Subject: File No. S7-24-15
From: Dan Kephart
Affiliation: Software Engineer at Non-financial company

March 27, 2016

As an individual investor, I'm quite happy with the increase in products known as liquid alternative investments that are available in the RIC form of ETFs and mutual funds. I currently use funds managed by AQR such as their Risk Parity II HV (QRHIX), Risk Parity II MV (QRMIX), and Long/Short Equity Fund (QLEIX). I'm concerned that this rule is will impact not only those funds but similar ones.

While I understand the SEC is likely concerned with funds that use derivatives to target more extreme risk (such as 3x leverage market or inverse market trackers), I think both the 150% notional exposure and the 300% notional exposure, if less than market risk is obtained, rules are potential restrictive.

All the AQR funds I use definitely fail the 150% notional exposure test. Yet, they are designed to limit equity market exposure and increase diversification to my portfolio. The use of derivatives allows them to target specific risk and returns that otherwise would not be available without derivatives and the leverage that the derivatives allow. These funds allow access for the individual investor to alternative forms of risk and returns (beyond equity, credit, and term risks) that allow diversification that was previously only available to hedge fund investors with high net worth.

In the case of QLEIX, it would fail the 300% notional test because it requires the use for derivatives to first target specific risk premia (value, momentum, etc) by going long and short (but staying equity risk neutral) in equity markets. It then adds equity beta risk back in by targeting around 50% equity market risk via futures. Currently, it is over 300% if market neutral long and short positions are combined, before adding in 50% equity market risk. So this would fail the 300% rule, yet it is limiting equity market risk and allowing me to gain diversification and returns I would previously never had access to.

I realize that the use of derivatives exposes me to potential counter party, liquidity, and volatility risks in market crises, if risk controls are not in place. I know AQR not only has risk controls, but I'm also willing to accept these risk even without the risk controls. Frankly, a long only portfolio that doesn't use derivatives has some form of these risk anyways, just not as pronounced.

These products packaged as ETFs, mutual funds, and other RICs allow not only the smaller dollar individual investor like me access to improved diversification and potentially enhanced returns, but increased competition in this space. This drives down costs for all investors and increases transparency of these investment strategies. This is good for the investment market as a whole and all investors.

In closing, I'd like the SEC to review these rules and consider its negative impact on investors like me.