Performance, Profit, or Pride? The Proxy War for XFLT’s Future

NEW YORK, NY – July 09, 2026 – In the intricate ecosystem of public finance, the relationship between a fund’s managers and its shareholders is built on a foundation of trust. But what happens when that foundation cracks? This is the question at the heart of a contentious proxy battle unfolding around the XAI Floating Rate & Alternative Income Trust (XFLT), a closed-end fund now at the center of a public feud that raises critical questions about fiduciary duty, financial incentives, and the very definition of performance.

On one side stands Octagon Credit Investors, the fund’s sub-adviser since its 2017 inception and a firm that, by its own account, has been an excellent steward. On the other is the fund’s Board of Trustees and its primary adviser, XA Investments (XAI), who are seeking to replace Octagon with a new manager. In an aggressive public campaign, Octagon is urging shareholders to reject the Board’s plan, framing the dispute as a critical decision that “may impact the value of your shares.” The conflict offers a rare, unvarnished look into the machinery of fund management, where the interests of advisers and investors can dramatically diverge.

A Tale of Two Proposals

At a special meeting scheduled for July 30, XFLT shareholders will vote on a proposal to replace Octagon with Rockford Tower Asset Management, a newly formed subsidiary of King Street Capital Management. The XFLT Board unanimously recommends the change, stating it is in the “best interest of XFLT shareholders” and will enable a “more dynamic and opportunistic” investment strategy. They believe the new manager will position the fund for “potential improved performance and distributions over time.”

Octagon, however, paints a starkly different picture. In a fiery open letter, the firm calls the move a “grave error” that risks the fund’s performance to benefit XAI. The core of Octagon’s accusation is a financial one: Rockford Tower has allegedly agreed to perform its duties for a lower sub-advisory fee. While this might sound like a cost-saving measure, the fund’s overall management fee, paid by shareholders, will remain a steep 1.70%. According to Octagon, this arrangement simply allows XAI to “keep more of the overall management fees for itself.” Shareholders would bear the risk of an unproven manager while the primary adviser potentially pockets the difference.

Adding fuel to its argument, Octagon points to the state of Rockford Tower's parent company. Citing recent news reports, Octagon notes that King Street is purportedly facing “lackluster performance, fleeing clients and an exodus of long-tenured staff,” following a broad internal restructuring. While Rockford Tower itself boasts industry awards for its management of Collateralized Loan Obligation (CLO) vehicles, Octagon stresses that it has never managed a publicly registered closed-end fund like XFLT.

To force the issue, Octagon presented the Board with an alternative: let Octagon take over as the sole adviser and immediately reduce the fund’s overall management fee from 1.7% to 1.3%. This proposal, which would have provided a direct and immediate financial benefit to shareholders, was rejected by the Board. “Ask yourself,” Octagon presses in its letter, “whose interests were they representing when they turned down a fee cut that would have benefited shareholders?”

Scrutinizing the Track Record

The Board’s rationale for the change hinges on a supposed need for improved performance. Yet Octagon’s defense of its own record is robust. The firm highlights that under its stewardship, XFLT earned a five-star Morningstar rating in 2025 and was named a finalist for Creditflux's “Best Public Closed-End CLO Fund” in 2026. Moreover, the fund’s managed assets grew eight-fold, from roughly $73 million at its IPO to nearly $580 million today.

However, the full picture of performance is complex. While Octagon claims outperformance against peers, independent data reveals significant headwinds for XFLT shareholders. Since its inception, the fund's share price has collapsed by over 60%, and it currently trades at a deep discount of more than 20% to its Net Asset Value (NAV). One analyst noted that the fund's total return, including its hefty distributions, has been a mere 4.7% since 2017. For the investors who bought in, the experience has been one of persistent NAV erosion and a plummeting stock price, a reality that complicates any simple narrative of success.

This duality is the crux of many closed-end fund disputes. A manager can win industry awards for portfolio construction while the fund’s market price, buffeted by investor sentiment and structural issues, tells a different story. The Board appears to be leveraging the poor shareholder returns as a pretext for change, while Octagon focuses on its portfolio-level achievements as proof of its competence.

The Shareholder’s Dilemma

Caught in the middle are the fund's owners, who must now navigate competing narratives and proxy cards. Their sentiment appears fractured. The XFLT Board has secured a crucial endorsement from Glass Lewis, an influential proxy advisory firm, which recommended shareholders vote for the proposal. This gives the Board significant institutional credibility.

However, a vocal contingent of shareholders is pushing back. Bulldog Investors, an activist firm holding a significant stake, has publicly declared its intention to vote against the Board’s proposal. Their reasoning adds another layer to the conflict. Bulldog is less concerned with retaining Octagon than with forcing the Board’s hand. The firm criticizes the Board's 2023 decision to convert XFLT from a term trust—which would have matured and paid out at NAV—to a perpetual fund, a move they blame for the stock’s collapse. By voting no, Bulldog hopes to send a message that the only acceptable path forward is a liquidation of the fund, which would allow shareholders to realize the full Net Asset Value of their shares—a potential 30% gain from current prices.

This sentiment is echoed in online forums, where individual investors express frustration with the Board's governance and what they perceive as a misalignment of interests. They see a fund where the adviser’s fees grow alongside total assets, even as the value of their individual shares withers.

A Test of Corporate Governance

Stripped of its financial jargon, the battle for XFLT is a fundamental test of the systems designed to protect investors. The Investment Company Act of 1940 places a clear fiduciary duty on a fund’s board to act in the best interests of its shareholders. Octagon’s proxy fight directly challenges whether the XFLT Board has met that standard.

Is it in shareholders’ best interest to replace an award-winning manager, whose primary sin may be its own fee, with an untested entity, all while rejecting an offer that would have immediately lowered costs for everyone? Or is the Board making a difficult but necessary long-term strategic decision that the market currently fails to appreciate? The vote on July 30 will provide a definitive answer for XFLT, but the questions it raises about trust, transparency, and whose interests are truly being served will resonate across the asset management industry long after the proxies are counted.