Space: the new frontier for investment trust

The first UK-listed investment trust dedicated to space ventures hopes support from retail investors will help fuel a smooth lift-off for the company’s initial public offering next week. 

Seraphim Space Investment Trust aims to raise £180m to invest in early-stage companies working to profit from the rush into space. Its London listing offers retail investors access to companies that have been difficult for them to invest in. 

“We wanted to make access to space affordable to the man on the street. You don’t need to be a billionaire to invest in space,” said Mark Boggett, Seraphim’s chief executive.

The launch comes amid growing interest in space companies from investors as enterprises such as Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin push forward the commercialisation of space. However, investment experts caution that retail investors should not overload on space-related vehicles. 

Boggett said the rapid decline in the cost of satellites will soon bring a surge in the number of orbiters collecting data about the earth. That data can be used in businesses from predicting the weather to facilitating insurance claims. 

“Space is not about rockets and satellites. It’s actually about a digital play,” said Boggett. “The companies that we are investing in don’t see themselves as space infrastructure companies. They see themselves as data companies.”

Space is among the latest thematic investment opportunities to court retail investors. Funds focused on niches such as renewable energy or healthcare have drawn record inflows. 

Worldwide, venture capital investment in space companies jumped 95 per cent to $8.7bn in the year to March, according to Seraphim, including the combined $4.2bn raised by SpaceX and OneWeb. But access to invest in these early-stage companies has largely been limited to private investors in the past. Seraphim’s IPO will allow retail investors to get a piece of the action, with a minimum investment of just £1,000. 

Scottish Mortgage fund manager Baillie Gifford, which favours investment trusts as a way to offer retail investors access to private companies, has also seen the attraction of space. Its small-cap trust, Edinburgh Worldwide, took new stakes in two space companies in recent months. 

“Through our existing private investments in SpaceX and Spire we have witnessed first-hand how the economics of accessing space and the associated satellite and data opportunity are radically changing,” Edinburgh Worldwide’s managers said. “The opportunity for new approaches and capabilities in such a dynamic area is very real.”

But small space start-ups risk failure before they can become profitable businesses. OneWeb, a satellite internet company, dealt a blow to Britain’s space ambitions when it collapsed into bankruptcy last March, before being rescued by the UK government and Indian billionaire Sunil Bharti Mittal.

“The nature of the industry means the businesses [Seraphim] will invest in are small cap companies with less mature businesses so the risk profile will be higher than more established companies,” said Susannah Streeter senior investment and markets analyst at Hargreaves Lansdown, which is facilitating retail access to the listing. 

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Seraphim’s investment trust will take over the portfolio of its current venture capital fund. The trust is aiming for net assets of £250m after the IPO, including substantial fresh cash to deploy into new investments. 

Kyle Caldwell, collectives editor at Interactive Investors, said the space trust should be seen alongside other “innovative investment ideas” within the alternatives asset class, such as music royalties. He said these new ideas will face stiff competition for capital from more traditional alternatives such as commodities, private equity and infrastructure. Investment experts caution that alternatives should typically only make up a small share of retail investors portfolios. 

The Seraphim Space launch will come during a busy year for new investment trust IPOs, particularly in the alternatives category. Five new trusts launched in the first half of 2021 — including four infrastructure funds — raising a total of £1.2bn, the highest amount since 2017, according to the Association of Investment Companies.