Do investors in Octopus need to worry?
It’s a worrying time for investors in Octopus – who can do little now but sit and wait.
Mr Fisher said: “Investors should understand that the recent losses largely reflect the reassessment of the fibre broadband investments.
“The key concern now is liquidity. If large numbers of investors seek to redeem once withdrawals reopen, the company may need to find ways to meet those requests.”
Many funds will be able to manage investor withdrawals with incoming deposits, cash reserves and loan repayments. This should mean they don’t need to dispose of the funds’ assets.
He added: “The concern arises if significant redemptions require the sale of long-term assets such as infrastructure projects, particularly in circumstances where the market knows those assets may need to be sold.
“What providers generally want to avoid is being forced to sell infrastructure assets quickly, as that can affect valuations and potentially result in assets being sold below what might otherwise be considered fair value.”
As such, investors will need to talk to their financial planners and decide whether to remain invested, or join the redemption queue.
However, it’s important to note that if you do sell up, you’ll lose the tax benefits, unless you reinvest the proceeds in another qualifying investment within the required timeframe.
What about investors in other BR funds?
Investors in other BR funds may understandably have concerns too.
However, Mr Fisher thinks the challenges Octopus Investments is facing are not representative of the wider market.
He said the concerns stemmed from concentrated exposure to a single asset, leverage and the cost of rolling out the required infrastructure.
“Many competing providers either have broader diversification across multiple asset classes or no fibre broadband exposure at all, with some focusing predominantly on lending-based strategies. Others include exposure to areas such as renewable energy, forestry and other asset-backed activities.”
He added: “Importantly, other providers are not necessarily negative on fibre broadband as an asset class. Some continue to see the long-term outlook as positive but are reducing future exposure because of investor sentiment rather than concerns about the underlying sector.”
Is a BR fund still a worthwhile strategy?
In the right circumstances, our experts are agreed that BR funds can be an effective estate-planning tool.
In particular, Mr Vanstone said business relief offers two distinct advantages:
- Holdings only take two years to become IHT-free.
- Individuals can maintain ownership and control over their investment.
“This can offer an alternative to simply giving assets away,” he explained. “These have to be outright, with no ownership retained by the donor, and any inheritance tax benefit will usually only apply after seven years, with taper relief applying sooner for larger gifts.
“The two years can be especially powerful for older clients or those in ill health, who may not survive for seven years. Or even for those who have lost mental capacity where there is a property and financial lasting power of attorney in place, with the attorneys able to consider using BR solutions.”
However, he also stressed this should always be done with a solicitor and adviser, to ensure the rules are followed and any investments are appropriate.