Egan-Jones urges XFLT shareholders to reject sub-adviser swap

Egan-Jones Proxy Services has recommended that shareholders of XAI Floating Rate & Alternative Income Trust (NYSE: XFLT) vote against a proposal to replace sub-adviser Octagon Credit Investors with Rockford Tower Asset Management, a subsidiary of King Street Capital Management, at the fund's July 30, 2026 Special Meeting.

Egan-Jones issued the against recommendation under each of its proxy voting policies, citing insufficient evidence that Octagon Credit Investors had underperformed against an appropriate benchmark. The fund's board referenced underperformance relative to the Morningstar LSTA US Leveraged Loan 100 Index as its primary rationale for the change. Egan-Jones concluded that benchmark does not reflect XFLT's strategy, given the fund's allocations to loans, CLO debt, CLO equity, and leverage. Using a composite benchmark matched to the fund's disclosed allocation, Egan-Jones found a materially different performance picture.

The analysis also identified governance concerns. While the fund's management fee would remain unchanged, the adviser's share of that fee would increase under the proposed agreement. Egan-Jones additionally noted board relationships with the adviser, stating that while those facts do not establish improper motives, they warrant additional shareholder scrutiny.

Egan-Jones further questioned the board's rationale for selecting Rockford Tower, noting that references to an expanded platform and access to European CLO markets were insufficient justification. The report also noted that management could not clearly explain how many alternative candidates were meaningfully evaluated during the search process.

The board announced on July 27, 2026, a tender offer contingent on approval of the sub-advisory agreement, along with an agreement with Bulldog Investors, LLP to vote for the proposal under a two-year standstill. Egan-Jones stated this does not change its recommendation, noting that tender offer decisions rest with the board and adviser, not the sub-adviser. Egan-Jones noted the board has made the shareholder liquidity opportunity contingent on the sub-adviser vote, a linkage it said shareholders may wish to weigh.

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