The past, present and future of the US defense industrial base

CONTRIBUTORS

James Cross, CFA

Co-Head of Private Investing

Ryan Biggs, CFA

Portfolio Manager,
Co-Head, Private Investing

Richard Herbert, CFA

Head of Investor Relations

Robert Stevenson, CFA

Managing Director
Co-Head of Private Investing

Dylan Serrentino-Mullins

Research Associate

Executive summary

Consolidation of the traditional defense industrial base over recent decades has created new challenges for the adaptability that modern warfare demands.
Private capital by means of venture-backed technology companies has a role to play in the development of a next generation defense industrial base (DIB) that can more rapidly and flexibly respond to the increasingly complex landscape of modern conflict.
A hybrid model of government funding and private capital is accelerating defense development; however, a key challenge is aligning fast-paced startup innovation with the government's adoption speed.
Unlike traditional venture capital investing, where disruption is often rewarded, we believe success in defense-oriented technologies requires a deep understanding of government procurement processes and the ability to outcompete or cooperate with established defense contractors.

The US DIB—the network of companies that design, manufacture and sustain the systems underpinning deterrence and readiness—now sits at a pivotal moment with rising interest from private capital. In this paper, we examine the evolving DIB across its past, present and future, and share a framework we believe can position investors for success in this expanding yet complex landscape for private capital.

A pivotal transformation within the DIB is taking place, moving from a traditional, consolidated model to one increasingly reliant on agile private sector innovation and capital. While this shift promises to address critical security challenges with greater speed and adaptability, it also presents a complex landscape for investors. Success hinges on a nuanced understanding of the interplay between private enterprise and government needs, recognizing both the immense opportunities for growth and the persistent structural hurdles that demand strategic navigation. Ultimately, the future of defense innovation will be defined by how effectively these disparate forces can converge to deliver timely and effective solutions.

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