SEC Company Response from AQR Funds (CIK 0001444822) — Apr 13, 2020
AQR Funds (CIK 0001444822)
Date: April 13, 2020 · CIK: 0001444822 · Accession: 0001683863-20-003007
AI Filing Summary & Sentiment
File numbers found in text: 811-22235
Letter
VIA EDGAR Ms. Christina DiAngelo Fettig Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549
Dear Ms. Fettig:
On behalf of AQR Funds (the "Trust"), including each series of the Trust (each, a "Fund," and together, the "Funds"), we herewith transmit the Trust's responses to the telephonic comments provided by you on behalf of the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") on January 21, 2020 regarding the Trust's Shareholder Report on Form N-CSR filed with the Commission on November 29, 2019 and other filings. The Staff's comments are described below and have been summarized to the best of our understanding. Each comment applies to each Fund unless otherwise indicated. We have discussed the Staff's comments with representatives of the Trust. The Trust's responses to the Staff's comments are set out immediately under the restated comments. Unless otherwise indicated, defined terms used herein have the meanings set out in the Shareholder Report.
Prospectus Disclosure Comments
Comment 1
We note that each Fund's prospectus risk factors are in alphabetical
order. Please reorder the principal risks of investing in the Fund to
list the most important risks first. See ADI 2019-08 – Improving
Principal Risks Disclosure.
Response
ADI 2019-08 specifically states: "This update is not a rule, regulation
or statement of the Securities and Exchange Commission. Further, the
Commission has neither approved nor disapproved its content. Future
changes in rules, regulations, and/or staff no-action and interpretive
B E I J I N G
H O N G K O N G
H O U S T O N
L O N D O N
L O S A N G E L E S
P A L O A L T O
S ÷ O P A U L O T O K Y O
W A S H I N G T O N , D . C .
Ms. Christina DiAngelo Fettig
April 13, 2020
positions may supersede some or all of the information in a particular
ADI." The Trust is not aware of any requirement in Form N-1A that
requires a Fund's principal risks to be set forth in any particular order.
As a result, each Fund respectfully declines to make the requested
change. The Trust believes its risk factors can be located more easily
when listed in alphabetical order.
Comment 2
AQR Core Plus Bond Fund. The financial statements indicate that
the Adviser and/or its affiliates own 83.07% of the Fund's total
outstanding shares. Consider whether the Fund's prospectus should
include a risk factor to address shareholder concentration risk.
Response
The Adviser and its affiliates will maintain their investment in the
Fund until a time when third-party assets invested in the Fund reach a
level where, in the judgment of the Adviser, portfolio management of
the Fund and the Fund's expense ratio would not be materially
adversely impacted by the redemption. See "Organization of the
Trust and a Description of the Shares" in the Fund's statement of
additional information ("SAI"). As a result, the Fund does not believe
a shareholder concentration risk factor is appropriate for this Fund.
Shareholder Report Comments
Comment 3
Management's Discussion of Fund Performance. Item 27(b)(7)(ii) of
Form N-1A provides that the line graph should assume a $10,000
initial investment at the beginning of the first fiscal year in an
appropriate broad-based securities market index for the same period
as the line graph for the Fund's performance; provided that
Instruction 1(d) to this item indicates that the line graph should be
based on the Fund's required minimum initial investment if that
amount exceeds $10,000. In future shareholder reports, base this line
graph on the Fund's required minimum initial investment.
Response
As disclosed in the "Investing With the AQR Funds" section of each
Fund's prospectus, there is no minimum investment requirement for
certain eligibility groups, including accounts and programs offered by
certain financial intermediaries. A significant amount of the Funds'
assets under management are held by intermediaries, which is why
each Fund assumes a $10,000 initial investment.
Comment 4
Management's Discussion of Fund Performance. If a line graph
shows more than 10 years of performance, modify the narrative under
the line graph in future shareholder reports to clarify that the
performance period shown in the chart exceeds 10 years, where
applicable.
Ms. Christina DiAngelo Fettig
April 13, 2020
Response
The Funds anticipate showing only 10 years of performance history in
future line graphs. If a Fund shows more than 10 years of
performance history in the future, the Fund will modify the narrative
under the line graph as requested.
Comment 5
AQR Core Plus Bond Fund – Management's Discussion of Fund
Performance. Item 27(b)(7)(i) of Form N-1A provides that there
should be a discussion of the factors that materially affected the
Fund's performance during the most recently completed fiscal year,
including the relevant market conditions and the investment strategies
and techniques used by the Fund's investment adviser. The Staff
observed that this Fund appears to use derivatives to a significant
extent. A Fund whose performance was materially affected by
derivatives should discuss that fact in its MDFP, including the impact
of derivatives on performance for the most recently completed fiscal
year. Please refer to the letter from Barry D. Miller, Associate
Director, Office of Legal and Disclosure, to Karrie McMillan,
General Counsel, Investment Company Institute, dated July 30, 2010.
See http://www.sec.gov/divisions/investment/guidance/ici073010.pdf.
Response
The Fund uses derivatives, such as futures and swaps, as
implementation tools in order to provide exposure to bonds and bond
related instruments. In the event that a Fund's performance is
materially affected by derivatives it will be discussed in the MDFP.
Comment 6
AQR Core Plus Bond Fund – TBA Transactions. With respect to TBA
transactions, please supplementally describe whether the Fund
exchanged Freddie Mac or Fannie Mae securities for the delivery of
UMBS. If so, please describe (i) the accounting impact of the
exchanges, and (ii) the adequacy of the Fund's UMBS disclosure in
its prospectus.
Response
The Fund does not exchange Freddie Mac or Fannie Mae securities
for the delivery of UMBS.
Comment 7
Affiliates Table in the Schedule of Investments. The roll forward
amount should be based on value and not shares. See Footnote 1 to
Rule 12-14 of Regulation S-X.
Response
Each Fund believes its interpretation of Rule 12-14 of Regulation S-X
was reasonable and the manner in which it made disclosures on its
Affiliates Table was appropriate and consistent with market practice.
In future filings, the Funds will base the roll forward amount on value
based on the amendment to footnote 1 to Rule 12-14 of Regulation S- X.
Ms. Christina DiAngelo Fettig
April 13, 2020
Comment 8
Affiliates Table in the Schedule of Investments. The
total dividend income should be reconcilable with the Statement of
Operations. There is a difference for certain Funds that include
securities lending collateral in their Affiliates Table but not in their
Statement of Operations. See Footnote 6 to Rule 12-14 of Regulation
S-X. Please explain.
Response
Dividend income earned from the Fund's direct investment in the
Limited Purpose Cash Investment Fund is separately disclosed as a
sub-total in the Affiliates Table in the Schedule of Investments which
reconciles to the dividend income line item in the AQR Large Cap
Defensive Style Fund's (the "Fund") Statement of Operations. The
dividend income earned from the Fund's securities lending collateral
investment in the Limited Purpose Cash Investment Fund of $118,038
is also separately disclosed in the Affiliate Table and is included as a
portion of the $169,324 in net securities lending income reported by
the Fund in its Statement of Operations. The difference between the
two amounts is attributed to securities lending income the Fund
earned from investments of its cash collateral in unaffiliated
investments.
In light of the Staff's comment, in future shareholder reports the Fund
will move the amount of securities lending collateral income from the
Dividend Income column in its Affiliate Table to a footnote. If the
Fund included this footnote in its last shareholder report, the footnote
would have read: "Securities lending income from Affiliated Issuers
amounted to $118,038 for the year ended September 30, 2019."
Following this change, the total dividend income from affiliated
issuers in the Affiliate Table will correspond to the line item in the
Statement of Operations.
Comment 9
Custom Basket Disclosure in Schedule of Investments. When
applicable, the lead in sentence to the disclosure should make clear to
any investor that a Fund only discloses the largest 50 components of
the basket swap, and any other components where the notional value
of the component exceeds 1% of the notional value of the basket. See
AICPA minutes from the Investment Companies Expert Panel on
January 16, 2018, available here:
https://www.aicpa.org/content/dam/aicpa/interestareas/frc/industryin
sights/downloadabledocuments/inv/inv-ep-minutes/investment-
comapnies-expert-panel-meeting-highlights-2018.pdf ("The SEC staff
observed disclosures where it is difficult for a reader to determine
how the components of the basket that are disclosed relate to the
derivative as a whole.").
Response
The lead in sentence will be revised as follows when a Fund only
discloses the 50 largest components of a basket swap: "The following
Ms. Christina DiAngelo Fettig
April 13, 2020
table represents disclosure associated with a subset of the underlying
performance of the total return basket swap as of period end."
Comment 10
AQR International Multi-Style Fund, AQR TM International Multi-
Style Fund, AQR International Momentum Style Fund, AQR TM
International Momentum Style Fund and AQR International Equity
Fund – Foreign Tax Reclaim Receivables. Please supplementally
explain how the Funds monitor the collectability of these foreign tax
reclaim receivables and the applicable countries.
Response
The Funds' management participates in periodic meetings with the
Funds' administrator and custodian, JP Morgan, to review reclaims
where the statute of limitations is close to being reached and performs
a review to determine collectability. JP Morgan tracks and monitors
tax reclaims receivables against established industry standards and
reviews receivables that remain outstanding past established
timeframes. The countries in which these Funds currently have
foreign tax reclaim receivables are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, Portugal,
Spain, Switzerland and the United Kingdom.
Comment 11
Form N-1A Item 27(d)(6)(i). Where applicable, please describe the
required information on a more specific basis for each Fund. Where
applicable, the disclosure should address the effects of large net
redemptions.
Response
The factors were considered by the Board on a Fund-by-Fund basis.
The Funds will seek to assure that disclosure in future Shareholder
Reports includes more specific discussion of the factors considered
for each Fund.
Comment 12
Form N-1A Item 27(b)(6). The trustees disclosure in shareholder
reports should include a statement that the SAI in
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Simpson Thacher & Bartlett LLP
900 G STREET , NW
WASHINGTON, D .C. 20001
TELEPHONE : +1-202-636-5500
FACSIMILE: +1-202-636-5502
Direct Dial Number
E-mail Address
+1-202-636-5806
ryan.brizek@stblaw.com
VIA EDGAR
April 13, 2020
Re: AQR Funds
Investment Company Act File No. 811-22235
Ms. Christina DiAngelo Fettig
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Dear Ms. Fettig:
On behalf of AQR Funds (the "Trust"), including each series of the Trust (each, a "Fund," and together, the "Funds"), we herewith transmit the Trust's responses to the telephonic comments provided by you on behalf of the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") on January 21, 2020 regarding the Trust's Shareholder Report on Form N-CSR filed with the Commission on November 29, 2019 and other filings. The Staff's comments are described below and have been summarized to the best of our understanding. Each comment applies to each Fund unless otherwise indicated. We have discussed the Staff's comments with representatives of the Trust. The Trust's responses to the Staff's comments are set out immediately under the restated comments. Unless otherwise indicated, defined terms used herein have the meanings set out in the Shareholder Report.
Prospectus Disclosure Comments
Comment 1
We note that each Fund's prospectus risk factors are in alphabetical
order. Please reorder the principal risks of investing in the Fund to
list the most important risks first. See ADI 2019-08 – Improving
Principal Risks Disclosure.
Response
ADI 2019-08 specifically states: "This update is not a rule, regulation
or statement of the Securities and Exchange Commission. Further, the
Commission has neither approved nor disapproved its content. Future
changes in rules, regulations, and/or staff no-action and interpretive
B E I J I N G
H O N G K O N G
H O U S T O N
L O N D O N
L O S A N G E L E S
P A L O A L T O
S ÷ O P A U L O T O K Y O
W A S H I N G T O N , D . C .
Ms. Christina DiAngelo Fettig
April 13, 2020
positions may supersede some or all of the information in a particular
ADI." The Trust is not aware of any requirement in Form N-1A that
requires a Fund's principal risks to be set forth in any particular order.
As a result, each Fund respectfully declines to make the requested
change. The Trust believes its risk factors can be located more easily
when listed in alphabetical order.
Comment 2
AQR Core Plus Bond Fund. The financial statements indicate that
the Adviser and/or its affiliates own 83.07% of the Fund's total
outstanding shares. Consider whether the Fund's prospectus should
include a risk factor to address shareholder concentration risk.
Response
The Adviser and its affiliates will maintain their investment in the
Fund until a time when third-party assets invested in the Fund reach a
level where, in the judgment of the Adviser, portfolio management of
the Fund and the Fund's expense ratio would not be materially
adversely impacted by the redemption. See "Organization of the
Trust and a Description of the Shares" in the Fund's statement of
additional information ("SAI"). As a result, the Fund does not believe
a shareholder concentration risk factor is appropriate for this Fund.
Shareholder Report Comments
Comment 3
Management's Discussion of Fund Performance. Item 27(b)(7)(ii) of
Form N-1A provides that the line graph should assume a $10,000
initial investment at the beginning of the first fiscal year in an
appropriate broad-based securities market index for the same period
as the line graph for the Fund's performance; provided that
Instruction 1(d) to this item indicates that the line graph should be
based on the Fund's required minimum initial investment if that
amount exceeds $10,000. In future shareholder reports, base this line
graph on the Fund's required minimum initial investment.
Response
As disclosed in the "Investing With the AQR Funds" section of each
Fund's prospectus, there is no minimum investment requirement for
certain eligibility groups, including accounts and programs offered by
certain financial intermediaries. A significant amount of the Funds'
assets under management are held by intermediaries, which is why
each Fund assumes a $10,000 initial investment.
Comment 4
Management's Discussion of Fund Performance. If a line graph
shows more than 10 years of performance, modify the narrative under
the line graph in future shareholder reports to clarify that the
performance period shown in the chart exceeds 10 years, where
applicable.
2
Ms. Christina DiAngelo Fettig
April 13, 2020
Response
The Funds anticipate showing only 10 years of performance history in
future line graphs. If a Fund shows more than 10 years of
performance history in the future, the Fund will modify the narrative
under the line graph as requested.
Comment 5
AQR Core Plus Bond Fund – Management's Discussion of Fund
Performance. Item 27(b)(7)(i) of Form N-1A provides that there
should be a discussion of the factors that materially affected the
Fund's performance during the most recently completed fiscal year,
including the relevant market conditions and the investment strategies
and techniques used by the Fund's investment adviser. The Staff
observed that this Fund appears to use derivatives to a significant
extent. A Fund whose performance was materially affected by
derivatives should discuss that fact in its MDFP, including the impact
of derivatives on performance for the most recently completed fiscal
year. Please refer to the letter from Barry D. Miller, Associate
Director, Office of Legal and Disclosure, to Karrie McMillan,
General Counsel, Investment Company Institute, dated July 30, 2010.
See http://www.sec.gov/divisions/investment/guidance/ici073010.pdf.
Response
The Fund uses derivatives, such as futures and swaps, as
implementation tools in order to provide exposure to bonds and bond
related instruments. In the event that a Fund's performance is
materially affected by derivatives it will be discussed in the MDFP.
Comment 6
AQR Core Plus Bond Fund – TBA Transactions. With respect to TBA
transactions, please supplementally describe whether the Fund
exchanged Freddie Mac or Fannie Mae securities for the delivery of
UMBS. If so, please describe (i) the accounting impact of the
exchanges, and (ii) the adequacy of the Fund's UMBS disclosure in
its prospectus.
Response
The Fund does not exchange Freddie Mac or Fannie Mae securities
for the delivery of UMBS.
Comment 7
Affiliates Table in the Schedule of Investments. The roll forward
amount should be based on value and not shares. See Footnote 1 to
Rule 12-14 of Regulation S-X.
Response
Each Fund believes its interpretation of Rule 12-14 of Regulation S-X
was reasonable and the manner in which it made disclosures on its
Affiliates Table was appropriate and consistent with market practice.
In future filings, the Funds will base the roll forward amount on value
based on the amendment to footnote 1 to Rule 12-14 of Regulation S- X.
3
Ms. Christina DiAngelo Fettig
April 13, 2020
Comment 8
Affiliates Table in the Schedule of Investments. The
total dividend income should be reconcilable with the Statement of
Operations. There is a difference for certain Funds that include
securities lending collateral in their Affiliates Table but not in their
Statement of Operations. See Footnote 6 to Rule 12-14 of Regulation
S-X. Please explain.
Response
Dividend income earned from the Fund's direct investment in the
Limited Purpose Cash Investment Fund is separately disclosed as a
sub-total in the Affiliates Table in the Schedule of Investments which
reconciles to the dividend income line item in the AQR Large Cap
Defensive Style Fund's (the "Fund") Statement of Operations. The
dividend income earned from the Fund's securities lending collateral
investment in the Limited Purpose Cash Investment Fund of $118,038
is also separately disclosed in the Affiliate Table and is included as a
portion of the $169,324 in net securities lending income reported by
the Fund in its Statement of Operations. The difference between the
two amounts is attributed to securities lending income the Fund
earned from investments of its cash collateral in unaffiliated
investments.
In light of the Staff's comment, in future shareholder reports the Fund
will move the amount of securities lending collateral income from the
Dividend Income column in its Affiliate Table to a footnote. If the
Fund included this footnote in its last shareholder report, the footnote
would have read: "Securities lending income from Affiliated Issuers
amounted to $118,038 for the year ended September 30, 2019."
Following this change, the total dividend income from affiliated
issuers in the Affiliate Table will correspond to the line item in the
Statement of Operations.
Comment 9
Custom Basket Disclosure in Schedule of Investments. When
applicable, the lead in sentence to the disclosure should make clear to
any investor that a Fund only discloses the largest 50 components of
the basket swap, and any other components where the notional value
of the component exceeds 1% of the notional value of the basket. See
AICPA minutes from the Investment Companies Expert Panel on
January 16, 2018, available here:
https://www.aicpa.org/content/dam/aicpa/interestareas/frc/industryin
sights/downloadabledocuments/inv/inv-ep-minutes/investment-
comapnies-expert-panel-meeting-highlights-2018.pdf ("The SEC staff
observed disclosures where it is difficult for a reader to determine
how the components of the basket that are disclosed relate to the
derivative as a whole.").
Response
The lead in sentence will be revised as follows when a Fund only
discloses the 50 largest components of a basket swap: "The following
4
Ms. Christina DiAngelo Fettig
April 13, 2020
table represents disclosure associated with a subset of the underlying
performance of the total return basket swap as of period end."
Comment 10
AQR International Multi-Style Fund, AQR TM International Multi-
Style Fund, AQR International Momentum Style Fund, AQR TM
International Momentum Style Fund and AQR International Equity
Fund – Foreign Tax Reclaim Receivables. Please supplementally
explain how the Funds monitor the collectability of these foreign tax
reclaim receivables and the applicable countries.
Response
The Funds' management participates in periodic meetings with the
Funds' administrator and custodian, JP Morgan, to review reclaims
where the statute of limitations is close to being reached and performs
a review to determine collectability. JP Morgan tracks and monitors
tax reclaims receivables against established industry standards and
reviews receivables that remain outstanding past established
timeframes. The countries in which these Funds currently have
foreign tax reclaim receivables are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, Portugal,
Spain, Switzerland and the United Kingdom.
Comment 11
Form N-1A Item 27(d)(6)(i). Where applicable, please describe the
required information on a more specific basis for each Fund. Where
applicable, the disclosure should address the effects of large net
redemptions.
Response
The factors were considered by the Board on a Fund-by-Fund basis.
The Funds will seek to assure that disclosure in future Shareholder
Reports includes more specific discussion of the factors considered
for each Fund.
Comment 12
Form N-1A Item 27(b)(6). The trustees disclosure in shareholder
reports should include a statement that the SAI in