As the XFLT Board of Trustees approaches its July 30 special meeting when shareholders will vote on whether to replace Octagon Credit Investors as the fund’s sub-adviser with a subsidiary of King Street Capital Management, Egan-Jones Ratings has weighed in.
Shareholders of XAI Floating Rate & Alternative Income should vote against the proposal to replace Octagon as the fund’s sub-adviser, Egan-Jones said, citing limited benefits to shareholders, among other reasons, according to Octagon Credit Investors, which cited the Egan-Jones report.
“The board’s central justification for the change rests on a claim of underperformance measured against the Morningstar LSTA US Leverage Loan 100 Index, XFLT ‘s disclosed benchmark,” according to a report from Egan-Jones. “This comparison is not appropriate.”
Egan-Jones, also a leading independent proxy advisory firm, added that the case against Octagon is significantly weaker than presented by the board once it is measured against a benchmark reflecting XFLT’s actual structure, rather than an unlevered loan index that is not appropriate for a levered fund primarily with CLO assets.
Octagon Credit Investors, an asset management firm with $32 billion under management, specializes in broadly syndicated loans, structured credit, multi-asset credit and direct lending strategies.
It adds that the proposed fee structure would benefit XAI, but did not seem to offer clear, direct benefits for shareholders.
