DEF 14A: Liberty All-Star Growth Fund Seeks Shareholder Approval for New Portfolio Management Agreement with Westfield Capital Management

Liberty All-Star Growth Fund is asking shareholders to approve a new portfolio management agreement with Westfield Capital Management, replacing Sustainable Growth Advisers, to enhance investment style diversification.

Summary

• Liberty All-Star Growth Fund and Liberty All-Star Equity Fund are holding a joint annual meeting of shareholders on August 28, 2024, to vote on key proposals.
• The Growth Fund is seeking approval for a new Portfolio Management Agreement with Westfield Capital Management Company, L.P. (Westfield).
• If approved, Westfield will manage the large cap growth portion of the Growth Fund's portfolio, currently managed by Sustainable Growth Advisers, LP (Sustainable).
• The Board of Directors of the Growth Fund approved the hiring of Westfield on June 6, 2024, subject to shareholder approval.
• The Equity Fund is seeking to elect two Trustees to the Board to a three-year term.
• The Growth Fund is also seeking to elect two Directors to the Board to a three-year term.
• The additional costs of the proxy solicitation related to the Growth Fund's proposal is estimated to be $145,000, to be borne by the Growth Fund.
• For the fiscal year ended December 31, 2023, the Growth Fund paid advisory fees of $2,505,758 to AAI.
• AAI paid advisory fees of $436,653 to Sustainable, $430,788 to Congress Asset Management Company, LLP and $383,017 to Weatherbie Capital, LLC.
• The portfolio management fee rate to be paid to Westfield under the New Agreement is the same as the fee rate for those services paid to Sustainable under the Old Agreement.
• The annual sub-advisory fee is paid by AAI, not the Growth Fund.
• The Board recommends that shareholders vote FOR all proposals.

Sentiment

Score: 7

Explanation: The document is primarily informational and procedural, with a neutral to slightly positive sentiment due to the anticipated benefits of the new portfolio management agreement.

Positives

• The hiring of Westfield is intended to enhance the mix of investment styles employed for the Growth Fund's portfolio.
• Westfield's growth at a reasonable price investment style is expected to complement the philosophies of the Growth Fund's other Portfolio Managers.
• The portfolio management fee rate to be paid to Westfield under the New Agreement is the same as the fee rate for those services paid to Sustainable under the Old Agreement.
• The Board believes that the terms of the New Agreement were reasonable and fair, and that the approval of the New Agreement was in the best interests of the Growth Fund and its shareholders.

Negatives

• The Growth Fund will incur additional costs of approximately $145,000 for proxy solicitations related to the approval of the new Portfolio Management Agreement.
• Portfolio Manager changes, as well as rebalancing of the Growth Funds assets among the Portfolio Managers, may result in portfolio turnover in excess of what would otherwise be the case.
• Increased portfolio turnover results in increased brokerage commission and transaction costs, and may result in the recognition of additional capital gains.

Risks

• Failure to approve the New Agreement with Westfield will result in AAI continuing with the portfolio assets under management by Sustainable.
• There is some uncertainty whether a registered investment company such as the Fund may rely on the Maryland Business Control Share Acquisition Act.
• The Boards oversight role does not make the Boards a guarantor of the Funds investments or activities.

Future Outlook

The New Agreement will continue for two years from the effective date and from year to year thereafter provided such continuance is specifically approved at least annually by (i) the Funds Board of Directors or (ii) a vote of a majority of the outstanding voting securities of the Fund, provided that in either event such continuance is also approved by a majority of the Independent Directors, by vote cast in person at a meeting called for the purpose of voting on such approval.

Management Comments

• AAI believes that Westfields growth at a reasonable price investment style that invests in companies with underappreciated earnings growth will better complement the philosophies of the Growth Funds other Portfolio Managers.
• AAI also believes that Westfields experienced investment team and favorable performance record will benefit the Growth Fund.

Industry Context

The document reflects the common practice of investment funds to periodically review and adjust their portfolio management agreements to optimize investment strategies and performance. The shift from Sustainable to Westfield aligns with the industry trend of seeking specialized expertise and diverse investment styles to enhance returns.

Comparison to Industry Standards

• The fee structure outlined in the agreement, with breakpoints at $300 million, is a common practice in the investment management industry to reflect economies of scale.
• Comparable funds managed by Westfield, such as the Subadvised Multi-Managed U.S. Mutual Fund with $1.5 billion in assets, have similar contractual fee rates ranging from 0.50% to 0.35%.
• The Board's consideration of factors such as investment performance, fees, and economies of scale aligns with industry best practices for evaluating and approving investment management agreements.
• The document reflects the common practice of investment funds to periodically review and adjust their portfolio management agreements to optimize investment strategies and performance.

Stakeholder Impact

• Shareholders will be impacted by the potential changes in portfolio management and investment strategy.
• The Growth Fund's portfolio managers will be impacted by the reallocation of assets and the new agreement with Westfield.
• The Funds officers and Trustees/Directors are responsible for overseeing the management and operations of the Funds.

Next Steps

• Shareholders to vote on the proposals at the Joint Annual Meeting on August 28, 2024.
• If approved, the new Portfolio Management Agreement with Westfield will become effective.
• Reallocation of the large cap growth portion of the Growth Funds portfolio from Sustainable to Westfield is expected to occur following shareholder approval of the Westfield Agreement.

Key Dates

Keywords

portfolio management agreement, proxy statement, shareholder meeting, Westfield Capital Management, Liberty All-Star Growth Fund, ALPS Advisors, directors, trustees, investment management, proxy solicitation