Colony Fund to Boldly Go Where No Fund Has Gone Before
October 18, 2004
Thomas A. Olson is CEO and founding partner of the Colony Fund, a new mutual fund designed to include smaller investors in the private sector's push into space. The fund, still in pre-SEC registration mode, seeks to invest in commercial space enterprises, which the founders believe will be a preeminent market sector in this century, one day resulting in human settlements in space.
The goal of the first fund is $500 million in assets, 70% of which will be invested in venture capital, 25% in traditional stocks and bonds and 5% in deep-space mission projects.
Money Management Executive Senior Editor Chris Frankie spoke with Olson about the benefits, risks and outlook of investing in space.
MME: Where did the idea for the Colony fund come from?
Olson: The idea first began to form on July 4th, 1997, when the Mars Pathfinder bounced onto the Martian surface and sent back all those pictures. The JPL [NASA] Web site received nearly 50 million hits the first day and several hundred million over the ensuing two to three months. This led me to believe that there is a lot of public fascination with space that, if properly tapped, could build a lot of great things--things that NASA could not, or would not, engage in. The Web site for the Spirit and Opportunity rovers this last January received a billion hits in the first three days, so if anything, public interest has increased.
MME: By investing in venture capital and traditional stocks and bonds, the Colony Fund is not a typical mutual fund. Why is this a good model?
Olson: Tech sector venture capital has always been seen as risky, but after 25-plus years of experience, despite the dot-com debacle, the risks can be modeled for, and potentially mitigated, in one's investment strategy. Until recently, space and space-related companies have always been perceived as an unknown quantity. Will tech-sector strategies produce similar results in this nascent market sector? Only time and due diligence will tell. As the equity market growth average over the entire 20th century is 10.4%, it might be a good overall idea to always include some proportion of investors' funds in plain vanilla portfolios to help mitigate some of the riskier aspects of space startups.
However, having said that, not all the venture capital might be invested in rocket engines or sub-orbital vehicles. There are many other aspects to space-related businesses, such as tools, software, data storage, biomedical testing and even entertainment, to name only a few. There are also dual-use technologies of value to terrestrial markets, as well as out on the frontier.
MME: What is your long-term vision for the fund and investors?
Olson: First, I'd like to significantly lower the barrier to entry for investment in space companies, previously only available to qualified investors. Second, I want to help build and grow companies in the new commercial space infrastructure of the 21st century. Lastly, I want to help open the door to human expansion into new frontiers, something our grandkids will thank us for. I think it's going to be exciting work and a lot of fun. And of course, we would also like it to be profitable.
MME: How risky of an investment do you think this fund will be?
Olson: Given the nature of this nascent industry, I don't think it's going out on a limb to say it will be riskier than your typical mid-cap. This would not be a place for dilettantes or day traders, but for investors of perhaps modest means but great vision willing to risk a small portion of their portfolio on something less certain but with a good potential upside over a long time-horizon. Many portfolio managers often recommend just such a strategy to their clients, so a potential market niche is already out there.
MME: There are currently several funds that invest in aerospace and defense companies. Will your fund invest in this traditional pool or branch out?
Olson: Our proposed product would be a crossover product, which may appeal to both tech sector and aerospace investors. The managers of the traditional portion of the portfolio [will be looking for] value and growth, not necessarily a specific sector. On the venture capital side, it's theoretically possible that if a company goes public and does well, the fund manager might liquidate some of his stake in an underperforming holding and move it to the equity side.
MME: The recent unmanned space crafts to Mars and the potential for private space tours in the near future have garnered a lot of media attention. Will such developments help your fund?
Olson: While Mars probes tend to come and go, Burt Rutan's success did wonders. Rutan is the head and chief designer at Scaled Composites, which built SpaceShipOne, the first privately financed, piloted craft to reach the edge of space, winning the $10 million Ansari X-Prize. Rutan's success has caused a lot of people to realize that space, traditionally the province of over-trained, elitist astronauts, might be open to the rest of us, after all, and that companies trying to open the heavens to all humanity aren't just starry-eyed dreamers but practical businesspeople.