
[Federal Register Volume 82, Number 183 (Friday, September 22, 2017)]
[Notices]
[Pages 44474-44475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20177]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32821; File No. 812-14741]


AQR Funds, et al.

September 18, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order pursuant to: (a) Section 6(c) 
of the Investment Company Act of 1940 (``Act'') granting an exemption 
from sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of 
the Act granting an exemption from section 12(d)(1) of the Act; (c) 
sections 6(c) and 17(b) of the Act granting an exemption from sections 
17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of 
the Act and rule 17d-1 under the Act to permit certain joint 
arrangements and transactions. Applicants request an order that would 
permit certain registered open-end management investment companies to 
participate in a joint lending and borrowing facility.
    Applicants: AQR Funds (the ``Trust''), registered under the Act as 
an open-end management investment company, and AQR Capital Management, 
LLC (``AQR''), registered as an investment adviser under the Investment 
Advisers Act of 1940.
    Filing Dates: The application was filed on February 2, 2017 and 
amended on July 6, 2017.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on October 13, 2017 and should be accompanied by proof of 
service on the applicants, in the form of an affidavit, or, for 
lawyers, a certificate of service. Pursuant to Rule 0-5 under the Act, 
hearing requests should state the nature of the writer's interest, any 
facts bearing upon the desirability of a hearing on the matter, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: AQR Capital 
Management, LLC, Two Greenwich Plaza, 4th Floor, Greenwich, CT 06830.

FOR FURTHER INFORMATION CONTACT:  James Maclean, Senior Counsel, at 
(202) 551-7794, or Robert Shapiro, Branch Chief, at (202) 551-7758 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://

[[Page 44475]]

www.sec.gov/search/search.htm or by calling (202) 551-8090.

Summary of the Application

    1. Applicants request an order that would permit the applicants to 
participate in an interfund lending facility where each Fund could lend 
money directly to and borrow money directly from other Funds to cover 
unanticipated cash shortfalls, such as unanticipated redemptions or 
trade fails.\1\ The Funds will not borrow under the facility for 
leverage purposes and the loans' duration will be no more than 7 
days.\2\
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    \1\ Applicants request that the order apply to the applicants 
and to any existing or future series of the Trust and any existing 
or future registered open-end management investment company or 
series thereof (each a ``Fund'') for which AQR, or an entity 
controlling, controlled by, or under common control with AQR or any 
successor thereto serves as investment adviser (with AQR, each an 
``Adviser''). For purposes of the requested order, ``successor'' is 
limited to any entity that results from a reorganization into 
another jurisdiction or a change in the type of a business 
organization. Although the applicants do not currently operate any 
money market funds, applicants request that the order also apply to 
any future Fund that is a money market fund that complies with rule 
2a-7 of the Act (each a ``Money Market Fund''). Money Market Funds 
will not participate as borrowers under the interfund lending 
facility because such funds rarely need to borrow cash to meet 
redemptions.
    \2\ Any Fund, however, will be able to call a loan on one 
business day's notice.
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    2. Applicants anticipate that the proposed facility would provide a 
borrowing Fund with a source of liquidity at a rate lower than the bank 
borrowing rate at times when the cash position of the Fund is 
insufficient to meet temporary cash requirements. In addition, Funds 
making short-term cash loans directly to other Funds would earn 
interest at a rate higher than they otherwise could obtain from 
investing their cash in U.S. Treasury bills or certain other short-term 
money market instruments. Thus, applicants assert that the facility 
would benefit both borrowing and lending Funds.
    3. Applicants agree that any order granting the requested relief 
will be subject to the terms and conditions stated in the application. 
Among others, an Adviser, through a designated committee, would 
administer the facility as a disinterested fiduciary as part of its 
duties under the investment management agreements with the Funds and 
would receive no additional fee as compensation for its services in 
connection with the administration of the facility. The facility would 
be subject to oversight and certain approvals by the Funds' Board, 
including, among others, approval of the interest rate formula and of 
the method for allocating loans across Funds, as well as review of the 
process in place to evaluate the liquidity implications for the Funds. 
A Fund's aggregate outstanding interfund loans will not exceed 15% of 
its net assets, and the Fund's loans to any one Fund will not exceed 5% 
of the lending Fund's net assets.\3\
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    \3\ Under certain circumstances, a borrowing Fund will be 
required to pledge collateral to secure the loan.
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    4. Applicants assert that the facility does not raise the concerns 
underlying section 12(d)(1) of the Act given that the Funds are part of 
the same group of investment companies and there will be no duplicative 
costs or fees to the Funds.\4\ Applicants also assert that the proposed 
transactions do not raise the concerns underlying sections 17(a)(1), 
17(a)(3), 17(d) and 21(b) of the Act as the Funds would not engage in 
lending transactions that unfairly benefit insiders or are detrimental 
to the Funds. Applicants state that the facility will offer both 
reduced borrowing costs and enhanced returns on loaned funds to all 
participating Funds and each Fund would have an equal opportunity to 
borrow and lend on equal terms based on an interest rate formula that 
is objective and verifiable. With respect to the relief from section 
17(a)(2) of the Act, applicants note that any collateral pledged to 
secure an interfund loan would be subject to the same conditions 
imposed by any other lender to a Fund that imposes conditions on the 
quality of or access to collateral for a borrowing (if the lender is 
another Fund) or the same or better conditions (in any other 
circumstance).\5\
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    \4\ Applicants state that the obligation to repay an interfund 
loan could be deemed to constitute a security for the purposes of 
sections 17(a)(1) and 12(d)(1) of the Act.
    \5\ Applicants state that any pledge of securities to secure an 
interfund loan could constitute a purchase of securities for 
purposes of section 17(a)(2) of the Act.
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    5. Applicants also believe that the limited relief from section 
18(f)(1) of the Act that is necessary to implement the facility 
(because the lending Funds are not banks) is appropriate in light of 
the conditions and safeguards described in the application and because 
the Funds would remain subject to the requirement of section 18(f)(1) 
that all borrowings of a Fund, including combined interfund loans and 
bank borrowings, have at least 300% asset coverage.
    6. Section 6(c) of the Act permits the Commission to exempt any 
persons or transactions from any provision of the Act if such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors. 
Section 17(b) of the Act authorizes the Commission to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Rule 
17d-1(b) under the Act provides that in passing upon an application 
filed under the rule, the Commission will consider whether the 
participation of the registered investment company in a joint 
enterprise, joint arrangement or profit sharing plan on the basis 
proposed is consistent with the provisions, policies and purposes of 
the Act and the extent to which such participation is on a basis 
different from or less advantageous than that of the other 
participants.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20177 Filed 9-21-17; 8:45 am]
BILLING CODE 8011-01-P


