Pension funds and SWFs are investing in metaverse building blocks
The global metaverse market is set to grow from $5 million in 2020 to $1.5 trillion by 2030, according to data from Bloomberg and PwC. This promise of explosive growth has not escaped the notice of asset owners and managers. But as the metaverse does not refer to a specific type of technology but is instead a broad term to describe the future of digital interaction, how can investors capitalise on this opportunity?
“The metaverse is the next iteration of the internet fuelled by real-time 3D software [where] everything is immersive and interactive,” Matthew Kanterman, senior equity research analyst at Bloomberg Intelligence told AsianInvestor.
“For example, Instagram can be described as a static internet when you like a photo, the nature of that photo doesn't change, but in the metaverse when you interact in a virtual world, the nature of that world changes just like the physical world does. It’s about connecting the digital and the physical by creating these virtual worlds that are so lifelike, leveraging real-time 3D software.”
Investors interested in opportunities in the metaverse can look in many different ways at companies providing the core underlying technology according to Kanterman, who identified some of the key players in the space.
“We're seeing the metaverse evolve out of the gaming industry first because that's the industry with the most experience utilising real-time 3D software,” he said. “Unity is a pure play in that space. Nvidia is another key player with their Omniverse platform and Epic Games is rumoured to be launching an IPO at some point in the future. They have the Unreal Engine.”
As well as the gaming elites, Kanterman points to consumer platforms like Roblox, Minecraft from Microsoft and Meta, which owns Facebook, Instagram and Whatsapp. A variety of ETFs also track baskets of metaverse-focused companies.
PICKS AND SHOVELS
“Our view is that we're a long way from realising this vision of the metaverse, it's going to be a decade or more of investment, so you really want to invest in the companies that are essentially picks and shovels and building this,” said Kanterman.
Asset owners and managers, including sovereign wealth funds and pension providers, are keeping a close eye on these so-called "picks and shovels" companies.
In early February Bloomberg reported that South Korea’s $200 billion sovereign wealth fund, Korea Investment Corp, plans to increase its investments in Silicon Valley startups as it looks to the capitalise on the developing metaverse and enhance its exposure to alternative assets.
APG, the largest pension provider in the Netherlands with over $719 billion in assets under management, told AsianInvestor that it is also looking for investment opportunities in the metaverse's foundations, particularly in augmented reality and virtual reality technologies.
The Dutch pension fund has invested in several gaming companies such as ATVI, EA and Ubisoft, as well as social media and digital advertising companies like Meta, Google and Snap. It has also allocated funds to connectivity providers and telcos such as KPN, Singapore Telecom, T-Mobile US and companies that deliver the infrastructure for data transport such as Vantage Towers & Cellnex.
In April 2021, some of the world's largest asset owners and managers took part in a $1 billion round of funding to support Epic Games's future growth opportunities, including a rumoured public listing. These included Singaporean sovereign wealth fund GIC and Canadian pension fund Ontario Teachers’ Pension Plan Board as well as funds and accounts advised by T. Rowe Price Associates and accounts managed by BlackRock, Park West, and KKR.
Saudi Arabia's $500 billion Public Investment Fund (PIF) is reported to have acquired a 5% stake in both Capcom and Nexon. PIF also invested over $3 billion to become a shareholder in other games developers Activision Blizzard, EA and Take-Two in Q4 2021.
METAVERSE CAN BOOST ESG
Hong Kong family offices have also stepped up their interest in metaverse investments because of the potential to boost families' environmental, social and governance (ESG) credentials, according to a recent survey by the Family Office Association Hong Kong.
Sustainable development, or meeting the needs of the present without compromising the interests of future generations, feeds into the desire of businesses and affluent families to make a positive impact on the societies in which they operate.
Speaking at the Asian Financial Forum in January 2022, Adrian Cheng, chief executive officer of New World Development, a Hong Kong based family office, suggested that the metaverse could be an effective tool for embracing ESG.
“The metaverse provides endless opportunities in the realm of sustainability, not only from a design and innovation perspective but also from a practical one,” said Cheng.
“We are already seeing the metaverse as having potential to act as a solution for many environmental issues, like reducing the need for travel, through improved remote working practices as well as vacation sightseeing, world landmarks and cultural experiences brought to life in the virtual world.”
Cheng said organisations could conduct training in the metaverse via virtual settings to reduce emissions and improve safety, especially for roles in the aviation and automobile industries. Similarly, he said car manufacturers or clothing designers could use the metaverse to test new models and fashion trends digitally, before producing and presenting them in the real world.
“These are just a few examples of what is impossible today and set the scene for what is to come, which is why it’s critical that we invest in the metaverse and empower the next generation to learn, innovate and grow there,” said Cheng.