[Federal Register Volume 87, Number 33 (Thursday, February 17, 2022)]
[Proposed Rules]
[Pages 9106-9235]
[FR Doc No: 2022-01976]

Vol. 87

Thursday,

No. 33

February 17, 2022

Part II

Securities and Exchange Commission

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17 CFR Parts 275 and 279

Amendments to Form PF To Require Current Reporting and Amend Reporting
Requirements for Large Private Equity Advisers and Large Liquidity Fund
Advisers; Proposed Rule

Federal Register / Vol. 87, No. 33 / Thursday, February 17, 2022 /
Proposed Rules

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-5950; File No. S7-01-22]
RIN 3235-AM75

Amendments to Form PF To Require Current Reporting and Amend
Reporting Requirements for Large Private Equity Advisers and Large
Liquidity Fund Advisers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is proposing to amend Form PF, the confidential
reporting form for certain SEC-registered investment advisers to
private funds to require current reporting upon the occurrence of key
events. The proposed amendments also would decrease the reporting
threshold for large private equity advisers and require these advisers
to provide additional information to the SEC about the private equity
funds they advise. Finally, we are proposing to amend requirements
concerning how large liquidity advisers report information about the
liquidity funds they advise. The proposed amendments are designed to
enhance the Financial Stability Oversight Council's (``FSOC'') ability
to monitor systemic risk as well as bolster the SEC's regulatory
oversight of private fund advisers and investor protection efforts.

DATES: Comments should be received on or before March 21, 2022.

ADDRESSES: Comments may be submitted by any of the following methods.

Electronic Comments

     Use the Commission's internet comment forms (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include
File Number S7-01-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-01-22. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (https://www.sec.gov/rules/proposed.shtml). Comments also are
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Operating
conditions may limit access to the Commission's Public Reference Room.
All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Alexis Palascak, Lawrence Pace, Samuel
K. Thomas, Senior Counsels; Michael C. Neus, Senior Special Counsel; or
Melissa Gainor, Assistant Director at<PHONE_NUMBER> or
[email protected], Investment Adviser Regulation Office, Division of
Investment Management, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The SEC is requesting public comment on the
following under the Investment Advisers Act of 1940 [15 U.S.C. 80b]
(``Advisers Act'').\1\
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the
Advisers Act, or any section of the Advisers Act, we are referring
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we
refer to rules under the Advisers Act, or any section of these
rules, we are referring to title 17, part 275 of the Code of Federal
Regulations [17 CFR 275], in which these rules are published.
    \2\ Form PF was adopted in 2011 as required by the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010. Pub. L. 111-
203, 124 Stat. 1376 (2010). See Reporting by Investment Advisers to
Private Funds and Certain Commodity Pool Operators and Commodity
Trading Advisors on Form PF, Advisers Act Release No. 3308 (Oct. 31,
2011), [76 FR 71128 (Nov. 16, 2011)] (``2011 Form PF Adopting
Release'') at section I. In 2014, the Commission amended Form PF
section 3 in connection with certain money market fund reforms. See
Money Market Fund Reform; Amendments to Form PF, Advisers Act
Release No. 3879 (July 23, 2014), [79 FR 47736] (Aug. 14, 2014)
(``2014 Form PF Amending Release''). Form PF is a joint form between
the Commission and the Commodity Futures Trading Commission
(``CFTC'') only with respect to sections 1 and 2 of the Form;
sections 3 and 4, which we propose to amend, were adopted only by
the Commission. Current Form PF section 5, request for temporary
hardship exemption, would become new section 7 and new sections 5
and 6 are proposed only by the Commission.

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         Commission  reference                     CFR citation
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Form PF................................  17 CFR 279.9.
Rule 204(b)-1..........................  17 CFR 275.204(b)-1.
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Table of Contents

I. Introduction
II. Discussion
    A. Current Reporting for Large Hedge Fund Advisers and Advisers
to Private Equity Funds
    1. Large Hedge Fund Adviser Current Reporting on Qualifying
Hedge Funds
    2. Private Fund Adviser Current Reporting on Private Equity
Funds
    3. Filing Fees and Format for Reporting
    B. Large Private Equity Adviser Reporting
    1. Reduction in Large Private Equity Adviser Reporting Threshold
    2. Large Private Equity Adviser Reporting
    C. Large Liquidity Fund Adviser Reporting
III. Economic Analysis
    A. Introduction
    B. Economic Baseline and Affected Parties
    1. Economic Baseline
    2. Affected Parties
    C. Benefits and Costs
    1. Benefits
    2. Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives
    F. Request for Comment
IV. Paperwork Reduction Act
    A. Purpose and Use of the Information Collection
    B. Confidentiality
    C. Burden Estimates
    1. Proposed Form PF Requirements by Respondent
    2. Annual Hour Burden Estimates
    3. Annual Monetized Time Burden Estimates
    4. Annual External Cost Burden Estimates
    5. Summary of Estimates and Change in Burden
    D. Request for Comments

V. Regulatory Flexibility Act Certification
VI. Consideration of Impact on the Economy
VII. Statutory Authority

I. Introduction

    The Commission is proposing to amend Form PF, the form that certain
investment advisers registered with the Commission use to report
confidential information about the private funds that they advise.\2\
The proposed amendments are designed to enhance FSOC's monitoring and
assessment of systemic risk and to provide additional information for
FSOC's use in determining whether and how to deploy its regulatory
tools. The proposed amendments also are designed to collect additional
data for the Commission's use in its regulatory programs, including
examinations, investigations and investor protection efforts relating
to private fund advisers.
    Form PF provides the Commission and FSOC with important information
about the basic operations and strategies of private funds and has
helped establish a baseline picture of the private fund industry for
use in assessing systemic risk.\3\ We now have almost a decade of
experience analyzing the information collected on Form PF. In that
time, the private fund industry has grown in size and evolved in terms
of business practices, complexity of fund structures, and investment
strategies and exposures.\4\ Based on this experience and in light of
these changes, the Commission and FSOC have identified significant
information gaps and situations where more granular and timely
information would improve our understanding of the private fund
industry and the potential systemic risk within it, and improve our
ability to protect investors.\5\
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    \3\ Advisers Act section 202(a)(29) defines the term ``private
fund'' as an issuer that would be an investment company, as defined
in section 3 of the Investment Company Act of 1940 (``Investment
Company Act''), but for sections 3(c)(1) or 3(c)(7) of that Act.
Section 3(c)(1) of the Investment Company Act provides an exclusion
from the definition of ``investment company'' for any issuer whose
outstanding securities (other than short-term paper) are
beneficially owned by not more than one hundred persons (or, in the
case of a qualifying venture capital fund, 250 persons) and which is
not making and does not presently propose to make a public offering
of its securities. Section 3(c)(7) of the Investment Company Act
provides an exclusion from the definition of ``investment company''
for any issuer, the outstanding securities of which are owned
exclusively by persons who, at the time of acquisition of such
securities, are qualified purchasers, and which is not making and
does not at that time propose to make a public offering of such
securities. The term ``qualified purchaser'' is defined in section
2(a)(51) of the Investment Company Act. Since Form PF's adoption
Commission staff have used Form PF statistics to inform our
regulatory programs and establish census type information regarding
the private fund industry. See SEC 2020 Annual Staff Report Relating
to the Use of Form PF Data (Nov. 2020), available at https://www.sec.gov/files/2020-pf-report-to-congress.pdf. Staff reports,
statistics, and other staff documents (including those cited herein)
represent the views of Commission staff and are not a rule,
regulation, or statement of the Commission. The Commission has
neither approved nor disapproved the content of these documents and,
like all staff statements, they have no legal force or effect, do
not alter or amend applicable law, and create no new or additional
obligations for any person. The Commission has expressed no view
regarding the analysis, findings, or conclusions contained therein.
    \4\ The value of private fund net assets reported on Form PF has
more than doubled, growing from $5 trillion in 2013 to $11 trillion
by the end of 2020, while the number of private funds reported on
the form has increased by nearly 70 percent in that time period.
Unless otherwise noted, the private funds statistics used in this
Release are from the Private Funds Statistics Fourth Quarter 2020.
Any comparisons to earlier periods are from the private funds
statistics from that period, all of which are available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. SEC
staff began publishing the private fund statistics in 2015,
including data from 2013. Therefore, many comparisons in this
Release discuss the eight year span from the beginning of 2013
through the end of 2020. Some discussion in this Release compares
data from a six year span, from the beginning of 2015 through the
end of 2020, because the SEC staff began publishing that particular
data in 2016.
    \5\ We are proposing these amendments, in part, pursuant to our
authority under section 204(b) of the Advisers Act, which gives the
Commission the authority to establish certain reporting and
recordkeeping requirements for advisers to private funds and
provides that the records and reports of any private fund to which
an investment adviser registered with the Commission provides
investment advice are deemed to be the records and reports of the
investment adviser.
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    First, we are proposing new current reporting by large hedge fund
advisers \6\ regarding their qualifying hedge funds \7\ and by private
equity advisers upon the occurrence of certain key events. Most private
fund advisers report general information on Form PF, such as the types
of private funds advised (e.g., hedge funds, private equity funds, or
liquidity funds), fund size, use of borrowings and derivatives,
strategy, and types of investors. Certain larger private fund advisers
report more detailed information on the qualifying hedge funds, the
liquidity funds and the private equity funds that they advise.\8\ In
its current form, however, Form PF does not require current reporting
of information from advisers whose funds are facing stress that could
result in investor harm or potentially create systemic risk. Advisers
file Form PF months after their quarter and year ends, depending on
their size and the type of funds they advise. This means that during
fast moving market events, Form PF data is often stale.\9\
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    \6\ See infra footnote 8.
    \7\ A qualifying hedge fund is defined in Form PF as ``any hedge
fund that has a net asset value (individually or in combination with
fund any feeder funds, parallel funds and/or dependent parallel
managed accounts) of at least $500 million as of the last day of any
month in the fiscal quarter immediately preceding your most recently
completed fiscal quarter.''
    \8\ In particular, three types of ``Large Private Fund
Advisers'' must complete certain additional sections of the current
Form PF: (1) Any adviser having at least $1.5 billion in regulatory
assets under management attributable to hedge funds as of the end of
any month in the prior fiscal quarter (``large hedge fund
advisers''); (2) any adviser managing a liquidity fund and having at
least $1 billion in combined regulatory assets under management
attributable to liquidity funds and registered money market funds as
of the end of any month in the prior fiscal quarter (``large
liquidity fund advisers''); and (3) any adviser having at least $2
billion in regulatory assets under management attributable to
private equity funds as of the last day of the adviser's most
recently completed fiscal year (``large private equity adviser'').
Under the proposal, we would lower the threshold for large private
equity advisers to $1.5 billion.
    \9\ Instruction 9 to Form PF directs large hedge fund advisers
file within 60 calendar days of their first, second and third fiscal
quarters. Large liquidity fund advisers file within 15 calendar days
of their first, second and third fiscal quarters. All other advisers
file their annual updates within 120 calendar days after their
fiscal year ends.
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    The SEC's experiences with recent market events like the March 2020
COVID-19 turmoil and the January 2021 market volatility in certain
stocks, have highlighted the importance of receiving current
information from market participants during fast moving market
events.\10\ We believe current reporting upon the occurrence of certain
key events on Form PF would facilitate a regulatory response if
appropriate and potentially mitigate the impact on investors and
systemic risk. Current reports also would allow the Commission and FSOC
to identify patterns among similarly situated funds that could indicate
broader systemic implications or investor protection concerns.
Therefore, we are proposing to require large hedge fund advisers and
private equity advisers to report information within one day upon the
occurrence of events that indicate significant stress or otherwise
serve as signals of potential systemic risk implications, as well as
potential areas for inquiry designed to prevent investor harm.
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    \10\ See SEC Staff Report on U.S. Credit Markets:
Interconnectedness and the Effects of the COVID-19 Economic Shock
(Oct. 4, 2020) (report of the SEC Division of Economic and Risk
Analysis regarding market stress during the COVID-19 shock of March
2020), available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf (noting that in March 2020 hedge funds
were one of the principal sellers of U.S. Treasury futures with
potential implications for the varying stresses in, the cash,
futures, and repo markets). See also Staff Report on Equity and
Options Market Structure Conditions in Early 2021 (Oct. 14, 2021),
available at https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf (noting significant
participation of institutional investors, including hedge funds, in
the market for Gamestop Corp shares).

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    Second, we are proposing to decrease the threshold for reporting as
a large private equity adviser \11\ and to require additional
information from these advisers. The private equity space has grown
substantially since Form PF was initially adopted. There were 6,910
funds with $1.60 trillion in gross assets in first quarter of 2013 and
15,584 funds with $4.71 trillion in gross assets in the fourth quarter
of 2020.\12\ In addition, given the increased demand for exposure to
private equity among institutional investors, private equity advisers
have expanded the breadth of their investment strategies and the types
of offerings, including a significant increase in private credit
strategies, which raises questions regarding lending practices that
could raise systemic risk concerns.\13\
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    \11\ See supra footnote 8.
    \12\ Division of Investment Management, Private Fund Statistics
(Aug. 21, 2021), available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \13\ See Jessica Hamlin, Private Equity Funds Fuel Growth in
Private Credit, Institutional Investor (Nov. 10, 2020), available at
https://www.institutionalinvestor.com/article/b1vdhdbryr7dkp/Private-Equity-Funds-Fuel-Growth-in-Private-Credit.
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    Given the growth in the private equity industry over the past 11
years, coupled with an increase in the number of advisers with
aggregate private equity assets under management below $2 billion, we
are proposing to reduce the threshold for reporting as a large private
equity adviser from $2 billion to $1.5 billion in private equity fund
assets under management.\14\ Lowering this threshold would enable the
Commission and FSOC to receive reporting from a similar proportion of
the U.S. private equity industry based on committed capital as we did
when Form PF was initially adopted. We believe reducing the threshold
in this manner would provide a robust data set to help identify
potential investor protection issues and monitor for systemic risk,
while also minimizing burdens for smaller advisers.
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    \14\ Calculated based on the amount of private equity fund
assets under management as of the last day of the adviser's most
recently completed fiscal year.
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    Additionally, we are proposing to amend section 4 of Form PF to
gather more detailed information from large private equity advisers.
The information regarding the activities of private equity funds,
certain of their portfolio companies and the creditors involved in
financing private equity transactions is important to the assessment of
systemic risk. We are proposing tailored amendments to section 4 to
gather more information from large private equity advisers regarding
fund strategies, use of leverage and portfolio company financings,
controlled portfolio companies (``CPCs'') and CPC borrowings, fund
investments in different levels of a single portfolio company's capital
structure, and portfolio company restructurings or recapitalizations.
We believe this reporting would provide useful empirical data to FSOC
with which it may analyze the extent to which the activities of private
equity funds or their advisers pose systemic risk and provide the
Commission with targeted information for use in its regulatory program
for the protection of investors.
    Finally, we are proposing to require large liquidity fund advisers
to report substantially the same information that money market funds
would report on Form N-MFP, as we propose to amend it.\15\ As discussed
more fully in our release to amend Form N-MFP, we are proposing
amendments to improve money market funds' resiliency and transparency.
Together, Form N-MFP and Form PF are designed to provide a complete
picture of the short-term financing markets in which money market funds
and liquidity funds both invest.\16\ The proposed amendments to Form PF
are designed to enhance the Commission and FSOC's ability to assess
short-term financing markets and facilitate our oversight of those
markets and their participants. This, in turn, is designed to enhance
investor protection efforts and systemic risk assessment.
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    \15\ See Money Market Fund Reforms, Investment Company Act
Release No. 34441 (Dec. 15, 2021) (``Money Market Fund Proposing
Release'').
    \16\ See 2014 Form PF Amending Release, supra footnote 2.
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    We consulted with FSOC to gain input on this proposal, and to help
ensure that Form PF continues to provide FSOC with information it can
use to assess systemic risk in light of changes in the private fund
industry over the past decade, while also serving to enhance the
Commission's investor protection efforts going forward.

II. Discussion

A. Current Reporting for Large Hedge Fund Advisers and Advisers to
Private Equity Funds

    In order to receive more timely information about certain events
that may signal distress at qualifying hedge funds and private equity
funds or market instability we are proposing new current reporting
section 5 for large hedge fund advisers and new current reporting
section 6 for private equity advisers.\17\ Currently, large hedge fund
advisers file Form PF quarterly while private equity advisers file
annually. This means that during fast moving events that could have
systemic risk implications or negatively impact investors, Form PF data
is often stale. The proposed current reporting requirements would
provide important, current information to the Commission and FSOC to
facilitate timely assessment of the causes of the reporting event, the
potential impact on investors and the financial system, and any
potential regulatory responses.\18\ The current reports would also
enhance our analysis of other information the Commission already
collects across funds and other market participants allowing the
Commission and FSOC to identify patterns that may present systemic risk
or that could result in investor harm.\19\ For example, information
regarding a margin default at a large qualifying hedge fund would
inform our understanding of data on market trading conditions and other
information shared with other market participants, including securities
exchanges.
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    \17\ We are also proposing, in connection with the proposed
addition of new section 5 and section 6 for current reporting, to
make conforming changes to rule 204(b)-1 under the Advisers Act to
re-designate current section 5, which includes instructions for
requesting a temporary hardship exemption, as section 7.
    \18\ We propose to define ``reporting event'' in the Form PF
Glossary to include any event that triggers the requirement to
complete and file a current report pursuant to the items in sections
5 and 6.
    \19\ We propose to define ``current report'' in the Form PF
Glossary to include a report provided pursuant to the items in
sections 5 and 6.
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    Advisers would file current reports for reporting events within one
business day of the occurrence of a reporting event.\20\ We believe
this emphasizes the Commission's and FSOC's need for timely information
while allowing advisers one business day to evaluate and obtain the
necessary data to confirm the existence of a filing event, and file the
current report. For example, if an adviser determined that a reporting
event occurred on Monday, they would have to file a current report by
the close of business on Tuesday. Advisers should consider filing a
current report as soon as possible following such an event. Advisers
also would be able to file an amendment to a previously filed current
report to correct information

that was not accurate at the time of filing.\21\
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    \20\ We propose to amend Instructions 1, 3, 9, and 12 of the
general instructions to reflect this new obligation for large hedge
fund advisers and private equity advisers. Specifically, we propose
to amend Instruction 3 to identify the new sections 5 and 6 and
Instruction 9 to address the timing of filing the proposed current
reports.
    \21\ Current Instruction 16 explains that an adviser is not
required to update information that it believes in good faith
properly responded to Form PF on the date of filing even if that
information is subsequently revised for purposes of the adviser's
recordkeeping, risk management or investor reporting (such as
estimates that are refined after completion of a subsequent audit).
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    We request comments on the addition of current reporting to Form
PF:
    1. Should we amend Form PF to include current reporting in sections
5 and 6 as proposed? If not, what alternatives would provide the
Commission with timely information regarding events that could signal
distress or financial stability risks or potential investor harm?
    2. We have proposed Sections 5 and 6 as separate reporting sections
on Form PF. Should we instead require current reporting as its own
form?
    3. Is the proposed one business day reporting window appropriate
for current reports? Should the notification be on the same day as the
event? Are there challenges associated with providing these current
reports within one business day? Is one business day sufficient time to
eliminate or significantly reduce false positive reports? Would
advisers need more than one business day to gather and confirm the
required information for certain current reports? If so, should we
require advisers to file a current report within two business days,
three business days or some longer period? Would different time limits
for different current reports, tailored to the potential seriousness of
the event or the level of burden in collecting the information be more
appropriate? Would different time limits for different current reports
potentially cause confusion?
    4. Should we require advisers to file a current report based on a
number of calendar days instead of business days?
    5. Should we define ``business day'' for sections 5 and 6? If so,
how? For example, should we define the term to include any day other
than a Saturday, Sunday, or Federal or market holiday for purposes of
sections 5 and 6?
    6. In addition to filing the current report, are there some events
for which advisers should be required to notify the Commission via
email or a phone call on a more immediate basis on the same day the
event occurred?
    7. Would proposed section 6 disproportionally impact or create an
undue burden for smaller private equity advisers, i.e., those with
private equity fund assets under management of between $150 million and
$1.5 billion? If so, how should we modify this reporting requirement?
1. Large Hedge Fund Adviser Current Reporting on Qualifying Hedge Funds
    We propose to add a new section 5 to Form PF, which would require
large hedge fund advisers to file a current report within one business
day of the occurrence of one of several reporting events at a
qualifying hedge fund that they advise. As discussed below, the
reporting events include extraordinary investment losses, certain
margin events, counterparty defaults, material changes in prime broker
relationships, changes in unencumbered cash, operations events, and
certain events associated with redemptions. We have designed the
reporting events to indicate significant stress at a fund that could
harm investors or signal risk in the broader financial system. For
example, large investment losses or a margin default involving one
large highly levered hedge fund may have systemic risk implications.
Counterparties could react by increasing margin requirements or
limiting borrowing, or investors may withdraw, and these responses
could amplify the fund's stress by forcing additional asset sales.
Similarly, reports of large investment losses at multiple qualifying
hedge funds (even if not the largest or most levered) may indicate
market stress that could have systemic effects. Current reports would
be especially useful during periods of market volatility and stress,
when the Commission and FSOC are actively ascertaining the affected
funds, gathering information to assess systemic risk, and determining
whether and how to respond in a timely manner.
    The proposed reporting events incorporate objective tests to allow
advisers to determine whether a report must be filed. We designed and
tailored the reporting events to decrease reporting burden and to allow
advisers to use frameworks that we understand many large hedge fund
advisers already maintain to assess and manage risk actively. A number
of the items include quantifiable threshold percentage tests calibrated
to trigger reporting for events that we believe are likely indicative
of severe stress at a fund or may have broader implications for
systemic risk. We considered varying levels of thresholds and believe
that the proposed thresholds would trigger reporting for relevant
stress events for which we seek timely information while minimizing the
potential for false positives and multiple unnecessary current reports.
In addition, we considered a number of temporal periods over which to
measure certain stress events before arriving at measurement windows
that we believe are appropriate to trigger reporting for precipitous,
but sustained stress events. In our experience these time frames, in
some instances applied over rolling periods, are calibrated to capture
serious stress events and mitigate the potential for reporting for
short-lived fund stresses or events caused by relatively routine market
volatility.
    To supplement the objective triggers, several of the items include
check boxes that would provide additional context and obviate the need
for advisers to provide narrative responses during periods of stress
under time pressure. We designed the checkboxes to incorporate
descriptions of circumstances that we believe provide important context
to events that would allow the Commission and FSOC to review and
analyze the current reports and screen false positives (i.e., incidents
that trigger the proposed current reporting requirement but do not
actually raise significant risks) during periods in which they may be
actively evaluating fast-moving market events.
    Proposed section 5 would contain Items A through K. Section 5, Item
A would require advisers to identify themselves and the reporting fund,
including providing the reporting fund's name, private fund
identification number, NFA identification number (if any), and LEI (if
any).\22\ Section 5, Items B through J would set forth the reporting
events and the applicable reporting requirements for each event.
Section 5, Item K would serve as an optional repository for explanatory
notes that the large hedge fund adviser could provide to improve
understanding of any information reported in response to the other
section 5 items. The following sections discuss each reporting event.
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    \22\ Section 5, Item A would also require identifying
information on the reporting fund's adviser, including the adviser's
full legal name, SEC 801-Number, NFA ID Number (if any), large
trader ID (if any), and large trader ID suffix (if any), as well as
the name and contact information of the authorized representative of
the adviser and any related person who is signing the current
report.
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a. Extraordinary Investment Losses
    Proposed current reporting Item B would require large hedge fund
advisers, whose advised qualifying hedge funds experience extraordinary
losses within a short period of time, to provide a current report
describing the losses. Reporting for proposed Item B would be triggered
by a loss equal to or greater than 20 percent of a fund's most recent
net asset value over a rolling 10 business day period. This reporting
event would capture, for example, a situation where the fund's most
recent

net asset value is $1 billion and the fund loses $20 million per
business day for consecutive 10 business days. It would also capture a
loss of $200 million in one business day as the rolling 10 day period
is backward looking. We designed the proposed threshold to capture a
significant loss at the reporting fund over a relatively short rolling
period as well as a precipitous loss without capturing immaterial
losses that may not be indicative of stress at the fund.
    In our experience, losses of 20 percent or more of a fund's most
recent net asset value during this period could indicate significant
stress at the fund or the markets in which the fund participates that
could raise investor protection and systemic risk concerns warranting
prompt reporting. For example, these losses could signal a precipitous
liquidation or broader market instability that could lead to secondary
effects, including greater margin and collateral requirements,
financing costs for the fund, and the potential for large investor
redemptions. Notice of large losses could provide notice to the
Commission and FSOC of potential fund or market issues in advance of
the occurrence of more downstream consequences, such as sharp margin
increases, defaults, or fund liquidation. Also, funds in serious stress
may be in the process of deleveraging, exiting certain strategies, or
liquidating securities in a declining market with implications for both
fund investors and systemic risk. Moreover, large, sharp, and sustained
losses suffered by one fund within this short period may signal concern
for similarly situated funds, allowing the Commission and FSOC to
analyze the scale and scope of the event and whether additional funds
that may have similar investments, market positions, or financing
profiles are at risk.
    Under this reporting event, the fund's losses would be compared to
its ``most recent net asset value,'' which we propose to define as ``as
of the data reporting date at the end of the reporting fund's most
recent reporting period,'' which typically would be the most recent
update to the fund's routine quarterly or annual Form PF filing.\23\ We
understand that some funds calculate a daily mark to market value for
certain assets in their portfolios and that using a current daily mark
to market value for this reporting event may be feasible and provide a
more current and accurate picture of a fund's losses. However, given
that some funds do not calculate a daily net asset value, we believe
that requiring that the losses be based on the most recent net asset
value reported on Form PF would ease burdens for some advisers while
still providing the Commission and FSOC with timely information about
investment losses that may indicate significant stress at a fund. We
acknowledge that this approach could result in a lag between the net
asset value date and a calculation date for purposes of this reporting
event, during which market movements could significantly affect values.
This could potentially result in over-reporting in instances where the
fund assets have appreciated substantially in the intervening period
since the last reporting date and under-reporting when the fund assets
have significantly depreciated in value since the last reporting date.
However, we propose this approach because we believe the proposed
limited reporting requirements discussed below, combined with the
option to add explanatory notes to its current report to explain the
circumstances of the loss, mitigate these concerns.
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    \23\ See proposed Form PF Glossary.
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    Under proposed Item B, an adviser must file the following
information: (1) the dates of the 10 business day period over which the
loss occurred and (2) the dollar amount of the loss. If the loss were
to continue past the initial 10 day period, advisers would not file
another current report until the next 10 business day loss period
beginning on or after the end date stated in the adviser's initial Item
B current report.\24\ This proposed information would allow the
Commission and FSOC to understand the scale of the loss and its
potential effects both to investors in the reporting fund as well as
the broader financial markets, particularly if current reports are
filed by multiple advisers.
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    \24\ If the fund experiences a 20 percent loss the adviser would
not report a second time until the fund had experienced a second
loss of an additional 20 percent of the fund's most recent net asset
value over a second rolling 10-day period to begin on or after the
end date stated in the adviser's initial Item B current report.
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    We request comment on the proposed current reporting item for
extraordinary investment losses:
    8. Would extraordinary losses raise investor protection or systemic
risk concerns such that the Commission and FSOC should be notified
within one business day? Should the notification be on the same day as
the event? Should it be longer? For example, should we require advisers
to file a current report within two business days, three business days
or some longer period?
    9. As currently formulated, is the trigger for reporting
extraordinary losses likely to provide us with an early warning of
hedge fund or industry stress and potential systemic risk implications?
Would proposed Item B capture extraordinary losses that are not
indicative of fund or market stress? Would reporting on Item B be
burdensome to operationalize, particularly its use of a measure of the
reporting fund's extraordinary losses over a rolling 10 business day
period? Are large hedge fund advisers able to apply the extraordinary
loss trigger using their existing metrics?
    10. Should the scale of losses be compared to the reporting fund's
most recent net asset value as proposed? Is this approach a reasonable
measure of whether investment losses are ``extraordinary'' for purposes
of the current reporting requirement? Would this approach ease burdens
on reporting advisers or do large hedge fund advisers calculate the
fund's net asset value on each business day? Do large hedge fund
advisers calculate a different fund value that might be used instead of
net asset value for measuring extraordinary losses? If so, what other
measures would be practicable for reporting these advisers, while also
achieving our goal to identify extraordinary investment losses that may
have systemic risk implications or result in investor harm? For
example, should we require large hedge fund advisers to measure
extraordinary losses based on a daily mark to market calculation
(estimated or actual) for the portion of a qualifying hedge fund's
portfolio invested in marketable securities (a ``daily mark to market
calculation'')? If losses are measured using a daily mark to market
calculation for a portfolio of marketable securities, should we limit
the application of this reporting event to qualifying hedge funds that
hold at least a threshold value of their portfolios in marketable
securities, e.g., the lesser of $150 million or 50 percent of net asset
value or another threshold? How would large hedge fund advisers
calculate losses for purposes of this reporting event? Does the ability
to add explanatory notes in Item K help mitigate concerns of using the
most recent net asset value reported on Form PF?
    11. Is a 20 percent loss measured against the fund's most recently
reported net asset value an amount that could raise investor protection
or systemic risk concerns such that the Commission and FSOC should be
notified within one business day? Should the threshold amount be higher
(e.g., 50 percent threshold) or lower (e.g., 10 percent threshold)? If
this reporting event were to measure losses using a daily mark to
market calculation for a portfolio of marketable securities,

should extraordinary losses instead be measured against a percent of
the value of the portfolio's marketable securities?
    12. Would the use of rolling periods increase the likelihood that
we capture the types of extraordinary losses that could cause investor
harm or systemic risk? Is a ten-business day period appropriate? Should
it be longer or shorter? Should we use trading days or calendar days
instead of business days? If so, how should we define ``trading days''
and should our definition allow large hedge fund advisers to determine
what is a trading day by reference to the exchanges and markets on
which the fund's portfolio holdings are trading? Would monitoring
losses over the rolling periods be overly burdensome?
    13. Should we require funds to file multiple Item B current reports
if they suffer 20 percent losses over multiple 10 business day periods
during a quarterly update period? Is it likely that funds would report
losses of this type multiple times a quarter? Would additional reports
be duplicative? Alternatively, should we require advisers to file only
one Item B current report per quarterly period?
    14. Should we require a reporting event that measures investment
losses over a period (e.g., a 10-day or 20-day rolling period) against
the volatility of the fund's returns? We understand that losses that
are large compared to a hedge fund's historic volatility of returns may
signal significant stress. Could this type of reporting event be a
useful signal of extraordinary losses that may have systemic risk
implications? If so, how should we require hedge funds to measure
volatility of returns? Should we require funds to calculate the monthly
volatility of a daily mark to market calculation for this purpose?
Would doing so be burdensome to operationalize? Should we limit the
application of a reporting event that measures investment losses
against volatility of returns to qualifying hedge funds that hold at
least a threshold value of their portfolios in marketable securities,
e.g., the lesser of $150 million or 50 percent of net asset value, or
another threshold?
    15. Are there other reporting events that would be indicative of
the types of extraordinary losses that could cause investor harm or
systemic risk that we should include in addition to or instead of the
proposed Item B current report?
    16. Should we require additional or different information in
response to this item? In other current reporting items outlined below,
we provide checkboxes for advisers to provide additional context to the
reporting event. Should we provide checkboxes for advisers to describe
the circumstances of the loss, or are the reasons for an extraordinary
loss so variable as to avoid easy categorization? If we were to provide
checkboxes what should they be?
b. Significant Margin and Default Events
    Proposed Section 5 Items C through E would require current
reporting of significant margin and default events that occur at
qualifying hedge funds advised by large hedge fund advisers or at their
counterparties. In our experience, significant increases in margin,
inability to meet a margin call, margin default, and default of a
counterparty are strong indicators of fund and potential market stress.
Each of the triggers and underlying thresholds is calibrated to
identify stress at a fund that may signal the potential for precipitous
liquidations or broader market instability that may affect similarly
situated funds, or markets in which the fund invests.
    Proposed current reporting Item C would require advisers to report
significant increases in the reporting fund's requirements for margin,
collateral, or an equivalent (collectively referred to as
``margin'').\25\ If the reporting fund has experienced a cumulative
increase in margin of more than 20 percent of the reporting fund's most
recent net asset value over a rolling 10 business day period, Item C
would require the adviser to file certain information within one
business day.\26\ We believe that a 20 percent increase to a fund's
margin requirements over a 10 business day period is large enough and
precipitous enough to signal potential significant stress at the fund,
at its counterparties, or in the broader market while limiting the
potential for reporting in the case of routine margin increases. Sudden
and significant margin increases can have critical effects on funds
that may be operating with large amounts of leverage and could serve as
precursors to defaults at fund counterparties and eventual liquidation.
Large, sustained margin increases also may effectively signal that
counterparties are concerned about a fund's portfolio positions and may
signal the potential for future margin increases from the fund's other
counterparties. A large margin increase of this type may also serve as
a potential early indicator for broader market stress for similarly
situated funds that may help inform the Commission or FSOC of potential
implications for investor harm or systemic risk and allow them to
respond quickly to developing market events.
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    \25\ An equivalent is any other type of payment or value
understood to serve the same purposes as margin or collateral.
    \26\ As noted above, measures derived from ``most recent net
asset value'' are backward-looking to the most recently filed
routine quarterly or annual filing and could result in a lag between
the net asset value date and a calculation date for purposes of this
reporting event, during which market movements could significantly
affect values. This could result in over-reporting and under-
reporting, but we believe that this approach would simplify
monitoring and reporting by advisers. In addition, the option for an
adviser to add explanatory notes to its current report to explain
the circumstances of the loss mitigate these concerns.
---------------------------------------------------------------------------

    The adviser would report (a) the dates of the 10 business day
period over which the increase occurred; (b) the cumulative dollar
amount of the increase; and (c) the identity of the counterparty or
counterparties requiring the increase(s). If the increases in margin
were to continue past the initial 10 day period, advisers would not
file another current report until on or after the next 10 business day
period beginning on or after the end date stated in the adviser's
initial Item C current report.\27\ In circumstances where multiple
counterparties are involved, advisers would list the all the
counterparties who increased margin requirements. In addition, the
adviser would use check boxes to describe the circumstances of the
margin increase.\28\ These include: (1) Exchange requirements or known
regulatory action affecting one or more counterparties; (2) one or more
counterparties independently increasing the reporting fund's margin
requirements; (3) the reporting fund establishing a new relationship or
new business with one or more counterparties; (4) new investment
positions, investment approach or strategy and/or portfolio turnover of
the reporting fund; (5) a deteriorating position or positions in the
reporting fund's portfolio or other credit trigger under applicable
counterparty agreements; and/or (6) a reason ``other'' than those
outlined. We believe that this proposed information would provide
useful context regarding the margin increase and allow for an
assessment of the scale of the potential issue and related risks. We
believe this information would both better enable the Commission and
FSOC to screen false positives for margin increases (i.e., incidents
that trigger the proposed

current reporting requirement but do not actually raise significant
risks) and assess significant margin events.
---------------------------------------------------------------------------

    \27\ If the fund experiences a 20 percent increase to a fund's
margin requirements that continues past the initial 10 day period,
the adviser would not report a second time until the fund had
experienced a second margin increase of an additional 20 percent of
the fund's most recent net asset value over a second rolling 10 day
period beginning at or after the end date stated in the adviser's
initial Item C current report.
    \28\ Proposed Form PF section 5, Item C, Question 11.
---------------------------------------------------------------------------

    Proposed current reporting Item D would require advisers to report
a fund's margin default or inability to meet a call for margin,
collateral, or an equivalent (taking into account any contractually
agreed cure period).\29\ We believe a current report is necessary to
capture these events because funds that are in margin default or that
are unable to meet a call for margin are at risk of potentially
triggering the liquidation of their positions at their counterparties.
This presents serious risks to the fund's investors, its
counterparties, and potentially the broader financial system. The
proposed amendments would require advisers to file a current report in
these circumstances, including in situations where there is a dispute
with regard to the margin call to avoid delays in reporting. However,
advisers would not be required to file a current report in situations
where there is a dispute in the amount and appropriateness of a margin
call, provided the reporting fund has sufficient assets to meet the
greatest of the disputed amount. We believe that according this
flexibility allows funds and advisers that are capable of meeting a
margin call time to respond to and resolve a margin dispute with their
counterparties.
---------------------------------------------------------------------------

    \29\ In situations where there is a contractually agreed upon
cure period an adviser would not be required to file an Item D
current report until the expiration of the cure period, unless the
fund would not expect to be able to meet the margin call during such
cure period.
---------------------------------------------------------------------------

    Under the proposal, the adviser would report for each separate
counterparty for which this occurred: (a) The date the adviser
determines or is notified that a reporting fund is in margin default or
will be unable to meet a margin call with respect to a counterparty;
(b) the dollar amount of the margin, collateral or equivalent involved;
and (c) the legal name and LEI (if any) of the counterparty. In
addition, the adviser would check any applicable check boxes that would
describe the adviser's current understanding of the circumstances of
the adviser's default or its determination that the fund will be unable
to meet a call for increased margin.\30\ These include: (1) An increase
in margin requirements by the counterparty; (2) losses in the value of
the reporting fund's portfolio or other credit trigger under the
applicable counterparty agreement; (3) a default or settlement failure
of a counterparty; or (4) a reason ``other'' than those outlined. We
believe that these check boxes would enable the Commission's staff and
FSOC to identify and evaluate the circumstances underlying the
inability to meet a call for margin and formulate any necessary
response in a timely manner. If the fund was unable to meet margin or
defaulted with multiple counterparties on the same day, the adviser
would file one current report on Item D broken out with details for
each counterparty.
---------------------------------------------------------------------------

    \30\ Proposed Form PF section 5, Item D, Question 15.
---------------------------------------------------------------------------

    Proposed current reporting Item E, ``Counterparty Default,'' would
require an adviser to report a margin default by a counterparty.
Defaults by counterparties can have serious implications for the funds
with which they transact, the fund's investors, and the broader market.
A current report of a counterparty default would help the Commission
and FSOC identify funds or market participants that may be affected by
a counterparty's default and analyze whether there are broader
implications for systemic risk. A current report would be triggered if
a counterparty to the reporting fund (1) does not meet a call for
margin or has failed to make any other payment, in the time and form
contractually required (taking into account any contractually agreed
cure period); and (2) the amount involved is greater than 5 percent of
the most recent net asset value of the reporting fund.\31\ While we are
not proposing a minimum threshold for reporting on a qualifying hedge
fund's margin default given the potential implications of such a
default, we believe it is appropriate to set a threshold for
counterparty defaults that could affect a sizeable percentage of the
fund's net asset value. We believe that 5 percent of the most recent
net asset value of the reporting fund is an appropriate threshold in
this regard because counterparty defaults of this size could have
systemic waterfall effects, triggering forced-selling by the fund and
raising potential risks for other hedge funds that may transact with
the same counterparty.\32\ Moreover, the 5 percent threshold is a
figure we have used in Form PF to measure and collect information
regarding sizable exposures to creditors or counterparties.\33\ In
addition, we believe setting the threshold for counterparty defaults at
5 percent of the most recent net asset value would limit the reports
for de minimis or superficial defaults that may be the result of a
short-lived operational error.
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    \31\ As noted above, measures derived from ``most recent net
asset value'' are backward-looking to the most recently filed
routine quarterly, or annual filing and could result in a lag
between the net asset value date and a calculation date for purposes
of this reporting event, during which market movements could
significantly affect values. This could result in over-reporting and
under-reporting, but we believe that this approach would simplify
monitoring and reporting by advisers. In addition, the option to add
explanatory notes to its current report to explain the circumstances
of the loss mitigate these concerns.
    \32\ See Financial Stability Oversight Council, ``Update on
Review of Asset Management Products and Activities,'' p. 15-18,
April 2016, available at https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf (noting that large highly interconnected
counterparties play a role in whether hedge fund activities have
financial stability implications).
    \33\ See current question 47 of Form PF: Identify each creditor,
if any, to which the reporting fund owed an amount in respect of
borrowings equal to or greater than 5 percent of the reporting
fund's net asset value as of the data reporting date. For each such
creditor, provide the amount owed to that creditor.
---------------------------------------------------------------------------

    Item E would require the adviser to report: (a) The date of the
default; (b) the dollar amount of the default; and (c) the legal name
and LEI (if any) of the counterparty. In the event that multiple
counterparties to the fund default on the same day, Item E would allow
an adviser to file a single current report broken out with details for
each counterparty default. In the event that counterparties to the fund
default on different days, the adviser would file a separate Item E
current report for each counterparty default that occurred. We did not
provide checkboxes for Item E because we believe that advisers to the
funds are unlikely to have complete information regarding their
counterparty's default and the responses would likely be speculative.
    We request comment on the proposed current reports for margin and
default events:
    17. As currently formulated, is the trigger for reporting margin
increases likely to provide an indicator of hedge fund or industry
stress and systemic risk? Would proposed Item C capture margin
increases that are not indicative of fund or market stress? Would
reporting on Item C be burdensome to operationalize, particularly its
use of a measure of the reporting fund's increase in margin over a
rolling 10 business day period? Should we ask advisers to report the
dollar value of margin, collateral or an equivalent on the first and
last day of the 10 day period in Item C? Would this information be more
or less burdensome than reporting the amount of increase as currently
proposed?
    18. Should the margin increase be compared to the reporting fund's
most recent net asset value as proposed? Or, as with extraordinary
losses, are there other measurements, such as a daily mark to market
value, we could use to

identify the types of margin increases that could cause investor harm
or systemic risk?
    19. Should we tie reporting on margin increases to an amount
reported on Form PF as of the end of the last reporting period (e.g.,
total margin, collateral or other equivalent reported in Q43(a) and
(b))?
    20. Is a 20 percent margin increase measured against the fund's
most recently reported net asset value an amount that could raise
investor protection or systemic risk concerns such that the Commission
and FSOC should be notified within one business day? Should the
threshold amount be higher (e.g., 50 percent threshold) or lower (e.g.,
10 percent threshold)?
    21. Do the proposed check boxes provide proper context to events
captured by Item C? Should we remove any of the check boxes, or add
additional check boxes to improve our understanding of potential
responses to Item C? For example, should we also add a check box for an
operational issue (including the potential failure of a service
provider) that could lead to an inability to meet a margin call?
    22. Should we ask advisers to identify the amount of margin
increase for each counterparty in Item C? Would reporting of this
dollar amount better inform our understanding of fund stress? Would
determining and reporting this figure be burdensome to advisers? Would
knowing the amount of margin increase provide appreciable insight into
risks to the fund's counterparties?
    23. In circumstances where multiple counterparties are involved in
the margin increase, should advisers list the top three (or different
number of) counterparties, based on the dollar amount of the cumulative
increase required by each counterparty instead of all the
counterparties that increased margin as we propose? Would listing all
the counterparties that may have raised margin in such an event be
burdensome?
    24. We understand that increases in margin may be subject to
extensive negotiation and/or dispute among counterparties so it may be
difficult for the adviser to determine the point at which the fund is
unable to meet a margin call and required to file in accordance with
Item D. Does Item D as currently written provide sufficiently objective
criteria for when advisers must file a current report? Are there more
objective criteria that we could provide that would be equally useful?
    25. Item D would be triggered if the adviser determines that the
reporting fund is in default or will be unable to meet a call for
increased margin, collateral, or an equivalent, including in situations
where there is a dispute with regard to the margin call. Is that
appropriate or should we include a carve-out or checkbox for situations
where the margin call, collateral, or equivalent is in dispute? Should
Item D be triggered without taking into account any contractually
agreed cure period to provide more timely information regarding
potential systemic risk or would this approach create too many false
positives?
    26. Is notice of default an easily ascertainable event for advisers
to identify or are there nuances to default provisions or certain
industry practices that may make this reporting event difficult to
implement in practice?
    27. Do the proposed check boxes provide proper context to events
captured by Item D? Should we remove any of the check boxes, or add
additional check boxes to improve our understanding of potential
responses to Item D?
    28. Items C and D involve events that could be triggered by a fund
experiencing stress with the potential to be triggered at the same time
or in rapid succession. Are there concerns about the timing of filing
reports for these related items? We believe Item C could serve as
indicator of the potential for events outlined in Item D. Are we
correct in this belief? Should we ask these related questions in a
different way so as to receive notice of a potential upcoming default?
Would a default event be likely to trigger both of these current
reports, and if so, would it be burdensome to file current reports for
each of these items in such a situation?
    29. Are the triggers for reporting on Item E, including the 5
percent net asset value threshold, indicative of potential systemic
risk or investor protection concerns? Should that threshold be higher
or lower? Would a threshold for reporting on an adviser's default in
Item D be appropriate? If so, should that threshold also be 5 percent
of the reporting fund's net asset value? Or should that threshold be
higher or lower?
    30. We did not provide checkboxes for Item E because we believe
that advisers to the funds are unlikely to have complete information
regarding their counterparty's default and the responses would likely
be speculative. Are we correct in this belief? If not, what checkboxes
should we include to improve our understanding of potential responses
to Item E?
    31. For each of the current reports in Items in C, D, and E, should
we request the principal place of business address and the country
where we request to identify the counterparty? Or, should the legal
name and LEI be sufficient to identify counterparties?
c. Material Change in Relationship With Prime Broker
    Proposed section 5, Item F would require the adviser to report a
material change in the relationship between the reporting fund and a
prime broker. We believe that material changes in a reporting fund's
prime brokerage relationships may signal that the fund or the brokers
with whom the fund transacts are experiencing stress and may be subject
to an increased risk of default or in the case of the reporting fund,
potential liquidation. Such events would include material changes to
the fund's ability to trade or an outright termination of the prime
brokerage relationship for default or breach of the prime brokerage
agreement. A prime broker that is no longer willing to provide services
to a fund client may be apprehensive of a fund's investment positions
or trading practices and may consider the fund to be an unacceptable
risk as a counterparty. Therefore, material changes to such
relationships may indicate potential stress at the fund that may have
implications for investor harm and broader systemic risk concerns.
    Proposed Item F would require the adviser to provide the date of
the material change and the legal name and LEI (if any) of the prime
broker involved. An adviser also would check any applicable boxes that
describe the circumstances relating to the material change, including
whether the change involved: (1) Material trading limits or investment
restrictions on the reporting fund, including requests to reduce
positions, or unwind positions completely; and (2) whether the prime
brokerage relationship was terminated and by which party.\34\ We
request comment on the proposed current report in section 5, Item F:
---------------------------------------------------------------------------

    \34\ Proposed Form PF section 5, Item F, Question 21.
---------------------------------------------------------------------------

    32. Are material changes to a prime brokerage relationship
indicative of fund stress or potential systemic risk? Are the
circumstances described in the checkboxes sufficient to provide us with
detail on the change in the relationship? Should we add an ``other''
check box? Should we add or delete check boxes? Should we request the
principal place of business address of the prime broker? Or, should the
legal name and LEI be sufficient to identify the prime broker?
    33. We would require reporting of only material changes in a
reporting

fund's relationship with a prime broker. Will it be challenging to
determine whether a change is material? Should we provide additional
guidance? Should we require funds that add a new prime broker to report
the new relationship, or is the addition of a new prime broker not
useful from a risk evaluation perspective? Should we require that all
changes in a reporting fund's relationship with a prime broker
reported?
    34. We understand that many large funds have prime brokerage
agreements that include termination events that have net asset value
triggers. Are we correct in this understanding? Should we tie current
reporting in proposed Item F to the net asset value trigger provision
in a fund's prime brokerage agreement? If so, how? Should we provide a
checkbox asking whether a net asset value trigger has been breached?
    35. Should we expand the proposed Item F reporting event to include
broker-dealer counterparties and not just prime brokers? Would this
provide us with a more complete picture of the fund's relationship with
broker-dealer counterparties? Would such a current report be burdensome
to track across multiple counterparties?
d. Changes in Unencumbered Cash
    Proposed section 5, Item G would require the adviser to report a
significant decline in holdings of unencumbered cash. A current report
for changes in unencumbered cash would be triggered if the value of the
reporting fund's unencumbered cash declines by more than 20 percent of
the reporting fund's most recent net asset value over a rolling 10
business day period.\35\ In order to report significant changes in
unencumbered cash, advisers would need to calculate a daily
unencumbered cash figure using the same methodology they use to
calculate question 33 on the current Form PF.\36\ We believe that a
precipitous decline in unencumbered cash within a short time window may
indicate potential stress on the fund and its ability to access cash
affecting the fund's financing and its relationships with
counterparties, which may raise concerns of investor harm and systemic
risk. In our experience, funds and fund counterparties use unencumbered
cash figures as an indicator of a fund's overall health as it has
implications, among other things, for the fund's ability to allocate
investments, satisfy redemptions, and meet margin calls.
---------------------------------------------------------------------------

    \35\ As noted above, measures derived from ``most recent net
asset value'' are backward-looking to the most recently filed
routine Form PF quarterly or annual filing and could result in a lag
between the net asset value date and a calculation date for purposes
of this reporting event, during which market movements could
significantly affect values. This could result in over-reporting or
under-reporting, but we believe that this approach would simplify
monitoring and reporting by advisers. In addition, the option for an
adviser to add explanatory notes to its current report to explain
the circumstances of the loss mitigate these concerns.
    \36\ See question 33 of current Form PF requiring the value of
the reporting fund's unencumbered cash.
---------------------------------------------------------------------------

    If this trigger is met, the adviser would report the last day of
the rolling 10 business day period during which the unencumbered cash
declined and the dollar amount of the unencumbered cash on the last day
of the period. If the decrease in unencumbered cash were to continue
past the initial 10 day period, advisers would not file another current
report until the next 10 business day period beginning on or after the
end date stated in the adviser's initial Item G report.\37\ Item G
would also include explanatory checkboxes for the adviser to provide
additional information concerning its current understanding of the
facts and circumstances around the change in unencumbered cash. These
checkboxes include whether (1) the change is attributable to redemption
activity for the fund; (2) the change is attributable to new investment
positions, strategy and/or portfolio turnover; (3) the change is a
related to losses in the value of the fund's portfolio; (4) the change
is related to a margin call; or (5) the change was caused by a reason
``other'' than those outlined.\38\ These checkboxes would provide
relevant information regarding the changes in the fund's unencumbered
cash allowing Commission and FSOC to begin to evaluate the event.
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    \37\ If the fund experiences a 20 percent decline in
unencumbered cash that continues past the initial 10-day period, the
adviser would not report a second time until the fund had
experienced a second decline in unencumbered cash of an additional
20 percent of the fund's most recent net asset value over a second
rolling 10-day period beginning at or after the end date stated in
the adviser's initial Item G current report.
    \38\ Proposed Form PF section 5, Item G, Question 23.
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    We request comment on the proposed current report in section 5,
Item G:
    36. Is a current report for a decline in unencumbered cash likely
to capture changes in unencumbered cash that are indicative of fund or
market stress? Is the trigger, including the daily calculation of
unencumbered cash, burdensome to operationalize? Is it common for
advisers to track an unencumbered cash figure on a daily basis?
    37. Should we require reporting when the value of the reporting
fund's unencumbered cash declines by more than 20 percent of the fund's
most recent net asset value over a rolling 10 day business period as
proposed? Is 20 percent too high or too low? Is a rolling 10 business
day period appropriate or should we change the length of the period? As
with other reporting events that use the reporting fund's most recent
net asset value, are there other metrics we should use for purposes of
a reporting trigger for a decline in unencumbered cash?
    38. Do the proposed check boxes provide proper context to events
captured by Item G? Should we remove any of the check boxes, or add
additional check boxes to improve our understanding of potential
responses to Item G? Why or why not?
    39. Are there other similar types of triggers that may signal
stress that could be incorporated into Item G? For example, should we
include a significant increase or decrease in borrowing by the
reporting fund as a reporting event? For this purpose, would a 20
percent increase or decrease in borrowing measured against the most
recently reported net asset value be an appropriate measure? What other
approach could we use to identify a change in the amount of borrowing
that might signal potential stress occurring at a fund?
e. Operations Events
    Proposed section 5, Item H would require the adviser to report when
the adviser or reporting fund experiences a ``significant disruption or
degradation'' of the reporting fund's ``key operations,'' whether as a
result of an event at the reporting fund, the adviser, or other service
provider to the reporting fund. Key operations means, for this purpose,
operations necessary for (1) the investment, trading, valuation,
reporting, and risk management of the reporting fund; as well as (2)
the operation of the reporting fund in accordance with the Federal
securities laws and regulations.\39\ When evaluating a reporting fund's
key operations that are reasonably measurable, a ``significant
disruption or degradation'' means a 20 percent disruption or
degradation of normal volume or capacity. For example, Item H would
require reporting of cybersecurity event that disrupted the trading
volume of a reporting fund by 20 percent of its normal capacity. It
also would require reporting in cases where an adviser's ability to
value the fund's assets is significantly disrupted or

degraded, for example, in connection with operational issues at a
service provider. As another example, events such as a severe weather
event causing wide-spread power outages that significantly disrupt or
degrade key operations also would require reporting. We understand that
many large hedge fund advisers have sophisticated back office
operations or already engage service providers that would be reasonably
able to measure whether an event has impaired their key operation
beyond a 20 percent threshold. We believe that an operations event
involving a qualifying hedge fund could have systemic risk implications
if the fund is not able to trade as a result of such an event.\40\ In
addition, notice of operations events from multiple advisers could
provide an early indicator of market-wide operations events to both the
Commission and FSOC. Such events could include a service provider
outage that may affect the ability of multiple funds to trade, leading
to negative implications for those funds' investors and broader
systemic risks.
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    \39\ See Form PF Glossary (proposed definitions of ``significant
disruption and degradation'' and ``key operations'').
    \40\ We recognize that the SEC currently does not require
registered investment advisers and registered investment companies
to report operational events. We are also considering recommending
that the Commission propose rules to enhance fund and investment
adviser disclosures and governance relating to cybersecurity risks.
See Securities and Exchange Commission, Agency Rule List (Fall
2021), available at Agency Rule List--Fall 2021 (reginfo.gov).
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    Item H would require the date of the operations event (or an
estimate of when it occurred), and the date the operations event was
discovered. Proposed Item H would also require the adviser to provide
additional information concerning its current understanding of the
circumstances relating to the operations event and its impact on the
normal operations of the reporting fund using checkboxes.\41\ These
include whether: (1) The event occurred at a service provider,\42\ (2)
the event occurred at a reporting fund or reporting fund adviser or a
related person; (3) the event is related to a natural disaster or other
force majeure event, or (4) an unlisted ``other'' event occurred. In
addition, proposed Item H would require an adviser to indicate whether
it has initiated a business continuity plan relating to the operations
of the adviser or reporting fund as we believe this may provide
additional appropriate context to the operations event.
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    \41\ Proposed Form PF section 5, Item H, Questions 26 through
28.
    \42\ If the event occurred at a service provider, an adviser
also must report the legal name of the service provider; the service
provider's LEI, if any; and the types of services provided by the
service provider.
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    Proposed Item H also requires the adviser to check a box to
describe its current understanding of the impact of the operations
event on the normal operations of the reporting fund, including whether
the event resulted in the disruption or degradation of: (1) Trading of
portfolio assets; (2) the valuation of portfolio assets; (3) the
management of the reporting fund's investment risk; (4) the ability to
comply with applicable laws, rules, and regulations; or (5) any
``other'' type of operational impact than those outlined and may be
further explained in Item K Explanatory Notes. We believe that these
explanatory checkboxes would provide appropriate context to current
reports filed for operations events allowing the Commission and FSOC to
evaluate quickly the potential level of risk to funds, advisers, and
their service providers.
    We request comment on the proposed current report in section 5,
Item H:
    40. Will this proposed reporting requirement provide us with notice
of operations events that may have serious implications for the fund,
its investors, and financial stability?
    41. Does the definition of ``operations event'' provide a clear,
objective trigger for reporting? Would advisers be able to assess this
during an operations event? We proposed a principles-based approach for
reporting of an operations event that is a ``significant'' disruption
or degradation of the adviser's operations and for operations that are
reasonably measurable, we would view a 20 percent disruption of
degradation of normal volume or capacity as ``significant.'' Are we
correct that certain disruptions may not be quantifiable? Do commenters
agree that a 20 percent disruption or degradation of normal volume or
capacity indicates that an event is ``significant?'' Should the
reporting event include a time frame to measure a 20 percent disruption
or degradation? If so, what time frame? Should it be over one business
day or over one month? Do advisers' compliance programs typically
include benchmarks that could be used to measure a 20 percent
disruption or degradation? Are there other potential approaches for an
operational events trigger?
    42. Are we correct in our understanding that many large hedge fund
advisers maintain sophisticated back office operations or already
engage service providers that would be reasonably able to measure
whether an event has impaired their key operation beyond a 20 percent
threshold? Are there any other objective measures gathered by advisers
or their service providers that could be utilized as a trigger for this
reporting event?
    43. Will the checkboxes provided to describe the circumstances of
the ``operations event'' provide us with sufficient detail regarding
the operational issue and its potential severity? Should we amend, add,
or remove any of the check boxes? Is the check box for force majeure
events appropriate, or does it have the potential to cause numerous
notifications during certain widely applicable disaster events like a
pandemic or large hurricane?
    44. Should we require an adviser to indicate whether the operations
event is caused by a service provider and require the adviser to
provide information regarding the service provider, as proposed? Should
we define the term ``service provider'' for these purposes? Should we
require reporting only for those service providers listed in Form ADV,
Schedule D for the private fund? Are there some operations events that
could be caused by a third party that is not a service provider to the
reporting fund or adviser? If so, should we require an adviser to
provide information regarding such a third party?
    45. Should we define ``key operations'' as proposed? Are there any
activities that we should add or delete from the definition? For
example, should key operations also include the operation of the
reporting fund in accordance with major contractual commitments to the
reporting fund's investors and/or counterparties? For example, should
it be considered a significant disruption or degradation of key
operations if an issue at a service provider degrades the fund's
ability to measure its positions or communicate certain information to
counterparties pursuant to contractual notice terms?
    46. As an alternative to defining ``operations event'', should we
require current reporting by advisers whenever they initiate a business
continuity plan? Would the initiation of a business continuity plan be
a simpler trigger to apply? Would the initiation of a business
continuity plan as a reporting event result in too many current reports
about events that could not lead to investor harm or systemic risk?
Would it miss important operations events that could lead to investor
harm or systemic risk? Should we be concerned that advisers might delay
initiating a business continuity plan so as to avoid reporting?
    47. Should we require an adviser to indicate whether it has
initiated a business continuity plan relating to the

operations of the adviser or reporting fund, as proposed? Does the
initiation of such a plan provide the Commission with indications of
potential stress at the fund or its adviser?
f. Withdrawals and Redemptions
    We believe large redemption requests, suspensions of withdrawals/
redemptions, material restrictions on withdrawals/redemptions, and an
inability to satisfy redemptions are significant signals of potential
stress at a qualifying hedge fund.\43\ Qualifying hedge funds under
stress or in periods of volatility may have difficulty selling certain
assets in an orderly manner to meet large redemption requests. In such
a situation, hedge funds could fall back on more extraordinary
liquidity management measures to mitigate redemption difficulties and
the potential for forced asset sales.\44\ While advisers currently are
required to provide certain reporting regarding redemptions for
qualifying hedge funds on a quarterly basis, we are proposing current
reporting Items I and J to provide more detailed and timely information
to the Commission and FSOC indicating the potential for investor harm,
forced selling in liquidations, or broader systemic risk.\45\
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    \43\ We understand that many funds place quarterly restrictions
on the timing and size of investor's redemptions.
    \44\ See Financial Stability Oversight Council, Update on Review
of Asset Management Products and Activities (Apr. 2016), available
at https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf.
    \45\ See Form PF question 61 regarding restrictions on
withdrawals and redemptions by investors in the reporting fund.
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    Proposed section 5, Item I would require an adviser to report if
the adviser receives cumulative requests for redemption exceeding 50
percent of the most recent net asset value (after netting against
subscriptions and other contributions from investors received and
contractually committed).\46\ We believe that the obligation to redeem
sizable redemption requests of 50 percent or more of a reporting fund's
most recent net asset value, despite pre-existing gates or limitations,
may present significant risks to the fund and increases the risk that
it may be forced to liquidate assets (potentially at lower prices),
disproportionately penalizing non-redeeming investors, and potentially
impacting markets more broadly. In the staff's experience, funds that
receive withdrawal requests for half or more of their assets in the
period between routine quarterly reports on Form PF may be subject to
increased selling and liquidity pressures that could be particularly
harmful to investors with potential broader market implications,
especially if the fund is invested in more illiquid assets. Timely
notice of such events would allow the Commission and FSOC to analyze
the potential implications for the fund's investors and systemic risk.
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    \46\ As with the proposed use of ``most recent net asset value''
in other circumstances described above, this measure could result in
over-reporting or under-reporting, but we believe that a simple to
determine measure would ease the monitoring and reporting burden for
advisers. In addition, the option for an adviser to add explanatory
notes to its current report to explain the circumstances surrounding
the redemptions mitigates these concerns.
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    Under proposed Item I, an adviser would report: (a) The date on
which the net redemption requests exceeded 50 percent of the most
recent net asset value; (b) the net value of redemptions paid from the
reporting fund between the last data reporting date (the end of the
most recently reported fiscal quarter on Form PF) and the date of the
current report; (c) the percentage of the fund's net asset value the
redemption requests represent; and (d) whether the adviser has notified
the investors that the reporting fund will liquidate.
    Proposed section 5, Item J would require an adviser to report if a
qualifying hedge fund is unable to satisfy redemptions or suspends
redemptions for more than 5 consecutive business days. We believe that
this report would help the Commission and FSOC to identify stress at a
reporting fund and evaluate the effects of these circumstances on fund
investors and the markets more broadly. We also believe that this
reporting could provide a potential early warning of the fund's
liquidation and potentially allow the Commission or FSOC to analyze or
respond to any perceived harm to investors or systemic risks on an
expedited basis before they worsen. The 5 consecutive day period is
designed to limit reporting of temporary redemption suspensions that we
believe have less of an impact on investors or the broader market.
Under proposed Item J, the adviser would report: (a) The date the
reporting fund was unable to pay redemption requests or suspended
redemptions; (b) the percentage of redemptions requested and not yet
paid; and (c) whether the adviser has notified the investors that the
reporting fund will liquidate.
    We request comment on the proposed current report in section 5,
Items I and J:
    48. For proposed Item I, our goal is to be notified when the
adviser receives requests for substantial redemptions because they may
result in significant transaction costs and forced selling by a fund,
all of which can cause harm to investors and contribute to systemic
risk. Does Item I, as currently formulated, capture such events?
    49. Should we ask different, additional questions, or provide
checkboxes to gather additional context and timely information on large
redemptions? What should such checkboxes describe?
    50. Is the 50 percent of most recent net asset value threshold
trigger for substantial redemptions proposed in Item I appropriately
tailored to capture large scale liquidations? Should it be higher or
lower or over a different time period? We understand that some
investors may submit a redemption request each quarter to preserve
their flexibility as a matter of course. For example, a fund of funds
may submit a redemption request to its underlying funds so that it can
match any redemptions it receives from its investors. The fund of funds
then may rescind the redemption requests that they do not need so that
their initial redemption requests appear overstated. How should the
reporting event take these types of redemption requests into account?
Should we allow reporting funds to exclude certain redemption requests?
If so, how should we cabin such an exclusion?
    51. Would proposed Item J provide the information we seek regarding
a reporting fund's inability to pay redemptions or its suspension of
redemptions? The 5 consecutive day period is designed to limit
reporting of temporary redemption suspensions that we believe have less
of an impact on investors or the broader market. Is the 5 consecutive
business day period for inability to satisfy or the suspension of
redemptions appropriate for capturing significant constraints on
investor liquidity or stress at the fund? Should the period be longer
or shorter?
    52. Should we ask different, additional questions, or provide
checkboxes about why an adviser was unable to pay redemptions or why
redemptions were suspended? If so, what should they be?
g. Explanatory Notes
    Proposed Item K would allow an adviser to provide a narrative
response if it believes that additional information would be helpful in
current report(s). We believe that current reports can sometimes
benefit from additional context so that the Commission and FSOC can
effectively evaluate them for both our investor protection mission and
FSOC's monitoring of systemic risk. This approach is consistent with
other

current reports filed with the Commission, where registrants have
requested the flexibility to provide additional narrative information
relating to circumstances surrounding the current report.\47\
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    \47\ See Part H of Form N-RN.
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    We request comment on the proposed current report in section 5,
Item K:
    53. Should we provide the option for a narrative response? Are
advisers likely to use the space to provide additional context to a
filed current event?
    54. Should we require advisers to provide a narrative response in
Item K when they check ``other'' in describing a key event?
    55. Other current reporting forms require follow up reports for
certain events.\48\ Should we require follow up reports for any of the
current reporting events in section 5? For example, should we require
an adviser to file a follow up report if it learns additional material
information regarding the reported event that is responsive to a
proposed question? Should we require advisers to periodically file
follow-up reports (e.g., every 5 business days, every 30 business days)
until the event has been resolved? Should we instead permit advisers to
voluntarily file follow-up current reports? As another alternative,
should we require advisers to report information regarding the
resolution of the event as part of its next regular report on Form PF?
---------------------------------------------------------------------------

    \48\ 17 CFR 274.223 (Form N-Liquid or Form N-RN) and 17 CFR
274.222 (Form N-CR).
---------------------------------------------------------------------------

    56. Should advisers to funds that are not qualifying hedge funds
have to respond to any or all of the current reporting items? For
example, should we require all advisers that file Form PF to file a
current report in connection with an operations event? Should certain
current reporting events only be required of the largest hedge funds?
If so, what asset thresholds would be appropriate and for which items?
2. Private Fund Adviser Current Reporting on Private Equity Funds
    Similar to the current reporting in proposed section 5 for large
hedge fund advisers, we are also proposing to require all advisers to
private equity funds to file a current report within one business day
of a reporting event. The reporting events include: (1) Execution of an
adviser-led secondary transaction, (2) implementation of a general
partner or limited partner clawback, and (3) removal of a fund's
general partner, termination of a fund's investment period, or
termination of a fund. As noted above, private equity fund advisers
file their annual updates within 120 calendar days after their fiscal
year ends, which leads to significant delays in reporting and staleness
of certain information. We believe that more current reporting of the
proposed information would improve the Commission's and FSOC's ability
to monitor systemic risk by providing information on certain events
(including potential trends affecting multiple private equity funds)
that could significantly affect both investors and markets more
broadly, and also enhance our investor protection efforts. Because
reporting of these events is designed to enhance our timely oversight
of these advisers, we propose to require current reporting on a limited
number of events by all advisers to private equity funds that file Form
PF. Furthermore, we believe that growth in the private equity industry
since the adoption of Form PF further supports the proposed current
reporting requirements, given that both the number of investors
invested in private equity funds has increased and the industry's
impact on markets generally has become more pronounced.\49\ We believe
that both of these developments merit more timely risk-based monitoring
and oversight by the Commission and FSOC given the potential
consequences for an ever increasing pool of private equity investors as
well as financial markets broadly.
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    \49\ Since 2013, the number of private equity funds has more
than doubled from under 7,000 to nearly 16,000, private equity fund
gross assets have tripled from $1.6 trillion to $4.7 trillion, and
private equity fund net assets have also nearly tripled, increasing
from $1.5 trillion to $4.2 trillion. See Private Funds Statistics,
supra footnote 4.
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    Proposed section 6 would contain Items A through E. Item A would
require advisers to identify themselves and the reporting fund,
including providing the reporting fund's name, private fund
identification number, NFA identification number (if any), and LEI (if
any).\50\ Items B through D would set forth the three reporting events
and the applicable reporting requirements. Item E would serve as an
optional item for advisers to provide any explanatory notes they
believe would be helpful to the Commission's and FSOC's understanding
of information reported in section 6. The following sections discuss
each reporting event in turn.
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    \50\ Section 6, Item A would also require identifying
information on the reporting fund's adviser, including the adviser's
full legal name, SEC 801-Number, NFA ID Number (if any), large
trader ID (if any), and large trader ID suffix (if any), as well as
the name and contact information of the authorized representative of
the adviser and any related person who is signing the current
report. See Section 6, Item A.
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a. Adviser-Led Secondary Transactions
    Proposed section 6 Item B would require reporting upon the
completion of an adviser-led secondary transaction. This proposed
reporting would include the transaction completion date and a brief
description of the transaction. We propose to define ``adviser-led
secondary transaction'' as any transaction initiated by the adviser or
any of its related persons \51\ that offers private fund investors the
choice to: (1) Sell all or a portion of their interests in the private
fund; or (2) convert or exchange all or a portion of their interests in
the private fund for interests in another vehicle advised by the
adviser or any of its related persons.\52\ Under the proposal,
transactions would only be subject to reporting if they are initiated
by a private equity fund's adviser or a related person of the
adviser.\53\ We understand that these transactions have become
increasingly common in the private equity space and may present
conflicts of interest that merit timely reporting and monitoring given
that these conflicts, particularly those that arise because the adviser
(or its related person) is on both sides of the transaction in an
adviser-led secondary transaction with potentially different economic
incentives, have the potential to negatively impact investors. To the
extent that an increase in adviser-led secondary transactions also
indicates an inability to sell portfolio companies (or to sell those
companies at existing valuations) through more traditional exit
avenues, transactions of this nature could be a leading indicator of a
declining market, a situation that also merits timely monitoring to
identify potential consequences for both investors as well as markets
more broadly from a systemic risk perspective. This proposed
requirement would provide the Commission and FSOC with data regarding
the frequency and circumstances surrounding these transactions allowing
the Commission and FSOC to assess market trends better and assess both
potential market impacts as well as potential conflicts of interest
associated with these transactions.
---------------------------------------------------------------------------

    \51\ See Form PF Glossary (definition of ``related person'').
    \52\ See Form PF Glossary (proposed definition of ``adviser-led
secondary transaction'').
    \53\ Whether a transaction is initiated by the adviser or its
related persons requires a facts and circumstances analysis.
However, we would generally not view a transaction to be initiated
by the adviser or one of its related persons to the extent the
adviser or one of its related persons, at the unsolicited request of
an investor, participates in the secondary sale of such investor's
fund interest.

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

    We request comment on the proposed current report in section 6,
Item B:
    57. The purpose of this proposed reporting event is to identify an
adviser-led secondary transaction that merits monitoring on a timelier
basis than possible with an annual report on Form PF. Does the
reporting event accomplish this purpose? Why or why not? If not, how
should we modify the language? Should the rule use an alternative
trigger? Alternatively, do these types of transactions not merit such
monitoring?
    58. Is the proposed definition of ``adviser-led secondary
transaction'' appropriate and clear? If not, how could the definition
be clarified? Should it be modified or eliminated? Is the proposed
definition too broad or too narrow? Should we provide additional
guidance?
    59. Should we define or provide guidance on the term
``transaction'' in the definition of ``adviser-led secondary
transaction''? If so, how should ``transaction'' be defined? Should we
reference the various types of adviser-led secondary transactions in
the definition? Why or why not? The proposed definition of ``adviser-
led secondary transaction'' includes transactions initiated by the
adviser's related persons. Should we exclude transactions initiated by
some or all of the adviser's related persons from the proposed
definition?
b. General Partner or Limited Partner Clawback
    Proposed section 6 Item C would require reporting upon the
implementation of a general partner clawback. This proposed reporting
would include the effective date of the clawback and the reason for the
clawback.\54\ We would define ``general partner clawback'' as any
obligation of the general partner, its related persons, or their
respective owners or interest holders to restore or otherwise return
performance-based compensation to the fund pursuant to the fund's
governing agreements.\55\
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    \54\ As proposed section 6, Item C pertains to both general
partner clawbacks and limited partner clawbacks, the item also
requires filers to specify the type of clawback implemented (i.e.,
whether it is a general partner clawback or limited partner
clawback). See Section 6, Item C.
    \55\ See Form PF Glossary (proposed definition of ``general
partner clawback''). Under the proposal we would define
``performance-based compensation'' as any allocation, payment, or
distribution of capital based on the fund's (or its portfolio
investments') capital gains and/or capital appreciation. This
definition would include cash or non-cash compensation, including
in-kind allocations, payments, or distributions of performance-based
compensation. See also Form PF Glossary (proposed definitions of
``performance-based compensation'' and ``portfolio investments'').
---------------------------------------------------------------------------

    For example, if the general partner of a fund is entitled to
performance-based compensation equaling 20 percent of the fund's
profits over the life of the fund and the fund distributes such
compensation to the general partner periodically based on the
profitability of the fund at the time of distribution, the general
partner may have received distributions of performance-based
compensation over the life of the fund in excess of 20 percent of the
fund's aggregate profits. In this situation, under the fund's governing
documents, the fund's general partner would be required to return the
excess performance-based compensation it received to the fund.
Specifically, reporting would be required when the general partner is
required to return to the fund performance-based compensation in excess
of the amount it was ultimately entitled to receive under the fund's
governing documents.
    The widespread implementation of general partner clawbacks may be a
sign of a deteriorating market environment, which may have systemic
risk implications. For example, given that the implementation of
general partner clawbacks by private equity funds is typically rare, if
many funds are implementing general partner clawbacks at the same time,
this could be indicative of the early stages of a distressed credit
environment or cycle, and timely reporting received could help the
Commission and FSOC identify particular markets, sectors or funds on
which such a declining market environment could have an outsized
impact, and which may merit additional monitoring given the potential
consequence for both investors and financial market stability.
    In addition, we propose to require reporting when an adviser
implements a limited partner clawback (or clawbacks) in excess of an
aggregate amount equal to 10 percent of a fund's aggregate capital
commitments. We would define ``limited partner clawback,'' sometimes
referred to as a limited partner ``giveback,'' as an obligation of a
fund's investors to return all or any portion of a distribution made by
the fund to satisfy a liability, obligation, or expense of the fund
pursuant to the fund's governing agreements.\56\ We believe requiring
the proposed minimum threshold is appropriate because we believe a
clawback of this magnitude would be associated with an event that could
have a significant negative impact on a fund's investors and, if a
pattern emerges among multiple private equity advisers, could indicate
financial stability concerns.
---------------------------------------------------------------------------

    \56\ See Form PF Glossary (proposed definition of ``limited
partner clawback'').
---------------------------------------------------------------------------

    Limited partner clawbacks of this magnitude also could signal that
a fund is under stress or is anticipating being under stress. For
example, a limited partner clawback (or clawbacks) in an aggregate
amount of more than 10 percent of a private equity fund's aggregate
capital commitments might suggest that the fund is planning for a
material event (e.g., substantial litigation or legal judgment) that
could negatively impact investors and we believe that such potential
impact merits prompt reporting to allow for more timely risked-based
monitoring.
    We request comment on the proposed current report in section 6,
Item C:
    60. Do the proposed reporting events based on implementation of a
general partner and/or limited partner clawback capture events that
could signal that a fund or the market more generally is under stress
or subject to an event that merits prompt reporting? Why or why not? If
not, how should we modify this reporting event or what alternative
reporting event would you suggest?
    61. Are the proposed definitions of ``general partner clawback,''
``performance-based compensation,'' and ``limited partner clawback''
appropriate and clear? If not, how should the definitions be clarified?
Should they be modified or eliminated? Are the proposed definitions too
broad or too narrow? Should we provide additional guidance?
    62. With respect to the limited partner clawback reporting event,
is the proposed minimum reporting threshold, i.e., a clawback (or
clawbacks) in excess of an aggregate amount equal to 10 percent of a
fund's aggregate capital commitments, appropriate? Why or why not? If
not, should the threshold be higher or lower and why? Would the
proposed limited partner clawback reporting event cause advisers to
hold more investment proceeds as reserves and delay distributions to
investors, rather than distributing proceeds to investors more quickly?
Why or why not?
    63. We recognize that certain fund agreements require the adviser
to perform interim clawback calculations during the life of the fund.
For example, the adviser may be required to determine whether the
general partner would be subject to a clawback on the first anniversary
of the termination of the investment period. Should such ``interim''
clawbacks be subject to the current reporting requirement, as proposed?
Do they present the same monitoring needs as end-of-life clawbacks?

c. Removal of General Partner, Termination of the Investment Period or
Termination of a Fund
    Proposed section 6 Item D would require an adviser to report when a
fund receives notification that fund investors have: (1) Removed the
adviser or an affiliate as the general partner or similar control
person of a fund, (2) elected to terminate the fund's investment
period, or (3) elected to terminate the fund, in each case as
contemplated by the fund documents. Proposed Item D would require
reporting on the effective date of the applicable removal event and a
description of such removal event.
    We believe that events of this nature are rare, and accordingly,
current reporting would also be rare. However, we believe these events
could provide an indication of market deterioration and also raise
investor protection issues, including potential conflicts of interest,
and merit the Commission's and FSOC's timely monitoring. For example,
each of these triggers could lead to the liquidation of the fund
earlier than anticipated, which could present risks to investors and
potentially certain markets in which the fund assets were invested.
This proposed current reporting event would provide the Commission and
FSOC with timely notification of this event (of which we might
otherwise be unaware at the time it is initiated), and allow for
evaluation given the potential consequences of the event.
    We request comment on the proposed current report in section 6,
Item D:
    64. Does the proposed reporting event based on the removal of a
fund's general partner, termination of a fund's investment period, or
termination of a fund raise investor protection and systemic risk
concerns that merit timely monitoring? Why or why not? If not, how
should we modify this reporting event or what alternative reporting
event would you suggest? Is the use of the term ``termination'' in the
reporting event clear on its face or should it be defined? Why or why
not?
    65. Are there other reporting events, in addition to the ones that
we have proposed in section 6, that you believe would provide the
Commission and FSOC with information that would enhance our ability to
protect private equity fund investors and monitor the private equity
industry? If so, what are they? For example, should we have a reporting
event in connection with the departure of a senior member (e.g.,
partner, executive officer, etc.) of a fund's general partner, e.g., a
key person event?
    66. Should we add a ``for cause'' requirement to this reporting
event (i.e., typically defined in a fund's governing documents as the
general partner or its principals engaging in gross negligence, willful
misconduct, fraud, or violations of applicable law)? Should we narrow
the reporting event to only cover ``for cause'' events?
d. Explanatory Notes
    Similar to proposed section 5 Item K and for the same reasons,
proposed section 6 Item E would allow an adviser to provide a narrative
response if it believes that additional information would be helpful in
explaining the circumstances of their current report(s).
    We request comment on the proposed current report in section 6,
Item E:
    67. Should we provide the option for a narrative response? Are
advisers likely to use the space to provide additional context to a
filed current event?
    68. As noted above, other current reporting forms require follow up
reports for certain events. Should we require follow up reports for any
of the reporting events in section 6? For example, should we require an
adviser to file a follow up report if it learns additional material
information regarding the reported event that is responsive to a
proposed question?
3. Filing Fees and Format for Reporting
    We propose to require advisers to file current reports through the
same non-public filing system they use to file the rest of Form PF, the
Private Fund Reporting Depository (``PFRD'').\57\ Large hedge fund
advisers and all private equity advisers would file current reports on
section 5 and section 6 of Form PF, respectively, and would not file
any other sections of Form PF at the time a current report is filed.
This requirement is designed to facilitate reporting of clear and
timely information in an efficient manner. Under the proposed rule,
advisers filing current reports on either section 5 or 6 would be
required to pay to the operator of the Form PF filing system fees that
have been approved by the SEC. The SEC in a separate action would
approve filing fees that reflect the reasonable costs associated with
the filings and the establishment and maintenance of the filing
system.\58\ Advisers also would be able to amend their current report
if they discover that information they filed was not accurate at the
time of filing.\59\
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    \57\ See proposed Instruction 12. See also rule 17 CFR
275.204(b)-1.
    \58\ See section 204(c) of the Advisers Act.
    \59\ Consistent with the current instructions for other types of
Form PF filings, large hedge fund advisers and private equity
advisers would not be required to update information that they
believe in good faith properly responded to Form PF on the date of
filing even if that information is subsequently revised for purposes
of recordkeeping, risk management or investor reporting (such as
estimates that are refined after completion of a subsequent audit).
This proposed requirement is designed to provide advisers with a way
to correct current reports, just as all advisers can correct other
types of Form PF filings. See Instruction 16.
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    69. Should advisers file current reports through PFRD as proposed?
Alternatively, is there another filing system (e.g., IARD, EDGAR) that
would be more appropriate? Should we instead allow advisers to file
current reports via secure email? Would that be less burdensome for
advisers experiencing an operations event?
    70. Should there be filing fees associated with filing a current
report on Form PF? Considering the expeditious reporting deadlines and
the nature of the current reporting events, would filing fees prevent a
timely filing of a current report?
    71. Under the proposal, filers may request a temporary hardship
exemption pursuant to rule 204(b)-1(f) for a current report. Should we
instead require advisers to notify the Commission via email or phone
call if they are experiencing a temporary hardship and as a result
cannot file their current report? Alternatively, should we instead
prohibit advisers from requesting a temporary hardship exemption
pursuant to rule 204(b)-1(f) for a current report given the importance
of timely reporting?

B. Large Private Equity Adviser Reporting

    We also propose to amend section 4 of Form PF, which requires
reporting by large private equity advisers to: (1) Lower the reporting
threshold from $2 billion to $1.5 billion in private equity fund assets
under management, and (2) add new questions designed to enhance our
understanding of certain practices of private equity advisers and amend
certain existing questions to improve data collection.\60\
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    \60\ Under the proposal, Item B would also be split into three
new items to be designated new Item B ``Certain information
regarding the reporting fund,'' new Item C ``Reporting fund and
controlled portfolio company financing,'' and new Item D ``Portfolio
company investment exposures.''
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1. Reduction in Large Private Equity Adviser Reporting Threshold
    Currently, a private fund adviser must complete section 4 of Form
PF if it had at least $2 billion in private equity fund assets under
management as of the end of its most recently completed fiscal year
(``large private equity adviser'').\61\

Section 4 of the Form requires additional information regarding the
private equity funds these advisers manage, which are tailored to focus
on relevant areas of financial activity that have the potential to
raise systemic concerns. When Form PF was originally adopted in 2011,
the $2 billion reporting threshold captured 75 percent of the U.S.
private equity industry based on committed capital.\62\ Today, this
threshold only captures about 67 percent of the U.S. private equity
industry.\63\ We therefore propose to lower this threshold to $1.5
billion in order to continue to capture about 75 percent of the U.S.
private equity industry based on committed capital.\64\ We believe the
proposed reduction is important so that Form PF continues to capture
and provide robust data on a sizable portion of the private equity
industry. The proposed threshold reduction is designed so that the
group of advisers filing Form PF as large private equity advisers would
continue to represent a substantial portion of private equity industry
assets. Having a robust data set for analysis is important for both
identifying potential investor protection issues as well as for
monitoring systemic risk. We think that the proposed new threshold
strikes an appropriate balance between obtaining information regarding
a significant portion of the private equity industry for analysis while
continuing to minimize the burden imposed on smaller advisers.
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    \61\ See Instruction 3 to Form PF.
    \62\ See 2011 Form PF Adopting Release, supra footnote 2, at 32.
    \63\ Based on data reported on Form PF and Form ADV.
    \64\ As under the current instructions to Form PF, an adviser
would determine whether it meets the threshold and qualifies as a
large private equity adviser based solely on the assets under
management attributable to private equity funds.
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    We request comment on the proposed change to the reporting
threshold:
    72. Should the Commission reduce the reporting threshold for large
private equity advisers as proposed? Why or why not? If not, should the
reporting threshold be kept constant, increased, or decreased further?
If the threshold should be changed, what do you believe is the
appropriate threshold and why?
    73. Would the proposed reduction in the large private equity
adviser reporting threshold create an undue burden on advisers that
will newly be required to complete section 4 (i.e., those with between
$1.5 billion and $2 billion in private equity fund assets under
management)? If so, why?
    74. Does the change in reporting threshold for filing as a large
private equity adviser accurately capture the information needed to
monitor for systemic risk? Why or why not?
2. Large Private Equity Adviser Reporting
    Private Equity Fund Investment Strategies. We propose to add
Question 68 to Section 4 to collect information about private equity
fund investment strategies.\65\ Form PF does not currently collect data
on private equity fund strategies. Given the growth in the industry
since adoption of Form PF and the current diversity of strategies
employed by private equity funds, we believe that it is important that
we begin collecting this information. Different strategies carry
different types and levels of risk for the markets and financial
stability. We believe that reporting on investment strategies would
allow the Commission and FSOC to understand and monitor better the
potential market and systemic risks presented by the different
strategies to both markets and investors. For example, a shift in
private equity assets towards riskier strategies could provide valuable
information about emerging systemic risks. Similarly, as noted above,
this information would also allow the Commission and FSOC to assess
better private equity funds' increasing role in providing credit to
companies.
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    \65\ For purposes of this proposed question, private equity fund
investment strategies would include private credit (and associated
sub-strategies such as distressed debt, senior debt, special
situations, etc.), private equity (and associated sub-strategies
such as early stage, buyout, growth, etc.), real estate, annuity and
life insurance policies, litigation finance, digital assets, general
partner stakes investing, and other. In connection with this
proposed question, we also propose to add two new terms to the Form
PF Glossary of Terms for ``digital assets'' and ``general partner
stakes investing.'' See Form PF Glossary of Terms.
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    The proposed question would be structured similar to Question 20,
which collects information about hedge fund strategies, but tailored to
private equity funds (i.e., the strategies would represent common
strategies employed by private equity funds). The proposal would
require advisers to choose from a mutually exclusive list of strategies
by percent of deployed capital even if the categories do not precisely
match the characterization of the reporting fund's strategies. If a
reporting fund engages in multiple strategies, the adviser would
provide a good faith estimate of the percentage the reporting fund's
deployed capital represented by each strategy.
    Proposed Question 68 also would include an ``other'' category for
advisers to select in cases where a reporting fund's strategy is not
listed, but an adviser selecting ``other'' in response to this question
must explain why. This proposed requirement is designed to improve data
quality by providing context to an adviser's selection of the ``other''
category. It also is designed to help ensure that advisers are not
selecting the ``other'' category when they should be reporting
information in a different strategy category. Proposed Question 68 is
designed to allow FSOC to filter data for targeted analysis, monitor
trends in the private equity industry, analyze potential system risk,
and to support the Commission's oversight of the private equity
industry and investor protection efforts.
    We request comment on proposed Question 68:
    75. Should Form PF require large private equity advisers to report
investment strategies for the private equity funds they advise as
proposed?
    76. Should we collect strategy information for all advisers to
private equity funds and not just large private equity advisers? Why or
why not? Would collecting this data be overly burdensome for smaller
private equity advisers? If so, what should be the threshold cutoff for
such reporting (e.g., $500 million in private equity assets under
management)?
    77. Should Question 68, as proposed, provide that the strategy
options are mutually exclusive and direct advisers to not report the
same assets under multiple strategies? Why or why not? Alternatively,
should Form PF allow advisers to report the same assets under multiple
strategies? Would this approach better identify the reporting fund's
strategies?
    78. Should Form PF require more granular strategy information than
proposed? Why or why not? If so, please provide examples of more
granular categories or sub-categories that should be included.
    79. Should Question 68 require more, fewer, or different
categories? Are there other strategies that are important for tracking
and assessing systemic risk or for the protection of investors? If so,
please provide examples of desired changes in the strategy categories.
    80. With respect to private credit strategies, should we
consolidate some of the private credit categories? For example, are
``Private Credit--Junior/Subordinated Debt,'' ``Private Credit--
Mezzanine Financing,'' ``Private Credit--Senior Debt,'' and Private
Credit--Senior Subordinated Debt'' each considered a subset of the
category ``Private Credit--Direct Lending/Mid Market Lending''? If so,
should we only have a ``Private Credit--Direct Lending/Mid Market
Lending'' category and

remove the other four sub-categories? Why or why not? Furthermore,
should ``Private Credit--Direct Lending/Mid Market Lending'' be changed
to ``Private Credit--Direct Lending'' to capture direct lending to
large corporations? Why or why not?
    81. Should Question 68 include an ``other'' category, as proposed?
If advisers select the ``other'' category, should Form PF require them
to explain the selection, as proposed? Should Form PF require the
adviser to include more, less, or different information in the
explanation? Would this proposed change improve data quality by
providing context to the adviser's selection of the ``other'' category?
Would this proposed change help us ensure that advisers are not
misreporting information in the ``other'' category when they should be
reporting information in a different category? Is there a better way to
meet these objectives? Should Form PF require advisers to provide
explanations for any other categories besides the ``other'' category,
as proposed?
    82. Should we define ``digital assets'' and ``general partner
stakes investing'' as proposed or are other alternative definitions
more suitable?
    Restructuring/recapitalization of a portfolio company. We propose
to add Question 70 to Section 4 to obtain additional information
regarding restructurings or recapitalizations of the reporting fund's
portfolio companies. Specifically, we propose to require an adviser to
indicate whether a portfolio company was restructured or recapitalized
following the reporting fund's investment period, and if so, to provide
the name of the portfolio company and the effective date of the
restructuring.\66\ For example, a fund that holds portfolio company
equity that has become worthless might restructure its equity interest
into a note or loan with a different valuation. While we understand
that private equity funds routinely engage in these practices during
the investment period, we believe that when these activities happen
post-investment period, it would tell the Commission and FSOC more
about the current market environment and would allow FSOC to monitor
these activities for systemic risk analysis and assist us with our
risk-based exam program.
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    \66\ Proposed Question 70.
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    We request comment on proposed Question 70:
    83. Should Form PF require advisers to report on restructuring or