Space: the final frontier for finance

As a science-fiction-obsessed teenager in the 1980s, “outer space” conjured up images for me of astronauts, rockets, aliens and the novels of Arthur C Clarke.

Now the phrase is associated with something else: sovereign wealth funds, venture capital firms and Wall Street giants such as Goldman Sachs.

Yes, you read that right. This month, Washington’s commerce department held a flagship conference to discuss space exploration and development. Between debates about space debris, rocket launches and global positioning systems, there were also lively discussions about how to encourage pension funds to invest in space-related companies.

Analysts estimate that by 2040 the global space industry will swell from about $400bn to more than $1tn. While it has historically been the government that has propelled adventures in space, commerce secretary Wilbur Ross has said it is now time for the private sector to provide the engine of growth.

So the department is trying to deregulate the industry, making it easier for entrepreneurs to jump in, and to lure capital from venture capital firms, hedge funds, sovereign wealth funds and even mainstream pension funds.

“The space industry is on the verge of a revolution,” Ross told me in an interview, pointing out that companies such as Goldman Sachs and Bank of America have recently created dedicated teams to conduct financial research on the topic. He likens the sector to bioscience: a sphere that will produce big “hits” for investors over the long term, even if the short-term science seems risky.

Is this a good thing? I suspect that were you to ask those US astronauts who leapt into the history books five decades ago, they might wince. In their day, exploring the final frontier was considered a patriotic venture for the wider public good, best funded by national governments (or, in Europe, transnational ones).

What sticks in the craw of some scientists right now is that the drive to attract private-sector money into space is occurring at a time when the Trump administration is proposing cuts to scientific research budgets; so much so that bodies such as 314 Action (a non-profit lobby group that tries to get scientists into public office) claim there is now a “war on science” in the government.

For those in Ross’s camp, however, the focus on private capital is driven by opportunity, not expediency. He argues that the US has a long history of using public money to fund an initial wave of speculative science, which is subsequently used by private entrepreneurs to expand the sector and drive innovation. Bioscience is one example, as is the internet.

When it comes to space, there is evidence that this dynamic is already at work: entrepreneurs and investors are getting on board.

In the same week that the commerce department held its conference, the British businessman Richard Branson sent a new Virgin Galactic rocket into space.

He now predicts that, in a couple of years, he will have a viable business dispatching rockets to handle low-orbit satellite communications, as well as space-tourism flights. Indeed, tickets are already selling for about $250,000 — and Branson himself plans to go. “Three more flights should be sufficient before I go up,” he recently told the FT.

Peter Diamandis, a US space entrepreneur who has bought a ticket for one of Branson’s space voyages, believes the potential exists to get thousands of people a year into space. Branson is not alone in sensing the potential demand. Amazon founder Jeff Bezos, meanwhile, is trying to launch a commercial satellite business.

What marks out such ventures is that they are not only seeking private passengers for these flights but — most crucially — looking for ways to make rockets reusable and standardised.

As Ross says: “The best use of federal money is for advanced scientific projects. But the problem with scientific projects is that they are designed to be one-offs. We routinely fly a 747 from London to New York, but if you had to redesign it after each flight, you really would not have much traffic — concepts like reusability are becoming very, very important.”

It remains to be seen whether any of these ventures will actually make money.

It is also unclear how they will be affected by the current rise in geopolitical tensions: if the US and China become increasingly hostile to one another, national governments on both sides may, sensing security implications, become more interventionist in the space industry.

The White House has already declared that space is a new frontier of war. For now, a toy rocket — or an Arthur C Clarke novel — is still the best Christmas present to give a sci-fi-obsessed child. But, as outer space becomes finance’s final frontier, perhaps it’s time to consider investing in a space-oriented index fund too. —An arrangement with Financial Times