Correspondence 0001012709-24-000005 from Advisors' Inner Circle Fund II (CIK 0000890540)
Advisors' Inner Circle Fund II (CIK 0000890540)
Date: Dec. 17, 2024 · CIK: 0000890540 · Accession: 0001012709-24-000005
AI Filing Summary & Sentiment
File numbers found in text: 811-07102
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CORRESP
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Brian T. London
Of Counsel
+1.215.963.5886
brian.london@morganlewis.com
December 17, 2024
FILED AS EDGAR CORRESPONDENCE
Alison White, Esq.
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Re:
The Advisors’ Inner Circle Fund II 485(a) Filing (File
Nos. 033-50718 and 811-07102)
Dear Ms. White:
On behalf of our client, The Advisors’ Inner
Circle Fund II (the “Trust”), this letter responds to the comments you provided on behalf of the staff (the “Staff”)
of the Securities and Exchange Commission (the “SEC”) via telephone, regarding the Trust’s post-effective amendment
no. 307, under the Securities Act of 1933, as amended (the “1933 Act”), and amendment no. 311, under the Investment Company
Act of 1940, as amended (the “1940 Act”), to its registration statement filed with the SEC pursuant to Rule 485(a) under
the 1933 Act (the “Amendment”) with respect to the Frontier Asset Absolute Return ETF, Frontier Asset Core Bond ETF, Frontier
Asset Opportunistic Credit ETF, Frontier Asset Global Small Cap Equity ETF, Frontier Asset Total International Equity ETF and Frontier
Asset U.S. Large Cap Equity ETF (each, a “Fund” and together, the “Funds”). Below, we have briefly summarized
your comments, followed by our responses. Where indicated, certain of the responses are based on information provided by Frontier Asset
Management, LLC (the “Adviser”) for the specific purpose of responding to the Staff’s comments. Capitalized terms not
defined herein should be given the meaning provided in the Amendment.
PROSPECTUS COMMENTS
All Funds
1. Comment. In each Fund’s
“Fund Fees and Expense” section, please bold the second sentence of the preamble
to the fee table.
Response. The
requested changes have been made.
2. Comment. In the “Principal
Investment Strategies” section for each Fund, please consider moving the first sentence
of the fourth paragraph describing each Fund’s “fund-of-funds” strategy
to the end of the first paragraph.
Response. The referenced
sentence has been moved to the end of the first paragraph of the “Principal Investment Strategies” section for each Fund.
3. Comment. In the “Principal
Investment Strategies” section for each Fund, in the fourth paragraph, please clarify
how the Adviser determines the desired asset allocation mix while seeking positive risk adjusted
returns and downside protection.
Response. References to downside protection have been removed from this section for each Fund. Additionally, the following
disclosure has been added to the fourth paragraph of this section in response to this comment:
The asset allocation mix for the Fund is
determined through the use of a mean variance optimization process, which seeks to identify a combination of asset classes that is expected
to maximize return for a given level of risk, by focusing primarily on expected returns, standard deviations (i.e., volatility as a measure
of risk) and correlations of the different asset classes.
4. Comment. In the “Principal
Investment Strategies” section for each Fund, please describe the factors the Adviser
considers to form its views on which ETFs to select for the Fund’s portfolio.
Response. The fifth paragraph
of this section currently includes a list of factors the Adviser will consider when selecting the ETFs to include in the Fund’s
portfolio (including market conditions, valuation metrics, risk profiles, and expected growth potential). Accordingly, the Registrant
respectfully believes that the requested disclosure is already included. However, in response to this comment, the first sentence of
the fifth paragraph has been revised as follows:
Following this process, the Adviser will
select ETFs on the basis of their ability to provide low-cost asset class exposure and/or, as compared to other
actively managed ETFs, and/or the ability to add value on either an absolute or risk-adjusted basis, while also
taking into account the following factors to form its views on which ETFs to select for the Fund’s portfolio: market
conditions, valuation metrics, risk profiles, and expected growth potential.
5. Comment. In the “Principal
Investment Strategies” section for each Fund, please revise the first sentence of the
fourth paragraph to describe which market(s) the Adviser will compare the Fund portfolios
against for the purpose of the related statements—namely, positive risk adjusted returns
and downside protection.
Response. The referenced
sentence has been revised to describe the relevant market(s) against which the Adviser will compare the Fund portfolios for the purpose
of the related statements mentioned in the comment.
6. Comment. In the “Principal
Investment Strategies” section for each Fund, with respect to the first bullet under
the fourth paragraph, please explain what “single and multi-factor benchmark analysis”
means.
Response. The first bullet
under the fourth paragraph has been revised to include the following sentence:
Single factor benchmarks represent one
asset class, whereas multi-factor benchmarks include indices that track multiple asset classes.
7. Comment. In the “Principal
Investment Strategies” section for each Fund, please disclose approximately how many
underlying funds each Fund will have exposure to.
Response. The first paragraph
of this section has been revised to include an approximate range of underlying ETFs that the Adviser generally expects each Fund to hold.
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8. Comment. In the “Principal
Investment Strategies” section for each Fund, with respect to the bullets under the
fourth paragraph, please describe the information and analysis the Adviser will use in connection
with its “qualitative analysis” and “manager edge” analysis.
Response. The referenced
section has been revised to include the following paragraph immediately below the “Manager Edge” bullet:
In conducting the qualitative and manager
edge analysis described above, the Adviser relies on, among other publicly available sources of information, due diligence materials
provided by managers as well as interviews conducted with such managers to discuss investment philosophy, processes, personnel and performance.
9. Comment. In the second sentence
of the bullet point relating to “Manager Edge,” please provide examples of the
“inefficiencies” a manager may believe exist in the market, and describe with
more specificity what it means for a manager to “exploit” such inefficiencies.
Response. The following
disclosure has been added to the bullet point relating to “Manager Edge” in response to this comment:
Examples of market inefficiencies may include
behavioral biases such as anchoring bias (relying too heavily on an initial piece of information when making decisions), confirmation
bias (seeking out or giving more weight to information that supports original estimates) and overconfidence (displaying a hesitance to
acknowledge potential errors in an initial analysis). In practice, these biases can lead to delayed or gradual revisions of earnings
forecasts, even when significant changes in a company's fundamentals or external environment may warrant more immediate adjustments.
The Adviser believes that a manager who understands these dynamics and puts in place processes to combat these biases may be in a better
position to adjust their portfolio to incorporate new information, compared to managers who under-react to new information due to these
biases.
10. Comment. In the first sentence
of the fifth paragraph, please clarify how the use of active ETFs is consistent with the
goal of seeking low-cost asset class exposure.
Response. The referenced
sentence has been revised as follows:
Following this process, the Adviser will
select ETFs on the basis of their ability to provide low-cost asset class exposure and/or, as compared to other
actively managed ETFs, and/or the ability to add value on either an absolute or risk-adjusted basis, while also
taking into account the following factors to form its views on which ETFs to select for the Fund’s portfolio: market
conditions, valuation metrics, risk profiles, and expected growth potential.
11. Comment. In the “Principal
Investment Strategies” section for each Fund, with respect to the second to last paragraph:
(i) Please disclose all “other instruments”
each Fund will use a part of its principal investment strategies.
Response. The refence
to “other instruments” has been removed.
(ii) Please provide examples where the
Adviser may choose to invest directly in a given security rather than indirectly through a fund.
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Response. The refence
to direct investments has been removed.
12. Comment. In the “More
Information about Risk” section, with respect to the second sentence of the second
paragraph of “Bank Loans Risk,” please explain the meaning of “rights of
set-off.”
Response. The referenced
sentence has been revised as follows:
In connection with purchasing participations,
a Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan,
nor any rights of set-off against the borrower (i.e., the right to seize certain assets from the borrower to cover a loan if the
borrower defaults), and a Fund may not benefit directly from any collateral supporting the loan in which it has purchased the
participation.
13. Comment. In the “More
Information about Risk” section, please consider moving the last five sentences of
the “Credit Risk” paragraph relating to “junk bonds” to the “High
Yield Bond Risk” paragraph.
Response. The last five
sentences of the “Credit Risk” paragraph have been removed and incorporated as applicable into the “High Yield Bond
Risk” paragraph.
14. Comment. In the “More
Information about Risk” section, the “Depositary Receipts Risk” paragraph
for the Global Small Cap Equity ETF and the Total International Equity ETF discusses the
risks of investing in unsponsored depositary receipts. If either Fund will invest in unsponsored
depositary receipts as a principal investment strategy, please add related disclosure to
that Fund’s “Principal Investment Strategies” and “Principal Risks”
sections. If neither of these Funds will invest in unsponsored depositary receipts as a principal
investment strategy, please remove the reference to unsponsored depositary receipts from
the referenced paragraph.
Response. The discussion
of risks related to investing in unsponsored depositary receipts has been removed from the referenced paragraph.
15. Comment. In the “More
Information about Risk” section, with respect to the “Equity Risk” paragraph,
if none of the Funds invest in warrants or rights as principal investment strategies, please
consider removing the references to warrants and rights from this paragraph.
Response. The requested
change has been made.
Absolute Return ETF
16. Comment. In the “More
Information About the Funds’ Investment Objectives – Investment Strategies”
section, with respect to the Absolute Return ETF, please clarify what “supranational”
investments are and how the Fund will gain exposure to such investments.
Response. All references
to “supranational” investments have been removed.
Opportunistic Credit ETF
17. Comment. In the “Principal Investment Strategies” section for the
Opportunistic Credit ETF, with respect to the second paragraph, if there is a maximum percentage of the Fund’s assets that
the Fund may invest in non-U.S. issuers, please disclose that maximum percentage.
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Response. The Adviser
confirms that there is no specific maximum percentage of the Fund’s assets that may be invested in non-U.S. issuers.
Therefore, the Trust respectfully declines to include the requested disclosure. However, please note that the referenced paragraph
has otherwise been revised as follows:
For purposes of the Fund’s 80% investment
policy, fixed income securities include securities issued or guaranteed by the U.S. Government and
non-U.S. government issuers, corporate debt securities, municipal securities, commercial paper, residential and commercial mortgage-backed
securities, asset-backed securities (including collateralized loan obligations and collateralized mortgage obligations), convertible
securities, inflation-linked securities (e.g., Treasury inflation-protected securities (“TIPS”)) and bank loans. The Fund
may invest in investment-grade and non-investment grade fixed income securities. The Adviser considers fixed income securities to be
investment grade if they are rated in one of the four highest rating categories by a nationally recognized statistical ratings organization
(“NRSRO”), such as S&P Global Ratings (“S&P”) or Moody’s Investor Services, Inc. (“Moody’s”),
or determined by the Adviser to be of comparable quality at the time of purchase. The Adviser considers fixed income securities to be
below investment grade (also known as “high yield” or “junk” bonds”) if they are rated below BBB- or Baa3
by Moody’s, S&P or Fitch, Inc. (“Fitch”), or if unrated, determined to be of comparable quality by the Adviser.
The Fund may also invest in non-U.S. fixed income securities.
18. Comment. In the “Principal
Investment Strategies” section for the Opportunistic Credit ETF, please include principal
investment strategy disclosure corresponding to the “Convertible Securities Risk”
included under the section titled “Principal Risks.” Alternatively, if the Fund
will not invest in convertible securities as a principal investment strategy, please remove
this risk parag