SpaceX, Elon Musk’s private rocket company, is poised to tear up the rules of capital markets with an initial public offering that could value the firm at $1.75 trillion. That would make it the largest stock market debut in history, dwarfing the likes of Saudi Aramco and Alibaba. For UK pension funds, starving for yield in a world of negative real rates, this is the equivalent of a distress flare from a lifeboat. They are circling the prospectus like vultures over a fresh carcass.
The valuation is staggering, even by Musk’s standards. It implies a multiple of roughly 30 times projected 2025 revenue of $60 billion. To put that in perspective, the S&P 500 trades at around 3 times revenue. But SpaceX is not a normal company. It has a near-monopoly on commercial satellite launches, a Starlink broadband constellation that is already cash flow positive and a Starship rocket that promises to colonise Mars. The market is pricing in a future that most governments can only dream of.
Yet the cynic in me asks: why now? The answer is simple. Central banks have printed trillions, and real assets are the only escape from the inflation tax. The US Federal Reserve is trapped in a cycle of tightening and easing, and the Bank of England is not far behind. Gilt yields are rising, but pension funds are still underfunded to the tune of hundreds of billions. They need returns that beat the cost of their liabilities. SpaceX offers that, but with the volatility of a rocket launch.
Consider the risks. Musk is a genius, but he is also a loose cannon. His tweets have caused billions in market swings at Tesla. Adding SpaceX to the public markets would inject that same unpredictability into the world’s largest IPO. Then there is the regulatory overhang. The Federal Aviation Administration and global space agencies are still figuring out how to manage the orbital traffic jams that Starlink is creating. And let us not forget competition: Jeff Bezos’s Blue Origin and the Chinese government are not sitting idle.
For UK pension funds, the allure is clear. The M&G, Legal & General and the Universities Superannuation Scheme have been piling into private equity and infrastructure to fill the yield gap. But buying a newly public SpaceX is a gamble of a different magnitude. The stock will likely be volatile, and pension fund trustees hate volatility. They prefer steady dividends from utilities. However, with inflation at 6% and gilt yields at 4.5%, they are being forced to take on risk just to stand still.
The capital flight into SpaceX is a symptom of a deeper malaise. The state is crowding out private investment with its insatiable borrowing. The fiscal deficit in the UK is still above 5% of GDP. The government has no plan to balance the books, so it relies on the Bank of England to keep bond prices artificially high. This distorts the entire market, pushing investors into ever more speculative ventures. SpaceX is the ultimate speculative venture. It is a company with a mission to die on Mars, but its balance sheet is tethered to Earthly realities.
If the IPO proceeds at the $1.75 trillion valuation, it will be a watershed moment for capital markets. It will signal that the age of fiscal conservatism is dead. Spending constraints are for the weak. The only bond that matters is the one you print yourself. But the market will exact its revenge eventually. When interest rates normalise, all that leverage will unwind. The pensions that loaded up on SpaceX at a 30 times revenue multiple will be left holding the bag.
For now, the champagne is on ice. UK pension funds are lining up for a piece of the action. They see it as a hedge against the collapse of the state pension. The irony is that they are betting on a private company to save them from the consequences of their own governments’ profligacy. It is a logic that only a central banker could love.
The bottom line is that SpaceX’s IPO is a bet on the future of humanity. But it is also a bet that the current financial system can sustain itself. My advice to pension trustees is to read the fine print. The rockets may fly to Mars, but the money might not come back.
