Shareholder Voting Dynamics in Closed-End Funds: Assessing Advisory Agreement Continuity Amid the Brookfield-Angel Oak Partnership

The recent strategic partnership between Brookfield Asset Management and Angel Oak Companies has sparked critical discussions about shareholder voting dynamics in closed-end funds (CEFs) during ownership transitions. At the heart of this transaction lies a pivotal question: How does the continuity of advisory agreements—particularly in the context of a change in control—impact governance, operational stability, and long-term value for income-focused investors? The case of Angel Oak Financial Strategies Income Term Trust (FINS) offers a compelling lens to analyze these dynamics.

Strategic Benefits of Advisory Agreement Continuity

Brookfield's acquisition of a majority stake in Angel Oak, expected to close by September 30, 2025, is designed to expand Brookfield's $321 billion credit platform while preserving Angel Oak's independent management and investment processes. For FINS, this partnership necessitates a shareholder vote on a new advisory agreement (New Agreement) with Angel Oak Capital Advisors, LLC. The New Agreement is structurally identical to the existing one, ensuring no material changes to fees, management, or investment strategies.

The strategic rationale for continuity is clear. Angel Oak's expertise in non-agency residential mortgage credit and community bank debt—demonstrated by its $18 billion AUM and 7.68% average coupon on recent investments—aligns with Brookfield's goal of enhancing market access and balance sheet support. For income investors, this continuity mitigates operational disruption, preserving the fund's disciplined credit quality and 10%+ distribution yield.

Governance Considerations and Shareholder Engagement

The Investment Company Act of 1940 mandates that a change in control automatically terminates an existing advisory agreement, requiring CEFs to seek shareholder approval for a new one. In FINS' case, the New Agreement received 63.5% support at the annual meeting but fell short of the required threshold. This underscores the importance of proactive shareholder engagement. Angel Oak's board and management team have emphasized that the New Agreement is essential to maintain the fund's track record of outperforming its benchmark across multiple time horizons (1-, 3-, 5-year, and since inception as of June 30, 2025).

Institutional Shareholder Services (ISS) has endorsed the New Agreement, noting no material concerns with the revised terms. This proxy advisor support, combined with the board's unanimous recommendation, strengthens the case for shareholder approval. For income-focused investors, the vote is not merely procedural but a safeguard against operational fragmentation during the transition.

Operational Stability and Risk Mitigation

A key concern for CEF investors is the potential for operational instability during ownership changes. However, the Brookfield-Angel Oak partnership explicitly states that Angel Oak's leadership, including co-CEOs Sreeni Prabhu and Mike Fierman, will retain control of day-to-day operations. This continuity is critical for maintaining the fund's value-driven investment approach and disciplined credit selection.

Moreover, the partnership's structure—where Angel Oak operates independently under Brookfield's financial umbrella—reduces the risk of strategic misalignment. Brookfield's global scale and resources are expected to enhance Angel Oak's distribution capabilities and market access without diluting its specialized focus on high-yield opportunities.

Investment Implications for Income-Focused Portfolios

For investors prioritizing income and capital preservation, the FINS case highlights the importance of advisory agreement continuity in maintaining a fund's identity and performance. The fund's recent narrowing NAV discount (to 4.8% as of August 22, 2025) and consistent distribution increases (e.g., $0.115 per share in August 2025) reflect the stability of its operations. Post-transaction, the fund's ability to deploy rights offering proceeds into accretive community bank debt investments—averaging 7.68% coupons—further reinforces its appeal.

However, investors must remain vigilant. While the New Agreement ensures operational continuity, the transaction's success hinges on satisfying customary closing conditions. Shareholders should monitor developments closely and align their voting decisions with the fund's long-term strategic goals.

Conclusion: Balancing Continuity and Strategic Growth

The Brookfield-Angel Oak partnership exemplifies how strategic ownership transitions can be structured to balance growth ambitions with investor protections. For CEFs like FINS, the continuity of advisory agreements is not just a regulatory formality but a cornerstone of governance and operational resilience. Income-focused investors should view the upcoming shareholder vote as an opportunity to affirm confidence in the fund's management and its alignment with Brookfield's credit platform. In a market where stability and yield are paramount, such continuity is a rare and valuable asset.