DEFA14A: XA Investments to Advise Madison Investments Closed-End Fund, Retaining Madison as Portfolio Manager

XA Investments will become the investment adviser to the Madison Covered Call & Equity Strategy Fund (MCN), with Madison Investments continuing as portfolio manager, pending shareholder approval.

Summary

• XA Investments (XAI) is set to become the investment adviser for the Madison Covered Call & Equity Strategy Fund (MCN), a $146 million closed-end fund.
• Madison Investments will continue to manage the portfolio as a sub-adviser, subject to shareholder approval.
• The transaction is expected to be completed in the fourth quarter of 2024, pending shareholder approval.
• XAI aims to expand its closed-end fund platform, which currently includes XAI Octagon Floating Rate & Alternative Income Trust (XFLT) and Octagon XAI CLO Income Fund (OCTIX).
• Madison Investments manages approximately $26 billion in assets as of March 31, 2024.
• Shareholders of MCN as of July 22, 2024, will receive a proxy statement regarding the proposed acquisition.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strategic benefits for both XAI and Madison Investments, the continuity of portfolio management, and the potential for enhanced investor relations. However, the transaction is subject to shareholder approval, which introduces some uncertainty.

Positives

• Continuity of portfolio management with Ray Di Bernardo remaining in charge of MCN.
• Potential for superior growth in assets under management and scale efficiencies under XAI's advisory.
• Enhanced investor relations expected under XAI's management.
• Madison Investments can focus on its strategic growth priorities, including separately managed accounts, open-end mutual funds, and active ETFs.
• XAI's acquisition would expand the number of closed-end funds currently on the XAI platform to three.

Risks

• The transaction is subject to shareholder approval, which is not guaranteed.
• The expected closing date in the fourth quarter of 2024 is contingent on shareholder approval and other factors.

Future Outlook

The transaction is expected to close in the fourth quarter of 2024, pending shareholder approval. XAI aims to expand its closed-end fund platform and provide better portfolio outcomes for investors.

Management Comments

• Ray Di Bernardo: 'We are excited to continue to deliver lower volatility and strong cash flows to our shareholders. Partnering with XAI will allow us to focus on investment management, ensuring that the best interests of MCNs shareholders are upheld.'
• Kimberly Flynn: 'I believe that XAI can deliver three primary benefits to the shareholders of the Madison Covered Call & Equity Strategy Fund: (1) superior growth in assets under management and scale efficiencies; (2) continuity of the existing portfolio management team; and (3) enhanced investor relations.'

Industry Context

This announcement reflects a trend towards consolidation and specialization in the investment management industry, with firms like XAI focusing on specific investment vehicles like closed-end funds and alternative investment strategies. It also highlights the increasing demand for equity income funds.

Comparison to Industry Standards

• BlackRock and Invesco are examples of large asset managers that offer a range of closed-end funds, similar to XAI's strategy of expanding its platform.
• The $26 billion AUM of Madison Investments places it among the mid-sized independent investment management firms, comparable to firms like Baird or Artisan Partners.
• The covered call strategy employed by MCN is a common approach for generating income in equity portfolios, with similar funds offered by firms like Eaton Vance and Nuveen.

Stakeholder Impact

• Shareholders of MCN may benefit from improved asset growth, scale efficiencies, and enhanced investor relations.
• Madison Investments employees will continue to manage the portfolio, ensuring job security.
• XAI will expand its platform and potentially attract new investors.

Next Steps

• MCN shareholders will vote on the proposed acquisition at a special meeting in the fourth quarter of 2024.
• MCN will file a definitive proxy statement with the SEC and distribute it to shareholders.

Key Dates

Keywords

closed-end fund, investment adviser, portfolio manager, XAI, Madison Investments, MCN, acquisition, shareholder approval, alternative investments