Download:
pdf |
pdfSUPPORTING STATEMENT
FORM PF
A.
JUSTIFICATION
1.
Necessity for the Information Collection
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank
Act”) established the Financial Stability Oversight Council (“FSOC”) to monitor
emerging risks to U.S. financial stability.1 Sections 404 and 406 of the Dodd-Frank Act
direct the Securities and Exchange Commission (“SEC”) to supply FSOC with
information for use in monitoring systemic risk by establishing reporting requirements
for private fund advisers.2 On October 26, 2011, in a joint release with the Commodity
Futures Trading Commission (“CFTC”), the SEC adopted rule 204(b)-1 under the
Investment Advisers Act of 1940 (“Advisers Act”).3 This rule implements sections 404
and 406 of the Dodd-Frank Act by requiring private fund advisers that have at least $150
million in private fund assets under management to report certain information regarding
the private funds they advise. Such advisers will periodically file with the SEC all or part
1
Pub. L. No. 111-203, 124 Stat. 1376 (2010).
2
Section 404 of the Dodd-Frank Act provides that the required reports may include such
information as the SEC deems necessary and appropriate in the public interest and for investor
protection or for the assessment of systemic risk. A “private fund” is a company that would be an
investment company, as defined in the Investment Company Act of 1940, but for exemptions in
that Act allowing for certain privately offered companies to be unregistered if they have fewer
than a specified number of investors or all their investors meet a minimum standard of
sophistication. For purposes of this supporting statement, a “private fund adviser” is any
investment adviser that (i) is registered or required to register with the SEC and (ii) advises one or
more private funds. See Reporting by Investment Advisers to Private Funds and Certain
Commodity Pool Operators and Commodity Trading Advisors on Form PF, Investment Advisers
Act Release No. IA-3308 (Oct. 31, 2011) (“Adopting Release”).
3
The CFTC approved the joint rulemaking by seriatim vote on October 28, 2011.
of a new reporting form, titled Form PF, and the information will be made available to
FSOC for use in monitoring systemic risk.
Form PF contains a new “collection of information” within the meaning of the
Paperwork Reduction Act of 1995 (“PRA”).4 The title for the new collection of
information is: “Form PF under the Investment Advisers Act of 1940, reporting by
investment advisers to private funds.” The paperwork burden associated with
rule 204(b)-1 is included in the collection of information burden associated with Form PF
and, therefore, does not entail a separate collection of information.
Form PF divides respondents into two broad groups, Large Private Fund Advisers
and smaller private fund advisers. “Large Private Fund Advisers” are advisers with at
least $1.5 billion in assets under management attributable to hedge funds (“large hedge
fund advisers”), advisers that manage “liquidity funds” and have at least $1 billion in
combined assets under management attributable to liquidity funds and registered money
market funds (“large liquidity fund advisers”), and advisers with at least $2 billion in
assets under management attributable to private equity funds (“large private equity
advisers”).5 All other respondents are considered smaller private fund advisers.
Smaller private fund advisers must report annually and provide only basic
information regarding their operations and the private funds they advise. Large private
equity advisers also must report on an annual basis but are required to provide additional
information with respect to the private equity funds they manage. Finally, large hedge
fund advisers and large liquidity fund advisers must report on a quarterly basis and
4
44 U.S.C. 3501-3521.
5
See the Adopting Release for definitions of “hedge fund,” “liquidity fund” and “private equity
fund.”
-2-
provide more information than other private fund advisers.6 The PRA analysis set forth
below takes into account the difference in filing frequencies among different categories
of private fund adviser. It also reflects the fact that the additional information Form PF
requires large hedge fund advisers to report is more extensive than the additional
information required from large liquidity fund advisers, which in turn is more extensive
than that required from large private equity advisers.
In addition to periodic filings, a private fund adviser would be required to file
very limited information on Form PF in three situations. First, any adviser that
transitions from quarterly to annual filing because it has ceased to be a large hedge fund
or large liquidity fund adviser must file a Form PF indicating that it is no longer obligated
to report on a quarterly basis. Second, filers who are no longer subject to Form PF’s
periodic reporting requirements must file a final report indicating that fact. Finally, an
adviser experiencing technical difficulties in submitting Form PF may request a
temporary hardship exemption by filing portions of Form PF in paper format.7
The SEC has sought to minimize the reporting burden on private fund advisers to
the extent appropriate. In particular, the SEC has taken into account an adviser’s size and
the types of private funds it manages in designing scaled reporting requirements. In
6
See section II.A of the Adopting Release (describing who must file Form PF), section II.B of the
Adopting Release (discussing the frequency with which private fund advisers must file Form PF),
section II.C.2 of the Adopting Release (describing the information that large hedge fund advisers
must report on Form PF), and sections II.C.3 and II.C.4 of the Adopting Release (describing the
information that large liquidity and private equity fund advisers must report on Form PF). See
also Instruction 9 to Form PF (discussing the frequency with which private fund advisers must file
Form PF).
7
See rule 204(b)-1(f). The rule requires that the adviser provide limited information describing the
nature of the hardship.
-3-
addition, where practical, the SEC has permitted advisers to rely on their existing
practices and methodologies to report information on Form PF.8
2.
Purpose of the Information Collection
Form PF is intended to provide FSOC with information that will assist it in
fulfilling its obligations under the Dodd-Frank Act relating to nonbank financial
companies and systemic risk monitoring.9 The SEC also may use the information in
connection with its regulatory and examination programs. The respondents to Form PF
will be private fund advisers, as defined above, that have $150 million or more in assets
under management attributable to private funds. Compliance with Form PF is mandatory
for any such private fund adviser. Responses to the information collection will be kept
confidential to the extent permitted by law.10
3.
Role of Improved Information Technology
Under rule 204(b)-1(b), Form PF must be filed through an electronic system
designated by the SEC for this purpose. The SEC recently issued notice of its
determination that the Financial Industry Regulatory Authority (“FINRA”) will develop
and maintain the filing system for Form PF as an extension of the existing Investment
Adviser Registration Depository (“IARD”), through which registered advisers are already
separately obligated to file annual reports on Form ADV.11 Because respondents to
Form PF will include only registered advisers, the SEC believes there will be efficiencies
8
The SEC also believes that private fund advisers already collect or calculate some of the
information required on the Form at least as often as they must file the Form. See the Adopting
Release at note 146.
9
See section I.A of the Adopting Release.
10
See below section A.7 of this supporting statement.
11
See Approval of Filing Fees for Exempt Reporting Advisers and Private Fund Advisers,
Investment Advisers Act Release No. IA-3297 (Sept. 30, 2011), 76 FR 62,100 (October 6, 2011).
-4-
realized by expanding the existing IARD platform for this purpose, such as the
interconnectivity of Form ADV filings and Form PF filings and the ease of filing with
one password.
The SEC is working with FINRA to allow advisers to file Form PF either through
a fillable form on the system website or through a batch filing process utilizing the
eXtensible Markup Language (“XML”) tagged data format. In connection with the batch
filing process, the SEC anticipates publishing a taxonomy of XML data tags in advance
of the compliance date for Form PF. The SEC believes that certain advisers may prefer
to report in XML format because it allows them to automate aspects of their reporting
and thus minimize burdens and generate efficiencies for the adviser.
Collecting information electronically will reduce the regulatory burden upon
investment advisers by providing a convenient portal for quickly transmitting reports and,
for advisers that submit their reports in XML format in particular, allowing them to
automate aspects of their reporting.
Commenters who addressed this aspect of the proposal supported having FINRA
develop the reporting system as an extension of the IARD platform.12 Commenters also
supported a batch filing capability, with one specifically agreeing that “[a]utomated
submission of information via the IARD or other electronic system to [utilize] the
12
See comment letter of the Alternative Investment Management Association (Apr. 12, 2011)
(“AIMA General Letter”) (agreeing that using the IARD and FINRA is a “sensible solution.”);
comment letter of the Managed Funds Association (Apr. 8, 2011) (“MFA Letter”). The SEC
explained in the proposal that the filing system would need to be programmed with special
confidentiality protections designed to ensure the heightened confidentiality protections created
for Form PF filing information under the Dodd-Frank Act. These commenters expressed the view
that maintaining the confidentiality of Form PF data is an important consideration in developing
the filing system. The SEC staff is working closely with FINRA in designing controls and
systems to ensure that Form PF data is handled and used in a manner consistent with the
protections established in the Dodd-Frank Act, and as noted above, we are carefully considering
recommendations from commenters in designing controls and systems for the use and handling of
Form PF data.
-5-
eXtensible Markup Language (XML) tagged data format or similar format is likely to be
an important time saver for a large number of firms.”13
4.
Efforts to Identify Duplication
The collection of information requirements of Form PF are not duplicated
elsewhere.
5.
Effect on Small Entities
Under SEC rules, for the purposes of the Advisers Act and the Regulatory
Flexibility Act, an investment adviser generally is a small entity if it: (i) has assets under
management having a total value of less than $25 million; (ii) did not have total assets of
$5 million or more on the last day of its most recent fiscal year; and (iii) does not control,
is not controlled by, and is not under common control with another investment adviser
that has assets under management of $25 million or more, or any person (other than a
natural person) that had total assets of $5 million or more on the last day of its most
recent fiscal year.14
Under section 203A of the Advisers Act, most advisers qualifying as small
entities are prohibited from registering with the SEC and are instead registered with state
regulators. Therefore, few small advisers will meet the registration criterion. Fewer still
are likely to meet the minimum reporting threshold of $150 million in regulatory assets
under management attributable to private funds. By definition, no small entities will, on
their own, meet this threshold, which the SEC did not include in the proposal but has
13
AIMA General Letter. See also comment letter of Kleinberg, Kaplan, Wolff & Cohen, P.C.
(submitted to the SEC) (Apr. 12, 2011) (“Kleinberg General Letter”).
14
17 CFR 275.0-7(a).
-6-
added in response to commenter concerns.15 Advisers are, however, required to
determine whether they exceed this threshold by aggregating their private fund assets
under management with those of their related persons (other than separately operated
related persons), with the result that some small entities may be subject to Form PF
reporting requirements.16 The SEC does not have a precise count of the number of
advisers that may satisfy the minimum reporting threshold based on the aggregate private
fund assets that it and its related persons manage because such advisers file separate
reports on Form ADV. However, because of the new minimum reporting threshold, the
group of small entities subject to the rule as adopted will be a subset of the group that
would have been subject to the proposed rule. In the proposal, the SEC estimated that
approximately 50 small entities were registered with the SEC and advised one or more
private funds. Accordingly, the SEC estimates that no more than 50 small entities are
likely to become subject to Form PF reporting obligations under the final rule.
6.
Consequences of Less Frequent Collection
The collection of information required by the Form is intended to implement the
requirements of sections 404 and 406 of the Dodd-Frank Act and is designed to provide
FSOC with timely information for purposes of monitoring systemic risk in the private
fund industry.17 The frequency of collection will vary depending on the size of the adviser
15
See the Adopting Release at notes 56-59 and accompanying text.
16
See section II.A.5 of the Adopting Release. The SEC notes that related persons are permitted to
file on a single Form PF. As a result, even in the case that a larger related person causes a small
entity to exceed the minimum reporting threshold, the small entity may not ultimately bear the
reporting burden. See section II.A.6 of the Adopting Release. In addition, under Advisers Act
rule 0-7(a)(3), an adviser with affiliates exceeding the other small entity thresholds under that rule
would not be regarded as a small entity, suggesting that it may not be possible both to qualify as a
small entity under that rule and to satisfy the criteria that would subject an adviser to Form PF
reporting obligations.
17
See section I.A. of the Adopting Release.
-7-
and the types of private funds it manages, which balances the need for (and value of) current
information against the relative reporting burden for different types of advisers. In addition,
if the information is either not collected or is collected less frequently, FSOC’s ability to
monitor systemic risk, and the SEC’s ability to protect investors, may be reduced.
7.
Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
Under applicable federal regulations, OMB generally will not approve a
collection of information that includes a pledge of confidentiality unless the pledge is
“supported by disclosure and data security policies that are consistent with the
pledge....”18 In addition, if an agency proposes to collect confidential information, it
must be able to “demonstrate that it has instituted procedures to protect the information’s
confidentiality to the extent permitted by law.”19
Form PF elicits non-public information about private funds and their trading
strategies, the public disclosure of which could adversely affect the funds and their
investors. The SEC does not intend to make public Form PF information identifiable to
any particular adviser or private fund, although the SEC may use Form PF information in
an enforcement action.20 The Dodd-Frank Act amends the Advisers Act to preclude the
SEC from being compelled to reveal this information except in very limited
circumstances. Similarly, the Dodd-Frank Act exempts the CFTC from being compelled
under FOIA to disclose to the public any information collected through Form PF and
requires that the CFTC maintain the confidentiality of that information consistent with
the level of confidentiality established for the SEC in section 204(b) of the Advisers Act.
18
5 CFR 1320.5(d)(2)(vii).
19
5 CFR 1320.5(d)(2)(viii).
20
See sections II.D and II.E of the Adopting Release.
-8-
The SEC will make information collected through Form PF available to FSOC, as the
Dodd-Frank Act requires, subject to the confidentiality provisions of the Dodd-Frank
Act.21
The Dodd-Frank Act contemplates that Form PF data may also be shared with
other Federal departments or agencies or with self-regulatory organizations, in addition to
the CFTC and FSOC, for purposes within the scope of their jurisdiction.22 In each case,
any such department, agency or self-regulatory organization would be exempt from being
compelled under FOIA to disclose to the public any information collected through
Form PF and must maintain the confidentiality of that information consistent with the
level of confidentiality established for the SEC in section 204(b) of the Advisers Act.23
Prior to sharing any Form PF data, the SEC also intends to require that any such
department, agency or self-regulatory organization represent to the SEC that it has in
place controls designed to ensure the use and handling of Form PF data in a manner
consistent with the protections established in the Dodd-Frank Act.24
Certain aspects of the Form PF reporting requirements also help to mitigate the
potential risk of inadvertent or improper disclosure. For instance, because data on
Form PF generally could not, on its own, be used to identify individual investment
positions, the ability of a competitor to use Form PF data to replicate a trading strategy or
21
See section 204(b) of the Advisers Act.
22
See section 204(b)(8)(B)(i) of the Advisers Act.
23
See sections 204(b)(9) and (10) of the Advisers Act.
24
This would be consistent with the SEC’s current practice of requiring that it receive, prior to
sharing nonpublic information with other regulators, “such assurances of confidentiality as the
[SEC] deems appropriate.” See section 24(c) of the Exchange Act and rule 24c-1 thereunder.
-9-
trade against an adviser is limited.25 In addition, the deadlines for filing Form PF have, in
most cases, been significantly extended from the proposal.26 Some commenters supported
these extensions in part because filings will, as a result, generally contain less current,
and therefore less sensitive, data.27
In addition, SEC staff is working to design controls and systems for the use and
handling of Form PF data in a manner that reflects the sensitivity of this data and is
consistent with the confidentiality protections established in the Dodd-Frank Act. This
will include programming the Form PF filing system with appropriate confidentiality
protections.28 For instance, SEC staff is studying whether multiple access levels can be
established so that SEC employees are allowed only as much access as is reasonably
needed in connection with their duties.
Several commenters confirmed that the information collected on Form PF is
competitively sensitive or proprietary and emphasized the importance of controls for
safekeeping.29 These commenters also made several recommendations for protecting the
25
Questions 26, 30, 35 and 57 on Form PF ask about exposures of the reporting fund but require
only that the adviser identify the exposure within broad asset classes, not the individual investment
position. Large private equity advisers must identify any financial industry portfolio companies in
which the reporting fund has a controlling interest, but these investments are likely to be in private
companies whose securities are not widely traded (and, therefore, do not raise the same trading
concerns) or in public companies about which information regarding significant beneficial owners
is already made public under sections 13(d) and 13(g) of the Exchange Act.
26
See section II.B.2 of the Adopting Release (discussing filing deadlines).
27
See the Adopting Release at note 351 and accompanying text.
28
See section II.E of the Adopting Release.
29
See, e.g., comment letter of the American Bar Association, Federal Regulation of Securities
Committee and Private Equity and Venture Capital Committee (Apr. 11, 2011) (“ABA
Committees Letter”); AIMA General Letter; comment letter of Coalition of Private Investment
Companies (Mar. 31, 2011) (“CPIC Letter”); MFA Letter; comment letter of the Securities
Industry and Financial Markets Association, Asset Management Group (Apr. 12, 2011) (“SIFMA
Letter”).
- 10 -
data, including: (1) storing identifying information using a code;30 (2) limiting the ability
to transfer Form PF data by email or portable media;31 (3) limiting access to personnel
who “need to know”;32 (4) extending filing deadlines so the data contains less current
information;33 and (5) sharing the data with other regulators only in aggregated and
anonymous form.34 As discussed above, the deadlines for filing Form PF have, in most
cases, been significantly extended from the proposal.35 SEC staff is also carefully
considering the other recommendations of commenters in designing controls and systems
for Form PF.
In the Adopting Release, the SEC stated that, in advance of the compliance date
for Form PF, SEC staff will review the controls and systems in place for the use and
handling of Form PF data.36 Depending on the progress at that time toward the
development and deployment of these controls and systems, the SEC explained that it
will consider whether to delay the compliance date for Form PF.
8.
Consultation Outside the Agency
In the proposal, the SEC requested public comment on the effect of information
collections under the proposed rule and form. Several commenters addressed the cost
estimates included in the proposal. These commenters generally viewed these estimates
as understated and, in several cases, argued that the costs of the initial report, in
30
ABA Committees Letter; Kleinberg General Letter; comment letter of Seward & Kissel, LLP
(Apr. 12, 2011) (“Seward Letter”).
31
ABA Committees Letter.
32
Id.
33
AIMA General Letter; Kleinberg General Letter.
34
AIMA General Letter; Seward Letter.
35
See the Adopting Release at notes 344-345 and accompanying text.
36
See section III of the Adopting Release (discussing the compliance date for Form PF).
- 11 -
particular, would be greater than assumed.37 These commenters offered two common
explanations for the higher than estimated costs: (1) “[m]any of the requested items on
Form PF are not tracked by advisory firms on the frequency, by the category or on a
fund-by-fund basis in the manner requested by the proposed Form,” meaning that
advisers would need to develop systems for the reporting or engage in a manual process
of gathering and compiling data;38 and (2) completing the Form will require gathering
information from many different internal and external parties and systems.39
The SEC has carefully considered comments suggesting that the reporting
requirements would be more burdensome than estimated in the proposal, and it has
substantially increased its estimates of the hour burdens included in this PRA analysis,
which flow through to these estimates of costs.40 The SEC has, however, also taken these
comments into consideration in making a number of changes from the proposal that are
intended to reduce the burdens of reporting on Form PF. These include global changes to
the Form, such as allowing most advisers more time to file following the end of a fiscal
period (reducing the likelihood that Form PF will compete with other priorities for
advisers’ resources or require employment of additional personnel), extending the
compliance date, allowing large private equity advisers to report annually rather than
quarterly, increasing the threshold for large private equity advisers and permitting greater
reliance on advisers’ existing methodologies and recordkeeping practices. The SEC has
37
See, e.g., AIMA Letter; comment letter of the Investment Adviser Association (Apr. 12, 2011)
(“IAA Letter”); Kleinberg General Letter; MFA Letter; comment letter of the Private Equity
Growth Capital Council (Apr. 12, 2011) (“PEGCC Letter”); Seward Letter.
38
comment letter of TCW Group, Inc. (Apr. 12, 2011) (“TCW Letter”); but see also the Adopting
Release at note 146.
39
See, e.g., Kleinberg General Letter; MFA Letter; PEGCC Letter.
40
See the Adopting Release at notes 383, 394-395, 404 and 414 and accompanying text.
- 12 -
also modified specific questions in response to comments so that responding to the Form
is less burdensome.41 The SEC expects, on the whole, that these changes will mitigate
the cost of reporting.42 In addition, the SEC has added a minimum reporting threshold,
which will not reduce the burden to any particular filer of reporting but will reduce the
aggregate burden that Form PF imposes because fewer advisers will be required to report.
9.
Payment or Gift to Respondents
None.
10.
Assurance of Confidentiality
See section A.7 of this supporting statement.
11.
Sensitive Questions
See section A.7 of this supporting statement.
12.
Estimates of Hour Burden
(a) Burden Estimates for Annual Reporting by Smaller Private Fund
Advisers
In a recent rulemaking, the SEC estimated that there will be approximately 4,270
SEC-registered advisers managing private funds after taking into account recent changes
to the Advisers Act and a year of normal growth in the population of registered
advisers.43 The SEC estimates that approximately 700 of these advisers will not be
41
See section II.C of the Adopting Release.
42
See the Adopting Release at notes 388-389, 397-398, 407-409 and 418-420 and accompanying
text. The SEC also noted that the original cost estimates, as well as the revised estimates included
in the Adopting Release, include allocations for systems development among Large Private Fund
Advisers (who are most likely to find automation cost effective) and assume that information
would need to be gathered from many sources, both internal and external. See the Adopting
Release at note 435 and accompanying text.
43
Specifically, the SEC estimated that (1) 3,320 private fund advisers that are currently registered
with the SEC will remain registered after certain advisers make the switch to state registration
prompted by the Dodd-Frank Act’s amendments to section 203A of the Advisers Act, (2) 750
- 13 -
required to file Form PF because they have less than $150 million in private fund assets
under management.44 Accordingly, the SEC anticipates that, when advisers begin
reporting on Form PF, a total of approximately 3,570 advisers will be required to file all
or part of the Form.45 Out of this total number, the SEC estimates that approximately
3,070 will be smaller private fund advisers, not meeting the thresholds as Large Private
Fund Advisers.46 Commenters did not address the SEC’s estimates of the total number of
respondents or the number of smaller private fund advisers.47
Smaller private fund advisers must complete all or portions of section 1 of
Form PF and file on an annual basis. As discussed in greater detail above, section 1
requires basic data regarding the reporting adviser’s identity and certain information
about the private funds it manages, such as performance, leverage and investor data. If
advisers to private funds will register with the Commission as a result of the Dodd-Frank Act’s
elimination of the private adviser exemption and (3) 200 additional advisers to private funds will
register in the next year. Estimates of registered private fund advisers are based in part on the
number of advisers that reported a fund in Section 7.B of Schedule D to the version of Form ADV
in use prior to the date of the Adopting Release. Because these responses included funds that the
adviser’s related persons manage as well as those the adviser itself manages, these data may overestimate the total number of private fund advisers.
44
Based on IARD data as of October 1, 2011. See section II.A of the Adopting Release for a
discussion of the minimum reporting threshold.
45
4,270 total private fund advisers – 700 with less than $150 million in private fund assets under
management = 3,570 advisers. The SEC noted, however, that if a private fund is advised by both
an adviser and one or more subadvisers, only one of these advisers is required to complete
Form PF. See section II.A.6 of the Adopting Release. As a result, it is likely that some portion of
these advisers either will not be required to file Form PF or will be subject to a reporting burden
lower than is estimated for purposes of this PRA analysis. The SEC has not attempted to adjust
the burden estimates downward for this purpose because the SEC does not currently have reliable
data with which to estimate the number of funds that have subadvisers.
46
Based on the estimated total number of registered private fund advisers that would not meet the
thresholds to be considered Large Private Fund Advisers. (3,570 estimated registered private fund
advisers – 250 large hedge fund advisers – 80 large liquidity fund advisers – 170 large private
equity fund advisers = 3,070 smaller private fund advisers.)
47
The SEC has updated these estimates to reflect: (1) updated data from IARD, (2) the addition of a
minimum reporting threshold of $150 million in private fund assets, which reduces the number of
advisers subject to the reporting requirements, and (3) the revised estimates of large hedge fund
advisers and large private equity advisers discussed in its recent rulemaking concerning
amendments to Form ADV.
- 14 -
the reporting adviser manages any hedge funds, section 1 also requires basic information
regarding those funds, including their investment strategies, counterparty exposures and
trading and clearing practices.
The SEC estimates that smaller private fund advisers will require an average of
approximately 40 burden hours to compile, review and electronically file the required
information in section 1 of Form PF for the initial filing and an average of approximately
15 burden hours for subsequent filings.48 These estimates reflect an increase compared to
the proposal from 10 to 40 hours for the initial filing and from 3 to 15 hours for
subsequent filings.
The SEC has increased these estimates to reflect comments suggesting that the
estimates included in the proposal were too low.49 Commenters did not provide
alternative estimates for these burdens. However, commenters addressing the large
hedge fund adviser burdens did provide alternative estimates.50 As discussed below, the
SEC is also increasing its hour burden estimates with respect to large hedge fund advisers
based on, among other things, the estimates these commenters provided.51 In the absence
of specific commenter estimates for the smaller adviser reporting burden, the SEC has,
48
These estimates are based, in part, on the SEC’s understanding that much of the information in
sections 1a and 1b of Form PF is currently maintained by most private fund advisers in the
ordinary course of business. See the Adopting Release at note 146. In addition, the SEC expects
the time required to determine the amount of the adviser’s assets under management that relate to
private funds of various types to be largely included in the approved burden associated with the
SEC’s Form ADV. As a result, responding to questions on Form PF that relate to assets under
management and determining whether an adviser is a Large Private Fund Adviser should impose
little or no additional burden on private fund advisers. Of course, not all questions on Form PF
impose the same burden, and the burden of responding to questions may vary substantially from
adviser to adviser. These estimates are intended to reflect averages for compiling, reviewing and
filing the Form, do not indicate the time that may be spent on specific questions and may not
reflect the time spent by an individual adviser.
49
See, e.g., AIMA General Letter; IAA Letter; SIFMA Letter.
50
See, e.g., MFA Letter.
51
See section IV.B of the Adopting Release.
- 15 -
therefore, scaled these estimates in proportion to the increases it is making to its burden
hour estimates for large hedge fund advisers.
Although the SEC has increased these estimates, it has also taken into account
changes from the proposal that it expects, on the whole, to mitigate the burden of
reporting the information required in section 1. For instance, the SEC has modified the
requirement to report performance by allowing advisers to report monthly and quarterly
results only if such results are already calculated for the fund.52 In addition, the SEC has
removed from section 1b a question requiring identification of significant creditors and
substantially reduced the amount of information required with respect to trading and
clearing practices in section 1c.53 The SEC has also made several global changes to the
Form that we anticipate will reduce the burden of reporting. These include the removal
of the certification, the increased ability of advisers to rely on their existing
methodologies and recordkeeping practices and allowing advisers to omit information
regarding parallel managed accounts from their responses to the Form.54 The SEC has
also added four new questions in section 1b that will increase the burden of completing
52
Several commenters argued that carrying out valuations to report monthly and quarterly
performance for private equity funds would result in significant cost burdens and require
significantly more time than was estimated. See, e.g., comment letter of Atlas Holdings (March 9,
2011) (“Atlas Letter”); PEGCC Letter. The SEC has, however, modified the reporting
requirements so that advisers only need to provide monthly and quarterly performance results to
the extent already calculated. See the Adopting Release at notes 198-202 and accompanying text.
In other words, because advisers will have always already calculated the required performance
data for purposes other than reporting on Form PF, the burden of reporting it on the Form is
essentially one of data entry.
53
One commenter suggested the question we removed would have been “very burdensome.” See
PEGCC Letter.
54
See, e.g., section II.C.5 of the Adopting Release and notes 183-188 and accompanying text.
- 16 -
that portion of the Form, but it expects the other changes described above to result in a
net reduction in the burden of completing the Form relative to the proposal.55
Based on the foregoing, the SEC estimates that the amortized average annual
burden of periodic filings will be 23 hours per smaller private fund adviser for each of the
first three years,56 and the amortized aggregate annual burden of periodic filings for
smaller private fund advisers will be 70,600 hours for each of the first three years.57
(b) Burden Estimates for Large Hedge Fund Advisers
The SEC estimates that 250 advisers will be classified as large hedge fund
advisers.58 As discussed above, large hedge fund advisers must complete section 1 of the
Form and provide additional information regarding the hedge funds they manage in
section 2 of the Form. These advisers must report information regarding the hedge funds
they manage on a quarterly basis.
55
See section II.C.1 of the Adopting Release. The SEC originally proposed one of the new
questions on Form ADV, and it requires that advisers report the assets and liabilities of each fund
broken down using categories that are based on the fair value hierarchy established under GAAP.
For advisers obtaining fund audits in accordance with GAAP or a similar international accounting
standard, the burden of this question is simply that of entering the data on the Form. In the
Implementing the Adopting Release, the SEC estimated that approximately 3% of registered
advisers have at least one private fund client that may not be audited. For this sub-group of
advisers, the cost and hour burdens of determining fair values for the funds’ assets have already
been accounted for in connection with Form ADV because advisers are required to report
regulatory assets under management in that form using the fair value of private fund assets. The
question does not require advisers to determine the fair value of liabilities for which they do not
already make such determination, so this sub-group of advisers would not incur an incremental
cost to fair value liabilities in order to respond to this question. This sub-group of advisers may
incur an additional hours burden to determine the categories applicable to the fund’s assets and
liabilities, and in determining to increase its average hour burden estimates for both smaller
private fund advisers and Large Private Fund Advisers, the SEC has taken into account the
contribution of this additional hours burden.
56
The SEC estimates that a smaller private fund adviser will make 3 annual filings in three years, for
an amortized average annual burden of 23 hours (1 initial filing x 40 hours + 2 subsequent filings
x 15 hours = 70 hours; and 70 hours ÷ 3 years = approximately 23 hours). After the first three
years, filers generally will not incur the start-up burdens applicable to the first filing.
57
23 burden hours on average per year x 3,070 smaller private fund advisers = 70,600 burden hours
per year.
58
See the Adopting Release at note 88.
- 17 -
Because large hedge fund advisers generally must report more information on
Form PF than other private fund advisers, the SEC estimates that these advisers will
require, on average, more hours than other Large Private Fund Advisers to configure
systems and to compile, review and electronically file the required information.
Accordingly, the SEC estimates that large hedge fund advisers will require an average of
approximately 300 burden hours for an initial filing and 140 burden hours for each
subsequent filing.59
These estimates reflect an increase compared to the proposal from 75 to 300 hours
for the initial filing and from 35 to 140 hours for subsequent filings. The SEC has
increased these estimates to reflect comments suggesting that the estimates included in
the proposal were too low.60 One industry group reported that some members attempted
to complete the proposed version of Form PF for one or more funds and, “[b]ased on
their experience, and recognizing that efficiencies will develop over time, [this group
estimated] that large managers on average will expend 150-300 hours to submit the initial
Form.”61 The SEC has revised its estimates in this PRA analysis based on the top end of
59
The estimates of hour burdens and costs for large hedge fund advisers provided in the Paperwork
Reduction Act and cost-benefit analyses are based, in part, on burden data that advisers provided
in response to the FSA Survey and on the experience of SEC staff. These estimates also assume
that some Large Private Fund Advisers will find it efficient to automate some portion of the
reporting process, which will increase the burden of the initial filing but reduce the burden of
subsequent filings. This efficiency gain is reflected in our burden estimates, which are higher for
the first report than subsequent reports, and certain of the anticipated automation costs are
accounted for in our cost estimates. See the Adopting Release at note 435 and accompanying text.
Of course, not all questions on Form PF impose the same burden, and the burden of responding to
questions may vary substantially from adviser to adviser. These estimates are intended to reflect
averages for compiling, reviewing and filing the Form, do not indicate the time that may be spent
on specific questions and may not reflect the time spent by an individual adviser.
60
See, e.g., AIMA Letter; IAA Letter; Kleinberg General Letter; MFA Letter; TCW Letter.
61
MFA Letter. This commenter referred to “large managers” generally, but based on the context,
this comment appears to relate to large hedge fund advisers specifically. This commenter went on
to state that “managers with more complex strategies will expend considerably more time.” Other
commenters addressing these estimates did not provide alternative estimates, though one indicated
that some clients had already exceeded the proposal’s estimates in preparing to report on the
- 18 -
this range, which represents a conservative interpretation of this commenter’s estimate.
This approach appears justified in this case based on other comments suggesting that the
hours burden imposed on these advisers could be significantly higher than the SEC
estimated in the proposal.62
The SEC noted, however, that this commenter’s estimates were based on the
Form as proposed and it has made a number of changes from the proposal that it expects,
on the whole, to mitigate significantly the reporting burden. For example, the SEC has
modified a number of questions to reduce the amount of detail required or to allow
advisers to rely more on their existing methodologies or recordkeeping practices,
including questions regarding trading and clearing practices, interest rate sensitivities,
geographical concentrations, turnover, collateral practices, CCP exposures and
sensitivities to changes in specified market factors.63 The SEC has also made several
global changes to the Form that we anticipate will reduce the burden of reporting. These
include allowing large hedge fund advisers to report only annually on funds that are not
hedge funds, the removal of the certification, expanding the ability to disregard funds of
funds and allowing advisers to omit information regarding parallel managed accounts
proposed Form and another commenter, itself one of the largest private fund advisers in the United
States, argued that the estimates were understated by “orders of magnitude.” See comment letter
of BlackRock Inc. (Apr. 12, 2011) (“BlackRock Letter”); see also Kleinberg General Letter. In
addition, advisers that manage many funds may incur higher costs than advisers that manage fewer
funds even if they manage similar amounts of assets. The SEC’s estimates are intended to reflect
average burdens, and it recognizes that particular advisers may, based on their circumstances,
incur burdens substantially greater than or less than the estimated averages. In addition, we have
based our estimates in part on data that advisers provided in response to the FSA Survey regarding
the time required to complete that survey. Although Form PF generally requires more information
regarding hedge funds than the FSA Survey, the SEC believes, based on this data and based on the
MFA comment letter, that the average burden of completing Form PF is very unlikely to be in the
thousands or tens of thousands of hours.
62
See the Adopting Release at note 394 and accompanying text.
63
See section II.C.1 and II.C.2 of the Adopting Release.
- 19 -
from their responses to the Form.64 The SEC has also added four new questions in
section 1b, which will increase the burden of completing that portion of the Form.65 The
SEC believes, however, that the increased burden attributable to these new questions is
less than the reduced burden attributable to other changes to the Form because the new
questions require limited information that, in many cases, will be readily available to
advisers while some of the SEC’s modifications to reduce the reporting burdens are
intended to address areas of the Form that commenters identified as particularly
burdensome. In light of these changes, the SEC believes that the commenter estimates,
which were based on the proposed Form, likely represent an upper bound of the average
burden to large hedge fund advisers.
Based on the foregoing, the SEC estimates that the amortized average annual
burden of periodic filings will be 610 hours per large hedge fund adviser for each of the
first three years.66 In the aggregate, the amortized annual burden of periodic filings will
then be 153,000 hours for large hedge fund advisers for each of the first three years.67
(c) Burden Estimates for Large Liquidity Fund Advisers
The SEC estimates that 80 advisers will be classified as large liquidity fund
advisers.68 Commenters did not address this estimate. As discussed above, large
liquidity fund advisers must complete section 1 of the Form and provide additional
64
See, e.g., the Adopting Release at sections II.B.1 and II.C.5 of the Adopting Release and the
Adopting Release at notes 129 and 183-188 and accompanying text.
65
See the Adopting Release at section II.C.1.
66
The SEC estimates that a large hedge fund adviser will make 12 quarterly filings in three years, for
an amortized average annual burden of 610 hours (1 initial filing x 300 hours + 11 subsequent
filings x 140 hours = 1,840 hours; and 1,840 hours ÷ 3 years = approximately 610 hours). After
the first three years, filers generally will not incur the start-up burdens applicable to the first filing.
67
610 burden hours on average per year x 250 large hedge fund advisers = 153,000 hours.
68
See the Adopting Release at note 88.
- 20 -
information regarding the liquidity funds they manage in section 3 of the Form. In
addition, these advisers must report information regarding the liquidity funds they
manage on a quarterly basis.
Large liquidity fund advisers generally must report less information on Form PF
than large hedge fund advisers but more information than large private equity advisers
and smaller private fund advisers. Accordingly, the SEC estimates that large liquidity
fund advisers will require, on average, fewer hours than large hedge fund advisers but
more hours than other advisers to configure systems and to compile, review and
electronically file the required information. Specifically, the SEC estimates these
advisers will require an average of approximately 140 burden hours for an initial filing
and 65 burden hours for each subsequent filing.69
These estimates reflect an increase compared to the proposal from 35 to 140 hours
for the initial filing and from 16 to 65 hours for subsequent filings. The SEC has
increased these estimates to reflect comments suggesting that the estimates included in
the proposal were too low.70 Commenters did not provide alternative estimates for these
69
The estimates of hour burdens and costs for large liquidity fund advisers provided in the
Paperwork Reduction Act and cost-benefit analyses are based, in part, on a comparison to the
requirements and estimated burden for large hedge fund advisers (which estimates, in turn, are
based in part on burden data that advisers provided in response to the FSA Survey) and on the
experience of SEC staff. These estimates also assume that some Large Private Fund Advisers will
find it efficient to automate some portion of the reporting process, which will increase the burden
of the initial filing but reduce the burden of subsequent filings. This efficiency gain is reflected in
our burden estimates, which are higher for the first report than subsequent reports, and certain of
the anticipated automation costs are accounted for in our cost estimates. See the Adopting Release
at note 435 and accompanying text. Of course, not all questions on Form PF impose the same
burden, and the burden of responding to questions may vary substantially from adviser to adviser.
These estimates are intended to reflect averages for compiling, reviewing and filing the Form, do
not indicate the time that may be spent on specific questions and may not reflect the time spent by
an individual adviser.
70
See, e.g., AIMA Letter; IAA Letter; BlackRock Letter. No commenters specifically addressed the
burden estimates for liquidity fund advisers, though several commented on the burden estimates
generally.
- 21 -
burdens. However, commenters addressing the large hedge fund adviser burdens did
provide alternative estimates.71 As discussed above, the SEC is also increasing its hour
burden estimates with respect to large hedge fund advisers based on, among other things,
the estimates these commenters provided.72 In the absence of specific commenter
estimates for the large liquidity fund adviser reporting burden, the SEC has, therefore,
scaled these estimates in proportion to the increases it is making to its burden hour
estimates for large hedge fund advisers.
Although the SEC has increased these estimates, it has also taken into account
changes from the proposal that it expects, on the whole, to mitigate the burden of
reporting for large liquidity fund advisers. For instance, we have eliminated from
section 1b a question requiring identification of significant creditors.73 The SEC has also
made several global changes that we anticipate will reduce the burden of reporting.
These include allowing large liquidity fund advisers to report only annually on funds that
are not liquidity funds, removing the certification, expanding the ability to disregard
funds of funds, the increased ability of advisers to rely on their existing methodologies
and recordkeeping practices and allowing advisers to omit information regarding parallel
managed accounts from their responses to the Form.74 The SEC has also added four new
questions in section 1b that will increase the burden of completing that portion of the
71
See, e.g., MFA Letter.
72
See section IV.B of the Adopting Release.
73
See section II.C.1 of the Adopting Release. One commenter suggested the question we removed
would have been “very burdensome.” See PEGCC Letter.
74
See, e.g., sections II.B.1 and II.C.5 of the Adopting Release and the Adopting Release at notes 129
and Error! Bookmark not defined.-Error! Bookmark not defined. and accompanying text.
- 22 -
Form, but the SEC expects the other changes described above to result in a net reduction
in the burden of completing the Form relative to the proposal.75
Based on the foregoing, the SEC estimates that the amortized average annual
burden of periodic filings will be 290 hours per large liquidity fund adviser for each of
the first three years.76 In the aggregate, the amortized annual burden of periodic filings
will then be 23,200 hours for large liquidity fund advisers for each of the first three
years.77
(d) Burden Estimates for Large Private Equity Advisers
The SEC estimates that 170 advisers will be classified as large private equity
advisers.78 As discussed above, large private equity advisers must complete section 1 of
the Form and provide additional information regarding the private equity funds they
manage in section 4 of the Form. These advisers are only required to report on an annual
basis.
Large private equity advisers generally must report less information on Form PF
than other Large Private Fund Advisers but more information than smaller private fund
advisers. Accordingly, the SEC estimates that large private equity advisers will require,
on average, fewer hours than large hedge fund advisers and large liquidity fund advisers
but more hours than other advisers to configure systems and to compile, review and
electronically file the required information. Specifically, the SEC estimates these
75
See section II.C.1 of the Adopting Release.
76
The SEC estimates that a large liquidity fund adviser will make 12 quarterly filings in three years,
for an amortized average annual burden of 290 hours (1 initial filing x 140 hours + 11 subsequent
filings x 65 hours = 855 hours; and 855 hours ÷ 3 years = approximately 290 hours). After the
first three years, filers generally will not incur the start-up burdens applicable to the first filing.
77
290 burden hours on average per year x 80 large hedge fund advisers = 23,200 hours.
78
See the Adopting Release at note 89.
- 23 -
advisers will require an average of approximately 100 burden hours for an initial filing
and 50 burden hours for each subsequent filing.79
These estimates reflect an increase compared to the proposal from 25 to 100 hours
for the initial filing and from 12 to 50 hours for subsequent filings. The SEC has
increased these estimates to reflect comments suggesting that the estimates included in
the proposal were too low.80 Commenters did not provide alternative estimates for these
burdens. However, commenters addressing the large hedge fund adviser burdens did
provide alternative estimates.81 As discussed above, the SEC is also increasing its hour
burden estimates with respect to large hedge fund advisers based on, among other things,
the estimates these commenters provided.82 In the absence of specific commenter
estimates for the large private equity adviser reporting burden, the SEC has, therefore,
scaled these estimates in proportion to the increases it is making to its burden hour
estimates for large hedge fund advisers.
Although the SEC has increased these estimates, it has also taken into account
changes from the proposal that it expects, on the whole, to mitigate the burden of
79
The estimates of hour burdens and costs for large private equity advisers provided in the
Paperwork Reduction Act and cost-benefit analyses are based, in part, on a comparison to the
requirements and estimated burden for large hedge fund advisers (which estimates, in turn, are
based in part on burden data that advisers provided in response to the FSA Survey) and on the
experience of SEC staff. These estimates also assume that some Large Private Fund Advisers will
find it efficient to automate some portion of the reporting process, which will increase the burden
of the initial filing but reduce the burden of subsequent filings. This efficiency gain is reflected in
our burden estimates, which are higher for the first report than subsequent reports, and certain of
the anticipated automation costs are accounted for in our cost estimates. See the Adopting Release
at note 435 and accompanying text. Of course, not all questions on Form PF impose the same
burden, and the burden of responding to questions may vary substantially from adviser to adviser.
These estimates are intended to reflect averages for compiling, reviewing and filing the Form, do
not indicate the time that may be spent on specific questions and may not reflect the time spent by
an individual adviser.
80
See, e.g., Atlas Letter; PEGCC Letter; comment letter of the United States Chamber of Commerce,
Center for Capital Markets Competitiveness (Apr. 12, 2011) (“USCC Letter”).
81
See, e.g., MFA Letter.
82
See section IV.B of the Adopting Release.
- 24 -
reporting for large private equity advisers. For instance, the SEC has modified the
requirement to report performance by allowing advisers to report monthly and quarterly
results only if such results are already calculated for the fund.83 In addition, the SEC has
eliminated from section 1b a question requiring identification of significant creditors and
have revised questions in section 4 requiring information regarding portfolio company
leverage to align the information required more closely with information available on the
balance sheets of those companies.84 The SEC has also made several global changes to
the Form that we anticipate will reduce the burden of reporting. These include requiring
only annual (rather than quarterly) reporting, removing the certification, expanding the
ability to disregard funds of funds, increasing the ability of advisers to rely on their
existing methodologies and recordkeeping practices and allowing advisers to omit
information regarding parallel managed accounts from their responses to the Form. 85 The
SEC has also added four new questions in section 1b that will increase the burden of
completing that portion of the Form, but the SEC expects the other changes described
above to result in a net reduction in the burden of completing the Form relative to the
proposal.86
Based on the foregoing, the SEC estimates that the amortized average annual
burden of periodic filings will be 67 hours per large private equity adviser for each of the
83
See the Adopting Release at note 386.
84
See sections II.C.1 and II.C.4 of the Adopting Release. One commenter suggested the question we
removed would have been “very burdensome.” See PEGCC Letter.
85
See, e.g., sections II.B.1 and II.C.5 of the Adopting Release and the Adopting Release at notes 129
and 183-188 and accompanying text.
86
See section II.C.1 of the Adopting Release.
- 25 -
first three years.87 In the aggregate, the amortized annual burden of periodic filings will
then be 11,400 hours for large private equity advisers for each of the first three years.88
(e) Burden Estimates for Transition Filings, Final Filings and Temporary
Hardship Exemption Requests
In addition to periodic filings, a private fund adviser must file very limited
information on Form PF in three situations.
First, any adviser that transitions from quarterly to annual filing because it has
ceased to be a large hedge fund or large liquidity fund adviser must file a Form PF
indicating that it is no longer obligated to report on a quarterly basis. The SEC estimates
that approximately 9 percent of quarterly filers will need to make a transition filing each
year with a burden of 0.25 hours, or a total of 7 burden hours per year for all private fund
advisers.89 No commenters addressed these estimates. The SEC has not changed its
estimates of the rate of transition filings and the burden hours per filing from the
proposal, but it has reduced its estimate of the total burden hours per year because fewer
filers will be required to report on a quarterly basis.90
Second, filers who are no longer subject to Form PF’s periodic reporting
requirements must file a final report indicating that fact. The SEC estimates that
approximately 8 percent of the advisers required to file Form PF will have to file such a
87
The SEC estimates that a large private equity adviser will make 3 annual filings in three years, for
an amortized average annual burden of 67 hours (1 initial filing x 100 hours + 2 subsequent filings
x 50 hours = 200 hours; and 200 hours ÷ 3 years = approximately 67 hours). After the first three
years, filers generally will not incur the start-up burdens applicable to the first filing.
88
67 burden hours on average per year x 170 large private equity advisers = 11,400 hours.
89
This estimate is based on IARD data on the frequency of advisers to one or more private funds
ceasing to have assets under management sufficient to cause them to be large hedge fund or large
liquidity fund advisers. ((80 large liquidity fund advisers + 250 large hedge fund advisers) x 0.09
x 0.25 hours = 7 hours.)
90
Under the proposal, large private equity advisers would also have been required to file on a
quarterly basis. See section II.B.1 of the Adopting Release.
- 26 -
report each year with a burden of 0.25 of an hour, or a total of 71 burden hours per year
for all private fund advisers.91 No commenters addressed these estimates. The SEC has
not changed its estimates of the rate of final filings and the burden hours per filing from
the proposal, but it has reduced its estimate of the total burden hours per year because the
addition of a minimum reporting threshold will result in fewer filers reporting on
Form PF.92
Finally, an adviser experiencing technical difficulties in submitting Form PF may
request a temporary hardship exemption by filing portions of Form PF in paper format.93
The information that must be filed is comparable to the information that Form ADV filers
provide on Form ADV-H when requesting a temporary hardship exemption relating to
that form. In the case of Form ADV-H, the SEC has estimated that the average burden of
filing is 1 hour and that approximately 1 in every 1,000 advisers will file annually.
Assuming that Form PF filers request hardship exemptions at the same rate and that the
applications impose the same burden per filing, the SEC expects approximately 4 filers to
request a temporary hardship exemption each year94 for a total of 4 burden hours.95 No
commenters addressed these estimates, and they remain unchanged from the proposal.
(f) Aggregate Hour Burden Estimates
Based on the foregoing, the SEC estimates that Form PF would result in an
aggregate of 258,000 burden hours per year for all private fund advisers for each of the
91
Estimate is based on IARD data on the frequency of advisers to one or more private funds
withdrawing from SEC registration. (3,570 private fund advisers x 0.08 x 0.25 hours = 71 hours.)
92
See section II.A of the Adopting Release.
93
See Advisers Act rule 204(b)-1(f). The rule requires that the adviser complete and file Item A of
Section 1a and Section 5 of Form PF, checking the box in Section 1a indicating that the filing is a
request for a temporary hardship exemption.
94
3,570 private fund advisers x 1 request per 1,000 advisers = approximately 4 advisers.
95
4 advisers x 1 hour per response = 4 hours.
- 27 -
first three years, or 72 burden hours per year on average for each private fund adviser
over the same period.96
(g)
Monetized Total Hour Burden
The SEC expects that the costs Form PF imposes will be most significant for the
first report that a private fund adviser is required to file because the adviser will need to
familiarize itself with the new reporting form and may need to configure its systems in
order to efficiently gather the required information. The SEC also anticipates that the
initial report will require more attention from senior personnel, including compliance
managers and senior risk management specialists, than will subsequent reports. In
addition, the SEC expects that some Large Private Fund Advisers will find it efficient to
automate some portion of the reporting process, which will increase the burden of the
initial filing but reduce the burden of subsequent filings.
After filing their initial reports, the SEC anticipates that advisers will incur
significantly lower costs because much of the work involved in the initial report is nonrecurring and because of efficiencies realized from system configuration and reporting
automation efforts accounted for in the initial reporting period. In addition, the SEC
estimates that senior personnel will bear less of the reporting burden in subsequent
reporting periods, reducing costs though not necessarily reducing the burden hours.
One commenter agreed that efficiencies will be realized over time,97 but another
stated that, at least for private real estate funds, they would not.98 Having considered
96
70,600 hours for periodic filings by smaller advisers + 153,000 hours for periodic filings by large
hedge fund advisers + 23,200 hours for periodic filings by large liquidity fund advisers + 11,400
hours for periodic filings by large private equity fund advisers + 7 hours per year for transition
filings + 71 hours per year for final filings + 4 hours per year for temporary hardship requests =
approximately 258,000 hours per year. 258,000 hours per year ÷ 3,570 total advisers = 72 hours
per year on average.
- 28 -
these comments, the SEC continues to believe that, for the average adviser (and
particularly for those with more liquid portfolios and greater systems capabilities),
efficiencies will be realized over time. The SEC has, however, also increased the cost
estimates for subsequent filings in recognition of concerns regarding the overall burden
of the reporting and the possibility that efficiencies are not the same for all types of
private fund adviser.
Based on the foregoing, the SEC estimates99 that the periodic filing requirements
under Form PF (including configuring systems and compiling, automating, reviewing and
electronically filing the report) will impose:
(1) 40 burden hours at a cost of $13,600100 per smaller private fund adviser
for the initial annual report;
(2) 15 burden hours at a cost of $4,200101 per smaller private fund adviser
for each subsequent annual report;
97
See MFA Letter.
98
See comment letter of The National Association of Real Estate Investment Managers (Mar. 24,
2011).
99
We understand that some advisers may outsource all or a portion of their Form PF reporting
responsibilities to software consultants, vendors, filing agents or other third-party service
providers. We have based our estimates on the use of internal resources, for which some cost data
is available, because we believe that an adviser would engage third-party service providers only if
the external costs were comparable, or less than, the estimated internal costs of compiling,
reviewing and filing the Form PF. The hourly wage data used in this Economic Analysis
section of the Release is based on the Securities Industry and Financial Markets Association’s
Report on Management & Professional Earnings in the Securities Industry 2010 and Office
Salaries in the Securities Industry 2010 (“SIFMA Earnings Reports”). This data has been
modified to account for an 1,800-hour work-year and multiplied by 5.35 for management and
professional employees and by 2.93 for general and compliance clerks to account for bonuses,
firm size, employee benefits and overhead.
100
We expect that for the initial report these activities will most likely be performed equally by a
compliance manager at a cost of $273 per hour and a senior risk management specialist at a cost of
$409 per hour and that, because of the limited scope of information required from smaller private
fund advisers, these advisers generally would not realize significant benefits from or incur
significant costs for system configuration or automation. ($273/hour x 0.5 + $409/hour x 0.5) x 40
hours = approximately $13,600.
- 29 -
(3) 100 burden hours at a cost of $31,000102 per large private equity fund
adviser for the initial annual report;
(4) 50 burden hours at a cost of $13,900103 per large private equity fund
adviser for each subsequent annual report;
(5) 300 burden hours at a cost of $93,100104 per large hedge fund adviser
for the initial quarterly report;
(6) 140 burden hours at a cost of $38,800105 per large hedge fund adviser
for each subsequent quarterly report;
101
We expect that for subsequent reports senior personnel will bear less of the reporting burden. As a
result, we estimate that these activities will most likely be performed equally by a compliance
manager at a cost of $273 per hour, a senior compliance examiner at a cost of $235 per hour, a
senior risk management specialist at a cost of $409 per hour and a risk management specialist at a
cost of $192 per hour. ($273/hour x 0.25 + $235/hour x 0.25 + $409/hour x 0.25 + $192/hour x
0.25) x 15 hours = approximately $4,200.
102
The SEC expects that for the initial report, of a total estimated burden of 100 hours, approximately
60 hours will most likely be performed by compliance professionals and 40 hours will most likely
be performed by programmers working on system configuration and reporting automation. Of the
work performed by compliance professionals, the SEC anticipates that it will be performed equally
by a compliance manager at a cost of $273 per hour and a senior risk management specialist at a
cost of $409 per hour. Of the work performed by programmers, the SEC anticipates that it will be
performed equally by a senior programmer at a cost of $304 per hour and a programmer analyst at
a cost of $224 per hour. ($273/hour x 0.5 + $409/hour x 0.5) x 60 hours + ($304/hour x 0.5 +
$224/hour x 0.5) x 40 hours = approximately $31,000.
103
The SEC expects that for subsequent reports senior personnel will bear less of the reporting
burden and that significant system configuration and reporting automation costs will not be
incurred. As a result, the SEC estimates that these activities will most likely be performed equally
by a compliance manager at a cost of $273 per hour, a senior compliance examiner at a cost of
$235 per hour, a senior risk management specialist at a cost of $409 per hour and a risk
management specialist at a cost of $192 per hour. ($273/hour x 0.25 + $235/hour x 0.25 +
$409/hour x 0.25 + $192/hour x 0.25) x 50 hours = approximately $13,900.
104
We expect that for the initial report, of a total estimated burden of 300 hours, approximately 180
hours will most likely be performed by compliance professionals and 120 hours will most likely
be performed by programmers working on system configuration and reporting automation. Of the
work performed by compliance professionals, we anticipate that it will be performed equally by a
compliance manager at a cost of $273 per hour and a senior risk management specialist at a cost of
$409 per hour. Of the work performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $304 per hour and a programmer analyst at a cost of
$224 per hour. ($273/hour x 0.5 + $409/hour x 0.5) x 180 hours + ($304/hour x 0.5 + $224/hour x
0.5) x 120 hours = approximately $93,100.
105
We expect that for subsequent reports senior personnel will bear less of the reporting burden and
that significant system configuration and reporting automation costs will not be incurred. As a
- 30 -
(7) 140 burden hours at a cost of $43,500106 per large liquidity fund
adviser for the initial quarterly report; and
(8) 65 burden hours at a cost of $18,000107 per large liquidity fund adviser
for each subsequent quarterly report.
Assuming that there are 3,070 smaller private fund advisers, 250 large hedge fund
advisers, 80 large liquidity fund advisers, and 170 large private equity fund advisers, the
foregoing estimates suggest an annual cost of $107,000,000108 for all private fund
advisers in the first year of reporting and an annual cost of $59,800,000 in subsequent
years.109
result, we estimate that these activities will most likely be performed equally by a compliance
manager at a cost of $273 per hour, a senior compliance examiner at a cost of $235 per hour, a
senior risk management specialist at a cost of $409 per hour and a risk management specialist at a
cost of $192 per hour. ($273/hour x 0.25 + $235/hour x 0.25 + $409/hour x 0.25 + $192/hour x
0.25) x 140 hours = approximately $38,800.
106
The SEC expects that for the initial report, of a total estimated burden of 140 hours, approximately
85 hours will most likely be performed by compliance professionals and 55 hours will most likely
be performed by programmers working on system configuration and reporting automation. Of the
work performed by compliance professionals, the SEC anticipates that it will be performed equally
by a compliance manager at a cost of $273 per hour and a senior risk management specialist at a
cost of $409 per hour. Of the work performed by programmers, the SEC anticipates that it will be
performed equally by a senior programmer at a cost of $304 per hour and a programmer analyst at
a cost of $224 per hour. ($273/hour x 0.5 + $409/hour x 0.5) x 85 hours + ($304/hour x 0.5 +
$224/hour x 0.5) x 55 hours = approximately $43,500.
107
The SEC expects that for subsequent reports senior personnel will bear less of the reporting
burden and that significant system configuration and reporting automation costs will not be
incurred. As a result, the SEC estimates that these activities will most likely be performed equally
by a compliance manager at a cost of $273 per hour, a senior compliance examiner at a cost of
$235 per hour, a senior risk management specialist at a cost of $409 per hour and a risk
management specialist at a cost of $192 per hour. ($273/hour x 0.25 + $235/hour x 0.25 +
$409/hour x 0.25 + $192/hour x 0.25) x 65 hours = approximately $18,000.
108
(3,070 smaller private fund advisers x $13,600 per initial annual report) + (170 large private equity
fund advisers x $31,000 per initial annual report) + (250 large hedge fund advisers x $93,100 per
initial quarterly report) + (250 large hedge fund advisers x 3 quarterly reports x $38,800 per
subsequent quarterly report) + (80 large liquidity fund advisers x $43,500 per initial quarterly
report) + (80 large liquidity fund advisers x 3 quarterly reports x $18,000 per subsequent quarterly
report) = approximately $107,000,000.
109
(3,070 smaller private fund advisers x $4,200 per subsequent annual report) + (170 large private
equity fund advisers x $13,900 per subsequent annual report) + (250 large hedge fund advisers x 4
quarterly reports x $38,800 per subsequent quarterly report) + (80 large liquidity fund advisers x 4
quarterly reports x $18,000 per subsequent quarterly report) = approximately $59,800,000.
- 31 -
The cost estimates above assume that risk and compliance personnel (and, in the
case of Large Private Fund Advisers filing an initial report, programmers) will carry out
the work of reporting on Form PF. Some commenters suggested that employees in
portfolio management as well as legal, controller and other back office functions may
also be involved in compiling, reviewing and filing Form PF.110 These commenters did
not provide estimates for how the reporting burdens would be allocated among these
groups of employees, and we believe the allocation is likely to vary significantly among
advisers depending on the size and complexity of their operations. Based on available
wage data, the SEC does not believe that variations in the allocation of these
responsibilities among the functions that it and commenters identified would result in
significantly different aggregate cost estimates.111
In addition, as discussed above, a private fund adviser must file very limited
information on Form PF if it needs to transition from quarterly to annual filing, if it is no
longer subject to the reporting requirements of Form PF or if it requires a temporary
hardship exemption under rule 204(b)-1(f). The SEC estimates that transition and final
filings will, collectively, cost private fund advisers as a whole approximately $5,200 per
110
See, e.g., Kleinberg General Letter; MFA Letter.
111
For example, our estimates assume that the work is performed by compliance managers at $273
per hour, senior compliance examiners at $235 per hour, senior risk management specialists at
$409 per hour, risk management specialists at $192 per hour and, in the case of Large Private
Fund Advisers filing an initial report, programmers ranging from $304 to $224 per hour. Based
on the SIFMA Earnings Reports, indicative costs in the other functions that commenters identified
are: $287 per hour for a senior portfolio manager; $211 per hour for an intermediate portfolio
manager; $430 per hour for an assistant general counsel; $165 per hour for a fund senior
accountant; $194 per hour for an intermediate business analyst; and $154 per hour for an
operations specialist. An adviser’s chief compliance officer (at a cost of $423 per hour) or
controller (at a cost of $433 per hour) may also review the filing, though the SEC would expect
that in most cases their involvement would be more limited than that of more junior employees.
- 32 -
year.112 The SEC further estimates that hardship exemption requests will cost private
fund advisers as a whole approximately $760 per year.113 No commenters addressed
these estimates. The estimate with respect to hardship exemptions is unchanged from the
proposal. The estimate with respect to transition and final filings have been reduced
because fewer filers will be required to report on a quarterly basis and the addition of a
minimum reporting threshold means that fewer advisers will report in total.114
13.
Estimate of Total Annual Cost Burden
In addition to the hour burdens identified above, advisers subject to the Form PF
reporting requirements will incur cost burdens. Firms required to file Form PF must also
pay filing fees. In a separate order, the SEC has established filing fees for the Form PF
filing system of $150 per annual filing and $150 per quarterly filing.115 The SEC
estimates that this will result in advisers paying aggregate filing fees of approximately
$684,000 per year.116
112
The SEC estimates that, for the purposes of the PRA, transition filings will impose 7 burden hours
per year on private fund advisers in the aggregate and that final filings will impose 71 burden
hours per year on private fund advisers in the aggregate. The SEC anticipates that this work will
most likely be performed by a compliance clerk at a cost of $67 per hour. (7 burden hours + 71
burden hours) x $67/hour = approximately $5,200.
113
The SEC estimates that, for the purposes of the PRA, requests for temporary hardship exemptions
will impose 4 burden hours per year on private fund advisers in the aggregate. The SEC
anticipants that five-eighths of this work will most likely be performed by a compliance manager
at a cost of $273 per hour and that three-eighths of this work will most likely be performed by a
general clerk at a cost of $50 per hour. (($273 per hour x 5/8 of an hour) + ($50 per hour x 3/8 of
an hour)) x 4 hours = approximately $760.
114
See the Adopting Release at note 424.
115
See section II.E of the Adopting Release.
116
((3,070 smaller private fund advisers + 170 large private equity advisers) x $150 per annual filing)
+ ((250 large hedge fund advisers + 80 large private equity advisers) x $150 per quarterly filing x
4 quarterly filings per year) = $684,000 per year.
- 33 -
Several commenters suggested that advisers would also need to modify existing
systems or deploy new systems to support Form PF reporting.117 As discussed in the
proposal and below, the SEC acknowledges that advisers may incur costs to develop
systems and expects that Large Private Fund Advisers, in particular, may find it efficient
to automate some portion of the reporting process, which will increase the burden of the
initial filing but reduce the burden of subsequent filings. The SEC has assumed that
some of the hours that it estimates advisers will spend on preparing their initial filings on
Form PF will be attributable to programmers preparing systems for the reporting.118 The
SEC understands that some advisers may outsource all or a portion of these systems
requirements to software consultants, vendors, filing agents or other third-party service
providers and believes that the emergence of such service providers may serve to make
filing on Form PF more efficient than is reflected in its estimates.119
Advisers may also incur costs associated with the acquisition or use of hardware
needed to perform computations or otherwise process the data required on Form PF.120
Smaller private fund advisers are unlikely to bear these costs because the information
they are required to provide is limited and will, in many cases, already be maintained in
the ordinary course of business.121 Even among Large Private Fund Advisers, these costs
are likely to vary significantly. For instance, the cost to any Large Private Fund Adviser
117
See, e.g., BlackRock Letter; IAA Letter; Kleinberg General Letter; PEGCC Letter; SIFMA Letter.
118
See the Adopting Release at notes 511, 513 and 515.
119
The SEC has based its estimates on the use of internal resources, for which some cost data is
available, because it believes that an adviser would engage third-party service providers only if the
external costs were comparable, or less than, the estimated internal costs of compiling, reviewing
and filing the Form PF. As a result, the SEC’s estimates of hour and cost burdens in this PRA
analysis, and of costs in section V.B of the Adopting Release, may overstate the actual burdens
and costs that will be incurred once third-party services become available.
120
See the Adopting Release at note 272.
121
See the Adopting Release at note 382.
- 34 -
may depend on how many funds or the types of funds it manages, the state of its existing
systems and the complexity of its business. In addition, large hedge fund and large
liquidity fund advisers must file Form PF more frequently, on shorter deadlines and
generally with more information than large private equity advisers, increasing the
likelihood that filings will compete with other demands for computing resources and that
additional resources will be required.
Commenters did not provide estimates for the costs of acquiring or using
hardware for purposes of Form PF. SEC staff contacted several organizations, including
self-regulatory organizations, prime brokers and fund service providers, to help develop
an estimate for these costs. Although these organizations generally were not able to
provide such estimates, some expressed the view that the hardware costs would be small
relative to the human capital costs and, for Large Private Fund Advisers, software
development costs that Form PF imposes.122 The SEC estimates, based in part on these
conversations and the factors discussed above, that these costs will fall across a broad
range for Large Private Fund Advisers. Those who are required to file less information,
less frequently and on longer deadlines, who have excess capacity in their existing
systems or whose business is relatively simple, may incur no incremental hardware costs.
On the other hand, some Large Private Fund Advisers may need to acquire (or obtain the
use of) computing resources equivalent to an additional server, which the SEC estimates
would cost approximately $50,000 fully deployed. This suggests an aggregate
122
See the Adopting Release at notes 435-436 and accompanying text.
- 35 -
incremental cost in the first year of reporting between $0 and $25,000,000, though the
actual cost is likely to fall in between these two end-points.123
14.
Estimate of Cost to the Federal Government
There are no costs to the government directly attributable to Form PF.
15.
Explanation of Changes in Burden
Form PF is a new collection of information.
16.
Information Collection Planned for Statistical Purposes
Not applicable.
17.
Approval to not Display Expiration Date
Not applicable.
18.
Exceptions to Certification Statement
Not applicable.
B.
COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.
123
$50,000 x 500 Large Private Fund Advisers = $25,000,000.
- 36 -
| File Type | application/pdf |
| File Title | SUPPORTING STATEMENT |
| Author | Don L. Evans |
| File Modified | 2011-11-08 |
| File Created | 2011-11-08 |