Delegates from across the financial sector and government gathered in Sydney this week to discuss the growing appetite for private capital investment into Australia’s national security sector.
Key speakers included LT Graham ‘’Gray” Chynoweth, Director Global Investments, Office of Strategic Capital, US Department of Defense; William McManners, Managing Partner, MD One Ventures; VADM (Ret’d) Peter Jones, Director, Maxa Partners; Dr Alan Dupont, CEO, Cognoscenti Group, and more.
The ADM Defence Financing Summit, co-hosted by Periscope Capital Partners, brought together key players from Government, the investment community, Defence, and Defence industry to look at the opportunities and scope for private capital investment in Australian military capability.
LT Chynoweth outlined the role of the Pentagon’s Office of Strategic Capital (OSC), which was established in 2022 and formalised in law in 2023, now with a billion US dollars of lending authority across 31 technology areas.
“Security is based on a range of broadly applicable technologies – not just things that go boom,” LT Chynoweth said. “We’re focused on developing technologies that have defence and security applications. Those are the ones most likely to pay back loans and more likely to attract venture capital or deliver venture-scale returns.”
The OSC is currently accepting public input on capital where OSC-provided loans and loan guarantees can support investment in critical technologies – LT Chynoweth encouraged Australian companies and stakeholders to participate.
Sophie Mayo, Research Associate Foreign Policy and Defence, United States Study Centre spoke of the need for a trilateral public-private investment fund across the AUKUS nations, which could facilitate a uniform investment strategy, modelled on some elements of the NATO Innovation Fund.
Interestingly, several banks, venture capital funds and superannuation funds suggested that the financial sector was more open to investment in defence capabilities than is commonly understood.
Whilst investment will often avoid weapons investments or offensive capabilities as they navigate environmental, social and governance (ESG) concerns, a number of defence programs or dual-use assets are attractive for investment.
“Patriotic capital is a relatively new concept. Defence can be tiered; you have defence-enabling (ports, airports, infrastructure) – there is an easier case for that sort of investment and a high demand for those sorts of assets,” Misha Zelinsky, Director, Australian Super, said.
“At the heart of our decision making is we’re looking to support the Australian and New Zealand defence forces and companies looking to do business with them,” Nick O’Brien
Managing Director and Head of Consumer and Industrials for Westpac, said. “The bank has a public position statement on defence: we define certain kinetic weaponry as controversial, which we will not do.
“But what we are prepared to do is still expensive. For example, the bank has told the government it will support the GWEO program. Missiles are not controversial. Biological weapons and cluster bombs are controversial; that’s a no-go zone.”
Moreover, the bank will undertake a separate evaluation process for each defence investment – looking at the country of ultimate use, the rule of law, whether the customer interacts with nuclear weapons outside certain exemptions.
“Missiles going to Singapore are different than missiles going to Yemen,” O’Brien said.
Delegates also heard from Guy Boekenstein of Armatus Inc about accessing US government rapid procurement vehicles (Other Transaction Authorities, or OTAs) for allied nations.
Armatus are the preferred coordinating agency for the Joint Experimental and Technology Accelerator – which manages the US Army’s Advanced Prototyping and Experimentation OTA - for vetted companies from allied nations, including Australia.
“We are helping the US open those up to non-US companies,” Boekenstein said. “These rapid procurement vehicles are four months from application to approval. The scale of the opportunity is significant.”
Dr Alan Dupont noted that whilst the national security sector is larger than just the defence budget, Australia has nonetheless reached a point at which public funds alone can no longer deliver all of the nation’s national security requirements.
For the government to deliver nuclear-powered submarines and still meet the ADF’s need to keep abreast of emerging technologies, it must learn to better leverage Australia’s global financial heft.