# Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-17724 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** September 1, 2022 - **Citation:** 87 FR 53832 ## Text COMMODITY FUTURES TRADING COMMISSION RIN 3038-AF31 SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 275 and 279 [Release No. IA-6083; File No. S7-22-22] RIN 3235-AN13 Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers AGENCIES: Commodity Futures Trading Commission and Securities and Exchange Commission. ACTION: Joint proposed rules. SUMMARY: The Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“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 (“CPO”) or commodity trading adviser (“CTA”). The amendments are designed to enhance the Financial Stability Oversight Council's (“FSOC's”) ability to monitor systemic risk as well as bolster the SEC's regulatory oversight of private fund advisers and investor protection efforts. In connection with the amendments to Form PF, the SEC proposes to amend a rule under the Investment Advisers Act of 1940 (the “Advisers Act”) to revise instructions for requesting a temporary hardship exemption. We also are soliciting comment on the proposed rules and a number of alternatives, including whether certain possible changes to the proposal should apply to Form ADV. DATES: Comments should be received on or before October 11, 2022. 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. • CFTC Comments portal: https://comments.cftc.gov. Follow the instructions for submitting comments through the website. • Mail: Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. • 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 www.cftc.gov. 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 www.cftc.gov 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 to the SEC by any of the following methods: Electronic Comments • Use the SEC's internet comment forms ( https://www.sec.gov/regulatory-actions/how-to-submit-comments ); or • Send an email to rule-comments@sec.gov. Please include File Number S7-22-22 on the subject line. Paper Comments • Send paper comments to Secretary, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-22-22. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The SEC will post all comments on the SEC's website ( https://www.sec.gov/rules/proposed.shtml ). Comments also are available for website viewing and printing in the SEC's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the SEC's Public Reference Room. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the SEC 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 SEC's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: CFTC: Pamela Geraghty, Associate Director; Michael Ehrstein, Special Counsel; Andrew Ruggiero, Attorney-Advisor at (202) 418-6700, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW Washington, DC 20581. SEC: Alexis Palascak, Lawrence Pace, Senior Counsels; Christine Schleppegrell, Acting Branch Chief at (202) 551-6787 or IArules@sec.gov, Investment Adviser Regulation Office, 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 2 1 15 U.S.C. 80b. Unless otherwise noted, when we refer to the Advisers Act, or any section of the Advisers Act, we are referring to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we refer to rules under the Advisers Act, or any section of these rules, we are referring to title 17, part 275 of the Code of Federal Regulations [17 CFR 275], in which these rules are published. 2 Form PF is a joint form between the SEC and CFTC only with respect to sections 1 and 2 of the Form. Agency Reference CFR citation CFTC & SEC Form PF 2 17 CFR 279.9. SEC Rule 204(b)-1 17 CFR 275.204(b)-1. Table of Contents I. Introduction II. Discussion A. Proposed Amendments to the General Instructions 1. Reporting Master-Feeder Arrangements and Parallel Fund Structures 2. Reporting Private Funds that Invest in Other Funds 3. Reporting Timelines B. Proposed Amendments Concerning Basic Information about the Adviser and the Private Funds it Advises 1. Proposed Amendments to Section 1a of Form PF—Identifying Information 2. Proposed Amendments to Section 1b of Form PF—Concerning All Private Funds 3. Proposed Amendments to Section 1c of Form PF—Concerning All Hedge Funds C. Proposed Amendments Concerning Information about Hedge Funds Advised by Large Private Fund Advisers 1. Proposed Amendments to Section 2a 2. Proposed Amendments to Section 2b D. Proposed Amendments To Enhance Data Quality E. Proposed Additional Amendments III. Economic Analysis A. Introduction B. Economic Baseline and Affected Parties 1. Economic Baseline 2. Affected Parties C. Benefits and Costs 1. Benefits 2. Costs D. Reasonable Alternatives 1. Alternatives to Proposed Amendments to General Instructions, Proposed Amendments to Enhance Data Quality, and Proposed Additional Amendments 2. Alternatives to Proposed Amendments to Basic Information about the Adviser and the Private Funds It Advises 3. Alternatives to Proposed Amendments to Information about Hedge Funds Advised by Large Private Fund Advisers 4. Alternatives to the Definition of the Term “Hedge Fund” E. 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. Consideration of Impact on the Economy VII. Statutory Authority I. Introduction The Commissions are proposing to amend sections of Form PF, the form that certain SEC-registered investment advisers, including those that also are registered with the CFTC as a CPO or CTA, use to report confidential information about the private funds that they advise. 3 The proposed amendments are designed to enhance FSOC's monitoring and assessment of systemic risk and to provide additional information for FSOC's use in determining whether and how to deploy its regulatory tools. The proposed amendments also are designed to collect additional data for use in the Commissions' regulatory programs, including examinations, investigations and investor protection efforts relating to private fund advisers. 4 Finally, the proposed amendments also are designed to improve the usefulness of this data. 5 3 Specifically, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), mandated that the SEC and the CFTC, in consultation with the FSOC, jointly promulgate rules governing the form and substance of reports required by investment advisers to private funds to be filed with the SEC, and with the CFTC for those that are dually-registered with both Commissions. Public Law 111-203, 124 Stat. 1376 (2010). See, 15 U.S.C. 80b-11. See also, 17 CFR 4.27(d). The result was Sections 1 and 2 of Form PF, which were jointly promulgated. See Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, Advisers Act Release No. 3308 (Oct. 31, 2011), [76 FR 71128 (Nov. 16, 2011)] (“2011 Form PF Adopting Release”) at section I. In 2014, the SEC amended Form PF section 3 in connection with certain money market fund reforms. See Money Market Fund Reform; Amendments to Form PF, Advisers Act Release No. 3879 (July 23, 2014), [79 FR 47736 (Aug. 14, 2014)] (“2014 Form PF Amending Release”). 4 Any reference to the “Commissions”, or “we”, as it relates to the collection and use of Form PF data are meant to refer to the agencies in their separate or collective capacities, and such data from filings made pursuant to 17 CFR 275.204(b)-1, by and through Private Fund Reporting Depository, a subsystem of the Investment Adviser Registration Depository (“IARD”), and reports, analysis, and memoranda produced pursuant thereto. Further, as the collection is being made pursuant to the Advisers Act and the IARD is subject to the authority and control of the SEC, as of the date of this proposal, it should not be assumed that the CFTC has direct, or timely access to such data. The Commissions will continue to engage in interagency discussions on the sharing of portions of Form PF data relevant to the CFTC consistent with the terms of existing interagency agreements or arrangements related to the sharing of data. 5 Additionally, the Federal Reserve Board uses this data for research and analysis. An adviser must file Form PF if (1) it is registered or required to register with the SEC as an investment adviser, (2) it manages one or more private funds, and (3) the adviser and its related persons collectively had at least $150 million in private fund assets under management as of the last day of its most recently completed fiscal year. 6 A CPO or CTA that also is registered or required to register with the SEC as an investment adviser and satisfies the other conditions described above must file Form PF with respect to any commodity pool it manages that is a private fund. Most private fund advisers file annually to report general information such as the types of private funds advised ( e.g., hedge funds, private equity funds, or liquidity funds), fund size, use of borrowings and derivatives, strategy, and types of investors. Certain larger advisers provide more information on a more frequent basis, including more detailed information on particular hedge funds and liquidity funds. 6 See 17 CFR 275.204(b)-1. Advisers Act section 202(a)(29) defines the term “private fund” as an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (“Investment Company Act”), but for section 3(c)(1) or 3(c)(7) of that Act. Section 3(c)(1) of the Investment Company Act provides an exclusion from the definition of “investment company” for any issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than one hundred persons (or, in the case of a qualifying venture capital fund, 250 persons) and which is not making and does not presently propose to make a public offering of its securities. Section 3(c)(7) of the Investment Company Act provides an exclusion from the definition of “investment company” for any issuer, the outstanding securities of which are owned exclusively by persons who, at the time of acquisition of such securities, are qualified purchasers, and which is not making and does not at that time propose to make a public offering of such securities. The term “qualified purchaser” is defined in section 2(a)(51) of the Investment Company Act. Form PF provides the Commissions and FSOC with important information about the basic operations and strategies of private funds and has helped establish a baseline picture of the private fund industry for use in assessing systemic risk. We now have almost a decade of experience analyzing the information collected on Form PF. In that time, the private fund industry has grown in size and evolved in terms of business practices, complexity of fund structures, and investment strategies and exposures. 7 For example, certain investment strategies, including credit, digital asset, 8 litigation finance, 9 and real estate strategies, have become more common since the form was adopted. 10 Similarly, we understand that qualifying hedge fund exposures to repurchase agreements (“repos”), reverse repurchase agreements (“reverse repos”), and U.S. treasury securities have increased in recent years. 11 Experience with Form PF data also has identified potential ways to improve data quality, including in instances where existing reporting may not identify fully the potential risks, such as in the reporting of certain master-feeder arrangements. 7 The value of private fund net assets reported on Form PF has more than doubled, growing from $5 trillion (net) in 2013 to $12 trillion (net) by the end of the third quarter of 2021, while the number of private funds reported on the form has increased by nearly 55 percent in that time period. Unless otherwise noted, the private funds statistics used in this Release are from the Private Funds Statistics Third Quarter 2021. Division of Investment Management, Private Fund Statistics Third Quarter 2021, (Mar. 30, 2022), available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2021-q3.pdf (“Private Fund Statistics Q3 2021”). Any comparisons to earlier periods are from the private funds statistics from that period, all of which are available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. SEC staff began publishing the private fund statistics in 2015, including data from 2013. Therefore, many comparisons in this Release discuss the almost nine year span from the beginning of 2013 through third quarter 2021. Some discussion in this Release compares data from a shorter time span, because the SEC staff published such data later than 2013. 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. 8 See Zuckerman, Gregory, Mainstream Hedge Funds Pour Billions of Dollars Into Crypto, The Wall Street Journal (March 2022) available at https://www.wsj.com/articles/mainstream-hedge-funds-pour-billions-of-dollars-into-crypto-11646808223#:~:text=Brevan%20Howard%20launched%20a%20cryptocurrency,and%20investing%20in%20blockchain%20technology. 9 See Burnett, David and Pierce, John, The Emerging Market for Litigation Funding, The Hedge Fund Journal (June 2013) available at https://thehedgefundjournal.com/the-emerging-market-for-litigation-funding/. 10 See Private Fund Statistics Q3 2021, supra footnote 7, at p. 24. 11 A qualifying hedge fund is defined in Form PF as “any hedge fund that has a net asset value (individually or in combination with any feeder funds, parallel funds and/or dependent parallel managed accounts) of at least $500 million as of the last day of any month in the fiscal quarter immediately preceding [the adviser's] most recently completed fiscal quarter.” See Form PF Glossary of Terms. From 2015 through the end of 2020, qualifying hedge fund exposure to repos doubled to $2 trillion, while from 2013 through the end of 2020, qualifying hedge fund borrowings attributable to reverse repos more than doubled to $1.3 trillion. For the same period, qualifying hedge fund exposure to U.S. treasury securities increased by almost 70 percent to $1.7 trillion in aggregate qualifying hedge fund gross notional exposure. Based on this experience and in light of these changes, the Commissions and FSOC have identified information gaps and situations where revised information would improve our understanding of the private fund industry and the potential systemic risk within it. We believe more detailed information, including with respect to strategies and exposures, would provide better empirical data to FSOC with which it may assess better the extent to which the activities of private funds or their advisers pose systemic risks. We expect that FSOC would use the new information collected on Form PF, together with market data from other sources, to assist in determining whether and how to deploy its regulatory tools. 12 This may include, for instance, identifying private fund advisers that merit further analysis or deciding whether to recommend to a primary financial regulator, like the SEC or CFTC, more stringent regulation of the financial activities that FSOC determines may create or increase systemic risk. This revised information also would improve our ability to protect investors. 13 12 Under the Dodd-Frank Act, FSOC must monitor emerging risks to U.S. financial stability and employ its regulatory tools to address those risks. S. REP. NO. 111-176, at 2-3 (2010). 13 The SEC also recently proposed amendments to the SEC-only sections of Form PF (sections 3, 4, 5, and newly proposed section 6) that would (1) require current reporting for large hedge fund advisers and advisers to private equity funds, (2) decrease the reporting threshold for large private equity advisers and amend reporting requirements for large private equity advisers, and (3) amend reporting requirements for large liquidity fund advisers. Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers, Investment Advisers Act Release No. 5950 (Jan. 26, 2022), [87 FR 9106 (Feb. 17, 2022)] (“2022 SEC Form PF Proposal”). 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 can use to carry out its monitoring obligations and assess systemic risk in light of changes in the private fund industry over the past decade. The Commissions are jointly proposing amendments to the form's general instructions, as well as section 1 of Form PF, which would apply to all Form PF filers. The Commissions also are jointly proposing amendments to section 2 of Form PF, which would apply to large hedge fund advisers who advise qualifying hedge funds ( i.e., hedge funds that have a net asset value of at least $500 million). 14 14 Unless stated otherwise, terms in this release that are defined in the Form PF Glossary of Terms are as defined therein. II. Discussion A. Proposed Amendments to the General Instructions We are proposing amendments to the Form PF general instructions designed to improve data quality and comparability and to enhance investor protection efforts and systemic risk assessment. 15 15 Additional proposed changes to the General Instructions concerning amendments to enhance data quality concerning methodologies and additional amendments are discussed in sections II.D and II.E of this Release, as well as the proposal to amend Instruction 3 to reflect our proposal to remove section 2a, which is discussed in footnote 138, and accompanying text. 1. Reporting Master-Feeder Arrangements and Parallel Fund Structures Private funds often use complex structures to invest, including master-feeder arrangements and parallel fund structures. 16 We are proposing amendments to Form PF that generally would require advisers to report separately each component fund of a master-feeder arrangement and parallel fund structure. 17 However, an adviser would continue to aggregate these structures for purposes of determining whether the adviser meets a reporting threshold. 18 16 A “master-feeder arrangement” is an arrangement in which one or more funds (“feeder funds”) invest all or substantially all of their assets in a single private fund (“master fund”). A “parallel fund structure” is a structure in which one or more private funds (each, a “parallel fund”) pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as another private fund. See Form PF Glossary of Terms. 17 Proposed Instruction 6. We also propose to amend Instruction 3 to reflect the proposed approach for reporting master-feeder arrangements and parallel fund structures. See infra footnote 18. 18 Proposed Instruction 5. For example, an adviser would aggregate private funds that are part of the same master-feeder arrangement in determining whether the adviser is a large hedge fund adviser that must complete section 2 of Form PF. In connection with these proposed changes, we propose to amend the term “reporting fund” and Instruction 3 so they would no longer discuss reporting aggregated information. Additionally, we propose to reorganize current Instruction 5 and current Instruction 6 so they reflect the proposed approach for when to aggregate certain funds. Current Instruction 5 instructs advisers about when to aggregate information about certain funds for purposes of reporting thresholds and responding to questions. Current Instruction 6 instructs advisers about how to aggregate information about certain funds. Proposed Instruction 5 would instruct advisers on when to aggregate information about certain funds for purposes of determining whether they meet reporting thresholds. Proposed Instruction 6 would instruct advisers about how to report information about certain funds when responding to questions. Currently, Form PF provides 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 do so consistently throughout Form PF. 19 In adopting this approach in 2011, the Commission stated that requiring advisers to aggregate or disaggregate funds in a manner inconsistent with their internal recordkeeping and reporting may impose additional burdens and that, as long as the structure of those arrangements is adequately disclosed, a prescriptive approach to aggregation was not necessary. 20 However, based on experience reviewing Form PF data, we observed that when some advisers report in aggregate and some advisers report separately, this can result in obscured risk profiles ( e.g., asset size, counterparty exposure, investor liquidity) and made it difficult to compare complex structures, undermining the utility of the data collected. We believe prescribing the way advisers report a master-feeder arrangement and parallel fund structure would provide better insight into the risks and exposures of these arrangements. 19 Current Instruction 5. 20 2011 Form PF Adopting Release, supra footnote 3, at text following n.332. Accordingly, we propose to require an adviser to report each component fund of a master-feeder arrangement and parallel fund structure, except where a feeder fund invests all its assets in a single master fund and/or “cash and cash equivalents” ( i.e., a disregarded feeder fund). 21 In the case of a disregarded feeder fund in Question 6, advisers instead would identify the disregarded feeder fund and look through to any disregarded feeder fund's investors in responding to certain questions regarding fund investors on behalf of the applicable master fund. The master fund effectively is a conduit through which a disregarded feeder fund invests and we do not believe separate reporting for such a feeder fund is necessary for data analysis purposes. 21 See proposed Instruction 6. The proposal would revise the term “cash and cash equivalents,” as described in section II.B.2 in this Release. In addition, we propose to no longer allow advisers to report any “parallel managed accounts,” (which is distinguished from “parallel fund structure”), except advisers would continue to be required to report the total value of all parallel managed accounts related to each reporting fund. 22 We continue to believe that including parallel managed accounts in the reporting may reduce the quality of data while imposing additional burdens on advisers. 23 Data regarding the total value of parallel managed accounts, however, allow FSOC to take into account the greater amount of assets an adviser may be managing using a given strategy for purposes of analyzing the data reported on Form PF. 24 22 Proposed Instruction 6. A “parallel managed account” is any managed account or other pool of assets managed by the adviser that pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as the identified private fund. See Form PF Glossary of Terms. Currently, advisers may, but are not required to, report information regarding parallel managed accounts in response to certain questions, except they must report the total value of all parallel managed accounts related to each reporting fund. See current Instruction 5. 23 See 2011 Form PF Adopting Release, supra footnote 3, at n.334, and accompanying text (the Commission was persuaded that aggregating parallel managed accounts for reporting purposes would be difficult and “result in inconsistent and misleading data” because the characteristics of parallel managed accounts are often somewhat different from the funds with which they are managed). For example, in a separately managed account a client generally selects an adviser's strategy but tailors it to the client's own investment guidelines. 24 Id. at text following n.336. We request comment on the proposed amendments. 1. Should we amend Form PF to require advisers to report component funds of master-feeder arrangements and parallel fund structures separately except for disregarded feeder funds, as proposed? Would the proposed amendments lead to more accurate data regarding the risk profiles of reporting funds and improve comparability? Would the proposed amendments enhance investor protection efforts and systemic risk assessment? Are there better ways to meet these objectives? For example, should Form PF require advisers to report only at the master fund level or the feeder fund level? 2. Do you agree that the master fund is effectively a conduit through which a disregarded feeder fund invests and that separate reporting for such a feeder fund is not necessary for data analysis purposes? Should we require advisers to report additional information regarding disregarded feeder funds? For example, should we require advisers to report the total cash holdings of such funds? 3. Are there other exceptions for reporting each component of a master-feeder arrangement or parallel fund structures separately that we should adopt? 4. Should we continue to require advisers to report only limited information on parallel managed accounts? If we should require additional reporting from parallel managed accounts, what additional information should we require? Should reporting of any such additional information be mandatory or voluntary? 5. Should we continue to require advisers to aggregate structures when determining whether they meet reporting thresholds? 6. Form PF currently does not require an adviser to report information regarding a private fund advised by any of the adviser's related persons, unless the adviser identified that related person as one for which the adviser is filing Form PF. Should we take a different approach and require an adviser to include information regarding private funds advised by any of the adviser's related persons if they are part of a master-feeder arrangement or parallel fund structure managed by the adviser? Or, would an adviser have difficulty gathering the information necessary to report this information for private funds managed by the adviser's related persons whose operations are genuinely independent of the adviser's own operations? 7. Could “parallel managed accounts,” be interpreted as overlapping with “parallel fund structure?” If so, should we remove the phrase “or other pool of assets” in the definition of “parallel managed account” to prevent that? 2. Reporting Private Funds That Invest in Other Funds We are proposing amendments to Form PF regarding how advisers report private fund investments in other private funds, trading vehicles, and other funds that are not private funds. Investments in other private funds. We propose to amend Instruction 7, which addresses how advisers treat private fund investments in other private funds ( e.g., a “fund of funds”). Currently, advisers include the value of private fund investments in other private funds in determining whether the adviser meets the filing threshold to file Form PF. 25 We believe this requirement is implicit in the current form and we propose to amend Instruction 7 to make it explicit. Current Form PF permits an adviser to disregard the value of a private fund's equity investments in other private funds for purposes of both the form's reporting thresholds ( e.g., whether it qualifies as a large hedge fund adviser) and responding to questions on Form PF, as long as it does so consistently throughout Form PF, subject to certain exceptions. 26 Under the proposal, the form would continue to permit an adviser to include or exclude the value of investments in other private funds (including internal and external private funds) when determining whether the adviser meets the thresholds for reporting as a large hedge fund adviser, large liquidity fund adviser, or large private equity adviser, and whether a hedge fund is a qualifying hedge fund. 27 The Commissions continue to believe that allowing this flexibility for these reporting thresholds avoids duplicative reporting, which reduces the burden of reporting for advisers and improves the quality of the data reported. 28 For example, under these instructions an adviser may exclude an investment in an external private fund that would already be counted through another adviser's reporting obligations. 25 Form PF Instruction 1 provides that certain advisers meet the filing threshold 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. 26 For example, under the current instructions, an adviser is not permitted to disregard any liabilities of the private fund, even if incurred in connection with an investment in other private funds. See current Instruction 7. 27 See current Instruction 7 and proposed Instruction 7. 28 See 2011 Form PF Adopting Release, supra footnote 3, at n.128, and accompanying text. However, we believe the form's current flexibility on whether to disregard underlying funds when responding to questions has undermined the utility of the data collected, as it provides unclear, inconsistent data on the scale of reporting funds' exposures. Therefore, we propose to amend Instruction 7 to require an adviser to include the value of a reporting fund's investments in other private funds when responding to questions on Form PF, unless otherwise directed by the instructions to a particular question. 29 We believe that requiring advisers to report fund of funds arrangements in a consistent manner would allow the Commissions and FSOC to understand better these fund structures by providing greater insight into the scale and exposures of reporting funds. 29 For example, an adviser would report the value of the reporting fund's investments in other private funds when reporting its gross asset value and net asset value in proposed Questions 11 and 12; however, Question 3 would specify that advisers must exclude the value of the reporting fund's investment in other internal private funds when providing a breakdown of their regulatory assets under management and net assets under management. Currently, advisers are not required to, but nonetheless have the option to, “look through” a reporting fund's investments in any other entity (including other private funds), except in instances when the form directs otherwise. 30 As a result, some advisers may “look through” a reporting fund's investments in other entities, while others do not, leading to unclear data, inconsistent comparisons, and less precise analysis across advisers. Therefore, we propose to amend Instruction 7 to provide that, when responding to questions, advisers must not “look through” a reporting fund's investments in internal private funds or external private funds (other than a trading vehicle, as described below), unless the question instructs the adviser to report exposure obtained indirectly through positions in such funds or other entities. 31 We also propose to take the same approach with regard to a reporting fund's investments in funds or other entities that are not private funds or trading vehicles. 32 These proposed amendments are designed to improve data quality and comparisons, so the Commissions and FSOC understand what Form PF data is from advisers “looking through” a reporting fund's investments, which we believe would lead to more effective systemic risk assessments and investor protection efforts. 30 See current Instruction 8. 31 See proposed Instruction 7. For example, advisers would not “look through” to the creditors of or counterparties to other private funds in responding to questions that ask about a reporting fund's borrowings and counterparty exposures. See proposed Question 18 (concerning borrowings) and proposed Questions 27 and 28 (concerning counterparty exposures). However, selected questions in section 2 of the form would require advisers to report indirect exposure resulting from positions held through other entities including private funds, and advisers would “look through” the reporting fund's investments in internal private funds and external private funds in responding to those questions. See e.g., proposed Question 32 (concerning reporting fund exposures). 32 See proposed Instruction 8 and supra footnote 31 (which provides examples that also apply to advisers to reporting funds that invest in funds and other entities that are not private funds or trading vehicles). Trading vehicles. Some private funds wholly own separate legal entities that hold assets, incur leverage, or conduct trading or other activities as part of the private fund's investment activities, but do not operate a business (each, a “trading vehicle”). 33 We propose to amend Form PF's general instructions to explain how advisers would report information if the reporting fund uses a trading vehicle. 34 Specifically, if the reporting fund uses a trading vehicle, and the reporting fund is its only equity owner, the adviser would either (1) identify the trading vehicle in section 1b, and report answers on an aggregated basis for the reporting fund and such trading vehicle, or (2) report the trading vehicle as a separate reporting fund. An adviser would have to report the trading vehicle separately if the trading vehicle holds assets, incurs leverage, or conducts trading or other activities on behalf of more than one reporting fund. If reporting separately, (1) advisers would report the trading vehicle as a hedge fund if a hedge fund invests through the trading vehicle; (2) advisers would report the trading vehicle as a qualifying hedge fund if a qualifying hedge fund invests through the trading vehicle; (3) otherwise, advisers would report the trading vehicle as a liquidity fund, private equity fund, or other type of fund based on its activities. 35 33 We propose to add “trading vehicle” to the Form PF Glossary of Terms. 34 See proposed Instruction 7. We propose to make a conforming change to Instruction 8 to reference this new instruction. 35 See proposed Instruction 7. Private funds may use trading vehicles for various purposes, including (1) for jurisdictional, tax, or other regulatory purposes, or (2) to “ring-fence” assets in light of liability or bankruptcy concerns associated with a particular investment ( i.e., structure assets so counterparties would only have recourse against the trading vehicle and not against the private fund). Currently, Form PF does not require advisers to identify trading vehicles. As a result, Form PF does not provide a clear window into the use of trading vehicles and the risks they present. For example, if a trading vehicle is ring-fenced, current Form PF does not provide a view into the assets or collateral on which a counterparty to such trading vehicle relies or the size and nature of the trading vehicle's exposure. In addition, where more than one reporting fund invests through a particular trading vehicle, the activities of multiple reporting funds are blended and potentially obscured. The proposed amendments are designed to address these concerns by providing more information on the extent private funds use trading vehicles to conduct investment activities. The proposed amendments also are designed to provide improved visibility into position sizes and counterparty exposures through trading vehicles. Having a clear, unobscured view into position sizes and counterparty exposures through trading vehicles is designed to help ensure accurate systemic risk assessment and analysis to further investor protection efforts, by providing the Commissions and FSOC with a view into the assets or collateral on which a counterparty to such trading vehicle relies and the size and nature of the trading vehicle's exposure. Investments in funds that are not private funds. Under the proposal, advisers would continue to include the value of the reporting fund's investments in funds and other entities that are not private funds, in determining reporting thresholds and responding to questions, unless otherwise directed, as Form PF currently requires. 36 For the reasons discussed above, we are proposing that, when responding to questions, however, advisers must not “look through” a reporting fund's investments in funds or other entities that are not private funds, or trading vehicles, unless the question instructs the adviser to report exposure obtained indirectly through positions in such funds or other entities. 37 36 See Instruction 8. 37 See supra footnote 32, and accompanying text (discussing proposed amendments to Instruction 8). We request comment on the proposed amendments. 8. Would the proposed amendments concerning reporting fund investments in other private funds, trading vehicles, and other funds that are not private funds provide a better understanding of the structure of private funds, and improve data quality and comparability? Is there a better way to meet these objectives? Should Form PF provide more or less flexibility to advisers in how they treat these types of private fund investments? For example, instead of allowing advisers the flexibility to include or exclude a private fund's investments in other private funds (including internal private funds and external private funds) in determining whether they meet thresholds for filing as a large hedge fund adviser, large liquidity adviser, or large private equity adviser, and whether a reporting fund is a qualifying hedge fund, should we require advisers to include or exclude such investments? Should we require external qualifying hedge funds to be excluded, to avoid receiving duplicate data? If Form PF should provide more flexibility, how would we help ensure data is understandable and comparable across advisers? 9. Would the proposed amendments regarding trading vehicles provide a clearer picture of how private funds use trading vehicles and their market risks? Would the proposed amendments provide improved visibility into position sizes and counterparty exposures? Is there a better way to meet these objectives? For example, should Form PF require advisers to report whether a trading vehicle is ring-fenced for liability purposes? 10. Under the proposal, if an adviser reports a trading vehicle as a separate reporting fund, the adviser must report the trading vehicle as a hedge fund, qualifying hedge fund, liquidity fund, private equity fund, or other type of fund, if it meets certain requirements. Would this proposed requirement help ensure advisers could not avoid reporting the trading vehicle as a private fund that is subject to additional reporting, such as a qualifying hedge fund? Is there a better way to meet this objective? Should Form PF instead only require advisers to report trading vehicles as investments in another fund? 11. Are the “look through” requirements concerning how to report a reporting fund's investments in other entities clear? Should we require advisers to not look through a reporting fund's investments in other entities, unless the question instructs the adviser to report exposure obtained indirectly through positions in such funds or other entities, as proposed? 3. Reporting Timelines We propose to amend Instruction 9 to require large hedge fund advisers and large liquidity fund advisers to update Form PF within a certain number of days after the end of each calendar quarter, rather than after each fiscal quarter, as Form PF currently requires. 38 All other advisers would continue to file annual updates within 120 calendar days after the end of their fiscal year. 39 Form PF would continue to require all advisers to use fiscal quarters and years to determine filing thresholds because advisers already make such calculations under 17 CFR 279.1 (“Form ADV”), which requires annual updates based on fiscal year. 40 38 Large hedge fund advisers generally would file within 60 calendar days after the end of each calendar quarter and large liquidity fund advisers generally would file within 15 days after the end of each calendar quarter. See proposed Instruction 9. 39 We also propose to amend the term “data reporting date” to reflect this proposed approach. See Form PF Glossary of Terms. 40 See Form PF Instructions 1 and 3; Form ADV and [17 CFR 275.204-1] Advisers Act rule 204-1 (amendments to Form ADV). Currently, fiscal quarter reporting significantly delays the time at which the Commissions and FSOC receive a complete data set for a calendar quarter. For example, large hedge fund advisers whose first fiscal quarter ends on the calendar quarter end of March, would file data covering January, February, and March by the end of May. 41 However, large hedge fund advisers whose fiscal quarter ends in May would not file their March data until the end of July, delaying Commission and FSOC access to full calendar quarter data by all large hedge fund advisers by four months. The proposed changes are designed to provide a more complete data set sooner to improve the efficiency and effectiveness of investor protection efforts and systemic risk assessment. Based on Form ADV data as of December 2021, 99.2 percent of private fund advisers already effectively file Form PF on a calendar basis because their fiscal quarter or year ends on the calendar quarter or year end, respectively. 42 The 0.8 percent of private fund advisers that have a non-calendar fiscal approach, which could cause a temporary data gap, represents approximately 274 private funds, totaling $200 billion in gross asset value. Calendar quarter reporting also would more closely align with reporting on [17 CFR pt. 4, app. A] Form CPO-PQR, which requires calendar quarterly reporting, allowing easier integration of these data sets. 41 See current Instruction 9 (requiring large hedge fund advisers to update Form PF within 60 calendar days after the end of their first, second, and third fiscal quarters, among other things). 42 We are presenting data from all private fund advisers, not just those who would file on a quarterly basis ( i.e., large hedge fund advisers and large liquidity fund advisers), to avoid potentially disclosing proprietary information of individual Form PF filers, and to be inclusive considering that the population of quarterly filers versus annual filers may change over time. We request comment on the proposed amendments. 12. Should we revise the reporting timelines, as proposed? 13. Should Form PF continue to require advisers to determine filing thresholds by fiscal year given corresponding Form ADV requirements? Alternatively, should Form PF require all Form PF filers to use calendar years and quarters for all Form PF purposes, including in determining filing thresholds and when to update Form PF? 14. Should we reduce the number of days by which filers must update Form PF to receive data sooner? How would this relieve or increase burdens? For example, should Form PF require large hedge fund advisers to update Form PF within 30 calendar days after the end of each calendar or fiscal quarter, rather than 60 calendar days? Should Form PF require large liquidity fund advisers to report within 10 calendar days after the end of each calendar quarter, rather than 15 calendar days? Should annual filers file within 30 calendar days after the end of their fiscal year, rather than 120 calendar days? 15. Should Form PF reporting timelines be more or less consistent with Form CPO-PQR? B. Proposed Amendments Concerning Basic Information About the Adviser and the Private Funds it Advises Each adviser required to file Form PF must complete all or part of section 1. The proposed amendments to section 1 are designed to provide greater insight into private funds' operations and strategies, and assist in identifying trends, including those that could create systemic risk, which in turn is designed to enhance investor protection efforts and systemic risk assessment. The proposed changes are designed to improve comparability across advisers, improve data quality, and reduce reporting errors, based on our experience with Form PF filings. 1. Proposed Amendments to Section 1a of Form PF—Identifying Information Section 1a requires an adviser to report identifying information about the adviser and the private funds it manages. We are proposing several amendments to collect additional identifying information regarding the adviser, its related persons, as well as their private fund assets under management. LEI for advisers and related persons. Legal entity identifiers, or “LEIs,” help identify entities and link data from different sources that use LEIs. 43 Currently, Form PF requires advisers to report the LEI for certain entities, if they have one, such as for the reporting fund and any parallel funds. 44 Form PF's current definition of “LEI” provides that, in the case of a financial institution that has not been assigned an LEI, advisers must provide the RSSD ID assigned by the National Information Center of the Board of Governors of the Federal Reserve System (“Federal Reserve Board”), if the financial institution has an RSSD ID. 45 We propose to remove this requirement and, instead, provide that advisers must not substitute any other identifier that does not meet the definition of an LEI. 46 However, advisers would use the RSSD ID, if the financial institution has one, for questions that specifically request an RSSD ID, and for questions that require advisers to report any other identifying information where the type of information is not specified. 47 These proposed amendments are designed to improve data quality because, based on experience with the current form, reporting RSSD IDs as LEIs makes it more difficult for staff to link data efficiently and effectively. 43 Form PF generally defines “LEI” as: the “legal entity identifier” assigned by or on behalf of an internationally recognized standards setting body and required for reporting purposes by the U.S. Department of the Treasury's Office of Financial Research or a financial regulator. See Form PF Glossary of Terms. 44 See current Question 5(d) and current Question 7(e). Current Form PF also requires large liquidity advisers to report the LEI for each security and repo held by the reporting fund, if they have one. See current Question 63(d) and current Question 63(g), respectively. Current Form PF also requires large private equity advisers to report the LEI for each of the reporting fund's controlled portfolio companies that constitute a financial industry portfolio company. See current Question 76. 45 See current Form PF Glossary of Terms. Currently, if an LEI has not been assigned and there is no RSSD ID, then the adviser would leave that line blank. 46 See proposed Form PF Glossary of Terms. 47 See e.g., proposed Question 9. We also would add “RSSD ID” to the Form PF Glossary of Terms and define it as the identifier assigned by the National Information Center of the Federal Reserve Board, if any. See Form PF Glossary of Terms. While Form PF currently requires advisers to provide the LEI for entities such as reporting funds and parallel funds, if the entities have one, it does not require advisers to report the LEI for itself and its related persons. 48 We propose to require advisers to provide the “LEI” for themselves and their “related persons,” if they have an LEI. 49 This proposed amendment is designed to help identify advisers and their related persons and link data from other data sources that use this identifier. 48 See e.g., current Question 5 and current Question 7. 49 See Proposed Question 1. We also propose to require advisers to provide the LEI for other entities, if the other entities have one, including internal private funds (see proposed Question 7 and proposed Question 15), trading vehicles (see proposed Question 9), and counterparties (see proposed Question 27 and proposed Question 28). A “related person” has the meaning provided in Form ADV. See Form PF Glossary of Terms. Form ADV defines a “related person” as any advisory affiliate and any person that is under common control with the adviser. See Form ADV Glossary of Terms. We request comment on the proposed amendments. 16. Should we require advisers to report “LEI” for financial institutions that have one and only report “RSSD ID” as a secondary identification where asked, as proposed? Would the proposed amendments help us improve data quality and help link data more efficiently and effectively from other sources that use LEIs and RSSD IDs? Is there a better way to meet these objectives? 17. Should Form PF require advisers to report the LEI for certain entities, if they have one, as proposed, such as the adviser and each related person, as well as internal private funds, trading vehicles, creditors, and counterparties, or others? Alternatively, should Form PF require any entities to obtain LEIs if they do not have them? Would those entities seek to obtain LEIs in the future absent any regulatory requirement to do so? 18. Are there other data sources we also should use that would allow us to link entities across forms? 19. Should we amend the term “LEI” in Form PF to match Form ADV or any other forms that use the term or a similar term? Assets under management. We are proposing to revise how advisers report assets under management attributable to certain private funds. Current Question 3 requires advisers to provide a breakdown of regulatory assets under management and net assets under management. These data are designed to show the size of the adviser and the nature of the adviser's activities. We propose to amend the instructions to direct advisers to exclude the value of private funds' investments in other internal private funds to avoid double counting of fund of funds assets. 50 Advisers would include the value of trading vehicle assets because, under the proposed definition, they would be wholly owned by one or more reporting funds. 51 These proposed amendments are designed to provide a more accurate view of the assets managed by the adviser and its related persons, as well as the general distribution of those assets among various types of private funds, because accurately viewing the scale of these managed assets is important to effectively assess systemic risk and further investor protection efforts. 50 See proposed Question 3. 51 See proposed Question 3. See proposed Form PF Glossary of Terms. We request comment on the proposed amendments. 20. Would the proposed amendments prevent double counting fund of funds assets? Is there a better way to meet this objective? Should we include private funds managed by the adviser's related persons in the definition of internal private fund for these purposes? Are there other types of investments that should be disregarded in order to prevent double counting? Are there other approaches to trading vehicles? 21. Form PF currently requires advisers to provide a breakdown of assets under management and regulatory assets under management based on certain categories of private funds. Should we require advisers to provide a breakdown for more, fewer, or different categories of private funds than Form PF currently provides? For example, should Question 3 include categories such as special purpose vehicles, private credit funds, or types of fund of funds? Explanation of assumptions. We are proposing to amend current Question 4, which advisers use to explain assumptions that they make in responding to questions on Form PF. Specifically, we propose to add an instruction directing advisers to provide the question number when the assumptions relate to a particular question. 52 This amendment is designed to help assess data more efficiently and improve comparability, based on experience with the form. 52 See proposed Question 4. We request comment on the proposed amendments. 22. Is there a better way to achieve our objectives of assessing data more efficiently and improving comparability? 2. Proposed Amendments to Section 1b of Form PF—Concerning All Private Funds Section 1b requires advisers to report certain identifying and other basic information about each private fund the adviser manages. The proposal would amend section 1b to require advisers to report additional identifying information about the private funds they manage as well as the private funds' assets, financing, investor concentration, and performance. The proposed changes are designed to provide greater insight into private funds' operations and strategies and assist in identifying trends that we believe would enhance investor protection efforts and FSOC's systemic risk assessment. At the same time, we believe the proposed amendments would help improve data quality and comparability, based on experience with Form PF. Type of private fund. We are proposing several amendments to identify different types of reporting funds better, and help isolate data according to fund type, to allow for more targeted analysis. Currently, advisers indicate a reporting fund's type on the Private Fund Reporting Depository (“PFRD”) filing system, and by filling out particular sections of the form. 53 We have found instances, however, where advisers have identified a reporting fund differently on Form PF than on Form ADV, even though the definitions of each fund type are the same on both forms. This may be due to error, or may be due to the fund's characteristics changing between deadlines for Form ADV and Form PF. Accordingly, to help prevent reporting errors and help ensure accuracy concerning the reporting fund's type, we propose to require advisers to identify the reporting fund by selecting one type of fund from a list: hedge fund that is not a qualifying hedge fund, qualifying hedge fund, liquidity fund, private equity fund, real estate fund, securitized asset fund, venture capital fund, or “other.” 54 If an adviser identifies the reporting fund as “other,” the adviser would describe the reporting fund in Question 4, including why it would not qualify for any of the other options. 53 For advisers that are also CPOs or CTAs, filing Form PF through PFRD is filing with both the SEC and CFTC. See Instruction 3 (instructing advisers to file particular sections of Form PF, depending on their circumstances. For example, all Form PF filers must file section 1 and large hedge fund advisers also must file section 2). 54 Proposed Question 6(a). In addition, we propose to require an adviser to indicate whether the reporting fund is a “commodity pool,” which is categorized as a hedge fund on Form PF. 55 Although the CFTC does not, as of the date of this proposal, consider Form PF reporting on commodity pools as constituting substituted compliance with CFTC reporting requirements, some CPOs may continue to report such information on Form PF. 56 This proposed amendment would allow for analysis of hedge fund data both with and without commodity pools reported on the form. 55 Proposed Question 6(b). Form PF defines “commodity pool” as defined in section 1a(10) of the U.S. Commodity Exchange Act, as amended. See Form PF Glossary of Terms. 56 Previously, the CFTC permitted dually registered CPO-investment advisers to submit Form PF in lieu of certain CFTC reporting requirements. See Compliance Requirements for Commodity Pool Operators on Form CPO-PQR, (Oct. 9, 2020) [85 FR 71772 (Nov. 10, 2020)] (“Form CPO-PQR Release”). Finally, we propose to require advisers to report whether a reporting fund operates as a UCITS or AIF, or markets itself as a money market fund outside the United States, and in which countries (if applicable). 57 These proposed amendments are designed to allow the Commissions and FSOC to filter data for more targeted analysis to better understand the potential exposure to beneficial owners outside the United States and to avoid double counting when Form PF data is aggregated with other data sets that include UCITS, AIFs, and money market funds that are marketed outside the United States. 57 See proposed Question 6(c) through (h). We propose to define the term “UCITS” as Undertakings for Collective Investment in Transferable Securities, as defined in the UCITS Directive of the European Parliament and of the Council (No. 2009/65/EC), as amended, or as captured by the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019, as amended. We propose to define “AIF” as an alternative investment fund that is not regulated under the UCITS Directive, as defined in the Directive of the European Parliament and of the Council on alternative investment fund managers (No. 2011/61/EU), as amended, or an alternative investment fund that is captured by the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019, as amended. See Form PF Glossary of Terms. We request comment on the proposed amendments. 23. Should Form PF require advisers to report additional identifying information about the private funds they advise, as proposed? Would the proposed amendments help identify each type of reporting fund, allow the Commissions and FSOC to filter data concerning types of funds, and conduct more targeted analysis? Is there a better way to meet these objectives? 24. Should proposed Question 6 include more, fewer, or different categories of private funds? For example, should the form include a category for funds that may be “hybrid” funds that may have characteristics of different types of private funds? Should proposed Question 6 include an “other” category, as proposed? Alternatively, should proposed Question 6 not include an “other” category and instead require that advisers select the best fit among the specific categories? Are there other ways to limit the types of funds that may report as “other?” 25. Should Form PF require advisers to explain in Question 4 why they choose “other” as a category, as proposed? Would this proposed requirement clarify what type of fund the reporting fund is, if it does not fit within the other categories? Is there a better way of identifying what type of fund the reporting fund is? Should Form PF require the adviser to include more, less, or different information in the explanation? 26. Should Form PF require advisers to identify if the reporting fund is a commodity pool, as proposed? Are any CPOs currently reporting information regarding any commodity pools, even if they are not private funds? If so, why? Alternatively, should we revise the definition of “hedge fund” so it would not include commodity pools? If we exclude commodity pools from the definition of “hedge fund,” should we amend Form PF to require advisers to report the same or different information about commodity pools as they do for hedge funds? 27. Should Form PF require advisers to report whether and in which countries the reporting company operates as a UCITS or AIF, or markets itself as a money market fund outside the United States, as proposed? Would the proposed amendment allow us and FSOC to filter data for more targeted analysis to better understand the potential exposure to beneficial owners outside the United States and to avoid double counting when Form PF data is aggregated with other data sets that include UCITS and AIFs? Is there a better way to meet these objectives? 28. Should Form PF define UCITS and AIF, as proposed? Would the proposed definitions keep the terms evergreen if directives change or new ones apply? If not, how should we define these terms? For example, should we provide less detail in the definition about the directives to keep the definitions evergreen? Master-feeder arrangements, internal private funds, external private funds, and parallel fund structures. To reflect that advisers would report components of master-feeder arrangements and parallel fund structures separately, we propose to amend Form PF to require advisers to report identifying information about master-feeder arrangements and other private funds ( e.g., funds of funds), including internal private funds, and external private funds. 58 Form PF currently requires advisers to report identifying information about parallel funds, and would continue to do so under the proposal. 59 The proposal also would require advisers to report the value of the reporting fund's investments in other private funds ( e.g., funds of funds), as current Question 10 requires, but with more detail. 60 Specifically, the proposal would require advisers to report the value of the reporting fund's equity investments in external private funds and internal private funds (including the master fund and each internal private fund), which would comprise the total investments in other private funds. 61 These amendments are designed to help map complex fund structures and cross reference private fund information across Form PF filings, to provide more complete and accurate information about each fund's risk profile. 58 For master-feeder arrangements, advisers would report the name of the feeder fund, its private fund identification number, and whether the feeder fund is a separate reporting fund or a disregarded feeder fund. For internal private funds that invest in the reporting fund, advisers would report the name of the internal private fund, its LEI, if it has one, and its private fund identification number. See proposed Question 7. If the reporting fund invests in external private funds, advisers would report the name of the master fund, its private fund identification number, and the master fund's LEI, if it has one. If the reporting fund invests in internal private funds, advisers would report the internal private fund's name, its private fund identification number, and its LEI, if it has one. Proposed Question 15. 59 See current Question 7 and proposed Question 8. 60 This requirement would be part of proposed Question 15. 61 See proposed Question 15. In connection with these proposed amendments, in the Form PF Glossary of Terms, we propose to remove the terms “investments in external private funds” and “investments in internal private funds,” and replace them with “external private funds” (private funds that neither the adviser nor the adviser's related persons advise) and “internal private funds” (private funds that the adviser or any of the adviser's related persons advise), respectively. The proposed definitions would not direct advisers to exclude “cash management funds,” as is currently the case under the terms being removed, because we observed that advisers determine whether a fund is a cash management fund inconsistently. Therefore, this proposed amendment is designed to improve data quality. We request comments on the proposed amendments. 29. Would the proposed amendments help to map complex fund structures and cross reference them to private fund information across Form PF filings? Would the proposed amendments provide more complete and accurate information about each fund's risk profile? Is there a better way to meet these objectives? 30. Should the form require different or additional identifying information to identify a master fund, feeder fund, internal private fund, or external private fund? 31. Should Form PF require advisers to report the private fund identification number for any feeder funds, as proposed, even though advisers annually report the private fund identification number of any feeder funds that invest in a private fund they advise on Form ADV? 62 62 Form ADV, section 7.B.(1).A.6. 32. Should Form PF define “internal private funds,” “external private funds,” and “trading vehicle,” as proposed? Are there alternative definitions we should adopt? For example, should we define “internal private funds” and “external private funds” to exclude cash management funds as the current definitions of “investments in internal private funds” and “investments in external private funds” do? Withdrawal or redemption rights. The proposal would change how advisers report withdrawal and redemption rights. Form PF currently requires only large hedge fund advisers to report whether each qualifying hedge fund provides investors with withdrawal or redemption rights in the ordinary course. 63 We propose to require all advisers to provide this information for each reporting fund to inform the Commissions and FSOC better of all reporting funds' susceptibility to stress through investor redemptions, to help identify how widespread the stress is. 64 If the reporting fund provides investors with withdrawal or redemption rights in the ordinary course, we propose to require advisers to indicate how often withdrawals or redemptions are permitted by selecting from a list of categories. 65 Advisers would report this information regardless of whether there are notice requirements, gates, lock-ups, or other restrictions on withdrawals or redemptions. 66 We believe these proposed amendments would allow us and FSOC to identify better reporting funds that may be affected by investor withdrawals during certain market events, or vulnerable to failure as a result of investor redemptions. We believe this information also would provide insight into other data that all reporting funds report. For example, we understand that private equity funds that do not typically offer redemption rights in the ordinary course likely have certain patterns of subscriptions and withdrawals, and also report performance to investors and prospective investors as an internal rate of return, rather than reporting based on changes in the portfolio market value. We propose to define “internal rate of return” in the proposed Form PF Glossary of Terms as the discount rate that causes the net present value of all cash flows throughout the life of the fund to be equal to zero. Analyzing reported information about investor withdrawal or redemption rights together with reported information about subscriptions and withdrawals or performance is designed to help us identify developing trends relevant to identifying systemic risk and would help us further investor protection efforts. We request comment on the proposed amendments. 63 Current Question 49(a). 64 To implement this, the proposal would move current Question 49(a) from section 2b, which requires large hedge fund advisers to report information about qualifying hedge funds, to section 1b which requires all advisers to report information about all the reporting funds they advise, and redesignate it as Question 10. To accommodate moving the question, the proposal would make corresponding amendments to the instructions in current Question 49, which we would redesignate as Question 52. 65 Proposed Question 10(b). The categories would be (1) any business day, (2) at intervals of at least two business days and up to a month, (3) at intervals longer than monthly up to quarterly, (4) at intervals longer than quarterly up to annually, and (5) at intervals of more than one year. 66 For example, if the reporting fund allows quarterly redemptions that are subject to a gate, then the adviser would select “at intervals longer than monthly up to quarterly.” 33. Should we require all advisers to report information about withdrawal and redemption rights about all the reporting funds they advise, as proposed? Alternatively, should only certain advisers report this information for only certain reporting funds? If so, which ones and why? 34. Should Form PF include more, fewer, or different categories for the schedule of withdrawal or redemption rights? As an alternative, should advisers be able to select “other” as a schedule category? Under what circumstances would an adviser select “other?” 35. Should we define “internal rate of return” as proposed? If not, what alternative definitions should we use? Trading vehicles. We are proposing to require advisers to provide identifying information for any trading vehicle in which the reporting fund holds investments or conducts activities. 67 Advisers would disclose the trading vehicle's legal name; LEI, if it has one; and any other identifying information about the trading vehicle, such as the RSSD ID, if it has one. This proposed amendment is designed to help the Commissions and FSOC understand the reporting fund's activities, including how it interacts with the market if the fund trades through a trading vehicle and related counterparty exposures. The identifying information also is designed to allow comparisons of Form PF data with data from other sources that use such information to identify entities. Enhancing the ability to compare Form PF data in this way is designed to provide a more comprehensive view of the market, and therefore, enhance investor protection efforts and systemic risk assessment. 67 Proposed Question 9. We request comment on the proposed amendments. 36. Should all advisers provide identifying information for a trading vehicle, including an LEI if it has one, as proposed? Alternatively, should only certain advisers report it for certain reporting funds? 37. Do any trading vehicles not have an LEI? 38. Should Form PF require more, less, or different identifying information for the trading vehicle? Gross asset value and net asset value. We propose several amendments to the way advisers report gross asset value and net asset value. We propose to require advisers who are filing quarterly updates to report gross asset value and net asset value as of the end of each month of the reporting period, rather than only reporting the information as of the end of the reporting period, as Form PF currently requires. 68 This proposed amendment is designed to facilitate analysis of other monthly Form PF data, including certain fund performance and risk metrics. 69 68 See current Questions 8 and 9, and proposed Questions 11 and 12. We also propose to make amendments to the instructions in current Question 8 (which we would redesignate as proposed Question 11) to correspond with the proposed instructions that would no longer allow advisers to aggregate master-feeder arrangements, as discussed above. 69 See e.g., proposed Question 23 (requiring all private fund advisers to report monthly performance data, to the extent such results are calculated for the reporting fund), supra footnote 98, and accompanying text, and proposed Question 48 (requiring large hedge funds to report monthly data concerning the reporting fund's portfolio correlation), infra section II.C.2 of this Release. We also propose to add new Question 13 to require advisers to separately report the value of unfunded commitments included in the gross and net asset value reported in proposed Questions 11 and 12. 70 Current Questions 8 and 9 require valuations based on the instruction in Form ADV for calculating regulatory assets under management, which requires advisers to include the amount of any unfunded commitments. 71 This approach reflects that, in the early years of a private fund's life, its adviser typically earns fees based on the total amount of capital commitments, which we presume reflects compensation for efforts expended on behalf of the fund in preparation for the investments. 72 We continue to believe that net asset value and gross asset value should include unfunded commitments so Form PF data is comparable to Form ADV data. However, there are circumstances where understanding the amount represented by unfunded commitments would enhance our understanding of changes to a reporting fund's net and gross asset value over time, inform us of trends, and improve data comparability over the life of the fund. For example, knowing the value of uncalled commitments would help the Commissions and FSOC more accurately identify how much leverage a fund with uncalled commitments has. Currently, the Commissions and FSOC only can infer this information but it is unclear whether such inferences are correct. Therefore, this proposed amendment is designed to improve data accuracy and comparability, which is important for effective systemic risk assessment and investor protection efforts. 70 Form PF currently defines “unfunded commitments” as “committed capital” that has not yet been contributed to the private equity fund by investors. We propose to amend the definition so it refers to all reporting funds, not only private equity funds. Form PF defines “committed capital” as any commitment pursuant to which a person is obligated to acquire an interest in, or make capital contributions to, the private fund. See Form PF Glossary of Terms. 71 Form PF requires advisers to calculate gross asset value and net asset value using regulatory assets under management, a regulatory metric from Form ADV. See “gross asset value” and “net asset value” as defined in Form PF Glossary of Terms; Form ADV: Instructions for Part 1A, Instruction 5.b. 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. 72 Rules Implementing Amendments to the Investment Advisers Act of 1940, Advisers Act Release No. 3221 (June 22, 2011) [76 FR 42950, 42956 (July 19, 2011)], at text accompanying n.90. We request comment on the proposed amendments. 39. Should Form PF require advisers who are filing quarterly updates to report information as of the end of each month of the reporting period, as proposed? Would this requirement facilitate our and FSOC's analysis of such advisers' other monthly Form PF data? Is there a better way to meet this objective? 40. Should Form PF require advisers to report the value of unfunded commitments included in the gross asset value and net asset value, as proposed? Would the proposed amendment improve data accuracy and comparability? Would the proposed amendment more accurately identify how much leverage a fund with uncalled commitments has? Is there a better way to meet this objective? Inflows and outflows. We propose to add a question requiring advisers to report information concerning the reporting fund's activity, including contributions to the reporting fund, as well as withdrawals and redemptions, which would include all withdrawals, redemptions, or other distributions of any kind to investors. 73 Form PF would specify that, for purposes of the question, advisers must include all new contributions from investors, but exclude contributions of committed capital that they have already included in gross asset value calculated in accordance with Form ADV instructions. 74 Quarterly filers would provide this information for each month of the reporting period. This proposed requirement is designed to facilitate analysis of other monthly Form PF data, including certain fund performance and risk metrics. 75 Therefore, this amendment is designed to improve data accuracy, and allow the Commissions and FSOC to analyze data more efficiently. Inflows and outflows inform the Commissions and FSOC of the relationship between flows and performance, changes to net and gross asset value, as well as trends in the private fund industry. Accordingly, this question is designed to provide a more accurate baseline understanding of inflows and outflows, so the Commissions and FSOC can, for example, more accurately assess how much the private fund industry has grown from flows versus performance. Inflows and outflows also can indicate funding fragility, which can have systemic risk implications. Therefore, this amendment also is designed to provide more accurate data of inflows and outflows for systemic risk assessment and investor protection efforts, including identifying activity that may not match investor disclosures. 73 See proposed Question 14. 74 Form PF would cite to Form ADV, Part 1A Instruction 6.e.(3). 75 See supra footnote 69. We request comment on the proposed amendments. 41. Should proposed Question 14 apply to advisers to all reporting funds, as proposed, or only certain advisers to only certain reporting funds? 42. Should proposed Question 14 instruct advisers to include or exclude any other information? Would proposed Question 14 raise operational challenges? For example, should the instructions specify whether to include or exclude distributions that may be recallable by the fund ( i.e., “recyclable capital commitments” or capital that can be recalled to invest during a portion of the investment period)? 43. Should Form PF require advisers to provide the amount of new redemptions or subscriptions based on notices that would be payable or expected after Form PF is due? If so, should all advisers submit such data for all reporting funds, or should only certain advisers submit it for only certain reporting funds? Base currency. The proposal would require all advisers to identify the base currency of all reporting funds, rather than only large hedge fund advisers identifying this information for only qualifying hedge funds. 76 When a reporting fund uses a base currency other than U.S. dollars in the current Form PF, the adviser must convert all monetary values to U.S. dollars, unless otherwise specified, to complete Form PF, which may cause inconsistencies in the data. 77 Currently, the Commissions and FSOC can identify such inconsistencies only for qualifying hedge funds from current Question 31. Therefore, this proposed change is designed to allow us and FSOC to interpret more accurately responses to questions regarding foreign exchange exposures and the effect of changes in currency rates on all reporting fund portfolios to aid systemic risk assessment and investor protection efforts across all reporting fund portfolios. 76 To implement this, the proposal would move current Question 31 from current section 2b, which requires large hedge fund advisers to report information about qualifying hedge funds, to section 1b which requires all advisers to report information about all the reporting funds they advise. See proposed Question 17. 77 See current Instruction 15. We also propose to revise Instruction 15 to provide additional instructions concerning currency conversions. See section II.D of this Release. We request comment on the proposed amendments. 44. Should we expand reporting of base currency information for all reporting funds, as proposed? Would the proposed change allow us and FSOC to interpret responses to questions regarding foreign exchange exposures and the effect of changes in currency rates for these funds? 45. Would the proposed amendment improve efficiency? Borrowings and types of creditors. The proposal would revise how advisers report the reporting fund's “borrowings.” We propose to revise the term “borrowings” to (1) specify that it includes “synthetic long positions,” which Form PF would define in the Glossary of Terms, and (2) provide a non-exhaustive list of types of borrowings. 78 This proposed reporting approach is consistent with SEC staff guidance from Form PF Frequently Asked Questions. 79 This proposed amendment is designed to improve data quality, based on experience with the form. Current Question 12 requires advisers to report the value of the reporting fund's borrowings and the types of creditors. We propose to amend this question to require advisers to indicate whether a creditor is based in the United States and whether it is a “U.S. depository institution,” rather than a “U.S. financial institution” as is currently required. 80 This proposed amendment is designed to make the categories more consistent with the categories the Federal Reserve Board uses in its reports and analysis, to enhance systemic risk assessment. The proposal would not require advisers to distinguish between non-U.S. creditors that are depository institutions and those that are not. We understand that it is difficult for advisers to distinguish non-U.S. creditors by type, resulting in inconsistent data that is less valuable for analysis. 78 “Borrowings” would include, but would not be limited to (1) cash and cash equivalents received with an obligation to repay; (2) securities lending transactions (count cash and cash equivalents and securities received by the reporting fund in the transaction, including securities borrowed by the reporting fund for short sales); (3) repo or reverse repo (count the cash and cash equivalents and securities received by the reporting fund); (4) negative mark-to-market of derivative transactions from the reporting fund's point of view; and (5) the gross notional value of “synthetic long positions.” We propose to define a “synthetic long position” in the Form PF Glossary of Terms ( see the proposed Form PF Glossary of Terms for the proposed definition.) We are proposing this definition based on our understanding of the instruments and to help ensure data quality to aid comparability. 79 See SEC staff Form PF Frequently Asked Questions, availa ble at https://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml (“Form PF Frequently Asked Questions”). See Form PF Frequently Asked Question 12.1 (which provides a non-exhaustive list of types of borrowings). 80 See proposed Question 18. Form PF would define “U.S. depository institution” as any U.S. domiciled depository institution, including any of the following: (1) a depository institution chartered in the United States, including any federally-chartered or state-chartered bank, savings bank, cooperative bank, savings and loan association, or an international banking facility established by a depositary institution chartered in the United States; (2) banking offices established in the United States by a financial institution that is not organized or chartered in the United States, including a branch or agency located in the United States and engaged in banking not incorporated separately from its financial institution parent, United States subsidiaries established to engage in international business, and international banking facilities; (3) any bank chartered in any of the following United States affiliated areas: U.S. territories of American Samoa, Guam, and the U.S. Virgin Islands; the Commonwealth of the Northern Mariana Islands; the Commonwealth of Puerto Rico; the Republic of the Marshall Islands; the Federated States of Micronesia; and the Trust Territory of the Pacific Islands (Palau); or (4) a credit union (including a natural person or corporate credit union). Form PF defines “U.S. financial institution” as any of the following: (1) a financial institution chartered in the United States (whether federally-chartered or state-chartered); (2) a financial institution that is separately incorporated or otherwise organized in the United States but has a parent that is a financial institution chartered outside the United States; or (3) a branch or agency that resides outside the United States but has a parent that is a financial institution chartered in the United States. See proposed Form PF Glossary of Terms. We request comment on the proposed amendments. 46. Should Form PF define or redefine any terms related to proposed Question 18? For example, should Form PF define “U.S. depository institution,” “synthetic long positions,” and revise the term “borrowings,” as proposed? Could the definitions be clearer? Should Form PF define the terms differently? For example, should “synthetic long position” provide a different list of assets to be included or excluded? Does the reference to deep-in-the-money options in the definition of “synthetic long position” need further clarification? If so, what clarifications should we make? 47. Would advisers find it difficult to distinguish among different types of non-U.S. creditors? Should Form PF require advisers to distinguish between non-U.S. creditors that are depository institutions and those that are not, or non-U.S. creditors that are financial institutions and those that are not? Fair value hierarchy. Current Question 14 requires advisers to report the assets and liabilities of each reporting fund broken down using categories that are based on the fair value hierarchy established under U.S. generally accepted accounting principles. 81 Current Question 14 is designed to provide insight into the illiquidity and complexity of a fund's portfolio and the extent to which the fund's value is determined using metrics other than market mechanisms. 82 We are proposing to revise how advisers report fair value hierarchy in current Question 14, which we would redesignate as proposed Question 20, in the following ways to improve data quality and better understand the reporting fund's complexity and valuation challenges: 81 See 2011 Form PF Adopting Release, supra footnote 3, at text accompanying n.204. 82 See 2011 Form PF Adopting Release, supra footnote 3, at n.204. • We propose to require advisers to indicate the date the categorization was performed. This proposed amendment is designed to show how old the data is. Some advisers report current fair value hierarchy, while others report a prior year's fair value hierarchy if the current data is not yet available. 83 This can cause confusion when analyzing the data, because the fair value hierarchy data concerns a different time period than the other data advisers report on Form PF. Therefore, we believe that adding a categorization date would help ensure the data is not incorrectly categorized as applying to the wrong time period, and in turn, would allow the Commissions and FSOC to correlate data to other Form PF data and market events more accurately. 83 Advisers are not required to update information that they believe in good faith properly responded to Form PF on the date of filing even if that information is subsequently revised for purposes of their recordkeeping, risk management, or investor reporting (such as estimates that are refined after completion of a subsequent audit). See Instruction 16. • We propose to direct advisers to report the absolute value of all liabilities. Currently, advisers report liabilities inconsistently, with some reporting absolute values and others reporting negative values. This inconsistency causes errors when the Commissions and FSOC aggregate this data and we believe the proposed instruction would help reduce aggregation errors. • We propose to direct advisers to provide an explanation in Question 4 if they report assets as a negative value. We have found that some advisers have reported negative values for assets in error. 84 Therefore, this instruction is designed to reduce inadvertent errors. 84 We recognize that there may be cases when advisers correctly report negative values, such as when subtracting fund of fund investments. • We propose to require advisers to separately report cash and cash equivalents. Currently, Form PF does not explain where advisers must report cash and cash equivalents in current Question 14. While SEC staff have suggested that advisers generally should report cash in the cost based column and cash equivalents in the applicable column in the fair value hierarchy or the cost based column, depending on the nature of the cash equivalents, we are proposing to add a separate column for cash and cash equivalents. 85 The proposed categorization is designed to differentiate reported holdings of cash and cash equivalents from harder to value assets that may be valued at cost, and in turn, improve data quality and comparability. 85 See Form PF Frequently Asked Question 14.3, Form PF Frequently Asked Questions, supra footnote 79. • We propose to amend the definition of “cash and cash equivalents.” The current definition of “cash and cash equivalents” includes “government securities.” 86 When reporting cash and cash equivalents, some advisers may include government securities with longer maturities, while others do not, which results in inconsistent reporting and may obscure our and FSOC's understanding of fund exposures. Therefore, to improve data quality, we propose to remove government securities from the definition of “cash and cash equivalents,” and present it as its own line item in the proposed Form PF Glossary of Terms. 87 We also propose to amend the term “cash and cash equivalents” so it would direct advisers to not include any digital assets when reporting cash and cash equivalents. As discussed in section II.B.3 of this Release, we propose to define “digital assets” and require advisers to report them separately than other types of assets. 88 Therefore, this proposed amendment is designed to ensure that the categories of “cash and cash equivalents” and “digital assets” are clearly distinct to help ensure accurate reporting. 86 Current Form PF defines “government securities” in the current term “cash and cash equivalents” as (1) U.S. treasury securities, (2) agency securities, and (3) any certificate of deposit for any of the foregoing. 87 We propose to make corresponding amendments to the definition of “unencumbered cash” to reflect that “government securities” would be a distinct term from “cash and cash equivalents.” This proposed amendment is not intended to change the meaning of the term “unencumbered cash.” See Form PF Glossary of Terms. 88 See e.g., proposed Question 25, which would include digital assets as a strategy category for advisers to hedge funds. • We propose to add instructions directing advisers about how to report data if their financial statement's audit is not yet completed when Form PF is due. The instructions would state that advisers should use the estimated values for the fiscal year and explain that the information is an estimate in Question 4. The proposed instructions also would provide that the adviser may, but is not required to, amend Form PF when the audited financial statements are complete. 89 The instructions are consistent with responses to Form PF Frequently Asked Questions and are designed to provide the Commissions and FSOC with more recent information regarding the reporting fund than may be possible if the reporting fund relied solely on audited financial statement information ( i.e., the reporting fund's previous fiscal year's audited financial statements). 90 Given that advisers file Form PF sometimes months after their quarter and year ends, depending on their size and the type of funds they advise, we believe the proposed instruction would balance reporting burdens with more timely information for assessing potential systemic risk and investor protection concerns. 89 Form PF Instruction 16 would continue to provide that an adviser is not required to update information that it believes in good faith properly responds to Form PF on the date of filing, even if that information is subsequently revised, as Form PF currently provides. 90 See Form PF Frequently Asked Question A.11, Form PF Frequently Asked Questions, supra footnote 79. We request comment on the proposed amendments. 48. Should we require advisers to indicate the date the categorization was performed, as proposed? Would this proposed amendment help ensure the data is correctly categorized as applying to the appropriate time period, and in turn, allow the Commissions and FSOC to correlate data to other Form PF data and market events more accurately? Is there a better way to meet this objective? 49. Should Form PF direct advisers to report the absolute value of all liabilities, as proposed? Would this proposed amendment reduce aggregation errors? Is there a better way to meet this objective? 50. Should Form PF direct advisers to provide an explanation in Question 4 if they report assets as a negative value, as proposed? Would this proposed instruction reduce inadvertent errors? 51. Should advisers report cash or cash equivalents separately from other assets, as proposed? Are there other alternatives we should implement? For example, should Form PF require advisers to report cash in the cost based column and cash equivalents in the applicable column in the fair value hierarchy or the cost based column, depending on the nature of the cash equivalents? 91 91 See supra footnote 85. 52. Would the proposed amendments to the terms “cash and cash equivalents” and “unencumbered cash,” and the addition of “government securities” allow for more precise reporting for these types of assets? Alternatively, should the definition of “cash and cash equivalents” provide that government securities would be included in cash equivalents if they are eligible to be held by money market funds under the risk-limiting condition set forth in [17 CFR 270.2a-7(d)(1)(i)] Investment Company Act rule 2a-7(d)(1)(i), which generally prohibits a money market fund from acquiring any instrument with a remaining maturity of greater than 397 calendar days? Should this language be more comparable with other requirements of Form PF, which require large liquidity fund advisers to report the dollar amount of a liquidity fund's assets that have a maturity greater than 397 days? 92 Should Form PF provide distinct line items for the term “cash” and “cash equivalents,” and revise questions to refer to each term, as applicable? Should the term “unencumbered cash” continue to refer to government securities, as proposed, or should we modify the term differently? For example, should “unencumbered cash” refer to U.S. treasury bills, rather than government securities? 92 See e.g., Form PF, section 3, current Question 55(i). The SEC recently proposed amendments to Form PF section 3, which would redesignate current Question 55(i) to reflect new numbering. See 2022 SEC Form PF Proposal, supra footnote 13. 53. Should Form PF direct advisers to report estimated values if their financial statement's audit is not yet completed when Form PF is due, as proposed? Alternatively, should we require advisers to update Form PF with updated values when the audited financial statements are complete? Beneficial Ownership of the Reporting Fund. Current Question 16 requires advisers to specify the approximate percentage of the reporting funds' equity that is beneficially owned by different groups of investors. We propose to require advisers to provide more granular information regarding the following groups of beneficial owners. 93 93 See proposed Question 22. • Advisers would indicate whether beneficial owners that are broker-dealers, insurance companies, non-profits, pension plans, banking or thrift institutions are U.S. persons or non-U.S. persons. 94 This proposed amendment is designed to allow the Commissions and FSOC to conduct more targeted analysis about risks presented in the United States separate from risks presented abroad. With regard to pension plans, in particular, it is currently unclear how advisers must report assets in non-U.S. pension plans: as governmental pension plans or foreign official institutions. Therefore, this proposed amendment also is designed to improve data quality, based on experience with the form. 94 We understand that, in some cases, an adviser may not be able to determine what type of non-U.S. entity the investor is. Current Question 16 already provides a category that would address that scenario in certain circumstances, and we would maintain that approach. If investors that are not United States persons and about which certain beneficial ownership information is not known and cannot reasonably be obtained because the beneficial interest is held through a chain involving one or more third-party intermediaries, advisers currently report this in current Question 16(m), which we would redesignate as proposed Question 22(s). • Advisers would indicate whether beneficial owners that are private funds are either internal private funds ( i.e., managed by the adviser or its related persons) or external private funds. This proposed amendment is designed to help the Commissions and FSOC understand the interconnectedness of private funds to each other, which would aid systemic risk assessment and investor protection efforts. Furthermore, this information is designed to help the Commissions and FSOC understand a reporting fund's risk from investor demands for liquidity, because beneficial owners that are external private funds may have less predictable withdrawals than internal private funds. • We would specify that “state” investors are U.S. state investors to improve data quality and reduce potential confusion. 95 95 The proposal also would include instructions to proposed Question 22, as well as current Question 15, which we would redesignate as proposed Question 21 (concerning a certain percentage of beneficial ownership), providing that if the reporting fund is the master fund in a master-feeder arrangement, advisers must look through any disregarded feeder fund ( i.e., a feeder fund that is not required to be separately reported). This proposed amendment is designed to implement the proposed master-feeder reporting. See section II.A.1 of this Release. The proposal would provide that if advisers report information in the “other” category, they must describe in Question 4 the type of investor, why it would not qualify for any of the other categories, and any other information to explain the selection of “other.” This proposed amendment is designed to improve data quality by providing context to the adviser's selection of the “other” category, and help ensure that advisers do not inadvertently report information in the wrong category. We request comment on the proposed amendments. 54. Should we revise the reporting categories as proposed? Should we eliminate, add, or change any categories? For example, should we add categories for security-based swap dealers that are U.S. persons and those that are not? The instructions for current Question 16 require advisers to include each investor in only one group. Therefore, if we require advisers to report whether an investor is a security-based swap dealer, how should they report the investor if the investor also qualifies for another category, such as broker-dealers or “banking or thrift institutions?” For example, should the list be non-exclusive? Is there a better way to address cases when advisers may not be able to determine what type of entity the investor is? 96 96 See supra footnote 94. 55. Should Form PF require advisers to explain their response when they select “other” as a category, as proposed? Should Form PF require the adviser to include more, less, or different information in the explanation? Would this proposed change provide context to the adviser's selection of the “other” category and help prevent misreporting? 56. Should we add instructions to current Question 15 (which we propose to redesignate as proposed Question 21) to allow good faith estimates in determining beneficial interests outstanding before March 31, 2012 (the effective date of Form PF), that have not been transferred on or after that date, as current Question 16 does and Form PF would continue to provide in proposed Question 22? 57. Current Question 16 includes a category concerning broker-dealers. Under the proposal, advisers would distinguish between broker-dealers that are U.S. persons and those that are not U.S. persons. Should Form PF define “broker-dealer” or use different terms so the categories would be more consistent with the Federal Reserve Board's reports and analysis? Is there a way to achieve this objective while ensuring the terms are consistent with the SEC's definition of the terms? For example, should Form PF use and define the term “broker” or “dealer” as they are defined in the Securities Exchange Act of 1934 (“Exchange Act”)? 97 Should Form PF use and define the term “foreign broker or dealer” as it is defined in [17 CFR 240.15a-6(b)(3)] (“Exchange Act rule 15a-6(b)(3)”)? Should Form PF use the term “securities brokers and dealers,” and define it the following way: Firms that buy and sell securities for a fee, hold an inventory of securities for resale, or do both? Are the firms that make up this sector those that submit information to the SEC on one of two reporting forms, either [17 CFR 249.617] Form X-17A-5, Financial and Operational Combined Uniform Single Report of Brokers and Dealers (“FOCUS Report”) or [17 CFR 449.5] Form G-405, on Finances and Operations of Government Securities Brokers and Dealers (“FOGS Report”)? 97 15 U.S.C. 78c(a)(4) and 15 U.S.C. 78c(a)(5). Fund Performance. We are proposing several amendments regarding fund performance reporting in current Question 17, which we would redesignate as proposed Question 23. 98 Currently, Form PF requires all advisers to report gross and net fund performance for specified fiscal periods using a table in current Question 17. The table in current Question 17 requires advisers to provide monthly and quarterly performance results in the table only if such results are calculated for the reporting fund. This requirement would remain, but we propose to add instructions specifying which lines to complete depending on whether the adviser is submitting an initial filing, annual update, or quarterly update. 99 We also propose to amend the instructions to the table to specify that if gross and net performance is reported to current and prospective investors, counterparties, or otherwise in a currency other than U.S. dollars, advisers must report the data using that currency. We believe this instruction is implied in the current form and we propose to amend this instruction to make it explicit. We also propose to require advisers to identify the currency in Question 4. 100 This proposed amendment is designed to inform the Commissions and FSOC of the currency the adviser used to report the reporting fund's gross and net performance, for more accurate and informed analysis. 98 In a separate release, the SEC is proposing a new rule under the Advisers Act to require advisers to provide certain fund performance information to its private funds' investors in quarterly statements. See Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Advisers Act Release No. IA-5955 (Feb. 9, 2022) [87 FR 16886, (Mar. 24, 2022)]. 99 We also propose to reorganize the table so monthly, quarterly, and yearly data is presented in separate categories, but this change would not affect reporting; advisers would report information according to the same intervals, as they currently do. We also propose to amend the table to refer to the end date of each applicable month, quarter, and year, rather than last day of the fiscal period, to reflect the proposed amendments to the reporting period, as discussed above. See supra section II.A.3 of this Release, and proposed Question 23(a). 100 See proposed Question 23(a). We also propose to create an exception to the tabular reporting. If the reporting fund's performance is reported to current and prospective investors, counterparties, or otherwise as an internal rate of return since inception, the adviser would report its performance as an internal rate of return. 101 If such information is reported to current and prospective investors, counterparties, or otherwise, in a currency other than U.S. dollars, advisers would report the data using that currency, and identify the currency in Question 4. This approach is designed to acknowledge that advisers calculate performance data differently for different types of private funds. For example, advisers of private equity funds may use internal rate of return to calculate performance data, while advisers to liquidity funds and hedge funds may use a periodic rate of return. These calculations may differ in the way they reflect realized and unrealized gains, among other things. Therefore, the proposed change is designed to allow the Commissions and FSOC to improve the usefulness and quality of performance data to conduct more accurate analysis, including comparisons, and aggregations. 101 See proposed Question 23 instructions, and proposed Question 23(b). Proposed Question 23(b) also would require that if the fund reports different performance results to different groups, advisers must provide the most representative results and explain their selection in Question 4. The instructions to proposed Question 23(b) would specify that internal rates of return for periods longer than one year must be annualized, while internal rates of return for periods one year or less must not be annualized. This instruction is designed to help ensure consistent reporting for accurate comparisons. The proposal would require advisers 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. In such a case, the adviser would report the following: • The “reporting fund aggregate calculated value” at the end of the reporting period. 102 Advisers that file a quarterly update also would report the reporting fund aggregate calculated value as of the end of the first and second month of the reporting period. 103 102 We would define the term “reporting fund aggregate calculated value” in the Form PF Glossary of Terms. See proposed Form PF Glossary of Terms and proposed Question 23(c). 103 See proposed Question 23(c)(i). • The reporting fund's volatility of the natural log of the daily “rate of return” for each month of the reporting period, following a prescribed methodology. 104 Advisers would report whether the reporting fund uses a different methodology than is prescribed in Form PF to report to current and prospective investors, counterparties, or otherwise, and if so, they would describe it in Question 4. 105 104 We would define “rate of return” for a reporting fund as the percentage change in the reporting fund aggregate calculated value in the reporting fund's base currency from one date to another, and adjusted for subscriptions and redemptions. For a portfolio position, the “rate of return” would be the percentage change in the “position calculated value,” adjusted for income earned. We would define “position calculated value” in the Form PF Glossary of Terms. The prescribed methodology would be the standard deviation of the natural log of one plus each of the daily rates of return in the month, annualized by the square root of 252 trading days. When calculating the natural log of a daily rate of return, the rate of return, which is expressed as a percent, must first be converted to a decimal value and then one must be added to the decimal value. See proposed Form PF Glossary of Terms and Question 23(c)(ii). 105 See proposed Question 23(c)(iii). • Whether the reporting fund had one or more days with a negative daily rate of return during the reporting period. If so, advisers would report (1) the most recent peak to trough drawdown, and indicate whether the drawdown was continuing on the data reporting date, (2) the largest peak to trough drawdown, (3) the largest single day drawdown, and (4) the number of days with a negative daily rate of return in the reporting period. 106 These measures are designed to help us and FSOC understand risk, particularly in reporting funds with unique return patterns that are poorly measured using volatility alone. We understand that advisers use drawdown metrics, therefore, this question also is designed to be more reflective of industry practice, and in turn improve data quality. 106 See proposed Question 23(iv). Together, the proposed changes are designed to allow the Commissions and FSOC to more accurately compare volatility across different fund types to identify market trends ( e.g., volatility of a specific fund type), for systemic risk assessment and investor protection efforts. For example, if several reporting funds that engage in similar trading activity experience a surge in volatility, the volatility itself or the reporting funds' response to the volatility may impact others who also are engaging in similar trading activity, which could pose systemic risk, and negatively affect investors. We request comments on the proposed amendments. 58. Would the proposed changes improve data quality and provide the Commissions and FSOC with a more robust picture of fund performance? 59. Should we amend the table in current Question 17, as proposed? For example, should we specify that if a reporting fund's gross and net performance is reported to current and prospective investors, counterparties, or others in a currency other than U.S. dollars, advisers must report the data using that currency, as proposed? Should we require advisers to identify the currency in Question 4, as proposed? 60. Do different types of private funds calculate performance data differently based on industry conventions, or otherwise? Do the proposed requirements and defined terms accurately capture the right types of performance reporting for investor protection and systemic risk assessment? Is there a better way to meet these objectives? 61. As an alternative, should Form PF require advisers to report the reporting fund aggregate calculated value information only for reporting funds that meet a certain asset threshold? 62. Should Form PF require advisers to follow the prescribed methodology to compute the reporting fund's volatility of the daily rate of return, as proposed, or should Form PF require advisers to follow a different methodology? If so, what methodology should Form PF prescribe and why? Should advisers have the flexibility to use their own methodology to compute the reporting fund's volatility of the daily rate of return? If advisers use their own methodology, how could the Commissions and FSOC ensure data could be aggregated and compared? 63. Could the instructions on how to calculate the volatility of the daily rate of return be clearer? For example, should the form include a calculation worksheet for advisers to fill out to help advisers calculate the volatility of rates of return? 64. Should we define “position calculated value,” “reporting fund aggregate calculated value,” and “rate of return,” as proposed? 65. We are not defining the term “drawdown.” Should Form PF define “drawdown?” For example, should Form PF define “drawdown” as the maximum loss in the value over a specified time internal? Should Form PF define or redefine any other terms? 66. Should Form PF specify what “peak to trough” means? For example, should “peak to trough” mean the percentage decline from portfolio's highest value (peak) to lowest value (trough) following the establishment of the highest value (peak)? Are there industry standards for determining peak to trough? For example, should Form PF provide guidance on when the “peak” or “trough” should be reset? As an alternative to requiring information about “peak to trough,” should Form PF require advisers to report the maximum drawdown? If so, should Form PF define “maximum drawdown” as the largest decline over any time interval within the reporting period? 67. Should Form PF require advisers to report information about the negative daily rates of return, as proposed? Alternatively, should Form PF require the largest peak to trough drawdown over a rolling 10-day period, or in each month? 68. Alternatively, should Form PF require advisers to report the daily mark to market calculations, or both the daily rate of return and the daily mark to market calculations? 69. Are the instructions clear for reporting funds that have base currencies other than U.S. dollars? Should we revise the form further to accommodate data concerning such funds? 3. Proposed Amendments to Section 1c of Form PF—Concerning All Hedge Funds Section 1c requires advisers to report information about the hedge funds they advise. We propose to require advisers to report additional information about hedge funds to provide greater insight into hedge funds' operations and strategies, assist in identifying trends, and improve data quality and data comparability for purposes of systemic risk assessments and to further investor protection efforts. We also propose to remove certain questions where other questions would provide the same or more useful data to streamline reporting and reduce reporting burdens without compromising investor protection efforts and systemic risk analysis. Investment Strategies. We propose to amend how advisers report hedge fund investment strategies. 107 We propose to require advisers to indicate which investment strategies best describe the reporting fund's strategies on the last day of the reporting period, rather than allowing advisers flexibility to report information as of the data reporting date or throughout the reporting period, as Form PF currently provides. 108 This amendment is designed to improve data quality by specifying how to report information if the reporting fund changes strategies over time. 107 We would amend current Question 20, and redesignate it as proposed Question 25. 108 See current Question 20. We also propose to update the strategy categories that advisers can select to reflect our understanding of hedge fund strategies better, and improve data quality and comparability, based on experience with the form. For example, we propose to include more granular categories for equity strategies, such as factor driven, statistical arbitrage, and emerging markets. Similarly, we propose to include more granular categories for credit strategies, such as litigation finance, emerging markets, and asset-backed/structured products. These more granular categories are designed to allow the Commissions and FSOC to conduct more targeted analysis and improve comparability among advisers and hedge funds, which the Commissions and FSOC can use to more accurately identify and address systemic risk and investor protection issues in times of stress. We also propose to add categories that have become more commonly pursued by hedge funds since Form PF was adopted, such as categories concerning real estate and digital assets. 109 Today, advisers may report information regarding these strategies in the “other” category, resulting in less robust Form PF data for analysis, especially when such analysis filters results based on strategy. 110 Therefore, the additional categories are designed to improve reporting quality and data comparability across advisers, based on experience with the form. If advisers select the “other” category, we propose to require them to describe in Question 4 the investment strategy, why the reporting fund would not qualify for any of the other categories, and any other information to explain the selection of “other.” This proposed change is designed to improve data quality by providing context to the adviser's selection of the “other” category. It also is designed to help us ensure that advisers are not misreporting information in the “other” category when they should be reporting information in a different category. 109 Aggregate qualifying hedge fund gross notional exposure to physical real estate has grown by 72 percent from the second quarter 2018 through the third quarter of 2021, to $146 billion. See Private Funds Statistics, supra footnote 7, First Quarter 2020 (showing data from the second quarter of 2018), and Third Quarter 2021. 110 The amount of hedge fund exposure that advisers attribute to the “other” category has more than doubled to $57 billion, from 2013 through third quarter 2021. See Private Funds Statistics, supra footnote 7. In connection with these proposed amendments, we propose to define the term “digital asset” as an asset that is issued and/or transferred using distributed ledger or blockchain technology (“distributed ledger technology”), including, but not limited to, so-called “virtual currencies,” “coins,” and “tokens.” These types of assets also are commonly referred to as “crypto assets.” 111 We view these terms as synonymous. We are proposing the term and definition to be consistent with the SEC's recent statement on digital assets, and we believe that such term and definition would provide a consistent understanding of the type of assets we intend to address. 112 The SEC proposed to add the same term and definition to SEC's section of Form PF in the 2022 SEC Form PF Proposal. 113 The definition is designed to help ensure that advisers report digital asset strategies accurately. 111 See e.g., FSOC 2021 Annual Report, at 184-185, available at https://home.treasu [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-17724. Public record. Not legal advice.