More than two years after raising concerns about the Octopus Inheritance Tax Service (OITS) and its underlying investments, questions are mounting over the Financial Conduct Authority’s (FCA) oversight of the matter. In early 2024, two industry insiders met with the regulator to highlight potential issues surrounding OITS, a product that channels investors into Fern Trading, a company comprising over 300 subsidiaries across sectors including green energy, housebuilding, property lending, and fibre broadband.
The critics questioned how Octopus Investments justified assigning a £3.5 billion valuation to Fern—a conglomerate marked by persistent losses and high cash consumption—while simultaneously charging investors fees exceeding £900 million since Fern’s inception in 2010. The group expressed alarm about Fern’s governance and the risk investors could face if the underlying assets faltered or if liquidity demands outpaced the company’s ability to respond. One of the individuals sent an email to the FCA with the subject line “The next Woodford?”, referencing a prior high-profile investment fund collapse.
The situation has now deteriorated as roughly one-third of investors are unable to redeem their holdings following a decision by Octopus and Fern’s board to restructure the business into two classes of shares. The widely tradable “A” shares constitute 68 percent of Fern, while the “B” shares—linked to underperforming fibre assets—have been rendered untradeable.
Fern’s shareholder base, numbering approximately 18,000, largely consists of wealthier investors taking advantage of UK inheritance tax relief rules, which grant a 40 percent tax shelter on investments held for at least two years and at death. Despite these benefits, Fern recently fell short of its modest target return of 3 percent, underscoring concerns about the fund’s performance and value.
Central to the latest difficulties was Fern’s unsuccessful attempt to acquire TalkTalk’s wholesale fibre division, PXC, prompting Octopus to suspend trading on Fern shares for close to three months. Although trading in Fern’s A shares has resumed at a slightly reduced price of 106.25 pence, Octopus has maintained a valuation of 49 pence per share for the fibre-heavy B shares, continuing to attribute a total market capitalization of £3.15 billion to Fern.
Critics argue this valuation is questionable. Industry observers point to recent developments such as BT’s acquisition of TalkTalk through a pre-pack administration, as well as Fern’s own financial disclosures showing £277 million in losses over the past two years and a £125 million write-down on fibre assets last year. Fern’s net debt stands above £1 billion, with net losses of £437 million reported in the same period. Despite this, Octopus claims to employ a “multi-layered and robust valuation process” and states it intends to revalue Fern B shares at least annually.
Investor influence over Fern appears limited. As OITS is structured as a discretionary management service, shares are legally held by Octopus Investment Nominees on behalf of investors, who consequently do not have voting rights. This arrangement means shareholders have no control over decisions made by Octopus concerning Fern.
Although inheritance tax investment products like OITS are not required to undergo FCA approval, the regulator is reportedly monitoring the situation. An FCA spokesperson confirmed ongoing contact with Octopus but declined to elaborate further.
The developments highlight ongoing tensions between innovative tax relief investment vehicles and regulatory safeguards, raising concerns about investor protection, valuation transparency, and market governance.