Egan-Jones Opposes XFLT Sub-Adviser Change Citing Benchmark Mismatch and Governance Concerns
Event summary
- Egan-Jones recommends shareholders vote against replacing Octagon Credit Investors with Rockford Tower Asset Management as sub-adviser for XFLT.
- The Board cited underperformance relative to the Morningstar LSTA US Leveraged Loan 100 Index, but Egan-Jones found this benchmark misaligned with XFLT's strategy.
- Governance concerns include increased adviser fee share and board relationships with the proposed sub-adviser.
- Board announced a tender offer contingent on approval of the sub-advisory agreement, raising potential shareholder scrutiny.
The big picture
Egan-Jones' opposition highlights a growing trend of proxy advisors scrutinizing sub-adviser changes, particularly when performance benchmarks are misaligned. The contingent tender offer adds complexity, as it ties shareholder liquidity to the sub-adviser vote, potentially influencing voting behavior. This situation underscores the importance of transparent benchmarking and governance practices in asset management.
What we're watching
- Governance Dynamics
- How the Board's relationships with the proposed sub-adviser may influence shareholder trust and future governance decisions.
- Performance Benchmarking
- Whether the composite benchmark used by Egan-Jones will become a standard for evaluating similar funds' performance.
- Shareholder Activism
- The pace at which Bulldog Investors and other shareholders may challenge the Board's decision-making process.