Flat Rock Opportunity Fund, a closed-end interval fund investing in collateralized loan obligations, implemented important updates to its fee structure earlier this year, which have broader cost implications for investors.
According to the company, the fund’s base management fee is now calculated based on average daily net assets rather than on total assets. The management fee remains at an annual rate of 1.375%, but this change to a net asset basis – which excludes liabilities such as borrowings – generally reduces the dollar amount of management fees paid by investors. Previously, calculating the fee on total assets had included leverage, inflating the management fee burden.
Beyond this key adjustment, Flat Rock has made significant revisions to its broader fee and expense structure between its March 4 and April 25, 2025, U.S. Securities and Exchange Commission filings.
Under the March filing, the fund disclosed the following annual expenses, as a percentage of net assets attributable to common stock:
- Management fee: 1.38%
- Incentive fee: 2.72%
- Interest payments on borrowed funds: 2.84%
- Other expenses: 0.91%
- Total annual expenses: 7.85%
Following the April update, the fund reported materially lower expenses:
- Management fee: 1.38%
- Incentive fee: 2.10%
- Interest payments on borrowed funds: 0.66%
- Other expenses: 1.02%
- Total annual expenses: 5.16%
According to the company, the most significant drivers of the reduction in total annual expenses were a steep decline in interest payments (reflecting reduced leverage costs) and a moderate decrease in the incentive fee percentage. Other operating expenses, however, increased modestly.
For investors, the shift to net asset-based management fee calculation, combined with the overall lower expense load, may enhance expected net returns and better align the fund’s cost structure with shareholder interests.
Flat Rock Opportunity Fund’s changes appear to follow broader industry trends as alternative investment vehicles respond to heightened fee sensitivity among allocators.
Flat Rock Opportunity Fund invests primarily in equity and in junior debt tranches of CLOs, which provide exposure to senior secured loans on a leveraged basis. As of March 31, 2025, the fund raised approximately $466 million in investor equity since inception and reported an annualized return of 11.61% since launching in July 2017. Its current annualized distribution rate is 14.63%.
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