On 13 October 2021, William Shatner, the 90-year-old actor best known for playing Star Trek’s Captain Kirk, became the oldest human to go boldly where few have ventured before.

Aboard private spaceflight company Blue Origin’s suborbital capsule, Shatner reached an altitude of just over 100km, high enough to see the curvature of the earth. His journey followed space flights by Jeff Bezos, founder of Blue Origin and Amazon, and Virgin Galactic founder Richard Branson in July that year – dubbed the ‘billionaires’ space race’.

Their headline-grabbing endeavours have drawn attention to the ongoing commercialisation of space and the potential opportunities that are available for adventurous investors.

Estimates for the future growth of the global space economy vary. According to the UK government’s first ever National space strategy, published in September 2021, it is set to grow from an estimated £270bn in 2019 to £490bn by 2030. Morgan Stanley predicts growth to reach US$1tn by 2040, while SpaceTech Analytics is forecasting growth from US$380bn in 2020 to US$10tn in 2030.

The development of reusable rockets and a combination of public and private resources for space exploration has brought down the costs of sending people and satellites into space. While NASA reportedly paid an average of US$80m per seat for its astronauts on the Russian Soyuz spacecraft to the International Space Station, it now estimates that orbital trips will cost US$58m.

“When you drive the costs of sending things into outer space down, it opens up opportunities for more players to come into the space industry and that is exactly what we are seeing today,” explains Andrew Chanin, chief executive of ProcureAM, which oversees the HANetf Procure Space ETF (YODA).

Apart from space tourists and astronauts, thousands of satellites are being launched into orbit every year, a development that will power driverless cars, robotics, smart cities, blockchain and the ‘internet of things’, which all rely on satellite broadband. These satellites will help to drive down the cost of data at a time when demand is exploding. And the space team at Morgan Stanley Research, in an article titled ‘Space: investing in the final frontier’, "estimates that satellite broadband will represent 50% of the projected growth of the global space economy by 2040" – and possibly as much as 70%. 

View Andrew Chanin on CISI TV: Beyond COP26: leveraging space technologies to support ESG

Fighting climate change

Satellites also have an important role to play in helping governments and companies around the world to fight climate change. They provide vital intelligence via high resolution and high-frequency earth-observation data on weather patterns, deforestation, sea levels, atmospheric gases, the planet’s changing temperature, farming and the energy efficiency of buildings.

“Through a combination of commercial, non-profit, and government-led initiatives, we will be able to have a true pulse of the planet, and we can then use that information to target actions to enable net zero on a global scale,” explains Rich Leshner, vice president of consulting at space industry research and consultancy firm BryceTech.

Satellite-based systems, like global positioning systems (GPS), reduce vehicles’ carbon- dioxide emissions by providing faster or more efficient routes, remote-sensing technology improves the efficiency of wind turbines, while information gathered from weather satellites can help solar cells to produce more energy, the European Space Agency (ESA) has explained.

It cites miniaturised ceramic gas-sensor technology as a good example of space tech that is making a difference. “Developed originally for measuring oxygen levels around spacecraft re-entry vehicles, it is now being used in systems that accurately control heater combustion [a major pollutant],” it says.

Governments around the world appear to be taking the view that space technology is essential in the fight against climate change. The UK’s National space strategy lays out plans to use real-time satellite data to reduce carbon emissions and to explore space-based solar-power systems as a potential zero-carbon energy source. And in July 2021, NASA and ESA announced they would join forces to lead and support a global response to climate change.

The global space industry

The UK government is keen to strengthen the country’s position as a leading space nation. Space makes up a growing proportion of the UK’s economy, worth more than £16bn per year.

The UK’s National space strategy commits to its first Defence Space Portfolio, which will see an additional investment of £1.4bn (on top of the £5bn already committed to enhance the military’s satellite communications) to develop new capabilities. 

Scotland’s space industry is rising faster than anywhere else in the UK, with an annual growth rate of 12% and an increase in employment of almost 10% since 2016, according to an October 2021 report by the Scottish government, Space Scotland, and the Scottish Space Academic Forum, A strategy for space in Scotland. It says that the country is targeting a “£4bn share of the global space market and 20,000 jobs in the sector by 2030”.

India has ambitions to grow its already well-developed space industry to US$50bn by 2024, up from US$7bn in 2019, according to a PwC report. Prime minister Modi hopes to achieve this through a range of policies which encourage private investment into the space technology sector and make it easier for companies to commercialise innovation in this area. India also plans to put a spacecraft on the moon this year after its first attempt crashed onto the lunar surface in 2019.

However, the space industries of both the UK and India are dwarfed by that of the US, which is home to 52% of the world’s space-tech companies, according to a report from SpaceTech Analytics. The US spends more on space than all other developed nations combined, with a space exploration budget of almost US$41bn, compared to China’s US$5.8bn budget, US$4.2bn for Russia and US$3.2bn for France, according to SpaceTech Analytics.

Several other countries have ambitious plans. China, for example, is in the process of building the Tiangong space station, which will accommodate two spacecraft and up to three astronauts upon completion at the end of 2022.

Meanwhile, Middle Eastern states, including the UAE, have invested in nascent private space-commodity initiatives focused on building extra-terrestrial reserves of water and extracting other resources which could be used for in-space manufacturing, according to Bank of America global research (BofA).

Another future investment opportunity is asteroid mining. BofA points to estimates made by John S. Lewis, author of Mining the Sky, that an asteroid with a diameter of 1km could contain 30 million tonnes of nickel, 1.5 million tonnes of metal cobalt and 7,500 tonnes of platinum. The platinum alone surpasses the total amount that has been extracted on earth to date.

US company Deep Space Industries, which develops spacecraft technologies that are needed for asteroid mining, is aiming to make in-space materials, extracted from asteroids, commercially available in the next few years.

Space tourism and related investment

As technological advances continue, space tourism is fast becoming a reality. Virgin Galactic, SpaceX and Blue Origin have made giant leaps in this area and plan to offer commercial flights into space in 2022.

However, cost remains a challenge. For example, the price of a ticket on a Virgin Galactic rocket currently starts at US$450,000 per seat – and while Branson has reportedly expressed his aspiration to reduce this to US$40,000, this is clearly going to take some time.

Although the billionaires’ space race has dominated headlines, the space tourism sector only started to generate revenues in 2021 and accounts for a small part of the global space economy. According to an April 2021 report by global research company Research and Markets, the sector was valued at US$651m in 2020 – but it is estimated that this will rise to US$1.7bn by 2027.

Micah Walter-Range, founder of Space Investment Services, says there are potential investment opportunities throughout this sector: the flights themselves, space hotels, astronaut training services, additional high-value experiences before and after the flight, as well as services for people who will watch the launches.

“The potential return on investment is subject to the same principles as any other type of tourism,” he says. “If you’re pushing a low-margin, low-volume product like souvenir keychains, returns are probably not so great. “By contrast, if you own the space hotel where your customers rely on you for everything, then you can probably command higher margins.”

View Micah on CISI TV: Investing in space: the final frontier market

Investment options

Analysts are reluctant or unable to provide estimates on potential return on investment (ROI), which perhaps reflects that the space technology sector is relatively young and dominated by private companies. In some cases, these businesses are growing revenues but are not yet profitable.

Nevertheless, the potential rewards associated with backing private space companies from an early stage appear to be significant. Over the past five years, Seraphim Space, a specialist investor in space technology, has achieved an internal rate of return (IRR) of 31% with its Seraphim Space Fund, which invests in early and growth-stage private space technology companies in areas such as climate, communications and cyber security.

Seraphim Capital, which forms part of the same group, also launched a London-listed space technology investment trust in July 2021, targeting a 20% annualised return. It raised £178.4m in an oversubscribed IPO and acquired a seed portfolio of 19 assets, worth £28.4m. These were mainly investments in private companies, such as Iceye, which launched the world’s first constellation of miniaturised satellites.

Other funds include the HANetf Procure Space UCITS ETF (YODA), launched in June 2021 and listed in London, Frankfurt and Milan. According to its factsheet it tracks the S-Network Procure Space Index, which focuses on “companies that derive significant revenue from pure-play space exposure”.

In the US, there is YODA’s sister fund Procure Space (UFO) ETF, which follows the same index, as well as the ARK Space Exploration & Innovation (ARKX) ETF, which targets orbital and sub-orbital aerospace companies, and businesses that develop technologies used by space exploration firms.

Potential challenges

As with any nascent investment sector, there are several drawbacks to consider. Investors need to be aware of the potential safety risks involved, and the significant reputational risk for companies operating in this area.

Increased space activity has brought with it an accumulation of man-made space debris in orbit around the earth. The Space Surveillance Network has catalogued more than 25,000 man-made objects which are larger than the size of a baseball, 8,000 of which could pose a threat to space missions.

Space activity also comes with a hefty price tag. “Space systems tend to be capital intensive and technologically complex, and so timelines can be longer than some investors are prepared to support, and product or service costs can escalate relative to plans,” says Rich Leshner.

While there has been excitement over space-related investment, pure-play opportunities for investors are still thin on the ground, partly because many space-focused companies have remained in private hands.

However, this is likely to change with time – and it is encouraging to see a growing number of space businesses going public via IPO or special-purpose acquisition companies (SPACs). Prior to 2021, only six space firms had gone public, raising a combined US$0.8bn, according to a Q2 2021 report by Seraphim Capital. One of these companies – Virgin Galactic – went public via a SPAC merger. But over the first half of 2021, 12 space-related businesses announced SPAC mergers, totalling more than US$7bn of investment.

Earlier stage space-technology companies offer the prospect of rapid growth, but they also come with potential risks. “Space-related investments are not for the faint-hearted and should be seen as a small part of a well-diversified growth portfolio,” says Harry Burnham, branch principal an investment manager at LondonCityPoint. “But for those who can afford an element of risk, it is well worth considering an emerging sector which has huge growth potential – even though it is not always evident where it will end up.”

The full article was originally published in the March 2022 edition of The Review. 

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