Proposed Rule2026-07993
Form PF; Reporting Requirements for All Filers
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
April 24, 2026
Effective
April 24, 2026
Issuing agencies
Commodity Futures Trading CommissionSecurities and Exchange Commission
Abstract
The Commodity Futures Trading Commission (the "CFTC") and the Securities and Exchange Commission (the "SEC") (collectively, "we" or the "Commissions") are proposing to amend Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, including those that also are registered with the CFTC as a commodity pool operator (a "CPO") or a commodity trading advisor (a "CTA"). The proposed amendments would eliminate certain filing and reporting obligations, streamline certain requirements, and make corrections and other revisions. The proposed amendments are designed to eliminate certain burdens, among other things.
Full Text
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<title>Federal Register, Volume 91 Issue 79 (Friday, April 24, 2026)</title>
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[Federal Register Volume 91, Number 79 (Friday, April 24, 2026)]
[Proposed Rules]
[Pages 22232-22391]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07993]
[[Page 22231]]
Vol. 91
Friday,
No. 79
April 24, 2026
Part II
Commodity Futures Trading Commission
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17 CFR Part 4
Securities and Exchange Commission
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17 CFR Parts 275 and 279
Form PF; Reporting Requirements for All Filers; Proposed Rule
Federal Register / Vol. 91, No. 79 / Friday, April 24, 2026 /
Proposed Rules
[[Page 22232]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AF68
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 275 and 279
[Release No. IA-6959; File No. S7-2026-13]
RIN 3235-AN64
Form PF; Reporting Requirements for All Filers
AGENCY: Commodity Futures Trading Commission and Securities and
Exchange Commission.
ACTION: Joint proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (the ``CFTC'') and
the Securities and Exchange Commission (the ``SEC'') (collectively,
``we'' or the ``Commissions'') are proposing to amend Form PF, the
confidential reporting form for certain SEC-registered investment
advisers to private funds, including those that also are registered
with the CFTC as a commodity pool operator (a ``CPO'') or a commodity
trading advisor (a ``CTA''). The proposed amendments would eliminate
certain filing and reporting obligations, streamline certain
requirements, and make corrections and other revisions. The proposed
amendments are designed to eliminate certain burdens, among other
things.
DATES: This proposal was published in the Federal Register on April 24,
2026. Comments should be received on or before June 23, 2026.
ADDRESSES: Comments may be submitted by any of the following methods.
CFTC: Comments may be submitted to the CFTC by any of the following
methods.
<bullet> CFTC Comments Portal: <a href="https://comments.cftc.gov">https://comments.cftc.gov</a>. Follow
the instructions for submitting comments through the website.
<bullet> Mail: Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
<bullet> Hand Delivery/Courier: Follow the same instructions as for
Mail above.
Please submit your comments using only one method. To avoid
possible delays with mail or in-person deliveries, submissions through
the CFTC website are encouraged. ``Form PF'' must be in the subject
field of comments submitted via email, and clearly indicated on written
submissions. All comments must be submitted in English, or if not,
accompanied by an English translation. Comments will be posted as
received to <a href="http://www.cftc.gov">www.cftc.gov</a>. You should submit only information that you
wish to make available publicly. If you wish the CFTC to consider
information that may be exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the established procedures in
17 CFR 145.9.
The CFTC reserves the right, but shall have no obligation, to
review, prescreen, filter, redact, refuse, or remove any or all of your
submission from <a href="http://www.cftc.gov">www.cftc.gov</a> that it may deem to be inappropriate for
publication, including, but not limited to, obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act, 5 U.S.C. 552, et seq. (``FOIA'').
SEC: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/s7-2026-13/form-pf-reporting-requirements-all-filers">https://www.sec.gov/comments/s7-2026-13/form-pf-reporting-requirements-all-filers</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1e6c6b727b337d7173737b706a6d5e6d7b7d30797168"><span class="__cf_email__" data-cfemail="7d0f081118501e1210101813090e3d0e181e531a120b">[email protected]</span></a>. Please include
File Number S7-2026-13 on the subject line.
Paper Comments
<bullet> Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-2026-13. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (<a href="https://www.sec.gov/rules-regulations/rulemaking-activity">https://www.sec.gov/rules-regulations/rulemaking-activity</a>). Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (<a href="https://www.sec.gov/rules-regulations/2026/04/s7-2026-13">https://www.sec.gov/rules-regulations/2026/04/s7-2026-13</a>).
FOR FURTHER INFORMATION CONTACT: CFTC: Michael Ehrstein or Elizabeth
Groover, Special Counsels, at (202) 418-6700, Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC
20581. SEC: Alexis Palascak, Janet Jun, and Daniel Levine, Senior
Counsels; Adele Kittredge Murray, Private Funds Attorney Fellow; or
Robert Holowka, Acting Assistant Director, Investment Adviser
Regulation Office, at (202) 551-6787, Division of Investment
Management, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The CFTC and SEC are requesting public
comment on the following under the Investment Advisers Act of 1940 [15
U.S.C. 80b] (``Advisers Act'').\1\
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\1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the
Advisers Act, or any section of the Advisers Act, we are referring
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we
refer to rules under the Advisers Act, or any section of these
rules, we are referring to title 17, part 275 of the Code of Federal
Regulations [17 CFR 275], and when we refer to forms under the
Advisers Act, we are referring to title 17, part 279 of the Code of
Federal Regulations [17 CFR 279], in which these rules and forms are
published.
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Agency Reference CFR citation
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CFTC & SEC...................... Form PF........... 17 CFR 279.9.
SEC............................. Rule 204(b)-1..... 17 CFR 275.204(b)-
1.
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Table of Contents
I. Introduction
II. Discussion
A. Increase the Filing Threshold for All Form PF Filers
B. Increase the Reporting Threshold for Large Hedge Fund
Advisers
C. Disregarded Feeder Funds
D. Eliminate the Look Through Requirement
E. Trading Vehicles
F. Eliminate Form PF Question 23(c) Volatility Reporting
G. Eliminate Certain Trading and Clearing Reporting
[[Page 22233]]
H. Eliminate Form PF Question 32(b)(2) Adjusted Exposure
Reporting Based on Internal Methodology
I. Eliminate Form PF Question 34 Monthly Asset Turnover
Reporting
J. Simplify Industry Concentration Reporting in Form PF Question
36
K. Eliminate Certain Questions Concerning Qualifying Hedge
Funds' Exposures to Reference Assets
L. Simplify Large Hedge Fund Adviser Counterparty Exposure
Reporting
M. Eliminate Rehypothecation Reporting
N. Amendments to Large Hedge Fund Adviser Current Reporting
1. Modify the Current Reporting Filing Deadline
2. Eliminate Current Reporting for Notice of Margin Default or
Determination of Inability To Meet a Call for Margin, Collateral or
Equivalents
3. Streamline Reporting of ``Operations Events''
4. Eliminate Current Reporting for Inability To Satisfy
Redemption Requests
O. Eliminate Form PF Private Equity Quarterly Reporting in
Section 6
P. Other Corrections and Revisions
Q. Request for Comments on Private Credit Reporting
R. Proposed Transition Period
III. Economic Analysis
A. Introduction
B. Baseline
1. Regulatory Baseline
2. Affected Parties
C. Benefits and Costs
1. General Considerations
2. Increase the Filing Threshold for All Form PF Filers
3. Increase the Reporting Threshold for Large Hedge Fund
Advisers
4. Disregarded Feeder Funds
5. Eliminate the Look Through Requirement
6. Trading Vehicles
7. Eliminate Form PF Question 23(c) Volatility Reporting
8. Eliminate Certain Trading and Clearing Reporting
9. Eliminate Form PF Question 32(b)(2) Adjusted Exposure Netting
Based on Internal Methodologies
10. Eliminate Form PF Question 34 Monthly Asset Turnover
Reporting
11. Simplify Industry Concentration Reporting in Form PF
Question 36
12. Eliminate Certain Questions Concerning Qualifying Hedge
Funds' Exposures To Reference Assets
13. Simplify Large Hedge Fund Adviser Counterparty Exposure
Reporting
14. Eliminate Rehypothecation Reporting
15. Amendments to Large Hedge Fund Adviser Current Reporting
16. Eliminate Form PF Private Equity Quarterly Reporting in
Section 6
17. Other Corrections and Revisions
18. Quantification of Benefits
D. Present Values and Annualized Values of Monetized Benefits
and Costs
E. Effects on Efficiency, Competition, and Capital Formation
F. Reasonable Alternatives
1. Filing Threshold
2. Reporting Threshold for Large Hedge Fund Advisers
3. Disregarded Feeder Fund
4. Industry Concentration Reporting
5. Hedge Fund Adviser Counterparty Exposure Reporting
6. Private Equity Quarterly Event Reporting
7. Private Credit Reporting
G. Request for Comment
IV. Paperwork Reduction Act
A. Form PF
1. Purpose and Use of the Information Collection
2. Confidentiality
3. Burden Estimates
B. Request for Comments
V. Regulatory Flexibility Act Certification
VI. Congressional Review Act
VII. Other Matters
VIII. Statutory Authority
I. Introduction
The Commissions are proposing to amend Form PF, the confidential
reporting form that certain SEC-registered investment advisers,
including those that also are registered with the CFTC as a CPO or a
CTA, use to report information about the private funds they advise.\2\
Form PF is a joint form between the SEC and the CFTC with regard to
sections 1 and 2. Sections 3, 4, 5 and 6 were adopted solely by the
SEC. For this proposal, the SEC and the CFTC are jointly amending the
joint sections of the form and the SEC is amending the SEC-only
sections of the form. The proposed amendments would eliminate filing
obligations for certain advisers, eliminate and streamline certain
reporting requirements, and make corrections as well as other
revisions. The proposed amendments are designed to eliminate certain
burdens, among other things, while ensuring Form PF continues to
collect information necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk in the U.S. financial system by the Financial Stability Oversight
Council (``FSOC'').\3\
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\2\ 15 U.S.C. 80b-2(a)(29) (defining ``private fund'').
\3\ See 15 U.S.C. 80b-(b)(1)(A) and 15 U.S.C. 80b-4(b)(5).
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In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the ``Dodd-Frank Act'') mandated that the SEC and the
CFTC, after consultation with FSOC, jointly promulgate rules to
establish the form and content of private fund reports required to be
filed with the SEC under the Advisers Act, and with the CFTC by
investment advisers that are registered both under the Advisers Act and
the Commodity Exchange Act.\4\ The Advisers Act further mandates that
an adviser must maintain records and reports for each private fund it
advises, that include a description of the following: (1) the amount of
assets under management and use of leverage, including off-balance-
sheet leverage; (2) counterparty credit risk exposure; (3) trading and
investment positions; (4) valuation policies and practices of the fund;
(5) types of assets held; (6) side arrangements or side letters,
whereby certain investors in a fund obtain more favorable rights or
entitlements than other investors; (7) trading practices; and (8) such
other information as the SEC, in consultation with FSOC, determines is
necessary and appropriate in the public interest and for the protection
of investors or for the assessment of systemic risk, which may include
the establishment of different reporting requirements for different
classes of fund advisers, based on the type or size of private fund
being advised.\5\
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\4\ Public Law 111-203, 124 Stat. 1376 (2010); 15 U.S.C. 80b-
11(e).
\5\ 15 U.S.C. 80b-(b)(3).
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In response to these mandates, the Commissions adopted Form PF in
2011 and have amended Form PF multiple times, including substantively
in 2023 and 2024.\6\ In 2023, among other things, the SEC added
requirements for (1) large hedge fund advisers to submit current
reports about certain events at their qualifying hedge funds, and (2)
private equity fund advisers to submit certain quarterly reports.\7\
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\6\ Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, Release No. IA-3308 (Oct. 31, 2011), [76 FR 71128 (Nov. 16,
2011)] (``2011 Form PF Adopting Release''); Form PF; Reporting
Requirements for All Filers and Large Hedge Fund Advisers, Release
No. IA-6546 (Feb. 8, 2024), [89 FR 17984 (Mar. 12, 2024)] (``2024
Form PF Adopting Release''); Form PF; Reporting Requirements for All
Filers and Large Hedge Fund Advisers, IA-6865 (Mar. 19, 2025), [90
FR 15394 (Apr. 11, 2025)]; Money Market Fund Reforms; Form PF
Reporting Requirements for Large Liquidity Fund Advisers; Technical
Amendments to Form N-CSR and Form N-1A, Release No. IA-6344 (Jul.
12, 2023), [88 FR 51404 (Aug. 3, 2023)]; Form PF; Event Reporting
for Large Hedge Fund Advisers and Private Equity Fund Advisers;
Requirements for Large Private Equity Fund Adviser Reporting,
Release No. IA-6297 (May 3, 2023), [88 FR 38146 (Jun. 12, 2023)]
(``May 2023 Form PF Adopting Release''); Money Market Fund Reform;
Amendments to Form PF, Release No. IA-3879 (Jul. 23, 2014), [79 FR
47736 (Aug. 14, 2014)].
\7\ May 2023 Form PF Adopting Release; Form PF sections 5 and 6;
Glossary of Terms for the definition of ``qualifying hedge fund.''
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In 2024, the Commissions comprehensively amended Form PF (the
``2024 amendments''), but delayed the compliance date several times,
including most recently until October 1, 2026.\8\ As a result, advisers
have been
[[Page 22234]]
allowed to continue to file the version of Form PF in effect before the
adoption of the 2024 amendments. The Commissions delayed the compliance
date to (1) address certain challenges associated with the reporting
cycle timing, (2) provide the industry more time to comply with the
2024 amendments, and (3) provide the Commissions time to complete a
review in accordance with a Presidential Memorandum issued by President
Donald J. Trump.\9\ Specifically, on January 20, 2025, the President
issued a Presidential Memorandum directing agencies to consider
postponing the effective date of any rules that had been published in
the Federal Register, or that were issued but had not yet taken effect,
for the purpose of reviewing any questions of fact, law, and policy
that the rules may raise. The Presidential Memorandum further provides
that, for those rules that raise substantial questions of fact, law, or
policy, agencies should provide notice and take further appropriate
action.
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\8\ 2024 Form PF Adopting Release; Form PF; Reporting
Requirements for All Filers and Large Hedge Fund Advisers; Further
Extension of Compliance Date, Release No. IA-6919 (Sept. 17, 2025),
[90 FR 45131 (Sept. 19, 2025)]; see also, Form PF; Reporting
Requirements for All Filers and Large Hedge Fund Advisers; Further
Extension of Compliance Date, Release No. IA-6883 (June 11, 2025),
[90 FR 25140 (June 16, 2025)]; Form PF; Reporting Requirements for
All Filers and Large Hedge Fund Advisers; Extension of Compliance
Date, Release No. IA-6838 (Jan. 29, 2025), [90 FR 9007 (Feb. 5,
2025)] (``January 2025 Form PF Extension Release'').
\9\ See id.; Regulatory Freeze Pending Review (Jan. 20, 2025)
[90 FR 8249 (Jan. 28, 2025)], available at <a href="https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/">https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/</a> (the ``Presidential Memorandum'').
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In accordance with the Presidential Memorandum, the Commissions
determined to conduct a comprehensive review that extended to the
entire form. As a result of this comprehensive review, we are proposing
several changes to Form PF that are designed to eliminate certain
burdens, streamline certain requirements, and make corrections, as well
as other revisions:
First, we propose to eliminate filing requirements for smaller
advisers, irrespective of the categories of private funds they advise.
Specifically, we propose to raise the filing threshold for all filers,
from $150 million in private fund assets under management to $1
billion.\10\ We estimate that this proposed change would eliminate
filing obligations for almost half of the advisers that currently must
file Form PF.\11\ We further estimate that with this proposed filing
threshold, Form PF would continue to obtain information on over 90
percent of private fund gross asset value that advisers report.\12\
Therefore, this proposed change is designed to eliminate filing burdens
for smaller advisers, while continuing to collect data on a significant
percentage of private fund assets.
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\10\ Proposed rule 204(b)-1(a); proposed Form PF General
Instruction 1; Form PF Glossary of Terms (defining ``private fund
assets under management'').
\11\ See infra, Table 2.
\12\ See infra, Table 2.
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Second, we propose to eliminate certain reporting requirements for
smaller hedge fund advisers. Specifically, we propose to raise the
reporting threshold for large hedge fund advisers from $1.5 billion in
hedge fund assets under management to $10 billion.\13\ We estimate that
this proposed change would eliminate certain reporting obligations for
almost two-thirds of advisers that currently must report as large hedge
fund advisers.\14\ We estimate that with this proposed reporting
threshold, Form PF would continue to obtain information quarterly on
over 80 percent of hedge fund gross asset value that advisers
report.\15\ Therefore, this proposed change is designed to eliminate
certain reporting burdens for smaller hedge fund advisers, while
continuing to obtain information on a substantial portion of the assets
of the hedge fund industry.
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\13\ Form PF General Instruction 3.
\14\ See infra, Table 4.
\15\ Id.
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Third, we propose to eliminate certain requirements, including
quarterly event reporting, certain current reporting, and other
requirements, as well as streamline certain requirements, and make
corrections and other revisions.
Table 1a summarizes the proposed changes to the filing threshold
for all Form PF filers and the reporting threshold for large hedge fund
advisers:
Table 1a--Proposal To Increase Certain Thresholds
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Eliminate filing requirements for We propose to increase the filing
smaller advisers. threshold for all filers from $150
million in private fund assets
under management to $1 billion.
(Rule 204(b)-1(a) and General
Instruction 1.)
Eliminate certain reporting We propose to increase the
requirements for smaller hedge reporting threshold for large
fund advisers. hedge fund advisers from $1.5
billion in hedge fund assets under
management to $10 billion.
(General Instruction 3.)
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Table 1b summarizes the proposed changes to the reporting
obligations:
Table 1b--Proposed Changes To Reporting Obligations
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Eliminate separate reporting for Currently, filers must separately
certain feeder funds. report each component fund of
master-feeder arrangements and
parallel fund structures, except
under certain limited
circumstances.
We propose to eliminate this
separate reporting requirement for
any feeder fund that has de
minimis holdings outside a single
master fund, U.S. treasury bills,
and/or cash and cash equivalents.
(General Instruction 6.)
Eliminate ``look through'' Currently, Form PF provides
requirements. instructions for where a filer
should ``look through'' a
reporting fund's investments in
other private funds and entities.
We propose to eliminate the
prescriptive ``look through''
requirements and allow filers to
report indirect exposures based on
reasonable estimates that are
consistent with their internal
methodologies and the conventions
of service providers. (General
Instructions 7 and 8, and
conforming amendments to certain
questions and asset classes in the
Glossary of Terms.)
Eliminate identification Currently, if a reporting fund
requirements for certain trading holds assets, incurs leverage, or
vehicles. conducts trading or other
activities through a trading
vehicle, the adviser must provide
identifying information about each
such trading vehicle.
We propose to narrow the universe
of trading vehicles that advisers
must identify. (Question 9.)
[[Page 22235]]
Eliminate certain performance Currently, if an adviser calculates
volatility reporting requirements. a market value on a daily basis
for any position in the reporting
fund's portfolio, it must report
certain volatility information
including aggregated calculated
values, monthly annualized
volatility of returns, and other
data associated with the daily
rates-of-return.
We propose to eliminate these
requirements. (Question 23(c).)
Eliminate certain trading and Currently, filers must report how
clearing reporting requirements. they use trading and clearing
mechanisms, including the value
traded over the reporting period
and the value of positions at the
end of the reporting period.
We propose to eliminate the
requirement to report the value of
positions at the end of the
reporting period. (Questions 29
and 30.)
Streamline adjusted exposure Currently, large hedge fund
reporting. advisers must report their
qualifying hedge funds' monthly
adjusted exposures using multiple
methods.
We propose to eliminate one of the
methods, so advisers would no
longer be required to report
additional adjusted exposure based
on the adviser's internal
methodologies. (Question 32.)
Eliminate portfolio turnover Currently, large hedge fund
reporting. advisers must report the value of
their qualifying hedge funds'
monthly turnover by asset class.
We propose to eliminate this
question. (Question 34.)
Reduce burdens associated with Currently, large hedge fund
reporting North American Industry advisers must report their
Classification System (``NAICS'') qualifying hedge funds' monthly
codes. industry exposures when they
exceed a certain amount, using the
six-digit NAICS code that best
describes a company's primary
business activity and principal
source of revenue.
We propose to provide flexibility
to allow filers to report fewer
digits of the NAICS codes for
industry exposures. (Question 36;
see the Glossary of Terms
(defining ``NAICS code.'')
Eliminate certain reporting Currently, large hedge fund
concerning qualifying hedge funds' advisers must report details about
monthly exposures to reference their qualifying hedge funds'
assets and, instead, include monthly concentrated exposure to
streamlined exposure reporting specific, position-level reference
under an existing extraordinary assets.
loss current report trigger. We propose to eliminate those
questions. Instead, if large hedge
fund advisers file a current
report about their qualifying
hedge funds' extraordinary
investment losses, they would
include a description of the
largest exposure contributing to
the loss. (Questions 39 and 40,
and section 5, Item B.)
Simplify certain large hedge fund Currently, large hedge fund
counterparty exposure reporting. advisers must report in a
consolidated counterparty exposure
table their qualifying hedge
funds' borrowing, collateral
received, lending, and posted
collateral, all aggregated across
all counterparties as of the end
of each month.
We propose to eliminate this table
and direct large hedge fund
advisers to: (1) complete the more
simplified table in Question 26
for their qualifying hedge funds;
and (2) report all borrowings to
significant counterparties under
Questions 42 and 43, and (3)
categorize significant borrowing
entries in Question 42. (Questions
41 and 42, and conforming
amendments to Questions 18, 26,
43, and the Glossary of Terms.)
Eliminate rehypothecation reporting Currently, large hedge fund
advisers must report the total
amount of collateral posted by
counterparties to the qualifying
hedge fund that may be and has
been rehypothecated by the
qualifying hedge fund.
We propose to eliminate these
questions. (Question 45.)
Modify the current reporting Currently, section 5 requires large
trigger for all current reports. hedge fund advisers to file a
current report ``as soon as
practicable, but no later than 72
hours'' upon the occurrence of
certain events at their qualifying
hedge fund.
The SEC proposes to modify the
reporting trigger by removing the
requirement to report as soon as
practicable. Under the proposal,
large hedge fund advisers would
have the full 72 hours to file a
current report. (Section 5.)
Eliminate current reporting for Currently, large hedge fund
large hedge fund advisers advisers are required to report
concerning certain margin defaults. within 72 hours if their
qualifying hedge fund is in margin
default or is unable to meet a
call for margin, collateral, or
equivalents.
The SEC proposes to eliminate this
requirement. (Section 5, Item D.)
Eliminate current reporting for Currently, large hedge fund
certain operations events. advisers are required to report
within 72 hours if their
qualifying hedge fund client
experiences an operations event
(i.e., a significant disruption or
degradation of the fund's
``critical operations''). Form PF
defines ``critical operations'' as
operations necessary for (1) the
investment, trading, valuation,
reporting, and risk management of
the reporting fund; or (2) the
operation of the reporting fund in
accordance with the Federal
securities laws and regulations.
The SEC proposes to eliminate the
second element. (Section 5, Item
G, and the Glossary of Terms.)
Eliminate current reporting related Currently, large hedge fund
to the inability to satisfy advisers are required to report
redemption requests. within 72 hours if their
qualifying hedge fund (1) is
unable to pay redemption requests
or (2) has suspended redemptions
and the suspension lasts for more
than five consecutive business
days.
The SEC proposes to eliminate the
first element. (Section 5, Item
I.)
Eliminate quarterly event reporting Currently, all private equity fund
for all private equity fund advisers must submit quarterly
advisers. reports about adviser-led
secondary transactions, general
partner removals, termination of
investment periods, and fund
terminations.
The SEC proposes to eliminate this
requirement. (Section 6.)
Corrections and other revisions.... We propose to make corrections and
other revisions to help ensure
filers clearly understand Form PF
requirements.
Request for comments on private We are requesting comment on
credit reporting. whether to modify the information
that advisers must report about
private credit funds.
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The Commissions have consulted with FSOC to gain input on this
proposal, and to help ensure that Form PF continues to provide FSOC
with information it needs to carry out its monitoring obligations and
its assessment of systemic risk while also not requiring the reporting
of information that is not useful to FSOC in carrying out these
responsibilities.
II. Discussion
A. Increase the Filing Threshold for All Form PF Filers
The Commissions propose to increase Form PF's filing threshold for
all filers. Currently, SEC-registered advisers must
[[Page 22236]]
file Form PF if they and their related persons, collectively, had at
least $150 million in private fund assets under management as of the
last day of their most recently completed fiscal year.\16\ We propose
to increase this filing threshold from $150 million to $1 billion.\17\
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\16\ Rule 204(b)-1(a); Form PF General Instruction 1.
\17\ Proposed rule 204(b)-1(a); proposed Form PF General
Instruction 1.
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When the Commissions adopted Form PF in 2011, the Commissions set a
filing threshold of $150 million in private fund assets under
management, which aligned with the private fund adviser registration
exemption that the Dodd-Frank Act created.\18\ The Commissions stated
that the filing threshold, based on an adviser's private fund assets
under management, would adequately differentiate between advisers with
only smaller funds and those with significant fund assets.\19\ Since
then, Form PF has provided the Commissions with a greater ability to
analyze and understand data on private fund advisers. With over a
decade of experience reviewing Form PF data, we can more accurately
determine an appropriate filing threshold for assessing systemic risk.
Indeed, Form PF data show that the private fund industry has grown
dramatically. For example, from 2013 to the first quarter of 2025, the
aggregated private fund gross asset value that advisers reported on
Form PF more than tripled, from $8 trillion to over $25 trillion.\20\
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\18\ See 15 U.S.C. 80b-3(m); 17 CFR 275.203(m)-1; 2011 Form PF
Adopting Release.
\19\ 2011 Form PF Adopting Release at n.54.
\20\ SEC staff Private Fund Statistics (Dec. 15, 2015) and SEC
staff Private Fund Statistics (First Calendar Quarter 2025),
available at <a href="https://www.sec.gov/data-research/statistics-data-visualizations/private-fund-statistics">https://www.sec.gov/data-research/statistics-data-visualizations/private-fund-statistics</a>. Staff reports, statistics,
and other staff documents (including those cited herein) represent
the views of SEC staff and are not a rule, regulation, or statement
of the SEC. The SEC has neither approved nor disapproved the content
of these documents and, like all staff statements, they have no
legal force or effect, do not alter or amend applicable law, and
create no new or additional obligations for any person.
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As Table 2 shows, we estimate that the proposed filing threshold
would continue to allow Form PF to obtain information on approximately
94 percent of the most recent aggregate private fund gross asset value
reported, while reducing the percentage of advisers that are required
to file by almost half. Therefore, this proposed change is designed to
better differentiate those advisers with significant private fund
assets, consistent with the Commissions' original intent for the filing
threshold.\21\
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\21\ 2011 Form PF Adopting Release at n.54.
Table 2--Comparing the Current Filing Threshold to the Proposed Filing Threshold \1\
----------------------------------------------------------------------------------------------------------------
Current
$150 Proposed $1
million billion Impact \2\
threshold threshold
(%) (%)
----------------------------------------------------------------------------------------------------------------
Percent of All SEC-Registered Advisers to 70 40 43% fewer advisers would file.
Private Funds.
Percent of All Private Funds Reported by SEC- 83 68 18% fewer private funds' data would be
Registered Advisers \3\. reported.
Percent of Private Fund Gross Assets Reported 96 94 2% less gross asset value would be
by SEC-Registered Advisers \3\. reported.
----------------------------------------------------------------------------------------------------------------
Notes:
1. Form PF data as of the first quarter of 2025 and Form ADV data as of December 2024.
2. Impact Column = (Current Threshold Column-Proposed Threshold Column)/Current Threshold Column.
3. Denominators for the Current Threshold Column and the Proposed Threshold Column calculations include private
funds reported on Form PF and Form ADV by SEC-Registered Advisers.
In determining how to propose re-calibrating the filing threshold,
the Commissions considered the alternatives outlined in Table 3 and the
distribution of private fund assets across advisers with the goal of
ensuring coverage of a significant percentage of private fund industry
managed assets, while at the same time minimizing filing burdens on
private fund advisers where their smaller size may both
disproportionately increase the burdens of reporting and reduce their
likelihood of having a meaningful effect on the assessment of systemic
risk.\22\
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\22\ See also infra section III.C.2 for a more detailed
discussion of benefits and costs of increasing the filing threshold
for all Form PF filers.
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As evidenced by Table 3, the percentage of private fund gross
assets reported by SEC-registered advisers is concentrated with the
largest private fund advisers (measured by assets) of the private fund
industry as a whole, which would allow us to raise the reporting
threshold while maintaining substantial reporting coverage of the
private fund industry by assets. However, setting the threshold too
high has the potential to narrow the field of reporting advisers to a
degree that they skew or fail to represent the range of private fund
strategies and activities that may materially inform systemic risk
assessment and investor protection efforts. Therefore, as Table 3
highlights, the proposed filing threshold is designed to strike a
balance between reducing the percentage of advisers that would be
required to file, and the associated burdens, while helping ensure that
Form PF would continue to collect information about a significant
percentage of private fund gross assets appropriately to inform the
assessment of systemic risk.
By increasing the Form PF filing threshold as proposed, the burdens
of Form PF's section 1 collection of information would be more focused
on advisers that manage private fund assets representing a significant
percentage of the private fund industry and, thus, providing a diverse
and representative view of private fund advisers for systemic risk
assessment, while recognizing that Form PF can be burdensome for
smaller advisers that the Commissions understand generally have fewer
resources available to fulfil the reporting requirements of Form PF and
who are less likely to have systemic risk impact.
As Table 3 indicates, by raising the filing threshold to $1
billion, we would be able to maintain insight into the potential
systemic risk implications of private funds while eliminating filing
burdens for many advisers.
[[Page 22237]]
Table 3--Alternative Filing Thresholds \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of all SEC- Percent of all private funds Percent of private fund
Filing threshold registered advisers to reported by SEC-registered gross assets reported by SEC-
private funds advisers \2\ registered advisers \2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current $150 Million.......................................... 70 83 96
Alternative $250 Million...................................... 64 83 96
Alternative $500 Million...................................... 53 76 95
Proposed $1 Billion........................................... 40 68 94
Alternative $2 Billion........................................ 30 60 91
Alternative $3 Billion........................................ 25 55 89
Alternative $4 Billion........................................ 22 51 87
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes
\1\ Form PF Data as of the First Quarter of 2025 and Form ADV data as of December 2024.
\2\ Denominators for the calculations include private funds reported on Form PF and Form ADV by SEC-Registered Advisers.
SEC-registered advisers that would no longer meet the Form PF
filing threshold, and as a result, would no longer be required to
report on Form PF, would nonetheless continue to publicly report
certain information about their private funds on 17 CFR 279.1 (Form
ADV), as all SEC-registered advisers of such funds are required to do.
Form ADV, which is publicly available, provides the SEC and investors
with information about advisers (including private fund advisers) and
the funds they manage, and is designed to provide the SEC with
information necessary to its investor protection efforts. In contrast,
Form PF is primarily designed to facilitate FSOC's assessment of
systemic risk, although it is available to assist the Commissions in
their regulatory programs for the protection of investors.\23\
Accordingly, the proposed changes would not eliminate all private fund
data reporting for the affected advisers. Any SEC-registered adviser
that would no longer be required to file Form PF would nonetheless
continue to report information about its private funds on Form ADV.\24\
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\23\ See 15 U.S.C. 80b-4(b)(1)(A);15 U.S.C. 80b-4(b)(5); Form
PF.
\24\ These advisers also must continue to comply with the
Adviser Act's mandate to maintain certain enumerated records and
reports for each private fund. See 15 U.S.C. 80b-4(b)(3).
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We request comment on the proposed change to the filing threshold:
1. Should the Commissions increase the filing threshold for all
private fund advisers as proposed? If not, should the current filing
threshold be kept constant, increased less than the proposed threshold,
or increased more than the proposed threshold? Should the Commissions
adopt any of the alternative thresholds presented in Table 3? For
example, should the Commissions adopt a filing threshold of $250
million, $500 million, $2 billion, or $3 billion? If the threshold
should be changed, what is the appropriate threshold and why?
2. Would the proposal to increase the filing threshold sufficiently
alleviate burdens on private fund advisers? Please provide quantitative
and qualitative data to support your conclusion.
3. Would the proposed filing threshold result in Form PF collecting
information about the private fund industry necessary and appropriate
in the public interest and for the protection of investors, or for the
assessment of systemic risk?
4. Should the Commissions also adopt a filing threshold that
adjusts for inflation? If the Commissions should adopt an inflation
adjustment for the filing threshold, how should the Commissions measure
the inflation adjustment? For example, should the Commissions measure
the inflation adjustment from the time of the filing threshold's
original adoption in 2011, or from the date the inflation adjustment
would be adopted, or from another date? Is there a price index, such as
the Personal Consumption Expenditures Chain-Type Price Index, the
Consumer Price Index for All Urban Consumers, the Producer Price Index,
or the GDP Price Deflator, that would be best suited for this
adjustment? Would using a securities market index such as the S&P 500
or the NYSE Composite Index, which is not based on inflation, be a
better way to adjust the filing threshold on an ongoing basis? At what
cadence should the inflation be adjusted? For example, yearly, or every
ten years, or any other cadence?
B. Increase the Reporting Threshold for Large Hedge Fund Advisers
The Commissions also propose to increase Form PF's reporting
threshold for large hedge fund advisers. Currently, to qualify as a
large hedge fund adviser, a Form PF filer and its related persons must
have, collectively, at least $1.5 billion in hedge fund assets under
management as of the last day of any month in the fiscal quarter
immediately preceding their most recently completed fiscal quarter and
manage a qualifying hedge fund.\25\ We propose to increase the large
hedge fund reporting threshold from $1.5 billion to $10 billion.\26\
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\25\ Form PF General Instruction 3; Form PF Glossary of Terms
(defining ``hedge fund assets under management'').
\26\ Proposed Form PF General Instruction 3.
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If an adviser qualifies as a large hedge fund adviser, it must file
section 1 quarterly, instead of annually as it would if it were a hedge
fund adviser that did not qualify as a large hedge fund adviser.\27\
Section 1a requires all advisers to report general identifying
information about themselves and the private funds they advise,
including a breakdown of regulatory assets under management and net
assets under management. Section 1b requires all advisers to report
information about each private fund they advise, including the
following: (1) the private fund type; (2) assets, financing, and
investor concentration; and (3) performance. Section 1c requires all
advisers to report information about each hedge fund they advise,
including the following: (1) investment strategies; (2) exposures; (3)
counterparties; and (4) trading and clearing mechanisms.
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\27\ Form PF General Instruction 9.
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If an adviser qualifies as a large hedge fund adviser, it also must
file Form PF section 2 quarterly with respect to each qualifying hedge
fund that it advises, including the following: (1) identifying
information; (2) exposures and trading; (3) risk metrics and
performance; (4) financing information; and (5) investor
information.\28\
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\28\ Form PF General Instruction 3 and Form PF section 2.
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If an adviser qualifies as a large hedge fund adviser, it is also
subject to Form PF Section 5 reporting, which requires a large hedge
fund adviser to report information as soon as practicable, but no later
than 72 hours upon the occurrence of certain events at qualifying hedge
funds it advises,
[[Page 22238]]
including the following: (1) extraordinary investment losses; (2)
margin, collateral, or equivalent increases; (3) notice of margin
default or determination of inability to meet a call for margin,
collateral, or equivalents; (4) counterparty defaults; (5) prime broker
relationships that have been terminated or materially restricted; (6)
operations events; (7) withdrawals and redemptions; and (8) if the
qualifying hedge fund is unable to satisfy redemptions or suspends
redemptions.
Therefore, an adviser that would no longer qualify as a large hedge
fund adviser under the proposed threshold would file section 1
annually, instead of quarterly, and would not file section 2 or be
subject to section 5 current reporting, absent any other
requirements.\29\ While the quarterly section 1, quarterly section 2,
and section 5 current reporting are important for the largest hedge
fund advisers that are more likely to be systemically important, they
can impose disproportionate burdens on smaller advisers that are less
likely to be systemically important.\30\ Any SEC-registered adviser
would continue to report information about its private funds on Form
ADV.\31\
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\29\ For example, large liquidity fund advisers must file
section 1 quarterly, among other requirements. See Form PF General
Instruction 9.
\30\ See infra section III.C.3 for a more detailed discussion of
benefits and costs of increasing the reporting threshold for large
hedge fund advisers.
\31\ See supra footnote 24.
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When Form PF was originally adopted, the Commissions stated that
the reporting thresholds were designed so that the group of large
private fund advisers (including large hedge fund advisers) filing Form
PF would be relatively small in number but would represent a
substantial portion of the assets of their respective industries.\32\
At that time, the Commissions estimated that advisers each managing at
least $1.5 billion in hedge fund assets represented over 80 percent of
the U.S. hedge fund industry based on assets under management.\33\
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\32\ 2011 Form PF Adopting Release at text after n.87.
\33\ 2011 Form PF Adopting Release at n.88 and accompanying
text.
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As Table 4 shows, we estimate that the proposed higher threshold
would still result in Form PF obtaining information quarterly on over
80 percent of hedge fund gross asset value that advisers report, while
reducing the percentage of advisers that are required to file as large
hedge fund advisers by almost two-thirds. Therefore, the proposed
change is designed to continue to obtain information on a substantial
portion of the assets of the hedge fund industry, consistent with the
Commission's original intent for the large hedge fund reporting
threshold, while reducing burdens on hedge fund advisers.
Table 4--Comparing the Current Large Hedge Fund Reporting Threshold to the Proposed Reporting Threshold \1\
----------------------------------------------------------------------------------------------------------------
Current $1.5 Proposed $10
billion billion Impact \2\
threshold (%) threshold (%)
----------------------------------------------------------------------------------------------------------------
Percent of SEC-registered advisers 26 9 65% fewer advisers would be
reporting as large hedge fund advisers. required to report as large hedge
fund advisers.
Percent of hedge funds reported by large 49 34 Data on 31% fewer hedge funds would
hedge fund advisers related to those be reported under the large hedge
reported by all SEC-registered advisers fund adviser requirements, and
\3\. instead would be reported under
other requirements, as applicable.
Percent of hedge fund gross assets reported 92 81 12% less of hedge fund gross asset
by large hedge fund advisers related to value would be reported under the
those reported by all SEC-registered large hedge fund adviser
advisers \3\. requirements, and instead would be
reported under other requirements,
as applicable.
----------------------------------------------------------------------------------------------------------------
Notes:
1. Form PF data as of the first quarter of 2025 and Form ADV data as of December 2024.
2. Impact Column = (Current Threshold Column-Proposed Threshold Column)/Current Threshold Column.
3. Denominators for the Current Threshold Column and the Proposed Threshold Column calculations include hedge
funds reported on Form PF and Form ADV by SEC-Registered Advisers.
We chose the proposed reporting threshold in light of the
alternatives outlined below in Table 5, with the goal of helping ensure
that Form PF would continue to collect information necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of systemic risk, while reducing burdens on hedge
fund advisers.\34\ As in the past, the proposed amended reporting
threshold is designed so that the group of large hedge fund advisers
filing Form PF would be relatively small in number but represent a
substantial portion of hedge fund assets.\35\ In determining where to
propose re-calibrating the reporting threshold, the Commissions
considered the alternatives outlined in Table 5 and the distribution of
hedge fund assets with the goal of ensuring coverage of a substantial
portion of hedge fund assets, while at the same time minimizing filing
burdens on hedge fund advisers where their smaller size may both
increase the burdens of reporting and reduce their likelihood of having
a meaningful effect on the assessment of systemic risk.
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\34\ 15 U.S.C. 80b-4(b)(1)(A) and 15 U.S.C. 80b-4(b)(5).
\35\ See 2011 Form PF Adopting Release at text following n.87.
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As evidenced by Table 5, the percent of hedge fund gross assets
reported by SEC-registered hedge fund advisers is concentrated at the
largest hedge fund advisers, which would allow us to raise the
reporting threshold while maintaining substantial reporting coverage of
the hedge fund industry assets. However, setting the threshold too high
has the potential to narrow the field of large hedge fund advisers to a
degree that they skew or fail to represent the range of hedge fund
strategies and activities that may materially inform systemic risk
assessment. As a result, FSOC and the Commissions could miss emerging
trends in the hedge fund industry. Furthermore, too few hedge fund
advisers subject to quarterly reporting, instead of annual reporting,
as well as enhanced Form PF reporting in sections 2 and 5, could result
in
[[Page 22239]]
FSOC and the Commissions being alerted in a less timely manner to
certain events that may indicate significant stress at a hedge fund
that could signal risk in the broader financial system. Therefore, as
Table 5 highlights, the proposed reporting threshold is designed to
strike the appropriate balance between reducing the percentage of hedge
fund advisers that would be required to file as large hedge fund
advisers, while helping ensure that Form PF would continue to collect
information on a substantial portion of the assets of the hedge fund
industry.
In addition, the SEC is proposing to require its staff to report to
the SEC on each filing and reporting threshold in the form, assessing
whether any should be adjusted, approximately five years after the
compliance date for the amendments to the form and approximately every
five years thereafter.\36\ These staff reports would help the SEC
periodically evaluate the continued appropriateness of the filing and
reporting thresholds in all respects, including whether proposing
revisions to the thresholds would be appropriate. In producing this
report, the staff would be directed to consider data collected by the
SEC pursuant to Form PF, as well as any other applicable information as
the staff may determine to be appropriate for its analysis. As the
private fund adviser industry grows and changes, such a report and
related review would be designed to ensure that the form continues to
impose minimal filing burdens for small advisers, while continuing to
collect data on a significant percentage of private fund assets.\37\
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\36\ Proposed rule 204(b)-1(h).
\37\ See also 15 U.S.C. 80b-4(b)(3)(H) (providing that the
reports required by an investment adviser for each private fund
advised by the investment adviser, among other matters, may include
the establishment of different reporting requirements for different
classes of fund advisers, based on the type or size of private fund
being advised).
Table 5--Alternative Large Hedge Fund Reporting Thresholds \1\
----------------------------------------------------------------------------------------------------------------
Percent of hedge
Percent of all Percent of all fund gross Percent of hedge
SEC-registered hedge funds assets reported fund gross assets
Reporting threshold advisers to reported by SEC- quarterly by SEC- reported as QHFs
hedge funds registered registered by SEC-registered
advisers \2\ advisers \2\ advisers \2\ \3\
----------------------------------------------------------------------------------------------------------------
Current $1.5 Billion.................. 26 49 92 84
Alternative $2 Billion................ 22 47 91 83
Alternative $3 Billion................ 19 44 90 82
Alternative $5 Billion................ 14 41 86 79
Alternative $7.5 Billion.............. 11 37 83 76
Proposed $10 Billion.................. 9 34 81 74
Alternative $15 Billion............... 7 29 77 70
Alternative $20 Billion............... 6 27 74 68
----------------------------------------------------------------------------------------------------------------
Notes:
1. Form PF Data as of the First Quarter of 2025 and Form ADV data as of December 2024.
2. Denominators for the calculations include hedge funds reported on Form PF and Form ADV by SEC-Registered
Advisers.
3. Reported by SEC-registered advisers for qualifying hedge funds (QHFs) on Form PF section 2.
We request comment on the proposed change to the large hedge fund
reporting threshold:
5. Should the Commissions increase the large hedge fund adviser
reporting threshold, as proposed? If not, should the current reporting
threshold be kept constant, increased less than the proposed threshold,
or increased more than the proposed threshold? Instead of the proposed
reporting threshold, should the Commissions adopt one of the
alternative thresholds listed in Table 5? For example, should the
Commissions adopt a reporting threshold of $2 billion, $3 billion, $15
billion, or $20 billion? If the threshold should be changed, what is
the appropriate threshold and why?
6. Would the proposal to increase the reporting threshold
sufficiently alleviate burdens on hedge fund advisers? Please provide
quantitative and qualitative data.
7. Would the proposed reporting threshold result in Form PF
collecting information about the hedge fund industry necessary and
appropriate in the public interest and for the protection of investors,
or for the assessment of systemic risk?
8. The SEC is proposing to require its staff to report to the SEC
on each filing and reporting threshold in the form, assessing whether
any should be adjusted, approximately five years after the compliance
date for the amendments to the form and approximately every five years
thereafter. Alternatively, should the Commissions adopt a large hedge
fund adviser reporting threshold that adjusts for inflation? If so,
should the Commissions adopt the same inflation adjustment for all or
just certain reporting thresholds in Form PF, or only for the large
hedge fund adviser threshold? If the Commissions should adopt an
inflation adjustment for any reporting threshold on Form PF, how should
the Commissions measure the inflation adjustment? For example, should
the Commissions measure the inflation adjustment from the time of the
reporting threshold's original adoption in 2011, or from the date the
inflation adjustment would be adopted, or from another date? Is there a
price index, such as the Personal Consumption Expenditures Chain-Type
Price Index, the Consumer Price Index for All Urban Consumers, the
Producer Price Index, or the GDP Price Deflator, that would be best
suited for this adjustment? Would using a securities market index such
as the S&P 500 or the NYSE Composite Index, which is not based on
inflation, be a better way to adjust the reporting threshold on an
ongoing basis? At what cadence should the inflation be adjusted? For
example, yearly, or every ten years, or any other cadence?
9. Should the Commissions increase the qualifying hedge fund
threshold? Why or why not? What is the appropriate qualifying hedge
fund threshold (e.g., a net asset value of $750 million or $1 billion)?
The qualifying hedge fund threshold is based on net asset value, while
the large hedge fund adviser threshold is based on gross asset
[[Page 22240]]
value. Under the proposed amendments this construction would have two
results: (1) it identifies and requires more detailed and frequent
reporting for hedge fund advisers that manage several large hedge funds
and (2) it identifies and requires more detailed and frequent reporting
for hedge fund advisers that manage hedge funds with significant use of
leverage. Is there an alternative approach to ensure hedge funds using
significant leverage are reporting in the more detailed section 2 on a
quarterly basis? If we increased the qualifying hedge fund threshold,
should we change the threshold to measure on a gross asset value basis
so that it does not disproportionately eliminate more frequent and
detailed reporting from more leveraged hedge funds?
10. Should the Commissions increase the large liquidity fund
adviser threshold? Why or why not? If so, what is the appropriate
threshold for large liquidity fund advisers (e.g., $2 billion, $3
billion, $5 billion)?
11. Should the Commissions increase the large private equity fund
adviser threshold? Why or why not? If so, what is the appropriate
threshold for large private equity fund advisers (e.g., $3 billion, $5
billion)?
C. Disregarded Feeder Funds
The Commissions propose to allow advisers not to separately report
feeder funds with minimal holdings outside of a feeder fund's interest
in a master fund. Specifically, the Commissions propose to revise
General Instruction 6 to permit advisers to treat a feeder fund as
``disregarded'' if it invests not more than five percent of its gross
asset value in investments that are not in a single master fund, U.S.
treasury bills, and/or cash and cash equivalents.\38\ This proposed
change is designed to reduce filing burdens on advisers and better
balance against the need for the Commissions and FSOC to understand the
reporting fund's structure and the risk exposure of its component
funds.\39\
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\38\ See proposed Form PF General Instruction 6.
\39\ See infra section III.C.4 for a more detailed discussion of
the benefits and costs of the proposed change to Form PF General
Instruction 6.
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Prior to the 2024 amendments, Form PF provided advisers with
flexibility to respond to questions regarding master-feeder
arrangements and parallel fund structures, either in the aggregate or
separately, as long as they did so consistently throughout Form PF.
This resulted in some advisers reporting in aggregate and some advisers
reporting separately, and consequently, obscured risk profiles (e.g.,
with respect to leverage, counterparty exposure, investor liquidity)
and created difficulties when comparing complex structures.\40\
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\40\ See 2024 Form PF Adopting Release at section II.A.1.
---------------------------------------------------------------------------
In 2024, the Commissions adopted amendments to Form PF that
generally require separate reporting for every component fund of a
master-feeder arrangement and parallel fund structure.\41\ By
prescribing the way advisers report master-feeder arrangements and
parallel fund structures, the 2024 amendments were intended to provide
the Commissions and FSOC with better insight into the risks and
exposures of these arrangements. The 2024 amendments, however, required
disregarded feeder funds to be aggregated in the reporting about
master-feeder arrangements and parallel fund structures. Defined in
General Instruction 6 as a feeder fund that invests all of its assets
in a single master fund, U.S. treasury bills,\42\ and/or cash and cash
equivalents, a ``disregarded feeder fund'' effectively invests only
through its associated master fund, and the Commissions stated that
separate reporting of these funds is not necessary for data analysis
purposes because it would not convey additional information about their
exposures.\43\
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\41\ See current Form PF General Instruction 6.
\42\ See 2024 Form PF Adopting Release at n.25 (explaining that
U.S. treasury bills, which are direct obligations of the U.S.
Government with a maturity of one year or less, are ``sufficiently
cash-like'' for purposes of the Commissions' reporting and data
analysis).
\43\ See 2024 Form PF Adopting Release at section II.A.1.
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Since the adoption of the 2024 amendments, industry members have
highlighted the significance of the burdens associated with
disaggregating feeder funds in their reporting.\44\ In communications
with the SEC staff, several filers have stated that many private funds
utilize complex master-feeder arrangements, and that separate reporting
of feeder funds without additional exceptions would cause substantial
burdens because it requires the collection of many more data points
about many more fund entities in these private fund structures.\45\
Some filers said feeders that hold minimal holdings outside of the
master fund should be disregarded, as the de minimis amount of these
outside assets do not alter the risk picture of the feeder. These
filers stated that disaggregated reporting does not reflect how
advisers typically manage risk and liquidity for these funds, and that
reporting instructions should align with advisers' typical risk
management practices in order to result in meaningful and accurate
data.\46\
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\44\ See, e.g., Comment Letter of the Alternative Investment
Management Association (June 10, 2025).
\45\ See, e.g., Comment Letter of Managed Funds Association
(Mar. 11, 2025).
\46\ See id.
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In response to these concerns, we are proposing to change General
Instruction 6 to allow advisers to aggregate in their reporting about
master-feeder arrangements feeder funds that hold a de minimis amount
of investments outside of the master fund.\47\ Under the proposed
change to General Instruction 6, advisers would be able to treat a
feeder fund that invests not more than five percent of its gross asset
value \48\ in other investments that are not in a single master fund,
U.S. treasury bills, and/or cash and cash equivalents, as a disregarded
feeder fund. Accordingly, advisers would be permitted to aggregate such
feeder funds in their reporting about master-feeder arrangements on
Form PF. In our view, five percent is an appropriate threshold because
it parallels the threshold used in other parts of Form PF to represent
a fund's material exposure and a level of exposure that could be
significant enough to present broader systemic risk and contagion
risk.\49\ The proposed change seeks to better align the Form PF
reporting requirements with the way advisers typically track and manage
the risk profile of feeder funds while preserving the Commissions and
FSOC's ability to obtain a clear understanding of fund structures and
the risk exposure of their component funds.\50\
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\47\ The proposal also includes changes to Example 1 in General
Instruction 6 to illustrate the application of the proposed de
minimis exception.
\48\ Form PF instructs advisers to calculate gross asset value
in accordance with Part 1A, Instruction 6.e(3) of Form ADV, which
requires using regulatory assets under management. Instructions for
calculating regulatory assets under management are found in Part 1A,
Instruction 5.b of Form ADV. See ``gross asset value'' and
``regulatory assets under management'' as defined in Form PF
Glossary of Terms; Form ADV: Instructions for Part 1A, Instruction
5.b and Instruction 6.e(3). An adviser must calculate its regulatory
assets under management on a gross basis, that is, without deduction
of any outstanding indebtedness or other accrued but unpaid
liabilities. In addition, an adviser must include the amount of any
uncalled capital commitments made to a private fund managed by the
adviser.
\49\ See, e.g., current Questions 27, 28, 32, 33, 35, 36, 42,
43, 44, 57 of Form PF; 2024 Form PF Adopting Release at section
II.B.3 and section II.C.2. See also infra section III.F.3for a
discussion of reasonable alternatives to this threshold and infra
section III.C.4 for further discussion of the benefits and costs of
the proposed de minimis exception.
\50\ See also infra section III.C.4 (explaining that the impact
of the proposed change would be mitigated by the ``look through''
requirements we are retaining for reporting at the master fund
level).
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We request comment on the proposed change to General Instruction 6:
[[Page 22241]]
12. Would the proposed change to General Instructions 6
sufficiently alleviate burdens on private fund advisers?
13. Would the proposed change to General Instruction 6 result in
the collection of information about private fund structures and the
risk exposure of their component funds necessary and appropriate in the
public interest and for the protection of investors, or for the
assessment of systemic risk?
14. Would the proposed change to General Instruction 6 result in
certain feeder funds that are necessary to assess systemic risk not
being identified in the form? If so, how?
15. Is five percent the appropriate threshold for disregarding
feeder funds with minimal holdings outside of the master fund? Why or
why not? What other percentages (e.g., three percent, ten percent) or
methods should the Commissions consider for purposes of identifying
disregarded feeder funds that are not necessary and appropriate for the
assessment of systemic risk? For example, should we allow filers to
treat any feeder fund as disregarded if the filer does not separately
consider the feeder fund and its exposures for its risk management
purposes? Should we allow, as was the case prior to the 2024
amendments, filers to choose whether to respond to questions in the
aggregate or separately, as long as they did so consistently through
Form PF? Why or why not?
16. Is ``gross asset value,'' as defined in the Form PF Glossary of
Terms, the appropriate denominator for disregarding feeder funds with
minimal holdings outside of the master fund? Why or why not? What
alternatives should the Commissions consider as the denominator for
purposes of disregarding feeder funds that are not necessary and
appropriate for the assessment of systemic risk?
17. Are there types of investments or features of feeder funds that
should be considered in permitting aggregation?
18. Is the proposed change to the definition of disregarded feeder
fund in General Instruction 6 sufficiently clear? Would this raise any
questions about how to determine which feeder funds should be
disregarded for purposes of General Instruction 6? Should we provide
any additional clarification regarding which feeder funds should be
disregarded for purposes of General Instruction 6?
D. Eliminate the Look Through Requirement
The Commissions propose changes to Form PF that would allow
advisers to report indirect exposures based on reasonable estimates
that are consistent with their internal methodologies and the
conventions of service providers when responding to certain questions
that currently require looking through the reporting fund's
investments. Specifically, the Commissions propose to eliminate from
General Instructions 7 and 8 the prescriptive requirement that advisers
``look through'' the reporting fund's investments when reporting
indirect exposures and to instead allow advisers to rely on reasonable
estimates consistent with their internal methodologies and conventions
of service providers when reporting indirect exposures.\51\ The
Commissions also propose conforming amendments to the instructions for
Questions 32, 33, 35, 36, and 47, and to amend the definitions of
certain asset classes in the Glossary of Terms, to allow advisers to
report indirect exposures consistent with the amended General
Instructions 7 and 8. These changes are intended to reduce and better
balance the filing burdens on advisers against the need to obtain clear
and comparable data across advisers.
---------------------------------------------------------------------------
\51\ This proposal, however, would retain the instruction in
current General Instruction 7 that advisers must include (look
through to) the trading vehicle's holdings for all questions
answered by the reporting fund.
---------------------------------------------------------------------------
In 2024, the Commissions adopted amendments to General Instructions
7 and 8 to provide that, when responding to questions, advisers
generally must not ``look through'' a reporting fund's investments in
other funds or entities (other than a trading vehicle), unless the
question instructs the adviser to report exposure obtained indirectly
through the reporting fund's positions in such other funds or entities.
In reporting indirect exposures of the reporting fund in response to
certain questions (Questions 32, 33, 35, 36 and 47), General
Instruction 7 requires advisers to ``look through'' the reporting
fund's investments in internal private funds and external private
funds. Likewise, General Instruction 8 requires advisers to ``look
through'' the reporting fund's investments in other funds or entities
when reporting indirect exposures in response to those same questions.
Prior to the 2024 amendments, Form PF generally did not address how
to report indirect exposures resulting from positions held through
other entities, and advisers were not required to (although they had
the option to) look through a reporting fund's investments in another
entity, unless the form specifically requested information regarding
that entity.\52\ As a result, some advisers were reporting indirect
exposures, while others were not, leading to incomplete and unclear
data, inconsistent comparisons, and less precise analysis across
advisers. The 2024 amendments changed General Instructions 7 and 8 to
direct advisers to report indirect exposures in response to certain
questions by mandatorily looking through the reporting fund's
investments in private funds and other entities. These changes were
designed to promote FSOC's effective systemic risk assessments and the
Commissions' investor protection efforts by reducing issues of data
quality and incomparability with respect to data regarding indirect
exposures of private funds.
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\52\ See 2024 Form PF Adopting Release at section II.A.2.
---------------------------------------------------------------------------
After the adoption of the 2024 amendments, however, industry
members reported that the rigid and granular reporting required via
this mandatory look-through would create significant burdens and in
many cases would be operationally difficult.\53\ For example, several
filers noted that looking through a reporting fund's investment in an
exchange-traded fund (an ``ETF'') to calculate the reporting fund's
indirect exposure to each underlying investment in the ETF could be
particularly burdensome in instances where the ETF tracks and
continuously rebalances a broad index comprising potentially hundreds
of underlying investments. Other filers stated that the methodology for
determining the exact composition of an index may be proprietary and
not controlled by the adviser.
---------------------------------------------------------------------------
\53\ See, e.g., Comment Letter of the Alternative Investment
Management Association (Sept. 5, 2025) (``AIMA Letter II'').
---------------------------------------------------------------------------
We also heard concerns that looking through the reporting fund's
investments in other entities, such as investments in another private
fund that in turn invests in portfolio companies, private credit
instruments, or securitized assets, could be operationally challenging,
if the adviser does not control those entities and therefore has
limited access to information regarding the underlying investments, or
the data that the adviser does obtain does not align with the timing
and reporting requirements of Form PF.
In consideration of these concerns, we are now proposing changes to
General Instructions 7 and 8 to eliminate the prescriptive requirement
that advisers ``look through'' the reporting fund's investments when
reporting indirect exposures and to instead allow advisers to report
required indirect exposures based on reasonable estimates that are
consistent with the adviser's internal
[[Page 22242]]
methodologies and conventions of service providers. We are also
proposing amendments to Questions 32, 33, 35, 36 and 47 to remove
instructions that reasonable estimates used to report indirect
exposures, and that indirectly held entity positions in a sub-asset
class and instrument type, must ``best represent'' the exposure of the
entity \54\ or the sub-asset class exposure of the indirectly held
entity.\55\ The prescriptive look-through requirement in General
Instructions 7 and 8 as well as the ``best represent'' standard in the
specific questions' instructions for reporting indirect exposures would
create burdens for advisers to conduct look-through for assessing
indirect exposures even though they may reasonably and more efficiently
estimate such indirect exposures in their own portfolio and risk
management processes. The proposed changes are intended to provide
advisers the ability to rely on reasonable estimates to report indirect
exposures, provided they are consistent with their internal
methodologies and the conventions of service providers.\56\ For
example, with respect to a reporting fund's investment in a gold ETF,
the proposed changes would allow advisers to estimate the reporting
fund's exposure through an ETF more broadly (e.g., ``gold commodities''
sub-asset class) to the extent consistent with their own portfolio and
risk management processes.
---------------------------------------------------------------------------
\54\ See proposed Questions of 33, 35, 36, and 47 of Form PF.
\55\ See proposed Question 32 of Form PF.
\56\ See infra section III.C.5 for further discussion of the
anticipated cost savings to advisers that would result from the
proposed changes to General Instructions 7 and 8.
---------------------------------------------------------------------------
Relatedly, the Commissions propose conforming amendments to align
other parts of the form with the proposed General Instructions 7 and 8.
The proposed changes would include conforming amendments to Question 32
and Question 47 to remove certain references to indirectly held
``positions.'' \57\
---------------------------------------------------------------------------
\57\ See proposed Question 32 and Question 47 of Form PF.
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The Commissions also propose to revise definitions of certain asset
classes in the Form PF's Glossary of Terms to explicitly subject those
definitions to proposed General Instructions 7 and 8.\58\ As part of
the 2024 amendments, Form PF defined these asset classes also requiring
the reporting fund to look through to indirect exposures to such assets
held through another entity. The proposed definitional changes are
intended to allow advisers, consistent with General Instructions 7 and
8, to use their reasonable estimates that are consistent with the
adviser's internal methodologies and conventions of service providers
for such indirect exposures. These proposed changes would also help to
resolve any inconsistencies between the instructions in the definitions
of these terms and General Instructions 7 and 8.
---------------------------------------------------------------------------
\58\ See proposed Form PF Glossary of Terms (definitions of
``agency securities,'' ``commodities,'' ``convertible bonds,''
``corporate bonds,'' ``GSE bonds,'' ``leveraged loans,'' ``listed
equity,'' ``other commodities,'' ``sovereign bonds,'' ``unlisted
equity,'' and ``US treasury securities'').
---------------------------------------------------------------------------
Furthermore, the Commissions propose to make a conforming change to
the definition of ``reference asset'' in the Form PF Glossary of Terms
by removing the phrase ``and do not conflict with any instructions or
guidance relating to this Form,'' which would be unnecessary with the
proposed changes to General Instructions 7 and 8 that would allow for
the use of reasonable estimates consistent with internal methodologies
to report indirect exposures.\59\
---------------------------------------------------------------------------
\59\ See proposed Form PF Glossary of Terms (definition of
``reference asset''). The Commissions also propose to revise the
definition of ``reference asset'' to add ``e.g.,'' in front of
``through direct ownership (i.e., a physical or cash position),
synthetically (i.e., the subject of a derivative or similar
instrument held by the reporting fund), or indirect ownership (e.g.,
through ETFs, other exchange traded products, U.S. registered
investment companies, non-U.S. registered investment companies,
internal private funds, external private funds, commodity pools, or
other companies, fund or entities))'' in order to help filers
understand that these are examples, not a prescriptive nor
comprehensive list, of ways a reporting fund may have exposure to a
reference asset.
---------------------------------------------------------------------------
Although the proposed changes to General Instructions 7 and 8 (and
related conforming changes) would lead to more filers using their
internal practices to report indirect exposures and to do so less
precisely, thus potentially reducing the level of specificity and
comparability of indirect exposures through fund or entity holdings
reported by advisers on Form PF,\60\ we anticipate that these changes
would not undermine FSOC's systemic risk assessment and the
Commission's investor protection efforts. Based on input received from
filers, we understand that the operational challenges posed by the
strict look-through requirement, such as lack of the advisers' control
of or access to granular position data of underlying fund or entity
investments from third party entities or third party data that comports
with the reporting requirements of Form PF, would likely, in practice,
result in advisers having to rely on internal assumptions to comply
with Form PF's requirements. As such, the prescriptive look-through
requirements in General Instructions 7 and 8 would likely not achieve
the intended outcome, making any greater granularity and comparability
unjustified in light of the apparent significant filing burdens on
advisers.\61\ Our proposal, however, would retain questions mandating
the reporting of indirect exposures and thus preserve the objective of
the 2024 amendments to address issues of data quality and comparability
that had resulted from some advisers providing indirect exposures while
others did not.
---------------------------------------------------------------------------
\60\ See id.
\61\ See id.
---------------------------------------------------------------------------
Moreover, the proposed changes would preserve FSOC's ability to
assess systemic risk and the Commissions' ability to protect investors
by collecting data based on advisers' portfolio risk management
processes, which themselves are designed to capture material risk
exposures from investments.
We request comment on the proposed changes to General Instructions
7 and 8, the definitions of certain asset classes in the Form PF
Glossary of Terms, and other conforming changes:
19. Would the proposed changes to General Instructions 7 and 8, the
definitions of asset classes including ``reference asset,'' and other
conforming changes sufficiently alleviate burdens on private fund
advisers?
20. Would the proposed changes to General Instructions 7 and 8 and
the definitions of asset classes including ``reference asset'' result
in the collection of information about the reporting fund's indirect
exposure necessary and appropriate for investor protection and the
assessment of systemic risk?
21. Should the ``look through'' requirement for certain, or all,
questions be eliminated entirely, as proposed, and allow advisers to
instead rely on reasonable estimates that are consistent with their
internal methodologies and conventions of service providers? If not,
why not?
22. Are certain questions easy to ``look through'' funds, entities
and investments than others? If so, which ones and why?
23. Are there certain types of funds or entities that are easy to
``look through''? If so, which ones and why?
24. Are there certain types of reference assets that are easy to
report on a ``look through'' basis? If so, which ones and why?
25. Should the form require a ``look through'' for certain, or all,
types of funds, entities or reference assets? If so, which ones and
why?
[[Page 22243]]
E. Trading Vehicles
The Commissions propose to amend Question 9 under section 1b of the
Form PF to reduce the scope of trading vehicles that advisers must
specifically identify. The proposed new scope focuses solely on trading
vehicles that face counterparties and creditors or are reported on Form
ADV as a private fund. This proposed change is intended to reduce the
burdens on advisers with respect to identifying trading vehicles while
still supporting the need for the Commissions and FSOC to understand
the reporting fund's use of trading vehicles relevant to identifying
systemic risk and investor protection efforts.\62\
---------------------------------------------------------------------------
\62\ See infra section III.C.6 for a detailed discussion of the
benefits and costs of the proposed change to Question 9 of Form PF.
---------------------------------------------------------------------------
Before the 2024 amendments, Form PF did not require advisers to
identify trading vehicles, even though private funds often use trading
vehicles to trade, incur leverage, and bear counterparty and credit
exposures as part of their investment strategy.\63\ In 2024, the
Commissions adopted amendments to section 1b to obtain a clear view of
the reporting fund's use of trading vehicles in this manner and
therefore to enhance FSOC's ability to monitor systemic risk and the
Commissions' ability to protect investors by better assessing the scope
of the reporting fund's position sizes and counterparty exposures that
are attributable to the trading vehicle and identifying areas in need
of outreach, examination or investigation. The broad definition of
``trading vehicle'' in the final form was intended to ensure that such
trading vehicles were captured,\64\ and Question 9 was designed to
obtain identifying information about any trading vehicle used by the
reporting fund that met this definition.\65\
---------------------------------------------------------------------------
\63\ See 2024 Form PF Adopting Release at section II.A.2
(discussing the various ways private funds may use trading vehicles
for their investment activities).
\64\ A trading vehicle is defined as a separate legal entity,
wholly or partially owned by one or more reporting funds, that holds
assets, incurs leverage, or conducts trading or other activities as
part of a reporting fund's investment activities but does not
operate a business. See Form PF Glossary of Terms (definition of
``trading vehicle'').
\65\ See current Question 9 of Form PF. Questions 9(d) through
(f) ask the reporting fund to identify the vehicle's activities that
results in it being a ``trading vehicle,'' as defined in the Form PF
Glossary of Terms.
---------------------------------------------------------------------------
Since the adoption of the 2024 amendments, filers have highlighted
the broad scope of trading vehicles that would need to be identified on
the form and the significance of the burden on advisers of having to
meet this requirement.\66\ Private funds may use trading vehicles for a
wide variety of purposes other than trading and bearing counterparty
exposure. Consequently, the broad definition of ``trading vehicle,''
which includes an entity that ``holds assets'' and conducts ``other
activities'' as part of the reporting fund's investment activities,
potentially captures passive entities (e.g., tax blockers, liability
blockers, aggregator vehicles used to consolidate investments from
investors in private funds, passive holding companies formed to hold
portfolio investments) that are commonly used by private funds for
structuring, tax and/or other operational efficiencies. Many of these
passive entities, however, may not otherwise actively trade nor engage
in other activities directly related to the fund's counterparty or
credit exposures in a manner that creates interconnectedness of the
trading vehicle to the broader financial services industry, a critical
part of systemic risk assessment and investor protection efforts. Some
filers have expressed concern that under the current ``trading
vehicle'' definition, they would have to report hundreds of entities in
certain private fund structures, imposing significant burdens on those
advisers.\67\
---------------------------------------------------------------------------
\66\ See, e.g., Comment Letter of Investment Adviser Association
(May 1, 2025), available at <a href="https://www.investmentadviser.org/wp-content/uploads/2025/05/IAA-Letter-to-SEC-Chairman-Atkins-5.1.25.pdf?t=6813b4b033567">https://www.investmentadviser.org/wp-content/uploads/2025/05/IAA-Letter-to-SEC-Chairman-Atkins-5.1.25.pdf?t=6813b4b033567</a> (``IAA Letter'').
\67\ See, e.g., IAA Letter.
---------------------------------------------------------------------------
After considering the scope of trading vehicles that must be
reported under Question 9 in light of systemic risk assessment and
investor protection efforts, as well as the significance of the burdens
on advisers raised by the current instructions, we propose to reduce
the scope of trading vehicles that must be reported under Question 9 to
focus on trading vehicles that face counterparties and creditors or are
reported on Form ADV as a private fund.
Specifically, the proposed changes to Question 9 would limit
trading vehicles that must be identified by name and legal entity
identifier (``LEI''), if any, to those that are (i) listed or required
to be listed on Section 7.B. of Schedule D of the adviser's or another
adviser's Form ADV,\68\ or (ii) included or required to be included in
a response to Questions 27, 28, 42, 43, or 44 of the Form PF,\69\ which
require advisers to identify the relevant party (including any trading
vehicles) that bears counterparty and credit exposures.\70\
---------------------------------------------------------------------------
\68\ Because trading vehicles may be partially owned by the
filing adviser with another adviser, the proposed changes would
require the identification of any partially-owned trading vehicles
reported on another adviser's Form ADV.
\69\ Questions 27 and 28 of Form PF must be completed separately
for each hedge fund that an adviser advises. Questions 42, 43, and
44 must be completed separately by large hedge fund advisers for
each qualifying hedge fund that they advise. These questions require
the adviser to identify significant creditors or counterparties to
which a fund is exposed. For example, Question 42 requires the
adviser to identify and provide information about each creditor or
other counterparty to which the reporting qualifying hedge fund owed
an amount in respect of cash borrowing entries which is equal to or
greater than either (1) 5 percent of net asset value or (2) $1
billion. The proposed amendments would modify Questions 42 and 43.
See infra section II.L. Amended Questions 42 and 43 would still
require advisers to identify significant creditors or counterparties
to which a fund is exposed. See infra section III.C.6.
\70\ The proposed change would not impact General Instructions 7
and 8 that direct advisers to look through trading vehicles and to
their holdings when responding to certain questions (e.g., Question
26, which requires advisers to provided consolidated counterparty
exposures of the reporting fund aggregated across all creditors and
counterparties).
---------------------------------------------------------------------------
The proposed changes would entail a conforming amendment to General
Instruction 7 with the same instruction limiting the scope of trading
vehicles that must be identified in response to Question 9 to those
that are listed on the adviser's Form ADV or in response to Questions
27, 28, 42, 43 or 44. As discussed above, the broad definition of
``trading vehicle'' may cover passive entities commonly used in private
fund structures but do not directly interact with the market in a
manner that may pose systemic risk such as by trading, taking on
leverage, or bearing counterparty and credit exposures. Furthermore, as
emphasized by some filers, the burden on advisers of having to identify
each passive entity in the reporting fund's structure that meets the
broad definition of ``trading vehicle'' may be significant.
Although the current instructions would have provided a more
comprehensive visibility into the wide variety of ways trading vehicles
are incorporated into private fund structures, they would have
primarily captured passive trading vehicles, and reducing the scope of
trading vehicles would not materially affect the Commissions' and
FSOC's systemic risk oversight and investor protection efforts. The
proposed changes to Question 9 would reduce the scope of trading
vehicles that advisers must identify to those that are more directly
relevant and meaningful to the Commissions' and FSOC's oversight and
investor protection efforts. Section 7.B. of Schedule D of Form ADV
requests important information about the private funds managed by
advisers but does not specify whether the private funds
[[Page 22244]]
reported therein are trading vehicles. The proposed changes would
therefore facilitate our staff's ability to identify trading vehicles
reported on Form ADV and the scope of trading vehicles' potential
effects on systemic risk and investor protection.
Furthermore, the revised Question 9 would require advisers to
identify those trading vehicles that they have included in response to
questions on the form that address how the reporting fund uses trading
vehicles to bear counterparty and credit exposures (Questions 27, 28,
42, 43, or 44). Hence, any trading vehicle that incurs leverage or
conducts trading or other activities as part of a hedge fund's
investment activities resulting in significant exposure to creditors or
counterparties is currently identified by advisers in those questions
and would therefore continue to be included in Question 9 under the
proposed change.
Trading vehicles included in response to these questions (which may
overlap with those reported on Form ADV) would provide the Commissions
and FSOC with transparency into the reporting fund's risk profile and
interconnectedness of private funds with the broader financial services
industry. Moreover, although we propose to limit the scope of trading
vehicles that must be specifically identified, General Instructions 7
and 8 would continue to require advisers to look through certain
trading vehicles and to their specific holdings, which would capture
their counterparty and creditor exposures.\71\ These proposed changes
would therefore not have a significant effect on the Commissions' and
FSOC's ability to assess relevant information for purposes of their
risk assessment and investor protection efforts, as the form would
continue to obtain relevant information about operationally active
trading vehicles that do engage in activities that could impact the
broader financial services industry.\72\
---------------------------------------------------------------------------
\71\ See proposed General Instructions 7 and 8 of Form PF.
\72\ See infra section III.C.6 for a more detailed discussion of
benefits and costs of the proposed changes to Question 9.
---------------------------------------------------------------------------
We request comment on the proposed changes to Question 9 of Section
1b:
26. Would the proposed changes to Question 9 sufficiently alleviate
burdens on private fund advisers?
27. Do you agree that the current definition of ``trading vehicle''
covers entities that do not directly interact with the market in a
manner that may pose systemic risk such as by trading, taking on
leverage, or bearing counterparty and credit exposures? Would the
proposed changes to Question 9 result in the collection of information
about trading vehicles necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk?
28. Would the proposed changes to Question 9 result in certain
trading vehicles that are necessary to assess systemic risk not being
identified in the form? Should such trading vehicles continue to be
identified in the form? If so, which ones?
29. Should we instead amend Form PF so that private fund advisers
are not required to identify any trading vehicles? Is the
identification of trading vehicles relevant to the assessment of
systemic risk? Why or why not?
F. Eliminate Form PF Question 23(c) Volatility Reporting
The Commissions propose to eliminate Question 23(c) in its entirety
for all private fund filers.\73\ Question 23(c) requires private funds
to report additional performance-related information if the adviser
calculates a market value on a daily basis for any position in the
reporting fund's portfolio. Such information includes: (1) the
``reporting fund aggregate calculated value'' at the end of the
reporting period; (2) the reporting fund's volatility of the natural
log of the ``daily rate-of-return'' for each month of the reporting
period; (3) whether the daily return rates are reported to current or
prospective investors; and (4) whether the reporting fund had one or
more days with a negative daily rate of return during the reporting
period and related information.
---------------------------------------------------------------------------
\73\ See Form PF section 1(b), Item C, Question 23(c)(i), (ii),
(iii), and (iv) (``Question 23(c)''). We also propose to remove any
other references to Question 23(c) throughout the form.
---------------------------------------------------------------------------
We added Question 23(c) in the 2024 amendments to allow the
Commissions and FSOC to compare return volatility more accurately
across different private fund types to identify market trends, for
systemic risk assessment, and for investor protection efforts.\74\ This
measure quantifies the degree to which a portfolio's logarithmic
returns fluctuate around their average, with higher values indicating
greater risk of large gains or losses and uncertainty in an
investment's value.
---------------------------------------------------------------------------
\74\ See 2024 Form PF Adopting Release at section II.B.2.
---------------------------------------------------------------------------
However, during implementation of this new question, it is our
understanding that numerous advisers encountered challenges and
significant costs in preparing to respond to this question. Some
advisers calculate this information in the ordinary course of their
business for certain funds but not all private funds, or only at the
level of the master fund. Other advisers use an internal methodology
that does not necessarily align with what we ask under Question 23(c),
so they have had to design complicated and bespoke calculations based
on approximations of the same data points. Industry members have
further pointed out that there are many investing strategies involving
less liquid or illiquid assets that have less volatility and could mute
or otherwise skew volatility data, so capturing intra-month volatility
about them is less valuable but more burdensome, even if they can be
reported.
We now propose to delete Question 23(c). Based on our review, the
data captured by other questions in the form can assist in
contextualizing performance-related volatility, such as the monthly
performance reporting in Question 23(a) and (b) or extraordinary losses
reported in current reports.\75\ Although deleting Question 23(c) would
result in less detailed performance-related volatility information,
such that the Commissions and FSOC may lose insight into significant
performance volatility swings occurring on an intra-month basis, intra-
month performance-related data for less liquid or illiquid investment
strategies can have limited utility when evaluating performance
volatility.\76\ Further, we understand that funds are making
assumptions in calculating this information, which undermines its
comparability.
---------------------------------------------------------------------------
\75\ See Form PF section 5, Item B and Form PF Glossary of Terms
(definitions of ``holding period return'' and ``daily rate-of-
return'').
\76\ See infra section III.C.7 for a more detailed discussion of
benefits and costs of eliminating Question 23(c).
---------------------------------------------------------------------------
Given the burdens associated with calculating this information, and
that information related to performance-related volatility can be
gathered from other existing parts of the form, we propose to eliminate
Question 23(c) from Form PF.
We request comment on the proposed removal of Question 23(c):
30. Should the Commissions eliminate Question 23(c)? Why or why
not?
31. Would the proposed deletion of Question 23(c) impede our
ability to appropriately collect information necessary and appropriate
in the public interest and for the protection of investors, or for the
assessment of systemic risk? Why or why not?
32. Alternatively, should we move Question 23(c) to section 2? Is
it important to capture this information regarding qualifying hedge
funds? Why
[[Page 22245]]
or why not? Do you agree that data captured by other questions in the
form can assist in contextualizing performance-related volatility?
33. Do advisers calculate a daily market value for certain fund
portfolios or strategies? If yes, is it an estimated market value?
34. Do advisers calculate the volatility of the natural log of the
daily rate-of-return for a reporting fund, computed as the standard
deviation of the natural log of one plus each of the daily rates-of
return, on either a monthly or quarterly basis? If not, what are the
challenges encountered by advisers in calculating this information for
a reporting fund?
35. Is it easier to track this information for certain types of
funds or fund strategies compared to others?
36. Would removing Question 23(c) sufficiently alleviate burdens on
private fund advisers?
37. Alternatively, should we move Question 23(c) to section 2 so
that only large hedge fund advisers must complete it? Why or why not?
G. Eliminate Certain Trading and Clearing Reporting
We propose to eliminate certain trading and clearing reporting.
Specifically, we propose to eliminate the requirements to report the
value of positions at the end of the reporting period in Question
29(ii) and Question 30(b). Currently, all filers that advise hedge
funds must report how they use trading and clearing mechanisms in
Questions 29 and 30 for each hedge fund they advise, including the
value of their reporting fund's positions at the end of the reporting
period. The Commissions adopted this requirement in an effort to
provide the Commissions and FSOC with data that can be more efficiently
compared and aggregated among advisers and other data sources.\77\
However, filers have expressed concern that they do not otherwise
calculate the value of positions at the end of the reporting period by
trading mode for each position using the calculations Form PF requires,
and it is burdensome to track, calculate, and report such data solely
for purposes of Questions 29(ii) and 30(b). If we remove Questions
29(ii) and 30(b), Questions 29 and 30, nonetheless, would continue to
require all filers to report the value the reporting fund traded during
the reporting period, specified by instrument category and trading
mode, which should be sufficient for purposes of evaluating use of
trading and clearing mechanisms across hedge fund advisers.
Furthermore, FSOC and the Commissions could infer the value of the
positions at the end of the reporting period requested in Questions
29(ii) and 30(b) from Question 32. For example, Question 32(a) requires
reporting of various sub-asset classes related to listed and unlisted
equity which gives FSOC and the Commissions an indication as to whether
the securities were traded on an exchange or over the counter.
Accordingly, we are proposing to remove the requirements to report the
value of positions at the end of the reporting period in Question
29(ii) and Question 30(b) because we are concerned that the data
aggregation and comparison benefits of this reporting may not be
justified by the burdens.\78\
---------------------------------------------------------------------------
\77\ 2024 Form PF Adopting Release at n.249 and accompanying
text.
\78\ See also infra section III.C.8 for a more detailed
discussion of benefits and costs of the proposal to revise Questions
29 and 30.
---------------------------------------------------------------------------
The Commissions also propose to remove erroneous and unnecessary
instructions in Questions 29. The current instructions in Question 29
provide that the ``value traded'' for certain instruments is the total
value, but then erroneously require filers to calculate the total value
by using a weighted average. We propose to remove this instruction,
which would remove the error.\79\ With this correction, the specific
instructions about how to calculate value traded for proposed Questions
29 and 30 would be unnecessary because General Instruction 15 and the
table would sufficiently instruct advisers on how to report the value
traded. Therefore, this proposed change would simplify the form, by not
repeating the instructions. We also propose to remove the specific
instructions for column (ii). These instructions would be no longer
relevant because we propose to remove column (ii).
---------------------------------------------------------------------------
\79\ Proposed Question 29.
---------------------------------------------------------------------------
We request comment on the proposal to revise Questions 29 and 30:
38. Should we revise Questions 29 and 30, as proposed?
39. Should we eliminate the requirement for advisers to report the
value of positions at the end of the reporting period in Questions 29
and 30, as proposed? Do you agree that the information reported in
other requirements in Questions 29 and 30 is sufficient to analyze data
on trading and clearing mechanisms?
40. Do you agree with our characterization of the benefits and
burdens that Questions 29 and 30 present? Are there more, less, or
additional types of benefits or burdens? Please quantify the burdens.
41. Should we remove the specific instructions for calculating
``value traded,'' as proposed? Does General Instruction 15 and the
table itself sufficiently instruct filers about how to report value
traded? Is there a clearer way to instruct filers about how to
calculate value traded? Or is there a more appropriate calculation that
the instructions should use? For example, should the instructions to
Question 29 direct filers to use the gross notional values for options
and interest rate derivatives in addition to other derivatives, rather
than the calculations that General Instruction 15 specifies?
42. Is there a clearer way to instruct filers about how to
categorize each trade into the value traded column? For example, if a
bond is traded through a registered alternative trading system, should
that be included in the regulated exchange category or over the
counter?
H. Eliminate Form PF Question 32(b)(2) Adjusted Exposure Reporting
Based on Internal Methodology
The Commissions propose to eliminate Question 32(b)(2) for large
hedge fund advisers.\80\ The Commissions added Question 32(b) to Form
PF in 2024 to require advisers to report the adjusted exposure of long
and short positions for each sub-asset class in which a fund has a
reportable position.\81\ At that time, the Commissions explained that
gross exposure reporting by itself presents an incomplete picture that
poses a significant data gap for systemic risk analysis. Question 32(b)
requires large hedge fund advisers to report adjusted exposures in two
ways. In Question 32(b)(1), advisers have to calculate and report
adjusted exposure of long and short positions for each sub-asset class
by netting positions that have the same underlying reference asset
across instrument type and, for fixed income positions, within the same
term using the following maturity buckets: 0-1 year, 1-2 years, 2-5
years, 5-10 years, 10-15 years, 15-20 years, and 20+ years.
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\80\ See Form PF section 2, Item B, Question 32(b)(2). We also
propose to remove any other references to Question 32(b)(2)
throughout the form.
\81\ See 2024 Form PF Adopting Release at section II.C.2.a.
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In Question 32(b)(2), if, under its methodologies for internal
reporting and reporting to investors, an adviser does not net all
positions across all instrument types in monitoring the economic
exposure of the reporting fund's investment positions, then the adviser
must report adjusted exposure based on its internal methodology; the
adviser must also describe in Question 4 how its internal methodology
differs
[[Page 22246]]
from the calculations required in Question 32(b)(1). At the time, the
Commissions explained that this additional information in Question
32(b)(2) would provide better insight into how these advisers assess
the economic exposure of their reporting fund's portfolio, while still
ensuring an adviser provides information that supports the Commissions'
and FSOC's ability to aggregate and compare the data across funds.\82\
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\82\ See id.
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After the adoption of the 2024 amendments, filers raised concerns
that Question 32(b)(2) is substantially duplicative of Question
32(b)(1) and therefore unnecessarily burdensome to produce. They stated
that these two sub-questions require them to calculate and report
adjusted exposure for each sub-asset class in which the fund holds
positions twice with non-meaningful differences in risk information
conveyed.
Upon review, we agree that Question 32(b)(2), given its similarity
to what funds will likely report under Question 32(b)(1), does not
appear sufficiently necessary to justify the burdens associated with
this additional reporting. While adjusted exposure reporting continues
to be important for FSOC's assessment of systemic risk, eliminating
Question 32(b)(2) in consideration of the concerns raised by filers, as
proposed, would help further alleviate burdens on large hedge fund
filers by removing duplicative reporting that does not materially build
upon the quality or usefulness of data already received from Question
32(b)(1).\83\
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\83\ See infra section III.C.9 for a more detailed discussion of
benefits and costs of eliminating Question 32(b)(2).
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Relatedly, we propose to delete the word ``counterparties'' from
the last sentence in Question 32(b)(1). This instructional sentence
provides that, in reporting adjusted exposure under Question 32(b)(1),
the fund may net counterparties consistent with the information it
reports internally and to current and prospective investors. Based on
discussions with filers, we understand that the inclusion of
``counterparties'' in this sentence has created confusion because
netting in this section is intended to be associated with exposures
rather than limiting netting specifically to counterparties. Moreover,
combined with the elimination of Question 32(b)(2), this deletion would
be a conforming change to simplify the adjusted exposure calculations.
We request comment on the proposal to eliminate Question 32(b)(2):
43. Should the Commissions eliminate Question 32(b)(2)? Why or why
not?
44. Would the proposed deletion of Question 32(b)(2) impede our
ability to appropriately collect information about adjusted exposure in
qualifying hedge funds necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk? Why or why not?
45. Would removing Question 32(b)(2) meaningfully alleviate burdens
on large hedge fund advisers?
46. If Question 32(b)(2) is retained, should it be modified? If so,
how?
47. Should the format of Question 32(b)(1) (and Question 32(b)(2)
if it is retained) be revised for clarity (for example, by using charts
instead of sentences, or putting instructions and responses in
different colors like the PQR form)?
I. Eliminate Form PF Question 34 Monthly Asset Turnover Reporting
The Commissions propose to eliminate Question 34 for large hedge
fund advisers.\84\ Question 34 requires advisers to report the value of
turnover in certain asset classes (including listed equities, corporate
bonds, sovereign bonds, as well as various types of derivatives and
consolidated foreign exchange and currency swaps) in their hedge funds'
portfolios for each month during the quarterly reporting period.
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\84\ See Form PF section 2, Item B, Question 34. We also propose
to remove any other references to Question 34 throughout the form.
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The Commissions included this question on the original 2011 Form PF
(then Question 27) to provide an indication of a large hedge fund
adviser's frequency of trading in particular asset class markets and
the amount of liquidity hedge funds contribute to those markets.\85\ We
then amended Question 34 in 2024 in two ways. First, in connection with
the move to disaggregate reporting, we required reporting turnover on a
per fund basis explaining that this change would provide more detailed
information to the Commissions and FSOC while simplifying reporting
because advisers do not generally aggregate turnover-related
information among funds.\86\ Second, we added new categories to better
capture turnover of potentially relevant securities. We referenced how,
during the March 2020 COVID-19-related market turmoil, we were unable
to obtain a complete picture of market activity relating to treasuries
and treasury futures given that turnover reporting was highly
aggregated across funds.
---------------------------------------------------------------------------
\85\ See 2011 Form PF Adopting Release at section II.C.2.a.
\86\ See 2024 Form PF Adopting Release at section II.C.2.d.
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While the turnover of specific asset classes can be helpful to
identify the frequency of hedge fund trading activity in those asset
classes, we have observed from our review that turnover data can be an
imprecise signal of systemic risk or market turmoil.\87\ Asset turnover
might simply reflect that many large hedge funds make frequent trades
as part of an investment strategy rather than suggesting issues in a
given market. Conversely, a reduction in asset turnover could reflect a
strategy responding to normal market conditions as opposed to an
episode of stress in a market where a reduction in liquidity constrains
a fund's trading. Additionally, ensuing discussions with industry
members have revealed unanticipatedly high burdens in monitoring and
producing the data to complete Question 34. For example, because a
large hedge fund can complete upwards of ten thousand trades in a
single day, tracking so many transactions and breaking them down on a
per-fund basis is time- and labor-intensive.
---------------------------------------------------------------------------
\87\ See infra section III.C.10 for a more detailed discussion
of benefits and costs of eliminating Question 34.
---------------------------------------------------------------------------
Furthermore, we are also able to approximate the data collected in
Question 34 based on filers' responses to other questions, such as the
asset class exposure table in Question 32, which while not providing
the frequency of trading in particular asset class markets, does
provide the size of their exposures in those markets, combined with the
information about investment strategies reported in Question 25,\88\ as
some hedge fund strategies inherently involve higher trading activity.
In addition, certain information relating to trading activity is still
provided in Question 29.\89\
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\88\ See Form PF section 1c, Item B, Question 25.
\89\ Question 29 (as proposed) would still require reporting
about the volume of transactions for certain asset classes during
intra-quarter periods.
---------------------------------------------------------------------------
Therefore, removing Question 34 should reduce the burdens for
filers while the Commissions can rely on other questions for
information relating to hedge funds with significant exposures in
various asset classes where there may be significant trading and
liquidity provision.
We request comment on the proposal to eliminate Question 34:
48. Should the Commissions eliminate Question 34 on monthly asset
turnover information? Why or why not?
49. Would the proposed deletion of Question 34 impede our ability
to
[[Page 22247]]
collect information necessary and appropriate in the public interest
and for the protection of investors, or for the assessment of systemic
risk? Why or why not?
50. Would removing Question 34 meaningfully alleviate burdens on
large hedge fund advisers?
51. Do you agree that information from Questions 25, 29, and 32
would help FSOC assess and monitor turnover or trading activity and
liquidity provision of qualifying hedge funds for systemic risk
implications? Are there any other alternative ways?
J. Simplify Industry Concentration Reporting in Form PF Question 36
The Commissions propose to amend Form PF Question 36 by permitting
filers to report at a simpler level of classification within the NAICS
code system.\90\ Form PF Question 36 requires filers to report the
relevant industry exposures of their reporting funds using NAICS codes.
The Commissions added Question 36 in 2024 to ``allow for identification
of industry concentrations and help assess the potential impact of
market events on industries.'' \91\ NAICS codes are used to describe a
company's primary business activity and principal source of revenue and
generally can be specified up to six digits. The full set of NAICS code
options is free to access online. However, some investment instruments
may not have codes readily available, as discussed below. NAICS codes
are often the standard used by certain Federal agencies for classifying
entities by industry.\92\ Currently filers responding to Question 36
are required to report at the six-digit level, national industry, NAICS
code.
---------------------------------------------------------------------------
\90\ See Form PF Question 36 and Form PF Glossary of Terms. The
five NAICS code classification levels are: (1) sector two-digit
code, (2) subsector three-digit code, (3) industry group four-digit
code, (4) NAICS industry five-digit code, (5) national industry six-
digit code.
\91\ 2024 Form PF Adopting Release at section II.C.2.d.
\92\ See id. (referencing SBA Small Business Size Regulations,
13 CFR 121.101 (2023)).
---------------------------------------------------------------------------
The purpose of requiring advisers to respond to this question based
on the NAICS codes is to provide insight into hedge funds' industry
exposures in a standardized way to allow for comparability among funds
and meaningful aggregation of data to assess overall industry-specific
concentrations. In adopting this question, we stated that NAICS codes
would be useful for monitoring systemic risk, particularly if multiple
funds have significant concentrations in industries that are
experiencing periods of stress or disruption.\93\
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\93\ See id. SEC staff also published an FAQ attempting to
clarify how filers can better respond to this question. See SEC
staff Form PF Frequently Asked Questions; Form PF: Question 36
(updated Apr. 4, 2025), available at <a href="https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/form-pf-faq">https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/form-pf-faq</a>.
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However, through subsequent discussions with industry members, we
have come to understand certain difficulties in reporting the NAICS
codes, particularly at the six-digit national industry level. The
industry generally does not use NAICS codes for reporting industry
concentration to investors or counterparties. In addition, certain
instruments, including foreign instruments, do not have a NAICS code.
We heard from multiple industry members who more commonly use the
Bloomberg Industry Classification Standard (``BICS'') or Global
Industry Classification Standard (``GICS''), though the BICS and GICS
codes are not publicly available and involve license fees and other
costs and expenses to access them. As a result, in order to comply with
the NAICS code requirement, advisers would need to assign a NAICS code
to an instrument that does not have one, which generally would require
advisers to develop data systems or pay third parties to supply or
track this information and could lead to inconsistent reporting across
filers. However, Form PF already requires the use of NAICS codes in
Questions 81 and 82, so some filers already use NAICS codes.
Additionally, we understand that allowing advisers to report NAICS
industry codes at less granular levels would reduce burdens for filers
because less specific options would result in less time and precision
needed to assign a code. For example, this proposed change would
significantly streamline filers' options by allowing them to select
from approximately twenty two-digit sector NAICS codes instead of the
more than one thousand six-digit national industry codes as currently
required. The proposed change would continue to maintain the
Commissions' and FSOC's ability to gain insight into hedge fund
industry exposures, including concentrated exposures, at a level that
would facilitate the assessment of systemic risk, while meaningfully
reducing reporting burdens for filers.\94\
---------------------------------------------------------------------------
\94\ See infra section III.C.11 for a more detailed discussion
of benefits and costs of simplifying industry concentration
reporting in Question 36.
---------------------------------------------------------------------------
Therefore, the Commissions propose to amend Question 36 by giving
filers the flexibility to choose any level of classification within the
NAICS hierarchal code system. We believe that this change would allow
us to continue receiving important industry-specific exposure data
while reducing the burdens and costs filers face in responding to this
question.
We request comment on the proposed change to the NAICS code
reporting requirement:
52. Should the Commissions allow filers to use their preferred
specificity of NAICS codes between two and six digits? Why or why not?
53. Would two-digit NAICS codes sufficiently allow FSOC to monitor
for industry exposure to systemic risk?
54. Would allowing for additional NAICS code levels sufficiently
alleviate burdens on private fund advisers?
55. Is there an alternate classification standard, such as BICS or
GICS, that would be easier or less expensive for filers to use in
providing this information? Why or why not? If we were to switch to a
different classification system, should we also do so for Questions 81
and 82?
56. Should the Commissions create a list of categories from which
filers can select their most appropriate industry, similar to how
commodity pool operators file Form PQR? \95\ If so, what categories
should we use?
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\95\ See, e.g., Pool Quarterly Report for Commodity Pool
Operators, Question 11 Pool Schedule of Investments, available at
<a href="https://www.nfa.futures.org/electronic-filing-systems/CPO-PQR-Template-Help-Text.pdf">https://www.nfa.futures.org/electronic-filing-systems/CPO-PQR-Template-Help-Text.pdf</a>.
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57. Is it more difficult to obtain NAICS code information for
certain instruments (e.g. broadly syndicated loans) as compared to
others? If yes, please describe.
58. Should this question be deleted entirely? Why or why not?
K. Eliminate Certain Questions Concerning Qualifying Hedge Funds'
Exposures to Reference Assets
We propose to remove Questions 39 and 40, which require large hedge
fund advisers to report detailed information about their qualifying
hedge funds' monthly portfolio exposure to reference assets.\96\ To
mitigate the impact of losing this data, the SEC proposes to add
streamlined exposure reporting to section 5, Item B.
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\96\ To accommodate this proposed change, we also propose to
remove ``netted exposure'' from the Glossary of Terms because Form
PF would no longer use that term without Questions 39 and 40. We
also propose to remove any other references to Questions 39 and 40
throughout the form.
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Question 32(b)(1) requires large hedge fund advisers to report, for
each qualifying hedge fund they advise except as otherwise instructed,
the reporting fund's exposure to specified sub-asset classes for each
month of the reporting period adjusted by netting
[[Page 22248]]
positions in the same underlying reference asset across instrument
type, among other things. In addition, Question 39 requires large hedge
fund advisers to report certain information about their qualifying
hedge funds' long and short netted exposure to reference assets at the
end of each month in the reporting period. In particular, it requires
the following reporting:
(1) the total number of reference assets to which the reporting
fund holds long and short netted exposure;
(2) the percent of net asset value represented by the aggregated
netted exposures of reference assets with the top five long and short
netted exposures; and
(3) the percent of net asset value represented by the aggregate
netted exposures of reference assets representing the top ten long and
short netted exposures.
Question 40 requires large hedge fund advisers to report certain
detailed information about their qualifying hedge funds' monthly gross
exposure, among other things, to reference assets that equal or exceed
any of the following thresholds: \97\
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\97\ Large hedge fund advisers must report the following: (1)
the dollar value (in U.S. dollars) of all long positions with legal
and contractual rights that provide exposure to the reference asset;
(2) the dollar value (in U.S. dollars) of all short positions with
legal and contractual rights that provide exposure to the reference
asset; (3) the netted exposure to the reference asset (as defined by
current Question 39 Instructions); (4) the sub-asset class and
instrument type; (5) the title or description of the reference
asset; (6) the reference asset issuer (if any) name and LEI; (7) the
CUSIP (if any), and at least one of the following other identifiers:
ISIN, Ticker if ISIN is not available, other unique identifier (if
ticker and ISIN are not available); (8) for reference assets with no
CUSIP or other identifier, advisers must describe the reference
asset; (9) if the reference asset is a debt security, size of issue;
(10) if the reference asset is a listed equity, average daily
trading volume, measured over 90 days preceding the reporting date;
and (11) the FIGI (optional).
---------------------------------------------------------------------------
(1) One percent of the net asset value, if the reference asset is a
debt security and the fund's gross exposure to it exceeds 20 percent of
the size of the overall debt security issuance;
(2) One percent of the net asset value, if the reference asset is a
listed equity and the fund's gross exposure to it exceeds 20 percent of
average daily trading volume measured over 90 days preceding the
reporting date; or
(3) Either five percent of the fund's net asset value or $1
billion.
The Commissions adopted Question 39 to provide a holistic view of a
reporting fund's portfolio concentration and provide insight into the
extent of a reporting fund's portfolio concentration and large
exposures to any reference assets.\98\ The Commissions adopted Question
40 to improve their ability to assess the magnitude of hedge fund
portfolio concentration, as well as to identify directional exposure.
The Commissions also stated that Question 40 was designed to allow the
Commissions and FSOC to link the information reported in Question 40 to
exposure reporting in Question 32, which is designed to give the
reported data added context and facilitate understanding of a fund's
investment portfolio and assessment of any implications for systemic
risk and investor protection purposes. The Commissions stated that the
combination of information reported in Question 32 and Question 40 is
designed to, among other things, provide better insight into a
qualifying hedge fund's investment approach and whether it is taking on
concentrated positions, potentially with leverage, and assess whether
or not a qualifying hedge fund's activities may have systemic risk or
investor protection implications.
---------------------------------------------------------------------------
\98\ See generally 2024 Form PF Adopting Release at section
II.C.2.a for a discussion of why the Commissions adopted Questions
39 and 40.
---------------------------------------------------------------------------
Based on filer feedback, however, we are concerned about the
burdens associated with collecting the information for Questions 39 and
40. Both Questions 39 and 40 require advisers to use specific
methodologies to calculate and report monthly exposures to reference
assets, and Question 40 includes three separate reporting thresholds
that can be difficult to assess in practice due to the multiple steps
embedded in each threshold and multiple data inputs required for each
step. Filers have expressed concern that they do not otherwise create
and maintain data using the specific calculations set forth in
Questions 39 and 40, and it is burdensome to calculate the multiple
data points necessary to determine the population of reportable
reference assets, and report such data solely for purposes of Form PF.
For example, some hedge funds may have dozens of positions that must be
analyzed both collectively when calculating the thresholds and
separately if the reference asset is reportable under Questions 40.
Specifically, the first and second threshold require multiple
calculations for a potentially significant number of positions and the
calculations require inputs such as total issuance size and an average
daily trading volume metric that may not be tracked or collected in the
ordinary course of the filer's management of the portfolio. We are also
concerned that these calculation challenges could create reliability
and comparability challenges that could undermine the utility of the
data.
Questions 39 and 40 were intended to provide a holistic view of a
reporting fund's portfolio concentration based on commonly used
industry metrics for assessing portfolio concentration levels.\99\
However, other data reported on the form, combined with the SEC's
proposed enhanced current reporting, should sufficiently allow the
Commissions and FSOC to assess portfolio concentration in furtherance
of systemic risk assessment and investor protection efforts, as
applicable. We will still receive information through responses to
Question 32 on adjusted investment exposures netted across instrument
type representing the same reference asset by sub-asset class, which
provides information on concentrated exposures.
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\99\ See 2024 Form PF Adopting Release at n.329 and accompanying
text.
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In addition, the SEC proposes to add an additional reporting field
to section 5, Item B, which requires large hedge funds to file a
current report no later than 72 hours after their qualifying hedge fund
experiences an extraordinary investment loss.\100\ Under the SEC's
proposal, if a large hedge fund adviser files such a current report, it
would be required to describe the largest exposure contributing to the
reported loss, including the dollar amount and certain identifying
information.\101\ This proposed change is tailored to help ensure Form
PF collects sufficient information to assess systemic risk and further
investor protection efforts related to qualifying hedge funds'
concentrated portfolio exposures without the significant burdens
associated with completing Questions 39 and 40.\102\ Therefore,
Questions 32, along with proposed section 5, Item B, should help ensure
Form PF collects information sufficient to assess systemic risk of
exposures and further investor protection efforts.
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\100\ See proposed section 5, Item B. In connection with this
proposed change, the SEC proposes to redesignate Questions 5-4
through 5-7 to accommodate the additional reporting field.
\101\ Identifying information would include a subset of
information that advisers would have reported in Question 40,
including the sub-asset class, instrument type, title or description
of the asset, issuer name, LEI (if any), CUSIP (if any), if no
CUSIP, then at least one of the following other identifiers: ISIN,
Ticker if ISIN is not available, other unique identifier.
\102\ See also infra section III.C.12 for a more detailed
discussion of benefits and costs of these proposed amendments.
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We request comment on the proposal to remove Questions 39 and 40,
and the SEC requests comment on the proposal
[[Page 22249]]
to add the proposed requirement to section 5, Item B:
59. Should we remove Questions 39 and 40, as proposed?
60. Do you agree with our characterization of the benefits and
burdens that Questions 39 and 40 present? Are there more, less, or
additional types of benefits or burdens? Please quantify the benefits
and burdens.
61. Instead, should we keep either Question 39 or 40, but revise
them to make them less burdensome? For example, should we keep Question
40, but simplify or raise the reporting thresholds? Please provide
example language. Should we reduce the reporting frequency from monthly
to quarterly?
62. Is there an alternative way to collect information on
concentration at the portfolio level and market level? Which is more
important for systemic risk assessment? Is there an alternative way to
collect information on position-level exposures to reference assets
that would aid FSOC in assessing systemic risk and the SEC's investor
protection efforts, but would be less burdensome than Questions 39 and
40, and better than our proposed approach of relying on adjusted
exposure information reported under Question 32 combined with current
reporting with the proposed revision to extraordinary investment loss
event question?
63. Should the SEC add a requirement to the current report in
section 5, Item B, as proposed? If the Commissions do not eliminate
Questions 39 or 40, should the SEC nonetheless adopt the proposed
requirements in section 5, Item B? Should the SEC add more or modify
any proposed requirements to the current report in section 5, Item B?
64. Do you agree that proposed section 5, Item B, together with
Question 32 would provide sufficient information to assess systemic
risk of exposures? Would Question 32 alone, without proposed section 5,
Item B provide sufficient information to assess systemic risk of
exposures? If so, should the Commissions eliminate Questions 39 and 40
without amending section 5, Item B?
L. Simplify Large Hedge Fund Adviser Counterparty Exposure Reporting
The Commissions propose to simplify the reporting on counterparty
exposures for large hedge fund advisers.
Specifically, the Commissions propose to remove Question 41 from
section 2 and to require advisers to qualifying hedge funds to complete
the simpler consolidated counterparty exposure table in Question 26,
which all filers complete for hedge funds they advise, except
qualifying hedge funds would provide monthly data points. For more
detailed information on counterparty exposures, the Commissions would
instead rely on the data filed in response to Questions 42 and 43,
which provide information on borrowing arrangements with significant
counterparties and creditors of large hedge funds.
To retain important information relating to counterparty exposure
for all borrowings to significant counterparties and creditors of
qualifying hedge funds, which is relevant to monitoring and assessing
systemic risk, the Commissions propose to amend Question 42 to require
large hedge fund advisers to report on all borrowings from significant
counterparties and creditors of qualifying hedge funds rather than only
cash borrowings and to categorize those borrowing entries by type.
Furthermore, the Commissions request comment on ways to alleviate
burdens on advisers with respect to netting counterparty exposures in
response to certain questions.\103\ Through these actions, the
Commissions seek to better balance filing burdens on advisers against
the Commissions' and FSOC's need to obtain clear and comparable data
regarding hedge funds' use of collateral and credit exposure to
counterparties.
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\103\ See Question 26, Question 27, Question 28, Question 42 and
Question 43 of Form PF.
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The Commissions also propose the following minor revisions to the
instructions in Question 42, none of which will substantively change
the form: (1) correcting a reference to a column (from column (c) to
column (b)) in subsection (b) where the LEI for a counterparty should
be provided, and (2) removing a sentence that instructs filers to
provide a counterparty's legal name and LEI in subsection (b) in
columns (vi) and (vii), which do not exist in subsection (b).
In 2024, the Commissions adopted amendments to Form PF that
included the new consolidated counterparty exposure tables, which were
designed to collect specific data on hedge funds' borrowing and
financing arrangements with central clearing counterparties (``CCPs'')
and other counterparties.\104\ The new tables require advisers to
report a hedge fund's borrowing, lending, and similar transactions with
creditors and other counterparties by type of borrowing, lending or
transaction (e.g., unsecured, secured borrowing and lending under a
prime brokerage agreement, secured borrowing and lending via repo or
reverse repo, other secured borrowing and lending, derivatives cleared
by a CCP, and uncleared derivatives),\105\ and the collateral posted or
received by a reporting fund in connection with each type of borrowing,
lending or other transaction. The consolidated counterparty tables were
designed to enhance the Commissions' and FSOC's understanding of hedge
funds' counterparty risk exposure, which is needed for systemic risk
assessment because of the potential contagion risks of both the
reporting fund and counterparty failure.\106\
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\104\ See Question 26 and Question 41 of Form PF; see generally
2024 Form PF Adopting Release at section II.B.3 and section II.C.2
for a discussion of the Commissions' rationale for the new
consolidated counterparty exposure tables.
\105\ See current Question 26 and Question 41 of Form PF.
\106\ See 2024 Form PF Adopting Release at section II.B.3.
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For hedge funds other than qualifying hedge funds, the consolidated
counterparty exposure table in section 1c (Question 26) collects the
reporting fund's borrowing and collateral received and lending and
posted collateral aggregated across all creditors and counterparties as
of the end of the reporting period.\107\ Qualifying hedge funds must
complete a separate consolidated counterparty exposure table in section
2 (Question 41), which requires additional detail. Specifically, unlike
the table in Question 26, the table in Question 41 directs advisers to
qualifying hedge funds to classify each type of borrowing by creditor
type (i.e., U.S. depository institution, U.S. creditors that are not
depository institutions, and non-U.S. creditors) and to provide
additional classifications of collateral by type (e.g., by breaking out
government securities from other securities, and identifying other
types of collateral or credit support (including the face amount of
letters of credit and similar third party credit support)).\108\ The
table in Question 41 also requires reporting of the qualifying hedge
fund's aggregated borrowing and collateral received and lending and
posted collateral as of the end of each month of its reporting period,
as opposed to as of the end of the reporting period required in
Question 26 for smaller hedge funds. Furthermore, advisers to
[[Page 22250]]
qualifying hedge funds must report in this table the expected increase
in collateral required to be posted by the reporting fund if the margin
increases by one percent of position size for each type of borrowing or
other transaction.\109\ The Commissions adopted this requirement to
allow for an assessment of qualifying hedge funds' vulnerability to
changes in financing costs and identification of funds that are most
sensitive to potential margin changes.\110\ The requirement was also
designed to provide a standardized way to obtain data on funds'
vulnerability to margin increases that is easy to scale up for analysis
purposes and allows for uniform comparisons across hedge funds to see
which funds have lockup agreements and which funds do not.\111\
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\107\ See General Instruction 9 of Form PF for applicable
reporting periods for large hedge fund advisers and all other
advisers. Large hedge fund advisers must update the Form PF within
60 calendar days after the end of each calendar quarter. All other
advisers must file annual updates to their Form PF within 120 days
after the end of their fiscal year.
\108\ See Question 41 of Form PF. See also 2024 Form PF Adopting
Release at section II.C.2.b.
\109\ See Form PF Question 41, subsections (b)(vii), (c)(vi),
(d)(vi), (e)(vi), and (f)(viii). In some subsections, the
instructions appear to mistakenly require advisers to report the
expected change in collateral if the required margin increases by
one percent, rather than by one percent of the position size.
\110\ 2024 Form PF Adopting Release at section II.C.2.b.
\111\ Id.
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Since the adoption of the 2024 amendments, filers have highlighted
significant challenges associated with completing the new consolidated
counterparty exposure tables, particularly the table in Question 41
which requires more granular reporting by collateral type (e.g.
government securities, securities and other collateral) for each type
of borrowing, lending or transaction (e.g. borrowing via prime
brokerage or repo and reverse repo) than Question 26. Several filers
voiced concerns that prime brokers report collateral on a pooled basis
to funds and do not generally unbundle classifications of collateral by
asset type.\112\ For example, prime brokers may not break out
government securities from other types of securities when reporting
collateral, as required by Question 41. As such, the operational
burdens of providing classifications of collateral for each type of
borrowing, lending or transaction may be particularly pronounced for
Question 41 because it requires additional unbundling and tracing of
collateral in a manner that does not align with the typical practices
of prime brokers. Filers also expressed that it is burdensome to report
the expected increase in collateral from the one percent margin
increase, because it necessitates hundreds or potentially even
thousands of calculations. Furthermore, filers emphasized the
significant difficulty of interpreting and responding with granular
accuracy to the detailed sub-parts of Question 41.
---------------------------------------------------------------------------
\112\ See, e.g., AIMA Letter II.
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In responding to these concerns, the Commissions propose to remove
Question 41 from section 2 and to instead require qualifying hedge
funds to complete the simpler consolidated counterparty exposure table
in Question 26. By completing the table in Question 26, large hedge
fund advisers to qualifying hedge funds would report each type of
collateral based on fewer classifications within each borrowing,
lending or transaction type in the consolidated counterparty exposure
table.\113\ Moreover, qualifying hedge funds would not be required to
report the expected increase in collateral from the one percent margin
increase that is currently required to be reported in Question 41.\114\
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\113\ But see proposed Question 18 of Form PF which requires all
reporting funds to report the value of the reporting fund's total
borrowings and to classify creditors by type (i.e., U.S. depository
institutions, U.S. creditors that are not U.S. depository
institutions, and non-U.S. creditors).
\114\ See supra footnote 108 and accompanying text.
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Unlike other hedge funds, however, qualifying hedge funds would be
required to report in Question 26 collateral posted and received as of
the end of each month of their reporting period, consistent with the
reporting intervals in the table in the current Question 41. We propose
to retain the monthly reporting of collateral obligations for
qualifying hedge funds because the size of large hedge funds and
therefore their broader interconnectedness to the financial markets
merit more regular reporting to aid the FSOC's ability to monitor
interim changes in exposures that may be relevant to systemic risk
assessment that are not visible from less than monthly data.
The elimination of Question 41 would not significantly diminish the
Commissions' and FSOC's ability to monitor systemic risk and protect
investors because Questions 26, 42 and 43 along with other questions on
Form PF, would continue to facilitate the tracking of large hedge
funds' collateral practices and their credit exposure to counterparties
as well as the exposure that creditors and other counterparties have to
large hedge funds.\115\ For more detailed information on counterparty
exposures, the Commissions and FSOC would instead rely on the data
filed in response to Questions 42 and 43, which, with certain proposed
amendments specified below, would provide information on borrowing
arrangements with significant counterparties and creditors of large
hedge funds while reducing reporting burdens associated with Question
41.\116\
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\115\ See infra section III.C.13 for a more detailed discussion
of the benefits and costs of the proposed changes to counterparty
exposure reporting by large hedge fund advisers, and infra section
III.F.5 for the reasonable alternatives considered.
\116\ See current Questions 42 and 43 of Form PF. Question 42
currently requires advisers, for each of their qualifying hedge
funds, to identify significant creditors and counterparties. In
current subsection (a) of Question 42, advisers must complete a
detailed individual counterparty exposure table, which includes a
break out of borrowings and lending by type, for the top five
creditors and counterparties to which the reporting fund owed the
greatest dollar amount in cash borrowing entries. In current
subsection (b) of Question 42, advisers must identify and provide
less detailed information (for example, unlike subsection (a),
current subsection (b) does not require advisers to categorize
borrowings by type) about creditors and counterparties (including
CCPs) that were not the top five listed in the individual
counterparty exposure tables, but to which the reporting fund owed
an amount in respect of cash borrowing entries which is equal to or
greater than either (1) 5% of the reporting fund's net asset value
as of the data reporting date, or (2) $1 billion. As discussed
below, the proposed changes to Question 42 would direct advisers to
report on all borrowings (as opposed to cash borrowing entries) from
significant counterparties and creditors of qualifying hedge funds.
See proposed Question 42 of Form PF. In current Question 43,
advisers are required, for each of their qualifying hedge funds, to
identify all counterparties (including CCPs) to which a fund has net
mark-to-market counterparty credit exposure after collateral that
equals or is greater than either (1) five percent of the fund's net
asset value or (2) $1 billion. As discussed below, proposed changes
to Question 43 would direct advisers to calculate net mark-to-market
counterparty credit exposure using borrowing entries (as opposed to
cash borrowing entries) and lending entries (as opposed to cash
lending entries). See proposed Question 43 of Form PF and infra
footnote 123.
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In connection with the proposal to remove Question 41, we propose a
conforming amendment to Question 18 in section 1b, which is required
for all hedge funds, so that advisers to large hedge funds must report
there information regarding the value of the reporting fund's total
borrowings and classify creditors by type (i.e., U.S. depository
institutions, U.S. creditors that are not U.S. depository institutions,
and non-U.S. creditors).\117\
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\117\ See proposed Question 18 of Form PF.
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We also propose amendments to conform Question 42 and Question 43
to the table in Question 26, as responses to these questions are based
on calculations performed to complete the consolidated counterparty
exposure table.\118\ The conforming changes to subsection (a) of
Question 42 would result in less burdensome breakdown of
[[Page 22251]]
collateral required of the top five counterparties of the reporting
fund in response to both Questions 42 and 43.
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\118\ See proposed Question 42 of Form PF. The individual
counterparty exposure table in proposed Question 42 would remove
references to the additional classifications of collateral that the
consolidated counterparty exposure table in Question 26 does not
have. Revisions to Question 43, which flows from the individual
counterparty exposure table in Question 42, would be reflected in
the schema for Question 43.
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Relatedly, we propose conforming amendments to amend instructions
for Questions 42 and 43 as a result of the proposed elimination of the
consolidated counterparty exposure table under Question 41 as well as
conforming amendments to certain definitions in the Form PF Glossary of
Terms to remove references to Question 41.\119\
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\119\ See proposed Form PF Glossary of Terms (definitions of
``cash borrowing entries,'' ``cash lending entries,'' ``consolidated
counterparty exposure table'', ``collateral posted entries'' and
``collateral received entries''). In addition, the definition of
``individual counterparty exposure table'' would be amended to
correct an error. The definition currently mistakenly refers to
Question 41 in addition to Question 42. Under the proposed
amendments, this error would be corrected to refer to Questions 42
and 43.
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In addition to the removal of Question 41 and related conforming
amendments discussed above, the Commissions propose amendments to
Question 42 and conforming changes to Question 43 in order to retain
detailed information on counterparty exposures relevant to monitoring
and assessing systemic risk.\120\ To retain information on the type of
counterparty exposure for all borrowings to significant counterparties
and creditors of qualifying hedge funds, which is important to
monitoring and assessing systemic risk, the Commissions propose to
amend Question 42 to require large hedge fund advisers to report on all
borrowings \121\ rather than only cash borrowings, and to categorize in
subsection (b) of Question 42 the borrowing entries by type (i.e.,
unsecured borrowing, secured borrowing (prime brokerage or other
brokerage agreement), secured borrowing via repo and reverse repo,
other secured borrowing, derivative positions cleared and uncleared by
a CCP) \122\ from all significant counterparties and creditors of
qualifying hedge funds.\123\ Relatedly, we propose conforming changes
to the instructions for calculating the reporting fund's net mark to
market counterparty credit exposure in Question 43 to revise references
to ``cash borrowing entries'' to ``borrowing entries'' and ``cash
lending entries'' to ``lending entries''.\124\
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\120\ See proposed Question 42 of Form PF.
\121\ See proposed Form PF Glossary of Terms (definition of
``borrowing entries''). In current Question 42 of Form PF, the
instructions for completing subsection (b) state that advisers must
report ``cash borrowing entries'' in column (d), whereas column (d)
of the table in subsection (b) refers to ``Borrowing''. The proposed
change would reconcile this difference by amending the instructions
for completing subsection (b) of Question 42 to instruct filers to
report all borrowings (i.e., ``borrowing entries'' as defined in the
proposed Form PF Glossary of Terms) in column (d) of subsection (b).
\122\ Instructions for completing subsection (b) of Question 42
would be amended to direct advisers to report ``the dollar amount of
each type of borrowing in rows (d)(1) through (d)(6).'' See proposed
Question 42 of Form PF.
\123\ A counterparty or creditor is significant if the reporting
fund borrows from such counterparty an amount that is equal to or
greater than either five percent of its net asset value as of the
data reporting date or $1 billion. See proposed Question 42 of Form
PF.
\124\ See proposed Question 43 of Form PF; proposed Form PF
Glossary of Terms (definition of ``lending entries''). Under
proposed Question 43, for counterparties to which the reporting fund
had net borrowing exposure, the reporting fund's net mark to market
counterparty credit exposure before collateral would equal the
reporting fund's borrowing entries, and the reporting fund's net
mark to market counterparty credit exposure after collateral would
be the amount (if any) by which the collateral posted entries exceed
such borrowing entries. See supra footnote 120. For counterparties
to which the reporting fund had net lending exposure, the reporting
fund's net mark to market counterparty credit exposure before
collateral would mean the lending entries. The reporting fund's net
mark to market counterparty credit exposure after collateral would
equal the amount (if any) by which the reporting fund's lending
entries exceed the collateral received entries.
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Information on all borrowings and borrowing types are requested on
a consolidated basis under current Question 41, which would be removed
under this proposal. Because this information provides critical insight
into large hedge funds' interconnectedness to the broader financial
system and is often integrated with other data sets that enhance
systemic risk assessment, we propose to retain this information for
qualifying hedge funds' significant counterparty exposures. Proposed
Question 42 would provide reporting that corresponds to Question 41,
but only for significant counterparties of the qualifying hedge fund,
without the margin increase reporting, and with the less burdensome
collateral breakdown required only for the top five counterparties of
the qualifying hedge fund. As a result, the proposed counterparty
reporting would provide the information the Commissions and FSOC should
need to assess systemic risk or investor protection concerns relating
to counterparty exposures and borrowing but with substantially limited
reporting burdens.
We do not expect any significant impacts from these proposed
changes to simplify large hedge fund reporting on the Commissions' and
the FSOC's ability to monitor and identify systemic risk and to protect
investors because the Commissions and FSOC have alternative means by
which information is collected on large hedge funds' counterparty
exposures.\125\ For example, the information Question 26 collects would
facilitate the Commissions' and FSOC's understanding of large hedge
funds' borrowing and financial relationships, counterparty exposures,
collateral practices, and the interconnectedness of large hedge funds
within the broader financial services industry. Importantly, the table
in Question 26 would obtain information regarding both borrowing and
lending practices of large hedge funds and their collateral obligations
on a monthly basis. This information would provide the Commissions and
FSOC with a bilateral picture of large hedge funds' borrowing and
financing arrangements and sufficiently granular data to be able to
monitor potential contagion risks of any particular counterparty
failure in rapidly changing markets and portfolios, to assess who may
be impacted by a reporting fund's failure. Although we recognize that
the classifications of collateral within each borrowing, lending or
transaction category as required in Question 26 may be challenging in
some instances for advisers to the extent counterparties do not track
this information, the burdens should be mitigated by the simplification
of consolidated counterparty exposure reporting by eliminating Question
41. To the extent Question 26 may nevertheless continue to pose
challenges for advisers, we request comment on ways to alleviate
burdens while retaining the information necessary to fulfill the
Commissions' and the FSOC's systemic risk assessment and investor
protection objectives.
---------------------------------------------------------------------------
\125\ See infra section III.C.13 for a more detailed discussion
of the benefits and costs of these proposed changes to counterparty
exposure reporting by large hedge fund advisers.
---------------------------------------------------------------------------
The Commissions and FSOC would also receive, through proposed
Question 18, information on large hedge funds' total borrowings and
creditor types broken out into the same categories that the table in
Question 41 had requested (i.e., U.S. depository institutions, U.S.
creditors that are not U.S. depository institutions, and non-U.S.
creditors).\126\ Moreover, as discussed above, the proposed changes to
Question 42 would collect more detailed information such as types of
borrowing from significant counterparties and creditors of large hedge
funds. In the absence of Question 41, the aggregate reporting under
Question 18 combined with reporting under Question 26 and proposed
Question 42 would still be appropriate and sufficient for purposes of
the Commissions' and FSOC's ability to monitor borrowing practices
across the private fund industry and the level of
[[Page 22252]]
interconnectedness of large hedge funds to banks and the broader
financial system. Moreover, Question 42 and Question 43 would continue
to obtain other detailed information about qualifying hedge funds'
significant individual counterparties,\127\ which should help the
Commissions and FSOC to localize accurately a large hedge fund's risk
exposure in the event of a particular counterparty failure.\128\
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\126\ See proposed Question 18 of Form PF.
\127\ See proposed Question 42 and Question 43 of Form PF. See
also infra III.C.13 for a more detailed discussion of the benefits
and costs of the proposed changes to counterparty exposure reporting
by large hedge fund advisers.
\128\ See 2024 Form PF Adopting Release at section II.C.2.d.
---------------------------------------------------------------------------
We also have alternative means through which we can sufficiently
determine a reporting fund's sensitivity to margin increases from other
questions on Form PF.\129\ These alternate means afford FSOC the
ability to collect and determine information relevant to monitoring
systemic risk. For example, the following questions concerning
liquidity would help identify funds that are sensitive to potential
margin changes: Question 20, which requires advisers to report assets
and liabilities categorized by the fair valuation hierarchy, and
Question 37, which requires advisers to report the percentage by value
of the reporting fund's positions that may be liquidated within certain
specified periods. Together these questions help identify funds that
are sensitive to potential margin changes because they help identify
the ability of a reporting fund to meet a margin call by selling liquid
assets. These alternative ways provide FSOC with sufficient information
to monitor and assess systemic risk.
---------------------------------------------------------------------------
\129\ See also infra section III.C.13 for a more detailed
discussion of the benefits and costs of the proposed changes to
counterparty exposure reporting by large hedge fund advisers.
---------------------------------------------------------------------------
The Commissions also seek comment on the burdens on advisers with
respect to netting counterparty exposures and cross-margining in
response to Question 26, Question 27, Question 28, Question 42 and
Question 43. Question 26 directs advisers to net the reporting fund's
exposure to each counterparty and among affiliated entities of a
counterparty and associated collateral. Hedge fund advisers that are
not large hedge fund advisers are required to report certain
significant individual counterparty exposures including borrowing and
collateral posted by the reporting fund in response to Question 27 and
Question 28, whereas large hedge fund advisers to qualifying hedge
funds must report on the fund's significant individual counterparty
exposures in response to Question 42 and Question 43. These questions
also include detailed instructions on netting the exposure to each
counterparty, which were designed to help ensure data quality and
comparability.\130\
---------------------------------------------------------------------------
\130\ See 2024 Form PF Adopting Release at n.227.
---------------------------------------------------------------------------
For example, in Question 26, netting must be used to reflect net
cash borrowed from or lent to a counterparty but must not be used to
offset securities borrowed and lent against one another, when reporting
prime brokerage and repo/reverse repo transactions.\131\ Since the
adoption of the 2024 amendments, however, several members of the
industry highlighted the significant burdens of answering these
questions and continued interpretive challenges with the netting
instructions in the form. In particular, reporting netted individual
counterparty exposure may be operationally challenging with respect to
blended margin arrangements (e.g., cross-margining agreements).
Although Form PF provides instructions on how to net exposures and
account for cross-margining agreements,\132\ these instructions have
not alleviated interpretive challenges because advisers cannot
necessarily align associated collateral with the borrowing, lending or
transaction categories in the counterparty exposure tables (e.g.,
breaking out netted counterparty exposures by different transaction
type and type of collateral as requested by Question 26 and the
following questions on individual counterparty exposures in Question
27, Question 28, Question 42 and Question 43). Filers have also
expressed difficulty with interpreting the netting instruction in
Question 26 mentioned above as it relates to reporting prime brokerage
and repo/reverse repo transactions.
---------------------------------------------------------------------------
\131\ See Question 26 of Form PF.
\132\ For example, Question 42(a)(iii) instructs as follows:
``check this box if one or more prime brokerage agreements provide
for cross-margining of derivatives and secured financing
transactions. If you have checked this box, and collateral does not
clearly pertain to secured financing vs. derivatives transactions,
report exposures and collateral as follows: . . . enter any
additional collateral gathered by the prime broker under a cross
margining agreement on lines (iii)(B),(C), (D), and (E).'' See also
2024 Form PF Adopting Release at n.402 and accompanying text.
---------------------------------------------------------------------------
The concerns raised by members of the industry indicate that
adjustments to the instructions may be needed to better align them with
how counterparty balances are reported to advisers in practice and to
better balance the filing burdens on advisers and the need for the
Commissions and FSOC to collect information necessary to monitor hedge
funds' borrowings and counterparty credit exposures.
We request comment on the proposal to eliminate Question 41, as
well as the proposed changes to Question 42 and Question 43, and to the
conforming amendments to certain terms in the Form PF Glossary of Terms
and to Question 42 and Question 43 to align them with Question 26; we
also request comment on reporting netted consolidated and individual
counterparty exposures in response to Question 26, Question 27,
Question 28, Question 42 and Question 43:
65. Should the Commissions eliminate Question 41? Why or why not?
66. Would the proposed deletion of Question 41 impede our ability
to appropriately collect information about counterparty exposures in
the large hedge fund industry necessary and appropriate for the
assessment of systemic risk? Why or why not?
67. Would removing Question 41 meaningfully alleviate burdens on
large hedge fund advisers? Why or why not? Should any adjustments be
made to Question 26 to alleviate burdens on large hedge fund advisers?
68. Are any additional amendments or clarifications needed for
Question 42, Question 43 and certain definitions in the Form PF
Glossary of Terms discussed above, in light of the proposed removal of
Question 41?
69. Should the Commissions amend Question 42 as proposed? Why or
why not?
70. Are any clarifications or adjustments needed to the definitions
of ``borrowing entries'' and ``lending entries'' added to the Form PF
Glossary of Terms in light of the proposed changes to Question 42?
71. Would the proposed changes to Question 42 help our ability to
appropriately collect information about counterparty exposures in the
large hedge fund industry necessary and appropriate for the assessment
of systemic risk? Why or why not?
72. Would the proposed changes to Question 42 increase burdens on
large hedge fund advisers? Why or why not? Should any adjustments be
made to Question 42 to alleviate burdens on large hedge fund advisers?
73. Should the proposed changes to the borrowing column in
subsection (b) of Question 42 include classifications for derivatives
positions? Why or why not? Would requiring classifications for
derivatives positions increase burdens on large hedge fund advisers?
Why or why not? Should advisers instead be allowed to include
derivatives positions under ``other secured borrowing'' or
alternatively under a new category ``other borrowing''?
[[Page 22253]]
74. Should the proposed changes to subsection (b) of Question 42
include a requirement to provide lending (in U.S. dollars) by the
reporting fund to other creditors and counterparties identified therein
and classifications of such lending (in U.S. dollars) (e.g., secured
lending (prime brokerage or other brokerage agreement), secured lending
via repo and reverse repo, other secured lending, derivative positions
cleared by a CCP, and derivative positions not cleared by a CCP)? Why
or why not?
75. Should the data reported in column (d), subsection (b) of
Question 43 be amended to categorize the type of borrowings (e.g., via
repo/reverse repo, prime brokerage, etc.) from all significant
counterparties and creditors of qualifying hedge funds? Why or why not?
76. Should any of the types of borrowing, lending or transactions
(e.g., unsecured, secured borrowing and lending under a prime brokerage
agreement, secured borrowing and lending via repo or reverse repo,
other secured borrowing and lending, derivatives cleared by a CCP, and
uncleared derivatives) be eliminated, separated or consolidated in
Question 26, Question 27, Question 28, Question 42 and Question 43? Why
or why not?
77. Should any of the classifications of collateral (e.g., cash and
cash equivalents, government securities and other securities) be
eliminated or consolidated in Question 26, Question 27, Question 28,
Question 42 and Question 43? Why or why not?
78. Are the instructions around netting counterparty exposures in
Question 26, Question 27, Question 28, Question 42 and Question 43
burdensome and/or unclear? If so, how should the Commissions modify
these instructions to alleviate burdens on large hedge fund advisers or
provide greater clarity? Are the instructions around netting
counterparty exposures inconsistent with respect to affiliates? If so,
how?
79. In light of the information required to be reported in response
to Questions 18, 26, 27, and 28, should qualifying hedge funds respond
to Questions 27 and 28 instead of Questions 42 and 43? Do the benefits
of the requested information in Questions 42 and 43 outweigh their
costs, taking into account the information provided in response to
Questions 18, 26, 27, and 28?
80. Alternatively, should the Commissions eliminate Question 27 and
Question 28 to focus significant counterparty exposure reporting on
large hedge fund advisers? As another alternative, should the
Commissions eliminate Question 28 to focus the more complicated netted
significant counterparty exposure reporting on large hedge fund
advisers? Why or why not?
81. Do cross-margining agreements make it difficult for an adviser
to trace what collateral has been posted or received for certain
transactions? Why or why not?
82. Should counterparty exposure reporting be based on net
exposures as proposed, or instead gross exposures? Why or why not?
83. Instead of the current netting and cross-margining
instructions, should filers be permitted to use their own internal
methodologies with respect to netting and cross-margining agreements?
If filers would be permitted to use their own such internal
methodologies, would that provide better or worse insight into
counterparty exposures and counterparty interconnectedness than the
proposed instructions? If filers were permitted to use their own
internal methodologies, would that provide better or worse ability to
compare and aggregate counterparty exposures across advisers?
84. Is there a better way to determine whether the reporting fund
and its counterparties are either overcollateralized or
undercollateralized? If so, please describe how and provide example
language.
85. When reporting prime brokerage and repo/reverse repo
transactions, do the instructions in Question 26 that require netting
to reflect net cash borrowed from or lent to a counterparty but do not
require filers to offset securities borrowed and lent against one lead
to inconsistent, inaccurate or misleading information necessary to
monitor for the assessment of systemic risk? Why or why not?
86. Would these netting instructions in Question 26 lead to
inconsistent, inaccurate or misleading information when comparing
reported data across Question 26, Question 42 or 43?
87. Do the netting instructions in Question 26 lead to the accurate
identification of material counterparties reported in Question 42 and
43? Why or why not?
88. Should the netting instructions in Question 26 require netting
of both cash and securities in order to identify counterparty credit
risk? Why or why not?
89. Proposed instructions for completing subsection (a) of Question
42 would direct advisers to complete the individual counterparty
exposure table for the five creditors and counterparties to which the
reporting fund owed the greatest dollar amount in borrowing entries
(before posted collateral). Instructions in proposed Question 43 would
direct advisers to provide the information required by the individual
counterparty exposure table at subsection (a) for the five
counterparties to which the reporting fund had the greatest dollar net
mark to market counterparty credit exposure after collateral,
calculated using borrowing entries and lending entries. Will amending
the instructions in Question 42 and Question 43 from identifying each
creditor or other counterparty to which the reporting fund owed an
amount in respect of cash borrowing entries to all borrowing entries,
and amending the instructions for calculating net mark to market
counterparty exposure for purposes of Question 43(a) to refer to
borrowing entries (as opposed to cash borrowing entries) and lending
entries (as opposed to cash lending entries), result in a different set
of top five counterparties required to be reported in subsection (a) of
Question 42 and top five counterparties required to be reported in
subsection (a) of Question 43? If so, please describe how.
90. Should the instructions to Question 27, Question 28, Question
42, and Question 43 reference only cash borrowing entries, or all
borrowings of the reporting fund (both cash and non-cash)? Why or why
not?
91. Should the definition of ``collateral posted entries'' \133\ be
amended to include additional entries or to remove certain entries from
the reporting fund's consolidated counterparty exposure table? For
example, should all cash collateral entries be included in ``collateral
posted entries''? Why or why not?
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\133\ See Form PF Glossary of Terms (definition of ``collateral
posted entries'').
---------------------------------------------------------------------------
M. Eliminate Rehypothecation Reporting
The Commissions propose to remove Question 45 of Form PF,
eliminating the requirement that advisers to qualifying hedge funds
report the percentage of the total amount of collateral and other
credit support that counterparties have posted to the reporting fund
that may be rehypothecated and that the reporting fund has
rehypothecated. To date, the reporting for Question 45 has not resulted
in reliable data, and it continues to be operationally challenging and
burdensome for advisers to obtain the required information.
Since 2011, Form PF has required advisers to qualifying hedge funds
to
[[Page 22254]]
report certain information regarding rehypothecation of the reporting
fund's aggregate collateral. Specifically, Question 38 of Form PF prior
to the 2024 amendments required qualifying hedge funds to provide the
percentage of the total amount of collateral and other credit support
that counterparties had posted to the reporting fund that may be
rehypothecated and that the reporting fund had rehypothecated.\134\
Qualifying hedge funds were also required to provide the percentage of
the total amount of collateral and other credit support that the
reporting fund had posted to counterparties that may be
rehypothecated.\135\ This information was designed to assist FSOC in,
among other things, monitoring the liquidity of hedge fund exposures as
well as hedge funds' ability to respond to market stresses and their
interconnectedness to counterparties.\136\ As part of the 2024
amendments (which redesignated Question 38 as Question 45), the
Commissions eliminated the requirement for large hedge fund advisers to
report the percentage of the total amount of collateral and other
credit support that the reporting fund had posted to counterparties
that may be re-hypothecated. The Commissions adopted this change
because such reporting was burdensome for advisers, and the data that
was obtained was generally not reliable.\137\ This was because advisers
could not easily collect and report the required information as re-
hypothecation commonly occurs from omnibus accounts into which advisers
generally do not have visibility.\138\ The 2024 amendments, however,
retained the requirement that large hedge fund advisers report
information regarding the rehypothecation of collateral and other
credit support that counterparties have posted to the reporting
fund.\139\
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\134\ See Question 38(a)(i) and Question 38(a)(ii) of the Form
PF prior to the 2024 amendments, available at <a href="https://www.sec.gov/files/rules/final/2011/ia-3308-formpf.pdf">https://www.sec.gov/files/rules/final/2011/ia-3308-formpf.pdf</a>.
\135\ See Question 38(b) of the Form PF prior to the 2024
amendments, available at <a href="https://www.sec.gov/files/rules/final/2011/ia-3308-formpf.pdf">https://www.sec.gov/files/rules/final/2011/ia-3308-formpf.pdf</a>.
\136\ See Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, Investment Advisers Act Release No. 3145 (Jan. 26, 2011),
76 FR 8068 (Febr. 11, 2011) at section II.C.2.b.
\137\ See 2024 Form PF Adopting Release at section II.C.2.b.
\138\ See id.
\139\ Because counterparties typically do not track
rehypothecation of cash collateral, the SEC staff retained its FAQ
permitting advisers not to include cash collateral when responding
to questions regarding the rehypothecation of collateral and other
credit support by the reporting fund. See SEC staff Form PF
Frequently Asked Question 45.1, available at <a href="https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/form-pf-faq">https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/form-pf-faq</a>; see also Historical SEC
staff Form PF Frequently Asked Question 38.1, available at <a href="https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/historical-form-pf-faqs">https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/historical-form-pf-faqs</a>.
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Although the burdens on advisers were expected to be reduced by the
elimination of rehypothecation reporting with respect to collateral
posted by the reporting fund, filers continued to identify data
challenges as they prepared to implement reporting under Question 45.
Filers have highlighted the operational challenges of identifying the
exact percentages of rehypothecated collateral after disregarding cash
collateral per SEC staff FAQs, and due to the fact that agreements with
counterparties typically do not stipulate the exact percentages at
which posted collateral may be rehypothecated (for example,
counterparty agreements may have a rehypothecation limit stated as a
maximum percentage of the reporting fund's total indebtedness to a
counterparty, rather than as a percentage of the total collateral
posted). Moreover, data received in response to Question 38
(redesignated as Question 45 as part of the 2024 amendments) have
generally been imprecise and not comparable, as advisers have typically
answered with rough estimates, e.g., ``0%'' or ``100%'', with
accompanying assumptions based on the parameters set by their
counterparty agreements. The operational challenges in responding to
Question 38 (currently Question 45 after the 2024 amendments) has
resulted in data that does not provide an accurate picture of hedge
funds' counterparty exposures in a manner that is meaningful to
monitoring the level of their interconnectedness to the financial
markets.
The Commissions therefore believe the question is unnecessary and
that removing this question would not significantly impact FSOC's
ability to monitor systemic risk and financial stability.\140\
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\140\ See infra section III.C.14 for a more detailed discussion
of the benefits and costs of eliminating Question 45.
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We request comment on the proposal to eliminate Question 45:
92. Should the Commissions, as proposed, eliminate Question 45 in
its entirety? If not, what information should be retained? If Question
45 is retained, should the Commissions alter the type of information
required in this question?
93. Would removing Question 45 meaningfully alleviate burdens on
private fund advisers?
94. Would the proposed elimination of Question 45 impede our
ability to appropriately collect information about the private fund
industry necessary and appropriate in the public interest and for the
protection of investors, or for the assessment of systemic risk?
95. Is there an alternative way that the SEC should identify the
amount of rehypothecation that occurs with respect to collateral posted
to the reporting fund?
N. Amendments to Large Hedge Fund Adviser Current Reporting
The SEC proposes to amend certain items within section 5, the
section of Form PF that requires large hedge fund adviser current
reporting. Currently, section 5 requires large hedge fund advisers to
report the occurrence of extraordinary investment losses, certain
margin events, counterparty defaults, material changes in prime broker
relationships, operations events, and certain events associated with
redemptions ``as soon as practicable, but no later than 72 hours''
after the occurrence of the event or when the adviser reasonably
believes the event occurred.
The SEC is proposing to (1) remove the requirement to file a
current report ``as soon as practicable'' so that large hedge fund
advisers are afforded a full 72 hours to file a current report; (2)
remove Item D, the current reporting obligation for margin default or
determination of inability to meet a call for margin, collateral or
equivalents; (3) amend Item G to narrow the meaning of an ``operations
event'' by deleting the second prong of the definition of ``critical
operations;'' and (4) remove the requirement to file a current report
if a qualifying hedge fund is unable to pay a redemption request under
Item I. The SEC is also requesting comment on whether the agency should
revise the reporting trigger for section 5 Item I or remove this
question.
1. Modify the Current Reporting Filing Deadline
The SEC proposes to remove the requirement to file a section 5
current report ``as soon as practicable'' after a reportable event so
that large hedge fund advisers would only be required to file no later
than 72 hours after the reportable event.\141\ Currently, upon the
occurrence of any event specified in section 5, a large hedge fund
adviser to a qualifying hedge fund must file a current report ``as soon
as practicable,
[[Page 22255]]
but no later than 72 hours'' after the reportable event.
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\141\ See Form PF section 5.
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The SEC added section 5 current reporting in 2023 to receive timely
notice of certain critical hedge fund events to better allow the SEC
and FSOC to assess the need for potential regulatory action in response
to any harm to inves
[…truncated; see source link]Indexed from Federal Register on April 24, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.