NGS Super secular trends: the metaverse

Each year, our Investments team sets the strategic asset allocation for our portfolio. As part of this exercise, we produce an in-depth research piece on upcoming “secular trends”.

What are secular trends and why do they matter?

Secular trends are evolving trends in the market that take place over a longer time horizon, rather than being seasonal or cyclical. It’s important for us to understand secular trends when we’re reviewing and setting our long-term strategic asset allocation, as they help us identify investment opportunities and risks.

Key trends ahead

Our secular trend analysis this year looked at:

1. carbon neutrality
2. electronic and autonomous vehicles
3. 3D printing
4. the metaverse
5. demographic changes
6. quantum computing
7. geopolitics
8. blockchain, decentralised finance and cryptocurrency
9. the hydrogen economy.

This article focuses on the metaverse.

The metaverse

As the metaverse itself is still developing, so is its definition. Two definitions from reputable sources are:

A massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.¹
and
The MetaVerse is a gaming platform, a virtual retail destination, a training tool, an advertising channel, a digital classroom, and a new gateway to digital experiences.
a) At its most basic, the MetaVerse will have three features: (1) a sense of immersion, (2) real-time interactivity, and (3) user agency.
b) Ultimately, the full vision of MetaVerse will also include: (1) interoperability across platforms and devices, (2) concurrency with thousands of people interacting simultaneously, and (3) use cases spanning human activity well beyond gaming.²

While the world’s 3 billion gamers may have been familiar with the concept for a while, the word ‘metaverse’ came to the fore more generally in 2021, when Facebook’s parent entity rebranded to Meta.

Gaming may be the backbone of the metaverse, but the metaverse is much more than gaming. It has the potential to have a massive impact across many industries, including financial services, manufacturing, retail and technology. It’s been estimated that by 2030 it could generate US$4–$5 trillion in investment.³

The development and growth of the metaverse will rely on significant enhancement of technologies like 5G, edgecomputing and cloud capabilities, as well as all the tools required to build a fully immersive 3D experience, including virtual reality and augmented reality.

Investment opportunities are likely to emerge across:

• companies involved in metaverse activities
• public sector metaverse plans
• private equity and venture capital investments as well as merger & acquisition activity
• technology breakthroughs in the areas mentioned above
• mega-scale metaverse campaigns such as virtual concerts, space exploration, etc.

Are there risks?

The risks are essentially the flipside of the opportunities — that is, the 3 key technological areas of infrastructure, developer tools and platforms, and virtual worlds and contents are also where the potential for bottlenecks lies.

Since we identified the metaverse as a secular trend, it seems that Mark Zuckerberg’s enthusiasm for it may have waned,⁴but others argue that there is life — further expansion and innovations — yet in this space.⁵

What does this mean for NGS Super’s portfolio?

NGS doesn’t currently have any direct investments in this secular trend, as we continue to monitor developments. The newly emerged generative artificial intelligence may help to accelerate the development of gaming engines as well as the broader metaverse concept, but the supporting infrastructure to substantially improve user experience needs to step up as well. While we remain cautious in the near term, we still expect there to be long-term potential in the metaverse.