In a development few could have predicted even a few years ago, private equity firms are ramping up investments into the defense sector — traditionally considered off-limits for many institutional investors.
With Europe planning to spend over €800 billion to rebuild its military capabilities and reduce reliance on U.S. security guarantees, a new landscape is emerging — and private capital intends to play a central role.
Historically, private equity funds have avoided defense investments for two main reasons:
First, defense assets are capital-intensive, highly regulated, and not easily restructured for fast returns. Second, many Limited Partners (LPs) — particularly those focused on ESG (Environmental, Social, Governance) mandates — flagged ethical concerns around weapons manufacturing and national security contracts.
But that is changing.
With heightened geopolitical tensions, a push for defense self-sufficiency, and updated ESG frameworks that now recognize national defense as a public good, institutional barriers are softening.
Major firms like Tikehau Capital and CVC Capital Partners are now raising specialized teams and dedicated funds focused on defense, aerospace, and national security technologies.
Bloomberg data suggests that private equity defense spending in Europe is on pace to surpass $1 billion in 2025 — something that has only happened five times in the last two decades.
Several forces are converging to create this moment:
Russia’s invasion of Ukraine and growing tensions in the Indo-Pacific have reignited conversations about military preparedness among Western allies.
Governments are beginning to offer loan guarantees, procurement advantages, and co-investment structures designed to attract private capital into critical industries.
Defense technology startups — from cybersecurity firms to drone manufacturers — are attracting significant venture funding, paving the way for mid-market and buyout investors to follow.
Leading voices argue that defense investments are no longer automatically at odds with social responsibility — instead, they are increasingly viewed as essential to protecting democratic values and global stability.
Still, private equity’s offensive move into defense comes with risks.
Defense businesses operate in a highly politicized environment where profitability often hinges on unpredictable government budgets and regulatory reviews. Moreover, despite a softening stance, some LPs remain cautious about aligning their portfolios with arms and defense industries.
There’s also the question of exit strategies.
Unlike consumer-facing industries, defense companies may not have a ready buyer pool when it's time to sell — especially if political winds shift.
If institutional investors ultimately embrace defense allocations, expect to see:
In short: