies; more granular 
reporting of hedge fund counterparty exposures including 
identification of counterparties representing a fund's greatest 
exposure; and more granular reporting of hedge fund trading and 
clearing mechanisms. See supra section II.B.
---------------------------------------------------------------------------

    While commenters who criticized these changes generally emphasized 
the costs of the changes, along with the overall costs of the 
amendments,\553\ certain commenters also questioned the benefits. For 
example, one commenter opposed including more granular strategy 
categories stating that some proposed categories are not clear and may 
require advisers to make subjective decisions on how to report a fund's 
strategy that could result in inconsistent reporting.\554\ While 
certain advisers may have to make certain subjective decisions, the 
amended strategy categories conform more closely to industry 
conventions than the current categories and will allow advisers to more 
accurately categorize their strategies. Any remaining ambiguity in 
these strategy categories will only mitigate the benefits of the 
resulting reporting, not eliminate the benefits.
---------------------------------------------------------------------------

    \553\ See infra section IV.C.2.
    \554\ See supra section II.B.3; see also MFA Comment Letter II.
---------------------------------------------------------------------------

    Certain other commenters agreed with the benefits of certain 
proposed provisions. For example, one commenter supported an expanded 
use of LEI as a legal identifier in Form PF and stated that more 
comprehensive inclusion of LEI would create a more complete 
identification scheme for the Commissions.\555\ Still other commenters 
suggested further revisions, and certain changes made in response to 
those commenters will enhance these benefits. For example, some 
commenters stated that proposed questions on withdrawal and redemption 
rights did not address how to report a fund with multiple types of 
redemption rights.\556\ In response, we are modifying the question to 
ask for the interval on which withdrawals or redemptions are ``most 
commonly'' permitted (i.e., with respect to most investors). We also 
encourage an adviser to report any additional details on a fund's 
withdrawal or redemption schedule in response to Question 4, as 
appropriate. This will likely improve comparability across advisers and 
reduce reporting errors and issues of data quality. Still other 
amendments did not receive specific comments, such as the amendment 
requiring an adviser to identify the fund type for a reporting fund as 
``other'' and explaining why the

[[Page 18039]]

fund does not qualify for any of the other options.\557\
---------------------------------------------------------------------------

    \555\ See supra section II.B.1; see also GLEIF Comment Letter.
    \556\ See supra section II.B.2; see also, e.g., MFA Comment 
Letter II; SIFMA Comment Letter.
    \557\ See supra section II.B.2.
---------------------------------------------------------------------------

    Second, the amendments will expand the data collected by the forms, 
thereby facilitating the Commissions and FSOC to assess newly emerging 
areas of potential systemic risk. These expanded areas of reporting 
broadly capture key trends in (i) private fund advisers' ownership 
structures, and (ii) private fund advisers' investment and trading 
strategies, including increasing exposures to new asset classes, 
changing exposures across different categories of counterparties, and 
increasing use of financial tools for increasing fund performance.
    With respect to updated reporting on ownership structures, as 
discussed above, interconnected ownership structures have inherent 
risks of spillovers in losses, as losses in a master fund or underlying 
investment of a fund of funds cause losses in connected funds as well, 
and so the enhanced data on detailed ownership structures from the 
final amendments are designed to improve systemic risk assessment 
efforts.\558\ Improved data will also contribute to efforts to protect 
investors from conflicts of interest and other sources of potential 
harm.\559\ The types of enhancements to Form PF's data on 
interconnected ownership structures include, for example, requiring 
advisers to provide LEIs for themselves and any of their related 
persons, such as reporting funds and parallel funds,\560\ and expanding 
the required reporting detail on the value of the reporting fund's 
investments in funds of funds.\561\ Similar to the amendments to 
general instructions, the SEC believes that these revisions will 
improve measurement of these complex ownership structures. The SEC 
believes this will potentially improve the SEC's and FSOC's efforts to 
assess developing systemic risks and FSOC's efforts to assess broader 
financial instability, as well as potentially improve the SEC's efforts 
to protect investors from conflicting arrangements and identify other 
areas in need of outreach, examination, or investigation.\562\
---------------------------------------------------------------------------

    \558\ See supra section IV.C.1.a.
    \559\ Id.
    \560\ See supra section II.B.1.
    \561\ See supra section II.B.2.
    \562\ See supra section IV.C.1.a.
---------------------------------------------------------------------------

    Many revisions will also keep Form PF filings up to date with key 
developing trends among private fund advisers' investing and trading 
practices. These revisions will improve consistency of reporting of 
modern private fund issues across fund advisers, provide more complete 
and accurate information on developing trends, and improve the SEC's 
and FSOC's abilities to effectively and efficiently assess new systemic 
risks and other potential sources of investor harm, as well as inform 
the SEC's and FSOC's broader views on the private fund landscape.
    For example, in Form PF section 1c, the amendments will require 
hedge funds to report whether their investment strategy includes 
digital assets,\563\ which are a growing and increasingly important 
area of hedge fund strategy.\564\ The amendments will therefore help 
the SEC and FSOC to assess new sources of potential systemic risk and 
develop regulatory responses, and will further allow the SEC to analyze 
new areas of potential investor harm to determine any necessary 
outreach, examination, or investigation.
---------------------------------------------------------------------------

    \563\ See supra section II.B.3.
    \564\ See, e.g., AIMA, PWC & Elwood Asset Management, Annual 
Global Crypto Hedge Fund Report (2023), available at https://www.pwc.com/gx/en/news-room/press-releases/2023/pwc-2023-global-crypto-hedge-fund-report.htmlhttps://www.pwc.com/gx/en/news-room/press-releases/2023/pwc-2023-global-crypto-hedge-fund-report.html 
(concluding that almost a third of traditional hedge funds were 
investing in such assets in 2023, with average allocations of 7%, 
representing increases relative to 2021); AIMA, PWC & Elwood Asset 
Management, 3rd Annual Global Crypto Hedge Fund Report (2021), 
available at https://www.aima.org/educate/aima-research/third-annual-global-crypto-hedge-fund-report-2021.html (concluding that 
approximately a fifth of hedge funds were investing in such assets 
in 2021, with on average 3% of their total hedge fund assets under 
management invested, and 86% of those hedge funds intended to deploy 
more capital into this asset class by the end of 2021); see also 
supra section II.B.3.
---------------------------------------------------------------------------

    As another example, the amendments will introduce several questions 
on counterparty exposures, corresponding to both CCP exposures and 
bilateral counterparty (i.e., non-CCP) exposures. These additions to 
Form PF include requiring advisers to report hedge fund borrowing, 
lending, and collateral with respect to transactions involving both 
their bilateral counterparties and CCPs, requiring reporting of hedge 
fund derivative and repo activity that was cleared by a CCP (as well as 
activity not cleared by a CCP), and instructing advisers on what 
exposures to net.\565\ There are two economic considerations associated 
with counterparty exposure reporting on Form PF. First, bilateral 
exposures and CCP exposures have different risk profiles, with CCPs 
offering risk reduction mechanisms and other economic benefits by 
netting trading across counterparties and across different assets 
within an asset class or by centralizing clearance and settlement 
activities.\566\ The final amendments are designed to help Form PF 
provide insight into relative trends in bilateral trading versus 
central counterparty trading and resulting systemic risks from 
counterparty exposures. Second, while CCPs reduce the systemic risk 
associated with the failure of any single hedge fund or other private 
fund, the failure of a large CCP itself could potentially represent a 
substantial systemic risk event in the future.\567\ While a systemic 
risk event such as the failure of a CCP has never occurred in the 
United States, CCPs in other countries have failed,\568\ and the final 
amendments are designed to help Form PF provide new insights into the 
potential for such systemic risk events in the future. FSOC has also 
designated many CCP institutions as ``systemically important,'' \569\ 
and recommends that regulators continue to coordinate to evaluate 
threats from both default and non-default losses associated with 
CCPs.\570\
---------------------------------------------------------------------------

    \565\ See supra section II.B.3.
    \566\ Siro Aramonte & Wenqian Huang, Costs and Benefits of 
Switching to Central Clearing, BIS Q. Rev. (Dec. 2019), available at 
https://www.bis.org/publ/qtrpdf/r_qt1912z.htm; Albert J. Menkveld & 
Guillaume Vuillemey, The Economics of Central Clearing, 13 Ann. Rev. 
Fin. Econ. 153 (2021).
    \567\ Id.
    \568\ For example, the Hong Kong Futures Guarantee Corporation 
failed during the stock market crash of 1987. See Menkveld & 
Vuillemey, supra footnote 566.
    \569\ Fin. Stability Oversight Council, 2012 Annual Rep., 
Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf.
    \570\ Id. at 14.
---------------------------------------------------------------------------

    As a final example, we are adopting amendments that require 
advisers to report additional performance-related information if the 
adviser calculates a market value on a daily basis for any position in 
the reporting fund's portfolio.\571\ These include, among other items, 
the reporting fund's volatility of the natural log of the daily ``rate 
of return'' for each month of the reporting period.\572\ Investors will 
benefit from systemic risk assessment efforts and investor protection 
efforts facilitated by these reporting items. For example, allowing the 
Commission and FSOC to compare volatility across different fund types 
to identify market trends (e.g., volatility of a specific fund type) 
will help the Commission and FSOC verify which strategies are the most 
volatile and therefore pose the greatest default risk to bank and 
broker/dealer counterparties. Comparing volatility data on Form PF and 
risk metric data on Form PF, such as VaR (Value-at-Risk) data, will 
also help the Commission to

[[Page 18040]]

detect misleading uses of risk metrics by funds in disclosures to 
investors.
---------------------------------------------------------------------------

    \571\ See supra section II.B.2.
    \572\ Id.
---------------------------------------------------------------------------

    The SEC therefore believes these revisions, and others like 
them,\573\ will help the SEC and FSOC better understand the modern 
landscape of the private fund industry, thereby potentially improving 
the SEC's and FSOC's efforts to assess developing systemic risks and 
FSOC's efforts to assess broader financial instability, as well as 
potentially improving the SEC's efforts to protect investors by 
identifying areas in need of outreach, examination, or investigation.
---------------------------------------------------------------------------

    \573\ Other revisions that will provide this benefit include the 
reporting of withdrawal and redemption rights; reporting of other 
inflows and outflows; more granular reporting of hedge fund 
strategies; more granular reporting of hedge fund counterparty 
exposures including identification of counterparties representing a 
fund's greatest exposure; and more granular reporting of hedge fund 
trading and clearing mechanisms. See supra section II.B.
---------------------------------------------------------------------------

    Some commenters questioned the benefits of these types of 
amendments. For example, some commenters stated that disclosure of 
counterparty exposures is of limited value.\574\ However, we continue 
to believe that this additional information is important to 
understanding counterparty risk exposure, and counterparty risk 
exposures represent substantial sources of systemic risk.\575\ Certain 
others of these proposed amendments did not receive significant comment 
on their proposed benefits. For example, the amendments requiring 
additional performance-related information if the adviser calculates 
market value did not receive significant comment. One commenter 
recommended requiring volatility measurements over longer periods, such 
as quarterly or annually, stating that requiring daily measurements 
would result in a smaller population size and less meaningful 
information.\576\ As discussed above, higher frequency volatility 
information is important because significant volatility swings that 
occur over a short timeframe may not be discernible from quarterly or 
annual data but can pose systemic risk.\577\ Further, receiving higher 
frequency volatility data will give more context to a fund's reported 
monthly returns and will allow us to assess risk-adjusted returns.\578\ 
In still other cases, the benefits from the final amendments will be 
enhanced by changes made in response to commenters. For example, one 
commenter recommended, for reporting of certain drawdown metrics 
associated with days with a negative daily rate of return, changing 
reporting of amount in base currency to percent in base currency, and 
the final amendments implement this change to be more reflective of 
industry practice, and in turn improve data quality.\579\
---------------------------------------------------------------------------

    \574\ See supra section II.B.3; see also, e.g., AIMA/ACC Comment 
Letter.
    \575\ See supra footnotes 565 through 570 and accompanying text.
    \576\ See supra section II.B.2; see also CFA Institute Comment 
Letter.
    \577\ See supra section II.B.2.
    \578\ Id.
    \579\ Id.; see also CFA Institute Comment Letter.
---------------------------------------------------------------------------

    Third, there are revisions that will expand the scope of certain 
questions from only covering qualifying hedge funds advised by large 
hedge fund advisers to covering all hedge funds advised by any private 
fund adviser. By expanding the universe of private funds that are 
covered by several questions, the amendments will enhance the SEC's and 
FSOC's ability to conduct broad, representative measurements regarding 
the private fund industry. For example, the amendments will require all 
advisers to indicate whether the reporting fund is an open-end private 
fund in Question 10(a) or a closed-end private fund in Question 
10(b).\580\ Because the activities of private fund advisers may differ 
significantly depending on their size, this enhanced coverage will 
potentially enhance regulators' abilities to obtain a representative 
picture of the private fund industry and lead to more robust 
conclusions regarding emerging industry trends and characteristics. The 
SEC believes these amendments, and others,\581\ will enhance 
regulators' picture of the private fund industry, thereby potentially 
improving the SEC's and FSOC's efforts to assess developing systemic 
risks and FSOC's efforts to assess broader financial instability, as 
well as potentially improving the SEC's efforts to protect investors by 
identifying areas in need of outreach, examination, or investigation.
---------------------------------------------------------------------------

    \580\ See supra section II.B.2.
    \581\ The revisions to reporting of base currency will provide 
similar benefits. See supra section II.B.
---------------------------------------------------------------------------

    Some commenters questioned these benefits. For example, one 
commenter asserted that the data would be of limited benefit for 
systemic risk monitoring because of the inclusion of data from smaller 
funds.\582\ However, we continue to believe that a private fund of any 
size that provides for withdrawal or redemption rights may be affected 
by increased investor withdrawals during certain market events and/or 
vulnerable to failure as a result of investor redemptions, and so the 
additional data will be relevant for assessing broader systemic risk, 
for example by allowing the Commissions and FSOC to assess the 
prevalence of the exercise of withdrawal and redemption rights to 
identify potential patterns among affected funds that may signal stress 
at a particular fund or across many funds.\583\ Information on 
withdrawal and redemption rights from all private funds, including 
smaller private funds or funds that are not included in the definition 
of a ``hedge fund,'' will improve FSOC's ability to monitor potential 
systemic risk and support the Commissions' investor protection efforts.
---------------------------------------------------------------------------

    \582\ See supra section II.B.2; see also Schulte Comment Letter.
    \583\ See supra section II.B.2.
---------------------------------------------------------------------------

    One commenter supported the proposed amendments and agreed with the 
potential benefits, stating that expanding the classes of private funds 
that are required to disclose withdrawal and redemption rights would 
allow FSOC to better identify systemic risks, particularly resulting 
from market events.\584\ Lastly, certain changes will streamline 
reporting and reduce the reporting burden by removing certain questions 
where other questions provide the same or superseding information. For 
example, the amendments will remove current Question 19, which requires 
advisers to hedge funds to report whether the hedge fund has a single 
primary investment strategy or multiple strategies, and will also 
remove current Question 21, which requires advisers to hedge funds to 
approximate what percentage of the hedge fund's net asset value was 
managed using high frequency trading strategies.\585\ The SEC believes 
that these revisions will benefit advisers and investors by directly 
lowering the costs and reducing part of the burden on advisers of 
completing Form PF filings.\586\ Commenters generally supported 
amendments that eliminate questions and streamline reporting 
requirements.\587\
---------------------------------------------------------------------------

    \584\ See supra section II.B.2; see also Fact Coalition Comment 
Letter.
    \585\ See supra section II.B.3.
    \586\ These benefits from streamlined reporting and reduced 
reporting burden will be offset by increased costs associated with 
the additional and more granular detail that will be required on 
Form PF under the amendments. See infra sections IV.C.2, V.C.
    \587\ See supra section II.B.3; see also, e.g., MFA Comment 
Letter II; SIFMA Comment Letter; Better Markets Comment Letter.
---------------------------------------------------------------------------

c. Amendments to Information About Hedge Funds Advised by Large Private 
Fund Advisers
    The changes to section 2 will provide greater insight into 
operations and strategies into hedge funds advised by large private 
fund advisers specifically, and will also assist in assessing broader 
hedge fund industry trends. This section

[[Page 18041]]

discusses how the SEC believes the changes will thereby enhance the 
SEC's and FSOC's investor protection and systemic risk assessment 
efforts. This will be accomplished in three key ways.
    As with section 1, first, the changes will provide more 
prescriptive requirements to improve comparability across advisers and 
reduce reporting errors and issues of data quality, based on experience 
with the form. This will be accomplished by standardizing reporting of 
information across different advisers and across different regulatory 
filings. For example, the amendments to current Question 30 (on 
qualifying hedge fund exposures to different types of assets) will 
replace the existing complex table in current Question 30 with a 
redesignated Question 32 with reporting instructions that will use a 
series of drop-down menu selections and provide additional narrative 
reporting instructions and additional information on how to report 
exposures.\588\ Similarly, advisers to qualifying hedge funds will now 
be required to report the 10-year zero coupon bond equivalent for all 
sub-asset classes with interest rate risk, rather than providing 
advisers with a choice to report duration, WAT, or an unspecified 10-
year equivalent.\589\ Several revisions (relating to adviser reporting 
of basic information for all hedge funds that it advises) will revise 
instructions relating to reporting of adjusted long and short exposures 
and market factor effects on a hedge fund's portfolio.\590\ These 
revisions can potentially prevent, for example, data errors associated 
with reporting of long and short components of a portfolio or 
discrepancies across advisers in their choices of which market factors 
to report (as Form PF currently allows advisers to omit a response to 
any market factor that they do not regularly consider in formal risk 
management testing).\591\ As another example, the changes will provide 
for a new sub-asset class in investment exposure reporting for ADRs, in 
line with how ADRs are reported on the CFTC's Form CPO-PQR, potentially 
improving assessment of currency risk across regulatory filings.\592\ 
As a final example, the changes will revise reporting for positions 
held physically, synthetically, or through derivatives and indirect 
exposure, and will require reporting turnover on a per fund basis 
instead of in the aggregate as well as providing for more granular 
reporting of turnover.\593\ The SEC believes these revisions, and 
others,\594\ will align Form PF data across filers, thereby potentially 
improving the efficiency with which the SEC and FSOC evaluate market 
risk and measure industry trends, thereby increasing the efficiency 
with which regulatory responses are developed, improving systemic risk 
assessment and regulatory programs to protect investors.
---------------------------------------------------------------------------

    \588\ See supra section II.C.2.
    \589\ Id.
    \590\ See supra sections II.C.2.a; II.C.2.c.
    \591\ Id. For example, higher quality data on short positions 
can facilitate more accurate and timely identification of 
significant market participants during periods of volatility related 
to shorting activity, such as the Jan. 2021 ``meme stock'' episodes. 
See, e.g., SEC, Staff Rep. on Equity and Options Market Structure 
Conditions in Early 2021 (Oct. 14, 2021), available at https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf.
    \592\ See supra section II.C.2.a.
    \593\ As discussed above, when monitoring funds' activities 
during recent market events like the Mar. 2020 COVID-19 turmoil, the 
existing aggregation of U.S. Treasury securities with related 
derivatives did not reflect the role hedge funds played in the U.S. 
Treasury market. See supra sections II.C.2.a, IV.B.1. Also during 
the COVID-19 market turmoil, FSOC sought to evaluate the role hedge 
funds played in disruptions in the U.S. Treasury market by unwinding 
cash-futures basis trade positions and taking advantage of the near-
arbitrage between cash and futures prices of U.S. Treasury 
securities. Because the existing requirement regarding turnover 
reporting on U.S. Treasury securities is highly aggregated, the SEC 
staff, during retrospective analyses on the Mar. 2020 market events, 
was unable to obtain a complete picture of activity relating to long 
treasuries and treasury futures. See supra sections II.C.2.d, 
IV.B.1.
    \594\ Other revisions that will provide this benefit include the 
amendments revising reporting of reportable sub-asset classes, 
including those for certain categories of listed equity securities, 
repos, asset-backed securities and other structured products, 
derivatives, and cash and commodities; revising reporting of open 
and large position reporting; revising reporting of counterparty 
exposures including reporting of significant counterparties; 
revising currency reporting; requiring significant country and 
industry exposure; requiring additional reporting on fund portfolio 
risk profiles; requiring more granular reporting of investment 
performance by strategy; amending reporting of portfolio liquidity; 
and amending reporting of financing liquidity. See supra section 
II.C.
---------------------------------------------------------------------------

    Several changes in response to commenters will either enhance these 
benefits or will provide substantially the same benefits relative to 
the proposal but at reduced burden to advisers. For example, in 
response to commenters, under the final amendments advisers are 
permitted to report an entirely indirectly held entity position in one 
sub-asset class and instrument type that best represents the sub-asset 
class exposure of the indirectly held entity, unless the adviser would 
allocate the exposure of the indirectly held entity more granularly 
under its own internal methodologies and conventions of its service 
providers.\595\ This modification balances the importance of obtaining 
more accurate and granular data with a reporting standard that is less 
burdensome for advisers than the proposed standard. Similarly, in the 
final amendments, in response to commenters we are modifying the ``10-
year bond equivalent'' definition to reference U.S. dollars, rather 
than the fund's base currency, so that advisers will not be required to 
perform any additional exchange conversions.\596\ As a final example, 
with respect to market factor reporting, commenters suggested that the 
proposal was unclear in certain questions as to whether an adviser is 
required to ``look through'' the fund's investments.\597\ In response, 
we are adding an instruction that when reporting exposures to changes 
in market factors for indirect positions, an adviser may use reasonable 
estimates that best represent the exposure to the market factor, 
consistent with the adviser's internal methodologies and conventions of 
service providers.\598\
---------------------------------------------------------------------------

    \595\ See supra section II.C.2.a.
    \596\ Id.
    \597\ See supra section II.C.2.c; see also MFA Comment Letter 
III.
    \598\ See supra section II.C.2.a.
---------------------------------------------------------------------------

    Many commenters also agreed with the benefits of certain proposed 
amendments. For example, commenters supported the amendments to require 
hedge fund advisers to report their long and short holdings on a 
disaggregated basis, or stated that requiring private fund advisers to 
report both long and short positions will allow FSOC to have a complete 
picture of the risk exposure across private funds, or stated that 
allowing advisers to aggregate their positions between physically held 
and synthetically held positions can make it difficult to understand 
the impact of hedge fund activity especially during periods of market 
instability.\599\ Several of these amendments did not receive comments. 
For example, we did not receive comments on many aspects of the 
amendments to redesignated Question 32.\600\
---------------------------------------------------------------------------

    \599\ Id.; see also AFREF Comment Letter I; Better Markets 
Comment Letter.
    \600\ See supra section II.C.2.a.
---------------------------------------------------------------------------

    Second, the changes will help Form PF provide greater insight into 
newly emerging areas of risk, including increasing exposures to new 
asset classes, changing exposures across different categories of 
counterparties, and changing risk management practices (such as 
changing practices around posting of collateral). The SEC believes 
these changes will help Form PF more completely and accurately capture 
information relevant to ongoing trends in the private fund industry. 
For example, in addition to the more general investment strategy 
questions in section 1c described above,\601\ section 2b will

[[Page 18042]]

require large advisers to qualifying hedge funds to report their total 
exposures to digital assets.\602\ As another example, large advisers to 
qualifying hedge funds will be required to report exposures to 
additional commodity sub-asset classes (e.g., other (non-gold) precious 
metals, agricultural commodities, and base metal commodities).\603\ 
They will also be required to report all other counterparties (by name, 
LEI, and financial institution affiliation) to which a fund has net 
mark-to-market exposure after collateral that equals or is greater than 
either (1) five percent of a fund's net asset value or (2) $1 billion, 
facilitating regulators' abilities to understand the impact of a 
particular counterparty failure like those that occurred during the 
2008 financial crisis and in the period since (e.g., the failure of MF 
Global in 2011).\604\ Advisers will also be required to report certain 
of their exposures to CCPs,\605\ and will be required to report each 
CCP (or other third party) holding collateral in respect of cleared 
exposures in excess of five percent of the fund's net asset value, or 
$1 billion.\606\
---------------------------------------------------------------------------

    \601\ See supra section IV.C.1.b.
    \602\ See supra section II.C.2.a.
    \603\ Id.
    \604\ See supra section II.C.2.a, footnote 360 and accompanying 
text.
    \605\ See supra section II.C.2.b.
    \606\ See supra section II.C.2.d.
---------------------------------------------------------------------------

    As a final example, advisers will be required to determine adjusted 
exposure for each ``sub-asset'' using a specified methodology, as 
proposed. This methodology will include, among other specifications, 
netting positions that have the same underlying reference asset across 
instrument type, including positions held indirectly through another 
entity such as ETFs and other exchange traded products.\607\ These 
amendments will also include defining ``exchange traded product'' to 
better facilitate exchange traded product and ETF exposure reporting. 
These types of funds are important avenues of investing for many types 
of investors but can represent different systemic risks than other 
types of investments, potentially increasing certain types of risk and 
decreasing other types of risk.
---------------------------------------------------------------------------

    \607\ See supra section II.C.2.a.
---------------------------------------------------------------------------

    As discussed above, these (and other) new granular reporting 
requirements will represent new possible sources of systemic risk for 
the SEC and FSOC to evaluate, and also new areas of focus for the SEC's 
regulatory outreach, examination, and investigation.\608\ The SEC 
believes these revisions, and others,\609\ will improve the SEC's and 
FSOC's efforts to assess developing systemic risks and FSOC's efforts 
to assess broader financial stability, as well as potentially improve 
the SEC's efforts to protect investors by identifying areas in need of 
outreach, examination, or investigation.
---------------------------------------------------------------------------

    \608\ See supra section IV.C.1.b. For example, the SEC believes 
the addition of a base metal commodities sub-asset class will allow 
for identification of large players in the base metals market (such 
as those impacted by the Mar. 2022 ``nickel squeeze,'' during which 
the price of nickel rose unusually steeply and rapidly in response 
to commodity price increases caused by Russia's invasion of 
Ukraine). See supra footnote 323.
    \609\ Other revisions that will provide this benefit include 
revising reporting for positions held physically, synthetically, or 
through derivatives and indirect exposure; revising reportable sub-
asset classes, including those for certain categories of listed 
equity securities, repos, asset-backed securities and other 
structured products, derivatives, and other cash and commodities; 
further revising reporting of counterparty exposures including 
reporting of significant counterparties (in addition to the 
revisions to CCP exposures); revising currency reporting; requiring 
more granular reporting of turnover; requiring significant country 
and industry exposure; requiring additional reporting on fund 
portfolio risk profiles; requiring more granular reporting of 
investment performance by strategy; requiring new reporting on 
portfolio correlation; amending reporting of portfolio liquidity; 
and amending reporting of financing liquidity. See supra section 
II.C.
---------------------------------------------------------------------------

    Some commenters questioned or were skeptical of these benefits. For 
example, one commenter indicated that existing data sources, such as 
existing Form PF, Form 13F and 13H, and CFTC Form CPO-PQR, already 
allow the Commissions to obtain granular information about a fund's 
holdings with respect to the new sub-asset classes.\610\ As discussed 
above, we have identified information gaps in the data reported on the 
existing Form PF based on our experience, and we are unable to 
determine the full extent of a fund's exposure because the different 
types of exposures are combined.\611\ The final amendments will 
generate the intended benefits described above.\612\
---------------------------------------------------------------------------

    \610\ See supra section II.C.2.a; see also SIFMA Comment Letter.
    \611\ See supra section II.C.2.a. We discuss the costs of these 
amendments, including comments on the proposed amendments, below. 
See infra section IV.C.2.
    \612\ Other commenters were opposed to these amendments, but 
primarily on the basis of costs of the updated reporting. See supra 
section II.C.2.b; see also AIMA/ACC Comment Letter; MFA Comment 
Letter II; SIFMA Comment Letter. We discuss the costs of these 
amendments, including comments on the proposed amendments, below. 
See infra section IV.C.2.
---------------------------------------------------------------------------

    Lastly, the amendments will remove certain questions where other 
questions provide the same or superseding information, which the SEC 
believes will streamline reporting and reduce reporting burden. For 
example, the changes will remove section 2a entirely, based on a 
determination that the aggregated information in section 2a is 
redundant to information required to be reported in other 
sections,\613\ and will remove the requirement from Question 38 for 
advisers to report the percentage of the total amount of collateral and 
other credit support that a fund has posted to counterparties that may 
be re-hypothecated.\614\ The SEC believes that these revisions, and 
others,\615\ will directly lower the costs and reduce the burden to 
advisers of completing Form PF filings. Commenters who discussed these 
proposed amendments agreed that there would be benefits from reducing 
the burden by eliminating questions and streamlining reporting 
requirements.\616\
---------------------------------------------------------------------------

    \613\ See supra section II.C.1.
    \614\ Id.
    \615\ Other revisions that will provide this benefit include 
consolidating Question 47 into Question 36; removing the requirement 
from Question 38 for advisers to report the percentage of the total 
amount of collateral and other credit support that a fund has posted 
to counterparties that may be re-hypothecated; and requiring 
reporting turnover on a per fund basis instead of in the aggregate. 
See supra section II.C.
    \616\ See supra sections II.C.1, II.C.2.b; see also, e.g., MFA 
Comment Letter II; SIFMA Comment Letter; Better Markets Comment 
Letter.
---------------------------------------------------------------------------

2. Costs
    The amendments to Form PF will lead to certain additional costs for 
private fund advisers. Any portion of these costs that is not borne by 
advisers will ultimately be passed on to private funds' investors. 
These costs will vary depending on the scope of the required 
information, which is determined based on the size and types of funds 
managed by the adviser as well as each fund's investment strategies, 
including choices of asset classes and counterparties. These costs are 
quantified, to the extent possible, by examination of the analysis in 
section V.C.
    The SEC anticipates that the costs to advisers associated with Form 
PF will be comprised of both direct compliance costs and indirect 
costs. Direct costs for advisers will consist of internal costs (for 
compliance attorneys and other non-legal staff of an adviser, such as 
computer programmers, to prepare and review the required disclosure) 
and external costs (including filing fees as well as any costs 
associated with outsourcing all or a portion of the Form PF reporting 
responsibilities to a filing agent, software consultant, or other 
third-party service provider).\617\
---------------------------------------------------------------------------

    \617\ See section V.C. (for an analysis of the direct costs 
associated with the new Form PF requirements for quarterly and 
annual filings).
---------------------------------------------------------------------------

    The SEC believes that the direct costs associated with the final 
amendments will be most significant for the first updated Form PF 
report that a private fund adviser will be required to file because the 
adviser will need to

[[Page 18043]]

familiarize itself with the new reporting form and may need to 
configure its systems to gather the required information efficiently. 
In subsequent reporting periods, the SEC anticipates that filers will 
significantly lower costs because much of the work involved in the 
initial report is non-recurring and because of efficiencies realized 
from system configuration and reporting automation efforts accounted 
for in the initial reporting period. This is consistent with the 
results of a survey of private fund advisers, finding that the majority 
of respondents identified the cost of subsequent annual Form PF filings 
at about half of the initial filing cost.\618\
---------------------------------------------------------------------------

    \618\ See Kaal, supra footnote 487.
---------------------------------------------------------------------------

    The SEC anticipates that the amendments aimed at improving data 
quality and comparability will impose limited direct costs on advisers 
given that advisers already accommodate similar requirements in their 
current Form PF reporting and can utilize their existing capabilities 
for preparing and submitting an updated Form PF. The SEC expects that 
most of the costs will arise from the requirements to report additional 
and more granular information on Form PF. These direct costs will 
mainly include an initial cost to set up a system for collecting, 
verifying additional more granular information, and limited ongoing 
costs associated with periodic reporting of this additional 
information.\619\ We believe that the amendment to 17 CFR 275.204(b)-
1(f) under the Advisers Act will have minimal costs associated with it, 
as the amendment only makes it easier to submit a temporary hardship 
exemption and assists advisers in determining what constitutes a 
``filed'' temporary hardship exemption.\620\ As discussed in the 
benefits section, the SEC believes that part of the costs to advisers 
arising from the amendments will be mitigated by the cost savings 
resulting from reduced ambiguities and inefficiencies that currently 
exist in the reporting requirements, as this may reduce the amount of 
time and effort required for some advisers to prepare and submit Form 
PF information.\621\
---------------------------------------------------------------------------

    \619\ Based on the analysis in section V.C, initial costs 
associated with filing the first updated Form PF report are 
estimated to increase by $5,820 for smaller private fund advisers, 
$20,190 for large hedge fund advisers, $10,592 for large liquidity 
fund advisers, and $10,647 for large private equity fund advisers. 
These figures are calculated as the cost of filing under the amended 
form minus the cost of filing prior to the amendments for each 
category of adviser. See Table 6. Direct internal compliance costs 
associated with the amendments are estimated at $2,247 annually for 
smaller private fund advisers. Direct internal compliance costs 
associated with the amendments are estimated at $8,346 per quarterly 
filing or $33,384 annually for large hedge fund advisers. Direct 
internal compliance costs associated with the amendments are 
estimated at $5,136 per quarterly filing or $20,544 annually for 
large liquidity fund advisers. Direct internal compliance costs 
associated with the amendments are estimated at $4,815 annually for 
large private equity fund advisers. These figures are calculated as 
the cost of filing under the amendments minus the cost of filing 
prior to the amendments for each category of adviser. See Table 7. 
It is estimated that there will be no additional direct external 
costs and no changes to filing fees associated with the amendments. 
See Table 9. The SEC anticipates that there may be additional first-
time filing costs for filers who do not currently file on a calendar 
quarter basis, but that these costs are likely to be small and not 
likely to impact subsequent filings beyond the first. As discussed 
above, a 2018 industry survey of large hedge fund advisers found 
filing costs that ranged from 35% to 72% higher than SEC cost 
estimates. These industry cost estimates would therefore suggest 
costs associated with the changes to Form PF that are potentially 
35% to 72% higher than those estimated here. See MFA Letter to 
Chairman Clayton, supra footnote 364, at 3. However, a 2015 survey 
of SEC-registered investment advisers to private funds affirmed the 
SEC's cost estimates for smaller private fund advisers' Form PF 
compliance costs, and found that the SEC overestimated Form PF 
compliance costs for larger private fund advisers. These academic 
literature cost estimates would therefore suggest that the costs 
associated with the changes to Form PF estimated here are 
potentially conservatively large. See Kaal, supra footnote 487. We 
were persuaded by commenters who asserted that the proposed burdens 
underestimated the time and expense associated with the proposed 
amendments. To address commenters' concerns and recognizing the 
changes from the proposal, we have revised the estimates as 
reflected here and below. See infra section V.C.
    \620\ See supra section II.E.
    \621\ The final amendments also seek to limit unnecessary costs 
by avoiding redundancies between new questions and current 
Questions. For example, the SEC will remove current Question 22, as 
it would be redundant in light of the expanded turnover reporting. 
See supra footnote 385.
---------------------------------------------------------------------------

    Indirect costs for advisers will include the costs associated with 
additional actions that advisers may decide to undertake in light of 
the additional reporting requirements on Form PF. Specifically, to the 
extent that the amendments provide an incentive for advisers to improve 
internal controls and devote additional time and resources to managing 
their risk exposures and enhancing investor protection, this may result 
in additional expenses for advisers, some of which may be passed on to 
the funds and their investors.
    Commenters also identified other indirect costs in the form of 
unintended effects, which we agree may occur. For example, one 
commenter stated that requirements in Form PF to use a particular 
financial identifier may increase costs and reduce innovation and 
competition among financial identifier providers.\622\ However, we do 
not think this effect is likely to occur, because Form PF continues to 
not require an adviser to obtain or use LEI or any other particular 
financial identifier (other than private fund identification numbers 
for reporting funds), as our amendments provide only that any 
identifier that does not meet the definition of ``LEI'' may not be 
substituted for an LEI where a question requests an LEI.\623\ Form PF 
continues to permit advisers to use other financial identifiers 
elsewhere on Form PF where the reporting of LEI is either not specified 
or not required.\624\ Therefore, financial identifier providers will 
not likely experience any reduction in their incentives to innovate or 
compete.
---------------------------------------------------------------------------

    \622\ See supra section II.B.1; see also Bloomberg Comment 
Letter.
    \623\ See supra section II.B.1.
    \624\ Id.
---------------------------------------------------------------------------

    Some commenters stated that there will be substantial burden 
including initial set-up costs, external costs, and ongoing costs 
associated with amending Form PF.\625\ These commenters also stated 
that the Proposing Release economic analysis understated the costs of 
the amendments.\626\ Several of the changes to the final amendments 
relative to the proposal are in response to commenter concerns on 
costs. Specifically, the final amendments have removed certain 
questions that were proposed and revised other questions in order to 
reduce their burden without compromising the goals of the Commissions 
and FSOC in improving the information received on the form for purposes 
of their systemic risk reviews. For example, we are revising certain 
questions related to exposures to instruct advisers to select the 
exposure that ``best represents'' the indirect investment of the 
reporting fund, based on commenter statements that obtaining 
information about a fund's indirect exposures through investments in 
other funds could be difficult or burdensome.\627\ As a second example, 
we are also not adopting a proposed question on portfolio correlations 
in response to comments that the proposed portfolio calculation 
questions would have been complex and burdensome to calculate.\628\ As 
a third example, one commenter stated that for quarterly filers who 
have a fiscal year ending in

[[Page 18044]]

a non-calendar quarter month, the proposed instructions do not specify 
the procedure for a filer who, during the transition from fiscal to 
calendar quarter reporting, would otherwise be required to report twice 
in one calendar quarter.\629\ In response, we are requiring that such 
filers transition to the new timing requirement by their first calendar 
quarter-end filing for the first full quarterly reporting period after 
the compliance date.\630\ As a final example, we are permitting the use 
of RFACV and GRFACV in reporting certain questions related to asset 
values in Section 1b, concerning all private funds.\631\ Permitting an 
adviser to report GRFACV or RFACV will reduce burden associated with 
reporting of valuation data on a monthly basis.\632\
---------------------------------------------------------------------------

    \625\ See, e.g., MFA Comment Letter III; AIMA/ACC Comment 
Letter; MFA/NAPFM Comment Letter.
    \626\ Id. The Proposing Release economic analysis' quantified 
costs were based on compliance cost estimates from the Proposing 
Release PRA analysis. As discussed above, industry and academic 
literature from 2015-2018 has varied in its findings on whether 
SEC's past PRA analysis estimates of Form PF compliance costs have 
historically been overstated or understated. To address commenters' 
concerns and recognizing the changes from the proposal, we are 
revising the estimates as reflected here and below. See infra 
section V.C; see also supra footnote 619.
    \627\ See supra sections II.A.2, II.C.2.
    \628\ See supra section II.C.2.
    \629\ See supra section II.A.3.
    \630\ Id.
    \631\ See supra section II.B.2. The incremental burdens 
associated with the use of these terms may be further limited 
because the recent amendments adopted by the SEC require a large 
hedge fund adviser to monitor and in certain instances report, the 
fund's RFACV in compliance with its current reporting obligation. 
See May 2023 SEC Form PF Amending Release, supra footnote 4.
    \632\ Id.
---------------------------------------------------------------------------

    However, there were certain proposed amendments that commenters 
criticized as burdensome but are being adopted largely as proposed. 
Each of these amendments is being adopted either because costs will be 
limited, because benefits will be substantial, or both. For example, 
commenters criticized the prescribed methodology for calculating netted 
exposure as burdensome as well as the need to identify relevant sub-
asset classes and the need to measure these exposures on a monthly 
basis.\633\ However, burden in the case of sub-asset classes will 
likely be limited, because advisers will generally only need to make 
the relevant determination of sub-asset classes once, with ongoing 
monitoring (and any reclassifications) relatively limited. Further, 
because a fund may use cross counterparty netting consistent with 
information reported by the fund internally for purposes of determining 
adjusted exposure, the adjusted exposure reporting will likely not be 
significantly burdensome, particularly for funds using common 
aggregator protocols.\634\ As another example, some commenters opposed 
the requirement to provide additional detail regarding counterparty 
exposure and state that the information would be burdensome and costly 
to obtain.\635\ For reasons discussed above,\636\ we continue to 
believe that disaggregated counterparty exposure is important to 
systemic risk monitoring efforts, and will not be significantly 
burdensome to produce as we understand knowledge of counterparties to 
be a component of a fund's risk management practices. As a final 
example, one commenter stated that the requirement to report 
information expressed as a percentage to the nearest one hundredth of 
one percent will significantly increase the costs and additional 
burdens for reporting advisers.\637\ However, as discussed above, 
percentages rounded to the nearest one hundredth of one percent will 
allow the Commissions to obtain and analyze more precise information 
that may otherwise be obscured, for example given that one one-
hundredth of one percent can represent a meaningful dollar amount 
depending on the size of the private fund. And, while we recognize that 
this may not be the case for smaller funds, when such amounts are taken 
together for a large group of smaller funds, the aggregate amount 
across the fund group can represent a meaningful dollar amount for data 
analysis purposes.\638\ However, given commenters' perspectives, we 
have increased our assessment of the incremental direct costs of the 
final amendments relative to the proposal, even after revising certain 
final amendments and questions relative to the proposal in order to 
reduce incremental burden.\639\
---------------------------------------------------------------------------

    \633\ See supra section II.C.2.a; see also, e.g., SIFMA Comment 
Letter.
    \634\ See supra section II.C.2.a.
    \635\ See supra section II.C.2.b; see also, e.g., MFA Comment 
Letter II; SIFMA Comment Letter; AIMA/ACC Comment Letter.
    \636\ Id.
    \637\ See supra section II.D; see also MFA Comment Letter II.
    \638\ Id.
    \639\ See supra footnotes 619 through 621 and accompanying text; 
see also infra section V.C.
---------------------------------------------------------------------------

    However, these costs must be analyzed alongside the important 
benefits that will accrue, as receiving exposure data on a monthly 
basis will allow us to better understand interim changes in exposures 
that may be relevant to systemic risk assessment that are not visible 
from the existing quarterly data, which may enhance the measurement of 
trends that may indicate systemic risk. Receiving these data on a 
monthly basis will also improve the Commissions' ability to compare 
netted exposures with other monthly reported data, such as redesignated 
Question 23, relating to fund performance reported by all private 
funds.\640\ Being able to compare data on a monthly basis with other 
data at the same frequency is important for systemic risk assessment 
and to support investor protection efforts.\641\
---------------------------------------------------------------------------

    \640\ See supra section II.B.2.
    \641\ Id.
---------------------------------------------------------------------------

    Some commenters argued that the heightened compliance costs of Form 
PF may be particularly burdensome for small firms.\642\ As a result, 
the final amendments may represent a barrier to entry for smaller 
advisers who cannot meet the compliance costs or who cannot compete 
after passing those costs on to investors. To the extent any smaller 
advisers either exit or forgo entry in response to these compliance 
costs, competition would be negatively affected. However, comments were 
made in the context of the proposal, and the final amendments reduce 
many of the costs of compliance relative to the proposal.\643\ 
Therefore, these effects may be mitigated, but may nonetheless occur.
---------------------------------------------------------------------------

    \642\ See, e.g., MFA Comment Letter; AIMA/ACC Comment Letter.
    \643\ See supra footnote 456 and accompanying text.
---------------------------------------------------------------------------

    One commenter stated that the SEC should consider that ``the sheer 
number and complexity of the Proposals, when considered in their 
totality, if adopted, would impose staggering aggregate costs, as well 
as unprecedented operational and other practical challenges.'' \644\ 
But, consistent with its long-standing practice, the Commission's 
economic analysis in each adopting release considers the incremental 
benefits and costs for the specific rule--that is, the benefits and 
costs stemming from that rule compared to the baseline.\645\ In doing 
so, the Commission acknowledges that in some cases resource limitations 
can lead to higher compliance costs when the compliance period of the 
rule being considered overlaps with the compliance period of other 
rules. In determining compliance periods, the SEC considers the 
benefits of the rules as well as the costs of delayed compliance 
periods and potential overlapping compliance periods.
---------------------------------------------------------------------------

    \644\ MFA/NAPFM Comment Letter; see also MFA Comment Letter III; 
SIFMA Comment Letter; AIC Comment Letter I; AIC Comment Letter II; 
Comment Letter of U.S. House of Representatives Committee on 
Financial Services.
    \645\ See supra section IV.C.1.
---------------------------------------------------------------------------

    Specifically, some commenters, as noted above, mentioned the 
proposals which culminated in the recent adoptions of the May 2023 SEC 
Form PF Amending Release, SEC Private Funds Advisers Adopting Release, 
Beneficial Ownership Amending Release, Short Position Reporting 
Adopting Release, Securitizations Conflicts Adopting Release, Treasury 
Clearing Adopting Release, and Dealer Definition Amending Release.\646\ 
The SEC

[[Page 18045]]

acknowledges that there are compliance dates for certain requirements 
of these rules that overlap in time with the final rule, which may 
impose costs on resource constrained entities affected by multiple 
rules.\647\ This may be particularly true for smaller entities with 
more limited compliance resources. This effect can negatively impact 
competition because these entities may be less able to absorb or pass 
on these additional costs, making it more difficult for them to remain 
in business or compete.
---------------------------------------------------------------------------

    \646\ See supra section IV.C.1; see also, e.g., AIC Comment 
Letter II; MFA Comment Letter I; MFA Comment Letter III; SIFMA 
Comment Letter.
    \647\ The effective/compliance date of the amendments in this 
rulemaking is one year from the date of publication of the rules, 
which is anticipated to be in early 2025. See infra section II.F. 
See supra footnotes 461 through 467 (summarizing compliance dates 
for the previously adopted rules).
---------------------------------------------------------------------------

    We do not think these increased costs from overlapping compliance 
periods will be significant for two reasons. First, the market 
participants that will be subject to the amendments in this rulemaking 
and who will be subject to one or more of the other recently adopted 
rules could be limited based on whether those participants' activities 
fall within the scope of the other rules.\648\ Second, overlapping 
compliance burdens related specifically to implementation of recent 
Form PF amendments will be limited because of the scope and 
implementation periods of the May 2023 SEC Form PF Amending Release. 
Only the compliance period for amendments to section 4 of Form PF 
overlap with the compliance periods for the Form PF amendments in this 
rulemaking. As a result, smaller private fund advisers, who are the 
entities more likely to be resource constrained, will not face any 
heightened costs from overlapping implementation periods because only 
large private equity fund advisers--meaning those, together with their 
related persons that are not separately operated, with at least $2 
billion in combined regulatory assets under management attributable to 
private equity funds--report on section 4.
---------------------------------------------------------------------------

    \648\ The Short Position Reporting Adopting Release will require 
only institutional investment managers that meet or exceed certain 
reporting thresholds to report short position and short activity 
data for equity securities. The Securitizations Conflicts Adopting 
Release will affect only certain entities--and their affiliates and 
subsidiaries--that participate in securitization transactions. The 
Treasury Clearing Adopting Release will affect only those Form PF 
filers that participate in the secondary market for U.S. Treasury 
securities. Lastly, the Dealer Definition Amending Release will 
primarily affect certain principal trading firms and private funds; 
private funds will bear the compliance costs associated with 
registering as a broker-dealer--and those funds' advisers will have 
to complete the compliance activities for their funds--only if the 
funds' investment activities bring them within the scope of the 
amended definitions. See supra footnotes 464 through 467.
---------------------------------------------------------------------------

    Moreover, commenters' concerns about the costs of overlapping 
compliance periods were raised in the context of the proposal and, as 
discussed above, we have taken steps to reduce costs of the final rule 
in several ways from the proposal.\649\ As a result, for both larger 
and smaller entities, any higher costs or potential negative effects on 
competition due to overlapping compliance periods raised in the context 
of the proposal may be mitigated under the final amendments.
---------------------------------------------------------------------------

    \649\ See supra footnote 625 and accompanying text.
---------------------------------------------------------------------------

    Form PF collects confidential information about private funds and 
their trading strategies, and the inadvertent public disclosure of such 
competitively sensitive and proprietary information could adversely 
affect the funds and their investors. Some commenters expressed 
concerns at this possibility. For example, one commenter opposed the 
increased granularity in strategy categories, stating they could 
disclose a fund's proprietary investment information and present data 
security concerns.\650\ However, the SEC anticipates that any risk of 
these adverse effects will be mitigated by certain aspects of the Form 
PF reporting requirements and controls and systems designed by the SEC 
for handling the data. For example, the SEC has controls and systems 
for the use and handling of the modified and new Form PF data in a 
manner that reflects the sensitivity of the data and is consistent with 
the maintenance of its confidentiality. The SEC has substantial 
experience with the storage and use of nonpublic information reported 
on Form PF as well as other nonpublic information that the SEC handles 
in the course of business.
---------------------------------------------------------------------------

    \650\ SIFMA Comment Letter.
---------------------------------------------------------------------------

D. Reasonable Alternatives

1. Alternatives to Amendments to General Instructions, Amendments To 
Enhance Data Quality, and Additional Amendments
    The SEC considered alternatives to the amendments to general 
instructions, amendments to enhance data quality, and the additional 
amendments in the final rule (including the amendments to the process 
for requesting temporary hardship exemptions, by way of an amendment to 
17 CFR 275.204(b)-1(f) under the Advisers Act). The alternatives 
considered were in the form of different choices of framing, level of 
additional detail requested by Form PF, level of detail removed from 
Form PF, and precise information targeted. For example, in the general 
instructions, the SEC considered an alternative that would have 
required advisers to report only at the master fund level or only at 
the feeder fund level. As another example, the SEC considered requiring 
annual filers to file within 30 calendar days after the end of their 
fiscal year, rather than 120 calendar days.
    While many alternatives may have been able to capture more detailed 
information, or may have been able to capture relevant information with 
a smaller reporting burden for advisers, the SEC believes that each of 
the amendments to general instructions, amendments to enhance data 
quality, and additional amendments as adopted will improve data quality 
and enhance the usefulness of reported data without imposing undue 
reporting burden.
2. Alternatives to Amendments to Basic Information About the Adviser 
and the Private Funds It Advises
    The SEC also considered alternatives to the amendments to basic 
information about advisers and the private funds they advise. As above, 
these alternatives were in the form of different choices of framing, 
level of additional detail requested by Form PF, level of detail 
removed from Form PF, and precise information targeted.
    For example, with respect to identifying information for private 
funds in section 1a, the SEC considered an alternative that would 
provide more granularity for advisers to list categories of funds, such 
as differentiating between different types of funds of funds (for 
example, differentiating between multi-manager funds of funds and 
multi-asset funds of funds). As another example, with respect to basic 
information reported for all private funds in section 1b, the SEC 
considered alternatives that would limit reporting information about 
withdrawal rights, redemption rights, and contributions to only funds 
and advisers of a certain size.
    As a final example, with respect to basic information reported for 
all hedge funds, the amendments will require advisers to identify each 
creditor or other counterparty (including CCPs) to which the reporting 
fund owes cash and synthetic financing borrowing (before posted 
collateral) equal to or greater than either (1) five percent of net 
asset value of the reporting fund as of the data reporting date or (2) 
$1 billion, but the SEC considered alternatives that would have changed 
the thresholds, either increasing or decreasing Form PF's definition of 
what constitutes a significant counterparty. With respect to several 
such questions, commenters

[[Page 18046]]

suggested the SEC consider alternative thresholds for reporting.\651\ 
As discussed above, this threshold is appropriate because both portions 
of the threshold highlight potential systemic risk: five percent of net 
asset value is a level that represents significant exposure (based on 
the impact on performance) in the event of counterparty default, and $1 
billion, while it may not equal five percent of a large hedge fund's 
assets, may indicate a larger systemic stress involving a fund's 
counterparties.\652\
---------------------------------------------------------------------------

    \651\ See supra sections II.B.3, II.C.2.
    \652\ Id.
---------------------------------------------------------------------------

    The SEC believes that each of the amendments as adopted improve 
data quality and enhance the usefulness of reported data without 
imposing an undue reporting burden.
3. Alternatives to Amendments to Information About Hedge Funds Advised 
by Large Private Fund Advisers
    The SEC considered alternatives to the amendments to information 
about hedge funds advised by large private fund advisers. As above, 
these alternatives were in the form of different choices of framing, 
level of additional detail requested by Form PF, level of detail 
removed from Form PF, and precise information targeted.
    For example, with respect to investment exposure reporting, the 
final amendments will continue to require reporting on qualifying hedge 
fund exposures to different types of assets, but will revise the 
instructions and format of this reporting. As an alternative, the SEC 
considered an amendment that would require or permit large hedge fund 
advisers to file portfolio position-level information for qualifying 
hedge funds similar to what is required for large liquidity fund 
advisers, and large hedge fund advisers who do so would be allowed to 
forgo responding to certain specific investment exposure questions in 
section 2, including Question 30. The questions as adopted will improve 
data quality and enhance the usefulness of reported data without 
imposing an undue reporting burden.\653\
---------------------------------------------------------------------------

    \653\ See supra section II.C.
---------------------------------------------------------------------------

    As another example, the SEC considered alternative approaches for 
instructing reporting advisers on how to net long and short positions 
for each sub-asset class. One prong of the amended instructions for 
netting long and short positions relies on a newly defined term 
``reference asset,'' which we define as a security or other investment 
asset to which the reporting fund is exposed through direct ownership, 
synthetically, or indirect ownership,\654\ and instructs advisers to 
net positions that have the same underlying reference asset across 
instrument types. The SEC considered instead tailoring these 
instructions to different asset classes. For example, the SEC 
considered instructing advisers to net repo exposures in accordance 
with generally accepted accounting principles (``GAAP'') rules for 
balance sheet netting, or instructing advisers with exposures whose 
underlying reference assets are Treasury securities to net within 
predefined maturity buckets. However, the SEC believes that providing 
netting instructions through the single definition of ``reference 
asset'' improves data quality and enhances the usefulness of report 
data without imposing undue burden.\655\
---------------------------------------------------------------------------

    \654\ See Form PF Glossary of Terms. The amendments will also 
instruct advisers to net fixed income positions that fall within 
certain predefined maturity buckets. See supra section II.C.
    \655\ See supra section II.C.
---------------------------------------------------------------------------

    Commenters also suggested alternatives to questions requiring 
reporting of categories of large exposures, in particular suggesting 
alternative parameters or thresholds defining when exposures should be 
reported.\656\ For example, for the proposed new questions requiring 
advisers to provide information for counterparties to which the 
reporting fund has net mark-to-market counterparty credit exposure 
which is equal to or greater than either (1) five percent of the 
reporting fund's net asset value as of the data reporting date or (2) 
$1 billion, after taking into account collateral received or posted by 
the reporting fund, one commenter suggested a threshold of 10 percent 
for this question.\657\
---------------------------------------------------------------------------

    \656\ See supra sections II.B.3, II.C.2.
    \657\ MFA Comment Letter II.
---------------------------------------------------------------------------

    For each of these questions, the thresholds were chosen to 
highlight potentially significant systemic risks in keeping with 
industry practice. For example, for the above counterparty credit 
exposure question, five percent was identified as a level large enough 
to constitute a shock to a reporting fund's net asset value, and $1 
billion was identified as an amount that in the case of a very large 
counterparty, may not represent five percent of its net assets, but may 
be large enough to create stress for the reporting fund.\658\ As 
another example, for the question on country and industry exposures, 
the threshold of either (1) five percent of net asset value or (2) $1 
billion is appropriate for multiple reasons, such as the fact that it 
represents a material level of portfolio exposure to risk relating to 
individual countries and geographic regions, and the fact that, for 
funds without a benchmark, five percent is often evaluated for 
industry, individual position, and country risk, and is a common and 
easy-to-measure threshold.\659\ With respect to the $1 billion 
threshold, it constitutes sufficiently large nominal value exposure 
from a risk perspective.\660\
---------------------------------------------------------------------------

    \658\ See supra section II.B.3.
    \659\ See supra section II.C.2.d.
    \660\ Id.
---------------------------------------------------------------------------

    As a final example, the SEC also considered requiring advisers to 
report Dollar Value of one basis point (DV01) instead of the 10-year 
zero coupon bond equivalent. We understand that the 10-year zero coupon 
bond equivalent is the most widely used duration measure currently 
applied in the industry, and would require the fewest number of private 
funds to update their calculations of duration to comply with the 
reporting requirement.\661\
---------------------------------------------------------------------------

    \661\ See supra section II.C.2.d.
---------------------------------------------------------------------------

    Broadly, the SEC believes that each of the amendments as adopted 
improve data quality and enhance the usefulness of reported data 
without imposing undue reporting burden.\662\
---------------------------------------------------------------------------

    \662\ See supra section II.C.2.d.
---------------------------------------------------------------------------

4. Alternatives to the Definition of the Term ``Hedge Fund''
    The SEC also considered amending the definition of ``hedge fund'' 
which is defined in the Glossary of Terms as any private fund (other 
than a securitized asset fund) (a) with respect to which one or more 
investment advisers (or related persons of investment advisers) may be 
paid a performance fee or allocation calculated by taking into account 
unrealized gains (other than a fee or allocation the calculation of 
which may take into account unrealized gains solely for the purpose of 
reducing such fee or allocation to reflect net unrealized losses); (b) 
that may borrow an amount in excess of one-half of its net asset value 
(including any committed capital) or may have gross notional exposure 
in excess of twice its net asset value (including any committed 
capital); or (c) that may sell securities or other assets short or 
enter into similar transactions (other than for the purpose of hedging 
currency exposure or managing duration).\663\
---------------------------------------------------------------------------

    \663\ Id.
---------------------------------------------------------------------------

    Under the existing definition, an adviser to a fund that holds 
itself out as a private equity fund and is permitted in its fund 
governing documents to engage in certain short-selling, but has not 
done so in the past 12 months, would be reported in Form PF data as

[[Page 18047]]

a hedge fund with zero short exposure. The SEC therefore considered a 
potential alternative definition of ``hedge fund,'' under which, to 
qualify as a hedge fund under the leverage prong of the potential 
alternative definition, a fund would have to satisfy subsection (b) of 
the definition (the leverage prong), as it does today, but also must 
have actually borrowed or used any leverage during the past 12 months, 
excluding any borrowings secured by unfunded commitments (i.e., 
subscription lines of credit). Additionally, to qualify as a hedge fund 
under the short selling prong of the potential alternative definition 
(the short selling prong), the fund would have engaged in certain short 
selling during the past 12 months. The SEC also considered alternative 
definitions requiring, for example, longer or shorter time periods, 
different time periods for borrowing versus short selling, or 
requirements for the reporting fund to provide redemption rights in the 
ordinary course.
    An alternative definition could reduce the unnecessary reporting 
burden faced by advisers to deemed hedge funds that hold themselves out 
as private equity funds but currently comply with instructions to 
report information on Form PF section 2; however, this benefit would be 
partially mitigated by the impacted private fund advisers who would 
then need to report on necessary Form PF sections for private equity 
fund advisers.\664\ Some reporting funds may consider themselves 
``private equity funds,'' but advisers report them as hedge funds, 
because the reporting fund's governing documents permit the fund to 
engage in certain borrowing and short selling (even though it did not 
do so at any time in the past 12 months), and an alternative definition 
could result in these funds reporting in a manner more consistent with 
their own view of their fund strategy. As discussed above, certain 
commenters supported revising the definition, including offering 
alternative specific definitions.\665\
---------------------------------------------------------------------------

    \664\ See supra sections II.C.2; IV.C.2; see also infra section 
V.C.
    \665\ See supra section II.C.2.d.
---------------------------------------------------------------------------

    However, the current definition of ``hedge fund'' is designed to 
include any private fund having any one of three common characteristics 
of a hedge fund: (1) a performance fee, (2) leverage, or (3) short 
selling. Any private fund that has one or more of these characteristics 
is an appropriate subject for the more detailed level of reporting that 
hedge funds are subject to on Form PF because the questions that hedge 
fund advisers are required to complete focus on these activities, and 
these activities may contribute to systemic risk, particularly in the 
case of a fund that has the ability to engage in borrowing or short 
selling.
    A revised definition that focuses on actual or contemplated use 
could therefore have resulted in incomplete data for funds engaged in 
these activities, meaning incomplete data on activities that are 
important potential contributors to systemic risk. Because short 
selling and borrowing are important distinguishing characteristics of 
hedge funds and providing any exception for these activities, including 
a de minimis one, could have a significant, negative effect on 
reporting.\666\
---------------------------------------------------------------------------

    \666\ Id.
---------------------------------------------------------------------------

    Moreover, because a reporting fund may vary from year to year in 
its use of leverage or short selling, a revised definition that focuses 
on actual or contemplated use would also have caused fluctuations in 
the data from year to year, depending on which funds use leverage or 
short selling in a particular year, potentially impacting the quality 
or usefulness of resulting data. In particular, when first adopting the 
current definition, the Commissions reasoned that even a reporting fund 
for which leverage or short selling is an important part of its 
strategy may not engage in that practice during every reporting 
period.\667\ This effect could also have increased the burden on 
advisers to the extent that their funds were required to fluctuate 
between different reporting categories in different reporting periods, 
depending on the fund's practices in any given period.\668\ The 
potential costs of this alternative definition would also have included 
transition filing costs for advisers impacted by the definition, who 
would have been required to update their reporting methods to capture 
information from their funds relevant for reporting on Form PF as a 
private equity fund instead of as a hedge fund, and completing 
corresponding sections of the form targeted at each category.\669\
---------------------------------------------------------------------------

    \667\ See supra footnote 3; see also 2011 Form PF Adopting 
Release, at text accompanying footnote 4.
    \668\ See supra section II.C.2.d.
    \669\ We estimate that the average cost of a transition filing 
is $20.50. See Table 9.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

    CFTC:
    The information collection titled ``Form PF and Rule 204(b)-1'' 
(OMB Control No. 3235-0679) was issued to the SEC and implements 
sections 404 and 406 of the Dodd-Frank Act by requiring private fund 
advisers that have at least $150 million in private fund assets under 
management to report certain information regarding the private funds 
they advise on Form PF. The SEC makes information on Form PF available 
to the CFTC, subject to the confidentiality provisions of the Dodd-
Frank Act, and the CFTC may use information collected on Form PF in its 
regulatory programs, including examinations, investigations and 
investor protection efforts relating to private fund advisers.
    CFTC rule 4.27 \670\ does not impose any additional burden upon 
registered CPOs and CTAs that are dually registered as investment 
advisers with the SEC (``dual registrants''). There is no requirement 
to file Form PF with the CFTC, and any filings made by dual registrants 
with the SEC are made pursuant to the Advisers Act. While CFTC rule 
4.27(d) states that dually registered CPOs and CTAs that file Form PF 
with the SEC will be deemed to have filed Form PF with the CFTC for 
purposes of any enforcement action regarding any false or misleading 
statement of material fact in Form PF, the CFTC is not imposing any 
additional burdens herein. Therefore, any burden imposed by Form PF on 
entities registered with both the CFTC and the SEC has been fully 
accounted for within the SEC's calculations regarding the impact of 
this collection of information under the Paperwork Reduction Act of 
1995 (``PRA''), as set forth below.\671\
---------------------------------------------------------------------------

    \670\ CFTC rule 4.27, 17 CFR 4.27, was adopted pursuant to the 
CFTC's authority set forth in section 4n of the Commodity Exchange 
Act, 7 U.S.C. 6n. CFTC regulations are found at Title 17 Chapter I 
of the Code of Federal Regulations.
    \671\ 44 U.S.C. 3501 through 3521.
---------------------------------------------------------------------------

    SEC:
    Certain provisions of the final Form PF and rule 204(b)-1 revise an 
existing ``collection of information'' within the meaning of the 
PRA.\672\ The SEC published a notice requesting comment on changes to 
this collection of information in the 2022 Joint Form PF Proposing 
Release and submitted the collection of information to the Office of 
Management and Budget (``OMB'') for review in accordance with the 
PRA.\673\ The title for the collection of information we are amending 
is ``Form PF and Rule 204(b)-1'' (OMB Control Number 3235-0679), and 
includes both Form PF and rule 204(b)-1 (``the rules'').\674\ The SEC's 
solicitation of

[[Page 18048]]

public comments included estimating and requesting public comments on 
the burden estimates for all information collections under this OMB 
control number (i.e., both changes associated with the rulemaking and 
other burden updates). These changes in burden also reflect the SEC's 
revision and update of burden estimates since the proposal for all 
information collections under this OMB control number (whether or not 
associated with rulemaking changes) and responses to the SEC's request 
for public comment on all information collection burden estimates for 
this OMB control number. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \672\ Id.
    \673\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
    \674\ The SEC also submitted the collection of information to 
OMB on Sept. 29, 2023, in connection with the May 2023 SEC Form PF 
Amending Release (ICR Reference No. 202305-3235-023), which OMB 
approved on Dec. 18, 2023, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202305-3235-023. See May 2023 SEC Form 
PF Amending Release, supra footnote 4. Following this, the SEC 
submitted the collection of information to OMB on Jan. 11, 2024, in 
connection with the July 2023 Form PF Amending Release (ICR 
Reference No. 202401-3235-005), which is currently pending, 
available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202401-3235-005. See July 2023 SEC Form PF 
Amending Release, supra footnote 4. The previously approved 
estimates used in this PRA do not reflect this submission to OMB in 
connection with the July 2023 Form PF Amending Release.
---------------------------------------------------------------------------

    Compliance with the information collection titled ``Form PF and 
Rule 204(b)-1'' is mandatory. The respondents are investment advisers 
that (1) are registered or required to be registered under Advisers Act 
section 203, (2) advise one or more private funds, and (3) managed 
private fund assets of at least $150 million at the end of their most 
recently completed fiscal year (collectively, with their related 
persons).\675\ Form PF divides respondents into groups based on their 
size and types of private funds they manage, requiring some groups to 
file more information more frequently than others. The types of 
respondents are (1) smaller private fund advisers, that report annually 
(i.e., private fund advisers that do not qualify as large private fund 
advisers), (2) large hedge fund advisers, that report more information 
quarterly (i.e., advisers with at least $1.5 billion in hedge fund 
assets under management), (3) large liquidity fund advisers, that 
report more information quarterly (i.e., advisers that manage liquidity 
funds and have at least $1 billion in combined money market and 
liquidity fund assets under management), and (4) large private equity 
fund advisers, that report more information annually (i.e., advisers 
with at least $2 billion in private equity fund assets under 
management).\676\ As discussed more fully in section II above and as 
summarized in sections V.A and V.C below, the amendments revise how all 
types of respondents report certain information on Form PF.
---------------------------------------------------------------------------

    \675\ See 17 CFR 275.204(b)-1.
    \676\ Large hedge fund advisers to qualifying hedge funds also 
file current reports as soon as practicable, but no later than 72 
hours from the occurrence of certain reporting events, as provided 
for in Form PF section 5. Private equity fund advisers also file 
private equity event reports within 60 days from fiscal quarter end 
upon the occurrence of certain reporting reports, as provided for in 
Form PF section 6. See May 2023 SEC Form PF Amending Release, supra 
footnote 4.
---------------------------------------------------------------------------

    We have revised our burden estimates in response to comments we 
received, to reflect modifications from the proposal, to incorporate 
the Form PF amendments that were separately adopted since the 
proposal,\677\ and to take into consideration updated data. One 
commenter indicated that the proposed amendments would confer more 
benefits than costs.\678\ We received other comments to our time and 
cost burdens indicating that we underestimated the burdens to implement 
the proposed amendments to Form PF.\679\ We also received comments on 
aspects of the economic analysis that implicated estimates we used to 
calculate the collection of information burdens.\680\ We discuss these 
comments below.
---------------------------------------------------------------------------

    \677\ See May 2023 SEC Form PF Amending Release and July 2023 
SEC Form PF Amending Release, supra footnote 4.
    \678\ Better Markets Comment Letter.
    \679\ See, e.g., AIC Comment Letter I; MFA Comment Letter II; 
MFA/NAPFM Comment Letter; SIFMA Comment Letter.
    \680\ See, e.g., AIMA/ACC Comment Letter; MFA Comment Letter II; 
SIFMA Comment Letter.
---------------------------------------------------------------------------

    We were persuaded by commenters who asserted that the proposed 
burdens underestimated the time and expense associated with the 
proposed amendments. Upon further consideration, we believe that it 
will take more time than initially contemplated in the proposal to 
collect the applicable data and report on Form PF. To address 
commenters' concerns and recognizing the changes from the proposal 
discussed above in section II, we are revising the estimates as 
reflected in the charts below.
    As discussed more fully in section II above, we have also modified 
certain proposed requirements in a manner that changes our burden 
estimates in certain respects. For example, as discussed more fully in 
section II.A.2 above, we are adopting amendments to require 
consolidated reporting of trading vehicles, rather than separate 
reporting, as proposed, which reduces our burden estimates. One 
commenter stated that the proposed amendments to require disaggregated 
reporting of trading vehicles would require building of new reporting 
systems and that the Commissions' estimated costs were understated, 
particularly for private equity fund advisers.\681\ Some commenters 
stated that certain proposed amendments requiring more granular 
reporting would impose significant costs and burdens on advisers, such 
as the proposed requirements for look-through reporting, exposures, 
performance, and market factor reporting.\682\ As discussed more fully 
in section II.C above, we have modified the proposed requirements for 
large hedge fund advisers to report certain fund exposures to allow 
advisers to report the exposure category that best represents the 
reporting fund's exposure, which will reduce the burden on advisers in 
collecting and reporting this information.\683\ We have also adopted a 
modification from the proposal which permits an adviser to report a 
fund's monthly asset value as a GRFACV or an RFACV, rather than gross 
asset value or net asset value, in the event that these values are not 
calculated on a monthly basis, which is a less burdensome metric to 
calculate.\684\ Further, we are not adopting a proposed question on 
portfolio correlation, as discussed more fully in section II.C.2 above, 
after consideration of comments that stated the question would impose 
significant burdens on advisers because the calculation would be 
complex to perform and is not risk measurement that advisers currently 
calculate.\685\
---------------------------------------------------------------------------

    \681\ AIC Comment Letter I.
    \682\ See, e.g., AIMA/ACC Comment Letter; USCC Comment Letter.
    \683\ See, e.g., Questions 32, 33, 35, and 36.
    \684\ See Questions 11 and 12.
    \685\ Proposed Question 48; see, e.g., AIMA/ACC Comment Letter; 
MFA Comment Letter II.
---------------------------------------------------------------------------

    Some commenters stated that the proposed cost estimates were 
understated because they do not take into consideration the costs of 
the amendments proposed in the 2022 SEC Form PF Proposing Release.\686\ 
Our final estimates have been revised to include the effect of the Form 
PF amendments that were adopted subsequent to the 2022 Joint Form PF 
Proposal.\687\ Our time and cost estimates also incorporate other 
adjustments, which are not based on changes from the proposed 
amendments, for updated data for the estimated number of respondents 
and

[[Page 18049]]

salary/wage information across all filer types.
---------------------------------------------------------------------------

    \686\ See, e.g., AIC Comment Letter I; AIC Comment Letter II; 
MFA Comment Letter III; SIFMA Comment Letter; see also 2022 SEC Form 
PF Proposing Release, supra footnote 4.
    \687\ See May 2023 SEC Form PF Amending Release and July 2023 
SEC Form PF Amending Release, supra footnote 4.
---------------------------------------------------------------------------

A. Purpose and Use of the Information Collection

    The rules implement provisions of Title IV of the Dodd-Frank Act, 
which amended the Advisers Act to require the SEC to, among other 
things, establish reporting requirements for advisers to private 
funds.\688\ The information collected on Form PF is designed to 
facilitate FSOC's obligations under the Dodd-Frank Act to monitor of 
systemic risk in the private fund industry.\689\ The SEC also may use 
information collected on Form PF in its regulatory programs, including 
examinations, investigations, and investor protection efforts relating 
to private fund advisers.\690\
---------------------------------------------------------------------------

    \688\ See 15 U.S.C. 80b-4(b) and 15 U.S.C. 80b-11(e).
    \689\ See Form PF.
    \690\ Id.
---------------------------------------------------------------------------

    The final amendments are designed to enhance FSOC's ability to 
monitor systemic risk as well as bolster the SEC's regulatory oversight 
of private fund advisers and investor protection efforts. The final 
amendments amend the form's general instructions, as well as section 1 
of Form PF, which apply to all Form PF filers. The final amendments 
also amend section 2 of Form PF, which applies to large hedge fund 
advisers that advise qualifying hedge funds (i.e., hedge funds with a 
net asset value of at least $500 million).

B. Confidentiality

    Responses to the information collection will be kept confidential 
to the extent permitted by law.\691\ Form PF elicits non-public 
information about private funds and their trading strategies, the 
public disclosure of which could adversely affect the funds and their 
investors. The SEC does not intend to make public Form PF information 
that is identifiable to any particular adviser or private fund, 
although the SEC may use Form PF information in an enforcement action 
and FSOC may use it to assess potential systemic risk.\692\ SEC staff 
issues certain publications designed to inform the public of the 
private funds industry, all of which use only aggregated or masked 
information to avoid potentially disclosing any proprietary 
information.\693\ The Advisers Act precludes the SEC from being 
compelled to reveal Form PF information except (1) to Congress, upon an 
agreement of confidentiality, (2) to comply with a request for 
information from any other Federal department or agency or self-
regulatory organization for purposes within the scope of its 
jurisdiction, or (3) to comply with an order of a court of the United 
States in an action brought by the United States or the SEC.\694\ Any 
department, agency, or self-regulatory organization that receives Form 
PF information must maintain its confidentiality consistent with the 
level of confidentiality established for the SEC.\695\ The Advisers Act 
requires the SEC to make Form PF information available to FSOC.\696\ 
For advisers that are also commodity pool operators or commodity 
trading advisers, filing Form PF through the Form PF filing system is 
filing with both the SEC and CFTC.\697\ Therefore, the SEC makes Form 
PF information available to FSOC and the CFTC, pursuant to Advisers Act 
section 204(b), making the information subject to the confidentiality 
protections applicable to information required to be filed under that 
section. Before sharing any Form PF information, the SEC requires that 
any such department, agency, or self-regulatory organization represent 
to the SEC that it has in place controls designed to ensure the use and 
handling of Form PF information in a manner consistent with the 
protections required by the Advisers Act. The SEC has instituted 
procedures to protect the confidentiality of Form PF information in a 
manner consistent with the protections required in the Advisers 
Act.\698\
---------------------------------------------------------------------------

    \691\ See 5 CFR 1320.5(d)(2)(vii) and (viii).
    \692\ See 15 U.S.C. 80b-10(c) and 15 U.S.C. 80b-4(b).
    \693\ See, e.g., Private Funds Statistics, issued by staff of 
the SEC Division of Investment Management's Analytics Office, which 
we have used in this PRA as a data source, available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \694\ See 15 U.S.C. 80b-4(b)(8).
    \695\ See 15 U.S.C. 80b-4(b)(9).
    \696\ See 15 U.S.C. 80b-4(b)(7).
    \697\ See 2011 Form PF Adopting Release, supra footnote 4, at 
n.17.
    \698\ See 5 CFR 1320.5(d)(2)(viii).
---------------------------------------------------------------------------

C. Burden Estimates

    We are revising our total burden final estimates to reflect the 
final amendments, updated data, new methodology for certain estimates, 
subsequent Form PF amendments adopted after the 2022 Joint Form PF 
Proposing Release, and comments we received to our estimates.\699\ The 
tables below map out the proposed and final Form PF requirements as 
they apply to each group of respondents and detail our burden 
estimates.
---------------------------------------------------------------------------

    \699\ For the previously approved estimates, see ICR Reference 
No. 202305-3235-023 (conclusion date Dec. 18, 2023), available at 
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202305-3235-023. The 2022 Joint Form PF Proposing Release used the then-current 
previously approved estimates, see ICR Reference No. 202011-3235-019 
(conclusion date Apr. 1, 2021), available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202011-3235-019.
---------------------------------------------------------------------------

a. Proposed Form PF Requirements by Respondent

                              Table 1a--Proposed Form PF Requirements by Respondent
----------------------------------------------------------------------------------------------------------------
                                                                                                 Large private
             Form PF                Smaller private    Large hedge fund     Large liquidity       equity fund
                                     fund advisers         advisers          fund advisers         advisers
----------------------------------------------------------------------------------------------------------------
Section 1a and section 1b (basic  Annually..........  Quarterly.........  Quarterly.........  Annually.
 information about the adviser
 and the private funds it
 advises). Proposed revisions.
Section 1c (additional            Annually, if they   Quarterly.........  Quarterly, if they  Annually, if they
 information concerning hedge      advise hedge                            advise hedge        advise hedge
 funds). Proposed revisions.       funds.                                  funds.              funds.
Section 2 (additional             No................  Quarterly.........  No................  No.
 information concerning
 qualifying hedge funds).
 Proposed revisions.

[[Page 18050]]

 
Section 3 (additional             No................  No................  Quarterly.........  No.
 information concerning
 liquidity funds). No proposed
 revisions.
Section 4 (additional             No................  No................  No................  Annually.
 information concerning private
 equity funds).No proposed
 revisions.
Section 5 (temporary hardship     Optional, if they   Optional, if they   Optional, if they   Optional, if they
 request). The proposal would      qualify.            qualify.            qualify.            qualify.
 revise filing instructions.
Transition Filings (indicating    Not applicable....  If they cease to    If they cease to    Not applicable.
 the adviser is no longer                              qualify as a        qualify as a
 obligated to file on a                                large hedge fund    large liquidity
 quarterly basis). No proposed                         adviser.            fund adviser.
 revisions.
Final Filings (indicating the     If they qualify...  If they qualify...  If they qualify...  If they qualify.
 adviser is no longer subject to
 the rules). No proposed
 revisions.
----------------------------------------------------------------------------------------------------------------

b. Adopted Form PF Requirements by Respondent

                                   Adopted Form PF Requirements by Respondent
----------------------------------------------------------------------------------------------------------------
                                                                                                 Large private
             Form PF                Smaller private    Large hedge fund     Large liquidity       equity fund
                                    fund  advisers         advisers         fund  advisers         advisers
----------------------------------------------------------------------------------------------------------------
Section 1a and section 1b (basic  Annually..........  Quarterly.........  Quarterly.........  Annually.
 information about the adviser
 and the private funds it
 advises). The final rules
 modify section 1a and section
 1b.
Section 1c (additional            Annually, if they   Quarterly.........  Quarterly, if they  Annually, if they
 information concerning hedge      advise hedge                            advise hedge        advise hedge
 funds). The final rules modify    funds.                                  funds.              funds.
 section 1c.
Section 2 (additional             No................  Quarterly.........  No................  No.
 information concerning
 qualifying hedge funds). The
 final rules modify section 2.
Section 3 (additional             No................  No................  Quarterly.........  No.
 information concerning
 liquidity funds). No final
 revisions.
Section 4 (additional             No................  No................  No................  Annually.
 information concerning private
 equity funds). No final
 revisions.
Section 5 (current reporting      No................  As soon as          No................  No.
 concerning qualifying hedge                           practicable upon
 funds). \1\ No final revisions.                       a current
                                                       reporting event,
                                                       but no later than
                                                       72 hours.
Section 6 (event reporting for    Within 60 days of   No................  No................  Within 60 days of
 private equity fund               fiscal quarter                                              fiscal quarter
 advisers).\1\ No final            end upon a                                                  end upon a
 revisions.                        reporting event,                                            reporting event.
                                   if they advise
                                   private equity
                                   funds.
Section 7 (temporary hardship     Optional, if they   Optional, if they   Optional, if they   Optional, if they
 request)\1\ The final rules       qualify.            qualify.            qualify.            qualify.
 revise the filing instructions.

[[Page 18051]]

 
Transition Filings (indicating    Not applicable....  If they cease to    If they cease to    Not applicable.
 the adviser is no longer                              qualify as a        qualify as a
 obligated to file on a                                large hedge fund    large liquidity
 quarterly basis). No final                            adviser.            fund adviser.
 revisions.
Final Filings (indicating the     If they qualify...  If they qualify...  If they qualify...  If they qualify.
 adviser is no longer subject to
 the rules). No final revisions.
----------------------------------------------------------------------------------------------------------------
Note:
\1\ The SEC adopted amendments to Form PF, which added sections 5 and 6 and redesignated the previous section 5
  as section 7. See May 2023 SEC Form PF Amending Release, supra footnote 4.

c. Annual Hour Burden Estimates
    Below are tables with annual hour burden estimates for (1) initial 
filings, (2) ongoing annual and quarterly filings, (3) current 
reporting and private equity event reporting, and (4) transition 
filings, final filings, and temporary hardship requests.

                            Table 2--Annual Hour Burden Estimates for Initial Filings
----------------------------------------------------------------------------------------------------------------
                                             Number of
                                           respondents =   Hours per               Hours per        Aggregate
             Respondent \1\                  aggregate      response                response          hours
                                             number of        \3\               amortized  over  amortized  over
                                           responses \2\                          3 years \4\      3 years \5\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
    Proposed Estimate...................         \6\ 309           50   / 3 =                17            5,253
    Final Estimate......................         \7\ 374           55   / 3 =                18            6,732
    Previously Approved.................             358           40   / 3 =                13            4,654
    Change..............................              16           15                         5            2,078
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
    Proposed Estimate...................          \8\ 15          345   / 3 =               115            1,725
    Final Estimate......................          \9\ 14          380   / 3 =               127            1,778
    Previously Approved.................              16          325    /3 =               108            1,728
    Change..............................             (2)           55                        19               50
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund Advisers:
    Proposed Estimate...................          \10\ 1          210   / 3 =                70               70
    Final Estimate......................          \11\ 1          229   / 3 =                76               76
    Previously Approved.................               1          200   / 3 =                67               67
    Change..............................               0           29                         9                9
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
    Proposed Estimate...................         \12\ 13          210   / 3 =                70              910
    Final Estimate......................         \13\ 18          281   / 3 =                94            1,692
    Previously Approved.................              17          252   / 3 =                84            1,428
    Change..............................               1           29                        10              264
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We expect that the hourly burden will be most significant for the initial report because the adviser will
  need to familiarize itself with the new reporting form and may need to configure its systems in order to
  efficiently gather the required information. In addition, we expect that some large private fund advisers will
  find it efficient to automate some portion of the reporting process, which will increase the burden of the
  initial filing but reduce the burden of subsequent filings.
\2\ This concerns the initial filing; therefore, we estimate one response per respondent. The proposed and final
  changes are due to using updated data to estimate the number of advisers.
\3\ Hours per response changes are due to the amendments, as well as amendments to Form PF adopted subsequent to
  the 2022 Joint Form PF Proposal for the final estimates and comments we received to our estimates.
\4\ We amortize the initial time burden over three years because we believe that most of the burden will be
  incurred in the initial filing.
\5\ (Number of responses) x (hours per response amortized over three years) = aggregate hours amortized over
  three years. Changes are due to (1) using updated data to estimate the number of advisers, (2) the amendments
  adopted in this Release, (3) amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposal, and
  (4) comments we received to our estimates.
\6\ In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers
  filed Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 12.9%
  of them did not file for the previous due date. (2,394 x 0.129 = 309 advisers.)
\7\ In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed
  Form PF in the first quarter of 2023. Based on filing data from the last five years, an average of 13.6% of
  them did not file for the previous due date. (2,750 x 0.136 = 374 advisers.)
\8\ In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed
  Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 2.6% of
  them did not file for the previous due date. (592 x 0.026 = 15 advisers.)

[[Page 18052]]

 
\9\ In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form
  PF in the first quarter of 2023. Based on filing data from the last five years, an average of 2.5% of them did
  not file for the previous due date. (570 x 0.025 = 14 advisers.)
\10\ In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed
  Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 1.5% of
  them did not file for the previous due date. (24 x 0.015 = 0.36 advisers, rounded up to 1 adviser.)
\11\ In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed
  Form PF in the first quarter of 2023. Based on filing data from 2017 through 2021, an average of 1.5% of them
  did not file for the previous due date. (21 x 0.015 = 0.32 advisers, rounded up to 1 adviser.)
\12\ In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers
  filed Form PF in the third quarter of 2021. Based on filing data from the last five years, an average of 3.5%
  of them did not file for the previous due date. (369 x 0.035 = 13 advisers.)
\13\ In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers
  filed Form PF in the first quarter of 2023. Based on filing data from the last five years, an average of 3.9%
  of them did not file for the previous due date. (450 x 0.039 = 18 advisers.)


                  Table 3--Annual Hour Burden Estimates for Ongoing Annual and Quarterly Filings
----------------------------------------------------------------------------------------------------------------
                                        Number of
           Respondent \1\            respondents \2\          Number of            Hours per          Aggregate
                                        (advisors)          responses \3\        response \4\         hours \5\
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund:
    Proposed Estimate..............        \6\ 2,085   x                1   x               20   =        41,700
    Final Estimate.................        \7\ 2,376   x                1   x               22   =        52,272
    Previously Approved............            2,258   x                1   x               15   =        33,870
    Change.........................              118                    0                    7            18,402
Large Hedge Fund:
    Proposed Estimate..............          \8\ 577   x                4   x              160   =       369,280
    Final Estimate.................          \9\ 556   x                4   x              176   =       391,424
    Previously Approved............              582   x                4   x              150   =       349,200
    Change.........................             (26)                    0                   26            42,224
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund:
    Proposed Estimate..............          \10\ 23   x                4   x               75   =         6,900
    Final Estimate.................          \11\ 20   x                4   x               86   =         6,880
    Previously Approved............               21   x                4   x               70   =         5,880
    Change.........................              (1)                    0                   16             1,000
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund:
    Proposed Estimate..............         \12\ 356   x                1   x              105   =        37,380
    Final Estimate.................         \13\ 432   x                1   x              145   =        62,640
    Previously Approved............              418   x                1   x              128   =        53,504
    Change.........................               14                    0                   17             9,136
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We estimate that after an adviser files its initial report, it will incur significantly lower costs to file
  ongoing annual and quarterly reports, because much of the work for the initial report is non-recurring and
  likely created system configuration and reporting efficiencies.
\2\ Changes to the number of respondents are due to using updated data to estimate the number of advisers.
\3\ Smaller private fund advisers and large private equity fund advisers file annually. Large hedge fund
  advisers and large liquidity fund advisers file quarterly.
\4\ Hours per response changes are due to the amendments.
\5\ Changes to the aggregated hours are due to (1) using updated data to estimate the number of advisers, (2)
  the amendments, (3) amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposing Release, and
  (4) comments we received to our estimates.
\6\ In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers
  filed Form PF in the third quarter of 2021. We estimated that 309 of them filed an initial filing, as
  discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. (2,394 total smaller advisers-309
  advisers that made an initial filing = 2,085 advisers that make ongoing filings.)
\7\ In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed
  Form PF in the first quarter of 2023. We estimated that 374 of them filed an initial filing, as discussed in
  Table 2: Annual Hour Burden Estimates for Initial Filings. (2,750 total smaller advisers-374 advisers that
  made an initial filing = 2,376 advisers that make ongoing filings.)
\8\ In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed
  Form PF in the third quarter of 2021. We estimated that 15 of them filed an initial filing, as discussed in
  Table 2: Annual Hour Burden Estimates for Initial Filings. (592 total large hedge fund advisers-15 advisers
  that made an initial filing = 577 advisers that make ongoing filings.)
\9\ In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form
  PF in the first quarter of 2023. We estimated that 14 of them filed an initial filing, as discussed in Table
  2: Annual Hour Burden Estimates for Initial Filings. (570 total large hedge fund advisers-14 advisers that
  made an initial filing = 556 advisers that make ongoing filings.)
\10\ In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed
  Form PF in the third quarter of 2021. We estimated that one of them filed an initial filing, as discussed in
  Table 2: Annual Hour Burden Estimates for Initial Filings. (24 total large liquidity fund advisers-1 adviser
  that made an initial filing = 23 advisers that make ongoing filings.)
\11\ In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed
  Form PF in the first quarter of 2023. We estimated that one of them filed an initial filing, as discussed in
  Table 2: Annual Hour Burden Estimates for Initial Filings. (21 total large liquidity fund advisers-1 adviser
  that made an initial filing = 20 advisers that make ongoing filings.)
\12\ In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers
  filed Form PF in the third quarter of 2021. We estimated that 13 of them filed an initial filing, as discussed
  in Table 2: Annual Hour Burden Estimates for Initial Filings. (369 total large private equity fund advisers-13
  advisers that made an initial filing = 356 advisers that make ongoing filings.)
\13\ In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers
  filed Form PF in the first quarter of 2023. We estimated that 18 of them filed an initial filing, as discussed
  in Table 2: Annual Hour Burden Estimates for Initial Filings. (450 total large private equity fund advisers-18
  advisers that made an initial filing = 432 advisers that make ongoing filings.)


[[Page 18053]]


        Table 4--Annual Hour Burden Estimates for Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
                                                           Aggregate
                      Respondent                           number of            Hours per            Aggregate
                                                           responses            response               hours
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
    Proposed Estimate.................................                       Not Applicable
                                                       ---------------------------------------------------------
    Final Estimate....................................              20   x                5   =              100
    Previously Approved...............................              20   x                5   =              100
    Change............................................               0   x                0   =                0
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
    Proposed Estimate.................................                       Not Applicable
                                                       ---------------------------------------------------------
    Final Estimate....................................              60   x               10   =              600
    Previously Approved...............................              60   x               10   =              600
    Change............................................               0   x                0   =                0
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
    Proposed Estimate.................................                       Not Applicable
                                                       ---------------------------------------------------------
    Final Estimate....................................              20   x                5   =              100
    Previously Approved...............................              20   x                5   =              100
    Change............................................               0   x                0   =                0
----------------------------------------------------------------------------------------------------------------
Note:
\1\ Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added
  Form PF section 5 (Current report for large hedge fund advisers to qualifying hedge funds) and section 6
  (Quarterly report for advisers to private equity funds) to Form PF. See May 2023 SEC Form PF Amending Release,
  supra footnote 4, at section V for proposed and final estimates for current reporting and private equity event
  reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and
  are not adopting any changes to these sections in this Release.


   Table 5--Annual Hour Burden Estimates for Transition Filings, Final Filings, and Temporary Hardship Requests
----------------------------------------------------------------------------------------------------------------
                                                           Aggregate
                    Filing type \1\                        number of            Hours per            Aggregate
                                                         responses \2\          response             hours \3\
----------------------------------------------------------------------------------------------------------------
Transition Filing from Quarterly to Annual:
    Proposed Estimate.................................          \4\ 68   x             0.25   =               17
    Final Estimate....................................          \5\ 69   x             0.25   =            17.25
    Previously Approved...............................              71   x             0.25   =            17.75
    Change............................................             (2)                    0               (0.50)
----------------------------------------------------------------------------------------------------------------
Final Filings:
    Proposed Estimate.................................         \6\ 233   x             0.25   =            58.25
    Final Estimate....................................         \7\ 243   x             0.25   =            60.75
    Previously Approved...............................             235   x             0.25   =            58.75
    Change............................................               8                    0                    2
----------------------------------------------------------------------------------------------------------------
Temporary Hardship Requests:
    Proposed Estimate.................................           \8\ 3   x                1   =                3
    Final Estimate....................................           \9\ 4   x                1   =                4
    Previously Approved...............................               4   x                1   =                4
    Change............................................               0                    0                    0
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Advisers make limited Form PF filings in three situations. First, any adviser that transitions from filing
  quarterly to annually because it has ceased to qualify as a large hedge fund adviser or large liquidity fund
  adviser, must file a Form PF indicating that it is no longer obligated to report on a quarterly basis. Second,
  any adviser that is no longer subject to Form PF's reporting requirements, must file a final filing indicating
  this. Third, an adviser may request a temporary hardship exemption if it encounters unanticipated technical
  difficulties that prevent it from making a timely electronic filing. A temporary hardship exemption extends
  the deadline for an electronic filing for seven business days. To request a temporary hardship exemption, the
  adviser must file a request on Form PF. The final rule amends how advisers file temporary hardship exemption
  requests, as discussed in section II.E of this Release; however, the amendment will not result in any changes
  to the hours per response.
\2\ Changes to the aggregate number of responses are due to using updated data.
\3\ Changes to the aggregate hours are due to the changes in the aggregate number of responses.
\4\ In the case of the proposed estimates, Private Funds Statistics show 616 advisers filed quarterly reports in
  the third quarter of 2021. Based on filing data from the last five years, an average of 11.1% of them filed a
  transition filing. (616 x 0.111 = 68 responses.)
\5\ In the case of the final estimates, Private Funds Statistics show 591 advisers filed quarterly reports in
  the first quarter of 2023. Based on filing data from the last five years, an average of 11.7% of them filed a
  transition filing. (591 x 0.117 = 69 responses.)
\6\ In the case of the proposed estimates, Private Funds Statistics show 3,379 advisers filed Form PF in the
  third quarter of 2021. Based on filing data from the last five years, an average of 6.9% of them filed a final
  filing. (3,379 x 0.069 = approximately 233 responses.)
\7\ In the case of the final estimates, Private Funds Statistics show 3,791 advisers filed Form PF in the first
  quarter of 2023. Based on filing data from the last five years, an average of 6.4% of them filed a final
  filing. (3,791 x 0.064 = approximately 243 responses.)
\8\ In the case of the proposed estimates, based on experience receiving temporary hardship requests, we
  estimate that 1 out of 1,000 advisers will file a temporary hardship exemption annually. Private Funds
  Statistics show 3,379 advisers filed Form PF in the third quarter of 2021. (3,379/1,000 = approximately 3
  responses.)

[[Page 18054]]

 
\9\ In the case of the final estimates, based on experience receiving temporary hardship requests, we estimate
  that 1 out of 1,000 advisers will file a temporary hardship exemption annually. Private Funds Statistics show
  3,791 advisers filed Form PF in the first quarter of 2023. (3,791/1,000 = approximately 4 responses.)

d. Annual Monetized Time Burden Estimates
    Below are tables with annual monetized time burden proposed and 
final estimates for (1) initial filings, (2) ongoing annual and 
quarterly filings, (3) current reporting and private equity event 
reporting, and (4) transition filings, final filings, and temporary 
hardship requests.\700\
---------------------------------------------------------------------------

    \700\ The hourly wage rates used in our proposed and final 
estimates are based on (1) SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by SEC staff to 
account for an 1,800-hour work-year and inflation, and multiplied by 
5.35 to account for bonuses, firm size, employee benefits and 
overhead; and (2) SIFMA's Office Salaries in the Securities Industry 
2013, modified by SEC staff to account for an 1,800-hour work-year 
and inflation, and multiplied by 2.93 to account for bonuses, firm 
size, employee benefits and overhead. The final estimates are based 
on the preceding SIFMA data sets, which SEC staff have updated since 
the proposing release to account for current inflation rates.

                             Table 6--Annual Monetized Time Burden of Initial Filings
----------------------------------------------------------------------------------------------------------------
                                                                                                     Aggregate
                                                         Per response           Aggregate            monetized
       Respondent \1\          Per response             amortized over          number of           time burden
                                    \2\                  3 years \3\          responses \4\          amortized
                                                                                                   over 3 years
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund
 Advisers:
    Proposed Estimate.......     \5\ $18,250   / 3 =            $6,083   x              309   =       $1,879,647
    Final Estimate..........      \6\ 21,340   / 3 =             7,113   x              374   =        2,660,262
    Previously Approved.....          15,520   / 3 =             5,174   x              358   =        1,852,292
    Change..................           5,820                     1,939                   16              807,970
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
    Proposed Estimate.......     \7\ 118,680   / 3 =            39,560   x               15   =          593,400
    Final Estimate..........     \8\ 139,080   / 3 =            46,360   x               14   =          649,040
    Previously Approved.....         118,890   / 3 =            39,630   x               16   =          634,080
    Change..................          20,190                     6,730                  (2)               14,960
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund
 Advisers:
    Proposed Estimate.......      \9\ 72,240   / 3 =            24,080   x                1   =           24,080
    Final Estimate..........     \10\ 83,792   / 3 =            27,931   x                1   =           27,931
    Previously Approved.....          73,200   / 3 =            24,400   x                1   =           24,400
    Change..................          10,592                     3,531                    0                3,531
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund
 Advisers:
    Proposed Estimate.......     \11\ 72,240   / 3 =            24,080   x               13   =          313,040
    Final Estimate..........    \12\ 102,868   / 3 =            34,289   x               18   =          617,202
    Previously Approved.....          92,221   / 3 =            30,740   x               17   =          522,580
    Change..................          10,647                     3,549                    1              94,622
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We expect that the monetized time burden will be most significant for the initial report, for the same
  reasons discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. Accordingly, we anticipate
  that the initial report will require more attention from senior personnel, including compliance managers and
  senior risk management specialists, than will ongoing annual and quarterly filings. Changes are due to using
  (1) updated hours per estimates, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings,
  (2) updated aggregate number of, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings,
  and (3) updated wage estimates.
\2\ For the hours per in each calculation, see Table 2: Annual Hour Burden Estimates for Initial Filings.
\3\ We amortize the monetized time burden for initial filings over three years, as we do with other initial
  burdens in this PRA, because we believe that most of the burden will be incurred in the initial filing.
\4\ See Table 2: Annual Hour Burden Estimates for Initial Filings.
\5\ In the case of the proposed estimates, for smaller private fund advisers, we estimate that the initial
  report will most likely be completed equally by a compliance manager at a cost of $339 per hour and a senior
  risk management specialist at a cost of $391 per hour. (($339 per hour x 0.5) + ($391 per hour x 0.5)) x 50
  hours per = $18,250.
\6\ In the case of the final estimates, for smaller private fund advisers, we estimate that the initial report
  will most likely be completed equally by a compliance manager at a cost of $360 per hour and a senior risk
  management specialist at a cost of $416 per hour. (($360 per hour x 0.5) + ($416 per hour x 0.5)) x 55 hours
  per = $21,340.
\7\ In the case of the proposed estimates, for large hedge fund advisers, we estimate that for the initial
  report, of a total estimated burden of 345 hours, approximately 60% will most likely be performed by
  compliance professionals and 40% will most likely be performed by programmers working on system configuration
  and reporting automation (that is approximately 207 hours for compliance professionals and approximately 138
  hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
  performed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist
  at a cost of $391 per hour. Of the work performed by programmers, we anticipate that it will be performed
  equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263 per hour.
  (($339 per hour x 0.5) + ($391 per hour x 0.5)) x 207 hours = $75,555. (($362 per hour x 0.5) + ($263 per hour
  x 0.5)) x 138 hours = $43,125. $75,555 + $43,125 = $118,680.
\8\ In the case of the final estimates, for large hedge fund advisers, we estimate that for the initial report,
  of a total estimated burden of 380 hours, approximately 60% will most likely be performed by compliance
  professionals and 40% will most likely be performed by programmers working on system configuration and
  reporting automation (that is approximately 228 hours for compliance professionals and approximately 152 hours
  for programmers). Of the work performed by compliance professionals, we anticipate that it will be performed
  equally by a compliance manager at a cost of $360 per hour and a senior risk management specialist at a cost
  of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed equally by a
  senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour. (($360 per
  hour x 0.5) + ($416 per hour x 0.5)) x 228 hours = $88,464. (($386 per hour x 0.5) + ($280 per hour x 0.5)) x
  152 hours = $50,616. $88,464 + $50,616 = $139,080.

[[Page 18055]]

 
\9\ In the case of the proposed estimates, for large liquidity fund advisers, we estimate that for the initial
  report, of a total estimated burden of 210 hours, approximately 60% will most likely be performed by
  compliance professionals and approximately 40% will most likely be performed by programmers working on system
  configuration and reporting automation (that is approximately 126 hours for compliance professionals and 84
  hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
  performed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist
  at a cost of $391 per hour. Of the work performed by programmers, we anticipate that it will be performed
  equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263 per hour.
  (($339 per hour x 0.5) + ($391 per hour x 0.5)) x 126 hours = $45,990. (($362 per hour x 0.5) + ($263 per hour
  x 0.5)) x 84 hours = $26,250. $45,990 + $26,250 = $72,240.
\10\ In the case of the final estimates, for large liquidity fund advisers, we estimate that for the initial
  report, of a total estimated burden of 229 hours, approximately 60% will most likely be performed by
  compliance professionals and approximately 40% will most likely be performed by programmers working on system
  configuration and reporting automation (that is approximately 137 hours for compliance professionals and 92
  hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
  performed equally by a compliance manager at a cost of $360 per hour and a senior risk management specialist
  at a cost of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed
  equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour.
  (($360 per hour x 0.5) + ($416 per hour x 0.5)) x 137 hours = $53,156. (($386 per hour x 0.5) + ($280 per hour
  x 0.5)) x 92 hours = $30,636. $53,156 + $30,636 = $83,792.
\11\ In the case of the proposed estimates, for large private equity fund advisers, we expect that for the
  initial report, of a total estimated burden of 210 hours, approximately 60% will most likely be performed by
  compliance professionals and approximately 40% will most likely be performed by programmers working on system
  configuration and reporting automation (that is approximately 126 hours for compliance professionals and 84
  hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
  performed equally by a compliance manager at a cost of $339 per hour and a senior risk management specialist
  at a cost of $391 per hour. Of the work performed by programmers, we anticipate that it will be performed
  equally by a senior programmer at a cost of $362 per hour and a programmer analyst at a cost of $263 per hour.
  (($339 per hour x 0.5) + ($391 per hour x 0.5)) x 126 hours = $45,990. (($362 per hour x 0.5) + ($263 per hour
  x 0.5)) x 84 hours = $26,250. $45,990 + $26,250 = $72,240.
\12\ In the case of the final estimates, for large private equity fund advisers, we expect that for the initial
  report, of a total estimated burden of 281 hours, approximately 60% will most likely be performed by
  compliance professionals and approximately 40% will most likely be performed by programmers working on system
  configuration and reporting automation (that is approximately 169 hours for compliance professionals and 112
  hours for programmers). Of the work performed by compliance professionals, we anticipate that it will be
  performed equally by a compliance manager at a cost of $360 per hour and a senior risk management specialist
  at a cost of $416 per hour. Of the work performed by programmers, we anticipate that it will be performed
  equally by a senior programmer at a cost of $386 per hour and a programmer analyst at a cost of $280 per hour.
  (($360 per hour x 0.5) + ($416 per hour x 0.5)) x 169 hours = $65,572. (($386 per hour x 0.5) + ($280 per hour
  x 0.5)) x 112 hours = $37,296. $65,572 + $37,296 = $102,868.


                  Table 7--Annual Monetized Time Burden of Ongoing Annual and Quarterly Filings
----------------------------------------------------------------------------------------------------------------
                                                                                Aggregate            Aggregate
                    Respondent \1\                       Per response           number of            monetized
                                                              \2\               responses           time burden
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
    Proposed Estimate.................................      \3\ $6,040   x       \4\ $2,085   =      $12,593,400
    Final Estimate....................................       \5\ 7,062   x        \6\ 2,376   =       16,779,312
    Previously Approved...............................           4,815   x            2,258   =       10,872,270
    Change............................................           2,247                  118            5,907,042
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
    Proposed Estimate.................................      \7\ 48,320   x        \8\ 2,308   =      111,522,560
    Final Estimate....................................      \9\ 56,496   x       \10\ 2,224   =      125,647,104
    Previously Approved...............................          48,150   x            2,328   =      112,093,200
    Change............................................           8,346                (104)           13,553,904
----------------------------------------------------------------------------------------------------------------
Large Liquidity Fund Advisers:
    Proposed Estimate.................................     \11\ 22,650   x          \12\ 92   =        2,083,800
    Final Estimate....................................     \13\ 27,606   x          \14\ 80   =        2,208,480
    Previously Approved...............................          22,470   x               84   =        1,887,480
    Change............................................           5,136                  (4)              321,000
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
    Proposed Estimate.................................     \15\ 31,710   x         \16\ 356   =       11,288,760
    Final Estimate....................................     \17\ 46,545   x          \18\432   =       20,107,440
    Previously Approved...............................          41,730   x              418   =       17,443,140
    Change............................................           4,815                   14            2,664,300
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ We expect that the monetized time burden will be less costly for ongoing annual and quarterly reports than
  for initial reports, for the same reasons discussed in Table 2: Annual Hour Burden Estimates for Initial
  Filings. Accordingly, we anticipate that senior personnel will bear less of the reporting burden than they
  would for the initial report. Changes are due to using (1) updated wage estimates, (2) updated hours per
  response estimates, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings, and (3) updated
  number of respondents, as discussed in Table 2: Annual Hour Burden Estimates for Initial Filings. Changes to
  estimates concerning large liquidity fund advisers primarily appear to be due to correcting a calculation
  error, as discussed below.
\2\ For all types of respondents, in the case of the proposed estimates, we estimate that both annual and
  quarterly reports would be completed equally by (1) a compliance manager at a cost of $339 per hour, (2) a
  senior compliance examiner at a cost of $260, (3) a senior risk management specialist at a cost of $391 per
  hour, and (4) a risk management specialist at a cost of $218 an hour. ($339 x 0.25 = $84.75) + ($260 x 0.25 =
  $65) + ($391 x 0.25 = $97.75) + ($218 x 0.25 = $54.50) = $302. In the case of the final estimates, we estimate
  that both annual and quarterly reports would be completed equally by (1) a compliance manager at a cost of
  $360 per hour, (2) a senior compliance examiner at a cost of $276, (3) a senior risk management specialist at
  a cost of $416 per hour, and (4) a risk management specialist at a cost of $232 an hour. ($360 x 0.25 = $90) +
  ($276 x 0.25 = $69) + ($416 x 0.25 = $104) + ($232 x 0.25 = $58) = $321. To calculate the cost per response
  for each respondent, we used the hours per response from Table 2: Annual Hour Burden Estimates for Initial
  Filings.
\3\ In the case of the proposed estimates, cost per response for smaller private fund advisers: ($302 per hour x
  20 hours per response = $6,040 per response.)
\4\ In the case of the proposed estimates, (2,085 smaller private fund advisers x 1 response annually = 2,085
  aggregate responses.)

[[Page 18056]]

 
\5\ In the case of the final estimates, cost per response for smaller private fund advisers: ($321 per hour x 22
  hours per response = $7,062 per response.)
\6\ In the case of the final estimates, (2,376 smaller private fund advisers x 1 response annually = 2,376
  aggregate responses.)
\7\ In the case of the proposed estimates, cost per response for large hedge fund advisers: ($302 per hour x 160
  hours per response = $48,320 per response.)
\8\ In the case of the proposed estimates, (577 large hedge fund advisers x 4 responses annually = 2,308
  aggregate responses.)
\9\ In the case of the final estimates, cost per response for large hedge fund advisers: ($321 per hour x 176
  hours per response = $56,496 per response.)
\10\ In the case of the final estimates, (556 large hedge fund advisers x 4 responses annually = 2,224 aggregate
  responses.)
\11\ In the case of the proposed estimates, cost per response for large liquidity fund advisers: ($302 per hour
  x 75 hours per response = $22,650 per response.)
\12\ In the case of the proposed estimates, (23 large liquidity fund advisers x 4 responses annually = 92
  aggregate responses.)
\13\ In the case of the final estimates, cost per response for large liquidity fund advisers: ($321 per hour x
  86 hours per response = $27,606 per response.)
\14\ In the case of the final estimates, (20 large liquidity fund advisers x 4 responses annually = 80 aggregate
  responses.)
\15\ In the case of the proposed estimates, cost per response for large private equity fund advisers: ($302 per
  hour x 105 hours per response = $31,710 per response.)
\16\ In the case of the proposed estimates, (356 private equity fund advisers x 1 response annually = 356
  aggregate responses.)
\17\ In the case of the final estimates, cost per response for large private equity fund advisers: ($321 per
  hour x 145 hours per response = $46,545 per response.)
\18\ In the case of the final estimates, (432 private equity fund advisers x 1 response annually = 432 aggregate
  responses.)


        Table 8--Annual Monetized Time Burden of Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
                                                                                Aggregate            Aggregate
                      Respondent                         Per response           number of            monetized
                                                                                responses           time burden
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
    Proposed Estimate.................................                       Not Applicable
                                                       ---------------------------------------------------------
    Final Estimate....................................          $2,024   x               20   =          $40,480
    Previously Approved...............................           2,024   x               20   =           40,480
----------------------------------------------------------------------------------------------------------------
    Change............................................               0   x                0   =                0
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
    Proposed Estimate.................................                       Not Applicable
                                                       ---------------------------------------------------------
    Final Estimate....................................           5,160   x               60   =          309,600
    Previously Approved...............................           5,160   x               60   =          309,600
    Change............................................               0   x                0   =                0
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
    Proposed Estimate.................................                       Not Applicable
                                                       ---------------------------------------------------------
    Final Estimate....................................           2,024   x               20   =           40,480
    Previously Approved...............................           2,024   x               20   =           40,480
    Change............................................               0   x                0   =                0
----------------------------------------------------------------------------------------------------------------
Note:
\1\ Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added
  Form PF section 5 (Current report for large hedge fund advisers to qualifying hedge funds) and section 6
  (Quarterly report for advisers to private equity funds) to Form PF. See May 2023 SEC Form PF Amending Release,
  supra footnote 4, at section V for proposed and final estimates for current reporting and private equity event
  reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and
  are not adopting any changes to these sections in this Release.


   Table 9--Annual Monetized Time Burden for Transition Filings, Final Filings, and Temporary Hardship Requests
----------------------------------------------------------------------------------------------------------------
                                                                                Aggregate            Aggregate
                    Filing type \1\                      Per response           number of            monetized
                                                                              responses \2\         time burden
----------------------------------------------------------------------------------------------------------------
Transition Filing from Quarterly to Annual:
    Proposed Estimate.................................      \3\ $19.25   x               68   =           $1,309
    Final Estimate....................................       \4\ 20.50   x               69   =         1,414.50
    Previously Approved...............................           20.50   x               71   =         1,455.50
    Change............................................               0                  (2)                 (41)
----------------------------------------------------------------------------------------------------------------
Final Filings:
    Proposed Estimate.................................       \5\ 19.25   x              233   =         4,485.25
    Final Estimate....................................       \3\ 20.50   x              243   =         4,981.50
    Previously Approved...............................           20.50   x              235   =         4,817.50
    Change............................................               0                    8                  164
----------------------------------------------------------------------------------------------------------------
Temporary Hardship Requests:
    Proposed Estimate.................................      \7\ 237.50   x                3   =           712.50
    Final Estimate....................................      \8\ 252.38   x                4   =         1,009.52
    Previously Approved...............................          252.38   x                4   =         1,099.52

[[Page 18057]]

 
    Change............................................               0                    0                 (90)
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ All changes are due to using updated data concerning wage rates and the number of responses.
\2\ See Table 5: Annual Hour Burden Estimates for Transition Filings, Final Filings, and Temporary Hardship
  Requests.
\3\ In the case of the proposed estimates, we estimate that each transition filing will take 0.25 hours and that
  a compliance clerk would perform this work at a cost of $77 an hour. (0.25 hours x $77 = $19.25.)
\4\ In the case of the final estimates, we estimate that each transition filing will take 0.25 hours and that a
  compliance clerk would perform this work at a cost of $82 an hour. (0.25 hours x $82 = $20.50.)
\5\ In the case of the proposed estimates, we estimate that each final filing will take 0.25 hours and that a
  compliance clerk would perform this work at a cost of $77 an hour. (0.25 hours x $77 = $19.25.)
\6\ In the case of the final estimates, we estimate that each final filing will take 0.25 hours and that a
  compliance clerk would perform this work at a cost of $82 an hour. (0.25 hours x $82 = $20.50.)
\7\ In the case of the proposed estimates, we estimate that each temporary hardship request will take 1 hour. We
  estimate that a compliance manager would perform five-eighths of the work at a cost of $339 and a general
  clerk would perform three-eighths of the work at a cost of $68. (1 hour x ((\5/8\ of an hour x $339 = $212) +
  (\3/8\ of an hour x $68 = $25.50)) = $237.50 per response.
\8\ In the case of the final estimates, we estimate that each temporary hardship request will take 1 hour. We
  estimate that a compliance manager would perform five-eighths of the work at a cost of $360 and a general
  clerk would perform three-eighths of the work at a cost of $73. (1 hour x ((\5/8\ of an hour x $360 = $225) +
  (\3/8\ of an hour x $73 = $27.38)) = $252.38 per response.

e. Annual External Cost Burden Estimates
    Below are tables with annual external cost burden estimates for (1) 
initial filings, (2) ongoing annual and quarterly filings, and (3) 
current reporting and private equity event reporting. There are no 
filing fees for transition filings, final filings, or temporary 
hardship requests and we continue to estimate there would be no 
external costs for those filings, as previously approved.

                                            Table 10--Annual External Cost Burden for Ongoing Annual and Quarterly Filings as well as Initial Filings
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 External                            Aggregate
                                                                    Number of                               External              cost of                         external  cost
                                                                    responses         Filing        Total    cost of              initial         Number of         of  initial        Total
                         Respondent \1\                                per           fee per        filing   initial              filing            initial           filing         aggregate
                                                                   respondent         filing         fees     filing             amortized         filings           amortized    external  cost
                                                                       \2\             \3\                     \4\                over 3             \6\           over 3  years        \8\
                                                                                                                                 years \5\                              \7\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
  Proposed Estimate.............................................             1   x      $150   =      $150   $10,000   / 3 =         $3,333   x         309   =       $1,029,897  \9\ $1,388,997
  Final Estimate................................................             1   x       150   =       150    10,000   / 3 =          3,333   x         374   =        1,246,542  \10\ 1,659,042
                                                                                                           ----------------------------------------------------------------------
  Previously Approved...........................................             1   x       150   =       150                             Not Applicable                                    392,400
                                                                                                           ----------------------------------------------------------------------
  Change........................................................             0             0             0                             Not Applicable                                  1,266,642
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
  Proposed Estimate.............................................             4   x       150   =       600    50,000   / 3 =         16,667   x          15   =          250,005    \11\ 605,205
  Final Estimate................................................             4   x       150   =       600    70,000   / 3 =         23,333   x          14   =          326,662    \12\ 668,662
  Previously Approved...........................................             4   x       150   =       600    50,000   / 3 =         16,667   x          16   =          266,672         625,472
  Change........................................................             0             0             0    20,000                  6,666             (2)               59,990          43,190
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Large Liquidity Fund Advisers:
  Proposed Estimate.............................................             4   x       150   =       600    50,000   / 3 =         16,667   x           1   =           16,667     \13\ 31,067
  Final Estimate................................................             4   x       150   =       600    50,000   / 3 =         16,667   x           1   =           16,667     \14\ 29,267
  Previously Approved...........................................             4   x       150   =       600    50,000   / 3 =         16,667   x           1   =           16,667          29,867
  Change........................................................             0             0             0         0                      0               0                    0           (600)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Large Private Equity Fund Advisers:
  Proposed Estimate.............................................             1   x       150   =       150    50,000   / 3 =         16,667   x          13   =          216,671    \15\ 272,021
  Final Estimate................................................             1   x       150   =       150    50,000   / 3 =         16,667   x          18   =          300,006    \16\ 367,656
  Previously Approved...........................................             1   x       150   =       150    50,000   / 3 =         16,667   x          17   =          283,339         348,589
  Change........................................................             0             0             0         0                      0               9               16,667          19,067
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ We estimate that advisers would incur the cost of filing fees for each filing. For initial filings, advisers may incur costs to modify existing systems or deploy new systems to support
  Form PF reporting, acquire or use hardware to perform computations, or otherwise process data that Form PF requires.
\2\ Smaller private fund advisers and large private equity fund advisers file annually. Large hedge fund advisers and large liquidity fund advisers file quarterly.
\3\ The SEC established Form PF filing fees in a separate order. Since 2011, filing fees have been and continue to be $150 per annual filing and $150 per quarterly filing. See Order Approving
  Filing Fees for Exempt Reporting Advisers and Private Fund Advisers, Advisers Act Release No. 3305 (Oct. 24, 2011) [76 FR 67004 (Oct. 28, 2011)].

[[Page 18058]]

 
\4\ In the previous PRA submission for the rules, staff estimated that the external cost burden for initial filings would range from $0 to $50,000 per adviser. This range reflected the fact
  that the cost to any adviser may depend on how many funds or the types of funds it manages, the state of its existing systems, the complexity of its business, the frequency of Form PF
  filings, the deadlines for completion, and the amount of information the adviser must disclose on Form PF. Staff also estimated that smaller private fund advisers would be unlikely to bear
  such costs because the information they must provide is limited and will, in many cases, already be maintained in the ordinary course of business. Given the proposed amendments, we estimate
  that the external cost burden for smaller private fund advisers would range from $0 to $10,000, per smaller private fund adviser. This range reflects the amendments and is designed to
  reflect that the cost to any smaller private fund adviser may depend on how many funds or the type of funds it manages, the state of its existing systems, and the complexity of its business.
  We use the upper range to calculate the estimate for smaller private fund advisers: $10,000. Also, given the amendments, in our proposed estimates, we estimated that the external cost burden
  for initial filings for large hedge fund advisers, large liquidity fund advisers, and large private equity fund advisers would continue to range from $0 to $50,000 for the same reasons as
  the current estimates for those types of advisers. We used the upper range to calculate the estimates: $50,000. After considering comments we received, we estimate a range from $0 to $70,000
  for large hedge fund advisers. We use the upper range to calculate cost burden for initial filings for large hedge fund advisers estimates: $70,000. We continue to estimate that the external
  cost burden for initial filings for large liquidity fund advisers, and large private equity fund advisers would continue to range from $0 to $50,000 for the same reasons as the current
  estimates for those types of advisers. We used the upper range to calculate the estimates: $50,000.
\5\ We amortize the external cost burden of initial filings over three years, as we do with other initial burdens in this PRA, because we believe that most of the burden will be incurred in
  the initial filing.
\6\ See Table 2: Annual Hour Burden Estimates for Initial Filings.
\7\ Changes to the aggregate external cost of initial filings, amortized over three years are due to (1) the proposed amendments and (2) using updated data.
\8\ Changes to the total aggregate external cost are due to (1) the amendments, (2) using updated data, (3) the amendments to Form PF adopted subsequent to the 2022 Joint Form PF Proposing
  Release, and (4) comments we received to our estimates.
\9\ In the case of the proposed estimates, Private Funds Statistics show 2,394 smaller private fund advisers filed Form PF in the third quarter of 2021. (2,394 smaller private fund advisers x
  $150 total filing fees) + $1,029,897 aggregate external cost of initial filing amortized over three years = $1,388,997 total aggregate external cost.
\10\ In the case of the final estimates, Private Funds Statistics show 2,750 smaller private fund advisers filed Form PF in the first quarter of 2023. (2,750 smaller private fund advisers x
  $150 total filing fees) + $1,246,542 aggregate external cost of initial filing amortized over three years = $1,659,042 total aggregate external cost.
\11\ In the case of the proposed estimates, Private Funds Statistics show 592 large hedge fund advisers filed Form PF in the third quarter of 2021. (592 large hedge fund advisers x $600 total
  filing fees) + $250,005 aggregate external cost of initial filing amortized over three years = $605,205 total aggregate external cost.
\12\ In the case of the final estimates, Private Funds Statistics show 570 large hedge fund advisers filed Form PF in the first quarter of 2023. (570 large hedge fund advisers x $600 total
  filing fees) + $326,662 aggregate external cost of initial filing amortized over three years = $668,662 total aggregate external cost.
\13\ In the case of the proposed estimates, Private Funds Statistics show 24 large liquidity fund advisers filed Form PF in the third quarter of 2021. (24 large liquidity fund advisers x $600
  total filing fees) + $16,667 aggregate external cost of initial filing amortized over three years = $31,067 total aggregate external cost.
\14\ In the case of the final estimates, Private Funds Statistics show 21 large liquidity fund advisers filed Form PF in the first quarter of 2023. (21 large liquidity fund advisers x $600
  total filing fees) + $16,667 aggregate external cost of initial filing amortized over three years = $29,267 total aggregate external cost.
\15\&thnsp;In the case of the proposed estimates, Private Funds Statistics show 369 large private equity fund advisers filed Form PF in the third quarter of 2021. (369 large private equity
  fund advisers x $150 total filing fees) + $216,671 aggregate external cost of initial filing amortized over three years = $272,021 total aggregate external cost.
\16\ In the case of the final estimates, Private Funds Statistics show 450 large private equity fund advisers filed Form PF in the first quarter of 2023. (450 large private equity fund
  advisers x $150 total filing fees) + $300,006 aggregate external cost of initial filing amortized over three years = $367,506 total aggregate external cost.


        Table 11--Annual External Cost Burden for Current Reporting and Private Equity Event Reporting \1\
----------------------------------------------------------------------------------------------------------------
                                                   Cost of outside
                                 Aggregate           counsel per           Aggregate   One-time        Total
          Respondent             number of       current report  or         cost of     cost of      aggregate
                                 responses         private equity           outside     system     external cost
                                                    event report            counsel     changes
----------------------------------------------------------------------------------------------------------------
Smaller Private Fund Advisers:
    Proposed Estimate.........                                   Not Applicable
                               ---------------------------------------------------------------------------------
    Final Estimate............          20   x               $1,695   =      $33,900     $15,000         $48,900
    Previously Approved.......          20   x                1,695   =       33,900      15,000          48,900
    Change....................           0                        0                0           0               0
----------------------------------------------------------------------------------------------------------------
Large Hedge Fund Advisers:
    Proposed Estimate.........                                   Not Applicable
                               ---------------------------------------------------------------------------------
    Final Estimate............          60   x                1,695   =      101,700      15,000         116,700
    Previously Approved.......          60   x                1,695   =      101,700      15,000         116,700
    Change....................           0                        0                0           0               0
----------------------------------------------------------------------------------------------------------------
Large Private Equity Fund
 Advisers:
    Proposed Estimate.........                                   Not Applicable
                               ---------------------------------------------------------------------------------
    Final Estimate............          20   x                1,695   =       33,900      15,000          48,900
    Previously Approved.......          20   x                1,695   =       33,900      15,000          48,900
    Change....................           0                        0                0           0               0
----------------------------------------------------------------------------------------------------------------
Advisers pay filing fees, the amount of which will be determined in a separate action.
----------------------------------------------------------------------------------------------------------------
Note:
\1\ Subsequent to the 2022 Joint Form PF Proposing Release, the SEC adopted amendments to Form PF, which added
  Form PF section 5 (Current report for large hedge fund advisers to qualifying hedge funds) and section 6
  (Quarterly report for advisers to private equity funds) to Form PF. See May 2023 SEC Form PF Amending Release,
  supra footnote 4, at section V for proposed and final estimates for current reporting and private equity event
  reporting. We did not propose any changes to these sections in the 2022 Joint Form PF Proposing Release and
  are not adopting any changes to these sections in this Release.

f. Summary of Estimates and Change in Burden

[[Page 18059]]



                                      Table 12--Aggregate Annual Estimates
----------------------------------------------------------------------------------------------------------------
                                    Proposed                           Previously
        Description \1\             estimates      Final estimates      approved                Change
----------------------------------------------------------------------------------------------------------------
Respondents...................  3,379             3,791             3,671             120 respondents.\4\
                                 respondents \2\.  respondents \3\.  respondents.
Responses.....................  5,483 responses   5,935 responses   5,907 responses.  28 responses.\7\
                                 \5\.              \6\.
Time Burden...................  463,296 hours     524,376 hours     451,012 hours...  73,364 hours.
                                 \8\.              \9\.
Monetized Time Burden           $140,305,194      $169,094,737.02   $145,721,172.52.  $23,373,564.50.
 (Dollars).                      \10\.             \11\.
External Cost Burden (Dollars)  $2,297,290 \12\.  $2,938,977 \13\.  $1,610,828......  $1,328,149.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Changes are due to (1) the amendments, (2) using updated data, and (3) in the case of the final estimates
  subsequent Form PF amendments adopted after the 2022 Joint Form PF Proposing Release and comments we received
  to our estimates, as described in this PRA.
\2\ In the case of the proposed estimates, Private Funds Statistics show the following advisers filed Form PF in
  the third quarter of 2021: 2,394 smaller private fund advisers + 592 large hedge fund advisers + 24 large
  liquidity fund advisers + 369 large private equity fund advisers = 3,379 advisers.
\3\ In the case of the final estimates, Private Funds Statistics show the following advisers filed Form PF in
  the first quarter of 2023: 2,750 smaller private fund advisers + 570 large hedge fund advisers + 21 large
  liquidity fund advisers + 450 large private equity fund advisers = 3,791 advisers.
\4\ Changes are due to using updated data.
\5\ In the case of the proposed estimates, for initial filings (Table 2): (309 smaller private fund adviser
  responses + 15 large hedge fund adviser responses + 1 large liquidity fund adviser response + 13 large private
  equity fund adviser responses = 338 responses.) For ongoing annual and quarterly filings (Table 7): (2,085
  smaller private fund adviser responses + 2,308 large hedge fund adviser responses + 92 large liquidity fund
  adviser responses + 356 large private equity fund adviser responses = 4,841 responses.) (338 responses for
  initial filings + 4,841 responses for ongoing annual and quarterly filings + 68 responses for transition
  filings + 233 responses for final filings + 3 responses for temporary hardship requests = 5,483 responses.)
\6\ In the case of the final estimates, for initial filings (Table 2): (374 smaller private fund adviser
  responses + 14 large hedge fund adviser responses + 1 large liquidity fund adviser response + 18 large private
  equity fund adviser responses = 407 responses.) For ongoing annual and quarterly filings (Table 7): (2,376
  smaller private fund adviser responses + 2,224 large hedge fund adviser responses + 80 large liquidity fund
  adviser responses + 432 large private equity fund adviser responses = 5,112 responses.) For current reporting
  and private equity event reporting (Table 8): (20 smaller private fund adviser responses + 60 large hedge fund
  adviser responses + 20 large private equity fund adviser responses = 100 responses) (407 responses for initial
  filings + 5,112 responses for ongoing annual and quarterly filings + 100 responses + 69 responses for
  transition filings + 243 responses for final filings + 4 responses for temporary hardship requests = 5,935
  responses.)
\7\ Changes are due to using updated data concerning the number of filers and, in the case of the final
  estimates, the inclusion of current reporting and private equity event reporting, which was adopted after the
  2022 Joint Form PF Proposing Release, and comments we received to our estimates.
\8\ In the case of the proposed estimates, for initial filings: (5,253 hours for smaller private fund advisers +
  1,725 hours for large hedge fund advisers + 70 hours for large liquidity fund advisers + 910 hours for large
  private equity fund advisers = 7,958 hours). For ongoing annual and quarterly filings: (41,700 hours for
  smaller private fund advisers + 369,280 hours for large hedge fund advisers + 6,900 for hours large liquidity
  fund advisers + 37,380 hours for large private equity fund advisers = 455,260 hours). (7,958 hours for initial
  filings + 455,260 for ongoing annual and quarterly filings + 17 hours for transition filings + 58.25 hours for
  final filings + 3 hours for temporary hardship requests = 463,296 hours.
\9\ In the case of the final estimates, for initial filings: (6,732 hours for smaller private fund advisers +
  1,778 hours for large hedge fund advisers + 76 hours for large liquidity fund advisers + 1,692 hours for large
  private equity fund advisers = 10,278 hours). For ongoing annual and quarterly filings: (52,272 hours for
  smaller private fund advisers + 391,424 hours for large hedge fund advisers + 6,880 for hours large liquidity
  fund advisers + 62,640 hours for large private equity fund advisers = 513,216 hours). For current reporting
  and private equity event reporting: (100 hours for smaller private fund adviser + 600 hours for large hedge
  fund adviser + 100 hours for large private equity fund adviser = 800 hours) (10,278 hours for initial filings
  + 513,216 for ongoing annual and quarterly filings + 800 hours for current reporting and private equity event
  reporting + 17.25 hours for transition filings + 60.75 hours for final filings + 4 hours for temporary
  hardship requests = 524,376 hours.
\10\ In the case of the proposed estimates, for initial filings: ($1,879,647 for smaller private fund advisers +
  $593,400 for large hedge fund advisers + $24,080 for large liquidity fund advisers + $313,040 for large
  private equity fund advisers = $2,810,167). For ongoing annual and quarterly filings: ($12,593,400 for smaller
  private fund advisers + $111,522,560 for large hedge fund advisers + $2,083,800 for large liquidity fund
  advisers + $11,288,760 for large private equity fund advisers = $137,488,520). ($2,810,167 for initial filings
  + $137,488,520 for ongoing annual and quarterly filings + $1,309 for transition filings + $4,485.25 for final
  filings + $712.50 for temporary hardship requests = $140,305,194.
\11\ In the case of the final estimates, for initial filings: ($2,660,262 for smaller private fund advisers +
  $649,040 for large hedge fund advisers + $27,931 for large liquidity fund advisers + $617,202 for large
  private equity fund advisers = $3,954,435). For ongoing annual and quarterly filings: ($16,779,312 for smaller
  private fund advisers + $125,647,104 for large hedge fund advisers + $2,208,480 for large liquidity fund
  advisers + $20,107,440 for large private equity fund advisers = $164,742,336). For current reporting and
  private equity event reporting: ($40,480 for smaller private equity fund advisers + $309,600 for large hedge
  fund advisers + $40,480 for large private equity fund advisers = $390,560). ($3,954,435 for initial filings +
  $164,742,336 for ongoing annual and quarterly filings + $390,560 for current reporting and private equity
  event reporting + $1,414.50 for transition filings + $4,982 for final filings + $1,009.52 for temporary
  hardship requests = $169,094,737.02.
\12\ In the case of the proposed estimates, for the external cost burden: $1,388,997 for smaller private fund
  advisers + $605,205 for large hedge fund advisers + $31,067 for large liquidity fund advisers + $272,021 for
  large private equity fund advisers = $2,297,290.
\13\ In the case of the final estimates, for external cost burden for annual, quarterly, and initial filing
  ($1,659,042 for smaller private fund advisers + $668,662 for large hedge fund advisers + $29,267 for large
  liquidity fund advisers + $367,506 for large private equity fund advisers = $2,724,477). For current
  reporting: ($48,900 for smaller private fund advisers + $116,700 for large hedge funds + $48,900 for large
  private equity fund advisers = $214,500). $2,724,477 + $214,500 = $2,938,977.

VI. Regulatory Flexibility Act Certification

CFTC

    The Regulatory Flexibility Act (``RFA'') requires that when Federal 
agencies publish a proposed rulemaking pursuant to section 553 of the 
Administrative Procedure Act, they consider whether the final rule will 
have a significant economic impact on a substantial number of ``small 
entities.'' \701\
---------------------------------------------------------------------------

    \701\ 5 U.S.C. 601, et. seq.
---------------------------------------------------------------------------

    Registered CPOs and CTAs that are dually registered as investment 
advisers with the SEC are only required to file Form PF with the SEC 
pursuant to the Advisers Act. While CFTC rule 4.27(d) provides that 
dually registered CPOs and CTAs that file Form PF with the SEC will be 
deemed to have filed Form PF with the CFTC, for purposes of any 
enforcement action regarding any false or misleading statement of 
material fact in Form PF, the CFTC is not imposing any additional 
obligation herein beyond what is already required of these entities 
when filing Form PF with the SEC.
    Entities impacted by the Form PF are the SEC's regulated entities 
and no small entity on its own would meet the

[[Page 18060]]

Form PF's minimum reporting threshold of $150 million in regulatory 
assets under management attributable to private funds. Also, any 
economic impact imposed by Form PF on small entities registered with 
both the CFTC and the SEC has been accounted for within the SEC's 
regulatory flexibility analysis regarding the impact of this collection 
of information under the RFA. Accordingly, the Chairman, on behalf of 
the CFTC, hereby certifies pursuant to 5 U.S.C. 605(b) that the final 
rules will not have a significant economic impact on a substantial 
number of small entities.

SEC

    Pursuant to section 605(b) of the Regulatory Flexibility Act of 
1980 (``Regulatory Flexibility Act''),\702\ the SEC certified that the 
proposed amendments to Advisers Act rule 204(b)-1 and Form PF would 
not, if adopted, have a significant economic impact on a substantial 
number of small entities. The SEC included this certification in 
section V of the 2022 Joint Form PF Proposing Release. As discussed in 
more detail in the 2022 Joint Form PF Proposing Release, for the 
purposes of the Advisers Act and the Regulatory Flexibility Act, an 
investment adviser generally is a small entity if it (1) has assets 
under management having a total value of less than $25 million, (2) did 
not have total assets of $5 million or more on the last day of the most 
recent fiscal year, and (3) does not control, is not controlled by, and 
is not under common control with another investment adviser that has 
assets under management of $25 million or more, or any person (other 
than a natural person) that had total assets of $5 million or more on 
the last day of its most recent fiscal year.\703\
---------------------------------------------------------------------------

    \702\ 5 U.S.C. 601, et. seq.
    \703\ 17 CFR 275.0-7.
---------------------------------------------------------------------------

    By definition, no small entity on its own would meet rule 204(b)-1 
and Form PF's minimum reporting threshold of $150 million in regulatory 
assets under management attributable to private funds. Based on Form PF 
and Form ADV data as of December 2022, the SEC estimates that no small 
entity advisers are required to file Form PF. The SEC does not have 
evidence to suggest that any small entities are required to file Form 
PF but are not filing Form PF. Therefore, the SEC stated in the 2022 
Joint Form PF Proposing Release there would be no significant economic 
impact on a substantial number of small entities from the proposed 
amendments to Advisers Act rule 204(b)-1 and Form PF.
    The SEC requested comment on its certification in section V of the 
2022 Joint Form PF Proposing Release. While some commenters addressed 
the potential impact of the proposed amendments on smaller or mid-size 
private funds,\704\ no commenters responded to this request for comment 
regarding the SEC's certification. We are adopting the amendments 
largely as proposed, with certain modifications from the proposal, as 
discussed more fully above in section II, that do not affect the 
Advisers Act rule 204(b)-1 and Form PF's minimum reporting threshold. 
We do not believe that these changes alter the basis upon which the 
certification in the 2022 Joint Form PF Proposing Release was made. 
Accordingly, the SEC certifies that the final amendments to Advisers 
Act rule 204(b)-1 and Form PF will not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \704\ See, e.g., AIC Comment Letter I; AIMA/ACC Comment Letter; 
USCC Comment Letter.
---------------------------------------------------------------------------

Statutory Authority

CFTC

    The CFTC authority for this rulemaking is provided by 15 U.S.C. 
80b-11.

SEC

    The SEC is amending 17 CFR 275.204(b)-1 pursuant to its authority 
set forth in sections 204(b) and 211(e) of the Advisers Act [15 U.S.C. 
80b-4 and 15 U.S.C. 80b-11], respectively.
    The SEC is amending 17 CFR 279.9 pursuant to its authority set 
forth in sections 204(b) and 211(e) of the Advisers Act [15 U.S.C. 80b-
4 and 15 U.S.C. 80b-11], respectively.

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements, Securities.

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

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

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

    Authority:  15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-
2(a)(17), 80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless 
otherwise noted.
* * * * *

0
2. Amend Sec.  275.204(b)-1 by:
0
a. Revising paragraph (f)(2)(i) by removing the phrases ``in paper 
format,'' and ``, Item A of Section 1a and Section 5 of Form PF, 
checking the box in Section 1a indicating that you are requesting a 
temporary hardship exemption'';
0
b. Redesignating paragraph (f)(4) as paragraph (f)(5); and
0
c. Adding new paragraph (f)(4).
    The addition reads as follows:


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

* * * * *
    (f) * * *
    (4) A request for a temporary hardship exemption is considered 
filed upon the earlier of the date the request is postmarked or the 
date it is received by the Commission.
* * * * *

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

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

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


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

0
4. Revise Form PF (referenced in Sec.  279.9).

    Note:  Form PF is attached as Appendix A to this document. Form 
PF will not appear in the Code of Federal Regulations.


    By the Commissions.

    Dated: February 8, 2024.
Christopher Kirkpatrick,
Secretary, Commodity Futures Trading Commission.
Vanessa A. Countryman,
Secretary, Securities and Exchange Commission.

    Note:  The following appendix will not appear in the Code of 
Federal Regulations.

BILLING CODE 8011-01-P

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BILLING CODE 8011-01-C

    Note: The following Commodity Futures Trading Commission (CFTC) 
appendices will not appear in the Code of Federal Regulations.

CFTC Appendices to Form PF; Reporting Requirements for All Filers and 
Large Hedge Fund Advisers--CFTC Voting Summary and Commissioners' 
Statements

CFTC Appendix 1--Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson and 
Goldsmith Romero voted in the affirmative. Commissioners Mersinger and 
Pham voted in the negative.

CFTC Appendix 2--Statement of Commissioner Kristin N. Johnson

    Transparency is an integral component of the regulatory framework 
that ensures the safety and soundness and enduring preeminence of our 
financial markets. Our statutory mandate expressly directs the 
Commodity Futures Trading Commission's (Commission or CFTC) mission to 
``ensure the financial integrity of all transactions subject to [the 
Commodity Exchange Act] and the avoidance of systemic risk'' and today, 
consistent with this mandate, the Commission seeks to enhance oversight 
and improve visibility through well-calibrated data collection 
approaches.\1\
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 5(b).
---------------------------------------------------------------------------

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) incorporated innovative regulatory features for 
promoting the stability of the U.S. financial system, including 
establishing the Financial Stability Oversight Council (FSOC) to 
monitor for emerging systemic risks that may significantly impact our 
financial markets and American consumers. Congress, in drafting the 
Dodd-Frank Act, recognized that systemic risks are best monitored 
through collaboration among prudential and market regulators, each 
endowed with distinct regulatory mandates and empowered to leverage 
their expertise to support FSOC's systemic risk oversight objectives.
    Specifically, Section 404 of the Dodd-Frank Act amends Section 204 
of the Investment Advisers Act of 1940 (Advisers Act) and grants the 
Securities and Exchange Commission (SEC) the power to require an SEC-
registered investment adviser to file with the SEC reports regarding 
``private funds advised by the investment adviser, as necessary and 
appropriate in the public interest and for the protection of investors, 
or for the assessment of systemic risk by the [FSOC].'' \2\ Section 406 
of the Dodd-Frank Act, which amends Section 211 of the Advisers Act, 
instructs the SEC and Commission, after consultation with FSOC, to 
``jointly promulgate rules to establish the form and content of the 
reports required to be filed'' with the SEC and Commission by 
investment advisers registered both under the Advisers Act and the 
Commodity Exchange Act.\3\
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 80b-4(b).
    \3\ 15 U.S.C. 80b-11(e).
---------------------------------------------------------------------------

    As directed by the Dodd-Frank Act, in 2011, the Commission and SEC 
jointly issued rules to provide FSOC with important information about 
private fund operations and strategies through Form PF.\4\ Form PF is a 
confidential form for certain SEC-registered investment advisers to 
private funds, including those that may also be dually registered with 
the Commission as a commodity pool operator (CPO) or commodity trading 
advisor (CTA).\5\ In 2022, the Commission and SEC adopted proposed 
amendments to Form PF.\6\ As noted in the preamble, the Commission is 
adopting the joint final rule to amend Form PF (Final Rule) in an 
effort to address information gaps and improve the Commissions' and 
FSOC's understanding of the private fund industry and the potential 
systemic risk posed by it. The Final Rule seeks to clarify aspects of 
the form and instructions as well as remove certain questions to 
streamline reporting.
---------------------------------------------------------------------------

    \4\ Reporting by Investment Advisers to Private Funds and 
Certain Commodity Pool Operators and Commodity Trading Advisors on 
Form PF, 76 FR 71128, 71129 (Nov. 16, 2011).
    \5\ In 2020, the Commission adopted amendments to Form CPO-PQR 
for CPOs, which is used by CPOs and CTAs for reporting purposes. In 
lieu of filing the CFTC's Form CPO-PQR, CPOs and CTAs may file NFA 
Form PQR, a comparable form required by the National Futures 
Association.
    \6\ Form PF; Reporting Requirements for All Filers and Large 
Hedge Fund Advisers, 87 FR 53832 (Sept. 1, 2022).
---------------------------------------------------------------------------

    Appropriately-tailored regulatory disclosure is a powerful tool in 
identifying vulnerabilities and trends in our markets, mitigating 
systemic risk, and addressing financial stability concerns. Disclosure 
of financial information to market regulators is critical to the 
regulatory oversight of our financial markets, particularly when such 
disclosure is accurate, timely, robust, and usable. Effective 
disclosure enables regulators to monitor market activities and take 
swift, decisive action to prevent or manage market stresses and crises. 
I support today's Final Rule and the careful consideration of both 
agencies that it reflects.
    I commend the work of the staff of the Market Participants 
Division--Amanda Olear, Pamela Geraghty, Michael Ehrstein, Elizabeth 
Groover, and Andrew Ruggiero--for their careful work on the Final Rule.

CFTC Appendix 3--Dissenting Statement of Commissioner Caroline D. Pham

    I respectfully dissent from the Joint Final Rule on Form PF and 
Reporting Requirements for All Filers and Large Hedge Fund Advisers 
that is being issued together with the U.S. Securities

[[Page 18161]]

and Exchange Commission (SEC) (SEC-CFTC Joint Final Rule on Form PF or 
Joint Final Rule) because, overall, the rule does not achieve its 
stated purpose to improve systemic risk monitoring because it will 
obscure hidden risks and unacceptably increase costs for American 
savers.
    When this proposal was adopted in August 2022, I raised my concerns 
that in a time of economic challenges, including rising inflation, we 
must be careful when considering proposals that could inhibit positive 
economic activity that supports American businesses and jobs.\1\ The 
SEC-CFTC Joint Final Rule on Form PF charges ahead on the wrong path 
with no consideration for these concerns.
---------------------------------------------------------------------------

    \1\ Dissenting Statement of Commissioner Caroline D. Pham 
Regarding the Proposed Amendments to Form PF (Aug. 10, 2022). I also 
continue to believe the cost-benefit analysis in the Final Rule is 
insufficient.
---------------------------------------------------------------------------

    Astoundingly, all rules since the financial crisis have been based 
on aggregating data for better risk management.\2\ Yet the SEC-CFTC 
Joint Final Rule on Form PF continues to mandate double, and sometimes 
triple, reporting,\3\ without being based on any demonstrated data or 
evidence that it will improve systemic risk monitoring. To the 
contrary, it will hinder the ability of both firms and regulators to 
truly identify hidden risk. Effective risk management requires 
aggregation to understand the risk exposure. Indeed, this is a key 
pillar of Dodd-Frank reforms. But the Joint Final Rule will force firms 
to disaggregate risk monitoring and reporting to the individual fund 
level--obscuring the full picture.
---------------------------------------------------------------------------

    \2\ See e.g., Prohibitions and Restrictions on Proprietary 
Trading and Certain Interests in, and Relationships With, Hedge 
Funds and Private Equity Funds, 79 FR 5808 (Jan. 31, 2014), 
available at https://www.federalregister.gov/documents/2014/01/31/2013-31476/prohibitions-and-restrictions-on-proprietary-trading-and-certain-interests-in-and-relationships-with; Bank for International 
Settlements (BIS) Basel Committee on Banking Supervision, Standards 
for Minimum Capital Requirements for Market Risk (Jan. 2016), 
available at https://www.bis.org/bcbs/publ/d352.pdf. BIS revised the 
Standards in 2019. BIS Basel Committee on Banking Supervision, 
Standards for Minimum Capital Requirements for Market Risk (Jan. 
2019; rev. Feb. 2019), available at https://www.bis.org/bcbs/publ/d457.pdf.
    \3\ An overriding basis for the CFTC and SEC joint final rule in 
2011 was to support the Financial Stability Oversight Council 
(FSOC), but three overlapping, or identical, data sets across the 
three entities raises confidentiality and data protection concerns, 
along with inefficiency issues. See Joint Final Rule, Reporting by 
Investment Advisers to Private Funds and Certain Commodity Pool 
Operators and Commodity Trading Advisors on Form PF, 76 FR 71128, 
71129 (Nov. 16, 2011), available at https://www.federalregister.gov/documents/2011/11/16/2011-28549/reporting-by-investment-advisers-to-private-funds-and-certain-commodity-pool-operators-and-commodity; 
see also Authority To Require Supervision and Regulation of Certain 
Nonbank Financial Companies, 77 FR 21637, 21644 (Apr. 11, 2012), 
available at https://www.federalregister.gov/documents/2012/04/11/2012-8627/authority-to-require-supervision-and-regulation-of-certain-nonbank-financial-companies.
---------------------------------------------------------------------------

    Even worse, the SEC-CFTC Joint Final Rule on Form PF will create a 
flood of new information of dubious utility that will generate too much 
noise and is detrimental to data quality, also making it harder to see 
real risk positions. And, the Joint Final Rule does nothing to address 
the many operational and practical implementation issues that will 
unacceptably increase costs for American savers who have worked hard to 
earn their retirement investments.
    For all these reasons, I cannot support the SEC-CFTC Joint Final 
Rule on Form PF and must dissent. This is an unacceptable backsliding 
on the progress made since the Dodd-Frank Act to strengthen our 
financial system, mitigate systemic risk, and promote financial 
stability.
    I appreciate the time that the staff spent with my office on this 
rulemaking. I would like to thank the CFTC team of Andrew Ruggiero, 
Elizabeth Groover, Michael Ehrstein, and Pamela Geraghty in the Market 
Participants Division for their efforts.

[FR Doc. 2024-03473 Filed 3-11-24; 8:45 am]
BILLING CODE 8011-01-P; 6351-01-P


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