JP Morgan’s recent launch in the metaverse, a first in the banking industry, may signal that virtual reality may become widespread in financial services, and sooner than expected. Big brands, businesses, and influencers have all joined the rush and entered the metaverse in recent months, including retail and entertainment brands, from Walmart and Nike to Disney and Warner Music Group.
Onyx, JPMorgan’s blockchain arm launched in 2020, predicts that the metaverse will become a $1tn market opportunity in yearly revenues, given that its virtual worlds will “infiltrate every sector in some way in the coming years”.
The metaverse is the investment theme likely to experience the biggest rise in popularity in client portfolios over the next couple of years, according to this year’s PWM’s Global Asset Tracker, our annual asset allocation survey canvassing views from CIOs and heads of investment strategists at private banks (see Fig 1).
“The metaverse is a concept that a lot of people struggle with, but it is the next era of the internet,” says Edmund Shing, CIO, BNP Paribas Wealth Management. “It holds a lot of great, long-term promise, and it's still somewhat under explored at the moment.”
Effectively, it is a virtual reality world where, leveraging augmented and virtual reality (AR/VR) technologies, users via digital avatars can explore these virtual lands, where they can interact, socialise, play games, purchase real estate, browse art or go shopping, as they would in the real world.
The metaverse melds together several sub-technologies, such as teleconferencing, collaborative working, video games, cross-media platform sharing, blockchain and electronic payment. And it is enabled by the superfast internet connectivity, supported by broadband internet and upcoming 5G superfast mobile internet.
Investors can invest in this theme through thematic funds and ETFs that focus on technology sub-themes, such as digitalisation, artificial intelligence, electronic payment and cyber security. Private equity funds with a technology focus typically are well exposed to this area too, as are real estate companies and funds invested in 5G telecommunications towers, says Mr Shing.
The metaverse plays a big part in Bank of Singapore’s umbrella investment theme ‘the brave new world’, which is focused on disruptive technologies and digitalisation.
“Across the global economy, the Covid-19 crisis has spurred many disruptive innovations catering to demand for remote work and play, as well as online learning, shopping and other virtual experiences, creating powerful and persistent tailwinds for multiple sectors,” says Jean Chia, CIO, Bank of Singapore. “The metaverse theme may be hard to picture today, but we found it hard to picture the ‘internet of things’ too,” she adds.
There are many use cases for the metaverse, not only consumer applications, whether it is to test drive a car or remodel a home, but also business applications.
“Especially in the post-pandemic environment where business travel will not be so frequent as in the past, people can meet in a meeting room in a metaverse, discuss things, draw on the whiteboard and illustrate stuff,” she says. Moreover, this virtual approach ties in with a more carbon effective way of conducting business.
Virtual world
In addition to changing social attitudes catalysed by Covid-19, key factors explaining greater attention to the metaverse include increased blockchain adoption and greater acceptance of the subscription economy. “Digital natives today appear to be taking to ownership of virtual world assets, as ownership of real-world assets can be deemed as uneconomical, eco-unfriendly or simply unnecessary in certain instances,” believes Joseph Ng, global technology analyst at Bank of Singapore.
While the potential of the metaverse is vast, there are visible roadblocks in the path of its creation and risks worth considering, including data security and privacy, lack of interoperability between platforms, regulatory risk and exacerbation of digital divide between demographics and regions, says Mr Ng.
“It may be fancy today, but we are talking about a reality that probably is going to take at least another 20 years to develop,” says Manuela D’Onofrio, head of investment strategy at UniCredit Group, as she admits to struggle to understand how people can buy digital real estate tokens for millions of dollars.
Yet, almost a quarter of respondents in PWM’s GAT study expect digital assets and cryptocurrencies to increase in their clients’ asset allocation this year, although 85 per cent say clients have no allocation to these assets yet.
“I think the metaverse is a very long-term theme,” adds Ms D’Onofrio. “I prefer to look at new technologies that will improve the way we work and live as well as technology that will allow us to travel in a more efficient way.”
