Form SEC2048 Form PF

Vol. 76

Friday,

No. 29

February 11, 2011

Part V

Commodity Futures Trading Commission
17 CFR Part 4

Securities and Exchange Commission

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17 CFR Parts 275 and 279
Reporting by Investment Advisers to Private Funds and Certain Commodity
Pool Operators and Commodity Trading Advisors on Form PF; Proposed
Rule

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules

COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 4
RIN 3038–AD03

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 275 and 279
[Release No. IA–3145; File No. S7–05–11]
RIN 3235–AK92

Reporting by Investment Advisers to
Private Funds and Certain Commodity
Pool Operators and Commodity
Trading Advisors on Form PF
Commodity Futures Trading
Commission and Securities and
Exchange Commission.
ACTION: Joint proposed rule.
AGENCIES:

The Commodity Futures
Trading Commission (‘‘CFTC’’) and the
Securities and Exchange Commission
(‘‘SEC’’) (collectively, ‘‘we’’ or the
‘‘Commissions’’) are proposing new rules
under the Commodity Exchange Act and
the Investment Advisers Act of 1940 to
implement provisions of Title IV of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act. The proposed
SEC rule would require investment
advisers registered with the SEC that
advise one or more private funds to file
Form PF with the SEC. The proposed
CFTC rule would require commodity
pool operators (‘‘CPOs’’) and commodity
trading advisors (‘‘CTAs’’) registered
with the CFTC to satisfy certain
proposed CFTC filing requirements by
filing Form PF with the SEC, but only
if those CPOs and CTAs are also
registered with the SEC as investment
advisers and advise one or more private
funds. The information contained in
Form PF is designed, among other
things, to assist the Financial Stability
Oversight Council in its assessment of
systemic risk in the U.S. financial
system. These advisers would file these
reports electronically, on a confidential
basis.
DATES: Comments should be received on
or before April 12, 2011.
ADDRESSES: Comments may be
submitted by any of the following
methods:

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SUMMARY:

CFTC
• Agency Web site, via its Comments
Online process: http://
comments.cftc.gov. Follow the
instructions for submitting comments
through the Web site.
• Mail: David A. Stawick, Secretary,
Commodity Futures Trading

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Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581.
• Hand Delivery/Courier: Same as
mail above.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
‘‘Form PF’’ must be in the subject field
of comments submitted via e-mail, and
clearly indicated on written
submissions. All comments must be
submitted in English, or if not,
accompanied by an English translation.
Comments will be posted as received to
http://www.cftc.gov. You should submit
only information that you wish to make
available publicly. If you wish the CFTC
to consider information that may be
exempt from disclosure under the
Freedom of Information Act, a petition
for confidential treatment of the exempt
information may be submitted according
to the established procedures in 17 CFR
145.9.
The CFTC reserves the right, but shall
have no obligation, to review, prescreen,
filter, redact, refuse, or remove any or
all of your submission from http://
www.cftc.gov that it may deem to be
inappropriate for publication, including,
but not limited to, obscene language. All
submissions that have been redacted or
removed that contain comments on the
merits of the rulemaking will be
retained in the public comment file and
will be considered as required under the
Administrative Procedure Act and other
applicable laws, and may be accessible
under the Freedom of Information Act,
5 U.S.C. 552, et seq. (‘‘FOIA’’).
SEC
Electronic Comments
• Use the SEC’s Internet comment
form (http://www.sec.gov/rules/
proposed.shtml); or
• Send an e-mail to [email protected]. Please include File
Number S7–05–11 on the subject line;
or
• Use the Federal eRulemaking Portal
(http://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–05–11. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The SEC
will post all comments on the SEC’s

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Web site (http://www.sec.gov/rules/
proposed.shtml). Comments are also
available for Web site viewing and
printing in the SEC’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549 on official business days
between the hours of 10 a.m. and 3 p.m.
All comments received will be posted
without change; we do not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT:
CFTC: Daniel S. Konar II, AttorneyAdvisor, Telephone: (202) 418–5405,
E-mail: [email protected], Amanda L.
Olear, Special Counsel, Telephone:
(202) 418–5283, E-mail: [email protected],
or Kevin P. Walek, Assistant Director,
Telephone: (202) 418–5405, E-mail:
[email protected], Division of Clearing
and Intermediary Oversight, Commodity
Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW.,
Washington, DC 20581; SEC: David P.
Bartels, Attorney-Adviser, Sarah G. ten
Siethoff, Senior Special Counsel, or
David A. Vaughan, Attorney Fellow, at
(202) 551–6787 or [email protected],
Office of Investment Adviser
Regulation, Division of Investment
Management, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–8549.
SUPPLEMENTARY INFORMATION: The CFTC
is requesting public comment on
proposed rule 4.27(d) [17 CFR 4.27(d)]
under the Commodity Exchange Act
(‘‘CEA’’) 1 and proposed Form PF. The
SEC is requesting public comment on
proposed rule 204(b)–1 [17 CFR
275.204(b)–1] and proposed Form PF
[17 CFR 279.9] under the Investment
Advisers Act of 1940 [15 U.S.C. 80b]
(‘‘Advisers Act’’).2
I. Background
A. The Dodd-Frank Act
On July 21, 2010, President Obama
signed into law the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (‘‘Dodd-Frank Act’’).3 While the
Dodd-Frank Act provides for wideranging reform of financial regulation,
one stated focus of this legislation is to
17

U.S.C. 1a.
U.S.C. 80b. Unless otherwise noted, when we
refer to the Advisers Act, or any paragraph of the
Advisers Act, we are referring to 15 U.S.C. 80b of
the United States Code, at which the Advisers Act
is codified, and when we refer to Advisers Act rule
204(b)–1, or any paragraph of this rule, we are
referring to 17 CFR 275.204(b)–1 of the Code of
Federal Regulations in which this rule would be
published. In addition, in this Release, when we
refer to the ‘‘Advisers Act,’’ we refer to the Advisers
Act as in effect on July 21, 2011.
3 Public Law 111–203, 124 Stat. 1376 (2010).
2 15

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‘‘promote the financial stability of the
United States’’ by, among other
measures, establishing better monitoring
of emerging risks using a system-wide
perspective.4 To further this goal, Title
I of the Dodd-Frank Act establishes the
Financial Stability Oversight Council
(‘‘FSOC’’), which is comprised of the
leaders of various financial regulators
(including the Commissions’ Chairmen)
and other participants.5 The DoddFrank Act directs FSOC to monitor
emerging risks to U.S. financial stability
and to require that the Board of
Governors of the Federal Reserve
System (‘‘FRB’’) supervise designated
nonbank financial companies that may
pose risks to U.S. financial stability in
the event of their material financial
distress or failure or because of their
activities.6 In addition, the Dodd-Frank
Act directs FSOC to recommend to the
FRB heightened prudential standards
for designated nonbank financial
companies.7
The Dodd-Frank Act anticipates that
FSOC will be supported in these
responsibilities by various regulatory
agencies, including the Commissions.
To that end, the Dodd-Frank Act
amends certain statutes, including the
Advisers Act, to authorize or direct
certain Federal agencies to support
FSOC. Title IV of the Dodd-Frank Act
amends the Advisers Act to generally
require that advisers to hedge funds and
other private funds 8 register with the
4 See S. Conf. Rep. No. 111–176, at 2–3 (2010)
(‘‘Senate Committee Report’’).
5 Section 111 of the Dodd-Frank Act provides that
the voting members of FSOC will be the Secretary
of the Treasury, the Chairman of the FRB, the
Comptroller of the Currency, the Director of the
Bureau of Consumer Financial Protection, the
Chairman of the SEC, the Chairperson of the
Federal Deposit Insurance Corporation, the
Chairperson of the CFTC, the Director of the Federal
Housing Finance Agency, the Chairman of the
National Credit Union Administration Board and an
independent member appointed by the President
having insurance expertise. FSOC will also have
five nonvoting members, which are the Director of
the Office of Financial Research, the Director of the
Federal Insurance Office, a state insurance
commissioner, a state banking supervisor and a
state securities commissioner.
6 Section 112 of the Dodd-Frank Act.
7 Id.
8 Section 202(a)(29) of the Advisers Act 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 (15 U.S.C.
80a–3) (‘‘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 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

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SEC.9 Congress required this registration
in part because it believed that
‘‘information regarding [the] size,
strategies and positions [of large private
funds] could be crucial to regulatory
attempts to deal with a future crisis.’’ 10
To that end, Section 404 of the DoddFrank Act, which amends section 204(b)
of the Advisers Act, directs the SEC to
require private fund advisers 11 to
maintain records and file reports
containing such information as the SEC
deems necessary and appropriate in the
public interest and for investor
protection or for the assessment of
systemic risk by FSOC.12 The records
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.
9 The Dodd-Frank Act requires such private fund
adviser registration by amending section 203(b)(3)
of the Advisers Act to repeal the exemption from
registration for any adviser that during the course
of the preceding 12 months had fewer than 15
clients and neither held itself out to the public as
an investment adviser nor advised any registered
investment company or business development
company. See section 403 of the Dodd-Frank Act.
See also infra note 11 for the definition of ‘‘private
fund adviser.’’ There are exemptions from the
registration requirement, including exemptions for
advisers to venture capital funds and advisers to
private funds with less than $150 million in assets
under management in the United States. There also
is an exemption for ‘‘foreign private advisers,’’
which are investment advisers with no place of
business in the United States, fewer than 15 clients
in the United States and investors in the United
States in private funds advised by the adviser, and
less than $25 million in assets under management
from such clients and investors. See sections 402,
407 and 408 of the Dodd-Frank Act. See also
Exemptions for Advisers to Venture Capital Funds,
Private Fund Advisers With Less Than $150 Million
in Assets Under Management, and Foreign Private
Advisers, Investment Advisers Act Release No. IA–
3111 (Nov. 19, 2010), 75 FR 77,190 (Dec. 10, 2010)
(‘‘Private Fund Exemption Release’’); Rules
Implementing Amendments to the Investment
Advisers Act of 1940, Investment Advisers Act
Release No. IA–3110 (Nov. 19, 2010), 75 FR 77,052
(Dec. 10, 2010) (‘‘Implementing Release’’).
References in this Release to Form ADV or terms
defined in Form ADV or its glossary are to the form
and glossary as they are proposed to be amended
in the Implementing Release.
10 See Senate Committee Report, supra note 4, at
38.
11 Throughout this Release, we use the term
‘‘private fund adviser’’ to mean any investment
adviser that (i) is registered or required to register
with the SEC (including any investment adviser
that is also registered or required to register with
the CFTC as a CPO or CTA) and (ii) advises one or
more private funds. We are not proposing that
advisers solely to venture capital funds or advisers
to private funds that in the aggregate have less than
$150 million in assets under management in the
United States (‘‘exempt reporting advisers’’) be
required to file Form PF.
12 While Advisers Act section 204(b)(1) could be
read in isolation to imply that the SEC requiring
private fund systemic risk reporting is
discretionary, other amendments to the Advisers
Act made by the Dodd-Frank Act (such as Advisers
Act section 204(b)(5) and 211(e) suggest that
Congress intended such rulemaking to be

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and reports must include a description
of certain information about private
funds, such as the amount of assets
under management, use of leverage,
counterparty credit risk exposure, and
trading and investment positions for
each private fund advised by the
adviser.13 The SEC must issue jointly
with the CFTC, after consultation with
FSOC, rules establishing the form and
content of any such reports required to
be filed with respect to private fund
advisers also registered with the
CFTC.14
This joint proposal is designed to
fulfill this statutory mandate. Under
proposed Advisers Act rule 204(b)–1,
private fund advisers would be required
to file Form PF with the SEC. Private
fund advisers that also are registered as
CPOs or CTAs with the CFTC would file
Form PF to satisfy certain CFTC
systemic risk reporting requirements.15
Information collected about private
funds on Form PF, together with
information the SEC collects on Form
ADV and the information the CFTC
separately has proposed CPOs file on
Form CPO–PQR and CTAs file on Form
CTA–PR, will provide FSOC and the
Commissions with important
information about the basic operations
and strategies of private funds and will
be important in FSOC obtaining a
baseline picture of potential systemic
risk across both the entire private fund
industry and in particular kinds of
private funds, such as hedge funds.16
mandatory. See also Senate Committee Report,
supra note 4, at 39 (‘‘this title requires private fund
advisers * * * to disclose information regarding
their investment positions and strategies.’’).
13 See section 404 of the Dodd-Frank Act.
14 See section 406 of the Dodd-Frank Act.
15 For these private fund advisers, filing Form PF
through the Form PF filing system would be a filing
with both the SEC and CFTC. Irrespective of their
filing a Form PF with the SEC, all private fund
advisers that are also registered as CPOs and CTAs
with the CFTC would be required to file Schedule
A of proposed Form CPO–PQR (for CPOs) or
Schedule A of proposed Form CTA–PR (for CTAs).
Additionally, to the extent that they operate or
advise commodity pools that do not satisfy the
definition of ‘‘private fund’’ under the Dodd-Frank
Act, private fund advisers that are also registered
as CPOs or CTAs would still be required to file
proposed Form CPO–PQR (for CPOs) and proposed
Form CTA–PR (for CTAs), as applicable.
16 The information reported through the various
reporting forms is designed to be complementary,
and not duplicative. Information reported on Form
ADV would be publicly available, while
information reported on Form PF and proposed
Forms CPO–PQR and CTA–PR would be
confidential to the extent permitted under
applicable law. Form ADV and Form PF also have
different principal purposes. Form ADV primarily
aims at providing the SEC and investors with basic
information about advisers (including private fund
advisers) and the funds they manage for investor
protection purposes, although Form ADV
information also will be available to FSOC.

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Information the SEC obtains through
reporting under section 404 of the
Dodd-Frank Act is to be shared with
FSOC as FSOC considers necessary for
purposes of assessing the systemic risk
posed by private funds and generally is
to remain confidential.17 Our staffs have
consulted with staff representing
FSOC’s members in developing this
proposal. We note that simultaneous
with our staffs’ FSOC consultations
relating to this rulemaking, FSOC has
been building out its standards for
assessing systemic risk across different
kinds of financial firms and has recently
proposed standards for determining
which nonbank financial companies
should be designated as subject to FRB
supervision.18
B. International Coordination

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In assessing systemic risk, the DoddFrank Act requires that FSOC
coordinate with foreign financial
regulators.19 This coordination may be
particularly important in assessing
systemic risk associated with hedge
funds and other private funds because
they often operate globally and make
significant investments in firms and
markets around the world.20 As others
have recognized, ‘‘[g]iven the global
nature of the markets in which [private
fund] managers and funds operate, it is
imperative that a regulatory framework
be applied on an internationally
consistent basis.’’ 21 International
regulatory coordination also has been
cited as a critical element in facilitating
financial regulators’ formulation of a
comprehensive and effective response to
Information on Form ADV is designed to provide
the SEC with information necessary to its
administration of the Advisers Act and to efficiently
allocate its examination resources based on the
risks the SEC discerns or the identification of
common business activities from information
provided by advisers. See Implementing Release,
supra note 9. In contrast, the Commissions intend
to use Form PF primarily as a confidential systemic
risk disclosure tool to assist FSOC in monitoring
and assessing systemic risk, although it also would
be available to assist the Commissions in their
regulatory programs, including examinations and
investigations and investor protection efforts
relating to private fund advisers.
17 See section 404 of the Dodd-Frank Act; infra
note 39 and accompanying text.
18 See, e.g., Authority to Require Supervision and
Regulation of Certain Nonbank Financial
Companies, Financial Stability Oversight Council
Release (Jan. 18, 2011); Advance Notice of Proposed
Rulemaking Regarding Authority to Require
Supervision and Regulation of Certain Nonbank
Financial Companies, Financial Stability Oversight
Council Release (Oct. 1, 2010), 75 FR 61653 (Oct.
6, 2010) (‘‘FSOC Designation ANPR’’).
19 See section 175 of the Dodd-Frank Act.
20 See Damian Alexander, Global Hedge Fund
Assets Rebound to Just Over $1.8 Trillion, Hedge
Fund Intelligence (Apr. 7, 2010) (‘‘HFI’’).
21 Group of Thirty, Financial Reform: A
Framework for Financial Stability (Jan. 15, 2009).

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future financial crises.22 Collecting
consistent and comparable information
is of added value in private fund
systemic risk reporting because it would
aid in the assessment of systemic risk on
a global basis and thus enhance the
utility of information sharing among
U.S. and foreign financial regulators.23
Recognizing this benefit, our staffs
participated in the International
Organization of Securities Commissions’
(‘‘IOSCO’’) preparation of a report
regarding hedge fund oversight.24
Among other matters, this report
recommended that hedge fund advisers
provide to their national regulators
information for the identification,
analysis, and mitigation of systemic
risk. It also recommended that
regulators cooperate and share
information where appropriate in order
to facilitate efficient and effective
oversight of globally active hedge funds
and to help identify systemic risks, risks
to market integrity, and other risks
arising from the activities or exposures
of hedge funds.25 The types of
information that IOSCO recommended
regulators gather from hedge fund
advisers is consistent with and
comparable to the types of information
we propose to collect from hedge funds
through Form PF, as described in
further detail below.26
22 See U.S. Department of the Treasury, Financial
Regulatory Reform: A New Foundation (2009), at 8;
and Equipping Financial Regulators with the Tools
Necessary to Monitor Systemic Risk, Senate
Banking Subcommittee on Security and
International Trade and Finance, Feb. 12, 2010
(testimony of Daniel K. Tarullo, member of the
FRB). See also Group of 20 and the International
Monetary Fund, The Global P Crisis for Fure
Regulation of Financial Institutions and M arkets
and for Liquidity Management (Feb. 4, 2009).
23 The Commissions expect that they may share
information reported on Form PF with various
foreign financial regulators under information
sharing agreements in which the foreign regulator
agrees to keep the information confidential.
24 Technical Committee of the International
Organization of Securities Commissions, Hedge
Funds O (June 2009), available at https://
www.iosco.org/library/pubdocs/pdf/
IOSCOPD293.pdf (‘‘IOSCO Report’’).
25 Id. at 3.
26 See IOSCO Report, supra note 24, at 14; Press
Release, International Regulators Publish Systemic
Risk Data Requirements for Hedge Funds (Feb. 25,
2010), available at https://www.iosco.org/news/pdf/
IOSCONEWS179.pdf. The IOSCO Report states that
systemic risk information that hedge fund advisers
should provide to regulators should include, for
example: (1) Information on their prime brokers,
custodian, and background information on the
persons managing the assets; (2) information on the
manager’s larger funds including the net asset
value, predominant strategy/regional focus and
performance; (3) leverage and risk information,
including concentration risk of the hedge fund
adviser’s larger funds; (4) asset and liability
information for the manager’s larger funds; (5)
counterparty risk, including the biggest sources of
credit; (6) product exposure for all of the manager’s
assets; and (7) investment activity known to

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In addition, our staffs have consulted
with the United Kingdom’s Financial
Services Authority (the ‘‘FSA’’), which
has conducted a voluntary semi-annual
survey since October 2009 by sampling
the largest hedge fund groups based in
the United Kingdom.27 Because many
hedge fund advisers are located in the
United Kingdom and subject to the
jurisdiction of the FSA, this
coordination has been particularly
important.28 UK hedge fund advisers
complete this survey on a voluntary
basis, and the survey collects
information regarding all funds
managed by the particular hedge fund
adviser as well as for individual funds
with at least $500 million in assets. The
information the survey collects is
designed to help the FSA better
understand hedge funds’ use of
leverage, ‘‘footprints’’ in various asset
classes (including concentration and
liquidity issues), the scale of asset/
liability mismatches, and counterparty
credit risks.29 In addition, for more than
five years the FSA has been conducting
a semi-annual survey of hedge fund
counterparties to assist it in assessing
trends in counterparty credit risk,
margin requirements, and other
matters.30 Our staffs’ consultation with
the FSA as they designed and
conducted their hedge fund surveys has
been very informative, and we have
incorporated into proposed Form PF
many of the types of information
collected through the FSA surveys.
SEC staff also has consulted with
Hong Kong’s Securities and Futures
Commission regarding hedge fund
oversight and data collection because
Hong Kong is an important jurisdiction
for hedge funds in Asia.31 This
consultation also has proven helpful in
designing proposed Form PF.
represent a significant proportion of such activity
in important markets or products. Some of this
information would be collected through the revised
Form ADV, as proposed by the SEC in the
Implementing Release, rather than Form PF.
27 The survey canvasses approximately 50 FSAauthorized investment managers. See, e.g.,
Financial Services Authority, Assessing Possible
Sources of Systemic Risk from Hedge Funds: A
Report on the Findings of the Hedge Fund as
Counterparty Survey and the Hedge Fund Survey
(Jul. 2010), available at http://www.fsa.gov.uk/
pubs/other/hf_report.pdf (‘‘FSA Survey’’).
28 According to Hedge Fund Intelligence, U.K.based advisers manage approximately 16% of global
hedge fund assets. This concentration of hedge fund
advisers is second only to the United States
(managing approximately 76% of global hedge fund
assets). See HFI, supra note 20.
29 FSA Survey, supra note 27.
30 Id.
31 According to Hedge Fund Intelligence, Hong
Kong-based advisers manage approximately 0.54%
of global hedge fund assets, which is the largest
concentration of hedge fund advisers in Asia. See
HFI, supra note 20.

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
Collectively, hedge fund advisers based
in the United States, the United
Kingdom, and Hong Kong represent
over 92 percent of global hedge fund
assets, and thus a broad consistency
among these jurisdictions’ hedge fund
information collections, including our
own, will facilitate the sharing of
consistent and comparable information
for systemic risk assessment purposes
for most global hedge fund assets under
management.32 Finally, in connection
with the IOSCO report, IOSCO members
(including the SEC and CFTC) agreed,
on a ‘‘best efforts’’ basis, to conduct a
survey of hedge fund reporting data as
of the end of September 2010 based on
the guidelines established in the IOSCO
report and the FSA survey. This
internationally coordinated survey effort
has also informed our proposed
reporting.
International efforts also have focused
on potential systemic considerations
arising out of other types of private
funds, such as private equity funds. For
example, an International Monetary
Fund (‘‘IMF’’) staff paper has focused on
‘‘extending the perimeter’’ of effective
regulatory oversight to capture all
financial activities that may pose
systemic risks, regardless of the type of
institution in which they occur.33 The
IMF paper proposed that these financial
activities be subject to reporting
obligations so that regulators may assess
potential systemic risk and emphasized
the need to capture all financial
activities conducted on a leveraged
basis, including activities of leveraged
private equity vehicles.34 Others also
have recognized a need for monitoring
the private equity sector because having
information on its potentially
systemically important interactions with
the financial system are an important
part of regulators’ obtaining the
complete picture of the broader
financial system that is so vital to
effective systemic risk monitoring.35 We
32 See

HFI, supra note 20.
Ana Carvajal et al., The Perimeter of
Financial Regulation, IMF Staff Position Note SPN/
09/07 (Mar. 26, 2009), available at http://
www.imf.org/external/pubs/ft/spn/2009/
spn0907.pdf.
34 Id., at 8.
35 See, e.g., Lorenzo Bini Smaghi, Member of the
Executive Board of the European Central Bank,
Going Forward—Regulation and Supervision after
the Financial Turmoil, Speech by at the 4th
International Conference of Financial Regulation
and Supervision (Jun. 19, 2009), available at
http://www.bis.org/review/r090623e.pdf (stating
‘‘macro-prudential analysis needs to capture all
components of financial systems and how they
interact. This includes all intermediaries, markets
and infrastructures underpinning them. In this
respect, it is important to consider that at present
some of these components, such as hedge funds,
private equity firms or over-the-counter (OTC)

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33 See

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have taken these international efforts
relating to systemic risk monitoring in
private equity funds into account in the
proposed reporting discussed below.
II. Discussion
The SEC is proposing a new rule
204(b)–1 under the Advisers Act to
require that SEC-registered investment
advisers report systemic risk
information to the SEC on Form PF if
they advise one or more private funds.36
For registered CPOs and CTAs that are
also registered as investment advisers
with the SEC and advise a private fund,
this report also would serve as
substitute compliance for a portion of
the CFTC’s proposed systemic risk
reporting requirements under proposed
Commodity Exchange Act rule
4.27(d).37 Because commodity pools
that meet the definition of a private
fund are categorized as hedge funds for
purposes of Form PF as discussed
below, CPOs and CTAs filing Form PF
would need to complete only the
sections applicable to hedge fund
advisers, and the form would be a joint
financial markets, are not subject to microprudential supervision. But they need to be part of
macro-prudential analysis and risk assessments, as
they influence the overall behaviour of the financial
system. To gain a truly ‘‘systemic’’ perspective on
the financial system, no material element should be
left out.’’); Private Equity and Leveraged Finance
Markets, Bank for International Settlements
Committee on the Global Financial System Working
Paper No. 30 (Jul. 2008), available at http://
www.bis.org/publ/cgfs30.pdf (‘‘BIS Private Equity
Paper’’) (‘‘Going forward, the Working Group
believes that enhancing transparency and
strengthening risk management practices [relating
to private equity and leveraged finance markets]
require special attention. * * * The recent market
turmoil has demonstrated that a number of the risks
in the leveraged finance market are likely to
materialise in combination with other financial
market risks in stressed market conditions. * * *
In the public sector, there is a stronger case for
developing early warning indicators and devoting
more research efforts to modelling the dynamic
relationships between risk factors with a view to
understanding the interrelationships across markets
and their impact on the financial sector.’’). See also
Macroeconomic Assessment Group established by
the Financial Stability Board and the Basel
Committee on Banking Supervision, Interim Report:
Assessing the Macroeconomic Impact of the
Transition to Stronger Capital and Liquidity
Requirements (Aug. 2010), at section 5.2, available
at http://www.financialstabilityboard.org/
publications/r_100818b.pdf.
36 See proposed Advisers Act rule 204(b)–1.
37 See proposed Commodity Exchange Act rule
4.27(d), which provides that these CPOs and CTAs
would need to file other reports as required under
rule 4.27 with respect to pools that are not private
funds. For purposes of this proposed rule, it is the
CFTC’s position that any false or misleading
statement of a material fact or material omission in
the jointly proposed sections (sections 1 and 2) of
proposed Form PF that is filed by these CPOs and
CTAs shall constitute a violation of section 6(c)(2)
of the Commodity Exchange Act. Proposed Form PF
contains an oath consistent with this position.

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form only with respect to those
sections.38
Form PF would elicit non-public
information about private funds and
their trading strategies the public
disclosure of which, in many cases,
could adversely affect the funds and
their investors. The SEC does not intend
to make public Form PF information
identifiable to any particular adviser or
private fund, although the SEC may use
Form PF information in an enforcement
action. Amendments to the Advisers Act
added by the Dodd-Frank Act preclude
the SEC from being compelled to reveal
the information except in very limited
circumstances.39 Similarly, the DoddFrank Act exempts the CFTC from being
compelled under FOIA to disclose to the
public any information collected
through Form PF and requires that the
CFTC maintain the confidentiality of
that information consistent with the
level of confidentiality established for
the SEC in section 404 of the DoddFrank Act. The Commissions would
make information collected through
Form PF available to FSOC, as is
required by the Dodd-Frank Act, subject
to the confidentiality provisions of the
Dodd-Frank Act.40
We propose that each private fund
adviser report basic information about
the operations of its private funds on
Form PF once each year. We propose
that a relatively small number of Large
Private Fund Advisers (described in
section II.B below) instead be required
to submit this basic information each
quarter along with additional systemic
risk related information required by
Form PF concerning certain of their
38 Thus, private fund advisers that also are CPOs
or CTAs would be obligated to complete only
section 1 and, if they met the applicable threshold,
section 2 of Form PF. Accordingly, Form PF is a
joint form between the SEC and the CFTC only with
respect to sections 1 and 2 of the form.
39 See section 404 of the Dodd-Frank Act stating
that ‘‘[n]otwithstanding any other provision of law,
the Commission [SEC] may not be compelled to
disclose any report or information contained
therein required to be filed with the Commission
[SEC] under this subsection’’ except to Congress
upon agreement of confidentiality. Section 404 also
provides that nothing prevents the SEC from
complying with a request for information from any
other federal department or agency or any selfregulatory organization requesting the report or
information for purposes within the scope of its
jurisdiction or an order of a court of the U.S. in an
action brought by the U.S. or the SEC. Section 404
of the Dodd-Frank Act also states that the SEC shall
make available to FSOC copies of all reports,
documents, records, and information filed with or
provided to the SEC by an investment adviser under
section 404 of the Dodd-Frank Act as FSOC may
consider necessary for the purpose of assessing the
systemic risk posed by a private fund and that
FSOC shall maintain the confidentiality of that
information consistent with the level of
confidentiality established for the SEC in section
404 of the Dodd-Frank Act.
40 See section 404 of the Dodd-Frank Act.

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private funds.41 In the sections below,
we describe the principal reasons we
believe that FSOC needs this
information in order to monitor the
systemic risk that may be associated
with the operation of private funds.

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A. Purposes of Form PF
The Dodd-Frank Act tasks FSOC with
monitoring the financial services
marketplace in order to identify
potential threats to the financial
stability of the United States.42 It also
requires FSOC to collect information
from member agencies to support its
functions.43 Section 404 of the DoddFrank Act directs the SEC to support
this effort by collecting from investment
advisers to private funds such
information as the SEC deems necessary
and appropriate in the public interest
and for the protection of investors or for
the assessment of systemic risk.44 FSOC
may, if it deems necessary, direct the
Office of Financial Research (‘‘OFR’’) to
collect additional information from
nonbank financial companies.45
The Commissions are jointly
proposing sections 1 and 2 of Form PF,
and the SEC is proposing sections 3 and
4 of Form PF, to collect information
necessary to permit FSOC to monitor
private funds in order to identify any
potential systemic threats arising from
their activities. The information we
currently collect about private funds
and their activities is very limited and
is not designed for the purpose of
monitoring systemic risk.46 We do not
currently collect information, for
example, about hedge funds’ primary
trading counterparties or significant
41 See proposed Instructions to Form PF. Our
proposed reporting thus complies with the DoddFrank Act directive that, in formulating systemic
risk reporting and recordkeeping for investment
advisers to mid-sized private funds, the
Commission take into account the size, governance,
and investment strategy of such funds to determine
whether they pose systemic risk. See section 408 of
the Dodd-Frank Act. The Dodd-Frank Act also
states that the SEC may establish different reporting
requirements for different classes of fund advisers,
based on the type or size of private fund being
advised. See section 404 of the Dodd-Frank Act.
42 See section 112(a)(2)(C) of the Dodd-Frank Act.
43 See section 112(d)(1) of the Dodd-Frank Act.
44 Section 404 of the Dodd-Frank Act requires that
reports and records that the SEC mandates be
maintained for these purposes include a description
of certain categories of information, such as assets
under management, use of leverage, counterparty
credit risk exposure, and trading and investment
positions for each private fund advised by the
adviser.
45 See sections 153 and 154 of the Dodd-Frank
Act.
46 We note that the SEC has proposed
amendments to Form ADV that also would require
private funds to report certain basic information,
such as the fund’s prime broker and its gross and
net asset values. See Implementing Release, supra
note 9.

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market positions. The SEC also does not
currently collect data to assess the risk
of a run on a private liquidity fund, a
risk that could transfer into registered
money market funds and into the
broader short term funding markets and
those that rely on those markets.47
While we are proposing to collect
information on Form PF to assist FSOC
in its monitoring obligations under the
Dodd-Frank Act, the information
collected on Form PF would be
available to assist the Commissions in
their regulatory programs, including
examinations and investigations and
investor protection efforts relating to
private fund advisers.48
We have designed Form PF, in
consultation with staff representing
FSOC’s members, to provide FSOC with
such information so that it may carry
out its monitoring obligations.49 Based
upon the information we propose to
obtain from advisers about the private
funds they advise, together with market
data it collects from other sources,
FSOC should be able to identify
whether any private funds merit further
analysis or whether OFR should collect
additional information. We have not
sought to design a form that would
provide FSOC in all cases with all the
information it may need to make a
determination that a particular entity
should be designated for supervision by
47 See section II.A.3 of this Release for a
discussion of liquidity funds and their potential
risks.
48 See SEC section VI.A of this Release for a
discussion of how the SEC could use proposed
Form PF data for its regulatory activities and
investor protection efforts.
49 Industry participants (in response to FSOC
Designation ANPR, supra note 18) acknowledged
the potentially important function that such
reporting may play in allowing FSOC to monitor the
private fund industry more generally and to assess
the extent to which any private funds may pose
systemic risk more specifically. See, e.g., Comment
Letter of the Managed Funds Association (Nov. 5,
2010) (‘‘the enhanced regulation of hedge fund
managers and the markets in which they participate
following the passage of the Dodd-Frank Act
ensures that regulators will have a timely and
complete picture of hedge funds and their
activities’’), Comment Letter of the Coalition of
Private Investment Companies (Nov. 5, 2010) (‘‘the
registration and reporting structure for private
funds subject to SEC oversight will result in an
unprecedented range and depth of data to the
Council, its constituent members and the newly
created Office of Financial Research. From this
information, in addition to the information gathered
by the Council, the Council should be able to
assemble a clear picture of the overall U.S. financial
network and how private investment funds fit into
it, both on an individual and overall basis’’),
Comment Letter of the Private Equity Growth
Council (Nov. 5, 2010) (‘‘regulators also now have
the authority to require all private equity firms and
private equity funds to provide any additional data
needed to assess systemic risk’’) (‘‘PE Council
Letter’’). Comment letters in response to the FSOC
Designation ANPR are available at http://
www.regulations.gov.

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the FRB.50 Such a form, if feasible,
likely would require substantial
additional and more detailed data
addressing a wider range of possible
fund profiles, since it could not be
tailored to a particular adviser, and
would impose correspondingly greater
burdens on private fund advisers. This
type of information gathering may be
better accomplished by OFR through
targeted information requests to specific
private fund advisers identified through
Form PF, rather than through a general
reporting form.51
The amount of information a private
fund adviser would be required to
report on the proposed form would vary
based on both the size of the adviser and
the type of funds it advises. This
approach reflects our initial view after
consulting with staff representing
FSOC’s members that a smaller private
fund adviser may present less risk to the
stability of the U.S. financial system and
thus merit reporting of less
information.52 It also reflects our
understanding that different types of
private funds could present different
implications for systemic risk and that
reporting requirements should be
appropriately calibrated.53 As discussed
in more detail below, Form PF would
require more detailed information from
advisers managing a large amount of
hedge fund or liquidity fund assets. Less
information would be required
regarding advisers managing a large
amount of private equity fund assets
because, after a review of available
literature and consultation with staff
representing FSOC’s members, it
appears that private equity funds may
present less potential risk to U.S.
financial stability. The principal reasons
for Form PF’s proposed reporting
specific to hedge funds, liquidity funds,
and private equity funds are discussed
below.
1. Hedge Funds
We believe that Congress expected
hedge fund advisers would be required
to report information to the
Commissions under Title IV of the
Dodd-Frank Act.54 After consulting with
50 See section 113 of the Dodd-Frank Act for a
discussion of the matters that FSOC must consider
when determining whether a U.S. nonbank
financial company shall be supervised by the FRB
and subject to prudential standards.
51 Recordkeeping requirements specific to private
fund advisers for systemic risk assessment purposes
will be addressed in a future release pursuant to our
authority under section 404 of the Dodd-Frank Act.
52 We discuss the information we propose
requiring smaller private fund advisers report in
section II.D.1 of this Release.
53 Congress recognized this need as well. See
supra note 41.
54 See Senate Committee Report, supra note 4, at
38 (‘‘While hedge funds are generally not thought

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staff representing FSOC’s members, our
initial view is that the investment
activities of hedge funds 55 may have the
potential to pose systemic risk for
several reasons and, accordingly, that
advisers to these hedge funds should
provide targeted information on Form
PF to allow FSOC to gain a better
picture of the potential systemic risks
posed by the hedge fund industry.
Hedge funds may be important sources,
and users, of liquidity in certain
markets. Hedge funds often use
financial institutions that may have
systemic importance to obtain leverage
and enter into other types of
transactions. Hedge funds employ
investment strategies that may use
leverage, derivatives, complex
structured products, and short selling in
an effort to generate returns. Hedge
funds also may employ strategies
involving high volumes of trading and
concentrated investments. These
strategies, and in particular high levels
of leverage, can increase the likelihood
that the fund will experience stress or
fail, and amplify the effects on financial
markets.56 While many hedge funds are
not highly leveraged, certain hedge fund
strategies employ substantial amounts of
leverage.57 Significant hedge fund
failures (whether caused by their
investment positions or use of leverage
to have caused the current financial crisis,
information regarding their size, strategies, and
positions could be crucial to regulatory attempts to
deal with a future crisis. The case of Long-Term
Capital Management, a hedge fund that was rescued
through Federal Reserve intervention in 1998
because of concerns that it was ‘‘too-interconnectedto-fail,’’ shows that the activities of even a single
hedge fund may have systemic consequences.’’).
55 See section II.B of this Release for a discussion
of the definition of ‘‘hedge fund’’ in proposed Form
PF. To prevent duplicative reporting, commodity
pools that meet the definition of a private fund
would be treated as hedge funds for purposes of
Form PF. CPOs and CTAs that are not also
registered as an investment adviser with the SEC
would be required to file proposed Form CPO–PQR
(for CPOs) and proposed Form CTA–PR (for CTAs)
reporting similar information as Form PF requires
for private fund advisers that advise one or more
hedge funds. See Commodity Pool Operators and
Commodity Trading Advisors: Amendments to
Compliance Obligations, CFTC Release (Jan. l,
2011). Deeming commodity pools that meet the
definition of a private fund to be hedge funds for
purposes of Form PF, therefore, is designed to
ensure that the CFTC obtains similar reporting
regarding commodity pools that satisfy CFTC
reporting obligations by the CPO or CTA filing
proposed Form PF.
56 See President’s Working Group on Financial
Markets, Hedge Funds, Leverage, and the Lessons
of Long Term Capital Management (Apr. 1999), at
23, available at http://www.ustreas.gov/press/
releases/reports/hedgfund.pdf (‘‘PWG LTCM
Report’’).
57 See FSA Survey, supra note 27, at 5 (showing
borrowings as a multiple of net equity ranging from
100% in strategies such as managed futures to
1400% in the fixed income arbitrage hedge fund
strategy).

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or both) could result in material losses
at the financial institutions that lend to
them if collateral securing this lending
is inadequate.58 These losses could have
systemic implications if they require
these financial institutions to scale back
their lending efforts or other financing
activities generally.59 The simultaneous
failure of several similarly positioned
hedge funds could create contagion
through the financial markets if the
failing funds liquidate their investment
positions in parallel at firesale prices,
thereby depressing the mark-to-market
valuations of securities that may be
widely held by other financial
institutions and investors.60 Many of
these concerns were raised in
September 1998 by the near collapse of
Long Term Capital Management, a
highly leveraged hedge fund that
experienced significant losses stemming
from the 1997 Russian financial crisis.61
Accordingly, proposed Form PF
would include questions about large
hedge funds’ investments, use of
leverage and collateral practices,
counterparty exposures, and market
positions that are designed to assist
FSOC in monitoring and assessing the
extent to which stresses at those hedge
funds could have systemic implications
by spreading to prime brokers, credit or
trading counterparties, or financial
markets.62 This information also is
designed to help FSOC observe how
hedge funds behave in response to
certain stresses in the markets or
economy. We request comment on this
analysis of the potential systemic risk
posed by hedge funds. Does it
adequately identify the ways in which
hedge funds might generate systemic
risk? Are there other ways that hedge
funds could create systemic risk? Are
hedge funds not a potential source of
systemic risk? Please explain your views
58 See, e.g., Id.; Ben S. Bernanke, Hedge Funds
and Systemic Risk, Speech at the Federal Reserve
Bank of Atlanta’s 2006 Financial Market’s
Conference (May 16, 2006), available at http://
www.federalreserve.gov/newsevents/speech/
bernanke20060516a.htm (‘‘Bernanke’’); Nicholas
Chan et al., Systemic Risk and Hedge Funds,
National Bureau of Economic Research Working
Paper 11200 (Mar. 2005), available at http://
www.nber.org/papers/w11200.pdf; Andrew Lo,
Regulatory Reform in the Wake of the Financial
Crisis of 2007–2008, 1 J. Fin. Econ. P. 4 (2009); and
John Kambhu et al., Hedge Funds, Financial
Intermediation, and Systemic Risk, FRBNY Econ. P.
Rev. (Dec. 2007) (‘‘Kambhu’’).
59 Kambhu, supra note 58; Financial Stability
Forum, Update of the FSF Report on Highly
Leveraged Institutions (May 19, 2007).
60 See Bernanke, supra note 58; David Stowell,
An Introduction to Investment Banks, Hedge Funds
& Private Equity: The New Paradigm 259–261
(2010).
61 See PWG LTCM Report, supra note 56.
62 See section II.D.2 of this Release.

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and discuss their implications for the
reporting we propose on Form PF.
2. Liquidity Funds
‘‘Liquidity funds’’ also may be
important to FSOC’s monitoring and
assessment of potential systemic risks,
and the SEC believes information
concerning them, therefore, should be
included on Form PF.63 The proposed
Form PF would define a liquidity fund
as a private fund that seeks to generate
income by investing in a portfolio of
short-term obligations in order to
maintain a stable net asset value per
unit or minimize principal volatility for
investors.64 Liquidity funds thus can
resemble money market funds, which
are registered under the Investment
Company Act of 1940 and seek to
maintain a ‘‘stable’’ net asset value per
share, typically $1, through the use of
the ‘‘amortized cost’’ method of
valuation.65
A report recently released by the
President’s Working Group on Financial
Markets (the ‘‘PWG MMF Report’’)
discussed in detail how certain features
of registered money market funds, many
of which are shared by liquidity funds,
may make them susceptible to runs and
thus create the potential for systemic
risk.66 The PWG MMF Report describes
how some investors may consider
liquidity funds to function as substitutes
for registered money market funds and
the potential for systemic risk that
63 Form PF is a joint form between the SEC and
the CFTC only with respect to sections 1 and 2 of
the form. Section 3 of the form, which would
require more specific reporting regarding liquidity
funds, would only be required by the SEC.
64 See section II.B of this Release for a discussion
of the definition of ‘‘liquidity fund’’ in proposed
Form PF.
65 Under the amortized cost method, securities are
valued at acquisition cost, with adjustments for
amortization of premium or accretion of discount,
instead of at fair market value. To prevent
substantial deviations between the amortized cost
share price and the mark-to-market per-share value
of the fund’s assets (its ‘‘shadow NAV’’), a money
market fund must periodically compare the two. If
there is a difference of more than one-half of 1
percent (typically, $0.005 per share), the fund must
re-price its shares, an event colloquially known as
‘‘breaking the buck.’’ See Money Market Fund
Reform, Investment Company Act Release No.
28807 (June 30, 2009), 74 FR 32688 (July 8, 2009),
at section III (‘‘MMF Reform Proposing Release’’).
66 Report of the President’s Working Group on
Financial Markets: Money Market Fund Reform
Options (Oct. 2010), available at http://treas.gov/
press/releases/docs/
10.21%20PWG%20Report%20Final.pdf. The PWG
MMF Report states that the work of the President’s
Working Group on Financial Reform relating to
money market funds is now being taken over by
FSOC. The SEC has discussed previously registered
money market funds’ susceptibility to runs. See
MMF Reform Proposing Release, supra note 65, at
section III.

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results.67 During the financial crisis,
several sponsors of ‘‘enhanced cash
funds,’’ a type of liquidity fund,
committed capital to those funds to
prevent investors from realizing losses
in the funds.68 The fact that sponsors of
certain liquidity funds felt the need to
support the stable value of those funds
suggests that they may be susceptible to
runs like registered money market
funds.
Registered money market funds are
subject to extensive regulation under
Investment Company Act rule 2a–7,
which imposes credit-quality, maturity,
and diversification requirements on
money market fund portfolios designed
to ensure that the funds’ investing
remains consistent with the objective of
maintaining a stable net asset value.69
While liquidity funds are not required
to comply with rule 2a–7, we
understand that many liquidity funds
can suspend redemptions or impose
gates on shareholder redemptions upon
indications of stress at the fund. As a
result, the risk of runs at liquidity funds
may be mitigated. The information that
the SEC is proposing to require advisers
to liquidity funds report is designed to
allow FSOC to assess liquidity funds’
susceptibility to runs and ability to
otherwise pose systemic risk.
The SEC requests comment on this
analysis of the potential systemic risk
posed by liquidity funds. Does it
adequately identify the ways in which
liquidity funds might generate systemic
risk? Are there other ways that liquidity
funds could create systemic risk? Do
liquidity funds lack any potential to
create systemic risk? Please explain
your views and discuss their
implications for the reporting proposed
on Form PF.

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3. Private Equity Funds
It is the SEC’s initial view, after
consultation with staff representing
FSOC’s members, that the activities of
67 PWG MMF Report, supra note 66, at section 3.h
(‘‘These vehicles typically invest in the same types
of short-term instruments that MMFs hold and
share many of the features that make MMFs
vulnerable to runs, so growth of unregulated MMF
substitutes would likely increase systemic risks.
However, such funds need not comply with rule
2a–7 or other [Investment Company Act]
protections and in general are subject to little or no
regulatory oversight. In addition, the risks posed by
MMF substitutes are difficult to monitor, since they
provide far less market transparency than MMFs.’’).
68 See, e.g., Sree Vidya Bhaktavatsalam,
BlackRock Earnings Beat Estimates on Hedge-Fund
Fees, Bloomberg (Jan. 17, 2008) (‘‘During the fourth
quarter, BlackRock spent $18 million to support the
net asset value of two enhanced cash funds whose
values fell as the credit markets got squeezed’’); Sree
Vidya Bhaktavatsalam & Christopher Condon,
Federated Investors Bails Out Cash Fund After
Losses, Bloomberg (Nov. 20, 2007).
69 See 17 CFR 270.2a–7.

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private equity funds, certain of their
portfolio companies, or creditors
involved in financing private equity
transactions also may be important to
the assessment of systemic risk and,
therefore, that large advisers to these
funds should provide targeted
information on Form PF to allow FSOC
to conduct basic systemic risk
monitoring.70
One aspect of the private equity
business model that some have
identified as potentially having systemic
implications is its method of financing
buyouts of companies. Leveraged
private equity transactions often rely on
banks to provide bridge financing until
the permanent debt financing for the
transaction is completed, whether
through a syndicated bank loan or
issuance of high yield bonds by the
portfolio company or both.71 When
market conditions suddenly turn, these
institutions can be left holding this
potentially risky bridge financing (or
committed to provide the final bank
financing, but no longer able to
syndicate or securitize it and thus
forced to hold it) at precisely the time
when credit market conditions, and
therefore the institutions’ own general
exposure to private equity transactions
and other committed financings, have
worsened.72 For example, prior to the
70 See section II.B of this Release for a discussion
of the definition of ‘‘private equity fund’’ in Form
PF. Form PF is a joint form between the SEC and
the CFTC only with respect to sections 1 and 2 of
the form. Section 4 of the form, which would
require more specific reporting regarding private
equity funds, would only be required by the SEC.
71 See Steven M. Davidoff, The Failure of Private
Equity, 82 S. Cal. L. Rev. 481, 494 (2009)
(‘‘Davidoff’’).
72 See Senior Supervisors Group, Observations on
Risk Management Practices during the Recent
Market Turbulence, at 2 (Mar. 6, 2008), available at
http://www.occ.gov/publications/publications-bytype/other-publications/pub-other-risk-mgtpractices-2008.pdf (‘‘Firms likewise found that they
could neither syndicate to external investors their
leveraged loan commitments to corporate borrowers
nor cancel their commitments to fund those loans
despite material and adverse changes in the
availability of funding from other investors in the
market’’); BIS Private Equity Paper, supra note 35,
at 1–2 (‘‘Conditions in the leveraged loan market
deteriorated in the second half of 2007, and demand
for leveraged finance declined sharply. An initial
temporary adverse investor reaction to loose
lending terms and low credit spreads prevailing in
early 2007 became more protracted over the course
of the second half of the year as the turbulence in
financial markets deepened and contraction in
demand for leveraged loans became more severe.
Global primary market leveraged loan volumes
shrank by more than 50% in the second half of
2007. The contraction in demand for leveraged
loans revealed substantial exposure of arranger
banks to warehouse risk. Undistributed loans will
contribute to increased funding costs and capital
requirements for banks in 2008, on top of other
offbalance sheet products that they have been
forced to bring on-balance sheet. Moreover, with
leveraged loan indices trading close to 90 cents on
a dollar in March 2008, realisation of warehouse

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recent financial crisis, a trend in private
equity transactions was for private
equity firms to enter into buyout
transactions with seller-favorable
financing conditions and terms that
placed much of the risk of market
deterioration after the transaction
agreement was signed on the financing
institutions and the private equity
adviser.73
In addition, some industry observers
have noted that the leveraged buyout
investment model of imposing
significant amounts of leverage on their
portfolio companies in an effort to meet
investment return objectives subjects
those portfolio companies to greater risk
in the event of economic stress.74 If
private equity funds conduct a
risks has resulted in significant mark to market
losses to banks’’); Bank of England, Financial
Stability Report, at 19 (Oct. 2007), available at
http://www.bankofengland.co.uk/publications/fsr/
2007/fsrfull0710.pdf (‘‘Bank of England’’) (‘‘The near
closure of primary issuance markets for
collateralised loan obligations, and an increase in
risk aversion among investors, left banks unable to
distribute leveraged loans that they had originated
earlier in the year. This exacerbated a problem
banks already faced, as debt used to finance a
number of high-profile private-equity sponsored
leveraged buyouts (LBOs) had remained on their
balance sheets.’’).
73 See Davidoff, supra note 71, at 495–496 (noting
the trend in private equity transaction agreements
signed prior to the financial crisis to have no
financing condition and to have limited ‘‘market
outs’’ and ‘‘lender outs’’ in the debt commitment
letters and further noting that ‘‘by agreeing to a more
certain debt commitment letter and providing
bridge financing, the banks now took on the risk of
market deterioration between the time of signing
and closing.’’). Bank regulators and industry
observers also noted the trend in private equity
financing prior to the financial crisis for banks to
enter into ‘‘covenant lite’’ loans, which did not
require borrowers to meet certain performance
metrics for cash flow or profits. See The Economics
of Private Equity Investments: Symposium
Summary, FRBSF Economic Letter (Feb. 29, 2008),
available at http://www.frbsf.org/publications/
economics/letter/2008/el2008-08.html (noting
growth in the first half of 2007 in such ‘‘covenant
lite’’ loans); Financial Stability Forum, Report of the
Financial Stability Forum on Enhancing Market and
Institutional Resilience, at 7 (Apr. 7, 2008),
available at http://www.financialstabilityboard.org/
publications/r_0804.pdf (‘‘Another segment that saw
rapid growth in volume accompanied by a decline
in standards was the corporate leveraged loan
market, where lenders agreed to weakened loan
covenants to obtain the business of private equity
funds.’’); Bank of England, supra note 73, at 27
(‘‘Market intelligence suggested that private equity
sponsors had considerable market power to impose
aggressive capital structures, tight spreads and weak
covenants because investor demand was so strong.
But in August, the flow of new LBOs came to a
virtual standstill and the debt of a sequence of highprofile companies could not be sold [by banks].’’).
74 See, e.g., Paying the Price, The Economist (Jul.
31, 2010) (‘‘Pension funds could decide to make a
geared bet on equities by borrowing money and
investing in the S&P 500 index. But they would
understandably regard such a strategy as highly
risky. Giving money to private-equity managers,
who then use debt to acquire quoted companies, is
viewed in an entirely different light but amounts to
the same gamble’’). See also BIS Private Equity
Paper, supra note 35, at 24–25.

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
leveraged buyout of an entity that could
be systemically important, information
about that investment could be
important in FSOC monitoring and
assessing potential systemic risk.75
For these reasons, the SEC believes
certain information on the activities of
private equity funds and their portfolio
companies is relevant for purposes of
monitoring potential systemic risk.76 In
addition, based on the SEC’s
consultations with staff representing
FSOC’s members, private equity
transaction financings, and their
interconnected impact on the lending
institutions, could be a useful area for
FSOC to monitor in fulfilling its duty to
gain a comprehensive picture of the
financial services marketplace in order
to identify potential threats to the
stability of the U.S. financial system.
The SEC requests comment on this
analysis of the potential systemic risk
posed by the activities of private equity
funds. Does it identify the ways in
which private equity fund activities
might generate systemic risk? Are there
other ways that private equity funds or
their activities could create systemic
risk? Is the preliminary view that
private equity fund activities may have
less potential to create systemic risk
than hedge funds and liquidity funds
correct? Many advisers to private equity
funds have noted that certain features of
the private equity business model, such
as its reliance on long-term capital
commitments from investors, lack of
substantial debt at the private equity
fund level, and investment primarily in
the equity of a diverse range of private
companies, mitigate its potential to pose
systemic risk.77 Do private equity funds
not have any potential to create
systemic risk? Is the monitoring of
private equity fund activities
unnecessary to assess systemic risk
generally? Please explain your views
and discuss their implications for the
reporting proposed on Form PF.

srobinson on DSKHWCL6B1PROD with PROPOSALS3

75 For

example, some noted the role of private
equity investments in companies that the
government ultimately bailed out during the
financial crisis. See, e.g., Casey Ross, Cerberus’
Success Hurt by a Pair of Gambles, The Boston
Globe (Mar. 25, 2010) (discussing private equity
investments in GMAC and Chrysler Corp., both of
which received government bailouts); and Louise
Story, For Private Equity, A Very Public Disaster,
N.Y. Times (Aug. 8, 2009) (same).
76 See section II.D.4 of this Release for a
discussion of the information we propose requiring
certain private equity fund advisers report on Form
PF.
77 See, e.g., PE Council Letter, supra note 49;
Testimony of Mark Tresnowksi, General Counsel,
Madison Dearborn Partners, before the Senate
Banking Subcommittee on Securities, Insurance and
Investment, July 15, 2009.

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B. Who Must File Form PF
We propose that any investment
adviser registered or required to register
with the SEC that advises one or more
private funds must file a Form PF with
the SEC.78 A CPO or CTA that also is
a registered investment adviser that
advises one or more private funds
would be required to file Form PF with
respect to any advised commodity pool
that is a ‘‘private fund.’’ By filing Form
PF with respect to these private funds,
a CPO will be deemed to have satisfied
certain of its filing requirements for
these funds.79 Under these rules, most
private fund advisers would be required
to complete only section 1 of Form PF,
providing certain basic information
regarding any hedge funds they advise
in addition to information about their
private fund assets under management
and more generally about their funds’
performance and use of leverage. The
information collected under section 1 of
Form PF is described in further detail in
section II.D.1 of this Release. Certain
larger private fund advisers would be
required to complete additional sections
of Form PF, which require more
detailed information.
Three types of ‘‘Large Private Fund
Advisers’’ would be required to
complete certain additional sections of
Form PF: 80
• Advisers managing hedge funds
that collectively have at least $1 billion
in assets as of the close of business on
any day during the reporting period for
the required report;
• Advisers managing a liquidity fund
and having combined liquidity fund and
registered money market fund assets of
at least $1 billion as of the close of
business on any day during the
reporting period for the required report;
and
• Advisers managing private equity
funds that collectively have at least $1
billion in assets as of the close of
business on the last day of the quarterly
reporting period for the required report.
1. Types of Funds
Proposed Form PF would define
‘‘hedge fund’’ as any private fund that (1)
has a performance fee or allocation
calculated by taking into account
unrealized gains; (2) may borrow an
amount in excess of one-half of its net
78 Proposed

Advisers Act rule 204(b)–1.
CEA rule 4.27(d). A CPO registered
with the CFTC that is also registered as a private
fund adviser with the SEC will be deemed to have
satisfied its filing requirements for Schedules B and
C of proposed Form CPO–PQR by completing and
filing the applicable portions of Form PF for each
of its commodity pools that satisfy the definition of
‘‘private fund’’ in the Dodd-Frank Act.
80 See proposed Instruction 3 to Form PF.
79 Proposed

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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 (3) may sell securities or
other assets short.81 As noted above,
‘‘liquidity fund’’ would be defined as
any private fund that seeks to generate
income by investing in a portfolio of
short term obligations in order to
maintain a stable net asset value per
unit or minimize principal volatility for
investors.82 ‘‘Private equity fund’’ would
be defined as any private fund that is
not a hedge fund, liquidity fund, real
estate fund, securitized asset fund or
venture capital fund and does not
provide investors with redemption
rights in the ordinary course.83
Our proposed definition of hedge
fund would cover any private fund that
has any one of three common
characteristics of a hedge fund: A
performance fee using market value
(instead of only realized gains), high
leverage or short selling. We are not
aware of any standard definition of a
hedge fund,84 although we note that our
proposed definition is broadly based on
those used in the FSA survey and in the
IOSCO report described in section I.B
above and thus generally would
promote international consistency in
81 See proposed Glossary of Terms to Form PF.
This definition also is the same as the SEC has
proposed in amendments to Form ADV. See
Implementing Release, supra note 9. For purposes
of the definition, the fund should not net long and
short positions in calculating its borrowings but
should include any borrowings or notional
exposure of another person that are guaranteed by
the fund or that the fund may otherwise be
obligated to satisfy. In addition, a commodity pool
that meets the definition of a private fund is treated
as a hedge fund for purposes of Form PF.
82 See proposed Glossary of Terms to Form PF.
83 See proposed Glossary of Terms to Form PF.
Proposed Form PF would define ‘‘real estate fund’’
as any private fund that is not a hedge fund, that
does not provide investors with redemption rights
in the ordinary course and that invests primarily in
real estate and real estate-related assets. Proposed
Form PF would define ‘‘securitized asset fund’’ as
any private fund that is not a hedge fund and that
issues asset backed securities and whose investors
are primarily debt-holders. These definitions are
designed to encompass entities that we believe are
typically considered real estate or securitized asset
funds, respectively, and are primarily intended to
exclude these types of funds from our definition of
private equity fund to improve the quality of data
reported on Form PF relating to private equity
funds. Proposed Form PF would define ‘‘venture
capital fund’’ as any private fund meeting the
definition of venture capital fund in rule 203(l)-1
of the Advisers Act for consistency. See proposed
Glossary of Terms to Form PF. See also Private
Fund Exemption Release, supra note 9, for a
discussion of proposed Advisers Act rule 203(l)–1.
84 See, e.g. Goldstein v. SEC, 451 F.3d 873 (DC
Cir. 2006) (‘‘ ‘Hedge funds’ are notoriously difficult
to define. The term appears nowhere in the federal
securities laws, and even industry participants do
not agree upon a single definition.’’)

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srobinson on DSKHWCL6B1PROD with PROPOSALS3

hedge fund reporting.85 Moreover, we
believe that any fund meeting this
definition is an appropriate subject for
this higher level of reporting even if the
fund would not otherwise be considered
a hedge fund.
The Commissions request comment
on the hedge fund definition proposed
in Form PF.86 Does this proposed
definition capture the appropriate
features of funds that should be subject
to more detailed reporting as ‘‘hedge
funds’’? Many private funds sell short. Is
the bright line of classifying any private
fund that engages in short selling as a
hedge fund appropriate? Is the proposed
leverage threshold for hedge funds set at
the appropriate level? One alternative
approach we could take is to not define
a hedge fund in Form PF and simply
require that all advisers managing in
excess of $1 billion in private fund
assets (regardless of strategy) complete
section 2 of Form PF. Would this be a
more effective approach? For purposes
of Form PF, a commodity pool satisfying
the definition of a ‘‘private fund’’ is
categorized as a hedge fund. Is this
treatment appropriate?
The proposed definition of liquidity
fund is designed to capture all potential
substitutes for money market funds
because we believe these funds may be
susceptible to runs and otherwise pose
85 The FSA survey is voluntary and does not
proscriptively define a hedge fund, but states that
if a fund generally satisfies a number of the
following criteria, it should be deemed to fall
within the scope of the FSA hedge fund survey:
(1) Employs investment management techniques
that can include the use of short selling, derivatives,
and leverage; (2) takes in external investor money;
(3) are not UCITS funds; (4) pursue absolute
returns; (5) charge performance-based fees; (6) have
broader mandates than traditional funds which give
managers more flexibility to shift strategy; (7) have
higher trading volumes/fund turnover; and (8)
frequently set a high minimum investment limit.
The IOSCO Report generally considered as a hedge
fund all investment schemes displaying a
combination of some of the following
characteristics: (1) Borrowing and leverage
restrictions are not applied; (2) significant
performance fees are paid to the manager in
addition to an annual management fee; (3) investors
are typically permitted to redeem their interests
periodically, e.g., quarterly, semi-annually or
annually; (4) often significant ‘own’ funds are
invested by the manager; (5) derivatives are used,
often for speculative purposes, and there is an
ability to short sell securities; and (6) more diverse
risks or complex underlying products are involved.
See IOSCO Report, supra note 24, at 4–5.
86 The SEC previously defined private fund for
purposes of registration of advisers to hedge funds
by focusing on the structure of the fund to
differentiate it from other pooled investment
vehicles, while the definition of hedge fund we
propose today for purposes of Form PF reporting
focuses on the strategy of the fund in order to
monitor trading strategies and behaviors which
could contribute to systemic risk. See Registration
under the Advisers Act of Certain Hedge Fund
Advisers, Investment Advisers Act Release No. 2333
(Dec. 2, 2004), 69 FR 72054 (Dec. 10, 2004)
(rulemaking vacated, Goldstein, 451 F.3d at 884).

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systemic risk that FSOC will want to
monitor. The SEC recognizes that its
proposed definition of liquidity fund
potentially could capture some shortterm bond funds. Are there ways that
the SEC could define a liquidity fund to
capture all potential substitutes for
money market funds, but not short-term
bond funds? The SEC requests comment
on the liquidity fund definition
proposed in Form PF.
Our proposed definition of a private
equity fund is intended to distinguish
private equity funds from other private
funds based upon the lack of
redemption rights and their not being
engaged in certain investment strategies
(such as securitization, real estate or
venture capital), while these funds
would typically have performance fees
based on realized gains. Has the SEC
appropriately distinguished private
equity funds from other types of private
funds in its proposed definition? Should
others be excluded? The SEC requests
comment on the private equity fund
definition proposed in Form PF.
2. Large Private Fund Adviser
Thresholds
As noted above, we are proposing $1
billion in hedge fund assets under
management as the threshold for large
hedge fund adviser reporting, $1 billion
in combined liquidity fund and
registered money market fund assets
under management as the threshold for
large liquidity fund adviser reporting,
and $1 billion in private equity fund
assets under management as the
threshold for large private equity fund
adviser reporting. Advisers would be
required to measure whether these
thresholds have been crossed daily for
hedge funds and liquidity funds and
quarterly for private equity funds based
on our belief that, as a matter of
ordinary business practice, advisers are
aware of hedge fund and liquidity fund
assets under management on a daily
basis, but are likely to be aware of
private equity fund assets under
management only on a quarterly basis.
We designed these thresholds so that
the group of Large Private Fund
Advisers that would be included based
on the proposed thresholds is relatively
small in number but represents the large
majority of their respective industries
based on assets under management. For
example, we understand that the
approximately 200 U.S.-based advisers
managing at least $1 billion in hedge
fund assets represent over 80 percent of
the U.S. hedge fund industry based on
assets under management.87 Similarly,
SEC staff estimates that the
87 See

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approximately 250 U.S.-based advisers
managing over $1 billion in private
equity fund assets represent
approximately 85 percent of the U.S.
private equity fund industry based on
committed capital.88
The SEC is proposing that private
fund advisers combine liquidity fund
and registered money market fund
assets for purposes of determining
whether the adviser meets the threshold
for more extensive reporting regarding
its liquidity funds because it
understands that an adviser’s liquidity
funds and registered money market
funds often pursue similar strategies
and invest in the same securities and
thus are subject to many of the same
risks. Historically, most advisers of
enhanced cash funds or other
unregistered money market funds also
advised a substantial amount of
registered money market fund assets,
and so the SEC’s criteria for liquidity
fund reporting is expected to encompass
most significant managers of liquidity
funds, which it estimates number
around 80 advisers.89
We believe that requiring basic
information from all advisers about all
private funds but more extensive and
detailed information only from advisers
with these amounts of assets under
management in hedge funds, private
equity funds, and liquidity funds would
allow FSOC to effectively conduct basic
monitoring for potential systemic risk in
these private fund industries and to
identify areas where OFR may want to
obtain additional information. In
addition, requiring that only these Large
Private Fund Advisers complete
additional reporting requirements under
Form PF would provide systemic risk
information for most private fund assets
while minimizing burdens on smaller
private fund advisers that are less likely
to pose systemic risk concerns. The
proposed approach thus incorporates
Congress’ directive in section 408 of the
Dodd-Frank Act to take into account the
size, governance, and investment
strategy of advisers to mid-sized private
funds in determining whether they pose
systemic risk and formulating systemic
risk reporting and recordkeeping
requirements for private funds.90
88 Preqin. The Preqin data relating to private
equity fund committed capital is available in File
No. S7–05–11.
89 See, e.g., iMoneyNet, Enhanced Cash Report
(3rd quarter 2009). The estimate of the number of
large liquidity fund advisers is based on the number
of advisers with at least $1 billion in registered
money market fund assets under management.
90 We note that the SEC has proposed to collect
information regarding the governance of private
fund advisers through Form ADV. See
Implementing Release, supra note 9.

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We request comment on the proposed
thresholds. Are there more appropriate
dividing lines as to when a private fund
adviser should be required to report
more information? Should any of the
assets under management thresholds be
lower or higher? Are the daily (for hedge
fund and liquidity fund managers) and
quarterly (for private equity fund
managers) measurement periods for the
assets under management thresholds set
appropriately? Should we, as proposed,
base the threshold on the amount of
assets under management? If not, what
should we base it on?
We request comment on our proposed
approach of only requiring these Large
Private Fund Advisers to report
additional information on Form PF. Will
collecting the information required by
sections 2, 3, and 4 of Form PF only
from advisers managing in excess of
these asset thresholds provide adequate
information about potential systemic
risk in these industries? Should we
instead require that all private fund
advisers registered with the SEC
complete all of the information on Form
PF appropriate to the type of private
funds they advise regardless of fund size
or assets under management? Are there
advisers to other types of private funds
that should be required to report more
information on Form PF? For example,
should advisers to other types of private
fund report more information if they
manage in excess of a certain threshold
of that type of private fund assets?
3. Aggregation of Assets Under
Management

srobinson on DSKHWCL6B1PROD with PROPOSALS3

For purposes of determining whether
an adviser is a Large Private Fund
Adviser for purposes of Form PF, each
adviser would have to aggregate
together:
• Assets of managed accounts advised
by the firm that pursue substantially the
same investment objective and strategy
and invest in substantially the same
positions as the private fund (‘‘parallel
managed accounts’’); 91 and
• Assets of that type of private fund
advised by any of the adviser’s ‘‘related
persons.’’ 92
91 See proposed Instructions 3, 5, and 6 to Form
PF; and proposed Glossary of Terms to Form PF.
See also definitions of ‘‘hedge fund assets under
management,’’ ‘‘liquidity fund assets under
management,’’ and ‘‘private equity fund assets under
management’’ in the proposed Glossary of Terms to
Form PF.
92 See proposed Instructions 3 and 5 to Form PF.
‘‘Related person’’ is defined generally as: (1) All of
the adviser’s officers, partners, or directors (or any
person performing similar functions); (2) all persons
directly or indirectly controlling, controlled by, or
under common control with the adviser; and (3) all
of the adviser’s employees (other than employees
performing only clerical, administrative, support or

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These proposed aggregation
requirements are designed to prevent an
adviser from avoiding the proposed
Large Private Fund Adviser reporting
requirements by re-structuring the
manner of providing private fund advice
internally within the private fund
manager group. The adviser also would
be required to exclude any assets in any
account that are solely invested in other
funds (i.e., internal or external fund of
funds) in order to avoid duplicative
reporting.93 We request comment on
these proposed aggregation
requirements. Would these proposed
aggregation rules appropriately meet our
goal of preventing improper avoidance
of the reporting requirements while
giving a complete picture of private
fund assets managed by a particular
private fund adviser group? Would
aggregating in a different manner be
more effective at meeting our goal?
Should funds that invest most (e.g., 95
percent), but not all, of their assets in
other funds be excluded from Form PF
reporting? Would excluding such funds
still provide FSOC with a complete
enough picture of private fund activities
to have an adequate baseline for
systemic risk monitoring purposes?
If the adviser’s principal office and
place of business is outside the United
States, the adviser could exclude any
private fund that during the last fiscal
year was neither a United States person
nor offered to, or beneficially owned by,
any United States person.94 This aspect
of the proposed form is designed to
allow an adviser to report with respect
to only those private funds that are more
likely to implicate U.S. regulatory
interests. We request comment on this
aspect of the proposed form. Should we
require different reporting relating to
foreign advisers or foreign private
funds?
4. Reporting for Affiliated and
Subadvised Funds
To provide private fund advisers with
reporting flexibility and convenience,
the adviser could, but is not required to,
report the private fund assets that it
manages and the private fund assets that
its related persons manage on a single
similar functions). See proposed Glossary of Terms
to Form PF and Glossary of Terms to Form ADV.
The adviser would be permitted, but not required,
to file one consolidated Form PF for itself and its
related persons. See section II.B.4 of this Release
below.
93 See proposed Instruction 7 to Form PF.
94 See proposed Instruction 1 to Form PF. ‘‘United
States person’’ would have the meaning provided in
proposed rule 203(m)-1 of the Advisers Act, and
‘‘principal office and place of business’’ would have
the same meaning as in Form ADV. See Private
Fund Exemption Release, supra note 9.

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Form PF.95 This would allow affiliated
entities that share reporting and risk
management systems to report jointly
while also permitting affiliated entities
that operate separately to report
separately. With respect to sub-advised
funds, to prevent duplicative reporting,
only one adviser would report
information on Form PF with respect to
that fund. For reporting efficiency and
to prevent duplicative reporting, we are
proposing that if an adviser completes
information on Schedule D of Form
ADV with respect to any private fund,
the same adviser would be responsible
for reporting on Form PF with respect
to that fund.96 We request comment on
this approach. Should we not allow
advisers to file a consolidated form with
its related persons? Are there other
persons related to a private fund adviser
that should also be able to report on
Form PF on a consolidated basis? For
example, should we adjust Form PF to
permit consolidated reporting with
related persons that are exempt
reporting advisers in the event an
adviser chooses to voluntarily report
exempt reporting adviser information?
Should we allow a different
arrangement on reporting of sub-advised
funds? If so, what would those
arrangements be?
5. Exempt Reporting Advisers and Other
Advisers Not Registered With the SEC
We are proposing that only private
fund advisers registered with the SEC
(including those that are also registered
with the CFTC as CPOs or CTAs) file
Form PF.97 The Dodd-Frank Act created
exemptions from SEC registration under
the Advisers Act for advisers solely to
venture capital funds or for advisers to
private funds that in the aggregate have
less than $150 million in assets under
management in the United States
(‘‘exempt reporting advisers’’).98 We are
not proposing that exempt reporting
advisers be required to file Form PF.99
We believe that Congress’ determination
to exempt these advisers from SEC
registration indicates Congress’ belief
that they are sufficiently unlikely to
pose systemic risk that regular reporting
of detailed information may not be
necessary.100 Based on consultation
95 See proposed Instruction 2 to Form PF. See
supra note 92 for the definition of ‘‘related person.’’
96 See proposed Instruction 4 to Form PF.
97 See proposed Advisers Act rule 204(b)–1.
98 See Private Fund Exemption Release, supra
note 9; Implementing Release, supra note 9.
99 To the extent an exempt reporting adviser is
registered with the CFTC as a CPO or CTA, that
adviser would be obligated to file either proposed
Form CPO–PQR or CTA–PR, respectively.
100 See Senate Committee Report, supra note 4, at
74 (‘‘The Committee believes that venture capital

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with staff representing FSOC’s members
and on the basic information that the
SEC has proposed requiring exempt
reporting advisers report to the SEC on
Form ADV, the SEC is not proposing to
extend Form PF reporting to these
advisers.
Our proposed rules, however, would
require some advisers managing less
than $150 million in private fund assets
to report limited information on Form
PF. While Congress exempted from
registration with the SEC advisers solely
to private funds that in the aggregate
have less than $150 million in assets
under management, it provided no such
exemption for advisers with less than
$150 million in private fund assets
under management that also, for
example, advise individual clients with
over $100 million in assets under
management. Because this latter group
of advisers is registered with the SEC
and thus is subject to the full range of
investor protection efforts that
accompany registration, and because of
the limited burden of the basic
reporting, we believe it is appropriate to
require these advisers to complete and
file section 1 of Form PF. We request
comment on this approach. Should we
require that exempt reporting advisers
file Form PF? 101 Why or why not? If so,
which portions of Form PF should we
require that exempt reporting advisers
complete?

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C. Frequency of Reporting
The Commissions propose to require
that all private fund advisers other than
the Large Private Fund Advisers
discussed above complete and file a
Form PF on an annual basis. A newly
registering adviser’s initial Form PF
filing would be submitted within 15
days of the end of its next occurring
calendar quarter after registering with
the SEC so that FSOC can begin
including this data in its analysis as
soon as possible.102 Annual updates
would be due no later than the last day
on which the adviser may timely file its
annual updating amendment to Form
ADV (currently, 90 days after the end of
funds * * * do not present the same risks as the
large private funds whose advisers are required to
register with the SEC under this title. Their
activities are not interconnected with the global
financial system, and they generally rely on equity
funding, so that losses that may occur do not ripple
throughout world markets but are borne by fund
investors alone.’’). See also Private Fund Exemption
Release, supra note 9.
101 Section 404 of the Dodd-Frank Act states that
the SEC ‘‘shall issue rules requiring each investment
adviser to a private fund to file reports containing
such information as the [SEC] deems necessary and
appropriate in the public interest and for the
protection of investors or for the assessment of
systemic risk,’’ (emphasis added).
102 See proposed rule 204(b)–1(a).

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the adviser’s fiscal year).103 This
frequency of reporting would allow the
Commissions and FSOC to periodically
monitor certain key information
relevant to assessing systemic risk posed
by these private funds on an aggregate
basis. It also would allow these advisers
to file amendments at the same time as
they file their Form ADV annual
updating amendment, which may make
certain aspects of the reporting more
efficient, such as reporting assets under
management. Finally, this timing will
facilitate FSOC’s compilation and
analysis of Form PF and Form ADV data
for these filers since both sets of data
will be reported as of the same date.
Large Private Fund Advisers would be
required to complete and file a Form PF
no later than 15 days after the end of
each calendar quarter.104 Our
preliminary view is that, unlike for
smaller private fund advisers, quarterly
reporting for Large Private Fund
Advisers is necessary in order to
provide FSOC with timely data to
identify emerging trends in systemic
risk. We understand that hedge fund
advisers already collect and calculate
much of the information that would be
required by Form PF relating to hedge
funds on a quarterly basis.105 As a
result, quarterly reporting on Form PF
would coincide with most hedge fund
advisers’ internal reporting cycles and
leverage data collection systems and
processes already existing at these
advisers. In addition, we believe that
most liquidity fund advisers collect on
a monthly basis much of the
information that we are proposing be
reported in section 3 of Form PF and
thus quarterly reporting should be
relatively efficient for these advisers.
We anticipate that Large Private Fund
Advisers would be able to collect and
file this information within 15 days after
the end of each quarter, which is
sufficiently timely for FSOC’s use in
conducting systemic risk monitoring.
Advisers would be required to file
Form PF to report that they are
transitioning to only filing Form PF
annually with the Commissions or to
report that they no longer meet the
requirements for filing Form PF no later
than the last day on which the adviser’s
103 See

proposed Advisers Act rule 204(b)–1(e).
proposed Instruction 7 to Form PF.
105 See Report of the Asset Manager’s Committee
to the President’s Working Group on Financial
Markets, Best Practices for the Hedge Fund Industry
(Jan. 15, 2009), available at http://
www.amaicmte.org/Public/AMC%20Report%20%20Final.pdf (discussing best practices on
disclosing to investors performance data, assets
under management, risk management practices
(including on asset types, geography, leverage, and
concentrations of positions) with which SEC staff
understands many hedge funds comply).
104 See

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next Form PF update would be
timely.106 This would allow us to
determine promptly whether an
adviser’s discontinuance in reporting is
due to it no longer meeting the form’s
reporting thresholds as opposed to a
lack of attention to its filing obligations.
Advisers also would be able to avail
themselves of a temporary hardship
exemption in a similar manner as with
other Commission filings if they are
unable to file Form PF electronically in
a timely manner due to unanticipated
technical difficulties.107
We request comment on our proposed
filing frequency. Are the filing
requirements for private fund advisers
frequent enough to assess high-level
systemic risk posed by private funds?
Should smaller private fund advisers
have to file more frequently or less
frequently? Should Large Private Fund
Advisers be required to file Form PF
more frequently (such as monthly) or
less frequently (such as annually or
semiannually)? Is 90 days for an annual
update or 15 days for a quarterly update
too long to ensure reporting of timely
information? Would more or less time
be more appropriate? Specifically,
would 15 days be enough time for Large
Private Fund Advisers to prepare and
file quarterly reports? Is there
information in the form that should be
amended promptly if it becomes
inaccurate? Should Large Private Fund
Advisers be required to file Form PF as
of the end of each calendar quarter or
as of the end of each fiscal quarter?
Currently, we anticipate that the
proposed rules requiring filing of Form
PF would have a compliance date of
December 15, 2011, at which time Large
Private Fund Advisers would begin
filing 15 days after the end of each
quarter (i.e., Large Private Fund
Advisers would need to make their
initial Form PF filing by January 15,
2012). This timing should allow
sufficient time for Large Private Fund
Advisers to develop systems for
collecting the information required on
Form PF and prepare for filing. We
currently anticipate that this timeframe
also would give the SEC sufficient time
to create and program a system to accept
filings of Form PF.108 We are proposing
106 See

proposed Instruction 8 to Form PF.
proposed rule 204(b) 1(f). The adviser
would check the box in Section 1a of Form PF
indicating that it was requesting a temporary
hardship exemption and complete Section 5 of
Form PF no later than one business day after the
electronic Form PF filing was due and submit the
filing that is the subject of the Form PF paper filing
in electronic format with the Form PF filing system
no later than seven business days after the filing
was due.
108 The SEC will work closely with the firm it
selects to create and program a system for Form PF
107 See

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that the rules allow smaller private fund
advisers until 90 days after the end of
their first fiscal year occurring on or
after the compliance date of the
proposed rule to file their first Form PF
(with the expectation that this would
result in smaller private fund advisers
with a December 31 fiscal year end
filing their first Form PF by March 31,
2012) because we anticipate that some
of these advisers may require more time
to prepare for their initial Form PF filing
and so that the first group of private
fund advisers filing Form PF would all
be reporting based generally on
information as of December 31, 2011.109
Under this proposed compliance date
and transition rule, smaller private fund
advisers would have at least eight
months after adoption of the proposed
form, depending on their fiscal year
end, to file their first Form PF. We
request comment on when advisers
should be required to comply with the
proposed rules and file Form PF. Do the
compliance dates and transition times
that we have proposed provide
sufficient time for smaller advisers and
Large Private Fund Advisers to prepare
for filing?

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D. Information Required on Form PF
The questions contained in proposed
Form PF reflect relevant requirements
and considerations under the DoddFrank Act, consultations with staff
representing FSOC’s members, and the
Commissions’ experience in regulating
those private fund advisers that are
already registered with the
Commissions. As discussed above, with
respect to hedge fund advisers in
particular, the information we propose
requiring registered advisers to file on
Form PF also is broadly based on the
guidelines discussed in the IOSCO
Report with many of the more detailed
items generally tracking questions
contained in the surveys of large hedge
fund advisers conducted by the FSA
and other IOSCO members.110 We
expect that the information collected on
Form PF would assist FSOC in
monitoring and assessing any systemic
risk, as discussed in section II.A above,
that may be posed by private funds. We
discuss below the information that Form
PF would require.
1. Section 1
Section 1 would apply to all
investment advisers required to file
Form PF. Item A of Section 1a seeks
identifying information about the
filings and will monitor whether it could do so on
this timeframe.
109 See proposed Advisers Act rule 204(b)–1(g).
110 See supra note 24.

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adviser, such as its name and the name
of any of its related persons whose
information is also reported on the
adviser’s Form PF. Section 1a also
would require reporting of basic
aggregate information about the private
funds managed by the adviser, such as
total and net assets under management,
and the amount of those assets that are
attributable to certain types of private
funds.111 This identifying information
would assist us and FSOC in monitoring
the amount of assets managed by private
fund advisers and the general
distribution of those assets among
various types of private funds.
Section 1b of Form PF would elicit
certain identifying and other basic
information about each private fund
advised by the investment adviser. The
adviser generally would need to
complete a separate section 1b for each
private fund it advised. However,
because feeder funds typically invest
substantially all their assets in a master
fund, to prevent duplicative reporting
the adviser must report information in
section 1b on an aggregated basis for
private funds that are part of a masterfeeder arrangement and so would not
file a separate section 1b for any feeder
fund.112
Section 1b would require reporting of
each private fund’s gross and net assets
and the aggregate notional value of its
derivative positions.113 It also would
require basic information about the
fund’s borrowings, including a
111 Section 1 would require the adviser to indicate
the adviser’s total ‘‘regulatory assets under
management,’’ using the same proposed definition
of that term as used on proposed amendments to
Part 1 of Form ADV, and its net assets under
management, which subtracts out any liabilities of
the private funds. See Implementing Release, supra
note 9. Form PF, however, would require the
adviser to aggregate parallel managed accounts with
related private funds in reporting its assets under
management (even if the accounts are not
‘‘securities portfolios’’ within the meaning of
proposed Instruction 5.b, Instructions to Part 1A of
Form ADV), and thus the total and net assets under
management figures reported in section 1a of Form
PF may differ from what the adviser reports on
Form ADV. Proposed question 2 would require the
adviser to report what portion of these assets under
management are attributable to hedge funds,
liquidity funds, private equity funds, real estate
funds, securitized asset funds, venture capital
funds, other private funds, and funds and accounts
other than private funds. See section II.B.1 of this
Release for a discussion of these different types of
funds and their proposed definitions for purposes
of Form PF.
112 See proposed Instructions 5 and 6 to Form PF.
When providing responses in Form PF with respect
to a private fund, the adviser also must include any
parallel managed accounts related to the private
fund. Id.
113 The form would require the adviser to report
the total gross notional value of its funds’ derivative
positions, except that options would be reported
using their delta adjusted notional value. Long and
short positions would not be netted. See proposed
Form PF, instructions to question 11.

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breakdown of the fund’s borrowing
based on whether the creditor is a U.S.
financial institution, foreign financial
institution or non-financial institution
as well as the identity of, and amount
owed to, each creditor to which the
fund owed an amount equal to or greater
than 5 percent of the fund’s net asset
value as of the reporting date. This
section would require reporting of
certain basic information about how
concentrated the fund’s investor base is,
such as the number of beneficial owners
of the fund’s equity and the percentage
of the fund’s equity held by the five
largest equity holders.114 Finally,
section 1b would require monthly and
quarterly performance information
about each fund.
The information required by section
1b would allow FSOC to monitor certain
systemic trends for the broader private
fund industry, such as how certain
kinds of private funds perform and
exhibit correlated performance behavior
under different economic and market
conditions and whether certain funds
are taking significant risks that may
have systemic implications.115 It would
allow FSOC to monitor borrowing
practices for the broader private fund
industry, which may have
interconnected impacts on banks
(including specific banks) and thus the
broader financial system. We believe
that collecting both monthly and
quarterly performance data also would
allow FSOC to monitor the data at
sufficient granularity to track trends.
Finally, section 1c would require
reporting of certain information only
about hedge funds managed by the
adviser, such as their investment
strategies, percentage of the fund’s
assets managed using computer-driven
trading algorithms, significant trading
counterparty exposures (including
identity of counterparties),116 and
trading and clearing practices.117 This
information will enable FSOC to
114 See

proposed question 12 on Form PF.
information also would be useful for
advancing the Commissions’ investor protection
goals.
116 Specifically, proposed questions 19 and 20 on
Form PF would require the adviser to identify the
five trading counterparties to which the fund has
the greatest net counterparty credit exposure
(measured as a percentage of the fund’s net asset
value) and that have the greatest net counterparty
credit exposure to the fund (measured in U.S.
dollars).
117 More specifically, proposed question 21 on
Form PF would require estimated breakdowns of
percentages of the hedge fund’s securities and
derivatives traded on a regulated exchange versus
over the counter and percentages of the hedge
fund’s securities, derivatives, and repos cleared by
a central clearing counterparty (‘‘CCP’’) versus
bilaterally (or, in the case of repos, that constitute
a tri-party repo).
115 This

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monitor systemic risk that could be
transmitted through counterparty
exposure, track how different strategies
are affected by and correlated with
different market stresses, and follow the
extent of private fund activities
conducted away from regulated
exchanges and clearing systems. We
have based some of this information,
such as information about significant
trading counterparty exposures and
trading and clearing practices, on the
FSA surveys, which would promote
international consistency in hedge fund
reporting.118
We request comment on section 1 of
proposed Form PF. Is there additional
basic information that we should
require from all advisers filing Form PF
or regarding all of the hedge funds or
other private funds that they manage?
For example, should we require any of
the more detailed information about
their borrowing practices that we
require regarding large hedge funds in
Item B of section 2b? Is a creditor
providing 5 percent of the fund’s
borrowings an appropriate threshold for
significant creditors of whose identity
FSOC may want to be aware for
purposes of assessing the fund’s
interconnectedness in the financial
system? Should the threshold be more
or less? Are the top five equity holders
in the fund an appropriate threshold for
significant investors in the fund?
Should the threshold be more or less?
Should we require assets under
management information for other
private fund categories than those
specified in question 4? Should we
request that performance data be
reported on a different basis than
monthly and quarterly? Are there other
primary investment strategies that hedge
funds use that should be included in
question 17? Is the information we have
proposed requiring on the fund’s
borrowings necessary given that other
questions in section 1b ask for
information on the fund’s gross and net
assets? Will asking for the amount and
identity of the five trading
counterparties to which the fund has the
greatest net counterparty credit
exposure and that have the greatest net
counterparty credit exposure to the fund
appropriately track significant
exposures for systemic risk assessment
purposes? Have we requested
appropriate information on trading and
118 For example, the FSA survey asks for
identification of the hedge fund’s top five
counterparties in terms of net credit exposure. It
also asks for estimates of the percentage of the
fund’s securities or derivatives traded on a
regulated exchange versus over the counter and the
percentage of the fund’s derivatives and repos
cleared by a CCP versus bilaterally.

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clearing practices sufficient to allow
FSOC to examine systemic risks relating
to trading and clearing outside of
regulated exchanges and central clearing
systems? Is there information in section
1 that we should not require, or that we
should only require of large hedge fund
advisers and why? With respect to the
aggregation of master-feeder
arrangements for reporting purposes, are
there common situations in which an
adviser will not have sufficient access to
a feeder fund’s information to report
accurately on Form PF? If so, how
should the form address those
situations? We also request comment
more generally on the definitions of
terms we have proposed in the glossary
of terms for Form PF.
2. Section 2
Form PF would require private fund
advisers who had at least $1 billion in
hedge fund assets under management as
of the close of business on any day
during the reporting period to complete
section 2.119 Section 2a would require
certain aggregate information about the
hedge funds advised by Large Private
Fund Advisers, such as the market value
of assets invested (on a short and long
basis) in different types of securities and
commodities (e.g., different types of
equities, fixed income securities,
derivatives, and structured products). It
also would require the adviser to report
the duration of fixed income portfolio
holdings (including asset backed
securities), to indicate the assets’
interest rate sensitivity, as well as the
turnover rate of the adviser’s aggregate
portfolios during the reporting period to
provide an indication of the adviser’s
frequency of trading. Finally, the
adviser would be required to report a
geographic breakdown of investments
held by the hedge funds it advises.
This information would assist FSOC
in monitoring asset classes in which
hedge funds may be significant
investors and trends in hedge funds’
exposures to allow FSOC to identify
concentrations in particular asset
classes (or in particular geographic
regions) that are building or
transitioning over time. It would aid
FSOC in examining large hedge fund
advisers’ role as a source of liquidity in
different asset classes. In some cases, we
are proposing that the information be
broken down into categories that would
facilitate FSOC’s use of flow of funds
information, which is an important tool
for evaluating trends in and risks to the
U.S. financial system.120 This
119 See

section II.B of this Release.
example, we are proposing that in some
cases the data be broken down between issuers that
120 For

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information also is designed to address
requirements under section 404 of the
Dodd-Frank Act specifying certain
mandatory contents for records and
reports that must be maintained and
filed by advisers to private funds. For
example, it would provide information
about the types of assets held and
trading and investment positions and
practices.
Section 2b of Form PF would require
large hedge fund advisers to report
certain additional information about any
hedge fund they advise with a net asset
value of at least $500 million as of the
close of business on any day during the
reporting period (a ‘‘qualifying hedge
fund’’).121 For purposes of determining
whether a private fund is a qualifying
hedge fund, the adviser would have to
aggregate any parallel managed
accounts, parallel funds, and funds that
are part of the same master-feeder
arrangement, and would have to treat
any private funds managed by its related
person as if they were managed by the
filing adviser.122 We are proposing this
aggregation to prevent an adviser from
structuring its activities to avoid the
reporting requirement. We have selected
$500 million as a threshold for more
extensive individual hedge fund
reporting because we believe that a $500
million hedge fund is a substantial fund
the activities of which could have an
impact on particular markets in which
it invests or on its particular
counterparties. We also believe that
setting this threshold at this level would
minimize reporting burdens on advisers
to smaller or start up hedge funds that
are less likely to have a systemic impact.
Finally, this threshold is the same
threshold used by the FSA in its hedge
fund surveys and thus would create a
certain level of consistency in reported
data.
We request comment on the
qualifying hedge fund threshold. Should
it be lower or higher? If so, why? Should
large hedge fund advisers have to report
the information for all their hedge
funds? Could all of such advisers’ hedge
funds, in the aggregate, potentially have
a systemic impact that would merit such
are financial institutions and those that are not. The
FRB publishes flow of funds data, which is
available at http://www.federalreserve.gov/releases/
z1/.
121 See proposed Instruction 3 to Form PF.
Advisers should not complete section 2 with
respect to assets managed by a fund of hedge funds.
See proposed Instruction 7 to Form PF.
122 See proposed Instructions 5 and 6 to Form PF.
Parallel funds are a structure in which one or more
private funds pursues substantially the same
investment objective and strategy and invests side
by side in substantially the same positions as
another private fund. See proposed Glossary of
Terms to Form PF.

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reporting? Should Form PF have
different requirements regarding
aggregating parallel managed accounts,
parallel funds, or feeder funds or
aggregating hedge funds managed by
affiliates?
Section 2b would require reporting of
the same information as that requested
in section 2a regarding exposure to
different types of assets.123 In this
section, however, this information
would be reported separately for each
qualifying hedge fund the adviser
manages. Section 2b also would require
on a per fund basis data not requested
in section 2a. The adviser would be
required to report information regarding
the qualifying hedge fund’s portfolio
liquidity, concentration of positions,
collateral practices with significant
counterparties, and the identity of, and
clearing relationships with, the three
central clearing counterparties to which
the fund has the greatest net
counterparty credit exposure.124 This
information is designed to assist FSOC
in monitoring the composition of hedge
fund exposures over time as well as the
liquidity of those exposures. The
information also would aid FSOC in its
monitoring of credit counterparties’
unsecured exposure to hedge funds as
well as the hedge fund’s exposure and
ability to respond to market stresses and
interconnectedness with central clearing
counterparties. Finally, some of this
information, such as information about
the identity of three central clearing
counterparties to which the fund has the
greatest net counterparty credit
exposure and fund asset liquidity
information, was broadly based on
information requested by the FSA
survey, which would promote
international consistency in hedge fund
reporting.125
Section 2b also would require for each
qualifying hedge fund data regarding
certain hedge fund risk metrics,
financing information, and investor
information. If during the reporting
123 See

proposed question 26 on Form PF.
proposed questions 27–34 on Form PF.
For example, question 28 would require reporting
of the percentage of the fund’s portfolio capable of
being liquidated within different time periods.
Question 31 would require reporting, for each
position that represents 5% or more of the fund’s
net asset value, of the position’s portion of the
fund’s net asset value and sub-asset class. Questions
32 and 33 would require reporting of initial and
variation margin for collateral securing exposure to
the fund’s top five counterparty groups as well as
the face amount of letters of credit posted and
certain information on rehypothecation of such
collateral.
125 For example, the FSA survey asks for the
percentage of the hedge fund’s portfolio that can be
liquidated within different time periods and the
identity of the fund’s top three CCPs in terms of net
credit exposure.

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124 See

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period the adviser regularly calculated a
value at risk (‘‘VaR’’) metric for the
qualifying hedge fund, the adviser
would have to report VaR for each
month of the reporting period.126 The
form also would require the adviser to
report the impact on the fund’s portfolio
from specified changes to certain
identified market factors, if regularly
considered in the fund’s risk
management, broken down by the long
and short components of the qualifying
hedge fund’s portfolio.127 This
information is designed to allow FSOC
to track basic sensitivities of the hedge
fund to common market sensitivities,
correlations in those factor sensitivities,
and trends in those factor sensitivities
among large hedge funds.
Item D of Section 2b would require
reporting of certain financing
information for each qualifying hedge
fund, including a monthly breakdown of
its secured and unsecured borrowing
and its derivatives exposures as well as
information about the value of the
collateral and letters of credit
supporting the secured borrowing and
derivatives exposures and the types of
creditors. It also would require a
breakdown of the term of the fund’s
committed financing. This information
would assist FSOC in monitoring the
qualifying hedge fund’s leverage, the
unsecured exposure of credit
counterparties to the fund, and the
committed term of that leverage, which
may be important to monitor if the fund
comes under stress. Collecting financing
data broken down on a monthly basis
should provide FSOC with sufficient
granularity to identify trends.
Finally, Item E of section 2b would
require the private fund adviser to
report information about each qualifying
hedge fund’s investor composition and
liquidity. For example, it contains
questions about the fund’s side pocket
126 If VaR was calculated, the adviser would have
to report the confidence interval, time horizon,
whether any weighting was used, and the method
used to calculate VaR (historical simulation, Monte
Carlo simulation, parametric, or other). If
applicable, the adviser would have to report the
historical lookback period used. The adviser would
also have to report if it did not regularly calculate
VaR. See proposed question 35 on Form PF.
127 The market factors are changes in: equity
prices, risk free interest rates, credit spreads,
currency rates, commodity prices, option implied
volatilities, ABS default rates, and corporate bond
default rates. Advisers are permitted to omit a
response with respect to any market factor that it
did not regularly consider in the reporting fund’s
risk management. However, to be ‘‘regularly
considered’’ in the fund’s risk management does not
require that the adviser have conducted stress
testing on that market factor (it could simply mean,
for example, that the fund’s risk managers
recognized that such a market factor could have an
impact on the fund’s portfolio). See proposed
question 36 on Form PF and related instructions.

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and gating arrangements and provides
for a breakdown of the percentage of the
fund’s net asset value that is locked in
for different periods of time.128 We
believe this information may be
important in allowing FSOC to monitor
the hedge fund’s susceptibility to failure
through investor redemptions in the
event the fund experiences stress due to
market or other factors.
The information in proposed section
2b also is designed to address
requirements under section 404 of the
Dodd-Frank Act for records and reports
that the SEC requires of private fund
advisers, such as monitoring the amount
of assets under management and the use
of leverage, counterparty credit risk
exposure, trading and investment
positions, and the types of assets held.
We request comment on the information
that we propose requiring large hedge
fund advisers to report under section 2.
Is there additional information with
respect to the types of their investments,
use of leverage, or counterparties that
we should require and why? Have we
asked for appropriate time period
breakdowns of the fund’s liquidity in
terms of asset liquidity, financing
liquidity, and investor liquidity? Is there
other information we could ask to assess
hedge funds’ potential impact on
liquidity in particular markets? Would
the threshold in the proposed form
capture significant central clearing
counterparties? Does the proposed form
ask sufficient questions regarding the
fund’s collateral practices to ensure that
FSOC will be able to monitor the fund’s
unsecured exposure to significant
counterparties? Should the form require
reporting of hedge funds’ investment in
different types of instruments or
commodities than those proposed in
questions 23 and 27?
Are there risk metrics or additional
market factors that we should require?
Should we require the proposed market
factors but with different specified
changes? Stress testing is an important
metric for FSOC’s assessment of
potential systemic risk posed by hedge
funds, but we understand that the type
of stress testing conducted varies
128 A side pocket is a type of account used by
private funds to separate illiquid assets from other
more liquid fund investments. Only investors in the
hedge fund at the time the asset is put in the side
pocket (and not future investors) will be entitled to
a share of proceeds from that investment. A gate is
a restriction imposed by the manager of a private
fund on permissible redemptions from the fund
during a certain period of time. The standards for
imposing suspensions and gates may vary among
funds, so in responding to these questions, an
adviser would be expected to make a good faith
determination as to which provisions of the
reporting fund’s governing documents would likely
be triggered during conditions that it views as
significant market stress.

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substantially depending on the strategy
of the particular hedge fund and among
hedge funds pursuing the same strategy.
Is there a better way for the form to
assess the effects of stresses on hedge
funds than the stress testing questions
included in the proposed form? Should
we request the geographic breakdown of
the hedge fund’s investments for
different geographic regions or
countries? Are there existing collections
of data broken down by geographic
regions or countries with which we
should be consistent? Should we require
more or less detailed information
regarding the types of assets in which
the fund invests?
Is there information that we should
not require and why? Is there
information that we should require large
hedge fund advisers to report regarding
all of the hedge funds they manage that
we only propose requiring qualifying
hedge funds to report? Is there
information in proposed Form PF that is
unlikely to be reported in a comparable
or meaningful fashion such that FSOC
would be unable to draw any useful
conclusions or insights for purposes of
assessing systemic risk? If so, how could
changes to the question or instructions
to the question improve the utility of the
information the form seeks? Are there
any disclosure requirements in the
SEC’s proposed amendments to Form
ADV (which will be publicly available)
that should instead be reported through
Form PF (which will not be publicly
available) or vice versa? 129
We request comment more generally
on the information we propose requiring
in Form PF with respect to hedge funds
and their advisers. Is there additional
information that would be helpful to
FSOC in monitoring for systemic risk
with respect to hedge funds?
We note that certain data in the
proposed form, while filed with the
Commissions on an annual or quarterly
basis, would have to be reported on a
monthly basis. In addition to providing
more granular data to allow FSOC to
better identify trends, this aspect of the
proposal is designed to mitigate the
ability of an adviser to ‘‘window dress,’’
or manipulate certain reported data to
mask activities or risks undertaken by
the private funds it manages.
Is there information that should be
broken down further and reported as of
smaller time increments, such as
weekly, or as of larger time increments?
Is there information that should be
reported to show ranges, averages, high
points, or low points during the
129 See Implementing Release, supra note 9, for a
discussion of the SEC’s proposed amendments to
Form ADV.

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reporting period, rather than as of the
last day of the month or quarter? If so
what time period should the range or
average cover and how should it be
calculated? We note that we have
considered in other contexts different
ways of disclosing information that can
fluctuate during a reporting period.130
Are there approaches in these other
contexts that should be used in Form
PF? What would be the best method of
avoiding ‘‘window dressing’’ in the form
and why? Is there information that
should not be reported on a monthly
basis or, in contrast, information that
should be reported on a monthly basis
(in each case, when the information is
filed with the Commissions quarterly or
annually)? Please explain your
response.
3. Section 3
Form PF would require private fund
advisers advising a liquidity fund and
managing at least $1 billion in
combined liquidity fund and registered
money market fund assets as of the close
of business on any day in the reporting
period to complete and file the
information on section 3.131 As
discussed above, to the extent that
liquidity funds function as unregistered
substitutes for money market funds or
otherwise share certain basic
characteristics of money market funds,
they may be susceptible to runs and
thus have the potential to pose systemic
risk.132
Section 3 would require that these
private fund advisers report certain
information for each liquidity fund they
manage. The section includes questions
on whether the fund uses the amortized
cost method of valuation and/or the
penny rounding method of pricing in
computing its net asset value per share
to help determine how the fund might
try to maintain a stable net asset value
that could make the fund more
susceptible to runs.133 It asks whether

the fund as a matter of policy is
managed in compliance with certain
provisions of rule 2a–7 under the
Investment Company Act of 1940,
which is the principal rule through
which the SEC regulates registered
money market funds.134 This
information would assist FSOC in
assessing the extent to which the
liquidity fund is being managed
consistent with restrictions imposed on
registered money market funds that
might mitigate their likelihood of posing
systemic risk.
Section 3 also would require reporting
of certain information regarding the
liquidity fund’s portfolio. For example,
it would ask, for each month of the
reporting period, for the fund’s net asset
value, net asset value per share, marketbased net asset value per share,
weighted average maturity (‘‘WAM’’),
weighted average life (‘‘WAL’’), 7-day
gross yield, amount of daily and weekly
liquid assets, and amount of assets with
a maturity greater than 397 days.135 It
also would require the fund to report
the amount of its assets invested in
different types of instruments, broken
down by the maturity of those
instruments, as well as information for
each open position of the fund that
represents 5 percent or more of the
fund’s net asset value.136 This
information would assist FSOC in
assessing the risks undertaken by
liquidity funds, their susceptibility to
runs, and how their investments might
pose systemic risks either among
liquidity funds or through contagion to
registered money market funds.
Item C of Section 3 would require
reporting of any secured or unsecured
borrowing of the liquidity fund, broken
down by creditor type and the maturity
profile of that borrowing, and of
whether the fund has in place a
committed liquidity facility. This
information would aid FSOC in
monitoring leverage practices among

130 See Short-Term Borrowings Disclosure,
Securities Act Release No. 9143 (Sept. 17, 2010), at
section II.A [75 Fed. Reg. 59866 (Sept. 28, 2010)].
131 See sections II.A.2 and II.B of this Release for
a discussion of this reporting threshold and the
definition of liquidity fund. For purposes of the $1
billion threshold, an adviser would have to treat
any liquidity funds managed by any of the adviser’s
related persons as though they were advised by the
adviser. See proposed Instruction 3 to Form PF.
Form PF is a joint form between the SEC and the
CFTC only with respect to sections 1 and 2 of the
form. Section 3 of the form, which would require
more specific reporting regarding liquidity funds,
would only be required by the SEC.
132 See section II.A.2 of this Release. The SEC also
notes that institutional investors—the principal
investors in liquidity funds—were the primary
participants in the run on money market funds in
September 2008, rather than retail investors. See
MMF Reform Proposing Release, supra note 65.
133 See proposed questions 43 and 44 of Form PF.

134 See proposed question 45 of Form PF. The
restrictions in rule 2a–7 are designed to ensure,
among other things, that money market funds’
investing remains consistent with the objective of
maintaining a stable net asset value. Many liquidity
funds state in investor offering documents that the
fund is managed in compliance with rule 2a–7 even
though that rule does not apply to liquidity funds.
135 See proposed question 46 of Form PF. WAM,
WAL, daily liquid assets, and weekly liquid assets
are to be calculated in accordance with rule 2a–7
under the Investment Company Act. The 7-day
gross yield is to be calculated consistent with the
methodology required under Form N–MFP, which
must be filed by money market funds registered
with the SEC. See 17 CFR 274.201.
136 See proposed question 47 of Form PF.
Proposed question 48 of Form PF would require
reporting for each month of the reporting period, for
each of the fund’s positions representing 5% or
more of its net asset value, of the position’s portion
of the fund’s net asset value and sub-asset class.

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
liquidity funds and their potential to
magnify risks undertaken by the fund.
Finally, Item D of Section 3 would ask
for certain information regarding the
concentration of the fund’s investor
base, gating and redemption policies,
and investor liquidity.137 It also would
require reporting of a good faith
estimate of the percentage of the fund
purchased using securities lending
collateral. The SEC believes this
information would be important in
allowing FSOC to monitor the
susceptibility of the liquidity fund to a
run in the event the fund comes under
stress and its interconnectedness to
securities lending programs.
The SEC requests comment on the
information that it proposes requiring in
section 3. Is there additional
information that the SEC should
require? For example, is there
information that the SEC requires to be
reported for registered money market
funds on Form N–MFP that the SEC also
should require to be reported on Form
PF for liquidity funds? Should the SEC
require reporting of more specific
information about the holdings or types
of holdings of these liquidity funds? Is
the threshold for when the private fund
adviser is required to report information
in section 3 for an individual liquidity
fund appropriate for purposes of FSOC
to be able to monitor for potential
systemic risk in this sector? Is five
percent an appropriate threshold for
considering a liquidity fund investment
or investor to be significant for purposes
of Form PF reporting? Is our proposed
breakdown of the liquidity fund’s asset
maturity and investor liquidity
appropriate?

srobinson on DSKHWCL6B1PROD with PROPOSALS3

4. Section 4
The SEC is proposing that section 4 of
Form PF require private fund advisers
managing at least $1 billion in private
equity fund assets as of the close of
business on the last day of the reporting
period to report certain information
about each private equity fund they
manage.138 Section 4 would require
reporting of certain information about
the fund’s borrowings and guarantees
and the leverage of the portfolio
137 For example, question 52 would require
reporting of the percentage of the reporting fund’s
equity that is beneficially owned by the beneficial
owner having the largest equity interest in the fund
and of how many investors beneficially own 5% or
more of the fund’s equity.
138 See section II.B of this Release for a discussion
of this reporting threshold and the definition of
‘‘private equity fund.’’ Form PF is a joint form
between the SEC and the CFTC only with respect
to sections 1 and 2 of the form. Section 4 of the
form, which would require more specific reporting
regarding private equity funds, would only be
required by the SEC.

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companies in which the fund invests.
Specifically, section 4 would require
information about the outstanding
balance of the fund’s borrowings and
guarantees.139 It also would require the
adviser to report the weighted average
debt-to-equity ratio of controlled
portfolio companies in which the fund
invests and the range of that debt to
equity ratio among these portfolio
companies.140 It asks for the maturity
profile of its portfolio companies’ debt,
for the portion of that debt that is
payment-in-kind or zero coupon, and
whether the fund or any of its portfolio
companies experienced an event of
default on any of its debt during the
reporting period.141 It also asks for the
identity of the institutions providing
bridge financing to the adviser’s
portfolio companies and the amount of
that financing.142 The SEC believes that
this information would allow FSOC to
assess to what extent private equity
funds use leverage and the potential
exposure of banks and other lending
providers to the larger private equity
funds and their portfolio companies and
leverage among portfolio companies of
the larger private equity funds to
monitor whether trends in those areas
could pose systemic implications for the
portfolio companies’ lenders.
Section 4 also would require reporting
of certain information if the fund invests
in any financial industry portfolio
company, such as its name, its debt-toequity ratio, and the percentage of the
portfolio company beneficially owned
by the fund.143 This information would
allow FSOC to monitor large private
equity funds’ investments in companies
that may be particularly important to
the stability of the financial system.
Section 4 also would ask whether any
of the adviser’s related persons co-invest
in any of the fund’s portfolio
139 See

proposed questions 57 and 58.
proposed questions 59–61. A ‘‘controlled
portfolio company’’ is defined as a portfolio
company that is controlled by the private equity
fund, either alone or together with the private
equity fund’s related persons or other persons that
are part of a club or consortium investing in the
portfolio company. ‘‘Control’’ has the same meaning
as used in Form ADV, and generally means the
power, directly or indirectly, to direct the
management or policies of a person, whether
through ownership of securities, by contract, or
otherwise. See proposed Glossary of Terms to Form
PF; Glossary of Terms to Form ADV.
141 See proposed questions 62–64.
142 See proposed question 65.
143 See proposed question 66. A ‘‘financial
industry portfolio company’’ generally is defined as
a nonbank financial company, as defined by section
102(a)(4) of the Dodd-Frank Act, bank or savings
association, bank holding company or financial
holding company, savings and loan holding
company, credit union, or Farm Credit System
institution. See proposed Glossary of Terms to Form
PF.
140 See

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companies.144 Finally, the form would
require a breakdown of the fund’s
investments by industry and by
geography, which should provide FSOC
with basic information about global and
industry concentrations that may be
relevant to monitoring risk exposures in
the financial system.145
The SEC requests comment on the
information it proposes requiring
regarding private equity funds in section
4. Is there additional information that
the SEC should request and why? For
example, are their additional lending
practices used in leveraged buyouts
about which the form should collect
information? Are there particular
industries in which private equity funds
might invest that could be systemically
important? Should the Form ask
additional questions specific to those
industries? Should the form track
private equity fund investments in
different geographic and/or industry
concentrations than those we have
proposed? Should the SEC request less
information and why? Should the SEC
not require any reporting on Form PF
specific to private equity funds? Why or
why not?
E. Filing Fees and Format for Reporting
Under proposed Advisers Act rule
204(b)–1(b), Form PF would need to be
filed through an electronic system
designated by the SEC for this purpose.
There may be efficiencies realized if the
current Investment Adviser Registration
Depository (‘‘IARD’’) platform, which is
operated by the Financial Industry
Regulatory Authority, were expanded
for this purpose, such as the possible
interconnectivity of Form ADV filings
and Form PF filings, and possible ease
of filing with one password. The filing
system would need to have certain
features, including being programmed
with special confidentiality protections
designed to ensure the heightened
confidentiality protections created for
Form PF filing information under the
Dodd-Frank Act but to allow for secure
access by FSOC and other regulators as
permitted under the Dodd-Frank Act.
The SEC separately will decide on the
system to be selected for the electronic
filing of Form PF. That determination
will be reflected in a separate notice.
Under the proposed rule, advisers
required to file Form PF would be
required to pay to the operator of the
Form PF filing system fees that have
144 See

proposed question 69.
proposed questions 67 and 68. Industries
would be identified using NAICS codes. ‘‘NAICS’’
stands for the ‘‘North American Industry
Classification System,’’ and is a system of industry
classifications commonly used in the financial
industry.
145 See

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been approved by the SEC.146 We
anticipate that Large Private Fund
Advisers’ filing fees would be set at a
higher amount because their filings
would be responsible for a larger
proportion of system needs due to their
more frequent and extensive filings. The
SEC in a separate action would approve
filing fees that reflect the reasonable
costs associated with the filings and the
establishment and maintenance of the
filing system.147
While we are not requiring that the
information be filed in eXtensible
Markup Language (‘‘XML’’) tagged data
format, we expect to look for a filing
system that could accept information
filed in XML format. We intend to
establish data tags to allow Form PF to
be submitted in XML format with the
SEC. Accordingly, advisers would be
able to file the information in Form PF
in XML format if they choose. We
believe that certain advisers may prefer
to report in XML format because it
allows them to automate aspects of their
reporting and thus minimize burdens
and generate efficiencies for the adviser.
We anticipate that we may eventually
require Form PF filers to tag data
submitted on Form PF using a refined,
future taxonomy defined by us, working
in collaboration with the industry.
Thereafter, the usability of data
contained in Form PF is expected to
increase greatly because tagged data
would be easier to sort and analyze. We
note that private initiatives are
underway to create such taxonomies.148
We request comment on our proposed
system of electronic filing. Should we
require that all filings be done in XML
format? Should we allow or require the
form to be provided in a format other
than XML, such as eXtensible Business
Reporting Language (‘‘XBRL’’)? Is there
another format that is more widely used
or would be more appropriate for the
required data? Should smaller and/or
Large Private Fund Advisers be charged
different amounts than what we have
anticipated charging? If so, why?

srobinson on DSKHWCL6B1PROD with PROPOSALS3

III. General Request for Comment
The Commissions request comment
on the rules and form proposed in this
Release and comment on other matters
that might have an effect on the
proposals contained in this Release.
Commenters should provide empirical
data to support their views.
proposed Advisers Act rule 204(b)–1(d).
section 204(c) of the Advisers Act.
148 See, e.g., http://www.operastandards.org.

IV. Paperwork Reduction Act
CFTC
Proposed CEA rule 4.27(d) does not
impose any additional burden upon
registered CPOs and CTAs that are
dually registered as investment advisers
with the SEC. By filing the Form PF
with the SEC, these dual registrants
would be deemed to have satisfied
certain of their filing obligations with
the CFTC, and the CFTC is not imposing
any additional burdens herein.
Therefore, any burden imposed by Form
PF through proposed CEA rule 4.27(d)
on entities registered with both the
CFTC and the SEC has been accounted
for within the SEC’s calculations
regarding the impact of this collection of
information under the Paperwork
Reduction Act of 1995 (‘‘PRA’’).149
SEC
Section 404 of the Dodd-Frank Act,
which amends section 204(b) of the
Advisers Act, directs the SEC to require
private fund advisers to file reports
containing such information as the SEC
deems necessary and appropriate in the
public interest and for investor
protection or for the assessment of
systemic risk. Proposed rule 204(b)–1
and Form PF under the Advisers Act,
which would implement this
requirement of the Dodd-Frank Act.
Proposed Form PF contains a new
‘‘collections of information’’ within the
meaning of the PRA.150 The title for the
new collection of information is: ‘‘Form
PF under the Investment Advisers Act
of 1940, reporting by investment
advisers to private funds.’’ For purposes
of this PRA analysis, the paperwork
burden associated with the
requirements of proposed rule 204(b)–1
is included in the collection of
information burden associated with
proposed Form PF and thus does not
entail a separate collection of
information. The SEC is submitting this
collection of information to the Office of
Management and Budget (‘‘OMB’’) for
review in accordance with 44 U.S.C.
3507(d) and 5 CFR 1320.11. An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless it
displays a currently valid control
number.
Proposed Form PF is intended to
provide FSOC with information that
would facilitate fulfillment of its
obligations under the Dodd-Frank Act
relating to nonbank financial companies
and systemic risk monitoring.151 The

146 See

149 44

147 See

150 44

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U.S.C. 3501–3521.

U.S.C. 3501–3521.

151 See sections I.A and II.A of this Release.

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SEC also may use the information in
connection with its regulatory and
examination programs. The respondents
to Form PF would be private fund
advisers.152 Compliance with proposed
Form PF would be mandatory for any
private fund adviser. Smaller private
fund advisers would be required to file
Form PF only on an annual basis. These
smaller private fund advisers would
provide a limited amount of basic
information about the operations of the
private funds they advise.153 Large
Private Fund Advisers would be
required to file Form PF on a quarterly
basis reporting additional information
regarding the private funds they advise.
The PRA analysis set forth below takes
into account the fact that the additional
information proposed Form PF would
require that large hedge fund advisers
report would be more extensive than the
additional information required from
large liquidity fund advisers, which in
turn would be more extensive than that
required from large private equity fund
advisers.154
As discussed in section II.B of this
Release, the SEC has sought to minimize
the reporting burden on private fund
advisers to the extent appropriate. In
particular, the SEC has designed the
reporting frequency based on when it
understands advisers to private funds
are already collecting certain
information that Form PF would
require. In addition, the SEC has based
certain more specific reporting items on
information that it understands large
hedge fund advisers frequently collect
152 The requirement to file the form would apply
to investment advisers registered, or required to
register, with the SEC that advise one or more
private funds. See proposed rule 204(b)–1(a). It
would not apply to state-registered investment
advisers or exempt reporting advisers.
153 See section II.B of this Release for a
description of who would be required to file Form
PF, section II.C of this Release for information
regarding the frequency with which smaller private
fund advisers would be required to file Form PF,
and section II.D.1 of this Release for a description
of the information that smaller private fund
advisers would be required to report on Form PF.
See also proposed Instruction 8 to Form PF for
information regarding the frequency with which
smaller private fund advisers would be required to
file Form PF.
154 See section II.B of this Release for a
description of who would be required to file Form
PF, section II.C of this Release for information
regarding the frequency with which Large Private
Fund Advisers would be required to file Form PF,
section II.D.2 of this Release for a description of the
information that large hedge fund advisers would
be required to report on Form PF, and sections
II.D.3 and II.D.4 of this Release for a description of
the information that large liquidity and private
equity fund advisers would be required to report on
Form PF. See also proposed Instruction 8 to Form
PF for information regarding the frequency with
which Large Private Fund Advisers would be
required to file Form PF.

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for purposes of reporting to investors in
the funds.155
The information that Form PF would
require would be filed through an
electronic filing system expected to be
operated by an entity designated by the
SEC. Responses to the information
collections would be kept confidential
to the extent permitted by law.156

srobinson on DSKHWCL6B1PROD with PROPOSALS3

A. Burden Estimates for Annual
Reporting by Smaller Private Fund
Advisers
In the Implementing Release, the SEC
estimated that 3,500 currently registered
advisers would become subject to the
private fund reporting requirements
included in the proposed amendments
to Form ADV.157 The SEC further
estimated that 200 advisers to private
funds would register with the SEC as a
result of normal growth in the
population of registered advisers and
that 750 advisers to private funds would
register as a result of the Dodd-Frank
Act’s elimination of the private adviser
exemption.158 As a result, the SEC
estimates that a total of approximately
4,450 registered investment advisers
would become subject to the proposed
private fund reporting requirements in
Form ADV.159 Because these advisers
would also be required to report on
Form PF, the SEC accordingly estimates
that approximately 4,450 advisers
would be required to file all or part of
Form PF.160 Out of this total number,
155 See Report of the Asset Manager’s Committee
to the President’s Working Group on Financial
Markets, Best Practices for the Hedge Fund Industry
(Jan. 15, 2009), available at http://
www.amaicmte.org/Public/AMC%20Report%20%20Final.pdf (discussing best practices on
disclosing to investors performance data, assets
under management, and risk management practices
(including on asset types, geography, leverage, and
concentrations of positions) with which we
understand many hedge funds comply).
156 See supra note 39 and accompanying text.
157 See section V.B.2.a.ii of the Implementing
Release. As proposed in the Implementing Release,
advisers to private funds would be required to
complete Item 7.B and Section 7.B of Schedule D
to the amended Form ADV.
158 Id. The estimates of registered private fund
advisers are based in part on the number of advisers
that reported a fund in Section 7.B of Schedule D
to the current version of Form ADV. Because these
responses include funds advised by a related person
rather than the adviser, these data may overestimate the total number of private fund advisers.
159 3,500 currently registered advisers to private
funds + 200 advisers to private funds registering as
a result of normal growth + 750 newly registered
advisers to private funds = 4,450 advisers.
160 If a private fund is advised by both an adviser
and one or more subadvisers, only one of these
advisers would be required to complete Form PF.
See section II.B.4 of this Release. As a result, it is
likely that some portion of these advisers either
would not be required to file Form PF or would be
subject to a reporting burden lower than is
estimated for purposes of this PRA analysis. The
SEC has not attempted to adjust the burden
estimates downward for this purpose because the

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the SEC estimates that approximately
3,920 would be smaller private fund
advisers, not meeting the thresholds for
reporting as Large Private Fund
Advisers.161
Smaller private fund advisers would
be required to complete all or portions
of section 1 of Form PF and to file on
an annual basis. As discussed in greater
detail above, section 1 would require
basic data regarding the reporting
adviser’s identity and certain
information about the private funds it
manages, such as performance, leverage,
and investor concentration data.162 If
the reporting adviser advises any hedge
funds, section 1 also would require
basic information regarding those funds,
including their investment strategies,
trading counterparty exposures, and
trading and clearing practices.
Based on the SEC’s experience with
other data filings, it estimates that
smaller private fund advisers would
require an average of approximately 10
burden hours to compile, review and
electronically file the required
information in section 1 of Form PF for
the initial filing and an average of
approximately 3 burden hours for
subsequent filings.163 Accordingly, the
amortized average annual burden of
periodic filings would be 5 hours per
smaller private fund adviser for each of
the first three years,164 and the
amortized aggregate annual burden of
periodic filings for smaller private fund
SEC does not currently have reliable data with
which to estimate the number of funds that have
subadvisers.
161 Based on the estimated total number of
registered private fund advisers that would not
meet the thresholds to be considered Large Private
Fund Advisers. (4,450 estimated registered private
fund advisers ¥200 large hedge fund advisers ¥80
large liquidity fund advisers ¥250 large private
equity fund advisers = 3,920 smaller private fund
advisers.)
162 See supra section II.D.1.
163 These estimates reflect the SEC’s
understanding that much of the information in
section 1 of Form PF is currently maintained by
most private fund advisers in the ordinary course
of business. In addition, the time required to
determine a private fund adviser’s aggregate assets
under management and the amount of assets under
management that relate to private funds of various
types largely is expected to be included in the
approved burden associated with the SEC’s Form
ADV (this information would only differ if the
adviser managed parallel managed accounts). As a
result, responding to questions on Form PF that
relate to assets under management and determining
whether an adviser is a Large Private Fund Adviser
should impose little or no additional burden on
private fund advisers.
164 The SEC estimates that a smaller private fund
adviser would make 3 annual filings in three years,
for an amortized average annual burden of 5 hours
(1 initial filing × 10 hours + 2 subsequent filings
× 3 hours = 16 hours; and 16 hours ÷ 3 years =
approximately 5 hours). After the first three years,
filers generally would not incur the start-up
burdens applicable to the first filing.

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advisers would be 19,600 hours for each
of the first three years.165
B. Burden Estimates for Quarterly
Reporting by Large Private Fund
Advisers
The SEC estimates that 530 of the
private fund advisers registered with the
SEC would meet one or more of the
thresholds for reporting as Large Private
Fund Advisers.166 As discussed in
section II.D above, Large Private Fund
Advisers would be required to report
more information on Form PF than
smaller private fund advisers and would
be required to report on a quarterly
basis. The amount of additional
information reported by a Large Private
Fund Adviser would depend, in part, on
whether it is a large hedge fund adviser,
a large liquidity fund adviser, or large
private equity fund adviser. A large
hedge fund adviser would be required to
report more information with respect to
itself and the funds it advises than
would a large liquidity fund adviser,
which in turn would report more
information than a large private equity
fund adviser.167 Of the total number of
Large Private Fund Advisers, the SEC
estimates that 200 are large hedge fund
advisers, 80 are large liquidity fund
advisers, and 250 are large private
equity fund advisers.168
Because the proposed reporting
requirements on Form PF for large
hedge fund advisers would be the most
extensive of the Large Private Fund
Advisers, the SEC estimates that these
advisers would require, on average,
more hours than other Large Private
Fund Advisers to configure systems and
to compile, review and electronically
file the required information.
Accordingly, the SEC estimates that
large hedge fund advisers would require
an average of approximately 75 burden
hours for an initial filing and 35 burden
hours for each subsequent filing.169 In
165 5 burden hours on average per year × 3,920
smaller private fund advisers = 19,600 burden
hours per year.
166 See section II.B.2 of this Release for estimates
of the numbers of large hedge fund advisers, large
liquidity fund advisers, and large private equity
fund advisers. (200 large hedge fund advisers + 80
large liquidity fund advisers + 250 large private
equity fund advisers = 530 Large Private Fund
Advisers.)
167 See supra sections II.D.2, II.D.3 and II.D.4.
168 See supra section II.B.2.
169 The estimates of hour burdens and costs for
Large Private Fund Advisers provided in the
Paperwork Reduction Act and cost benefit analyses
are based on burden data provided by advisers in
response to the FSA hedge fund survey and on the
experience of SEC staff. These estimates also
assume that some Large Private Fund Advisers will
find it efficient to automate some portion of the
reporting process, which would increase the burden
of the initial filing but reduce the burden of

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contrast, large liquidity fund advisers,
which would report more information
than smaller private fund advisers or
large private equity fund advisers but
less information than large hedge fund
advisers, would require an average of
approximately 35 burden hours for an
initial filing and 16 burden hours for
each subsequent filing. Finally, the SEC
estimates that large private equity fund
advisers, which would report more
information than smaller private fund
advisers but less than other Large
Private Fund Advisers, would require
an average of approximately 25 burden
hours for an initial filing and 12 burden
hours for each subsequent filing. Based
on these estimates, the amortized
average annual burden of periodic
filings would be 153 hours per large
hedge fund adviser,170 70 hours per
large liquidity fund adviser,171 and 52
hours per large private equity fund
adviser, in each case for each of the first
three years.172 In the aggregate, the
amortized annual burden of periodic
filings would then be 30,600 hours for
large hedge fund advisers,173 5,600
hours for large liquidity fund
advisers,174 and 13,000 hours for large
private equity fund advisers,175 in each
case for each of the first three years.

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C. Burden Estimates for Transition
Filings, Final Filings and Temporary
Hardship Exemption Requests
In addition to periodic filings, a
private fund adviser would be required
to file very limited information on Form
PF in three situations.
First, any adviser that transitions from
quarterly to annual filing because it has
subsequent filings, which has been taken into
consideration in our burden estimates.
170 The SEC estimates that a large hedge fund
adviser would make 12 quarterly filings in three
years, for an amortized average annual burden of
153 hours (1 initial filing × 75 hours + 11
subsequent filings × 35 hours = 460 hours; and 460
hours ÷ 3 years = approximately 153 hours). After
the first three years, filers generally would not incur
the start-up burdens applicable to the first filing.
171 The SEC estimates that a large liquidity fund
adviser would make 12 quarterly filings in three
years, for an amortized average annual burden of 70
hours (1 initial filing × 35 hours + 11 subsequent
filings × 16 hours = 211 hours; and 211 hours ÷ 3
years = approximately 70 hours). After the first
three years, filers generally would not incur the
start-up burdens applicable to the first filing.
172 The SEC estimates that a large private equity
fund adviser would make 12 quarterly filings in
three years, for an amortized average annual burden
of 52 hours (1 initial filing × 25 hours + 11
subsequent filings × 12 hours = 157 hours; and 157
hours ÷ 3 years = approximately 52 hours). After the
first three years, filers generally would not incur the
start-up burdens applicable to the first filing.
173 153 burden hours on average per year × 200
large hedge fund advisers = 30,600 hours.
174 70 burden hours on average per year × 80 large
liquidity fund advisers = 5,600 hours.
175 52 burden hours on average per year × 250
large private equity fund advisers = 13,000 hours.

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ceased to be a Large Private Fund
Adviser would be required to file a
Form PF indicating that it is no longer
obligated to report on a quarterly basis.
The SEC estimates that approximately 9
percent of Large Private Fund Advisers
would need to make a transition filing
each year with a burden of 0.25 hours,
or a total of 12 burden hours per year
for all private fund advisers.176
Second, filers who are no longer
subject to Form PF’s periodic reporting
requirements would file a final report
indicating that fact. The SEC estimates
that approximately 8 percent of the
advisers required to file Form PF would
have to file such an amendment each
year with a burden of 0.25 of an hour,
or a total of 89 burden hours per year
for all private fund advisers.177
Finally, an adviser experiencing
technical difficulties in submitting Form
PF may request a temporary hardship
exemption by filing portions of Form PF
in paper format.178 The information that
must be filed is comparable to the
information that Form ADV filers
provide on Form ADV–H when
requesting a temporary hardship
exemption relating to that form. In the
case of Form ADV–H, the SEC has
estimated that the average burden of
filing is 1 hour and that approximately
1 in every 1,000 advisers will file
annually.179 Assuming that Form PF
filers request hardship exemptions at
the same rate and that the applications
impose the same burden per filing, the
SEC would expect approximately 4
filers to request a temporary hardship
exemption each year 180 for a total of 4
burden hours.181
D. Aggregate Burden Estimates
Based on the foregoing, the SEC
estimates that Form PF would result in
an aggregate of 68,905 burden hours per
year for all private fund advisers for
each of the first three years, or 15
burden hours per year on average for
176 Estimate is based on IARD data on the
frequency of advisers to one or more private funds
ceasing to have assets under management sufficient
to cause them to be Large Private Fund Advisers.
(530 Large Private Fund Advisers × 0.09 × 0.25
hours = 12 hours.)
177 Estimate is based on IARD data on the
frequency of advisers to one or more private funds
withdrawing from SEC registration. (4,450 private
fund advisers × 0.08 × 0.25 hours = 89 hours.)
178 See proposed SEC rule 204(b)–1(f). The
proposed rule would require that the adviser
complete and file Item A of Section 1a and Section
5 of Form PF, checking the box in Section 1a
indicating that the filing is a request for a temporary
hardship exemption.
179 See section V.F of the Implementing Release.
180 4,450 private fund advisers × 1 request per
1,000 advisers = approximately 4 advisers.
181 4 advisers × 1 hour per response = 4 hours.

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each private fund adviser over the same
period.182
E. Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(B),
the SEC solicits comments to: (i)
Evaluate whether the proposed
amendments to the collection of
information are necessary for the proper
performance of the functions of the SEC,
including whether the information
would have practical utility; (ii)
evaluate the accuracy of the SEC’s
estimate of the burden of the proposed
collection of information; (iii) determine
whether there are ways to enhance the
quality, utility, and clarity of the
information to be collected; and (iv)
determine whether there are ways to
minimize the burden of the collection of
information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology.
In particular, would private fund
advisers seek to automate all or part of
their Form PF reporting obligations?
Would automation be efficient only for
Large Private Fund Advisers, or would
smaller private fund advisers also be
able to automate efficiently? What is the
likely burden of automation? Would
advisers use internal personnel or pay
outside service providers to make
needed system modifications or to
perform all or part of their Form PF
reporting obligations? If outside service
providers are used, what is the likely
cost and how would it impact our
estimates of internal costs and hourly
burdens for the proposed reporting?
Persons desiring to submit comments
on the collection of information
requirements should direct them to the
Office of Management and Budget,
Attention: Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Room 10102, New Executive
Office Building, Washington, DC 20503,
and also should send a copy of their
comments to Elizabeth M. Murphy,
Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090 with
reference to File No. S7–05–11.
Requests for materials submitted to
OMB by the Commission with regard to
this collection of information should be
182 19,600 hours for periodic filings by smaller
advisers + 30,600 hours for periodic filings by large
hedge fund advisers + 5,600 hours for periodic
filings by large liquidity fund advisers + 13,000
hours for periodic filings by large private equity
fund advisers + 12 hours per year for transition
filings + 89 hours per year for final filings + 4 hours
per year for temporary hardship requests =
approximately 68,905 hours per year. 68,905 hours
per year ÷ 4,450 total advisers = 15 hours per year
on average.

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in writing, refer to File No. S7–05–11,
and be submitted to the Securities and
Exchange Commission, Office of
Investor Education and Advocacy, 100 F
Street, NE., Washington, DC 20549–
0213. OMB is required to make a
decision concerning the collections of
information between 30 and 60 days
after publication of this Release.
Therefore, a comment to OMB is best
assured of having its full effect if OMB
receives it within 30 days after
publication of this Release.
V. CFTC Cost-Benefit Analysis
Section 15(a) of the CEA 183 requires
the CFTC to consider the costs and
benefits of its actions before issuing
rules, regulations, or orders under the
CEA. By its terms, section 15(a) does not
require the CFTC to quantify the costs
and benefits of its rules, regulations or
orders or to determine whether the
benefits outweigh the costs. Rather,
section 15(a) requires that the CFTC
‘‘consider’’ the costs and benefits of its
actions. Section 15(a) further specifies
that the costs and benefits shall be
evaluated in light of the following five
broad areas of concern: (1) Protection of
market participants and the public;
(2) efficiency, competitiveness and
financial integrity of futures markets;
(3) price discovery; (4) sound risk
management practices; and (5) other
public interest considerations. The
CFTC may in its discretion give greater
weight to any one of the five
enumerated areas and could in its
discretion determine that,
notwithstanding the costs, a particular
rule, regulation, or order is necessary or
appropriate to protect the public interest
or to effectuate any of the provisions or
accomplish any of the purposes of the
CEA.
The proposed rule 4.27(d) would
deem a CPO registered with the CFTC
that is dually registered as a private
fund adviser with the SEC to have
satisfied its filing requirements for
Schedules B and C of proposed Form
CPO–PQR by completing and filing the
applicable portions of Form PF for each
of its commodity pools that satisfy the
definition of ‘‘private fund’’ in the DoddFrank Act. Under the proposed rule,
most of the CPOs and CTAs that are
dually registered as private fund
advisers would be required to provide
annually a limited amount of basic
information on Form PF about the
operations of their private funds. Only
large CPOs and CTAs that are also
registered as private fund advisers with
the SEC would have to submit on a
quarterly basis the full complement of

systemic risk related information
required by Form PF.
As noted above, the Dodd-Frank Act
tasks FSOC with monitoring the
financial services marketplace in order
to identify potential threats to the
financial stability of the United
States.184 The Dodd-Frank Act also
requires FSOC to collect information
from member agencies to support its
functions.185 The CFTC and the SEC are
jointly proposing sections 1 and 2 of
Form PF as a means to collect the
information necessary to permit FSOC
to fulfill its obligation to monitor private
funds, and in order to identify any
potential systemic threats arising from
their activities. The CFTC and the SEC
do not currently collect the information
that is covered in proposed sections 1
and 2 of Form PF.
With respect to costs, the CFTC has
determined that: (1) Without the
proposed reporting requirements
imposed on dually-registered CPOs and
CTAs, FSOC will not have sufficient
information to identify and address
potential threats to the financial
stability of the United States (such as
the near collapse of Long Term Capital
Management); (2) the proposed
reporting requirements, once finalized,
will provide the CFTC with better
information regarding the business
operations, creditworthiness, use of
leverage, and other material information
of certain registered CPOs and CTAs
that are also registered as investment
advisers with the SEC; and (3) while
they are necessary to U.S. financial
stability, the proposed reporting
requirements will create additional
compliance costs for these registrants.
The CFTC has determined that the
proposed reporting requirements will
provide a benefit to all investors and
market participants by providing the
CFTC and other policy makers with
more complete information about these
registrants and the potential risk their
activities may pose to the U.S. financial
system. In turn, this information would
enhance the CFTC’s ability to
appropriately tailor its regulatory
policies to the commodity pool industry
and its operators and advisors. As
mentioned above, the CFTC and the SEC
do not have access to this information
today and have instead been made to
use information from other, less reliable
sources.
The CFTC invites public comment on
its cost-benefit considerations as
concerns sections 1 and 2 of Form PF.
Commenters are also invited to submit
184 See

section 112(a)(2)(C) of the Dodd-Frank

Act.
183 See

5 U.S.C. 801(a)(1)(B)(i).

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185 See

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8087

any data and other information that they
may have quantifying or qualifying the
perceived costs and benefits of this
proposed rule with their comment
letters.
VI. SEC Economic Analysis
As discussed above, the Dodd-Frank
Act amended the Advisers Act to,
among other things, authorize and direct
the SEC to promulgate reporting
requirements for private fund advisers.
In enacting Sections 404 and 406 of the
Dodd-Frank Act, Congress determined
to require that private fund advisers file
reports with the SEC and specified
certain types of information that should
be subject to reporting and/or
recordkeeping requirements, but
Congress left to the SEC the
determination of the specific
information to be maintained or
reported. When determining the form
and content of such reports, the SEC
may 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 system risk.
The SEC is proposing rule 204(b)–1
and Form PF, to implement the private
fund adviser reporting requirements that
the Dodd-Frank Act contemplates.
Under the proposed rule, private fund
advisers would be required to file
information responsive to all or portions
of Form PF on a periodic basis. The
scope of the required information and
the frequency of the reporting would be
related to the amount of private fund
assets that each private fund adviser
manages and the type of private fund to
which those assets relate. Specifically,
smaller private fund advisers would be
required to report annually and provide
only basic information regarding their
operations and the private funds they
advise, while Large Private Fund
Advisers would report on a quarterly
basis and provide more information.186
The SEC is sensitive to the costs and
benefits imposed by its rules. It has
identified certain costs and benefits of
proposed Advisers Act rule 204(b)–1
and Form PF, and it requests comment
on all aspects of the cost-benefit
analysis below, including identification
and assessment of any costs and benefits
not discussed in this analysis. In
186 See section II.B of this Release for a
description of who would be required to file Form
PF, section II.C of this Release for information
regarding the frequency with which private fund
advisers would be required to file Form PF, and
section II.D of this Release for a description of the
information that private fund advisers would be
required to report on Form PF. See also proposed
Instruction 8 to Form PF for information regarding
the frequency with which private fund advisers
would be required to file Form PF.

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connection with its consideration of the
costs and benefits, the SEC also has
considered whether the proposal would
promote efficiency, competition, and
capital formation. Section 202(c) of the
Advisers Act requires the SEC, when
engaging in rulemaking that requires it
to consider or determine whether an
action is necessary or appropriate in the
public interest, to consider, in addition
to the protection of investors, whether
the action will promote efficiency,
competition, and capital formation.187
The SEC seeks comment and data on
the value of the benefits identified. It
also welcomes comments on the
accuracy of the cost estimates in this
analysis, and requests that commenters
provide data that may be relevant to
these cost estimates. In addition, the
SEC seeks estimates and views
regarding these costs and benefits for
particular covered advisers, including
small advisers, as well as any other
costs or benefits that may result from
the adoption of the proposed rule and
form.
Because proposed Advisers Act rule
204(b)–1 and Form PF would
implement sections 404 and 406 of the
Dodd-Frank Act, the benefits and costs
considered by Congress in passing the
Dodd-Frank Act are not entirely
separable from the benefits and costs
imposed by the SEC in designing the
proposed rule and form. Accordingly,
although the PRA hourly burden
estimates discussed above, and their
corresponding dollar cost estimates, are
included in full below and in the PRA
analysis above, a portion of the
reporting costs is attributable to the
requirements of the Dodd-Frank Act and
not specific requirements of the
proposed rule or form.
A. Benefits
The SEC believes Form PF may create
two principal classes of benefits. First,
the information collected through Form
PF is expected to facilitate FSOC’s
monitoring of the systemic risks that
private funds may pose and to assist
FSOC in carrying out its other duties
under the Dodd-Frank Act with respect
to nonbank financial companies.
Second, this information may enhance
the ability of the SEC to evaluate and
form regulatory policies and improve
the efficiency and effectiveness of the
SEC’s monitoring of markets for investor
protection and market vitality.
The Dodd-Frank Act directs FSOC to
monitor emerging risks to U.S. financial
stability 188 and to require FRB
supervision of designated nonbank
187 15

U.S.C. 80b–2(c).

supra note 6 and accompanying text.

188 See

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financial companies that may pose risks
to U.S. financial stability in the event of
their material financial distress or
failure or because of their activities.189
In addition, the Dodd-Frank Act directs
FSOC to recommend to the FRB
heightened prudential standards for
designated nonbank financial
companies.190
In enacting Sections 404 and 406 of
the Dodd-Frank Act, Congress
recognized that FSOC would need
information from private fund advisers
to help it carry out its duties. As a
result, proposed Form PF is designed to
gather information regarding the private
fund industry that would be useful to
FSOC in monitoring systemic risk.191
Systemic risk may arise from a variety
of sources, including
interconnectedness, changes in market
liquidity and market concentrations,
and so the information that Form PF
elicits is intended to provide data that,
individually or in the aggregate, would
permit FSOC to identify where systemic
risk may arise across a range of sources.
The SEC expects that FSOC would use
this data to supplement the data that it
collects regarding other financial market
participants and gain a broader view of
the financial system than is currently
available to regulators. In this manner,
the SEC believes that the information
collected through Form PF could play
an important role in FSOC’s monitoring
of systemic risk, both in the private fund
industry and in the financial markets
more broadly.
The proposed private fund reporting
on Form PF would also benefit all
investors and market participants by
improving the information available to
the SEC regarding the private fund
industry. Today, regulators have little
reliable data regarding this rapidly
growing sector and frequently have to
rely on data from other sources, which
when available may be incomplete. As
discussed above, the more reliable data
collected through Form PF would assist
FSOC in identifying and addressing
risks to U.S. financial stability,
potentially protecting investors and
other market participants from
significant losses. In addition, this data
would provide the SEC with a more
complete view of the financial markets
in general and the private fund industry
in particular. This broader perspective
and more reliable data may enhance its
ability to form and frame regulatory
policies regarding the private fund
189 Section

112(a)(2) of the Dodd-Frank Act.
supra note 7 and accompanying text.
191 See section II.D of this Release for a
description of the information that private fund
advisers would be required to report on proposed
Form PF.
190 See

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industry and its advisers, and to more
effectively evaluate the outcomes of
regulatory policies and programs
directed at this sector, including for the
protection of private fund investors.
The SEC also estimates that the
proposed rule may improve the
efficiency and effectiveness of the SEC’s
oversight of private fund advisers by
enabling SEC staff to manage and
analyze information related to the risks
posed by private funds more quickly,
more effectively, and at a lower cost
than is currently possible. This would
allow the SEC to more efficiently and
effectively target its examination
program. The SEC would be able to use
Form PF information to generate reports
on the industry, its characteristics and
trends. These reports may help the SEC
anticipate regulatory problems, allocate
and reallocate its resources, and more
fully evaluate and anticipate the
implications of various regulatory
actions it may consider taking, which
should increase both the efficiency and
effectiveness of its programs and thus
increase investor protection. Responses
to many of the proposed questions
would help the SEC better understand
the investment activities of private
funds and the scope of their potential
effect on investors and the markets that
the SEC regulates.
The coordination with the CFTC
would also result in significant
efficiencies for private fund advisers
that are also registered as a CPO or CTA
with the CFTC because, under the
proposed rules in this Release, these
advisers would satisfy certain reporting
obligations under both proposed
Advisers Act rule 204(b)–1 and
proposed CEA rule 4.27(d) with respect
to commodity pools that satisfy the
definition of ‘‘private fund’’ (as proposed
in Form PF) by filing Form PF. As
discussed in section I.B of this Release,
the SEC also has coordinated with
foreign financial regulators regarding
the reporting of systemic risk
information regarding hedge funds and
anticipates that this coordination, as
reflected in proposed Form PF, would
result in greater efficiencies in reporting
by private fund advisers, as well as
information sharing and private fund
monitoring among foreign financial
regulators.
As discussed in section II.B of this
Release, the SEC has designed the
reporting frequency in proposed Form
PF based on when it understands
advisers to private funds are already
compiling certain information that Form
PF would require, creating efficiencies
for, and benefiting, the adviser in
satisfying its reporting obligations. The
SEC also has based certain more specific

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reporting items on information that it
understands large hedge fund advisers
frequently calculate for purposes of
reporting to investors in the funds.192
The SEC does not expect that this
proposal would have an effect on
competition because the information
generally would be non-public and
similar types of advisers would have
comparable burdens under the form.
The SEC also does not expect that this
proposal would have an effect on capital
formation because the information
generally would be non-public and thus
should not impact private fund advisers’
ability to raise capital or their market
activities.

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B. Costs
The proposed reporting requirement
also would impose certain costs on
private fund advisers. In order to
minimize these costs, the scope of the
required information and the frequency
of the reporting generally would be less
for private fund advisers that manage
less private fund assets or that do not
manage types of private funds that may
be more likely to pose systemic risk.
Specifically, smaller private fund
advisers would be required to report
annually and provide only basic
information regarding their operations
and the private funds they advise, while
Large Private Fund Advisers would
report on a quarterly basis and provide
more information.193 Further, the
additional information required from
large hedge fund advisers would be
more extensive than the additional
information required from large
liquidity fund advisers, which in turn
would be more extensive than that
required from large private equity fund
advisers.
The SEC expects that the costs of
reporting would be most significant for
the first report that a private fund
adviser is required to file because the
adviser would need to familiarize itself
with the new reporting form and may
need to configure its systems in order to
efficiently gather the required
information. The SEC also anticipates
that the initial report would require
more attention from senior personnel,
including compliance managers and
senior risk management specialists, than
192 See

note 105 and accompanying text.
section II.B of this Release for a
description of who would be required to file Form
PF, section II.C of this Release for information
regarding the frequency with which private fund
advisers would be required to file Form PF, and
section II.D of this Release for a description of the
information that private fund advisers would be
required to report on Form PF. See also proposed
Instruction 8 to Form PF for information regarding
the frequency with which private fund advisers
would be required to file Form PF.
193 See

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would subsequent reports. In addition,
the SEC expects that some Large Private
Fund Advisers would find it efficient to
automate some portion of the reporting
process, which would increase the
burden of the initial filing but reduce
the burden of subsequent filings.
In subsequent reporting periods, the
SEC anticipates that filers would incur
significantly lower costs because much
of the work involved in the initial report
is non-recurring and because of
efficiencies realized from system
configuration and reporting automation
efforts accounted for in the initial
reporting period. In addition, the SEC
estimates that senior personnel would
bear less of the reporting burden in
subsequent reporting periods, reducing
costs though not necessarily reducing
the burden hours.
Based on the foregoing, the SEC
estimates 194 that, for the purposes of the
PRA, the periodic filing requirements
under Form PF (including configuring
systems and compiling, automating,
reviewing and electronically filing the
report) would impose:
(1) 10 burden hours at a cost of
$3,410 195 per smaller private fund
adviser for the initial annual report;
(2) 3 burden hours at a cost of $830 196
per smaller private fund adviser for each
subsequent annual report;
194 The SEC understands that some advisers may
outsource all or a portion of their Form PF reporting
responsibilities to a filing agent, software
consultant, or other third-party service provider.
The SEC believes, however, that an adviser would
engage third-party service providers only if the
external costs were comparable, or less than, the
estimated internal costs of compiling, reviewing,
and filing the Form PF. The hourly wage data used
in this Economic Analysis section of the Release is
based on the Securities Industry and Financial
Markets Association’s Report on Management &
Professional Earnings in the Securities Industry
2010. This data has been modified to account for
an 1,800-hour work-year and multiplied by 5.35 for
management and professional employees and by
2.93 for general and compliance clerks to account
for bonuses, firm size, employee benefits and
overhead.
195 The SEC expects that for the initial report
these activities will most likely be performed
equally by a compliance manager at a cost of $273
per hour and a senior risk management specialist
at a cost of $409 per hour and that, because of the
limited scope of information required from smaller
private fund advisers, these advisers generally
would not realize significant benefits from or incur
significant costs for system configuration or
automation. ($273/hour × 0.5 + $409/hour × 0.5) ×
10 hours = approximately $3,410.
196 The SEC expects that for subsequent reports
senior personnel will bear less of the reporting
burden. As a result, the SEC estimates that these
activities will most likely be performed equally by
a compliance manager at a cost of $273 per hour,
a senior compliance examiner at a cost of $235 per
hour, a senior risk management specialist at a cost
of $409 per hour and a risk management specialist
at a cost of $192 per hour. ($273/hour × 0.25 +
$235/hour × 0.25 + $409/hour × 0.25 + $192/hour
× 0.25) × 3 hours = approximately $830.

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(3) 75 burden hours at a cost of
$23,270 197 per large hedge fund adviser
for the initial quarterly report;
(4) 35 burden hours at a cost of
$9,700 198 per large hedge fund adviser
for each subsequent quarterly report;
(5) 35 burden hours at a cost of
$10,860 199 per large liquidity fund
adviser for the initial quarterly report;
(6) 16 burden hours at a cost of
$4,440 200 per large liquidity fund
adviser for each subsequent quarterly
report;
(7) 25 burden hours at a cost of
$7,760 201 per large private equity fund
197 The SEC expects that for the initial report, of
a total estimated burden of 75 hours, approximately
45 hours will most likely be performed by
compliance professionals and 30 hours will most
likely be performed by programmers working on
system configuration and reporting automation. Of
the work performed by compliance professionals,
the SEC anticipates that it will be performed
equally by a compliance manager at a cost of $273
per hour and a senior risk management specialist
at a cost of $409 per hour. Of the work performed
by programmers, the SEC anticipates that it will be
performed equally by a senior programmer at a cost
of $304 per hour and a programmer analyst at a cost
of $224 per hour. ($273/hour × 0.5 + $409/hour ×
0.5) × 45 hours + ($304/hour × 0.5 + $224/hour ×
0.5) × 30 hours = approximately $23,270.
198 The SEC expects that for subsequent reports
senior personnel will bear less of the reporting
burden and that significant system configuration
and reporting automation costs will not be incurred.
As a result, the SEC estimates that these activities
will most likely be performed equally by a
compliance manager at a cost of $273 per hour, a
senior compliance examiner at a cost of $235 per
hour, a senior risk management specialist at a cost
of $409 per hour and a risk management specialist
at a cost of $192 per hour. ($273/hour × 0.25 +
$235/hour × 0.25 + $409/hour × 0.25 + $192/hour
× 0.25) × 35 hours = approximately $9,700.
199 The SEC expects that for the initial report, of
a total estimated burden of 35 hours, approximately
21 hours will most likely be performed by
compliance professionals and 14 hours will most
likely be performed by programmers working on
system configuration and reporting automation. Of
the work performed by compliance professionals,
the SEC anticipates that it will be performed
equally by a compliance manager at a cost of $273
per hour and a senior risk management specialist
at a cost of $409 per hour. Of the work performed
by programmers, the SEC anticipates that it will be
performed equally by a senior programmer at a cost
of $304 per hour and a programmer analyst at a cost
of $224 per hour. ($273/hour × 0.5 + $409/hour ×
0.5) × 21 hours + ($304/hour × 0.5 + $224/hour ×
0.5) × 14 hours = approximately $10,860.
200 The SEC expects that for subsequent reports
senior personnel will bear less of the reporting
burden and that significant system configuration
and reporting automation costs will not be incurred.
As a result, the SEC estimates that these activities
will most likely be performed equally by a
compliance manager at a cost of $273 per hour, a
senior compliance examiner at a cost of $235 per
hour, a senior risk management specialist at a cost
of $409 per hour and a risk management specialist
at a cost of $192 per hour. ($273/hour × 0.25 +
$235/hour × 0.25 + $409/hour × 0.25 + $192/hour
× 0.25) × 16 hours = approximately $4,440.
201 The SEC expects that for the initial report, of
a total estimated burden of 25 hours, approximately
15 hours will most likely be performed by
compliance professionals and 10 hours will most

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adviser for the initial quarterly report;
and
(8) 12 burden hours at a cost of
$3,330 202 per large private equity fund
adviser for each subsequent quarterly
report.
Assuming that there are 3,920 smaller
private fund advisers, 200 large hedge
fund advisers, 80 large liquidity fund
advisers, and 250 large private equity
fund advisers, the foregoing estimates
would suggest an annual cost of
$30,200,000 203 for all private fund
advisers in the first year of reporting
and an annual cost of $15,800,000 in
subsequent years.204
In addition, as discussed above, a
private fund adviser would be required
to file very limited information on Form
PF if it needed to transition from
quarterly to annual filing, if it were no
longer subject to the reporting
requirements of Form PF or if it
required a temporary hardship
exemption under proposed rule 204(b)–
1(f). The SEC estimates that transition
and final filings would, collectively,
cost private fund advisers as a whole

srobinson on DSKHWCL6B1PROD with PROPOSALS3

likely be performed by programmers working on
system configuration and reporting automation. Of
the work performed by compliance professionals,
the SEC anticipates that it will be performed
equally by a compliance manager at a cost of $273
per hour and a senior risk management specialist
at a cost of $409 per hour. Of the work performed
by programmers, the SEC anticipates that it will be
performed equally by a senior programmer at a cost
of $304 per hour and a programmer analyst at a cost
of $224 per hour. ($273/hour × 0.5 + $409/hour ×
0.5) × 15 hours + ($304/hour × 0.5 + $224/hour ×
0.5) × 10 hours = approximately $7,760.
202 The SEC expects that for subsequent reports
senior personnel will bear less of the reporting
burden and that significant system configuration
and reporting automation costs will not be incurred.
As a result, the SEC estimates that these activities
will most likely be performed equally by a
compliance manager at a cost of $273 per hour, a
senior compliance examiner at a cost of $235 per
hour, a senior risk management specialist at a cost
of $409 per hour and a risk management specialist
at a cost of $192 per hour. ($273/hour × 0.25 +
$235/hour × 0.25 + $409/hour × 0.25 + $192/hour
× 0.25) × 12 hours = approximately $3,330.
203 (3,920 smaller private fund advisers × $3,410
per initial annual report) + (200 large hedge fund
advisers × $23,270 per initial quarterly report) +
(200 large hedge fund advisers × 3 quarterly reports
× $9,700 per subsequent quarterly report) + (80
large liquidity fund advisers × $10,860 per initial
quarterly report) + (80 large liquidity fund advisers
× 3 quarterly reports × $4,440 per subsequent
quarterly report) + (250 large private equity fund
advisers × $7,760 per initial quarterly report) + (250
large private equity fund advisers × 3 quarterly
reports × $3,330 per subsequent quarterly report) =
approximately $30,200,000.
204 (3,920 smaller private fund advisers × $830
per subsequent annual report) + (200 large hedge
fund advisers × 4 quarterly reports × $9,700 per
subsequent quarterly report) + (80 large liquidity
fund advisers × 4 quarterly reports × $4,440 per
subsequent quarterly report) + (250 large private
equity fund advisers × 4 quarterly reports × $3,330
per subsequent quarterly report) = approximately
$15,800,000.

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approximately $6,770 per year.205 The
SEC further estimates that hardship
exemption requests would cost private
fund advisers as a whole approximately
$760 per year.206
Finally, firms required to file Form PF
would have to pay filing fees. The
amount of these fees has not yet been
determined.207
C. Request for Comment
The SEC requests comments on all
aspects of the foregoing cost-benefit
analysis, including the accuracy of the
potential costs and benefits identified
and assessed in this Release, as well as
any other costs or benefits that may
result from the proposals. The SEC
encourages commenters to identify,
discuss, analyze, and supply relevant
data regarding these or additional costs
and benefits. The SEC also requests
comment on the foregoing analysis of
the likely effect of the proposed rule on
competition, efficiency, and capital
formation. Commenters are requested to
provide empirical data to support their
views.
In addition, for purposes of the Small
Business Regulatory Enforcement
Fairness Act of 1996, or ‘‘SBREFA,’’ 208
the SEC must advise OMB whether a
proposed regulation constitutes a
‘‘major’’ rule. Under SBREFA, a rule is
considered ‘‘major’’ where, if adopted, it
results in or is likely to result in: (1) An
annual effect on the economy of $100
million or more; (2) a major increase in
costs or prices for consumers or
individual industries; or (3) significant
adverse effects on competition,
investment, or innovation.
We request comment on the potential
impact of the proposed new rule and
proposed rule amendments on the
economy on an annual basis.
Commenters are requested to provide
205 The SEC estimates that, for the purposes of the
PRA, transition filings will impose 12 burden hours
per year on private fund advisers in the aggregate
and that final filings will impose 89 burden hours
per year on private fund advisers in the aggregate.
The SEC anticipates that this work will most likely
be performed by a compliance clerk at a cost of $67
per hour. (12 burden hours + 89 burden hours) ×
$67/hour = approximately $6,770.
206 The SEC estimates that, for the purposes of the
PRA, requests for temporary hardship exemptions
will impose 4 burden hours per year on private
fund advisers in the aggregate. The SEC anticipants
that five-eighths of this work will most likely be
performed by a compliance manager at a cost of
$273 per hour and that three-eighths of this work
will most likely be performed by a general clerk at
a cost of $50 per hour. (($273 per hour × 5⁄8 of an
hour) + ($50 per hour × 3⁄8 of an hour)) × 4 hours
= approximately $760.
207 See supra note 147 and accompanying text.
208 Public Law 104–121, Title II, 110 Stat. 857
(1996) (codified in various sections of 5 U.S.C., 15
U.S.C. and as a note to 5 U.S.C. 601).

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empirical data and other factual support
for their views to the extent possible.
VII. Initial Regulatory Flexibility
Analysis
CFTC
Under proposed rule 4.27(d), the
CFTC would not impose any additional
burden upon registered CPOs and CTAs
that are dually registered as investment
advisers with the SEC because such
entities are only required to file Form
PF with the SEC. Further, certain CPOs
registered with the CFTC that are also
registered with the SEC would be
deemed to have satisfied certain CFTCrelated filing requirements by
completing and filing the applicable
sections of Form PF with the SEC.
Therefore, any burden imposed by Form
PF through proposed rule 4.27(d) on
small entities registered with both the
CFTC and the SEC has been accounted
for within the SEC’s initial calculations
regarding the impact of this collection of
information under the Regulatory
Flexibility Act (‘‘RFA’’).209 Accordingly,
the Chairman, on behalf of the CFTC,
hereby certifies pursuant to 5 U.S.C.
605(b) that the proposed rules will not
have a significant impact on a
substantial number of small entities.
SEC
The SEC has prepared the following
Initial Regulatory Flexibility Analysis
(‘‘IRFA’’) regarding proposed Advisers
Act rule 204(b)–1 in accordance with
section 3(a) of the RFA.
A. Reasons for Proposed Action
The SEC is proposing rule 204(b)–1
and Form PF specifying information
that private fund advisers must disclose
confidentially to the SEC, which
information the SEC will share with
FSOC for systemic risk assessment
purposes to help implement sections
404 and 406 of the Dodd-Frank Act.
Under the proposed rule, private fund
advisers would be required to file
information responsive to all or portions
of Form PF on a periodic basis. The
scope of the required information and
the frequency of the reporting would be
related to the amount of private fund
assets that each private fund adviser
manages and the type of private fund to
which those assets relate. Specifically,
smaller private fund advisers would be
required to report annually and provide
only basic information regarding their
operations and the private funds they
advise, while Large Private Fund
209 5

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
Advisers would report on a quarterly
basis and provide more information.210
B. Objectives and Legal Basis
As described more fully in sections I
and II of this Release, the general
objective of proposed Advisers Act rule
204(b)–1 is to assist FSOC in its
obligations under the Dodd-Frank Act
relating to nonbank financial companies
and in monitoring systemic risk. The
SEC is proposing rule 204(b)–1 and
Form PF pursuant to the SEC’s authority
set forth in sections 404 and 406 of the
Dodd-Frank Act, to be codified at
sections 204(b) and 211(e) of the
Advisers Act [15 U.S.C. 80b–4(b) and
80b–11(e)].
C. Small Entities Subject to the Rule
Under SEC rules, for the purposes of
the Advisers Act and the Regulatory
Flexibility Act, an investment adviser
generally is a small entity if it: (i) Has
assets under management having a total
value of less than $25 million; (ii) did
not have total assets of $5 million or
more on the last day of its most recent
fiscal year; and (iii) 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.211
Under section 203A of the Advisers
Act, most advisers qualifying as small
entities are prohibited from registering
with the SEC and are instead registered
with State regulators. Therefore, few
small advisers would be subject to the
proposed rule and form. The SEC
estimates that as of December 1, 2010,
approximately 50 advisers that were
small entities were registered with the
SEC and advised one or more private
funds.212
D. Reporting, Recordkeeping, and Other
Compliance Requirements
The proposed rule and form would
impose certain reporting and
compliance requirements on advisers,
including small advisers. The proposed
rule would require all small advisers

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210 See

section II.B of this Release for a
description of who would be required to file Form
PF, section II.C of this Release for information
regarding the frequency with which private fund
advisers would be required to file Form PF, and
section II.D of this Release for a description of the
information that private fund advisers would be
required to report on Form PF. See also proposed
Instruction 8 to Form PF for information regarding
the frequency with which private fund advisers
would be required to file Form PF.
211 17 CFR 275.0–7(a).
212 Based on IARD data.

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registered with the SEC and that advise
one or more private funds to file Form
PF, completing all or part of section 1
of that form. As discussed above, the
SEC estimates that completing,
reviewing, and filing Form PF would
cost $3,410 per year for each small
adviser in its first year of reporting and
$830 per year for each subsequent
year.213 In addition, small entities
would be required to pay a filing fee
when submitting Form PF. The amount
of the filing fee has not yet been
determined, but we anticipate that Large
Private Fund Advisers’ filing fees would
be set at a higher amount than small
advisers.
E. Duplicative, Overlapping, or
Conflicting Federal Rules
The SEC has not identified any
Federal rules that duplicate or overlap
or conflict with the proposed rule.
F. Significant Alternatives
The Regulatory Flexibility Act directs
the SEC to consider significant
alternatives that would accomplish the
stated objective, while minimizing any
significant impact on small entities. In
connection with the proposed rules and
amendments, the SEC considered the
following alternatives: (i) The
establishment of differing compliance or
reporting requirements or timetables
that take into account the resources
available to small entities; (ii) the
clarification, consolidation, or
simplification of compliance and
reporting requirements under the rule
for small entities; (iii) the use of
performance rather than design
standards; and (iv) an exemption from
coverage of the rule, or any part thereof,
for small entities.
Regarding the first and fourth
alternatives, the SEC has proposed
different reporting requirements and
timetables for small entities. The
proposed rule only would require small
entity advisers to file Form PF annually
and to complete applicable portions of
section 1 of the form.214 These smaller

8091

advisers also would have to pay a
smaller amount of filing fees than Large
Private Fund Advisers. Regarding the
second alternative, the information that
would be required of small entities
under section 1 of Form PF is quite
simplified from the more extensive
reporting that would be required of
Large Private Fund Advisers and is
consolidated in one section of the form.
G. Solicitation of Comments
The SEC encourages written
comments on matters discussed in this
IRFA. In particular, the SEC seeks
comment on:
• The number of small entities that
would be subject to the proposed rule;
and
• Whether the effect of the proposed
rule on small entities would be
economically significant.
Commenters are asked to describe the
nature of any effect and provide
empirical data supporting the extent of
the effect.
VIII. Statutory Authority
CFTC
The CFTC is proposing rule 4.27(d)
[17 CFR 4.27(d)] pursuant to its
authority set forth in section 4n of the
Commodity Exchange Act [7 U.S.C. 6n].
SEC
The SEC is proposing rule 204(b)–1
[17 CFR 275.204(b)–1] pursuant to its
authority set forth in sections 404 and
406 of the Dodd-Frank Act, to be
codified at sections 204(b) and 211(e) of
the Advisers Act [15 U.S.C. 80b–4 and
15 U.S.C. 80b–11], respectively.
The SEC is proposing rule 279.9
pursuant to its authority set forth in
sections 404 and 406 of the Dodd-Frank
Act, to be codified at 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

213 See

supra notes 195–196 and accompanying

text.
214 If

the adviser had no hedge fund assets under
management, it would not need to complete section
1.C of the proposed form. Advisers that manage
both registered money market funds and liquidity
funds would be required to complete section 3 of
Form PF, but there are no small entities that manage
a registered money market fund. See section II.B of
this Release for a description of who would be
required to file Form PF, section II.C of this Release
for information regarding the frequency with which
smaller private fund advisers would be required to
file Form PF, and section II.D.1 of this Release for
a description of the information that smaller private
fund advisers would be required to report on Form
PF. See also proposed Instruction 8 to Form PF for
information regarding the frequency with which

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17 CFR Part 4
Advertising, Brokers, Commodity
Futures, Commodity pool operators,
Commodity trading advisors, Consumer
protection, Reporting and recordkeeping
requirements.
17 CFR Part 275
Reporting and recordkeeping
requirements, Securities.
smaller private fund advisers would be required to
file Form PF.

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
4. Section 275.204(b)–1 is added to
read as follows:

Text of Proposed Rules
Commodity Futures Trading
Commission
For the reasons set out in the
preamble, the CFTC is proposing to
amend Title 17, Chapter I of the Code
of Federal Regulations as follows:

§ 275.204(b)–1 Reporting by investment
advisers to private funds.

PART 4—COMMODITY POOL
OPERATORS AND COMMODITY
TRADING ADVISORS
1. The authority citation for part 4
continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c,
6l, 6m, 6n, 6o, 12a, and 23.

*

*
*
*
*
2. In § 4.27, as proposed to be added
elsewhere in this issue of the Federal
Register, add paragraph (d) to read as
follows:
§ 4.27 Additional reporting by advisors of
commodity pools.

*

*
*
*
*
(d) Investment advisers to private
funds. CPOs and CTAs who are dually
registered with the Securities and
Exchange Commission and advise one
or more private funds, as defined in
section 202 of the Investment Advisers
Act of 1940 (15 U.S.C. 80b–2(a)), shall
file Form PF with the Securities and
Exchange Commission. Dually
registered CPOs and CTAs that file Form
PF with the Securities and Exchange
Commission will be deemed to have
filed Form PF with the Commission for
purposes of any enforcement action
regarding any false or misleading
statement of a material fact in Form PF.
Dually registered CPOs and CTAs must
file such other reports as are required
under this section with respect to all
pools that are not private funds.
*
*
*
*
*
Securities and Exchange Commission
For the reasons set out in the
preamble, the SEC is proposing to
amend Title 17, Chapter II of the Code
of Federal Regulations as follows:
PART 275—RULES AND
REGULATIONS, INVESTMENT
ADVISERS ACT OF 1940

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3. The authority citation for part 275
continues to read in part as follows:
Authority: 15 U.S.C. 80b–2(a)(11)(G), 80b–
2(a)(17), 80b–3, 80b–4, 80b–4a, 80b–6(4),
80b–6a, and 80b–11, unless otherwise noted.

*

*

*

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*

*

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(a) Reporting by investment advisers
to private funds on Form PF. Subject to
paragraph (g), if you are an investment
adviser registered or required to be
registered under section 203 of the Act
(15 U.S.C. 80b–3) and act as an
investment adviser to one or more
private funds, you must complete and
file a report on Form PF (17 CFR 279.9)
within 15 days of the end of the next
calendar quarter by following the
instructions in the Form, which specify
the information that an investment
adviser must provide.
(b) Electronic filing. You must file
Form PF electronically with the Form
PF filing system.
Note to paragraph (b): Information on how
to file Form PF is available on the
Commission’s Web site at http://
www.sec.gov/[__].

(c) When filed. Each Form PF is
considered filed with the Commission
upon acceptance by the Form PF filing
system.
(d) Filing fees. You must pay the
operator of the Form PF filing system a
filing fee as required by the instructions
to Form PF. The Commission has
approved the amount of the filing fee.
No portion of the filing fee is
refundable. Your completed Form PF
will not be accepted by the operator of
the Form PF filing system, and thus will
not be considered filed with the
Commission, until you have paid the
filing fee.
(e) Amendments to Form PF. You
must amend your Form PF:
(1) At least annually, no later than the
last day on which you may timely file
your annual amendment to Form ADV
under rule 204–1(a)(1) (17 CFR 275.204–
1(a)(1)); and
(2) More frequently, if required by the
instructions to Form PF. You must file
all amendments to Form PF
electronically with the Form PF filing
system.
(f) Temporary hardship exemption.
(1) If you have unanticipated technical
difficulties that prevent you from
submitting Form PF on a timely basis
through the Form PF filing system, you
may request a temporary hardship
exemption from the requirements of this
section to file electronically.

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(2) To request a temporary hardship
exemption, you must:
(i) Complete and file with the operator
of the Form PF filing system in paper
format 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, no later than one business
day after the electronic Form PF filing
was due; and
(ii) Submit the filing that is the
subject of the Form PF paper filing in
electronic format with the Form PF
filing system no later than seven
business days after the filing was due.
(3) The temporary hardship
exemption will be granted when you file
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.
(g) Transition for certain filers. If you
were an investment adviser registered or
required to be registered under section
203 of the Act (15 U.S.C. 80b–3), act as
an investment adviser to one or more
private funds immediately prior to the
compliance date of rule 204(b)–1, and
are only required to complete all or
portions of section 1 of Form PF, no
later than 90 days after the end of your
then-current fiscal year you must
complete and file your initial report on
Form PF by following the instructions
in the Form, which specify the
information that an investment adviser
must provide.
PART 279—FORMS PRESCRIBED
UNDER THE INVESTMENT ADVISERS
ACT OF 1940
5. The authority citation for part 279
continues to read as follows:
Authority: 15 U.S.C. 80b–1, et seq.

6. Section 279.9 is added to read as
follows:
§ 279.9 Form PF, reporting by investment
advisers to private funds.

This form shall be filed pursuant to
Rule 204(b)–1 (§ 275.204(b)–1 of this
chapter) by certain investment advisers
registered or required to register under
section 203 of the Act (15 U.S.C. 80b–
3) that act as an investment adviser to
one or more private funds.
Note: The following Form PF will not
appear in the Code of Federal Regulations.

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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules

Dated: January 26, 2011.
David A. Stawick,
Secretary.
By the Securities and Exchange
Commission.

Dated: January 26, 2011.
Elizabeth M. Murphy,
Secretary.

Appendix 1—Commodity Futures
Trading Commission Voting Summary
On this matter, Chairman Gensler and
Commissioners Dunn, Sommers (by proxy),
Chilton and O’Malia voted in the affirmative;
no Commissioner voted in the negative.
[FR Doc. 2011–2175 Filed 2–10–11; 8:45 am]
BILLING CODE 8011–01–P; 6351–01–P

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By the Commodity Futures Trading
Commission.

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