DEFC14A: Angel Oak Fund Seeks New Advisory Pact Post-Brookfield Deal

Angel Oak Financial Strategies Income Term Trust is seeking shareholder approval for a new investment advisory agreement following Brookfield Asset Management's acquisition of a majority stake in its adviser's parent company.

Summary

• Angel Oak Financial Strategies Income Term Trust (the Fund) is holding a Special Meeting of Shareholders on September 26, 2025, to vote on two proposals.
• Shareholders are asked to approve a New Investment Advisory Agreement with Angel Oak Capital Advisors, LLC (the Adviser) due to Brookfield Asset Management Ltd.'s acquisition of a majority (approximately 51%) of Angel Oak Companies, LP, the Adviser's parent company.
• The transaction is expected to close by September 30, 2025, and legally terminates the Fund's current investment advisory agreement, necessitating a new, substantially identical agreement.
• The new agreement will not result in material changes to the Fund's day-to-day management, operations, or an increase in fees; portfolio managers will remain the same.
• Shareholders are also asked to approve any adjournments of the meeting for the purpose of soliciting additional proxies if there are not sufficient votes to approve Proposal 1 or establish a quorum.
• A previous attempt to approve this agreement at the Annual Meeting on June 26, 2025, failed to meet the required 'majority of outstanding voting securities' threshold (67% of votes present/proxy if >50% outstanding, or >50% of outstanding), receiving 63.5% of votes cast, attributed to a 'technicality' from a dissident proxy contest.
• The Board of Trustees unanimously recommends voting FOR both Proposal 1 and Proposal 2.

Sentiment

Score: 7

Explanation: The filing outlines a necessary procedural step for the Fund to continue its advisory relationship following a change in control of its parent company. While the transaction itself is presented as beneficial due to Brookfield's scale and resources, the need for a second shareholder vote after a previous failure, coupled with higher-than-median fees and weaker market price performance, introduces some caution. The core operations and fees remain unchanged, which is a positive for continuity.

Positives

• No material changes to the Fund's day-to-day management, operations, or fees are expected as a result of the Brookfield transaction.
• The Fund's portfolio managers and key investment personnel are expected to remain unchanged.
• Brookfield's scale and financial strength are anticipated to enhance the Adviser's resources, potentially leading to improved market access, balance-sheet support, and expanded distribution for shareholders.
• The Adviser has contractually agreed to limit the Fund's operating expenses to 0.25% of Managed Assets through May 31, 2026, with an anticipated extension to September 30, 2027, if the new agreement is approved.
• The Adviser voluntarily waived 0.35% of the management fee, reducing it to 1.00%, from June 1, 2025, through November 30, 2025.
• The Fund's net asset value (NAV) performance ranked in the first quartile of its Peer Group over the oneand three-year periods ended December 31, 2024.
• The Fund's NAV outperformed its benchmark, the Bloomberg U.S. Aggregate Bond Index, over the one-, three-, and five-year periods ended December 31, 2024, and for the period since the Fund's inception.

Negatives

• The Fund's management fee (1.35% of Managed Assets) and net expense ratio were higher than the median of its peer closed-end funds.
• The market price of the Fund's shares ranked in the fourth quartile of its Peer Group over the five-year period ended December 31, 2024, and since the Fund's inception.
• The New Investment Advisory Agreement failed to pass at the Annual Meeting on June 26, 2025, due to a 'technicality' involving broker non-votes and a dissident proxy contest, necessitating this special meeting and incurring additional costs.
• The Fund's investment advisory fee will not decrease as its assets grow, as it is not subject to investment advisory fee breakpoints.

Risks

• There is no assurance that the Brookfield transaction will be completed as planned or that all necessary conditions will be satisfied.
• If the New Investment Advisory Agreement is not approved by shareholders, the Adviser will manage the Fund under an interim agreement for a maximum of 150 days, during which further shareholder solicitation or a new meeting would be required, potentially causing additional delays and expenses.
• Beginning in 2027, Brookfield will have a right to acquire additional beneficial ownership in Angel Oak Companies, LP, which over time could result in Brookfield taking control of the board of directors of Angel Oak Companies, LP.
• Failure to approve Proposal 2 (adjournment) would prevent the Board from soliciting additional proxies if insufficient votes are received for Proposal 1 or to establish a quorum, potentially leading to further delays and costs.
• The previous failure to approve the New Investment Advisory Agreement highlights potential shareholder dissent or apathy that could recur, impacting the Fund's ability to maintain its advisory relationship seamlessly.

Future Outlook

The Adviser is expected to continue operating independently under its existing leadership and investment processes. Brookfield's scale and financial strength are anticipated to enhance the Adviser's resources, potentially delivering incremental benefits to shareholders through improved market access, balance-sheet support, and expanded distribution. Beginning in 2027, Brookfield will have the right to acquire additional beneficial ownership in Angel Oak Companies, LP, which could eventually lead to Brookfield taking control of its board of directors. The contractual expense limit is expected to be extended through September 30, 2027, if the New Investment Advisory Agreement is approved and the transaction closes.

Management Comments

• The Transaction will not result in material changes to the day-to-day management and operations of the Fund or any increase in fees.
• The personnel, officers and managers of the Adviser are expected to remain the same.
• The Board of Trustees has been assured that there will be no reduction in the nature or quality of the investment advisory services provided to the Fund due to the Transaction.
• The Board of Trustees unanimously recommends that you vote FOR all of the proposals contained in the Proxy Statement.
• Your vote is needed to ensure that the proposals can be acted upon. We encourage all shareholders to participate in the governance of the Fund.
• Every vote is important. If numerous shareholders just like you fail to vote, the Fund may not receive enough votes to go forward with the Meeting. If this happens, the Fund will need to solicit votes again. This may delay the Meeting and the approval of the New Investment Advisory Agreement and generate unnecessary costs.

Industry Context

This transaction reflects a broader trend of consolidation and strategic partnerships within the asset management industry, where larger financial institutions like Brookfield seek to expand their specialized credit platforms by acquiring established, best-in-class managers. The integration into Brookfield's $321 billion global credit platform positions Angel Oak Capital Advisors to leverage greater scale and financial backing, potentially enhancing its competitive standing through improved market access and distribution capabilities. This move aligns with strategies to deepen expertise and broaden market reach in specialized credit sectors.

Comparison to Industry Standards

• The Fund's management fee of 1.35% and net expense ratio were noted as being higher than the median of its peer closed-end funds, suggesting a higher cost structure compared to some industry benchmarks.
• Despite higher fees, the Board noted the quality of services provided by the Adviser and the 'relatively strong performance' of the Angel Oak Funds, implying a perceived value for the cost.
• The Fund's NAV performance ranked in the first quartile of its Peer Group over oneand three-year periods ended December 31, 2024, and in the second quartile over five years, indicating strong relative investment performance against comparable funds.
• The Fund's NAV outperformed its benchmark, the Bloomberg U.S. Aggregate Bond Index, over one, three, and five-year periods, and since inception, demonstrating effective active management against a passive benchmark.
• However, the market price performance ranked in the fourth quartile over the five-year period ended December 31, 2024, and since inception, suggesting a persistent discount to NAV or underperformance in market valuation compared to peers.
• The Adviser's profitability was deemed 'acceptable and not excessive' and 'consistent with applicable industry averages,' indicating its financial health is in line with industry norms.

Management Changes

Corporate Governance

Related Party Transactions

• The New Investment Advisory Agreement is between the Fund and its existing Adviser, Angel Oak Capital Advisors, LLC, which is becoming majority-owned by Brookfield, constituting a related party transaction in the context of the change of control.
• The Adviser will bear the costs of proxy solicitation (estimated between $53,332 and $100,146) from its own legitimate business profits, not the Fund, to facilitate the shareholder vote.
• The Adviser has an Operating Expense Limitation Agreement with the Fund, under which it waives fees and/or reimburses expenses to limit the Fund's total annual operating expenses to 0.25% of Managed Assets. These waivers are subject to recoupment by the Adviser within 36 months, representing an ongoing financial arrangement between related parties.

Stakeholder Impact

• **Shareholders:** Expected to experience no material changes to management or fees, with potential long-term benefits from Brookfield's enhanced resources. However, they face the risk of further delays and costs if the New Investment Advisory Agreement is not approved. Their vote is crucial for the continuity of the Fund's advisory services.
• **Employees (of Adviser):** Key investment and management personnel of the Adviser servicing the Fund are expected to remain with the Adviser following the transaction, ensuring continuity in expertise.
• **Adviser (Angel Oak Capital Advisors, LLC):** Will join Brookfield's global credit platform, gaining access to Brookfield's scale and financial strength, potentially enhancing resources and distribution. The transaction is expected to place the Adviser on 'strong financial footing.'
• **Board of Trustees:** Responsible for ensuring the transaction and new agreement are in the best interests of the Fund and its shareholders, including compliance with regulatory requirements like Section 15(f) of the 1940 Act.

Next Steps

• Shareholders are to vote on Proposal 1 (New Investment Advisory Agreement) and Proposal 2 (Meeting Adjournment) by September 25, 2025, or in person at the Special Meeting on September 26, 2025.
• The Brookfield transaction is expected to be completed by September 30, 2025.
• If the New Investment Advisory Agreement is not approved, the Adviser will operate under an interim agreement for up to 150 days, during which further shareholder solicitation or a new meeting may occur.
• Clayton Triick will resign from the Board of Trustees before the transaction closes to ensure compliance with Section 15(f) of the 1940 Act.
• The Board of Trustees will periodically re-examine whether the Fund has achieved economies of scale and the appropriateness of the investment advisory fee, potentially considering fee breakpoints in the future.
• Brookfield will have a right to acquire additional beneficial ownership in Angel Oak Companies, LP beginning in 2027.

Key Dates

Recommendation

The filing primarily addresses a procedural requirement stemming from a change in control of the investment adviser's parent company. The proposed New Investment Advisory Agreement is substantially identical to the current one, with no changes to fees or day-to-day management. While the previous shareholder vote failed due to a 'technicality,' the Board's unanimous recommendation and the existence of an interim agreement suggest continuity of operations. The potential benefits from Brookfield's scale are long-term and speculative at this stage. Given the lack of new material financial performance data or strategic shifts beyond the ownership change, a 'hold' recommendation is appropriate, awaiting further operational or performance-related updates.

Keywords

Angel Oak Financial Strategies Income Term Trust, Angel Oak Capital Advisors, Brookfield Asset Management, Investment Advisory Agreement, SEC filing, DEFC14A, closed-end fund, corporate governance, shareholder vote, proxy statement, asset management, financial services, investment adviser, fund management, acquisition, 1940 Act