Notice2023-27887
Submission for OMB Review; Comment Request; Rule 211(h)(2)-1
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 20, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 243 (Wednesday, December 20, 2023)</title>
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[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88205-88206]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27887]
[[Page 88205]]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-XXX, OMB Control No. 3235-XXXX]
Submission for OMB Review; Comment Request; Rule 211(h)(2)-1
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.) (``PRA''), the Securities and
Exchange Commission (``Commission'') submitted an information
collection request to the Office of Management and Budget (``OMB'') for
review and clearance for the collection of information associated with
the new Rule 211(h)(2)-1 17 CFR 275.211(h)(2)-1) under the Investment
Advisers Act of 1940 that was adopted by the Commission on August 23,
2023.\1\ The title for this collection of information is: ``Rule
211(h)(2)-1 under the Investment Advisers Act of 1940.''
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\1\ See Private Fund Advisers; Documentation of Registered
Investment Adviser Compliance Reviews, Investment Advisers Act
Release No. IA-6383 (August 23, 2023) [88 FR 63206 (September 14,
2023)] (``Adopting Release''); the Adopting Release solicited
comment on the ``collection of information'' requirements and
associated burdens. The Commission received no comments in response
to this request in the Adopting Release; however, we have adjusted
certain of the estimates upwards to reflect updated data/figures for
certain estimates.
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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.
In the Proposing Release, we solicited comment on whether rule
211(h)(2)-1 should include disclosure and/or consent requirements.\2\
In response to comments received, we have decided to adopt such a
requirement. Accordingly, the final rule generally will provide either
a disclosure-based exception or a disclosure- and consent-based
exception for each restricted activity. We believe that investors will
be better informed and receive enhanced protection as a result, while
still potentially benefiting from these activities when they are
carried out in the interests of the fund, if investors are provided
with disclosures and, in some cases, consent rights regarding these
activities. 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.
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\2\ Private Fund Advisers; Documentation of Registered
Investment Adviser Compliance Reviews, Investment Advisers Act
Release No. 5955 (Feb. 9, 2022) [87 FR 16886 (Mar. 24, 2022)]
(``Proposing Release'').
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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 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 securitized asset funds (``SAFs''))
that provide advice to private funds.\3\ We estimate that these
advisers, on average, each provide advice to 8 private funds (excluding
SAFs). We further estimate that these private funds will, on average,
each have a total of 63 investors. As a result, an average private fund
adviser will have a total of 504 investors across all private funds it
advises. Because the information collected pursuant to final rule
211(h)(2)-1 requires disclosures to private fund investors, these
disclosures 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.
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\3\ 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 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.
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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.
Table 3--Rule 211(h)(2)-1 PRA Estimates
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Internal
initial burden Internal annual burden Wage rate \1\ Internal time cost Annual external cost
hours hours burden
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Proposed Estimates
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Preparation of written notices. 15 10 hours \2\............... $422 (blended rate $4,220.................... $3,178.\3\
for compliance
attorney ($425),
accounting
manager ($337),
senior portfolio
manager ($383)
and assistant
general counsel
($543)).
[[Page 88206]]
Provision, distribution, 9 6 hours \4\................ $73 (rate for $438......................
collection, and tracking of general clerk).
written notices and consents.
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Total new annual burden per 16 hours................... $4,658.................... $3,178.
private fund.
Avg. number of private funds 8 private funds............ 8 private funds........... 8 private funds.
per adviser.
Number of advisers............. 12,234 advisers............ 12,234 advisers........... 9,176 advisers.\5\
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Total new annual burden.... 1,565,952 hours............ $455,887,776.............. $233,290,624.
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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.
\2\ This includes the internal initial burden estimate annualized over a three-year period, plus 5 hours of ongoing annual burden hours and assumes
notices and consent forms will 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 10 hours is based on the following calculation: ((15 initial hours/3 years) + 5 hours of additional ongoing
burden hours) = 10 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 3 hours of ongoing annual burden hours; the estimate of
6 hours is based on the following calculation: ((9 initial hours/3 years) + 3 hours of additional ongoing burden hours) = 6 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.
The public may view background documentation for this information
collection at the following website: <a href="http://www.reginfo.gov">www.reginfo.gov</a>. Find this
particular information collection by selecting ``Currently under 30-day
Review--Open for Public Comments'' or by using the search function.
Written comments and recommendations for the proposed information
collection should be sent within 30 days of publication of this notice
by January 19, 2024 to (i) <a href="/cdn-cgi/l/email-protection#eca1aeb4c2a3a1aec2a3a5beadc2bfa9afb388899f87b3838a8a858f899eac83818ec289839cc28b839a"><span class="__cf_email__" data-cfemail="400d02186e0f0d026e0f0912016e1305031f2425332b1f2f262629232532002f2d226e252f306e272f36">[email protected]</span></a>
and (ii) David Bottom, Director/Chief Information Officer, Securities
and Exchange Commission, c/o John Pezzullo, 100 F Street NE,
Washington, DC 20549, or by sending an email to: <a href="/cdn-cgi/l/email-protection#dd8d8f9c8290bcb4b1bfb2a59daeb8bef3bab2ab"><span class="__cf_email__" data-cfemail="411113001e0c20282d232e39013224226f262e37">[email protected]</span></a>.
Dated: December 14, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27887 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P
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