From: John de Carvalho
Sent: March 28, 2016
Subject: File No. S7-24-15

Good Afternoon SEC,
I am the Chief Investment Officer for Moss Adams Wealth Advisors, which is an SEC-regulated Registered Investment Advisor headquartered in Seattle, WA, with office locations along the west coast. We manage north of $2 billion in client assets, mainly for individual investors. Currently, we construct portfolios by exclusively implementing investments that are registered Investment Company Act of 1940. We construct portfolios based on a risk-based investment philosophy, which is to incorporate investments with differentiated risk-factors that drive returns. In order to achieve a diversity among risk factors, we incorporate liquid alternatives where performance is not solely dependent on economic or equity market risk, duration risk, and/or credit risk. Liquid alternatives have different risk profiles, that are uncorrelated to traditional equity and bond investments. A number of these liquid alternative strategies employ derivatives and leverage in order to achieve a differentiated risk profile. That said, without the proper regulation and oversight, financial engineering within these products can run amok and cause serious unintended consequences, potentially resulting in an increase in systemic risk to the financial system. However, with respect to the Proposed Rule, I contend it is overly restrictive and simplistic. I understand the intent of the Proposed Rule is to protect individual investors, but the rule in its current form may actually increase portfolio volatility, hindering future returns. Liquid alternative mutual funds commonly use derivatives or leverage to hedge risk exposures, and result in an uncorrelated stream of returns provided by traditional equity and bond investments. The liquid alternative mutual funds we employ in portfolios are not those using derivatives or leverage to “juice” returns, but rather use them for risk management purposes. This is a clear difference from the private investment or limited partnership hedge funds using derivatives and/or leverage to express their bias based on binary outcomes. I implore the committee making this decision to discern the differences between the intent, rather than simply the use of these instruments when determining limits of total gross notional exposure. The rule appears overly simplistic because it paints all investments that use derivatives and leverage into the same box, when that is simply not the case. This rule has the potential to significantly curtail usefulness of liquid alternative mutual funds that attempt to mitigate risk, not increase it.

Chief Investment Officer

999 Third Avenue, Suite 2800
Seattle, WA 98104