the reporting fund's controlled portfolio companies, has been added
to provide a measure of scale as context for interpreting the
average leverage ratio. An adviser must already know this
information in order to calculate the average leverage ratio, so the
SEC does not expect this addition to meaningfully increase the
reporting burden.
---------------------------------------------------------------------------

    In addition, Questions 71 and 72 ask for the total amount of
borrowings categorized as current liabilities and as long-term
liabilities on the most recent balance sheets of the fund's controlled
portfolio companies. These questions replace the question that the SEC
proposed, which would have required advisers to report the maturity
profile of the debt of its private equity funds' controlled portfolio
companies.\316\ This change has been made in response to commenter
concerns regarding the burden of gathering the data that would have
been required to respond to the question as proposed.\317\ The SEC
anticipates that these changes will reduce the burden of responding to
these questions because less information is required and the
information will be readily available on the financial statements of
the fund's controlled portfolio companies.
---------------------------------------------------------------------------

    \316\ See the Proposing Release, supra note 12, (discussing the
proposed version of Question 62 on Form PF).
    \317\ See IAA Letter.
---------------------------------------------------------------------------

    In response to Questions 73 and 74, the adviser must report the
portion of the controlled portfolio companies' borrowings that is
payment-in-kind or zero coupon,\318\ and whether the fund or any of its
controlled portfolio companies experienced an event of default on any
of its debt during the reporting period.\319\ In addition, Question 75
requires the adviser to provide the identity of the institutions
providing bridge financing to the adviser's controlled portfolio
companies and the amount of that financing. Question 76 requires
certain information if the fund controls any financial industry
portfolio company, such as the portfolio company's name, its debt-to-
equity ratio, and the percentage of the portfolio company beneficially
owned by the fund.\320\ Question 79 requires the adviser to report
whether any of its related persons co-invest in any of the fund's
portfolio companies.
---------------------------------------------------------------------------

    \318\ See Question 73 on Form PF. One commenter argued that the
SEC should not include this question because it has not identified
any systemic risk associated with this type of indebtedness. See
PEGCC Letter. The indebtedness in question, however, allows the
borrower to increase its leverage by deferring interest payments
(all at a time subsequent to the creditors making their credit
determinations) and may result in additional risk being shifted to
systemically important financial institutions or other holders of
the debt.
    \319\ See Question 74 on Form PF. One commenter suggested this
question should cover only controlled portfolio companies rather
than all of the fund's portfolio companies, and the SEC has made
this change. See ABA Committees Letter; see also infra discussion
accompanying notes 324-327. This commenter also suggested that
potential events of default that have not ripened into events of
default should not require an affirmative response, and the SEC has
modified the instructions to this address this comment.
    \320\ A ``financial industry portfolio company'' generally is
defined as a nonbank financial company, as defined in the Dodd-Frank
Act, or a bank, savings association, bank holding company, financial
holding company, savings and loan holding company, credit union, or
other similar company regulated by a federal, state or foreign
banking regulator. See Glossary of Terms to Form PF. One commenter
suggested this question should cover only controlled portfolio
companies rather than all of the fund's portfolio companies, and the
SEC has made this change. See ABA Committees Letter; see also IAA
Letter; see also infra discussion accompanying notes 324-327. The
SEC has added a requirement to report the gross asset value of each
financial industry portfolio company to provide a measure of scale
as context for interpreting the leverage ratio. This information
should be readily available on portfolio company financial
statements, so the SEC does not expect this addition to meaningfully
increase the reporting burden.
---------------------------------------------------------------------------

    The information that Question 66 requires is intended to provide
FSOC information regarding the exposure of large private equity
advisers and their funds to the risks of their portfolio companies. The
information that Questions 67 through 76 require is designed to allow
FSOC to assess the potential exposure of banks and other lenders to the
portfolio companies of funds managed by large private equity advisers
and to monitor whether trends in those areas could have systemic
implications. Information reported in response to Question 76 is also
intended to allow FSOC to monitor investments by the funds of large
private equity advisers in companies in the financial industry that may
be particularly important to the stability of the financial system.
    Finally, Questions 77 and 78 require a breakdown of the fund's
investments by industry and by geography.\321\ Two commenters suggested
removing these questions, arguing that the value of the information
would not exceed the burden of reporting it.\322\ Regulators, however,
will be able to use this information to monitor global and industry
concentrations among private equity funds, and concentration is one of
the factors that FSOC must consider in making a determination to
designate a nonbank financial company for FRB supervision under the
Dodd-Frank Act.\323\ In addition, the information required is largely
based on the financial statements of the controlled portfolio companies
and, therefore, should be readily available to the adviser.
---------------------------------------------------------------------------

    \321\ The SEC has modified the instructions to these questions
to reflect clarifications suggested by a commenter. See Merkl
February Letter. Question 78, which requires a geographical
breakdown of investments in portfolio companies, has also been
modified for reasons discussed above. See supra note 247 and
accompanying text.
    \322\ See Merkl February Letter; PEGCC Letter.
    \323\ See section 113(a) of the Dodd-Frank Act.
---------------------------------------------------------------------------

    Most of the reporting in section 4 relates to portfolio companies
because the SEC understands that leverage in private equity structures
is generally incurred at the portfolio company level.

This reporting is limited to controlled portfolio companies, rather
than portfolio companies generally, to ensure that advisers are able to
obtain the relevant information without incurring potentially
substantial additional burdens. Several commenters suggested, however,
that the proposed standard of ``control'' was too low, leaving advisers
responsible for reporting information they may not be entitled to
access.\324\ The SEC is not persuaded that advisers are likely to have
such difficulty obtaining the information required concerning
controlled portfolio companies because the majority of this information
is available from the financial statements of the portfolio companies
or relates to the fund's own investments in the portfolio
companies.\325\ In addition, modifications from the proposal have
replaced a requirement for information that may not have been available
on portfolio company financial statements with a requirement for
information that will appear on any audited portfolio company's
financial statements.\326\ Accordingly, the SEC is adopting the
definition of ``controlled portfolio company'' substantially as
proposed.\327\
---------------------------------------------------------------------------

    \324\ See, e.g., ABA Committees Letter (suggesting instead ``a
standard of majority voting control''); IAA Letter (asserting that
an adviser may not have access to some of the required data ``even
if the fund owns 50% or more of such portfolio company''); PEGCC
Letter. See supra note 315 (discussing the definition of
``control.)''
    \325\ Advisers may not know the North American Industry
Classification System, or NAICS, codes for its controlled portfolio
companies, but this information should be readily obtainable from
the company. The details regarding bridge loans required in Question
75 on the Form may not be available directly from a controlled
portfolio company's financial statements, but it is likely either
that the adviser was involved in arranging or consenting to the
loans (because the loans were an important part of the fund's
investment in the company or because they were incurred after the
fund obtained a controlling interest in the company) or were the
subject of the fund's due diligence prior to investing in the
company.
    \326\ See supra note 317 and accompanying text.
    \327\ The SEC has, however, made one change to this definition,
which clarifies that whether a group is a club or consortium for
this purpose should be determined as of the reporting date. In other
words, the adviser need not aggregate the control rights of another
fund with those of its own solely because, at some point prior to
the reporting date, such as the date of acquisition, they formed a
club or consortium.
---------------------------------------------------------------------------

    Two commenters supported collecting the information proposed to be
required in section 4.\328\ However, they also argued that the required
reporting should not be restricted to controlled portfolio companies
but should extend to all of the fund's portfolio companies. In their
view, the largest portfolio companies are the least likely to have a
controlling shareholder and the most likely to pose systemic risk. The
SEC is sensitive to this concern but believes at this time that
requesting information regarding all portfolio companies would increase
the difficulty of responding to section 4 without a sufficiently large
corresponding increase in the value of the data collected.
---------------------------------------------------------------------------

    \328\ See AFL-CIO Letter; AFR Letter.
---------------------------------------------------------------------------

5. Aggregation of Master-Feeder Arrangements, Parallel Fund Structures
and Parallel Managed Accounts
    For purposes of reporting information on Form PF, an adviser may
provide information regarding master-feeder arrangements and parallel
fund structures in the aggregate or separately, provided that it does
so consistently throughout the Form.\329\ For example, an adviser may
complete either a single section 1b for all of the funds in a master-
feeder arrangement or a separate section 1b for each fund in the
arrangement. Any adviser choosing to aggregate funds in the reporting
must check the ``yes'' box in Question 6 or Question 7, as applicable,
and, in the case of Question 7, provide the additional information
required with respect to the other funds in the parallel fund
structure.\330\ Advisers are not required to report information
regarding parallel managed accounts other than to complete Question 11
in section 1b of the Form.\331\
---------------------------------------------------------------------------

    \329\ See Instructions 5 and 6 to Form PF. The aggregation
requirements for reporting purposes differ from the aggregation
requirements for determining whether the adviser or any fund meets a
reporting threshold. See supra section II.A.5. A ``parallel fund
structure'' is 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 Glossary of Terms to Form PF. A ``master-feeder
arrangement'' is an arrangement in which one or more funds (``feeder
funds'') invest all or substantially all of their assets in a single
private fund (``master fund'').
    \330\ See also supra note 193 and accompanying text.
    \331\ See Instructions 5 and 6 to Form PF. See also supra note
197.
---------------------------------------------------------------------------

    These aggregation requirements have been modified from the
proposal, which would have required advisers to report aggregated
information regarding master-feeder arrangements and parallel managed
accounts but separate information regarding parallel funds. One
commenter recommended that ``the Commissions instead provide managers
with flexibility to provide information about private funds in a manner
that best represents the activities of their funds and is consistent
with their internal reporting procedures, while providing complete
information to regulators.'' \332\ We are persuaded that requiring
advisers to aggregate or disaggregate funds in a manner inconsistent
with their internal recordkeeping and reporting may impose additional
burdens and that, so long as the structure of those arrangements is
adequately disclosed, a prescriptive approach to aggregation is not
necessary.
---------------------------------------------------------------------------

    \332\ MFA Letter.
---------------------------------------------------------------------------

    With respect to parallel managed accounts, commenters encouraged us
not to require aggregation for reporting purposes or at least limit the
questions that require advisers to aggregate parallel managed accounts
for reporting purposes.\333\ In particular, these commenters argued
that aggregating these funds for reporting purposes would be difficult
and ``result in inconsistent and misleading data'' because their
characteristics are often somewhat different from the funds with which
they are managed.\334\ We are persuaded that including parallel managed
accounts in the reporting may reduce the quality of data while imposing
additional burdens on advisers. As a result, the instructions have been
revised so that advisers are not required to aggregate parallel managed
accounts with their private funds for reporting purposes.\335\ A
question has, however, been added to the Form requiring advisers to
report the total amount of parallel managed accounts related to each
reporting fund.\336\ This will allow FSOC to take into account the
greater amount of assets an adviser may be managing using a given
strategy for purposes of analyzing the data reported on Form PF.
---------------------------------------------------------------------------

    \333\ See, e.g., IAA Letter; TCW Letter. One commenter agreed
that the proposal appropriately required reporting on parallel
managed accounts. See AIMA General Letter. For the reasons discussed
below, however, we are persuaded that the better approach is not to
require aggregation of these accounts for reporting purposes.
    \334\ IAA Letter. See also MFA Letter.
    \335\ See Instructions 5 and 6 to Form PF. The approach we are
adopting is also similar to the approach used in the FSA Survey,
which asks for only limited information regarding ``strategy
assets.'' See IAA Letter.
    \336\ See question 12 of Form PF.
---------------------------------------------------------------------------

D. Confidentiality of Form PF Data

    Form PF elicits non-public information about private funds and
their trading strategies, the public disclosure of which could
adversely affect the funds and their investors. The SEC does not intend
to make public Form PF information identifiable to any particular
adviser or private fund, although the SEC may use Form PF information
in an enforcement action. The Dodd-Frank Act amends the Advisers Act to
preclude the SEC from being compelled to reveal this information except
in very limited

circumstances.\337\ Similarly, the Dodd-Frank 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 204(b) of the
Advisers Act.\338\ The Commissions will make information collected
through Form PF available to FSOC, as the Dodd-Frank Act requires,
subject to the confidentiality provisions of the Dodd-Frank Act.\339\
---------------------------------------------------------------------------

    \337\ See Proposing Release, supra note 12, at n.39.
    \338\ Form PF data is filed with the SEC, and made available to
the CFTC, pursuant to section 204(b) of the Advisers Act, making
this data subject to the confidentiality protections applicable to
data required to be filed under that section.
    \339\ See section 204(b) of the Advisers Act.
---------------------------------------------------------------------------

    The Dodd-Frank Act contemplates that Form PF data may also be
shared with other Federal departments or agencies or with self-
regulatory organizations, in addition to the CFTC and FSOC, for
purposes within the scope of their jurisdiction.\340\ In each case, any
such department, agency or self-regulatory organization would be exempt
from being compelled under FOIA to disclose to the public any
information collected through Form PF and must maintain the
confidentiality of that information consistent with the level of
confidentiality established for the SEC in section 204(b) of the
Advisers Act.\341\ Prior to sharing any Form PF data, the SEC also
intends to require that any such department, agency or self-regulatory
organization represent to us that it has in place controls designed to
ensure the use and handling of Form PF data in a manner consistent with
the protections established in the Dodd-Frank Act.\342\
---------------------------------------------------------------------------

    \340\ See section 204(b)(8)(B)(i) of the Advisers Act.
    \341\ See sections 204(b)(9) and (10) of the Advisers Act.
    \342\ This would be consistent with the SEC's current practice
of requiring that it receive, prior to sharing nonpublic information
with other regulators, ``such assurances of confidentiality as the
[SEC] deems appropriate.'' See section 24(c) of the Exchange Act and
rule 24c-1 thereunder.
---------------------------------------------------------------------------

    Certain aspects of the Form PF reporting requirements also help to
mitigate the potential risk of inadvertent or improper disclosure. For
instance, because data on Form PF generally could not, on its own, be
used to identify individual investment positions, the ability of a
competitor to use Form PF data to replicate a trading strategy or trade
against an adviser is limited.\343\ In addition, the deadlines for
filing Form PF have, in most cases, been significantly extended from
the proposal.\344\ Some commenters supported these extensions in part
because filings will, as a result, generally contain less current, and
therefore less sensitive, data.\345\
---------------------------------------------------------------------------

    \343\ Questions 26, 30, 35 and 57 on Form PF ask about exposures
of the reporting fund but require only that the adviser identify the
exposure within broad asset classes, not the individual investment
position. Large private equity advisers must identify any financial
industry portfolio companies in which the reporting fund has a
controlling interest, but these investments are likely to be in
private companies whose securities are not widely traded (and,
therefore, do not raise the same trading concerns) or in public
companies about which information regarding significant beneficial
owners is already made public under sections 13(d) and 13(g) of the
Exchange Act.
    \344\ See supra section II.B.2 of this Release (discussing
filing deadlines).
    \345\ See infra note 351 and accompanying text.
---------------------------------------------------------------------------

    In addition, our staff is working to design controls and systems
for the use and handling of Form PF data in a manner that reflects the
sensitivity of this data and is consistent with the confidentiality
protections established in the Dodd-Frank Act. As discussed below, this
will include programming the Form PF filing system with appropriate
confidentiality protections.\346\ For instance, SEC staff is studying
whether multiple access levels can be established so that SEC employees
are allowed only as much access as is reasonably needed in connection
with their duties.
---------------------------------------------------------------------------

    \346\ See infra section II.E of this Release.
---------------------------------------------------------------------------

    Several commenters confirmed that the information collected on Form
PF is competitively sensitive or proprietary and emphasized the
importance of controls for safekeeping.\347\ These commenters also made
several recommendations for protecting the data, including: (1) Storing
identifying information using a code; \348\ (2) limiting the ability to
transfer Form PF data by email or portable media; \349\ (3) limiting
access to personnel who ``need to know''; \350\ (4) extending filing
deadlines so the data contains less current information; \351\ and (5)
sharing the data with other regulators only in aggregated and anonymous
form.\352\ As discussed above, the deadlines for filing Form PF have,
in most cases, been significantly extended from the proposal.\353\ SEC
staff is also carefully considering the other recommendations of
commenters in designing controls and systems for Form PF.
---------------------------------------------------------------------------

    \347\ See, e.g., ABA Committees Letter; AIMA General Letter;
CPIC Letter; MFA Letter; SIFMA Letter.
    \348\ ABA Committees Letter; Kleinberg General Letter; Seward
Letter.
    \349\ ABA Committees Letter.
    \350\ Id.
    \351\ AIMA General Letter; Kleinberg General Letter.
    \352\ AIMA General Letter; Seward Letter.
    \353\ See supra notes 344-345 and accompanying text.
---------------------------------------------------------------------------

    In advance of the compliance date for Form PF, SEC staff will
review the controls and systems in place for the use and handling of
Form PF data.\354\ Depending on the progress at that time toward the
development and deployment of these controls and systems, the SEC will
consider whether to delay the compliance date for Form PF.
---------------------------------------------------------------------------

    \354\ See infra section III of this Release (discussing the
compliance date for Form PF).
---------------------------------------------------------------------------

E. Filing Fees and Format for Reporting

    Under Advisers Act rule 204(b)-1(b), Form PF must be filed through
an electronic system designated by the SEC for this purpose. On
September 30, 2011, the SEC issued notice of its determination that the
Financial Industry Regulatory Authority (``FINRA'') will develop and
maintain the filing system for Form PF as an extension of the existing
Investment Adviser Registration Depository (``IARD'').\355\ This filing
system will have certain features, including being programmed to
reflect the heightened confidentiality protections created for Form PF
filing information under the Dodd-Frank Act and allow for secure access
by FSOC and other regulators as permitted under the Dodd-Frank Act.
---------------------------------------------------------------------------

    \355\ See Approval of Filing Fees for Exempt Reporting Advisers
and Private Fund Advisers, Investment Advisers Act Release No. IA-
3297 (Sept. 30, 2011), 76 FR 62100 (Oct. 6, 2011).
---------------------------------------------------------------------------

    Under the Advisers Act rule 204(b)-1, advisers required to file
Form PF must pay to the operator of the Form PF filing system fees that
the SEC has approved.\356\ The SEC in a separate order has approved
filing fees that reflect the costs reasonably associated with these
filings and the development and maintenance of the filing system.\357\
---------------------------------------------------------------------------

    \356\ See Advisers Act rule 204(b)-1(d); section 204(c) of the
Advisers Act.
    \357\ See Order Approving Filing Fees for Exempt Reporting
Advisers and Private Fund Advisers, Investment Advisers Act Release
No. IA-3305 (Oct. 24, 2011).
---------------------------------------------------------------------------

    We are working with FINRA to allow advisers to file Form PF either
through a fillable form on the system Web site or through a batch
filing process utilizing the eXtensible Markup Language (``XML'')
tagged data format. In connection with the batch filing process, we
anticipate publishing a taxonomy of XML data tags in advance of the
compliance date for Form PF. 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.

    Commenters who addressed this aspect of the proposal supported
having FINRA develop the reporting system as an extension of the IARD
platform.\358\ Commenters also supported a batch filing capability,
with one specifically agreeing that ``[a]utomated submission of
information via the IARD or other electronic system to [utilize] the
eXtensible Markup Language (XML) tagged data format or similar format
is likely to be an important time saver for a large number of firms.''
\359\
---------------------------------------------------------------------------

    \358\ See AIMA General Letter (agreeing that using the IARD and
FINRA is a ``sensible solution.''); MFA Letter. We explained in the
Form PF Proposing Release that the filing system would need to be
programmed with special confidentiality protections designed to
ensure the heightened confidentiality protections created for Form
PF filing information under the Dodd-Frank Act. See Proposing
Release, supra note 12, at n. 9 and accompanying text and section
II.E. These commenters expressed the view that maintaining the
confidentiality of Form PF data is an important consideration in
developing the filing system. Our staffs are working closely with
FINRA in designing controls and systems to ensure that Form PF data
is handled and used in a manner consistent with the protections
established in the Dodd-Frank Act, and as noted above, we are
carefully considering recommendations from commenters in designing
controls and systems for the use and handling of Form PF data.
    \359\ AIMA General Letter. See also Kleinberg General Letter.
---------------------------------------------------------------------------

III. Effective and Compliance Dates

    The effective date for CEA rule 4.27, Advisers Act rule 204(b)-1
and Form PF is March 31, 2012.
    The Commissions are adopting a two-stage phase-in period for
compliance with Form PF filing requirements. For the following
advisers, the compliance date for CEA rule 4.27 and Advisers Act rule
204(b)-1 is June 15, 2012:
     Any adviser having at least $5 billion in assets under
management attributable to hedge funds as of the last day of the fiscal
quarter most recently completed prior to June 15, 2012; \360\
---------------------------------------------------------------------------

    \360\ For this purpose, advisers must calculate the value of
assets under management pursuant to the instructions in Form ADV and
aggregate assets under management in the same manner as they would
when determining whether they satisfy reporting thresholds under
Form PF. See supra section II.A.5 of this Release.
---------------------------------------------------------------------------

     Any adviser managing a liquidity fund and having at least
$5 billion in combined assets under management attributable to
liquidity funds and registered money market funds as of the last day of
the fiscal quarter most recently completed prior to June 15, 2012;
\361\ and
---------------------------------------------------------------------------

    \361\ Id.
---------------------------------------------------------------------------

     Any adviser having at least $5 billion in assets under
management attributable to private equity funds as of the last day of
its first fiscal year to end on or after June 15, 2012.\362\
---------------------------------------------------------------------------

    \362\ Id.
---------------------------------------------------------------------------

    For instance, an adviser with $5 billion in hedge fund assets under
management as of March 31, 2012, must file its first Form PF within 60
days following June 30, 2012.\363\ In addition, an adviser having a
June 30 fiscal year end and $5 billion in private equity fund assets
under management as of June 30, 2012, must file its first Form PF
within 120 days following June 30, 2012.\364\
---------------------------------------------------------------------------

    \363\ This assumes the adviser's fiscal quarters are based on
calendar quarters. Of course, if the adviser also exceeds the
threshold for liquidity fund advisers, its filing would be due
within 15 days.
    \364\ This assumes the adviser does not also exceed the $5
billion threshold for hedge fund or liquidity fund advisers.
---------------------------------------------------------------------------

    For all other advisers, the compliance date for CEA rule 4.27 and
Advisers Act rule 204(b)-1 is December 15, 2012. As a result, most
advisers must file their first Form PF based on information as of
December 31, 2012.
    This timing provides most private fund advisers with a significant
amount of time to prepare for filing, requiring only the largest
advisers, whose resources and systems should better position them to
begin reporting, to report in less than a year following adoption of
Form PF. This approach is designed to balance the need for regulators
to begin collecting and analyzing data regarding the private fund
industry with the ability of advisers to efficiently prepare for
filing. We currently anticipate that this timeframe will also give the
SEC sufficient time to create and program a system to accept filings of
Form PF.\365\
---------------------------------------------------------------------------

    \365\ The SEC is working closely with FINRA to create and
program a system for Form PF filings, and FINRA expects to be able
to accept Form PF filings in this timeframe.
---------------------------------------------------------------------------

    We are adopting compliance dates that significantly extend the
proposed compliance date of December 15, 2011. We are taking this
approach, in part, because we are adopting these rules later than
originally expected. The revised approach is also intended to respond
to commenters who recommended a later compliance date. These commenters
argued that the proposed compliance date would have provided advisers
insufficient ``time to identify the information to be included,
establish automated systems and procedures to collect and calculate the
information, and develop procedures to review, complete and verify the
Form.'' \366\ A majority of these commenters suggested extending
compliance to at least nine months after publication of the final Form,
though some argued for a year or more.\367\ In support of an extended
compliance date, commenters emphasized that, without sufficient time to
prepare for the initial filing, the reporting process will be manually
intensive or require costly system enhancements.\368\ As explained
above, our revised approach is designed to provide the largest
advisers, whose resources and systems should better position them to
begin reporting, at least eight months before they start filing Form
PF, and the vast majority of advisers will have over a year before
their first Form PF is due.
---------------------------------------------------------------------------

    \366\ MFA Letter. See also infra note 367.
    \367\ See, e.g., AIMA General Letter (nine months); BlackRock
Letter (nine months); CPIC Letter (one year); Fidelity Letter (one
year); IAA Letter (nine months); Kleinberg General Letter (one
year); MFA Letter (nine months); PEGCC Letter (one year); TCW Letter
(nine months); Seward Letter (two years); SIFMA Letter (nine
months); USCC Letter (270 days).
    \368\ See AIMA General Letter; Kleinberg General Letter.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

    SEC:
    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. Rule
204(b)-1 and Form PF under the Advisers Act implement this requirement.
Form PF contains a new ``collection of information'' within the meaning
of the Paperwork Reduction Act (``PRA'').\369\ 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 rule 204(b)-1 is included in the collection of
information burden associated with 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.
---------------------------------------------------------------------------

    \369\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

    Form PF is intended to provide FSOC with information that will
assist it in fulfilling its obligations under the Dodd-Frank Act
relating to nonbank financial companies and systemic risk
monitoring.\370\ The SEC may also use the information in connection
with its regulatory and examination programs.

The respondents to Form PF are private fund advisers.\371\ Compliance
with Form PF is mandatory for any private fund adviser that had at
least $150 million in regulatory assets under management attributable
to private funds as of the end of its most recently completed fiscal
year.
---------------------------------------------------------------------------

    \370\ See supra section I.A of this Release; see also of the
Proposing Release, supra note 12, at section II.A.
    \371\ The requirement to file the Form applies to any investment
adviser registered, or required to register, with the SEC that
advises one or more private funds and had at least $150 million in
regulatory assets under management attributable to private funds as
of the end of its most recently completed fiscal year. See Advisers
Act rule 204(b)-1(a). It does not apply to state-registered
investment advisers or exempt reporting advisers.
---------------------------------------------------------------------------

    Specifically, smaller private fund advisers must report annually
and provide only basic information regarding their operations and the
private funds they advise. Large private equity advisers also must
report on an annual basis but are required to provide additional
information with respect to the private equity funds they manage.
Finally, large hedge fund advisers and large liquidity fund advisers
must report on a quarterly basis and provide more information than
other private fund advisers.\372\ The PRA analysis set forth below
takes into account the difference in filing frequencies among different
categories of private fund adviser. It also reflects the fact that the
additional information Form PF requires large hedge fund advisers to
report is more extensive than the additional information required from
large liquidity fund advisers, which in turn is more extensive than
that required from large private equity advisers.
---------------------------------------------------------------------------

    \372\ See section II.A of this Release (describing who must file
Form PF), section II.B of this Release (discussing the frequency
with which private fund advisers must file Form PF), section II.C.2
of this Release (describing the information that large hedge fund
advisers must report on Form PF), and sections II.C.3 and II.C.4 of
this Release (describing the information that large liquidity and
private equity fund advisers must report on Form PF). See also
Instruction 9 to Form PF (discussing the frequency with which
private fund advisers must file Form PF).
---------------------------------------------------------------------------

    As discussed in section II 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 taken into account an adviser's
size and the types of private funds it manages in designing scaled
reporting requirements. In addition, where practical, the SEC has
permitted advisers to rely on their existing practices and
methodologies to report information on Form PF.\373\
---------------------------------------------------------------------------

    \373\ The SEC also believes that private fund advisers already
collect or calculate some of the information required on the Form at
least as often as they must file the Form. See supra note 146.
---------------------------------------------------------------------------

    Advisers must file Form PF through the Form PF filing system on the
IARD.\374\ Responses to the information collections will be kept
confidential to the extent permitted by law.\375\
---------------------------------------------------------------------------

    \374\ See section II.E of this Release.
    \375\ See section II.D. of this Release.
---------------------------------------------------------------------------

A. Burden Estimates for Annual Reporting by Smaller Private Fund
Advisers

    In the Implementing Adopting Release, the SEC estimated that there
will be approximately 4,270 SEC-registered advisers managing private
funds after taking into account recent changes to the Advisers Act and
a year of normal growth in the population of registered advisers.\376\
The SEC estimates that approximately 700 of these advisers will not be
required to file Form PF because they have less than $150 million in
private fund assets under management.\377\ Accordingly, the SEC
anticipates that, when advisers begin reporting on Form PF, a total of
approximately 3,570 advisers will be required to file all or part of
the Form.\378\ Out of this total number, the SEC estimates that
approximately 3,070 will be smaller private fund advisers, not meeting
the thresholds as Large Private Fund Advisers.\379\ Commenters did not
address the SEC's estimates of the total number of respondents or the
number of smaller private fund advisers.\380\
---------------------------------------------------------------------------

    \376\ Specifically, the SEC estimated that (1) 3,320 private
fund advisers that are currently registered with the SEC will remain
registered after certain advisers make the switch to state
registration prompted by the Dodd-Frank Act's amendments to section
203A of the Advisers Act, (2) 750 advisers to private funds will
register with the Commission as a result of the Dodd-Frank Act's
elimination of the private adviser exemption and (3) 200 additional
advisers to private funds will register in the next year. See
Implementing Adopting Release, supra note 11, at n.637 and
accompanying text. 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 version of Form ADV in use prior to
the date of this release. Because these responses included funds
that the adviser's related persons manage as well as those the
adviser itself manages, these data may over-estimate the total
number of private fund advisers.
    \377\ Based on IARD data as of October 1, 2011. See supra
section II.A of this Release for a discussion of the minimum
reporting threshold.
    \378\ 4,270 total private fund advisers - 700 with less than
$150 million in private fund assets under management = 3,570
advisers. The SEC notes, however, that if a private fund is advised
by both an adviser and one or more subadvisers, only one of these
advisers is required to complete Form PF. See section II.A.6 of this
Release. As a result, it is likely that some portion of these
advisers either will not be required to file Form PF or will 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 SEC does not
currently have reliable data with which to estimate the number of
funds that have subadvisers.
    \379\ Based on the estimated total number of registered private
fund advisers that would not meet the thresholds to be considered
Large Private Fund Advisers. (3,570 estimated registered private
fund advisers - 250 large hedge fund advisers - 80 large liquidity
fund advisers - 170 large private equity fund advisers = 3,070
smaller private fund advisers.)
    \380\ The SEC has updated these estimates to reflect: (1)
Updated data from IARD, (2) the addition of a minimum reporting
threshold of $150 million in private fund assets, which reduces the
number of advisers subject to the reporting requirements, and (3)
the revised estimates of large hedge fund advisers and large private
equity advisers discussed in section II.A.4 of this Release. See
supra section II.A of this Release and notes 88 and 89.
---------------------------------------------------------------------------

    Smaller private fund advisers must complete all or portions of
section 1 of Form PF and file on an annual basis. As discussed in
greater detail above, section 1 requires basic data regarding the
reporting adviser's identity and certain information about the private
funds it manages, such as performance, leverage and investor data.\381\
If the reporting adviser manages any hedge funds, section 1 also
requires basic information regarding those funds, including their
investment strategies, counterparty exposures and trading and clearing
practices.
---------------------------------------------------------------------------

    \381\ See supra section II.C.1.
---------------------------------------------------------------------------

    The SEC estimates that smaller private fund advisers will require
an average of approximately 40 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 15 burden hours
for subsequent filings.\382\ These estimates reflect an increase
compared to the proposal from 10 to 40 hours for the initial filing and
from 3 to 15 hours for subsequent filings.
---------------------------------------------------------------------------

    \382\ These estimates are based, in part, on the SEC's
understanding that much of the information in sections 1a and 1b of
Form PF is currently maintained by most private fund advisers in the
ordinary course of business. See supra note 146. In addition, the
SEC expects the time required to determine the amount of the
adviser's assets under management that relate to private funds of
various types to be largely included in the approved burden
associated with the SEC's Form ADV. 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. Of course, not all questions on Form PF impose the same
burden, and the burden of responding to questions may vary
substantially from adviser to adviser. These estimates are intended
to reflect averages for compiling, reviewing and filing the Form, do
not indicate the time that may be spent on specific questions and
may not reflect the time spent by an individual adviser.
---------------------------------------------------------------------------

    The SEC has increased these estimates to reflect comments
suggesting that the estimates included in the proposal were too
low.\383\ Commenters did not provide alternative estimates for these
burdens. However, commenters addressing the

large hedge fund adviser burdens did provide alternative
estimates.\384\ As discussed below, the SEC is also increasing its hour
burden estimates with respect to large hedge fund advisers based on,
among other things, the estimates these commenters provided.\385\ In
the absence of specific commenter estimates for the smaller adviser
reporting burden, the SEC has, therefore, scaled these estimates in
proportion to the increases it is making to its burden hour estimates
for large hedge fund advisers.
---------------------------------------------------------------------------

    \383\ See, e.g., AIMA General Letter; IAA Letter; SIFMA Letter.
    \384\ See, e.g., MFA Letter.
    \385\ See infra section IV.B of this Release.
---------------------------------------------------------------------------

    Although the SEC has increased these estimates, it has also taken
into account changes from the proposal that it expects, on the whole,
to mitigate the burden of reporting the information required in section
1. For instance, we have modified the requirement to report performance
by allowing advisers to report monthly and quarterly results only if
such results are already calculated for the fund.\386\ In addition, we
have removed from section 1b a question requiring identification of
significant creditors and substantially reduced the amount of
information required with respect to trading and clearing practices in
section 1c.\387\ We have also made several global changes to the Form
that we anticipate will reduce the burden of reporting. These include
the removal of the certification, the increased ability of advisers to
rely on their existing methodologies and recordkeeping practices and
allowing advisers to omit information regarding parallel managed
accounts from their responses to the Form.\388\ We have also added four
new questions in section 1b that will increase the burden of completing
that portion of the Form, but the SEC expects the other changes
described above to result in a net reduction in the burden of
completing the Form relative to the proposal.\389\
---------------------------------------------------------------------------

    \386\ Several commenters argued that carrying out valuations to
report monthly and quarterly performance for private equity funds
would result in significant cost burdens and require significantly
more time than was estimated. See, e.g., comment letter of Atlas
Holdings (March 9, 2011) (``Atlas Letter''); PEGCC Letter. We have,
however, modified the reporting requirements so that advisers only
need to provide monthly and quarterly performance results to the
extent already calculated. See supra notes 198-202 and accompanying
text. In other words, because advisers will have always already
calculated the required performance data for purposes other than
reporting on Form PF, the burden of reporting it on the Form is
essentially one of data entry.
    \387\ One commenter suggested the question we removed would have
been ``very burdensome.'' See PEGCC Letter.
    \388\ See, e.g., supra section II.C.5 of this Release and notes
183-188 and accompanying text.
    \389\ See supra section II.C.1 of this Release. The SEC
originally proposed one of the new questions on Form ADV, and it
requires that advisers report the assets and liabilities of each
fund broken down using categories that are based on the fair value
hierarchy established under GAAP. For advisers obtaining fund audits
in accordance with GAAP or a similar international accounting
standard, the burden of this question is simply that of entering the
data on the Form. In the Implementing Adopting Release, the SEC
estimated that approximately 3% of registered advisers have at least
one private fund client that may not be audited. See Implementing
Adopting Release, supra note 11, at nn. 634-636 and accompanying
text. For this sub-group of advisers, the cost and hour burdens of
determining fair values for the funds' assets have already been
accounted for in connection with Form ADV because advisers are
required to report regulatory assets under management in that form
using the fair value of private fund assets. See Implementing
Adopting Release, supra note 11, at section VI and nn. 632-641 and
723 and accompanying text. The question does not require advisers to
determine the fair value of liabilities for which they do not
already make such determination, so this sub-group of advisers would
not incur an incremental cost to fair value liabilities in order to
respond to this question. This sub-group of advisers may incur an
additional hours burden to determine the categories applicable to
the fund's assets and liabilities, and in determining to increase
its average hour burden estimates for both smaller private fund
advisers and Large Private Fund Advisers, the SEC has taken into
account the contribution of this additional hours burden.
---------------------------------------------------------------------------

    Based on the foregoing, the SEC estimates that the amortized
average annual burden of periodic filings will be 23 hours per smaller
private fund adviser for each of the first three years,\390\ and the
amortized aggregate annual burden of periodic filings for smaller
private fund advisers will be 70,600 hours for each of the first three
years.\391\
---------------------------------------------------------------------------

    \390\ The SEC estimates that a smaller private fund adviser will
make 3 annual filings in three years, for an amortized average
annual burden of 23 hours (1 initial filing x 40 hours + 2
subsequent filings x 15 hours = 70 hours; and 70 hours / 3 years =
approximately 23 hours). After the first three years, filers
generally will not incur the start-up burdens applicable to the
first filing.
    \391\ 23 burden hours on average per year x 3,070 smaller
private fund advisers = 70,600 burden hours per year.
---------------------------------------------------------------------------

B. Burden Estimates for Large Hedge Fund Advisers

    The SEC estimates that 250 advisers will be classified as large
hedge fund advisers.\392\ As discussed above, large hedge fund advisers
must complete section 1 of the Form and provide additional information
regarding the hedge funds they manage in section 2 of the Form. These
advisers must report information regarding the hedge funds they manage
on a quarterly basis.
---------------------------------------------------------------------------

    \392\ See supra note 88.
---------------------------------------------------------------------------

    Because large hedge fund advisers generally must report more
information on Form PF than other private fund advisers, the SEC
estimates that these advisers will 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 will require an
average of approximately 300 burden hours for an initial filing and 140
burden hours for each subsequent filing.\393\
---------------------------------------------------------------------------

    \393\ The estimates of hour burdens and costs for large hedge
fund advisers provided in the Paperwork Reduction Act and cost-
benefit analyses are based, in part, on burden data that advisers
provided in response to the FSA 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 will increase the burden of the initial
filing but reduce the burden of subsequent filings. This efficiency
gain is reflected in our burden estimates, which are higher for the
first report than subsequent reports, and certain of the anticipated
automation costs are accounted for in our cost estimates. See infra
note 435 and accompanying text. Of course, not all questions on Form
PF impose the same burden, and the burden of responding to questions
may vary substantially from adviser to adviser. These estimates are
intended to reflect averages for compiling, reviewing and filing the
Form, do not indicate the time that may be spent on specific
questions and may not reflect the time spent by an individual
adviser.
---------------------------------------------------------------------------

    These estimates reflect an increase compared to the proposal from
75 to 300 hours for the initial filing and from 35 to 140 hours for
subsequent filings. The SEC has increased these estimates to reflect
comments suggesting that the estimates included in the proposal were
too low.\394\ One industry group reported that some members attempted
to complete the proposed version of Form PF for one or more funds and,
``[b]ased on their experience, and recognizing that efficiencies will
develop over time, [this group estimated] that large managers on
average will expend 150-300 hours to submit the initial Form.'' \395\
The SEC has revised its

estimates in this PRA analysis based on the top end of this range,
which represents a conservative interpretation of this commenter's
estimate. This approach appears justified in this case based on other
comments suggesting that the hours burden imposed on these advisers
could be significantly higher than the SEC estimated in the Proposing
Release.\396\
---------------------------------------------------------------------------

    \394\ See, e.g., AIMA Letter; IAA Letter; Kleinberg General
Letter; MFA Letter; TCW Letter.
    \395\ MFA Letter. This commenter referred to ``large managers''
generally, but based on the context, this comment appears to relate
to large hedge fund advisers specifically. This commenter went on to
state that ``managers with more complex strategies will expend
considerably more time.'' Other commenters addressing these
estimates did not provide alternative estimates, though one
indicated that some clients had already exceeded the Proposing
Release's estimates in preparing to report on the proposed Form and
another commenter, itself one of the largest private fund advisers
in the United States, argued that the estimates were understated by
``orders of magnitude.'' See BlackRock Letter; see also Kleinberg
General Letter. In addition, advisers that manage many funds may
incur higher costs than advisers that manage fewer funds even if
they manage similar amounts of assets. The SEC's estimates are
intended to reflect average burdens, and it recognizes that
particular advisers may, based on their circumstances, incur burdens
substantially greater than or less than the estimated averages. In
addition, we have based our estimates in part on data that advisers
provided in response to the FSA Survey regarding the time required
to complete that survey. Although Form PF generally requires more
information regarding hedge funds than the FSA Survey, the SEC
believes, based on this data and based on the MFA comment letter,
that the average burden of completing Form PF is very unlikely to be
in the thousands or tens of thousands of hours.
    \396\ See supra note 394 and accompanying text.
---------------------------------------------------------------------------

    The SEC notes, however, that this commenter's estimates were based
on the Form as proposed and we have made a number of changes from the
proposal that we expect, on the whole, to mitigate significantly the
reporting burden. For example, we have modified a number of questions
to reduce the amount of detail required or to allow advisers to rely
more on their existing methodologies or recordkeeping practices,
including questions regarding trading and clearing practices, interest
rate sensitivities, geographical concentrations, turnover, collateral
practices, CCP exposures and sensitivities to changes in specified
market factors.\397\ We have also made several global changes to the
Form that we anticipate will reduce the burden of reporting. These
include allowing large hedge fund advisers to report only annually on
funds that are not hedge funds, the removal of the certification,
expanding the ability to disregard funds of funds and allowing advisers
to omit information regarding parallel managed accounts from their
responses to the Form.\398\ We have also added four new questions in
section 1b, which will increase the burden of completing that portion
of the Form.\399\ The SEC believes, however, that the increased burden
attributable to these new questions is less than the reduced burden
attributable to other changes to the Form because the new questions
require limited information that, in many cases, will be readily
available to advisers while some of the SEC's modifications to reduce
the reporting burdens are intended to address areas of the Form that
commenters identified as particularly burdensome. In light of these
changes, the SEC believes that the commenter estimates, which were
based on the proposed Form, likely represent an upper bound of the
average burden to large hedge fund advisers.
---------------------------------------------------------------------------

    \397\ See supra section II.C.1 and II.C.2 of this Release.
    \398\ See, e.g., supra sections II.B.1 and II.C.5 of this
Release and notes 129 and 183-188 and accompanying text.
    \399\ See supra section II.C.1.
---------------------------------------------------------------------------

    Based on the foregoing, the SEC estimates that the amortized
average annual burden of periodic filings will be 610 hours per large
hedge fund adviser for each of the first three years.\400\ In the
aggregate, the amortized annual burden of periodic filings will then be
153,000 hours for large hedge fund advisers for each of the first three
years.\401\
---------------------------------------------------------------------------

    \400\ The SEC estimates that a large hedge fund adviser will
make 12 quarterly filings in three years, for an amortized average
annual burden of 610 hours (1 initial filing x 300 hours + 11
subsequent filings x 140 hours = 1,840 hours; and 1,840 hours / 3
years = approximately 610 hours). After the first three years,
filers generally will not incur the start-up burdens applicable to
the first filing.
    \401\ 610 burden hours on average per year x 250 large hedge
fund advisers = 153,000 hours.
---------------------------------------------------------------------------

C. Burden Estimates for Large Liquidity Fund Advisers

    The SEC estimates that 80 advisers will be classified as large
liquidity fund advisers.\402\ Commenters did not address this estimate.
As discussed above, large liquidity fund advisers must complete section
1 of the Form and provide additional information regarding the
liquidity funds they manage in section 3 of the Form. In addition,
these advisers must report information regarding the liquidity funds
they manage on a quarterly basis.
---------------------------------------------------------------------------

    \402\ See supra note 88.
---------------------------------------------------------------------------

    Large liquidity fund advisers generally must report less
information on Form PF than large hedge fund advisers but more
information than large private equity advisers and smaller private fund
advisers. Accordingly, the SEC estimates that large liquidity fund
advisers will require, on average, fewer hours than large hedge fund
advisers but more hours than other advisers to configure systems and to
compile, review and electronically file the required information.
Specifically, the SEC estimates these advisers will require an average
of approximately 140 burden hours for an initial filing and 65 burden
hours for each subsequent filing.\403\
---------------------------------------------------------------------------

    \403\ The estimates of hour burdens and costs for large
liquidity fund advisers provided in the Paperwork Reduction Act and
cost-benefit analyses are based, in part, on a comparison to the
requirements and estimated burden for large hedge fund advisers
(which estimates, in turn, are based in part on burden data that
advisers provided in response to the FSA 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 will increase the burden of
the initial filing but reduce the burden of subsequent filings. This
efficiency gain is reflected in our burden estimates, which are
higher for the first report than subsequent reports, and certain of
the anticipated automation costs are accounted for in our cost
estimates. See infra note 435 and accompanying text. Of course, not
all questions on Form PF impose the same burden, and the burden of
responding to questions may vary substantially from adviser to
adviser. These estimates are intended to reflect averages for
compiling, reviewing and filing the Form, do not indicate the time
that may be spent on specific questions and may not reflect the time
spent by an individual adviser.
---------------------------------------------------------------------------

    These estimates reflect an increase compared to the proposal from
35 to 140 hours for the initial filing and from 16 to 65 hours for
subsequent filings. The SEC has increased these estimates to reflect
comments suggesting that the estimates included in the proposal were
too low.\404\ Commenters did not provide alternative estimates for
these burdens. However, commenters addressing the large hedge fund
adviser burdens did provide alternative estimates.\405\ As discussed
above, the SEC is also increasing its hour burden estimates with
respect to large hedge fund advisers based on, among other things, the
estimates these commenters provided.\406\ In the absence of specific
commenter estimates for the large liquidity fund adviser reporting
burden, the SEC has, therefore, scaled these estimates in proportion to
the increases it is making to its burden hour estimates for large hedge
fund advisers.
---------------------------------------------------------------------------

    \404\ See, e.g., AIMA Letter; IAA Letter; BlackRock Letter. No
commenters specifically addressed the burden estimates for liquidity
fund advisers, though several commented on the burden estimates
generally.
    \405\ See, e.g., MFA Letter.
    \406\ See supra section IV.B of this Release.
---------------------------------------------------------------------------

    Although the SEC has increased these estimates, it has also taken
into account changes from the proposal that it expects, on the whole,
to mitigate the burden of reporting for large liquidity fund advisers.
For instance, we have eliminated from section 1b a question requiring
identification of significant creditors.\407\ We have also made several
global changes that we anticipate will reduce the burden of reporting.
These include allowing large liquidity fund advisers to report only
annually on funds that are not liquidity funds, removing the
certification, expanding the ability to disregard funds of funds, the
increased ability of advisers to rely on their existing methodologies
and recordkeeping practices and allowing advisers to omit information
regarding parallel managed accounts from their responses to the
Form.\408\ We have also

added four new questions in section 1b that will increase the burden of
completing that portion of the Form, but the SEC expects the other
changes described above to result in a net reduction in the burden of
completing the Form relative to the proposal.\409\
---------------------------------------------------------------------------

    \407\ See supra section II.C.1 of this Release. One commenter
suggested the question we removed would have been ``very
burdensome.'' See PEGCC Letter.
    \408\ See, e.g., supra sections II.B.1 and II.C.5 of this
Release and notes 129 and 183-188 and accompanying text.
    \409\ See supra section II.C.1 of this Release.
---------------------------------------------------------------------------

    Based on the foregoing, the SEC estimates that the amortized
average annual burden of periodic filings will be 290 hours per large
liquidity fund adviser for each of the first three years.\410\ In the
aggregate, the amortized annual burden of periodic filings will then be
23,200 hours for large liquidity fund advisers for each of the first
three years.\411\
---------------------------------------------------------------------------

    \410\ The SEC estimates that a large liquidity fund adviser will
make 12 quarterly filings in three years, for an amortized average
annual burden of 290 hours (1 initial filing x 140 hours + 11
subsequent filings x 65 hours = 855 hours; and 855 hours / 3 years =
approximately 290 hours). After the first three years, filers
generally will not incur the start-up burdens applicable to the
first filing.
    \411\ 290 burden hours on average per year x 80 large hedge fund
advisers = 23,200 hours.
---------------------------------------------------------------------------

D. Burden Estimates for Large Private Equity Advisers

    The SEC estimates that 170 advisers will be classified as large
private equity advisers.\412\ As discussed above, large private equity
advisers must complete section 1 of the Form and provide additional
information regarding the private equity funds they manage in section 4
of the Form. These advisers are only required to report on an annual
basis.
---------------------------------------------------------------------------

    \412\ See supra note 89.
---------------------------------------------------------------------------

    Large private equity advisers generally must report less
information on Form PF than other Large Private Fund Advisers but more
information than smaller private fund advisers. Accordingly, the SEC
estimates that large private equity advisers will require, on average,
fewer hours than large hedge fund advisers and large liquidity fund
advisers but more hours than other advisers to configure systems and to
compile, review and electronically file the required information.
Specifically, the SEC estimates these advisers will require an average
of approximately 100 burden hours for an initial filing and 50 burden
hours for each subsequent filing.\413\
---------------------------------------------------------------------------

    \413\ The estimates of hour burdens and costs for large private
equity advisers provided in the Paperwork Reduction Act and cost-
benefit analyses are based, in part, on a comparison to the
requirements and estimated burden for large hedge fund advisers
(which estimates, in turn, are based in part on burden data that
advisers provided in response to the FSA 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 will increase the burden of
the initial filing but reduce the burden of subsequent filings. This
efficiency gain is reflected in our burden estimates, which are
higher for the first report than subsequent reports, and certain of
the anticipated automation costs are accounted for in our cost
estimates. See infra note 435 and accompanying text. Of course, not
all questions on Form PF impose the same burden, and the burden of
responding to questions may vary substantially from adviser to
adviser. These estimates are intended to reflect averages for
compiling, reviewing and filing the Form, do not indicate the time
that may be spent on specific questions and may not reflect the time
spent by an individual adviser.
---------------------------------------------------------------------------

    These estimates reflect an increase compared to the proposal from
25 to 100 hours for the initial filing and from 12 to 50 hours for
subsequent filings. The SEC has increased these estimates to reflect
comments suggesting that the estimates included in the proposal were
too low.\414\ Commenters did not provide alternative estimates for
these burdens. However, commenters addressing the large hedge fund
adviser burdens did provide alternative estimates.\415\ As discussed
above, the SEC is also increasing its hour burden estimates with
respect to large hedge fund advisers based on, among other things, the
estimates these commenters provided.\416\ In the absence of specific
commenter estimates for the large private equity adviser reporting
burden, the SEC has, therefore, scaled these estimates in proportion to
the increases it is making to its burden hour estimates for large hedge
fund advisers.
---------------------------------------------------------------------------

    \414\ See, e.g., Atlas Letter; PEGCC Letter; USCC Letter.
    \415\ See, e.g., MFA Letter.
    \416\ See supra section IV.B of this Release.
---------------------------------------------------------------------------

    Although the SEC has increased these estimates, it has also taken
into account changes from the proposal that it expects, on the whole,
to mitigate the burden of reporting for large private equity advisers.
For instance, we have modified the requirement to report performance by
allowing advisers to report monthly and quarterly results only if such
results are already calculated for the fund.\417\ In addition, we have
eliminated from section 1b a question requiring identification of
significant creditors and have revised questions in section 4 requiring
information regarding portfolio company leverage to align the
information required more closely with information available on the
balance sheets of those companies.\418\ We have also made several
global changes to the Form that we anticipate will reduce the burden of
reporting. These include requiring only annual (rather than quarterly)
reporting, removing the certification, expanding the ability to
disregard funds of funds, increasing the ability of advisers to rely on
their existing methodologies and recordkeeping practices and allowing
advisers to omit information regarding parallel managed accounts from
their responses to the Form.\419\ We have also added four new questions
in section 1b that will increase the burden of completing that portion
of the Form, but the SEC expects the other changes described above to
result in a net reduction in the burden of completing the Form relative
to the proposal.\420\
---------------------------------------------------------------------------

    \417\ See supra note 386.
    \418\ See supra sections II.C.1 and II.C.4 of this Release. One
commenter suggested the question we removed would have been ``very
burdensome.'' See PEGCC Letter.
    \419\ See, e.g., supra sections II.B.1 and II.C.5 of this
Release and notes 129 and 183-188 and accompanying text.
    \420\ See supra section II.C.1 of this Release.
---------------------------------------------------------------------------

    Based on the foregoing, the SEC estimates that the amortized
average annual burden of periodic filings will be 67 hours per large
private equity adviser for each of the first three years.\421\ In the
aggregate, the amortized annual burden of periodic filings will then be
11,400 hours for large private equity advisers for each of the first
three years.\422\
---------------------------------------------------------------------------

    \421\ The SEC estimates that a large private equity adviser will
make 3 annual filings in three years, for an amortized average
annual burden of 67 hours (1 initial filing x 100 hours + 2
subsequent filings x 50 hours = 200 hours; and 200 hours / 3 years =
approximately 67 hours). After the first three years, filers
generally will not incur the start-up burdens applicable to the
first filing.
    \422\ 67 burden hours on average per year x 170 large private
equity advisers = 11,400 hours.
---------------------------------------------------------------------------

E. Burden Estimates for Transition Filings, Final Filings and Temporary
Hardship Exemption Requests

    In addition to periodic filings, a private fund adviser must file
very limited information on Form PF in three situations.
    First, any adviser that transitions from quarterly to annual filing
because it has ceased to be a large hedge fund or large liquidity fund
adviser must 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 quarterly filers will need to make a transition filing each
year with a burden of 0.25 hours, or a total of 7 burden hours per year
for all private fund advisers.\423\ No commenters addressed these
estimates. The SEC has not changed its estimates of the rate of
transition filings and the burden hours per filing from the proposal,
but it has reduced its estimate of the total burden hours per year
because fewer filers will

be required to report on a quarterly basis.\424\
---------------------------------------------------------------------------

    \423\ This 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 hedge fund or large
liquidity fund advisers. ((80 large liquidity fund advisers + 250
large hedge fund advisers) x 0.09 x 0.25 hours = 7 hours.)
    \424\ Under the proposal, large private equity advisers would
also have been required to file on a quarterly basis. See supra
section II.B.1 of this Release.
---------------------------------------------------------------------------

    Second, filers who are no longer subject to Form PF's periodic
reporting requirements must file a final report indicating that fact.
The SEC estimates that approximately 8 percent of the advisers required
to file Form PF will have to file such a report each year with a burden
of 0.25 of an hour, or a total of 71 burden hours per year for all
private fund advisers.\425\ No commenters addressed these estimates.
The SEC has not changed its estimates of the rate of final filings and
the burden hours per filing from the proposal, but it has reduced its
estimate of the total burden hours per year because the addition of a
minimum reporting threshold will result in fewer filers reporting on
Form PF.\426\
---------------------------------------------------------------------------

    \425\ Estimate is based on IARD data on the frequency of
advisers to one or more private funds withdrawing from SEC
registration. (3,570 private fund advisers x 0.08 x 0.25 hours = 71
hours.)
    \426\ See supra section II.A of this Release.
---------------------------------------------------------------------------

    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.\427\ 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.\428\ Assuming that Form PF filers
request hardship exemptions at the same rate and that the applications
impose the same burden per filing, the SEC expects approximately 4
filers to request a temporary hardship exemption each year \429\ for a
total of 4 burden hours.\430\ No commenters addressed these estimates,
and they remain unchanged from the proposal.
---------------------------------------------------------------------------

    \427\ See Advisers Act rule 204(b)-1(f). The rule requires 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.
    \428\ See Implementing Adopting Release, supra note 11, at
section VI.F.
    \429\ 3,570 private fund advisers x 1 request per 1,000 advisers
= approximately 4 advisers.
    \430\ 4 advisers x 1 hour per response = 4 hours.
---------------------------------------------------------------------------

F. Aggregate Hour Burden Estimates

    Based on the foregoing, the SEC estimates that Form PF would result
in an aggregate of 258,000 burden hours per year for all private fund
advisers for each of the first three years, or 72 burden hours per year
on average for each private fund adviser over the same period.\431\
---------------------------------------------------------------------------

    \431\ 70,600 hours for periodic filings by smaller advisers +
153,000 hours for periodic filings by large hedge fund advisers +
23,200 hours for periodic filings by large liquidity fund advisers +
11,400 hours for periodic filings by large private equity fund
advisers + 7 hours per year for transition filings + 71 hours per
year for final filings + 4 hours per year for temporary hardship
requests = approximately 258,000 hours per year. 258,000 hours per
year / 3,570 total advisers = 72 hours per year on average.
---------------------------------------------------------------------------

G. Cost Burden

    In addition to the hour burdens identified above, advisers subject
to the Form PF reporting requirements will incur cost burdens. Firms
required to file Form PF must also pay filing fees. In a separate
order, the SEC has established filing fees for the Form PF filing
system of $150 per annual filing and $150 per quarterly filing.\432\ We
estimate that this will result in advisers paying aggregate filing fees
of approximately $684,000 per year.\433\
---------------------------------------------------------------------------

    \432\ See supra section II.E of this Release.
    \433\ ((3,070 smaller private fund advisers + 170 large private
equity advisers) x $150 per annual filing) + ((250 large hedge fund
advisers + 80 large private equity advisers) x $150 per quarterly
filing x 4 quarterly filings per year) = $684,000 per year.
---------------------------------------------------------------------------

    Several commenters suggested that advisers would also need to
modify existing systems or deploy new systems to support Form PF
reporting.\434\ As discussed in the Proposing Release and below, the
SEC acknowledges that advisers may incur costs to develop systems and
expects that Large Private Fund Advisers, in particular, may find it
efficient to automate some portion of the reporting process, which will
increase the burden of the initial filing but reduce the burden of
subsequent filings.\435\ The SEC has assumed that some of the hours
that it estimates advisers will spend on preparing their initial
filings on Form PF will be attributable to programmers preparing
systems for the reporting.\436\ The SEC understands that some advisers
may outsource all or a portion of these systems requirements to
software consultants, vendors, filing agents or other third-party
service providers and believes that the emergence of such service
providers may serve to make filing on Form PF more efficient than is
reflected in its estimates.\437\
---------------------------------------------------------------------------

    \434\ See, e.g., BlackRock Letter; IAA Letter; Kleinberg General
Letter; PEGCC Letter; SIFMA Letter.
    \435\ See infra section V.B of this Release, especially nn. 511-
515; Proposing Release, supra note 11, at section V.B.
    \436\ See infra notes 511, 513 and 515.
    \437\ The SEC has based its estimates on the use of internal
resources, for which some cost data is available, because it
believes 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. As a result, the SEC's estimates of hour and cost burdens in
this PRA analysis, and of costs in section V.B of this Release, may
overstate the actual burdens and costs that will be incurred once
third-party services become available.
---------------------------------------------------------------------------

    Advisers may also incur costs associated with the acquisition or
use of hardware needed to perform computations or otherwise process the
data required on Form PF.\438\ Smaller private fund advisers are
unlikely to bear these costs because the information they are required
to provide is limited and will, in many cases, already be maintained in
the ordinary course of business.\439\ Even among Large Private Fund
Advisers, these costs are likely to vary significantly. For instance,
the cost to any Large Private Fund Adviser may depend on how many funds
or the types of funds it manages, the state of its existing systems and
the complexity of its business. In addition, large hedge fund and large
liquidity fund advisers must file Form PF more frequently, on shorter
deadlines and generally with more information than large private equity
advisers, increasing the likelihood that filings will compete with
other demands for computing resources and that additional resources
will be required.
---------------------------------------------------------------------------

    \438\ See supra note 272.
    \439\ See supra note 382.
---------------------------------------------------------------------------

    Commenters did not provide estimates for the costs of acquiring or
using hardware for purposes of Form PF. SEC staff contacted several
organizations, including self-regulatory organizations, prime brokers
and fund service providers, to help develop an estimate for these
costs. Although these organizations generally were not able to provide
such estimates, some expressed the view that the hardware costs would
be small relative to the human capital costs and, for Large Private
Fund Advisers, software development costs that Form PF imposes.\440\
The SEC estimates, based in part on these conversations and the factors
discussed above, that these costs will fall across a broad range for
Large Private Fund Advisers. Those who are required to file less
information, less frequently and on longer deadlines, who have excess
capacity in their existing systems or whose business is relatively
simple, may incur no incremental hardware costs. On the other hand,
some Large Private Fund Advisers may need to acquire (or obtain the use
of) computing resources equivalent to an additional server, which the
SEC estimates would

cost approximately $50,000 fully deployed. This suggests an aggregate
incremental cost in the first year of reporting between $0 and
$25,000,000, though the actual cost is likely to fall in between these
two end-points.\441\
---------------------------------------------------------------------------

    \440\ See supra notes 435-436 and accompanying text.
    \441\ $50,000 x 500 Large Private Fund Advisers = $25,000,000.
---------------------------------------------------------------------------

    CFTC:
    As adopted, CEA rule 4.27 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 should the CFTC adopt such requirements, and
the CFTC is not imposing any additional burdens herein. Therefore, any
burden imposed by Form PF through CEA rule 4.27 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 PRA or, to the extent the reporting may relate to commodity
pools that are not private funds, the CFTC anticipates that it would
account for this burden should it adopt a future rulemaking
establishing reporting requirements with respect to those commodity
pools.\442\
---------------------------------------------------------------------------

    \442\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

V. Economic Analysis

    As discussed above, the Dodd-Frank Act amended the Advisers Act to,
among other things, authorize the SEC to promulgate reporting
requirements for private fund advisers. The Dodd-Frank Act also directs
the SEC and CFTC to jointly issue, after consultation with FSOC, rules
establishing the form and content of any reports to be filed under this
new authority.\443\ 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 Dodd-Frank Act authorizes the SEC to require that
private fund advisers file such information ``as necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of system risk by [FSOC].'' \444\
---------------------------------------------------------------------------

    \443\ See section 211(e) of the Advisers Act.
    \444\ See section 204(b)(1)(A) of the Advisers Act.
---------------------------------------------------------------------------

    The SEC is adopting Advisers Act rule 204(b)-1 and Form PF, and the
CFTC is adopting CEA rule 4.27 and sections 1 and 2 of Form PF, to
implement the private fund adviser reporting requirements that the
Dodd-Frank Act directs the Commissions to promulgate. Under these new
rules, private fund advisers having at least $150 million in private
fund assets under management must file with the SEC 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 is
related to the amount of private fund assets that each private fund
adviser manages and the types of private fund to which those assets
relate.\445\ Specifically, smaller private fund advisers must report
annually and provide only basic information regarding their operations
and the private funds they advise. Large private equity advisers also
must report on an annual basis but are required to provide additional
information with respect to the private equity funds they manage.
Finally, large hedge fund advisers and large liquidity fund advisers
must report on a quarterly basis and provide more information than
other private fund advisers.
---------------------------------------------------------------------------

    \445\ See section II.A of this Release (describing who must file
Form PF); see also section II.B of this Release (discussing the
frequency with which private fund advisers must file Form PF);
section II.C of this Release (describing the information that
private fund advisers must report on Form PF). See also proposed
Instruction 9 to Form PF for information regarding the frequency
with which private fund advisers must file Form PF.
---------------------------------------------------------------------------

    The Advisers Act directs 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.\446\ The Commissions are sensitive
to the costs and benefits of their respective rules and have carefully
considered the costs and benefits of this rulemaking. The SEC's
consideration of the costs and benefits of this rulemaking has included
whether this rulemaking will promote efficiency, competition and
capital formation. In the proposal, the Commissions identified certain
costs and benefits of Advisers Act rule 204(b)-1, CEA rule 4.27 and
Form PF and requested comment on all aspects of their cost-benefit
analyses. The comments the Commissions received on those analyses are
discussed below.
---------------------------------------------------------------------------

    \446\ See section 202(c) of the Advisers Act.
---------------------------------------------------------------------------

    In considering the benefits and costs of this rulemaking, we have
also considered alternatives to the requirements we are adopting. All
of these alternatives would require at least some registered private
fund advisers to report at least some information because Congress
directed the SEC to adopt such reporting requirements. Among the
alternatives that we considered were requirements that varied along the
following five dimensions: (1) Requiring more or less information; (2)
requiring more or fewer advisers to complete the Form; (3) allowing
advisers to rely more on their existing methodologies and recordkeeping
practices in completing the Form (or, alternatively, requiring more
standardized responses); (4) requiring more or less frequent reporting;
and (5) allowing advisers more or less time to complete and file the
Form.
    Alternatives along each of these dimensions have advantages and
disadvantages. Obtaining more standardized information from more
advisers more often and more quickly would likely improve the value of
the Form PF data to FSOC and other regulators, and several commenters
supported alternatives along one or more of these dimensions.\447\ The
Commissions are concerned, however, that the costs of such changes may,
in general, increase more quickly than the benefits.\448\ On the other
hand, the Commissions have considered, and are adopting changes from
the proposal, that allow advisers more time to file the Form,\449\
permit large private equity advisers to file less frequently,\450\
generally reduce the amount of information required,\451\ reduce the
number of advisers required to file the Form\452\ and allow advisers to
rely more on their existing methodologies and recordkeeping
practices.\453\ A number of commenters supported these changes and, in
some cases, would have preferred that we further reduce the reporting
burdens.\454\ We believe, however, that the approach we are adopting
strikes an appropriate balance between the benefits of the information
to be collected and the costs to advisers

of providing it. These benefits and costs are discussed in greater
detail below.
---------------------------------------------------------------------------

    \447\ See, e.g., AFL-CIO Letter; AFR Letter. See also CII
Letter; MSCI Letter.
    \448\ See, e.g., supra discussion following notes 101 and 158
and text accompanying note 256. We believe, however, that there are
some exceptions, such as the additional information it has
determined to request in section 1b of the Form. See supra section
II.C.1 of this Release.
    \449\ See supra section II.B.2 of this Release.
    \450\ See supra section II.B.1 of this Release.
    \451\ See supra section II.C of this Release.
    \452\ See supra section II.A of this Release.
    \453\ See supra section II.C of this Release.
    \454\ See, e.g., IAA Letter; MFA Letter; PEGCC Letter; SIFMA
Letter.
---------------------------------------------------------------------------

A. Benefits

    We believe that Form PF will create two principal classes of
benefits. First, the information collected will facilitate FSOC's
understanding and monitoring of systemic risk in the private fund
industry and assist FSOC in determining whether and how to deploy its
regulatory tools with respect to nonbank financial companies. Second,
we expect this information to enhance the Commissions' ability to
evaluate and develop regulatory policies and improve the efficiency and
effectiveness of our efforts to protect investors and maintain fair,
orderly and efficient markets.
    Congress passed the Dodd-Frank Act in the wake of what some have
called ``the greatest financial crisis since the Great Depression.''
\455\ The crisis imposed immense costs on individuals and businesses,
with millions of jobs disappearing from the U.S. economy, large numbers
of families losing their homes to foreclosure, nearly $11 trillion in
household wealth lost, including retirement accounts and life savings,
and many businesses, large and small, facing serious challenges.\456\
Congress responded to the crisis, in part, by establishing FSOC as the
center of a framework intended ``to prevent a recurrence or mitigate
the impact of financial crises that could cripple financial markets and
damage the economy.'' \457\ The goal of this framework, in other words,
is the avoidance of significant harm to the U.S. economy from future
financial crises.
---------------------------------------------------------------------------

    \455\ The Financial Crisis Inquiry Report: Final Report of the
National Commission on the Causes of the Financial and Economic
Crisis in the United States, Financial Crisis Inquiry Commission
(Jan. 2011) (``Financial Crisis Inquiry Report'') at xv.
    \456\ See id., at xv-xvi. See also Senate Committee Report,
supra note 5, at 39.
    \457\ Id.
---------------------------------------------------------------------------

    Under the Dodd-Frank Act, FSOC must ``monitor emerging risks to
U.S. financial stability'' and employ its regulatory tools to address
those risks.\458\ For this purpose, the Dodd-Frank Act granted FSOC the
ability to determine that a nonbank financial company will be subject
to the supervision of the FRB if the company may pose risks to U.S.
financial stability as a result of its activities or in the event of
its material financial distress. FSOC may also recommend to the FRB
heightened prudential standards for designated nonbank financial
companies.\459\ In addition, the Dodd-Frank Act authorizes FSOC to
issue recommendations to primary financial regulators for more
stringent regulation of financial activities that it determines may
create or increase systemic risk.\460\
---------------------------------------------------------------------------

    \458\ See id., at 2. See also supra note 6 and accompanying
text.
    \459\ See supra note 7 and accompanying text.
    \460\ See supra note 8 and accompanying text.
---------------------------------------------------------------------------

    Congress recognized that FSOC would need information from private
fund advisers to carry out its duties and to determine whether and how
to exercise these regulatory authorities. For instance, a Senate
committee report noted that ``no precise data regarding the size and
scope of hedge fund activities are available[, and while] hedge funds
are generally not thought 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.'' \461\ To
that end, Congress mandated that the Commissions, as the primary
regulators of private fund advisers, gather information from these
advisers for FSOC's use. The Commissions have designed Form PF, in
consultation with staff representing FSOC's members, to implement this
mandate.\462\
---------------------------------------------------------------------------

    \461\ See Senate Committee Report, supra note 5, at 38.
    \462\ See section II.C of this Release (describing the
information that private fund advisers must report on Form PF).
---------------------------------------------------------------------------

    Recent releases from FSOC illuminate how Form PF will serve an
essential role in FSOC's monitoring of, and exercise of regulatory
authority over, the private fund industry. For instance, in one
release, FSOC confirmed that the information reported on Form PF is
important not only to conducting an assessment of systemic risk among
private fund advisers but also to determining how that assessment
should be made.\463\ Guidance in this FSOC release also suggests the
role Form PF data will play in the process of determining whether a
private fund adviser or the funds it manages will be subject to FRB
supervision.\464\ More specifically, the Dodd-Frank Act identifies
certain factors that FSOC must consider in making a determination to
designate a nonbank financial company for FRB supervision, and FSOC's
recent guidance organizes those factors into categories, including
size, interconnectedness, use of leverage, liquidity risk and maturity
mismatch and concentration.\465\ As discussed in detail throughout
section II.C of this Release, the information reported on Form PF is
designed, in part, to provide FSOC with data to assess these factors in
a manner that is relevant to the particular type of fund about which
the adviser is reporting.\466\ Finally, we expect that FSOC will use
Form PF 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.\467\ In this manner,
we believe 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.
---------------------------------------------------------------------------

    \463\ See supra note 21 and accompanying text.
    \464\ In the proposed three-stage process for making such
determinations, the first and second stages would utilize publicly
available data and data that, like Form PF, is collected by other
regulators. A third stage of screening would generally involve OFR
collecting additional, targeted information directly from these
firms, which FSOC would analyze along with Form PF data and other
data used in the first two stages. See supra notes 45-46 and
accompanying text.
    \465\ See FSOC Second Notice, supra note 6.
    \466\ See, e.g., supra notes 192, 228, 266, 282, 284, 298 and
323 and accompanying text.
    \467\ See, e.g., Proposing Release, supra note 12, at n. 120 and
accompanying text.
---------------------------------------------------------------------------

    In addition to the content of the Form, the reporting frequency,
filing deadlines and reporting thresholds have been designed to provide
FSOC the information it needs to monitor systemic risk across the
private fund industry while balancing the burdens these reporting
requirements will impose on advisers. For instance, although most
advisers will only report annually on Form PF, large hedge fund and
large liquidity fund advisers will report quarterly because we
understand, based on our staffs' consultations with staff representing
FSOC's members, that this will provide FSOC with timely data that it
may use to identify emerging trends in systemic risk.\468\ The filing
deadlines are, similarly, designed to provide FSOC with timely data so
that it may understand and monitor systemic risk on a reasonably
current basis.\469\ Moreover, as discussed above, the reporting
thresholds are designed to provide FSOC with a broad picture of the
private fund industry while relieving smaller advisers from much of the
costs associated with the more detailed reporting.\470\ We understand
that obtaining this broad picture will help FSOC to contextualize its
analysis and assess whether systemic risk may exist across the private
fund industry and to identify areas where OFR may

want to obtain additional information.\471\
---------------------------------------------------------------------------

    \468\ See supra section II.B.1 of this Release (discussing
reporting frequency and comments on the proposed reporting
frequency).
    \469\ See supra section II.B.2 of this Release (discussing
reporting deadlines and comments on the proposed deadlines).
    \470\ See supra section II.A.4.a of this Release (discussing
large adviser thresholds and comments on the proposed thresholds).
See also section II.A of this Release (discussing the minimum
reporting thresholds).
    \471\ Id.
---------------------------------------------------------------------------

    Certain publications from international groups and researchers have
suggested that data like that collected on Form PF will be valuable to
the regulation of systemic risk. For instance, as discussed above,
several international groups have continued working to close
information gaps by increasing the disclosures provided to
regulators.\472\ These groups have emphasized the importance, in their
view, of designing and collecting better information to support the
identification and modeling of systemic risk.\473\ In addition,
research papers have suggested that information regarding private funds
should play an important role in monitoring systemic risk, and one
study argues that more direct measures of systemic risk would be
possible with information from the majority of funds in the
industry.\474\ Another recent research paper argues that expanding the
FRB's flow of funds data to include more detailed quarterly information
regarding the holding and transfer of financial instruments, including
information regarding the portfolios of hedge funds, ``would have been
of material value to U.S. regulators in ameliorating the recent
financial crisis and could be of aid in understanding the potential
vulnerabilities of an innovative financial system in the future.''
\475\ Others have commented on hedge fund reporting specifically,
stating that ``[t]ransparency to regulators can help them measure and
manage possible systemic risk and is relatively costless.'' \476\
---------------------------------------------------------------------------

    \472\ See supra notes 28-29 and accompanying text.
    \473\ Id.
    \474\ See, e.g., Nicholas Chan, Mila Getmansky, Shane Haas and
Andrew Lo, Systemic Risk and Hedge Funds, in The Risks of Financial
Institutions (Mark Carey and Rene Stulz, eds., 2007) at 238; Monica
Billio, Mila Getmansky, Andrew Lo and Loriana Pelizzon, Econometric
Measures of Systemic Risk in the Finance and Insurance Sectors,
National Bureau of Economic Research (July 2010).
    \475\ Leonard Nakamura, Durable Financial Regulation: Monitoring
Financial Instruments as a Counterpart to Regulating Financial
Institutions, National Bureau of Economic Research (May 2011) at 1.
    \476\ Stephen Brown, et al., Hedge Funds, Mutual Funds, and
ETFs, in Regulating Wall Street: The Dodd-Frank Act and the New
Architecture of Global Finance 360 (Viral V. Acharya, et al., eds.,
2011) (supporting ``regular and timely'' reporting of asset
positions and leverage levels). See also Ferran, supra note 307, at
28.
---------------------------------------------------------------------------

    Other academics and economists, while supporting regulatory efforts
to assess and mitigate systemic risk, have cautioned that achieving the
goal of substantially reducing systemic risk may prove difficult. For
example, while the authors of one recent work support establishing
``early warning indicators'' for financial crises, they argue that the
most significant challenge is not the design of a framework for
systemic risk analysis but rather:

    the well-entrenched tendency of policy makers and market
participants to treat the signals as irrelevant archaic residuals of
an outdated framework, assuming that old rules of valuation no
longer apply. If the past * * * is any guide, these signals will be
dismissed more often than not.\477\
---------------------------------------------------------------------------

    \477\ Carmen M. Reinhart and Kenneth S. Rogoff, This Time is
Different: Eight Centuries of Financial Folly (2009) (``Reinhart and
Rogoff'') at 277, 280 and 281 (after observing this tendency to
disregard signals of systemic risk, the authors conclude that this
``is why we also need to think about improving institutions,'' which
may be important to reducing this risk).

    Accordingly, although collecting information on Form PF will
increase the transparency of the private fund industry to regulators
(an important prerequisite to understanding and monitoring systemic
risk), transparency alone may not be sufficient to address systemic
risk.\478\
---------------------------------------------------------------------------

    \478\ See also FSOC 2011 Annual Report, supra note 19, at ii
(explaining that identifying and mitigating potential threats to
financial stability ``is an inherently difficult exercise. No
financial crisis emerges in exactly the same way as its
predecessors, and the most significant future threats will often be
the ones that are hardest to diagnose and preempt'' but going on to
state that, ``[n]onetheless, there is a strong case for improving
the quality of information available to the public, supervisors, and
regulators about risks in financial institutions and markets.'')
---------------------------------------------------------------------------

    Some commenters agreed that Form PF data will ``facilitate FSOC's
ability to promote the soundness of the U.S. financial system.'' \479\
One commenter characterized Form PF as determining the extent to which
FSOC and the SEC have access to ``data essential to monitoring systemic
risks that, as we saw in 2007 and 2008, cause substantial damage to the
financial markets and the broader economy when they go unchecked.''
\480\ Another commenter stated that Form PF data could aid in the
assessment of ``systemic risks due to connectivity and contagion.''
\481\ One commenter who expressed reservations regarding specific
aspects of the proposal nonetheless supported ``the approach proposed
by the SEC and CFTC to collect information from registered private fund
managers through periodic, confidential reports on Form PF'' and agreed
that gathering data ``from different types of market participants,
including investment advisers and the funds they manage, * * *is a
critical component of effective systemic risk monitoring and
regulation.'' \482\
---------------------------------------------------------------------------

    \479\ CII Letter. See also, e.g., AFL-CIO Letter; AFR Letter.
    \480\ AFL-CIO Letter.
    \481\ MSCI Letter (though also noting that they ``see less
potential benefit from this exercise to track the formation of asset
class bubbles'' and that certain of the requested information would
be difficult to aggregate for purposes of industry-wide analysis;
see section II.C for a discussion of some of this commenter's
observations regarding use of particular data collected on Form PF).
    \482\ MFA Letter.
---------------------------------------------------------------------------

    Some commenters, however, doubted that Form PF would be beneficial
for monitoring systemic risk.\483\ One commenter, for instance, argued
that ``Form PF requires firms to calculate and disclose information
with uncertain benefits to regulators, and the broad scope of private
funds subject to this burden has not been justified.'' \484\ Others
argued that particular types of funds, such as private equity funds,
should be excluded from the reporting because they do not, in their
view, have the potential to pose systemic risk or that certain of the
proposed questions on Form PF would not prove beneficial for systemic
risk analysis.\485\ As discussed above, based on SEC staff's
consultation with staff representing FSOC's members, we continue to
believe that targeted information regarding the leverage practices of
private equity funds will provide information that FSOC may use to
monitor activities and trends in this industry that are of potential
systemic importance.\486\ In addition, we have made a number of changes
from the proposal intended to address the specific concerns of these
commenters and believe that Form PF, as adopted, will be an important
source of information for FSOC as it carries out its duties as they
relate to the private fund industry.\487\
---------------------------------------------------------------------------

    \483\ See, e.g., Fidelity Letter; PEGCC Letter; TCW Letter; USCC
Letter.
    \484\ CCMR Letter; see also USCC Letter (acknowledging, however,
that ``greater access to comprehensive market and industry
information will assist [FSOC] in identifying emerging threats to
the stability of the U.S. financial system.''); BlackRock Letter;
SIFMA Letter.
    \485\ See, e.g., PEGCC Letter. See also supra section II.C of
this Release.
    \486\ See supra notes 307-308 and accompanying text.
    \487\ See supra section II of this Release (discussing changes
from the proposal).
---------------------------------------------------------------------------

    We cannot predict today what the scope of the next financial crisis
will be, and Form PF is only one part of a broader framework
established under the Dodd-Frank Act to monitor and address systemic
risk.\488\ Other measures contemplated by the Dodd-Frank Act, including
the so-called ``Volcker rule,'' enhanced regulation of swaps and the
FRB's oversight of systemically important financial

institutions may be critical to identifying and mitigating the next
financial crisis. We anticipate, however, that Form PF will improve the
information available to regulators as they seek to prevent or mitigate
the effects of future financial crises, and if this information helps
to avoid even a small portion of the costs of a financial crisis like
the most recent one, the benefits of Form PF will be very significant.
---------------------------------------------------------------------------

    \488\ See supra note 457 and accompanying text.
---------------------------------------------------------------------------

    Reporting on Form PF will also benefit investors and other market
participants by improving the information available to the Commissions
regarding the private fund industry and how it interacts with markets.
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. The SEC recently adopted
amendments to Form ADV that will require the reporting of important
information regarding private funds, but this includes little or no
information regarding, for instance, performance, leverage or the
riskiness of a fund's financial activities.\489\ As discussed above,
the data collected through Form PF, which will be more reliable than
existing data regarding the industry and significantly extend the data
available through the revised Form ADV, will assist FSOC in identifying
and addressing risks to U.S. financial stability. This may, in turn,
protect investors and other market participants from significant
losses.
---------------------------------------------------------------------------

    \489\ See Implementing Adopting Release, supra note 11.
Information reported on Form ADV is made available to the public,
while Form PF data generally will not be. See supra section II.D
(discussing confidentiality of Form PF data). This has informed the
SEC's determination to require certain private fund information on
Form ADV and other private fund information on Form PF.
---------------------------------------------------------------------------

    In addition, this data will provide the Commissions 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 the Commissions' ability to develop and frame regulatory
policies regarding the private fund industry, its advisers and the
markets in which they participate, and to more effectively evaluate the
outcomes of regulatory policies and programs directed at this sector,
including for the protection of private fund investors. For instance,
Form PF data may help the Commissions to discern relationships between
regulatory actions and private fund results or activities.
    We also expect the Form PF data to improve the efficiency and
effectiveness of the Commissions' oversight of private fund advisers by
enabling staff to manage and analyze information related to the risks
that private funds pose more quickly, more effectively and at a lower
cost than is currently possible. This will allow the Commissions to
more efficiently and effectively target their examination programs. The
Commissions will be able to use Form PF information to generate reports
on the industry, its characteristics and trends. We expect that these
reports will help the Commissions to anticipate regulatory problems,
allocate and reallocate resources, and more fully evaluate and
anticipate the implications of various regulatory actions the
Commissions may consider taking. This will increase both the efficiency
and effectiveness of the Commissions' programs and, thereby, increase
investor protection. Form PF data will also help the Commissions better
understand the investment activities of private funds and the scope of
their potential effect on investors and the markets that the
Commissions regulate.
    Commenters generally focused on the benefits of Form PF as they
relate to systemic risk rather than investor protection. However, one
supporter, who represents twelve million workers and sponsors pension
and employee benefit plans holding almost half a trillion dollars in
assets, agreed that ``[c]omprehensive disclosure requirements for
private funds will provide important protections for [its] members'
retirement savings.'' \490\ On the other hand, some commenters who
questioned Form PF's merits expressed skepticism regarding the Form's
benefits generally, not just with respect to the monitoring of systemic
risk.\491\ As discussed in detail above, we have made a number of
changes from the proposal designed to address commenter concerns
regarding certain aspects of the proposed reporting requirements.\492\
However, we continue to believe that Form PF, as adopted, will increase
the amount and quality of information available regarding a previously
opaque area of investment activity and, thereby, enhance the ability of
regulators to protect investors and maintain fair, orderly and
efficient markets.
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    \490\ AFL-CIO Letter. See also AFR Letter.
    \491\ See, e.g., supra note 484.
    \492\ See supra section II of this Release (discussing changes
from the proposal).
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    The Commissions believe that private fund advisers, investors in
private funds and the companies in which private funds may invest will
also enjoy certain benefits related to Form PF. For example, we
identified above two principal classes of benefits--assistance to FSOC
in carrying out its mission and improvements to the ability of
regulators to protect investors and oversee markets--in which these
groups will share, including indirectly as participants in the U.S.
financial system. With respect to hedge fund advisers, for instance,
data indicate that the number of funds shut down each year increased
significantly during the recent financial crisis, suggesting that these
advisers may benefit if a future financial crisis is averted or
mitigated.\493\ Private fund investors and private fund advisers will
also benefit if reporting on Form PF, by requiring advisers to review
their fund's portfolios, trading practices and risk profiles, causes
advisers to improve their risk management practices or internal
controls.
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    \493\ See HedgeFund Intelligence Global Review 2011, HFI (Spring
2011) (``HFI 2011 Global Review'').
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    Reporting on Form PF may also result in a positive effect on
capital formation. Although Form PF data generally will be non-public,
Form PF will increase transparency to regulators.\494\ The SEC believes
that private fund advisers may, as a result, assess more carefully the
risks associated with particular investments and, in the aggregate,
allocate capital to investments with a higher value to the economy as a
whole. To the extent that changes in investment allocations lead to
improved economic outcomes in the aggregate, Form PF reporting may
result in a positive effect on capital available for investment.
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    \494\ See supra section II.D (discussing confidentiality of Form
PF data).
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    Should the CFTC adopt certain of its proposed systemic risk
reporting requirements, the coordination between the CFTC and SEC on
this rulemaking would result in significant efficiencies for any
private fund adviser that is also registered as a CPO or CTA with the
CFTC. This is because, under CEA rule 4.27, filing Form PF would
satisfy both SEC and CFTC reporting obligations with respect to
commodity pools that are ``private funds'' and CPOs and CTAs would have
the option of reporting on Form PF regarding commodity pools that are
not private funds to satisfy certain other CFTC reporting obligations,
in each case should the CFTC adopt such reporting obligations.
    As discussed in section I.B of this Release, we have also
coordinated with foreign financial regulators regarding the reporting
of systemic risk information regarding private funds and

anticipate that this coordination, as reflected in Form PF, will result
in greater efficiencies in private fund reporting, as well as
information sharing and private fund monitoring among foreign financial
regulators. Ongoing work among various international organizations has
emphasized the importance of filling gaps in the data regarding
financial market participants, and one goal of this coordination is to
collect comparable information regarding private funds, which will aid
in the assessment of systemic risk on a global basis.\495\ Several
commenters agreed that international coordination in connection with
private fund reporting is important and encouraged us to take an
approach consistent with international precedents.\496\ We have made
several changes from the proposal intended to more closely align Form
PF with international precedent.\497\
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    \495\ See supra note 29 and accompanying text.
    \496\ See supra note 30 and accompanying text.
    \497\ See supra note 35 and accompanying text.
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    As discussed above, we also believe that private fund advisers
already collect or calculate some of the information required on the
Form at least as often as they must file the Form, creating
efficiencies for, and benefiting, advisers in satisfying their
reporting requirements.\498\
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    \498\ See supra note 382; Proposing Release, supra note 12, at
n.105; but see supra note 146.
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B. Costs

    Reporting on Form PF will also impose certain costs on private fund
advisers and, potentially, other market participants. For the most
part, these are the same costs discussed in the PRA analysis above
because that analysis must account for the burdens of responding to the
Commissions' reporting requirements. In order to minimize these direct
costs, the reporting requirements are scaled to the adviser's size, the
size of funds and the types of private funds each adviser manages. For
instance, smaller private fund advisers and large private equity
advisers generally must report less information and less frequently
than large hedge fund advisers and large liquidity fund advisers.\499\
This scaled approach is intended to provide FSOC with a broad picture
of the private fund industry while relieving smaller advisers from much
of the costs associated with the more detailed reporting. It is also
designed to reflect the different implications for systemic risk that
may be presented by different investment strategies, and thus seeks to
adjust the costs of the reporting in proportion to the differing
potential benefits of the information reported with respect to these
strategies.
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    \499\ See section II.A of this Release (describing who must file
Form PF); section II.B of this Release (discussing the frequency
with which private fund advisers must file Form PF); section II.C of
this Release (describing the information that private fund advisers
must report on Form PF). See also Instruction 9 to Form PF
(discussing information regarding the frequency with which private
fund advisers must file Form PF).
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    We expect that the costs Form PF imposes will be most significant
for the first report that a private fund adviser is required to file
because the adviser will need to familiarize itself with the new
reporting form and may need to configure its systems in order to
efficiently gather the required information. We also anticipate that
the initial report will require more attention from senior personnel,
including compliance managers and senior risk management specialists,
than will subsequent reports. In addition, we expect that some Large
Private Fund Advisers will find it efficient to automate some portion
of the reporting process, which will increase the burden of the initial
filing but reduce the burden of subsequent filings.
    Several commenters addressed the cost estimates included in the
Proposing Release. These commenters generally viewed these estimates as
understated and, in several cases, argued that the costs of the initial
report, in particular, would be greater than assumed.\500\ These
commenters offered two common explanations for the higher than
estimated costs: (1) ``[m]any of the requested items on Form PF are not
tracked by advisory firms on the frequency, by the category or on a
fund-by-fund basis in the manner requested by the proposed Form,''
meaning that advisers would need to develop systems for the reporting
or engage in a manual process of gathering and compiling data; \501\
and (2) completing the Form will require gathering information from
many different internal and external parties and systems.\502\
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    \500\ See, e.g., AIMA Letter; IAA Letter; Kleinberg General
Letter; MFA Letter; PEGCC Letter; Seward Letter.
    \501\ TCW Letter; but see also supra note 146.
    \502\ See, e.g., Kleinberg General Letter; MFA Letter; PEGCC
Letter.
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    We have carefully considered comments suggesting that the reporting
requirements would be more burdensome than estimated in the Proposing
Release, and the SEC has substantially increased its estimates of the
hour burdens included in this PRA analysis, which flow through to these
estimates of costs.\503\ We have, however, also taken these comments
into consideration in making a number of changes from the proposal that
are intended to reduce the burdens of reporting on Form PF. These
include global changes to the Form, such as allowing most advisers more
time to file following the end of a fiscal period (reducing the
likelihood that Form PF will compete with other priorities for
advisers' resources or require employment of additional personnel),
extending the compliance date, allowing large private equity advisers
to report annually rather than quarterly, increasing the threshold for
large private equity advisers and permitting greater reliance on
advisers' existing methodologies and recordkeeping practices. We have
also modified specific questions in response to comments so that
responding to the Form is less burdensome.\504\ We expect, on the
whole, that these changes will mitigate the cost of reporting.\505\ In
addition, we have added a minimum reporting threshold, which will not
reduce the burden to any particular filer of reporting but will reduce
the aggregate burden that Form PF imposes because fewer advisers will
be required to report.
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    \503\ See supra notes 383, 394-395, 404 and 414 and accompanying
text.
    \504\ See supra section II.C of this Release.
    \505\ See supra notes 388-389, 397-398, 407-409 and 418-420 and
accompanying text. We also note that the original cost estimates, as
well as the revised estimates included in this Release, include
allocations for systems development among Large Private Fund