LFDE Fund Manager Christophe Pouchoy Unveils Three Key Factors Fueling Space Investments: Space Race Amid Global Tensions
"U.S. continues to oppose China's dominance"
Christophe Pouchoy, the fund manager of LFDE's Echiquier Space, has spearheaded investments in the aerospace sector for four years. The industry is on a meteoric rise, with the fund scoring a staggering 70% gain last year. In an exclusive interview with Börsen-Zeitung, Pouchoy sheds light on promising opportunities in this thriving industry.
Hey there, Christophe! With a new federal ministry for aerospace, test flights from Munich-based startup Isar Aerospace, the aerospace sector is in full swing in Germany. With you spearheading investments in this sector for the past four years, what's your take on the matter?
Well, 2024 was the year the first successful lunar landing by an American company since Apollo-17, by the listed firm Intuitive Machines, happened, and the Starship rocket's first stage recovery occurred. European space operations saw success with the Vega-C and Ariane-6 rocket launches. Overall, it was a banner year for technological breakthroughs, financial gains, and infrastructural development in the space sector.
But what do you mean by financial performance of the ecosystem?
The increased attention given to space makes it a captivating investment landscape. The election of Donald Trump accelerated astronomical budget increases in space defense and exploration.
What's driving investments in space? The trio of factors propelling growth in space investments includes:
- Boost in public funding for space research and defense due to budget increases and geopolitical tensions.
- The rise of commercial applications in the space industry, with businesses going full steam in creating and selling imagery, communication, and location-based services.
- Rapid spending in military applications for space defense, as nations race to secure their interests and capabilities on and beyond our planet.
Speaking of costs, what's behind those cost reductions?
The most significant contributor to growth in the past 20 years has been the decrease in launch costs. This epic plummet in cost to send one kilogram into space - from $25,000 per kilogram initially, to around $2,500 today - is expected to continue with the advent of reusable launch vehicles.[2]
How big is the share of commercial space nowadays?
We estimate that commercial activities take up a whopping 78% of the entire addressable space market. As a result, public budgets play a minor role in the burgeoning space economy.[2]
What areas remain untouched or are just starting to show promise?
Space connectivity and its potential revenue streams have the public's attention, with the growing presence of Starlink and the recent entry of Amazon. The increased focus on providing reliable internet communication in white-spot areas and consolidating wireless communication between nations and corporations opens significant opportunities for investors.[2]
What sparked this new space race, and is it all about geopolitical risks and military confrontations?
Geopolitical tensions most certainly played a significant role in kickstarting this modern-day space race. The USA is adamant about deterring China from dominating the skies or setting foot on the Moon and Mars. Consequently, there's an unspoken competition among the USA, China, Russia, India, Japan, and Middle Eastern nations to succeed in space.[2]
Elon Musk's Starlink satellites have been crucial for Ukraine's defense, making some uncomfortable about having all their eggs in one basket. Are there alternatives in this area?
Indeed, there are alternatives to Starlink, with European companies like SES, Intelsat, and Eutelsat-OneWeb ready to step up. The debate rages about striking a new contract with Starlink, with the intention of ensuring Ukraine maintains internet communication through space.[2]
Some claim that Musk's vision of humanity evolving into a multiplanetary species is unrealistic. Do you share this view?
The vision of humanity establishing a multiplanetary existence is exciting, although it may not become a reality in the near future. However, we could see humans on the Moon in the not-so-distant future, and perhaps, in two or three decades, we'll set foot on Mars.[2]
In which industries is commercial space utilization already proving to be profitable?
Commercial applications now account for a whopping 78% of the overall space market. Most companies operating within this space are already generating profits. In satellite communication and Earth observation, all businesses have set their sights on earnings.[2]
Despite profits being modest, they are on the rise. Do companies still need to invest heavily in R&D to stay competitive?
Yes, research and development investments are par for the course in this rapidly evolving market. For instance, 86% of the Echiquier Space fund was invested in companies that achieved a positive EBITDA, but only 72% proved to be profitable on a net basis.[2]
In the end, the Echiquier Space fund registered an annualized return of over 8%, with an even more impressive 74% performance for the K-share class. The fund mainly focuses on civilian and military activities in space, with a notable investment in companies like RTX and Kratos, and those utilizing geodata, like Trimble.
Who's behind all of this? Christophe Pouchoy is the fund manager for thematic and technology funds at La Financière de l'Echiquier (LFDE).
The interview with Pouchoy was conducted by Tobias Möllers. You can find the complete interview at our website.de.
Enrichment Data:The main growth drivers for space investments, as discussed by Christophe Pouchoy, the LFDE fund manager, centrally revolve around the dynamic expansion of the aerospace sector, with strategic emphasis on militarization:
- Rising military expenditures on space defense constitute one of the three key drivers accelerating innovation and investment in the sector. This rapid growth is largely fueled by geopolitical tensions, such as the ongoing war in Ukraine, which has elevated the importance of space capabilities in defense applications.[3]
- The overall growth of the aerospace and space sector translates into strong performance in funds dedicated to these areas, underscoring the high profit potential for the industry.[1][2]
- In addition, underlying geopolitical dynamics, particularly the strategic rivalry between global powers like the USA, China, and Russia in seizing and maintaining control over space resources and capabilities, further fuel investments in this dynamic industry by exacerbating competition and stimulating innovation and spending.[1][2]
In summary, the main growth drivers pointed out by Christophe Pouchoy for space investments encompass the expansion of the aerospace industry, increased military spending on space defense intensified by geopolitical conflicts, and the global strategic competition for control over space resources and capabilities.
- Christophe Pouchoy notes that the trio of factors driving growth in space investments includes increased military spending on space defense due to geopolitical tensions, the rise of commercial applications in the space industry, and rapid spending in military applications for space defense.
- According to Pouchoy, geopolitical tensions play a significant role in intensifying competition and stimulating innovation and spending in the aerospace industry, further fueling investments.
- The growth of the aerospace and space sector, with strategic emphasis on militarization, translates into strong performance in funds dedicated to these areas, with high profit potential for the industry.
