provided by the fairness opinion or valuation opinion would benefit
investors. Further, even for advisers to hedge funds or other liquid
funds who are advising funds with predominantly highly liquid
securities, we believe that a fairness opinion or valuation opinion
would be beneficial to investors because the conflicts of interest
inherent in structuring and leading a transaction may, despite the
nature of the assets in the fund, harm investors.\1803\
---------------------------------------------------------------------------

    \1802\ See, e.g., Cravath Comment Letter; Carta Comment Letter;
ILPA Comment Letter I; IAA Comment Letter II; AIC Comment Letter I.
    \1803\ Moreover, the costs to liquid fund advisers are more
likely to be limited, as many secondary transactions by liquid funds
are not adviser-led (meaning that many such transactions do not
involve investors converting or exchanging their interests for new
interests in another vehicle advised by the adviser or any of its
related persons) and so would not necessitate a fairness opinion.
---------------------------------------------------------------------------

    Some commenters suggested that we expand the final rule to offer
additional protections to investors, such as requiring advisers to use
reasonable efforts to allow investors to remain invested on their
original terms without carry crystallization.\1804\ While we agree such
an alternative could offer additional protection benefits to investors,
those additional protections would continue to increase the costs of
the final rule by further requiring advisers to revise their business
practices, renegotiate contracts, and undertake additional costly
changes to their operations. We believe those costs would not be
warranted by the potential benefits.
---------------------------------------------------------------------------

    \1804\ See, e.g., RFG Comment Letter II; OPERS Comment Letter.
---------------------------------------------------------------------------

6. Alternatives to the Prohibition From Providing Certain Preferential
Terms and Requirement To Disclose All Preferential Treatment
    Instead of requiring that private fund advisers provide investors
and prospective investors with written disclosures regarding all
preferential treatment the adviser or its related persons provided to
other investors in the same fund, the Commission considered prohibiting
all such terms. This could provide investors in private funds with
increased confidence that the adviser's negotiations with other
investors would not affect their investment in the private fund. We
preliminarily believe, however, that an outright prohibition of all
preferential terms may not provide significant additional benefits
beyond prohibitions on providing certain preferential terms regarding
redemption or information about portfolio holdings or exposures that
would have a material negative effect on other investors. As discussed
above, we believe that certain types of preferential terms raise
relatively few concerns, if disclosed.\1805\ Further, an outright
prohibition of all preferential terms may limit the adviser's ability
to respond to an individual investor's concerns during the course of
attracting capital investments to private funds. Many commenters also
expressed, and we agree, that anchor or seed investors may be provided
with preferential terms for good reasons.\1806\
---------------------------------------------------------------------------

    \1805\ See supra section II.F.
    \1806\ See, e.g., AIC Comment Letter I; NY State Comptroller
Comment Letter; Lockstep Ventures Comment Letter. One commenter also
expressed concerns that the limited prohibitions on preferential
treatment in the final rules may already impede co-investment
activity, and these concerns would be exacerbated by this
alternative. See AIC Comment Letter I, Appendix 1.
---------------------------------------------------------------------------

    Further, we considered prohibiting all preferential terms regarding
redemption or information about portfolio holdings or exposures, rather
than just those that the adviser reasonably expects to have a material,
negative effect on other investors in that fund or in a similar pool of
assets. This could increase the investor protections associated with
the rule, by eliminating the risk that a term not reasonably expected
to have a material negative effect on investors could, ultimately, harm
investors. We believe, however, that this alternative would likely
provide more limited benefits and would increase costs associated with
the rule similar to the above alternatives, for example by limiting the
adviser's ability to respond to an individual investor's concerns
during the course of attracting capital investments to private funds.
    In addition, for preferential terms not regarding redemption or
information about portfolio holdings or exposures, we considered
requiring advisers to private funds to provide disclosure only when the
term has a material negative effect on other fund investors. This could
reduce the compliance burden on advisers associated with the costs of
disclosure. We believe, however, that limiting disclosure to only those
terms that an adviser determines to have a material negative effect
could reduce an investor's ability to recognize the potential for harm
from unforeseen favoritism toward other investors, relative to a
requirement to disclose all preferential treatment.
    We lastly considered implementing consent requirements, both as an
alternative to the prohibition from providing certain preferential
terms and as an alternative to the requirement to disclose all
preferential treatment. With respect to the prohibition, as we have

discussed above, the specific problems we have analyzed may be
difficult, or unable, to be addressed via enhanced disclosures or even
consent requirements alone. For example, investors facing a collective
action problem today, in which they are unable to coordinate their
negotiations, would still be unable to coordinate their negotiations
even if consent was sought from each individual investor for a
particular adviser practice.\1807\ With respect to disclosures, in this
case we are primarily concerned with how a lack of transparency can
prevent investors from understanding the scope or magnitude of
preferential terms granted, and as a result, may prevent such investors
from requesting additional information on these terms or other benefits
that certain investors, receive. In this case, these investors may
simply be unaware of the types of contractual terms that could be
negotiated and may not face any limitations over their ability to
properly consent to these terms or their ability to properly negotiate
these terms once the terms are sufficiently disclosed.\1808\
---------------------------------------------------------------------------

    \1807\ We also discussed above the example that, in cases where
certain preferred investors with sufficient bargaining power to
secure preferential terms over disadvantaged investors, majority
consent by investor interest requirements may have minimal ability
to protect the disadvantaged investors, as we would expect the
larger, preferred investors to outvote the disadvantaged investors.
See supra sections VI.B, VI.C.2.
    \1808\ Id.
---------------------------------------------------------------------------

VII. Paperwork Reduction Act

A. Introduction

    Certain provisions of our new rules will result in new ``collection
of information'' requirements within the meaning of the PRA.\1809\ The
rule amendments will also have an impact on the current collection of
information burdens of rules 206(4)-7 and 204-2 under the Advisers Act.
The title of the new collection of information requirements we are
adopting are ``Rule 211(h)(1)-2 under the Advisers Act,'' ``Rule
206(4)-10 under the Advisers Act,'' ``Rule 211(h)(2)-2 under the
Advisers Act,'' and ``Rule 211(h)(2)-3 under the Advisers Act.'' The
Office of Management and Budget (``OMB'') assigned the following
control numbers for these new collections of information: Rule 206(4)-
10 (OMB control number 3235-0795); Rule 211(h)(1)-2 (OMB control number
3235-0796); Rule 211(h)(2)-2 (OMB control number 3235-0797); Rule
211(h)(2)-3 (OMB control number 3235-0798). The titles for the existing
collections of information that we are amending are: (i) ``Rule 206(4)-
7 under the Advisers Act (17 CFR 275.206(4)-7)'' (OMB control number
3235-0585) and (ii) ``Rule 204-2 under the Advisers Act (17 CFR
275.204-2)'' (OMB control number 3235-0278). The Commission is
submitting these collections of information to OMB for review and
approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid OMB control number.
---------------------------------------------------------------------------

    \1809\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    In addition, the title of the new collection of information
requirement we are proposing is ``Rule 211(h)(2)-1 under the Advisers
Act.'' In the Proposing Release, we did not submit a PRA analysis for
rule 211(h)(2)-1 because the proposed rule flatly prohibited certain
conduct and, accordingly, did not contain a ``collection of
information'' requirement within the meaning of the PRA. However, final
rule 211(h)(2)-1 prohibits an adviser from engaging in certain
activities, unless the adviser provides certain disclosure to
investors, as discussed in greater detail below. In the Proposing
Release, we solicited comment on whether rule 211(h)(2)-1 should
include disclosure requirements. In response to comments received, we
have decided to adopt such a requirement. Accordingly, we are
requesting comment on this collection of information requirement, and
intend to submit these requirements to the OMB for review under the
PRA. Responses to the information collection will not be kept
confidential. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.
    We published notice soliciting comments on the collection of
information requirements in the Proposing Release for the other rules
and submitted the proposed collections of information to OMB for review
and approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. We
received general comments to our time and cost burdens stating that we
underestimated the burdens.\1810\ We also received comments on aspects
of the economic analysis that implicated estimates we used to calculate
the collection of information burdens.\1811\ We discuss these comments
below. We are revising our total burden estimates to reflect the final
amendments, updated data, new methodology for certain estimates, and
comments we received to our estimates, including comments received to
the economic analysis which implicate our estimates.
---------------------------------------------------------------------------

    \1810\ See, e.g., CCMR Comment Letter II (stating that the
Proposing Release fails to consider how the proposed rules would
interact with certain structural factors inherent in the private
funds market to produce additional costs for market participants);
IAA Comment Letter II (stating that the Commission underestimated
the impact of the proposal on investors, advisers, and private
funds).
    \1811\ See, e.g., Comment Letter of Senator Tim Scott and
Senator Bill Hagerty (Dec. 14, 2022) (stating that economic analysis
of the financial impact on the private funds market grossly
underestimates the costs that market participants will incur in
order to comply with the Proposal); SIFMA-AMG Comment Letter I.
---------------------------------------------------------------------------

    As discussed above, we are not applying certain of these rules to
advisers regarding SAFs they advise.\1812\ Thus, for purposes of the
PRA analysis, we do not believe that there will be any additional
collection of information burden on advisers regarding SAFs.\1813\ We
have adjusted the estimates from the proposal to reflect that the five
private fund rules will not apply to SAF advisers regarding SAFs they
advise.
---------------------------------------------------------------------------

    \1812\ See supra section II.A (Scope) for additional
information. The Commission is not applying all five private fund
adviser rules to SAFs advised by SAF advisers.
    \1813\ Similarly, because we are not applying requirements of
these rules to advisers with respect to SAFs they advise, we do not
expect that there will be any additional burden on smaller advisers
for purposes of the Final Regulatory Flexibility Analysis.
---------------------------------------------------------------------------

    We discuss below the new collection of information burdens
associated with final rules 211(h)(1)-2, 206(4)-10, 211(h)(2)-1,
211(h)(2)-2, and 211(h)(2)-3 as well as the revised existing collection
of information burdens associated with the amendments to rules 206(4)-7
and 204-2. Responses provided to the Commission in the context of
amendments to rules 206(4)-7 and 204-2 will be kept confidential
subject to the provisions of applicable law. Because the information
collected pursuant to final rules 211(h)(1)-2, 211(h)(2)-1, 211(h)(2)-
2, 206(4)-10, and 211(h)(2)-3 requires disclosures to existing
investors and in some cases potential investors, these disclosures will
not be kept confidential.

B. Quarterly Statements

    Final rule 211(h)(1)-2 requires an investment adviser registered or
required to be registered with the Commission to prepare a quarterly
statement that includes certain standardized disclosures regarding the
cost of investing in the private fund and the private fund's
performance for any private fund that it advises, directly or
indirectly, that has at least two full fiscal quarters of operating
results, and distribute the quarterly statement to the

private fund's investors, unless such a quarterly statement is prepared
and distributed by another person.\1814\ If the private fund is not a
fund of funds, then the quarterly statement must be distributed within
45 days after the end of each of the first three fiscal quarters of
each fiscal year and 90 days after the end of each fiscal year. If the
private fund is a fund of funds, then a quarterly statement must be
distributed within 75 days after the first, second, and third fiscal
quarter ends and 120 days after the end of the fiscal year of the
private fund. The quarterly statement will provide investors with fee
and expense disclosure for the prior quarterly period or, in the case
of a newly formed private fund initial account statement, its first two
full fiscal quarters of operating results. It will also provide
investors with certain performance information depending on whether the
fund is categorized as a liquid fund or an illiquid fund.\1815\
---------------------------------------------------------------------------

    \1814\ See final rule 211(h)(1)-2.
    \1815\ See final rule 211(h)(1)-2(d).
---------------------------------------------------------------------------

    The collection of information is necessary to provide private fund
investors with information about their private fund investments. The
quarterly statement is designed to allow a private fund investor to
compare standardized cost and performance information across its
private fund investments. We believe this information will help inform
investment decisions, including whether to remain invested in certain
private funds or to invest in other private funds managed by the
adviser or its related persons. More broadly, this disclosure will help
inform investors about the cost and performance dynamics of this
marketplace and potentially improve efficiency for future investments.
    Each requirement to disclose information, offer to provide
information, or adopt policies and procedures constitutes a
``collection of information'' requirement under the PRA. This
collection of information is found at 17 CFR 275.211(h)(1)-2 and is
mandatory. The respondents to these collections of information
requirements will be investment advisers that are registered or
required to be registered with the Commission that advise one or more
private funds.
    Based on Investment Adviser Registration Depository (IARD) data, as
of December 31, 2022, there were 15,361 investment advisers registered
with the Commission.\1816\ According to this data, 5,248 registered
advisers provide advice to private funds.\1817\ We estimate that these
advisers, on average, each provide advice to 10 private funds.\1818\ We
further estimate that these private funds, on average, each have a
total of 80 investors.\1819\ As a result, an average private fund
adviser has, on average, a total of 800 investors across all private
funds it advises. As noted above, because the information collected
pursuant to final rule 211(h)(1)-2 requires disclosures to private fund
investors, these disclosures will not be kept confidential.
---------------------------------------------------------------------------

    \1816\ Excluding advisers that provide advice solely to SAFs,
there were 15,288 investment advisers registered with the
Commission.
    \1817\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1). The
final rule will not apply to SAF advisers with respect to SAFs they
advise. These figures do not include SAF advisers that manage only
SAFs.
    \1818\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1). The
final rule will not apply to SAFs. These figures do not include
SAFs.
    \1819\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A.,
#13.
---------------------------------------------------------------------------

    Some commenters highlighted the potential costs of the required
quarterly statements.\1820\ One commenter generally criticized the
hours estimates underlying cost estimates in the Proposing Release as
unsupported, arbitrary, and possibly underestimated.\1821\ One
commenter stated that the introduction of the new regulatory terms that
will only be used for complying with the performance reporting
requirements under the quarterly statement rule would likely lead to
additional compliance burdens and costs for private fund advisers, and
that adopting new terms would require private funds to conduct an
additional analysis and categorization of their private funds, which
would need to be reviewed and potentially reevaluated from time to
time.\1822\ This commenter also stated that gathering information
regarding covered portfolio investments would materially increase
compliance burdens and costs to produce such information in adherence
with the proposed timing and content requirements.\1823\ Another
commenter asserted that the Proposing Release failed to take account of
the full extent of the likely costs associated with its disclosure
requirements.\1824\ Specifically, this commenter argued that there
could be other costs beyond simply complying with the administrative
aspects of the quarterly statement rule and that the Proposing Release
fails to consider the operational burden imposed by the frequency and
timing of the required reports.\1825\
---------------------------------------------------------------------------

    \1820\ See, e.g., Alumni Ventures Comment Letter; Segal Marco
Comment Letter; Roubaix Comment Letter; ATR Comment Letter; AIC
Comment Letter I.
    \1821\ See AIC Comment Letter I, Appendix I (stating that the
Commission's wage rates used to quantify costs may be
underestimated); But see LSTA Comment Letter, Exhibit C (stating
that the Commission's wage rates are conservatively high and the
commenter used a lower wage rate provided by the Bureau of Labor
Statistics in its analysis). See also supra section VI.D.2
(discussing the Commission's attempts to quantify costs accurately).
    \1822\ See SIFMA-AMG Comment Letter I.
    \1823\ Id.
    \1824\ See CCMR Comment Letter I.
    \1825\ Id.
---------------------------------------------------------------------------

    We were persuaded by commenters who asserted that the proposed
burdens underestimated the time and expense associated with the
proposed quarterly statement rule. We believe that it will take more
time than initially contemplated in the proposal to collect the
applicable data, perform and review calculations, prepare the quarterly
statements, and distribute them to investors. To address commenters'
concerns, and recognizing the changes from the proposal discussed above
in Section II.B (Quarterly Statements), we are revising the estimates
upwards as reflected in the chart below. For instance, to address one
commenter's contention that we underestimated the burdens generally,
and recognizing the changes from the proposal, we are revising the
internal initial burden for the preparation of the quarterly statement
estimate upwards to 12 hours. We believe this is appropriate because
advisers will likely need to develop, or work with service providers to
develop, new systems to collect and prepare the statements. We have
also adjusted these estimates to reflect that the final rule will not
apply to SAF advisers with respect to SAFs they advise.
    We have made certain estimates of this data solely for this PRA
analysis. The table below summarizes the initial and ongoing annual
burden estimates associated with the final quarterly statement rule.

                                                         Table 1--Rule 211(h)(1)-2 PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Internal initial burden     Internal annual                                                    Annual external cost
                                              hours                burden hours          Wage rate \1\        Internal time cost           burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Preparation of account statements.  12 hours................  14 hours \2\ (See FN   $436 (blended rate     $6,104 (Internal       $4,590 \3\ (See FN
                                                               for calculation).      for compliance         annual burden times    for calculation).
                                                                                attorney ($425),       blended wage rate).
                                                                                assistant general
                                                                                counsel ($543), and
                                                                                financial reporting
                                                                                manager ($339)).
Distribution of account statements  3 hours.................  5 hours \4\ (See FN    $73 (rate for general  $365 (Internal annual  $1,059 \5\ (See FN
 to existing investors.                                        for calculation).      clerk).                burden times wage      for calculation).
                                                                                rate).
Total new annual burden per         ........................  19 hours.............  .....................  $6,469...............  $5,649.
 private fund.
Avg. number of private funds per    ........................  10 private funds.....  .....................  10 private funds.....  10 private funds.
 adviser.
Number of PF advisers.............  ........................  5,248 advisers.......  .....................  5,248 advisers.......  2,624.\6\
Total new annual burden...........  ........................  997,120 hours........  .....................  $339,493,120.........  $148,229,760.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ The hourly wage rates in these estimates are based on (1) SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by
  SEC staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and
  overhead; and (2) SIFMA's Office Salaries in the Securities Industry 2013, modified by SEC staff to account for an 1,800-hour work-year and inflation,
  and multiplied by 2.93 to account for bonuses, firm size, employee benefits and overhead. The final estimates are based on the preceding SIFMA data
  sets, which SEC staff have updated since the Proposing Release to account for current inflation rates.
\2\ This includes the internal initial burden estimate annualized over a three-year period, plus 10 hours of ongoing annual burden hours and takes into
  account that there will be four statements prepared each year. The estimate of 14 hours is based on the following calculation: ((12 initial hours/3
  years) + 10 hours of additional ongoing burden hours) = 14 hours.
\3\ This estimated burden is based on the sum of the estimated wage rate of $565/hour, for 5 hours, ($2,825) for outside legal services and the
  estimated wage rate of $353/hour, for 5 hours, ($1,765) for outside accountant assistance, and it assumes that there will be four statements prepared
  each year. The Commission's estimates of the relevant wage rates for external time costs, such as outside legal services, take into account staff
  experience, a variety of sources including general information websites, and adjustments for inflation.
\4\ This includes the internal initial burden estimate annualized over a three-year period, plus 4 hours of ongoing annual burden hours that takes into
  account that there will be four statements prepared each year. The estimate of 5 hours is based on the following calculation: ((3 initial hours/3
  years) + 4 hours of additional ongoing burden hours) = 5 hours.
\5\ This estimated burden is based on the estimated wage rate of $353/hour, for 3 hours, for outside accounting services, and it assumes that there will
  be four statements distributed each year. See supra endnote 1 (regarding wage rates with respect to external cost estimates).
\6\ We estimate that 50% of advisers will use outside legal and accounting services for these collections of information. This estimate takes into
  account that advisers may elect to use these outside services (along with in-house counsel), based on factors such as adviser budget and the adviser's
  standard practices for using such outside services, as well as personnel availability and expertise.

C. Mandatory Private Fund Adviser Audits

    Final rule 206(4)-10 will require investment advisers that are
registered or required to be registered to cause each private fund they
advise, directly or indirectly, to undergo a financial statement audit
in accordance with the audit provision (and related requirements for
delivery of audited financial statements) under the custody rule.\1826\
We believe that final rule 206(4)-10 will protect the fund and its
investors against the misappropriation of fund assets and that an audit
performed by an independent public accountant will provide an important
check on the adviser's valuation of private fund assets, which
generally serve as the basis for the calculation of the adviser's fees.
The collection of information is necessary to provide private fund
investors with information about their private fund investments.
---------------------------------------------------------------------------

    \1826\ See final rule 206(4)-10. The rule also requires an
adviser to take all reasonable steps to cause its private fund
client to undergo an audit that satisfies the rule when the adviser
does not control the private fund and is neither controlled by nor
under common control with the fund.
---------------------------------------------------------------------------

    Each requirement to disclose information, offer to provide
information, or adopt policies and procedures constitutes a
``collection of information'' requirement under the PRA. This
collection of information is found at 17 CFR 275.206(4)-10 and is
mandatory to the extent the adviser provides investment advice to a
private fund. The respondents to these collections of information
requirements will be investment advisers that are registered or
required to be registered with the Commission that advise one or more
private funds. All responses required by the audit rule would be
mandatory. One response type (the audited financial statements) would
be distributed only to investors in the private fund and would not be
confidential.
    Based on IARD data, as of December 31, 2022, there were 15,361
investment advisers registered with the Commission.\1827\ According to
this data, 5,248 registered advisers, excluding advisers managing
solely SAFs, provide advice to private funds.\1828\ We estimate that
these advisers, on average, each provide advice to 10 private funds,
excluding SAFs.\1829\ We further estimate that these private funds,
excluding SAFs, each have a total of 80 investors, on average.\1830\ As
a result, an average private fund adviser would have, on average, a
total of 800 investors across all private funds it advises.
---------------------------------------------------------------------------

    \1827\ Excluding advisers that provide advice solely to SAFs,
there were 15,288 investment advisers registered with the
Commission.
    \1828\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).
    \1829\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).
    \1830\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A.,
#13.
---------------------------------------------------------------------------

    One commenter generally criticized the hours estimates underlying
the cost estimates in the Proposing Release as unsupported, arbitrary,
and possibly underestimated.\1831\ Several commenters highlighted the
costs associated with the audit rule, stating that it would
substantially increase audit prices because, for example, there may be
an insufficient number of suitable auditors available.\1832\ One
commenter asserted that the Commission failed to provide an adequate
justification or backup in its analysis.\1833\ This commenter argued
that the cost estimate is underestimated by at least 100 percent.
---------------------------------------------------------------------------

    \1831\ See AIC Comment Letter I.
    \1832\ See, e.g., AIC Comment Letter I; AIMA/ACC Comment Letter;
SBAI Comment Letter.
    \1833\ See, e.g., LSTA Comment Letter.
---------------------------------------------------------------------------

    We have made certain estimates of this data, as discussed below,
solely for

this PRA analysis. The table below summarizes the initial and ongoing
annual burden estimates associated with the proposed rule's reporting
requirement. We have adjusted this estimate upwards from the proposal
to reflect the final rule, updated data, new methodology for certain
estimates, and comments we received to our estimates asserting that we
underestimated these figures in the proposal. We have further adjusted
these estimates to reflect that the final rule will not apply to SAF
advisers with respect to SAFs they advise.

                                                          Table 2--Rule 206(4)-10 PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Internal initial burden     Internal annual                                                    Annual external cost
                                              hours                burden hours          Wage rate \1\        Internal time cost           burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of audited financial   0 hours.................  1.33 hours \3\.......  $175 (blended rate     $232.75..............  $75,000.\4\
 statements \2\.                                                                      for intermediate
                                                                                accountant ($200),
                                                                                general accounting
                                                                                supervisor ($252),
                                                                                and general clerk
                                                                                ($73)).
Total new annual burden per         ........................  1.33 hours...........  .....................  $232.75..............  $75,000.\5\
 private fund.
Avg. number of private funds per    ........................  10 private funds.....  .....................  10 private funds.....  10 private funds.
 adviser.
Number of advisers................  ........................  5,248 advisers.......  .....................  5,248 advisers.......  5,248 advisers.
Total new annual burden...........  ........................  69,798.4 \6\ hours...  .....................  $12,214,720 \6\......  $3,936,000,000.\6\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ See SIFMA data sets supra Note 1 to Table 1 Rule 211(h)(1)-2 PRA Estimates.
\2\ The audit provision will require an adviser to obtain an audit at least annually and upon an entity's liquidation. To the extent not prohibited, we
  anticipate that, in some cases, the fund will bear the audit expense, in other cases the adviser will bear it, and in other instances both the adviser
  and fund will share the expense. The liquidation audit would serve as the annual audit for the fiscal year in which it occurs. See rule 206(4)-10.
\3\ This estimate takes into account that the financial statements must be distributed once annually under the audit rule and that a liquidation audit
  would replace a final audit in a year. Based on our experience under the custody rule, we estimate the hour burden imposed on the adviser relating to
  the distribution of the audited financial statements with respect to the investors in each fund should be minimal, approximately one minute per
  investor. See 2009 Custody Rule Release, supra footnote 510, at 63.
\4\ Based on our experience, we estimate that the party (or parties) that bears the audit expense would pay an average audit fee of $75,000 per fund. We
  estimate that individual fund audit fees would tend to vary over an estimated range from $15,000 to $300,000, and that some fund audit fees would be
  higher or lower than this range. We understand that the price of the audit has many variables, such as whether it is a liquid fund or illiquid fund,
  the number of its holdings, availability of a PCAOB registered and inspected auditor, economies of scale, and the location and size of the auditor.
\5\ We assume the same frequency of these cost estimates as for the internal annual burden hours estimate.
\6\ Based on Form ADV data, apart from SAFs approximately 88% of private fund advisers already cause their private funds to undergo a financial
  statement audit. See Section VI (Economic Analysis--Economic Baseline--Fund Audits). Accordingly, we expect the incremental burdens associated with
  the rule to be substantially lower than the figures reflected herein.

D. Restricted Activities

    Final rule 211(h)(2)-1 prohibits all private fund advisers from,
directly or indirectly, engaging in the following activities, unless
they provide written disclosure to investors and, in some cases, obtain
investor consent regarding such activities: charging the private fund
for fees or expenses associated with an investigation of the adviser or
its related persons by any governmental or regulatory authority (other
than fees and expenses related to an investigation that results or has
resulted in a court or governmental authority imposing a sanction for a
violation of the Investment Advisers Act of 1940 or the rules
promulgated thereunder); charging the private fund for any regulatory
or compliance fees or expenses, or fees or expenses associated with an
examination, of the adviser or its related persons; reducing the amount
of any adviser clawback by actual, potential, or hypothetical taxes
applicable to the adviser, its related persons, or their respective
owners or interest holders; charging or allocating fees and expenses
related to a portfolio investment on a non-pro rata basis when more
than one private fund or other client advised by the adviser or its
related persons have invested in the same portfolio company; and
borrowing money, securities, or other private fund assets, or receiving
a loan or extension of credit, from a private fund client.
    As noted above, in the Proposing Release we did not submit a PRA
analysis for rule 211(h)(2)-1 because the proposed rule flatly
prohibited certain conduct and, accordingly, proposed rule 211(h)(2)-1
did not contain a ``collection of information'' requirement within the
meaning of the PRA. However, final rule 211(h)(2)-1 prohibits an
adviser from engaging in certain activity, unless the adviser provides
certain disclosure to investors. Accordingly, we are requesting comment
on this collection of information requirement in this release and
intend to submit these requirements to the OMB for review under the
PRA.
    The collection of information is necessary to provide private fund
investors with information about their private fund investments. We
believe that many advisers fail to provide disclosure of the activities
covered by the restrictions or, when disclosure is provided, it is
often insufficient.
    Each requirement to disclose information, offer to provide
information, or adopt policies and procedures constitutes a
``collection of information'' requirement under the PRA. This
collection of information is found at 17 CFR 275.211(h)(2)-1 and is
mandatory if the adviser engages in the restricted activity. The
respondents to these collections of information requirements would be
all investment advisers that advise one or more private funds. Based on
IARD data, as of December 31, 2022, there were 12,234 investment
advisers (including both registered and unregistered advisers, but
excluding advisers managing solely SAFs) that provide advice to private
funds.\1834\ We estimate that these

advisers, on average, each provide advice to 8 private funds (excluding
SAFs). We further estimate that these private funds would, on average,
each have a total of 63 investors. As a result, an average private fund
adviser would have a total of 504 investors across all private funds it
advises. As noted above, because the information collected pursuant to
final rule 211(h)(2)-1 requires disclosures to private fund investors,
these disclosures would not be kept confidential.
---------------------------------------------------------------------------

    \1834\ The following types of private fund advisers (excluding
advisers managing solely SAFs), among others, would be subject to
the rule: unregistered advisers (i.e., advisers that may be
prohibited from registering with us), foreign private advisers, and
advisers that rely on the intrastate exemption from SEC registration
and/or the de minimis exemption from SEC registration. However, we
are unable to estimate the number of advisers in certain of these
categories because these advisers do not file reports or other
information with the SEC and we are unable to find reliable, public
information. As a result, the above estimate is based on information
from SEC-registered advisers to private funds, exempt reporting
advisers (at the State and Federal levels), and State-registered
advisers to private funds, in each instance excluding advisers that
manage solely SAFs. These figures are approximate, exclude in each
instance advisers that manage solely SAFs, and assume that all
exempt reporting advisers are advisers to private funds. The
breakdown is as follows: 5,248 SEC-registered advisers to private
funds; 5,234 exempt reporting advisers (at the Federal level); 562
State-registered advisers to private funds; and 1,922 State exempt
reporting advisers.
---------------------------------------------------------------------------

    We have made certain estimates of this data solely for this PRA
analysis. The table below summarizes the initial and ongoing annual
burden estimates associated with the rule. We request comment on
whether the estimates associated with the new collection of information
requirements in ``Rule 211(h)(2)-1 under the Advisers Act'' are
reasonable in Section VII.I below.

                                                         Table 3--Rule 211(h)(2)-1 PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Internal initial burden     Internal annual                                                    Annual external cost
                                              hours                burden hours          Wage rate \1\        Internal time cost           burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Proposed Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Preparation of written notices and  12 hours................  8 hours \2\..........  $422 (blended rate     $3,376...............  $3,178.\3\
 consents.                                                                            for compliance
                                                                                attorney ($425),
                                                                                accounting manager
                                                                                ($337), senior
                                                                                portfolio manager
                                                                                ($383) and assistant
                                                                                general counsel
                                                                                ($543)).
Provision, distribution,            6 hours.................  4 hours \4\..........  $73 (rate for general  $292.................
 collection, retention, and                                                           clerk).
 tracking of written notices and
 consents.
Total new annual burden per         ........................  12 hours.............  .....................  $3,668...............  $3,178.
 private fund.
Avg. number of private funds per    ........................  8 private funds......  .....................  8 private funds......  8 private funds.
 adviser.
Number of advisers................  ........................  12,234 advisers......  .....................  12,234 advisers......  9,176 advisers.\5\
Total new annual burden...........  ........................  1,174,464 hours......  .....................  $358,994,496.........  $233,290,624.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ See SIFMA data sets, supra Note 1 to Table 1 Rule 211(h)(1)-2 PRA Estimates.
\2\ This includes the internal initial burden estimate annualized over a three-year period, plus 4 hours of ongoing annual burden hours and assumes
  notices and consent forms would be issued once a quarter to investors. The estimates assume that most private fund advisers will rely on the
  disclosure-based or investor consent exceptions to the rules and thus distribute written notices and consent forms to investors (and collect, retain,
  and track consent forms); however, the estimates also take into account that certain fund agreements may not permit or otherwise contemplate the
  activity restricted by the rule (e.g., liquid funds may not contemplate an adviser clawback of performance compensation) and, accordingly, the
  estimates take into account that advisers to those funds will not prepare written notices (or, if applicable, prepare, collect, retain, and track
  consent forms) as contemplated by the rule. The estimate of 8 hours is based on the following calculation: ((12 initial hours/3 years) + 4 hours of
  additional ongoing burden hours) = 8 hours.
\3\ This estimated burden is based on the estimated wage rate of $565/hour, for 5 hours, for outside legal services and $353/hour, for one hour, for
  outside accounting services, at the same frequency as the internal burden hours estimate. The Commission's estimates of the relevant wage rates for
  external time costs, such as outside legal services, take into account staff experience, a variety of sources including general information websites,
  and adjustments for inflation.
\4\ This includes the internal initial burden estimate annualized over a three-year period, plus 2 hours of ongoing annual burden hours. The estimate of
  4 hours is based on the following calculation: ((6 initial hours/3 years) + 2 hours of additional ongoing burden hours) = 4 hours.
\5\ We estimate that 75% of advisers will use outside legal services for these collections of information. This estimate takes into account that
  advisers may elect to use outside legal services (along with in-house counsel), based on factors such as adviser budget and the adviser's standard
  practices for using outside legal services, as well as personnel availability and expertise.

E. Adviser-Led Secondaries

    Final rule 211(h)(2)-2 requires an adviser registered or required
to be registered with the Commission that is conducting an adviser-led
secondary transaction to distribute to investors a fairness opinion or
valuation opinion from an independent opinion provider and a summary of
any material business relationships the adviser or any of its related
persons has, or has had within the past two years, with the independent
opinion provider.\1835\ This requirement provides an important check
against an adviser's conflicts of interest in structuring and leading a
transaction from which it may stand to profit at the expense of private
fund investors and helps ensure that private fund investors are offered
a fair price for their private fund interests. Specifically, this
requirement is designed to help ensure that investors receive the
benefit of an independent price assessment, which we believe will
improve their decision-making ability and their overall confidence in
the transaction. The collection of information is necessary to provide
investors with information about securities transactions in which they
may engage.
---------------------------------------------------------------------------

    \1835\ See final rule 211(h)(2)-2.
---------------------------------------------------------------------------

    Each requirement to disclose information, offer to provide
information, or adopt policies and procedures constitutes a
``collection of information'' requirement under the PRA. This
collection of information is found at 17 CFR 275.211(h)(2)-2 and is
mandatory. The respondents to these collections of information
requirements will be investment advisers that are registered or
required to be registered with the Commission that advise one or more
private funds. Based on IARD data, as of December 31, 2022, there were
15,361 investment advisers registered with the Commission.\1836\
According to this data, 5,248 registered advisers provide advice to
private funds.\1837\ Of these 5,248 advisers, we estimate that 10%, or
approximately 525 advisers, conduct an adviser-led secondary
transaction each year. Of these advisers, we further estimate that each
conducts one adviser-led secondary transaction each year. As a result,
an adviser will have obligations under the rule with regard to 80
investors.\1838\ As noted above, because the information collected
pursuant to final rule 211(h)(2)-2 requires disclosures to private fund
investors,

these disclosures will not be kept confidential.
---------------------------------------------------------------------------

    \1836\ Excluding advisers that provide advice solely to SAFs,
there were 15,288 investment advisers registered with the
Commission.
    \1837\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1). The
final rule will not apply to SAF advisers with respect to SAFs they
advise. These figures do not include SAF advisers that manage only
SAFs.
    \1838\ See supra section VII.B.
---------------------------------------------------------------------------

    One commenter generally criticized the hours estimates underlying
the cost estimates in the Proposing Release as unsupported, arbitrary,
and possibly underestimated.\1839\ Some commenters asserted that the
Commission's estimate of the cost for a fairness opinion was likely too
low in light of available information on fairness opinions.\1840\
However, many of these commenters stated that a valuation opinion would
likely be less costly in most circumstances.\1841\ We believe that
these commenters' concerns on costs are substantially mitigated by the
option in the final rule for a valuation opinion instead of a fairness
opinion; however, we have adjusted the estimates upwards to address
comments received, which generally stated that the proposed estimate
underestimated the cost of fairness opinions.\1842\ We have also
adjusted this estimate upwards from the proposal to reflect the final
rule and updated data for certain estimates. We have adjusted these
estimates to reflect that the final rule will not apply to SAF advisers
with respect to SAFs they advise.
---------------------------------------------------------------------------

    \1839\ See AIC Comment Letter I. Another commenter's calculation
of aggregate costs associated with the adviser-led secondaries rule
yields substantially higher aggregate costs, but per-fund costs
comparable to those reflected here. The commenter's aggregate cost
result is driven by the commenter assuming, without basis or
discussion, that the adviser-led secondaries rule's costs will be
borne over 4,533 fairness opinions instead of 504, as was assumed by
the Proposing Release. See LSTA Comment Letter, Exhibit C. We
believe this to be an error in the commenter's analysis and have
continued to assume approximately 10 percent of advisers conduct an
adviser-led secondary transaction each year. See supra section
VI.D.6.
    \1840\ See AIC Comment Letter I; Houlihan Comment Letter; MFA
Comment Letter I; MFA Comment Letter I, Appendix A; Ropes & Gray
Comment Letter.
    \1841\ MFA Comment Letter I; MFA Comment Letter I, Appendix A;
AIC Comment Letter I.
    \1842\ See Houlihan Comment Letter; LSTA Comment Letter.
---------------------------------------------------------------------------

    We have made certain estimates of this data solely for this PRA
analysis. The table below summarizes the annual burden estimates
associated with the rule's requirements.

                                                         Table 4--Rule 211(h)(2)-2 PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Internal initial burden     Internal annual                                                   Annual external cost
                                              hours                burden hours          Wage rate \1\      Internal time cost            burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Preparation/Procurement of          0 hours.................  10 hours \2\.........  $429.33 (blended      $4,293.30...........  $100,000.\3\
 fairness or valuation opinion.                                                       rate for compliance
                                                                                attorney ($425),
                                                                                assistant general
                                                                                counsel ($543), and
                                                                                senior business
                                                                                analyst ($320)).
Preparation of material business    0 hours.................  2 hours..............  $484 (blended rate    $968................  $565.\4\
 relationship summary.                                                                for compliance
                                                                                attorney ($425) and
                                                                                assistant general
                                                                                counsel ($543)).
Distribution of fairness/valuation  0 hours.................  1 hour...............  $73 (rate for         $73.................  $0.
 opinion and material business                                                        general clerk).
 relationship summary.
Total new annual burden per         ........................  13 hours.............  ....................  $5,334.30...........  $100,565.
 private fund.
Number of advisers................  ........................  525 advisers \5\.....  ....................  525 advisers........  525 advisers.
Total new annual burden...........  ........................  6,825 hours..........  ....................  $2,800,507.50.......  $52,796,625.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ See SIFMA data sets supra Note 1 to Table 1 Rule 211(h)(1)-2 PRA Estimates.
\2\ Includes the time an adviser will spend gathering materials to provide to the independent opinion provider so that the latter can prepare the
  fairness or valuation opinion.
\3\ This estimated burden is based on our understanding of the general cost of a fairness/valuation opinion in the current market. The cost will vary
  based on, among other things, the complexity, terms, and size of the adviser-led secondary transaction, as well as the nature of the assets of the
  fund.
\4\ This estimated burden is based on the estimated wage rate of $565/hour, for 1 hour, for outside legal services at the same frequency as the internal
  burden hours estimate. The Commission's estimates of the relevant wage rates for external time costs, such as outside legal services, take into
  account staff experience, a variety of sources including general information websites, and adjustments for inflation.
\5\ We estimate that 10% of all registered private fund advisers conduct an adviser-led secondary transaction each year.

F. Preferential Treatment

    Final rule 211(h)(2)-3 prohibits all private fund advisers from
providing preferential terms to investors regarding certain redemptions
or providing certain information about portfolio holdings or exposures,
subject to certain limited exceptions.\1843\ The rule also prohibits
these advisers from providing any other preferential treatment to any
investor in the private fund unless the adviser provides written
disclosures to prospective and current investors in a private fund
regarding all preferential treatment the adviser or its related persons
are providing to other investors in the same fund. For prospective
investors, the new rule requires advisers to provide the written notice
regarding any preferential treatment related to any all material
economic terms prior to an investor's investment in the fund.\1844\ The
final rule also requires advisers to provide investors with
comprehensive annual disclosure of all preferential treatment provided
by the adviser or its related persons since the last annual notice. The
final rule requires the adviser to distribute to current investors an
initial notice of such preferential treatment (i) for an illiquid fund,
as soon as reasonably practicable following the end of the fund's
fundraising period and (ii) for a liquid fund, as soon as reasonably
practicable following the investor's investment in the private fund.
---------------------------------------------------------------------------

    \1843\ See final rule 211(h)(2)-3(b).
    \1844\ See final rule 211(h)(2)-3(b)(1).
---------------------------------------------------------------------------

    The new rule is designed to protect investors and serve the public
interest by requiring disclosure of preferential treatment afforded to
certain investors. The new rule will increase transparency to better
inform investors regarding the breadth of preferential terms, the
potential for those terms to affect their investment in the private
fund, and the potential costs (including compliance costs) associated
with these preferential terms. Also, this disclosure will help
investors shape the terms of their relationship with the adviser of the
private fund. The collection of information is necessary to provide

private fund investors with information about their private fund
investments.
    Each requirement to disclose information, offer to provide
information, or adopt policies and procedures constitutes a
``collection of information'' requirement under the PRA. This
collection of information is found at 17 CFR 275.211(h)(2)-3 and is
mandatory. The respondents to these collections of information
requirements will be all investment advisers that advise one or more
private funds. Based on IARD data, as of December 31, 2022, there were
12,234 investment advisers (including both registered and unregistered
advisers, but excluding advisers managing solely SAFs) that provide
advice to private funds.\1845\ We estimate that these advisers, on
average, each provide advice to 8 private funds (excluding SAFs). We
further estimate that these private funds, on average, each have a
total of 63 investors. As a result, an average private fund adviser has
a total of 504 investors across all private funds it advises. As noted
above, because the information collected pursuant to rule 211(h)(2)-3
requires disclosures to private fund investors and prospective
investors, these disclosures will not be kept confidential.
---------------------------------------------------------------------------

    \1845\ The following types of private fund advisers (excluding
advisers managing solely SAFs), among others, will be subject to the
rule: unregistered advisers (i.e., advisers those that may be
prohibited from registering with us), foreign private advisers, and
advisers that rely on the intrastate exemption from SEC registration
and/or the de minimis exemption from SEC registration. However, we
are unable to estimate the number of advisers in certain of these
categories because these advisers do not file reports or other
information with the SEC and we are unable to find reliable, public
information. As a result, the above estimate is based on information
from SEC-registered advisers to private funds, exempt reporting
advisers (at the State and Federal levels), and State-registered
advisers to private funds. These figures are approximate, exclude in
each instance advisers that manage solely SAFs, and assume that all
exempt reporting advisers are advisers to private funds. The
breakdown is as follows: 5,248 SEC-registered advisers to private
funds; 5,234 exempt reporting advisers (at the Federal level); 562
State-registered advisers to private funds; and 1,922 State exempt
reporting advisers.
---------------------------------------------------------------------------

    One commenter generally criticized the hours estimates underlying
the cost estimates in the Proposing Release as unsupported, arbitrary,
and possibly underestimated.\1846\ Another commenter emphasized that
existing fund documents would need to be amended to come into
compliance with the proposed rules and that the release fails to
identify or quantify the transaction costs associated with the
renegotiation of fund documents.\1847\ Another commenter made a similar
argument, asserting that, without a legacy status provision for
existing relationships, the proposed changes likely will require
advisers to renegotiate agreements with investors and that proposal
significantly underestimates the costs of the proposals on existing
private funds.\1848\
---------------------------------------------------------------------------

    \1846\ See AIC Comment Letter I.
    \1847\ See CCMR Comment Letter I.
    \1848\ See MFA Comment Letter I. We note, however, that the
final rule contains a legacy provision.
---------------------------------------------------------------------------

    We have adjusted this estimate upwards from the proposal to reflect
the final rule (including with respect to the exceptions in paragraph
(a) of the final rule), updated data, new methodology for certain
estimates, and comments we received to our estimates asserting that we
underestimated these figures in the proposal. We have also adjusted
these estimates to reflect that the final rule will not apply to SAF
advisers with respect to SAFs they advise.
    We have made certain estimates of this data solely for this PRA
analysis. The table below summarizes the initial and ongoing annual
burden estimates.

                                                         Table 5--Rule 211(h)(2)-3 PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Internal initial burden     Internal annual                                                    Annual external cost
                                              hours                burden hours          Wage rate \1\        Internal time cost           burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Preparation of written notice \6\.  12 hours................  8 hours \2\..........  $435 (blended rate     $3,480...............  $565.\3\
                                                                                for compliance
                                                                                attorney ($425),
                                                                                accounting manager
                                                                                ($337), and
                                                                                assistant general
                                                                                counsel ($543)).
Provision/distribution of written   1 hours.................  3.33 hours \4\.......  $73 (rate for general  $243.09..............
 notice \6\.                                                                          clerk).
Total new annual burden per         ........................  11.33 hours..........  .....................  $3,723.09............  $565.
 private fund.
Avg. number of private funds per    ........................  8 private funds......  .....................  8 private funds......  8 private funds.
 adviser.
Number of advisers................  ........................  12,234 advisers......  .....................  12,234 advisers......  9,176 advisers.\5\
Total new annual burden...........  ........................  1,108,890 hours......  .....................  $364,386,264.48......  $41,475,520.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\1\ See SIFMA data sets, supra Note 1 to Table 1 Rule 211(h)(1)-2 PRA Estimates.
\2\ This includes the internal initial burden estimate annualized over a three-year period, plus 4 hours of ongoing annual burden hours and assumes
  notices will be issued once annually to existing investors and once quarterly for prospective investors. The estimate of 8 hours is based on the
  following calculation: ((12 initial hours/3 years) + 4 hours of additional ongoing burden hours) = 8 hours. The burden hours associated with reviewing
  preferential treatment provided to other investors in the same fund and updating the written notice take into account that (i) most closed-end funds
  will only raise new capital for a finite period of time and thus the burden hours will likely decrease after the fundraising period terminates for
  such funds since they will not continue to seek new investors and will not continue to agree to new preferential treatment for new investors and (ii)
  most open-end private funds continuously raise capital and thus the burden hours will likely remain the same year over year since they will continue
  to seek new investors and will continue to agree to preferential treatment for new investors.
\3\ This estimated burden is based on the estimated wage rate of $565/hour, for 1 hours, for outside legal services at the same frequency as the
  internal burden hours estimate. The Commission's estimates of the relevant wage rates for external time costs, such as outside legal services, take
  into account staff experience, a variety of sources including general information websites, and adjustments for inflation.
\4\ This includes the internal initial burden estimate annualized over a three-year period, plus 3 hours of ongoing annual burden hours. The estimate of
  3.33 hours is based on the following calculation: ((1 initial hours/3 years) + 3 hours of additional ongoing burden hours) = 3.33 hours.
\5\ We estimate that 75% of advisers will use outside legal services for these collections of information. This estimate takes into account that
  advisers may elect to use outside legal services (along with in-house counsel), based on factors such as adviser budget and the adviser's standard
  practices for using outside legal services, as well as personnel availability and expertise.
\6\ References to written notices in this table, and the burdens associated with the preparation, provision, and distribution thereof, include estimates
  related to advisers (i) offering the same preferential redemption terms to all existing and future investors and (ii) offering the same preferential
  information to all other investors, in each case, in accordance with the exceptions to the prohibitions aspect of the final rule.

G. Written Documentation of Adviser's Annual Review of Compliance
Program

    The amendment to rule 206(4)-7 requires investment advisers that
are registered or required to be registered to document the annual
review of their compliance policies and procedures in writing.\1849\ We
believe that such a requirement will focus renewed attention on the
importance of the annual compliance review process and will help ensure
that advisers maintain records regarding their annual compliance review
that will allow our staff to determine whether an adviser has complied
with the compliance rule.
---------------------------------------------------------------------------

    \1849\ See rule 206(4)-7(b).
---------------------------------------------------------------------------

    This collection of information is found at 17 CFR 275.206(4)-7 and
is mandatory. The Commission staff uses the collection of information
in its examination and oversight program. As noted above, responses
provided to the Commission in the context of its examination and
oversight program concerning the amendments to rule 206(4)-7 will be
kept confidential subject to the provisions of applicable law.
    Based on IARD data, as of December 31, 2022, there were 15,361
investment advisers registered with the Commission. In our most recent
PRA submission for rule 206(4)-7, we estimated a total hour burden of
1,293,840 hours and a total monetized time burden of $322,036,776. As
noted above, all advisers that are registered or required to be
registered, including advisers to SAFs, will be required to document
their annual review in writing.
    Commenters argued there would be certain additional costs
associated with the amendment to rule 206(4)-7, such as compliance
consultants or outside counsel.\1850\ We have adjusted this estimate
upwards from the proposal to reflect the final amendments, updated
data, and comments we received to our estimates asserting that we
underestimated these figures in the proposal. The table below
summarizes the initial and ongoing annual burden estimates associated
with the amendments to rule 206(4)-7.
---------------------------------------------------------------------------

    \1850\ Curtis Comment Letter; SBAI Comment Letter.

                                      Table 6--Rule 206(4)-7 PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                 Internal annual burden                       Internal time     Annual external
                                         hours             Wage rate \1\           cost           cost burden
----------------------------------------------------------------------------------------------------------------
                                                    Estimates
----------------------------------------------------------------------------------------------------------------
Written documentation of        5.5 hours \2\..........  $484 (blended      $2,662...........  $459.\3\
 annual review.                                           rate for
                                                          compliance
                                                          attorney ($425)
                                                          and assistant
                                                          general counsel
                                                          ($543)).
Number of advisers............  15,361 advisers........  .................  15,361 advisers..  7,681
                                                                                advisers.\4\
Total new annual burden.......  84,486 hours...........  .................  $40,890,982......  $3,525,579.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ See SIFMA data sets, supra Note 1 to Table 1 Rule 211(h)(1)-2 PRA Estimates.
\2\ We estimate that these amendments will increase each registered investment adviser's average annual
  collection burden under rule 206(4)-7 by 5.5 hours.
\3\ This estimated burden is based on the sum of the estimated wage rate of $565/hour, for 0.5 hours, ($282.5)
  for outside legal services and the estimated wage rate of $353/hour, for 0.5 hours, ($176.5) for outside
  accountant assistance.
\4\ We estimate that 50% of advisers will use outside legal services for these collections of information. This
  estimate takes into account that advisers may elect to use outside legal services (along with in-house
  counsel), based on factors such as adviser budget and the adviser's standard practices for using outside legal
  services, as well as personnel availability and expertise.

H. Recordkeeping

    The amendments to rule 204-2 will require advisers to private
funds, where the adviser is registered or required to be registered
with the Commission, to retain books and records related to the
quarterly statement rule, the audit rule, the adviser-led secondaries
rule, the restricted activities rules, and the preferential treatment
rule.\1851\ These amendments will help facilitate the Commission's
inspection and enforcement capabilities.
---------------------------------------------------------------------------

    \1851\ See final amended rule 204-2.
---------------------------------------------------------------------------

    Specifically, the books and records amendments related to the
quarterly statement rule will require advisers to (i) retain a copy of
any quarterly statement distributed to fund investors as well as a
record of each addressee and the date(s) the statement was sent; (ii)
retain all records evidencing the calculation method for all expenses,
payments, allocations, rebates, offsets, waivers, and performance
listed on any statement delivered pursuant to the quarterly statement
rule; and (iii) make and keep documentation substantiating the
adviser's determination that the private fund it manages is a liquid
fund or an illiquid fund pursuant to the quarterly statement
rule.\1852\
---------------------------------------------------------------------------

    \1852\ See final amended rule 204-2(a)(20)(i) and (ii), and
(a)(22).
---------------------------------------------------------------------------

    The books and records amendments related to the audit rule will
require advisers to keep a copy of any audited financial statements
distributed along

with a record of each addressee and the corresponding date(s)
sent.\1853\ Additionally, the rule will require the adviser to keep a
record documenting steps it took to cause a private fund client with
which it is not in a control relationship to undergo a financial
statement audit that will comply with the rule.\1854\
---------------------------------------------------------------------------

    \1853\ See final amended rule 204-2(a)(21)(i).
    \1854\ See final amended rule 204-2(a)(21)(ii).
---------------------------------------------------------------------------

    The books and records amendments related to the adviser-led
secondaries rule will require advisers to retain a copy of any fairness
or valuation opinion and summary of material business relationships
distributed pursuant to the rule along with a record of each addressee
and the corresponding date(s) sent.\1855\
---------------------------------------------------------------------------

    \1855\ See final amended rule 204-2(a)(23).
---------------------------------------------------------------------------

    The books and records amendments related to the preferential
treatment rule will require advisers to retain copies of all written
notices sent to current and prospective investors in a private fund
pursuant to final rule 211(h)(2)-3.\1856\ In addition, advisers will be
required to retain copies of a record of each addressee and the
corresponding date(s) sent.\1857\
---------------------------------------------------------------------------

    \1856\ See final amended rule 204-2(a)(7)(v).
    \1857\ Id.
---------------------------------------------------------------------------

    The books and records amendments related to the restricted
activities rule will require advisers to retain copies of all
notifications, consent forms, or other documents distributed to (and
received from) private fund investors pursuant to the restricted
activities rule, along with a record of each addressee and the
corresponding date(s) sent.
    The respondents to these collections of information requirements
will be investment advisers that are registered or required to be
registered with the Commission that advise one or more private funds.
Based on IARD data, as of December 31, 2022, there were 15,361
investment advisers registered with the Commission. According to this
data, 5,248 registered advisers provide advice to private funds.\1858\
We estimate that these advisers, on average, each provide advice to 10
private funds.\1859\ We further estimate that these private funds, on
average, each have a total of 80 investors.\1860\ As a result, an
average private fund adviser has, on average, a total of 800 investors
across all private funds it advises.
---------------------------------------------------------------------------

    \1858\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1). The
final quarterly statement, audit, adviser-led secondaries,
restricted activities, and preferential treatment rules will not
apply to SAF advisers with respect to SAFs they advise. These
figures do not include SAF advisers that manage only SAFs.
    \1859\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1). The
final quarterly statement, audit, adviser-led secondaries,
restricted activities, and preferential treatment rules will not
apply to SAFs. These figures do not include SAFs.
    \1860\ See Form ADV, Part 1A, Schedule D, Section 7.B.(1).A.,
#13.
---------------------------------------------------------------------------

    In our most recent PRA submission for rule 204-2,\1861\ we
estimated for rule 204-2 a total hour burden of 2,803,536 hours, and
the total annual internal cost burden is $179,000,834.\1862\ This
collection of information is found at 17 CFR 275.204-2 and is
mandatory. The Commission staff uses the collection of information in
its examination and oversight program. As noted above, responses
provided to the Commission in the context of its examination and
oversight program concerning the amendments to rule 204-2 will be kept
confidential subject to the provisions of applicable law.
---------------------------------------------------------------------------

    \1861\ Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Revisions to Rule 204-2, OMB
Report, OMB 3235-0278 (May 2023).
    \1862\ Under the currently approved PRA for Rule 204-2, there is
no cost burden other than the internal cost of the hour burden, and
we believe that the amendments will not result in any external cost
burden.
---------------------------------------------------------------------------

    Several commenters stated that the recordkeeping requirements would
be burdensome.\1863\ We have adjusted the estimates upwards from the
proposal to reflect the final amendments, updated data, and comments we
received to our estimates asserting that we underestimated these
figures in the proposal. We are also revising the estimates upwards to
reflect the additional recordkeeping obligations we are adopting, such
as the requirement to maintain records related to the restricted
activities rule. We have adjusted these estimates to reflect that the
final quarterly statement, audit, adviser-led secondaries, restricted
activities, and preferential treatment rules will not apply to SAF
advisers with respect to SAFs they advise as well.
---------------------------------------------------------------------------

    \1863\ See, e.g., AIMA/ACC Comment Letter; ATR Comment Letter.
---------------------------------------------------------------------------

    The table below summarizes the initial and ongoing annual burden
estimates associated with the amendments to rule 204-2.

                                        Table 7--Rule 204-2 PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                Annual
                                    Internal annual burden                                              external
                                          hours \1\             Wage rate \2\      Internal time cost     cost
                                                                                burden
----------------------------------------------------------------------------------------------------------------
                                                    Estimates
----------------------------------------------------------------------------------------------------------------
Retention of quarterly statement   0.50 hours.............  $77.5 (blended rate   $38.75.............         $0
 and calculation information;                                for general clerk
 making and keeping records re                               ($73) and
 liquid/illiquid fund                                        compliance clerk
 determination.                                              ($82)).
Avg. number of private funds per   10 private funds.......  ....................  10 private funds...         $0
 adviser.
Number of advisers...............  5,248 advisers.........  ....................  5,248 advisers.....         $0
Sub-total burden.................  26,240 hours...........  ....................  $2,033,600.........         $0
Retention of written notices re    1 hours................  $77.5 (blended rate   $77.5..............         $0
 preferential treatment.                                     for general clerk
                                                             ($73) and
                                                             compliance clerk
                                                             ($82)).
Avg. number of private funds per   10 private funds \3\...  ....................  10 private funds            $0
 adviser.                                                                          \3\.
Number of advisers...............  5,248 advisers.........  ....................  5,248 advisers.....         $0
Sub-total burden.................  52,480 hours...........  ....................  $4,067,200.........         $0

Retention and distribution of      0.50 hours.............  $77.5 (blended rate   $38.75.............         $0
 audited financial statements;                               for general clerk
 making and keeping records re:                              ($73) and
 steps to cause a private fund                               compliance clerk
 client that the adviser does not                            ($82)).
 control to undergo a financial
 statement audit.
Avg. number of private funds per   10 private funds.......  ....................  10 private funds...         $0
 adviser.
Number of advisers...............  5,248 advisers.........  ....................  5,248 advisers.....         $0
Sub-total burden.................  26,240 hours...........  ....................  $2,033,600.........         $0
Retention and distribution of      1.5 hour...............  $77.5 (blended rate   $116.25............         $0
 fairness/valuation opinion and                              for general clerk
 summary of material business                                ($73) and
 relationships.                                              compliance clerk
                                                             ($82)).
Avg. number of private funds per   1 private fund.........  ....................  1 private fund.....         $0
 adviser that conduct an adviser-
 led transaction.
Number of advisers...............  525 advisers \4\.......  ....................  525 advisers \4\...         $0
Sub-total burden.................  787.5 hours............  ....................  $61,031.25.........         $0
Retention of written notices,      3.5 hours..............  $77.5 (blended rate   $271.25............         $0
 consent forms, and other                                    for general clerk
 documents for restricted                                    ($73) and
 activities.                                                 compliance clerk
                                                             ($82)).
Avg. number of private funds per   10 private funds \3\...  ....................  10 private funds            $0
 adviser.                                                                          \3\.
Number of advisers...............  5,248 advisers.........  ....................  5,248 advisers.....         $0
Sub-total burden.................  183,680 hours..........  ....................  $14,235,200........  .........
Total burden.....................  289,427.5 hours........  ....................  $22,430,631.25.....         $0
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Hour burden and cost estimates for these rule amendments assume the frequency of each collection of
  information for the substantive rule with which they are associated. For example, the hour burden estimate for
  recordkeeping obligations associated with the amendments to rule 204-2(a)(20) and (22) will assume the same
  frequency of collection of information as under final rule 211(h)(1)-2.
\2\ See SIFMA data sets, supra Note 1 to Table 1 Rule 211(h)(1)-2 PRA Estimates.
\3\ Final rules 211(h)(2)-1 and 211(h)(2)-3 apply to all private fund advisers, but the amendments to rule 204-2
  only apply to advisers that are registered or required to be registered with the Commission. As discussed
  above, we estimate that advisers that are registered or required to be registered with the Commission each
  advise 10 private funds on average.
\4\ See supra section VII.E (Adviser-Led Secondaries).

I. Request for Comment Regarding Rule 211(h)(2)-1

    We request comment on whether the estimates associated with the new
collection of information requirements in ``Rule 211(h)(2)-1 under the
Advisers Act'' are reasonable. Pursuant to 44 U.S.C. 3506(c)(2)(B), the
Commission solicits comments to: (1) evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (2) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information; (3)
determine whether there are ways to enhance the quality, utility, and
clarity of the information to be collected; and (4) determine whether
there are ways to minimize the burden of the collection of information
on those who are to respond, including through the use of automated
collection techniques or other forms of information technology.
    Persons wishing to submit comments on the collection of information
requirements should direct them to the OMB Desk Officer for the
Securities and Exchange Commission,
[email protected], and should send a copy to
Vanessa A. Countryman, Secretary, Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549-1090, with reference to File No.
S7-03-22. OMB is required to make a decision concerning the collections
of information between 30 and 60 days after publication of this
release; therefore a comment to OMB is best assured of having its full
effect if OMB receives it within 30 days after publication of this
release. Requests for materials submitted to OMB by the Commission with
regard to these collections of information should be in writing, refer
to File No. S7-03-22, and be submitted to the Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736.

VIII. Final Regulatory Flexibility Analysis

    The Commission has prepared the following Final Regulatory
Flexibility Analysis (``FRFA'') in accordance with section 4(a) of the
RFA.\1864\ It relates to the following rules and rule amendments under
the Advisers Act: (i) rule 211(h)(1)-1; (ii) rule 211(h)(1)-2; (iii)
rule 206(4)-10; (iv) rule 211(h)(2)-1; (v) rule 211(h)(2)-2; (vi) rule
211(h)(2)-3; (vii) amendments to rule 204-2; and (viii) amendments to
rule 206(4)-7.
---------------------------------------------------------------------------

    \1864\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

A. Reasons for and Objectives of the Final Rules and Rule Amendments

1. Final Rule 211(h)(1)-1
    We are adopting final rule 211(h)(1)-1 under the Advisers Act
(``definitions rule''), which contains numerous definitions for
purposes of final rules 211(h)(1)-2, 206(4)-10, 211(h)(2)-1, 211(h)(2)-
2, and 211(h)(2)-3 and the

final amendments to rule 204-2.\1865\ We chose to include these
definitions in a single rule for ease of reference, consistency, and
brevity.
---------------------------------------------------------------------------

    \1865\ See final rule 211(h)(1)-1.
---------------------------------------------------------------------------

2. Final Rule 211(h)(1)-2
    We are adopting final rule 211(h)(1)-2 under the Advisers Act,
which requires any investment adviser registered or required to be
registered with the Commission that provides investment advice to a
private fund (other than a SAF) that has at least two full fiscal
quarters of operating results to prepare and distribute a quarterly
statement to private fund investors that includes certain standardized
disclosures regarding the costs of investing in the private fund and
the private fund's performance.\1866\ We believe that providing this
information to private fund investors in a simple and clear format is
appropriate and in the public interest and will improve investor
protection and make investors better informed. The reasons for, and
objectives of, final rule 211(h)(1)-2 are discussed in more detail in
sections I and II above. The burdens of this requirement on small
advisers are discussed below as well as above in sections VI and VII,
which discuss the burdens on all advisers. The professional skills
required to meet these specific burdens also are discussed in section
VII.
---------------------------------------------------------------------------

    \1866\ See final rule 211(h)(1)-2.
---------------------------------------------------------------------------

3. Final Rule 206(4)-10
    We are adopting final rule 206(4)-10 under the Advisers Act, which
will generally require all investment advisers that are registered or
required to be registered with the Commission to have their private
fund clients (other than a SAF client) undergo a financial statement
audit that meets the requirements of the audit provision of the custody
rule (i.e., rule 206(4)-2(b)(4)), which are incorporated into the new
rule by reference, as described above in section II. The final rule is
designed to provide protection for the fund and its investors against
the misappropriation of fund assets and to provide an important check
on the adviser's valuation of private fund assets, which often serve as
the basis for the calculation of the adviser's fees, and to align with
the audit requirements in the audit provision of the custody rule. The
reasons for, and objectives of, the final audit rule are discussed in
more detail in sections I and II, above. The burdens of these
requirements on small advisers are discussed below as well as above in
sections VI and VII, which discuss the burdens on all advisers. The
professional skills required to meet these specific burdens also are
discussed in section VII.
4. Final Rule 211(h)(2)-1
    Final rule 211(h)(2)-1 will restrict all private fund advisers
(other than an adviser to SAFs with respect to such funds) from,
directly or indirectly, engaging in certain sales practices, conflicts
of interest, and compensation schemes that are contrary to the public
interest and the protection of investors. Specifically, the rule
prohibits an adviser from engaging in the following activities, unless
it provides written disclosure to investors and, in some cases, obtain
investor consent: (1) charging certain fees and expenses to a private
fund (including fees or expenses associated with an investigation of
the adviser or its related persons by governmental or regulatory
authorities, regulatory, examination, or compliance expenses or fees of
the adviser or its related persons,\1867\ or fees and expenses related
to a portfolio investment (or potential portfolio investment) on a non-
pro rata basis when multiple private funds and other clients advised by
the adviser or its related persons have invested (or propose to invest)
in the same portfolio investment); (2) reducing the amount of any
adviser clawback by actual, potential, or hypothetical taxes applicable
to the adviser, its related persons, or their respective owners or
interest holders; and (3) borrowing money, securities, or other fund
assets, or receiving a loan or an extension of credit, from a private
fund client.\1868\ Each of these restrictions is described in more
detail above in section II. As discussed above, we believe that these
sales practices, conflicts of interest, and compensation schemes must
be restricted, and the final rule will prohibit these activities,
unless the adviser provides specified disclosures to investors and, in
some cases, obtain investor consent under the final rule. Also, the
final rule restricts these activities even if they are performed
indirectly, for example by an adviser's related persons, because the
activities have an equal potential to harm investors regardless of
whether the adviser engages in the activity directly or indirectly. The
reasons for, and objectives of, the final rule are discussed in more
detail in sections I and II, above. The burdens of these requirements
on small advisers are discussed below as well as above in sections VI
and VII, which discuss the burdens on all advisers. The professional
skills required to meet these specific burdens also are discussed in
section VII.
---------------------------------------------------------------------------

    \1867\ However, the final rule prohibits advisers from charging
for fees and expenses related to an investigation that results or
has resulted in a court or governmental authority imposing a
sanction for a violation of the Act or the rules promulgated
thereunder.
    \1868\ See final rule 211(h)(2)-1(a).
---------------------------------------------------------------------------

5. Final Rule 211(h)(2)-2
    We are adopting final rule 211(h)(2)-2 under the Advisers Act,
which generally requires an adviser that is registered or required to
be registered with the Commission and is conducting an adviser-led
secondary transaction with respect to any private fund that it advises
(other than a SAF), where the adviser (or its related persons) offers
fund investors the option between selling their interests in the
private fund, and converting or exchanging them for new interests in
another vehicle advised by the adviser or its related persons, to,
prior to the due date of an investor participation election form in
respect of the transaction, obtain and distribute to investors in the
private fund a fairness opinion or valuation opinion from an
independent opinion provider and a summary of any material business
relationships that the adviser or any of its related persons has, or
has had within the two-year period immediately prior to the issuance
date of the fairness opinion or valuation opinion, with the independent
opinion provider. The specific requirements of the final rule are
described above in section II. The final rule is designed to provide an
important check against an adviser's conflicts of interest in
structuring and leading a transaction from which it may stand to profit
at the expense of private fund investors. The reasons for, and
objectives of, the final rule are discussed in more detail in sections
I and II above. The burdens of these requirements on small advisers are
discussed below as well as above in sections VI and VII, which discuss
the burdens on all advisers. The professional skills required to meet
these specific burdens also are discussed in section VII.
6. Final Rule 211(h)(2)-3
    Final rule 211(h)(2)-3 will prohibit a private fund adviser (other
than an adviser to SAFs with respect to such funds), directly or
indirectly, from: (1) granting an investor in a private fund or in a
similar pool of assets the ability to redeem its interest on terms that
the adviser reasonably expects to have a material, negative effect on
other investors in that private fund or in a similar pool of assets,
with an exception

for redemptions that are required by applicable law, rule, regulation,
or order of certain governmental authorities and another if the adviser
offers the same redemption ability to all existing and future investors
in the private fund or similar pool of assets; or (2) providing
information regarding the portfolio holdings or exposures of the
private fund, or of a similar pool of assets, to any investor in the
private fund if the adviser reasonably expects that providing the
information would have a material, negative effect on other investors
in that private fund or in a similar pool of assets, with an exception
where the adviser offers such information to all other existing
investors in the private fund and any similar pool of assets at the
same time or substantially the same time.\1869\ The final rule will
also prohibit these advisers from providing any other preferential
treatment to any investor in a private fund unless the adviser provides
written disclosures to prospective investors of the private fund
regarding preferential treatment related to any material economic
terms, as well as written disclosures to current investors in the
private fund regarding all preferential treatment, which the adviser or
its related persons has provided to other investors in the same
fund.\1870\ These requirements are described above in section II. The
final rule is designed to restrict sales practices that present a
conflict of interest between the adviser and the private fund client
that are contrary to the public interest and protection of investors
and certain practices that can be fraudulent and deceptive. The
disclosure elements of the final rule are designed to also help
investors shape the terms of their relationship with the adviser of the
private fund. The reasons for, and objectives of, the final rule are
discussed in more detail in sections I and II, above. The burdens of
these requirements on small advisers are discussed below as well as
above in sections VI and VII, which discuss the burdens on all
advisers. The professional skills required to meet these specific
burdens also are discussed in section VII.
---------------------------------------------------------------------------

    \1869\ See final rule 211(h)(2)-3.
    \1870\ See final rule 211(h)(2)-3(b).
---------------------------------------------------------------------------

7. Final Amendments to Rule 204-2
    We are also adopting related amendments to rule 204-2, the books
and records rule, which sets forth various recordkeeping requirements
for registered investment advisers. We are amending the current rule to
require investment advisers to private funds to make and keep records
relating to the quarterly statements required under final rule
211(h)(1)-2, the financial statement audits performed under final rule
206(4)-10, disclosures regarding restricted activities provided under
final rule 211(h)(2)-1, fairness opinions or valuation opinions
required under final rule 211(h)(2)-2, and disclosure of preferential
treatment required under final rule 211(h)(2)-3. The reasons for, and
objectives of, the final amendments to the books and records rule are
discussed in more detail in sections I and II above. The burdens of
these requirements on small advisers are discussed below as well as
above in sections VI and VII, which discuss the burdens on all
advisers. The professional skills required to meet these specific
burdens also are discussed in section VII.
8. Final Amendments to Rule 206(4)-7
    We are adopting amendments to rule 206(4)-7 to require all SEC-
registered advisers to document the annual review of their compliance
policies and procedures in writing, as described above in section III.
The final amendments are designed to focus renewed attention on the
importance of the annual compliance review process and will better
enable our staff to determine whether an adviser has complied with the
review requirement of the compliance rule. The reasons for, and
objectives of, the final amendments are discussed in more detail in
sections I and III, above. The burdens of these requirements on small
advisers are discussed below as well as above in sections VI and VII,
which discuss the burdens on all advisers. The professional skills
required to meet these specific burdens also are discussed in section
VII.

B. Significant Issues Raised by Public Comments

    One commenter provided its own calculations of the number of small
entities impacted by the rules using both the Commission's definition
of small entity and a different definition, and the commenter's
reasoning for using a different definition is premised on the
commenter's belief that the Commission is required to conduct a
regulatory impact analysis. \1871\ However, as discussed above, the
Commission was not required to perform a regulatory impact
analysis.\1872\ Under Commission rules, for the purposes of the
Advisers Act and the RFA, an investment adviser generally is a small
entity if it meets the definition set forth in Advisers Act rule 0-
7(a).
---------------------------------------------------------------------------

    \1871\ See LSTA Comment Letter, Exhibit C.
    \1872\ See supra section VI.B.
---------------------------------------------------------------------------

    Additionally, in providing its own calculations, this commenter
calculated the number of private funds that would be ``small entities''
according to its own definition,\1873\ as well as the definition set
forth in Advisers Act rule 0-7(a), which sets forth the criteria for
determining whether an investment adviser (and not a private fund) is a
``small entity'' for purposes of the RFA analysis. As a result, this
commenter assumed that the ``small entities'' directly subject to the
rules would be private funds, rather than investment advisers to
private funds. The Commission's analysis, however, correctly analyzed
the impact on investment advisers.
---------------------------------------------------------------------------

    \1873\ This commenter stated that, according to a benchmark from
the Small Business Administration, ``investment vehicles'' with
assets of under $35 million would constitute a ``small business.''
See LSTA Comment Letter, Exhibit C.
---------------------------------------------------------------------------

    More generally, as discussed above, many commenters expressed
broader concerns that there may be negative effects on competition,
including through effects on smaller, emerging advisers.\1874\ For
example, commenters stated that restrictions on preferential treatment
may hinder smaller advisers' abilities to secure initial seed or anchor
investors, stating that smaller, emerging advisers often need to
provide anchor investors significant preferential rights.\1875\
Commenters also stated more generally that increased compliance costs
on advisers may reduce competition by causing advisers, particularly
smaller advisers, to close their funds and reducing the choices
investors have among competing advisers and funds.\1876\ In particular,
some commenters stated that the combined costs of multiple ongoing
rulemakings would harm investors by making it cost-prohibitive for many
advisers to stay in business or for new advisers to start a business,
and that this effect would further harm competition by creating new
barriers to entry.\1877\ Commenters lastly stated that the loss of
smaller advisers would result in reduced diversity of investment
advisers, based on an assertion that most women- and minority-owned
advisers are smaller and more frequently associated with first time
funds, and that reduced diversity of investment advisers may also have

downstream effects on entrepreneurial diversity.\1878\
---------------------------------------------------------------------------

    \1874\ See supra section VI.E.2.
    \1875\ Id.
    \1876\ Id.
    \1877\ Id.
    \1878\ Id.
---------------------------------------------------------------------------

    The Commission's analysis more generally considered potential
impact on small entities, meaning small advisers, and identified
several factors that may mitigate potential negative effects.\1879\
First, the potential harms to smaller advisers from the preferential
treatment rule will be mitigated to the extent that smaller, emerging
advisers do not need to be able to offer anchor investors preferential
rights that have a material negative effect on other investors in order
to effectively compete, and to the extent that smaller emerging
advisers are able to compete effectively by offering anchor investors
other types of preferential terms.\1880\ Second, the compliance cost
effects on the smallest advisers will be mitigated where those advisers
do not meet the minimum assets under management required to register
with the SEC.\1881\ Third, the literature on the downstream effects of
diversity in investment advisory services indicates that the effects
are strongest for venture capital, and so the effect may be mitigated
wherever an adviser's funds are sufficiently concentrated in venture
capital that they may forgo SEC registration and thus forgo many of the
costs of the final rules.\1882\ Lastly, with respect to commenter
concerns on the combined costs of multiple rulemakings, each adopting
release considers an updated economic baseline that incorporates any
new regulatory requirements, including compliance costs, at the time of
each adoption, and considers the incremental new benefits and
incremental new costs over those already resulting from the preceding
rules.\1883\ With respect to competitive effects, the Commission
acknowledges that there are incremental effects of new compliance costs
on advisers that may vary depending on the total amount of compliance
costs already facing advisers and acknowledges costs from overlapping
transition periods for recently adopted rules and the final private
fund adviser rules.\1884\
---------------------------------------------------------------------------

    \1879\ Certain other commenters expressed broader concerns that
there may be negative effects on competition, including through
effects on smaller, emerging advisers. See supra section VI.E.2.
    \1880\ Id.
    \1881\ Some registered advisers may therefore have the option of
reducing their assets under management in order to forgo
registration, thereby avoiding the costs of the final rules that
only apply to registered advisers, such as the mandatory audit rule.
Id.
    \1882\ Id.
    \1883\ See supra sections VI.D, VI.E.2.
    \1884\ Id.
---------------------------------------------------------------------------

    We have also taken several steps to lessen the possible burden on
smaller advisers. First, for significant portions of the rules, we have
allowed a longer transition period, i.e., up to 18 months, for smaller
private fund advisers.\1885\ Second, we have provided certain legacy
status provisions, namely regarding contractual agreements that govern
a private fund and that were entered into prior to the compliance date
if the rule would require the parties to amend such an agreement, for
all advisers under the prohibitions aspect of the preferential
treatment rule and certain aspects of the restricted activities
rule.\1886\ Third, for the restricted activities rule, we adopted
certain disclosure-based exceptions rather than outright
prohibitions.\1887\ Fourth, we have extended the adviser-led
secondaries rule to allow for valuation opinions in addition to
fairness opinions.\1888\ Fifth, for the preferential activities
prohibitions, we adopted certain exceptions to the prohibition on the
provision of certain preferential redemption terms, such as when those
terms are offered to all investors.\1889\ To the extent the effects
identified by commenters still occur with these changes to the final
rules, smaller advisers may be impacted, but these potential negative
effects on smaller advisers must be evaluated in light of (1) the other
pro-competitive aspects of the final rules, in particular the pro-
competitive effects from enhancing transparency, which are likely to
help smaller advisers effectively compete, and (2) the other benefits
of the final rules.\1890\
---------------------------------------------------------------------------

    \1885\ See supra section IV (allowing up to 18 months for
smaller private fund advisers to comply with the quarterly statement
rule, the mandatory private fund adviser audit rule, the adviser-led
secondaries rule, and the restricted activities rule).
    \1886\ See supra section IV (allowing legacy status under
limited circumstances to prevent advisers and investors from having
to renegotiate existing fund documents).
    \1887\ See supra section II.E (discussing disclosure-based
exceptions and, in some cases, consent-based exceptions for certain
fees and expenses, post-tax clawbacks, non-pro rata allocations, and
borrowing).
    \1888\ See supra section II.D.2.
    \1889\ See supra section II.G.
    \1890\ See supra section VI.E.2.
---------------------------------------------------------------------------

C. Legal Basis

    The Commission is adopting final rules 211(h)(1)-1, 211(h)(1)-2,
211(h)(2)-1, 211(h)(2)-2, 211(h)(2)-3, and 206(4)-10 under the Advisers
Act under the authority set forth in sections 203(d), 206(4), 211(a),
and 211(h) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(d),
80b-6(4) and 80b-11(a) and (h)). The Commission is adopting amendments
to rule 204-2 under the Advisers Act under the authority set forth in
sections 204 and 211 of the Investment Advisers Act of 1940 (15 U.S.C.
80b-4 and 80b-11). The Commission is adopting amendments to rule
206(4)-7 under the Advisers Act under the authority set forth in
sections 203(d), 206(4), and 211(a) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-3(d), 80b-6(4), and 80b-11(a)).

D. Small Entities Subject to Rules

    In developing these rules and amendments, we have considered their
potential impact on small entities. Some of the rules and amendments
will affect many, but not all, investment advisers registered with the
Commission, including some small entities. The amendments to rule
206(4)-7 will affect all investment advisers that are registered or
required to be registered with the Commission, including some small
entities, and final rules 211(h)(2)-1 and 211(h)(2)-3 will apply to all
advisers to private funds (even if not registered), including some
small entities. Final rule 211(h)(1)-1 will affect all advisers that
are also affected by one of the rules applying to private fund advisers
discussed below, including all that are small entities, regardless of
whether they are registered. Under Commission rules, for the purposes
of the Advisers Act and the RFA, an investment adviser generally is a
small entity if it: (1) has assets under management having a total
value of less than $25 million; (2) did not have total assets of $5
million or more on the last day of the most recent fiscal year; and (3)
does not control, is not controlled by, and is not under common control
with another investment adviser that has assets under management of $25
million or more, or any person (other than a natural person) that had
total assets of $5 million or more on the last day of its most recent
fiscal year.\1891\
---------------------------------------------------------------------------

    \1891\ 17 CFR 275.0-7(a) (Advisers Act rule 0-7(a)).
---------------------------------------------------------------------------

    Other than the definitions rule, restrictions rule, and
preferential treatment rule, our rules and amendments will not affect
most investment advisers that are small entities (``small advisers'')
because those rules apply only to registered advisers, and small
registered advisers are generally registered with one or more State
securities authorities and not with the Commission. Under section 203A
of the Advisers Act, most small advisers are prohibited from
registering with the Commission and are regulated by State regulators.
Based on IARD data, we estimate that as of December 31, 2022,

approximately 489 SEC-registered advisers are small entities under the
RFA.\1892\ All of these advisers will be affected by the amendments to
the compliance rule, and we estimate that approximately 26 small
advisers to one or more private funds will be affected by the quarterly
statement rule, audit rule, and secondaries rule.\1893\
---------------------------------------------------------------------------

    \1892\ Based on SEC-registered investment adviser responses to
Items 5.F. and 12 of Form ADV.
    \1893\ The final quarterly statement, audit, and adviser-led
secondaries rules will not apply to SAF advisers with respect to
SAFs they advise. This figure does not include SAF advisers that
manage only SAFs.
---------------------------------------------------------------------------

    The restricted activities rule and the preferential treatment rule,
however, will have an impact on all investment advisers to private
funds, regardless of whether they are registered with the Commission,
one or more State securities authorities, or are unregistered. It is
difficult for us to estimate the number of advisers not registered with
us that have private fund clients. However, we are able to provide the
following estimates based on IARD data. As of December 31, 2022, there
are 5,368 ERAs, all of whom advise private funds, by definition.\1894\
All ERAs will, therefore, be subject to the rules that will apply to
all private fund advisers. We estimate that there are no ERAs that
would meet the definition of ``small entity.'' \1895\ We do not have a
method for estimating the number of State-registered advisers to
private funds that would meet the definition of ``small entity.''
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    \1894\ See section 203(l) of the Advisers Act and rule 203(m)-1.
    \1895\ In order for an adviser to be an SEC ERA it would first
need to have an SEC registration obligation, and an adviser with
that little in assets under management (i.e., assets under
management that is low enough to allow the adviser to qualify as a
small entity) would not have an SEC registration obligation.
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    Additionally, the restricted activities rule and the preferential
treatment rule will apply to other advisers that are not registered
with the SEC or with the States and that do not make filings with
either the SEC or States. This includes foreign private advisers,\1896\
advisers that are entirely unregistered, and advisers that rely on the
intrastate exemption from SEC registration and/or the de minimis
exemption from SEC registration. We are unable to estimate the number
of advisers in each of these categories because these advisers do not
file reports or other information with the SEC and we are unable to
find reliable, public information. As a result, our estimates are based
on information from SEC-registered advisers to private funds, exempt
reporting advisers (at the State and Federal levels), and State-
registered advisers to private funds.
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    \1896\ See section 202(a)(30) of the Advisers Act (defining
``foreign private adviser'').
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    The definitions rule will affect all advisers that are also
affected by one of the rules applying to private fund advisers
discussed above. It has no independent substantive requirements or
economic impacts. Therefore, the number of small advisers affected by
this rule is accounted for in those discussions and not separately and
additionally delineated.

E. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

1. Final Rule 211(h)(1)-1
    Final rule 211(h)(1)-1 will not impose any reporting,
recordkeeping, or other compliance requirements on investment advisers
because it has no independent substantive requirements or economic
impacts. The rule will not affect an adviser unless it was complying
with final rules 211(h)(1)-2, 206(4)-10, 211(h)(2)-1, 211(h)(2)-2, or
211(h)(2)-3, each of which is discussed below.
2. Final Rule 211(h)(1)-2
    Final rule 211(h)(1)-2 will impose certain compliance requirements
on investment advisers, including those that are small entities. It
will require any investment adviser registered or required to be
registered with the Commission that provides investment advice to a
private fund (other than a SAF) that has at least two full fiscal
quarters of operating results to prepare and distribute quarterly
statements with certain fee and expense and performance disclosure to
private fund investors. The final requirements, including compliance
and related recordkeeping requirements that will be required under the
final amendments to rule 204-2 and rule 206(4)-7, are summarized in
this FRFA (section VIII.A. above). All of these final requirements are
also discussed in detail, above, in sections I and II, and these
requirements and the burdens on respondents, including those that are
small entities, are discussed above in sections VI and VII (the
Economic Analysis and Paperwork Reduction Act analysis, respectively)
and below. The professional skills required to meet these specific
burdens are also discussed in section VII.
    As discussed above, there are approximately 26 small advisers to
private funds currently registered with us, and we estimate that 100
percent of these advisers will be subject to the final rule 211(h)(1)-
2. As discussed in our Paperwork Reduction Act Analysis in section VII
above, we estimate that the final rule 211(h)(1)-2 under the Advisers
Act, which will require advisers to prepare and distribute quarterly
statements, will create a new annual burden of approximately 190 hours
per adviser, or 4,940 hours in aggregate for small advisers. We
therefore expect the annual monetized aggregate cost to small advisers
associated with the final rule to be $2,416,310.\1897\
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    \1897\ This includes the internal time cost and the annual
external cost burden and assumes that, for purposes of the annual
external cost burden, 50% of small advisers will use outside legal
services, as set forth in the PRA estimates table.
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3. Final Rule 206(4)-10
    Final rule 206(4)-10 will impose certain compliance requirements on
investment advisers, including those that are small entities. All SEC-
registered investment advisers that provide investment advice,
including small entity advisers, to private fund clients (other than a
SAF) will be required to comply with the final rule's requirements to
have their private fund clients undergo a financial statement audit (at
least annually and upon liquidation) and distribute audited financial
statements to private fund investors, in alignment with the
requirements of the audit provision of the custody rule (which the
final rule will incorporate by reference). The final requirements,
including compliance and related recordkeeping requirements that will
be imposed under the final amendments to rule 204-2 and rule 206(4)-7,
are summarized in this FRFA (section VIII.A. above). All of these final
requirements are also discussed in detail, above, in sections I and II,
and these requirements and the burdens on respondents, including those
that are small entities, are discussed above in sections VI and VII
(the Economic Analysis and Paperwork Reduction Act analysis,
respectively) and below. The professional skills required to meet these
specific burdens are also discussed in section VII.
    As discussed above, there are approximately 26 small advisers to
private funds currently registered with us, and we estimate that 100
percent of these advisers will be subject to the final rule 206(4)-10.
As discussed above in our Paperwork Reduction Act Analysis in section
VII above, we estimate that final rule 206(4)-10 under the Advisers Act
will create a new annual burden of approximately 13.30 hours per
adviser, or 345.80 hours in aggregate for small advisers. We therefore
expect the annual monetized aggregate cost to small

advisers associated with the final rule to be $19,560,515.\1898\
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    \1898\ This includes the internal time cost and the annual
external cost burden, as set forth in the PRA estimates table.
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4. Final Rule 211(h)(2)-1
    Final rule 211(h)(2)-1 will impose certain compliance requirements
on investment advisers, including those that are small entities. Final
rule 211(h)(2)-1 will restrict all private fund advisers (other than an
adviser to SAFs with respect to such funds) from engaging in certain
sales practices, conflicts of interest, and compensation schemes that
are contrary to the public interest and the protection of investors.
Specifically, the rule prohibits advisers from engaging in the
following activities, unless they provide written disclosure to
investors regarding such activities and in some cases obtain investor
consent: (1) charging certain fees and expenses to a private fund
(including fees or expenses associated with an investigation of the
adviser or its related persons by governmental or regulatory
authorities, regulatory, examination, or compliance expenses or fees of
the adviser or its related persons, or fees and expenses related to a
portfolio investment (or potential portfolio investment) on a non-pro
rata basis when multiple private funds and other clients advised by the
adviser or its related persons have invested (or propose to invest) in
the same portfolio investment); (2) reducing the amount of any adviser
clawback by actual, potential, or hypothetical taxes applicable to the
adviser, its related persons, or their respective owners or interest
holders; and (3) borrowing money, securities, or other fund assets, or
receiving a loan or an extension of credit from a private fund client.
The requirements, including compliance and related recordkeeping
requirements that will be imposed under the final amendments to rule
204-2 and rule 206(4)-7, are summarized in this FRFA (section VIII.A.
above). All of these final requirements are also discussed in detail,
above, in sections I and II, and these requirements and the burdens on
respondents, including those that are small entities, are discussed
above in sections VI and VII (the Economic Analysis and Paperwork
Reduction Act analysis, respectively) and below. The professional
skills required to meet these specific burdens are also discussed in
section VII.
    As discussed above, there are approximately 26 small advisers to
private funds currently registered with us, and we estimate that 100
percent of these advisers will be subject to the final rule 211(h)(2)-
1. As discussed above, we estimate that there are no ERAs that meet the
definition of ``small entity'' and we do not have a method for
estimating the number of State-registered advisers to private funds
that meet the definition of ``small entity.'' \1899\ As discussed above
in our Paperwork Reduction Act Analysis in section VII above, rule
211(h)(2)-1 under the Advisers Act is estimated to create a new annual
burden of approximately 120 hours per adviser, or 3,120 hours in
aggregate for small advisers. We therefore expect the annual monetized
aggregate cost to small advisers associated with the rule to be
$1,589,280.\1900\
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    \1899\ See supra section VIII.D.
    \1900\ This includes the internal time cost and the annual
external cost burden and assumes that, for purposes of the annual
external cost burden, 75% of small advisers will use outside legal
services, as set forth in the PRA table.
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5. Final Rule 211(h)(2)-2
    Final rule 211(h)(2)-2 will impose certain compliance requirements
on investment advisers, including those that are small entities. The
rule generally requires an adviser that is registered or required to be
registered with the Commission and is conducting an adviser-led
secondary transaction with respect to any private fund that it advises