MIT researchers: Megafund approach to attract more private investors to fusion energy


New business model demonstrates lowered risks for fledgling industry

CAMBRIDGE, Mass., Feb. 28, 2023 — To help fusion research and development appeal to private investors, MIT Sloan School of Management  suggests a "megafund" approach to generate an influx of cash for the fledgling industry while providing more attractive returns to shareholders.

In a new study published in the Journal of Investment Management, Lo, director of the MIT Laboratory for Financial Engineering, and co-authors write that with the first commercial fusion-powered electrical plants projected to come online in the 2030s, it could be "the ideal time for investors interested in the fusion space to act." While Jeff Bezos and Bill Gates among others have put their own money into the space, "the private fusion industry is still woefully underfunded compared to the recent progress of the research and the importance of this technology to society."

Charles E. and Susan T. Harris Professor, Andrew W. Lo

In the study, Lo and colleagues Professor Dennis Whyte, director of the MIT Plasma Science and Fusion Center, and Zach Halem and Manish Singh from the MIT Laboratory for Financial Engineering model the financial implications of a megafund that amalgamates high-risk projects into a single financial entity, "thus improving the risk-return profile of a portfolio of fusion investments," he says.

In addition, the study proposes that governments and private foundations could offset some of the risk by offering first-loss protection to investors in the fund's early stages.

Borrowing a page from biotech

Lo models investor behavior and financial markets in multiple industries, including fusion, insurance, asset management, and healthcare. In 2012, Lo, the Charles E. and Susan T. Harris Professor and a professor of finance, proposed the creation of a megafund to support cancer research. He notes that fusion shares many of the same challenges of early biotech: high upfront costs, a long gestation lag before initial investments pay off, and high risk of failure for any single project.

The technological challenges of creating an almost inexhaustible source of clean power through thermonuclear fusion are considerable: A 100-million-degree Celsius reaction must be corralled by magnetic fields or laser beams, then channeled into a steady-state reactor to produce electricity on demand.

In December 2022, the US Department of Energy announced that scientists at Lawrence Livermore National Laboratory in California had–for the first time–produced a fusion reaction that yielded more energy than the reaction required.

Like nuclear fission and early genome research, fusion research was initially funded through government-funded initiatives. Fusion R&D is now shifting to private companies. According to the Fusion Industry Association (FIA) in Washington, DC, more than 30 private fusion firms around the globe have attracted a total of more than $5 billion in private investments.

A menu of risk

For the investment strategy study, Lo and colleagues reviewed decades of case studies of public-private partnerships and interviewed academics, investors, energy advisors and other stakeholders to come up with a model that would limit risk and expand the pool of capital available to fusion companies.

They note that advances in materials research and computing have enabled technologies to evolve from the early magnetic confinement devices pursued by national and international agencies, opening up the field for private companies pursuing a variety of approaches.

The megafund model would include buy-in options with different risk-return tradeoffs and provide a diversified "fusion index" that enables investors to choose from a menu of options, including a long-hedge position as fusion becomes a more mature industry.

Simulations of the megafund model demonstrated positive returns and low default rates. "The model expands the pool of available capital by creating tranches with different risk-return tradeoffs and providing a diversified 'fusion index' that can be viewed as a long hedge against fossil fuels," the authors write.

 Lo and colleagues acknowledge that raising billions in funding for an as-yet-unproven industry is challenging. Yet "the cost to society of not innovating around sustainable energy," they note, "may prove even more expensive."

About the MIT Sloan School of Management

The MIT Sloan School of Management is where smart, independent leaders come together to solve problems, create new organizations, and improve the world. Learn more at

For more info Casey Bayer Director, Media Relations (617) 253-0576 Patricia Favreau Associate Director (617) 895-6025