Pentagon Expands Equity Authority in Defense Technology Investments

The Pentagon’s Office of Strategic Capital will gain formal responsibility to invest equity in private companies critical to national security under proposed 2027 defense legislation, according to a Senate Armed Services Committee draft bill.

“We’ve previously engaged in equity investments in specific sectors with strong reporting and ethics frameworks,” noted a Congressional staffer. “This proposal aims to consolidate and streamline these efforts by co-locating equity activities with our loan authority.”

The legislation allocates $2.16 billion in lending capacity and $216 million specifically for capital assistance programs, including loans, loan guarantees, and technical support. This builds on existing practices where the Defense Department has already acquired equity stakes exceeding $1 billion in defense contractors, including $400 million in a rare-earths company and $1 billion in L3Harris’ solid rocket motor division.

Key provisions in the bill include:

• Granting explicit authority to the Office of Strategic Capital to facilitate private investment in critical technologies through loans;
• Requiring Congressional notification for all debt and equity investments;
• Mandating the Defense Secretary to conduct ownership reviews for conflicts of interest before funding;
• Prohibiting the use of the industrial-base fund for equity investments;

The proposed caps limit equity investments to $500 million per entity, with investment percentages restricted to 40% of total equity holdings. Direct equity funding will be limited to “critical minerals, materials, and chemicals; and batteries.”

The bill also establishes an Economic Defense Unit to quarterly oversee compliance, requiring the Defense Secretary to certify that the Pentagon holds no board seats or voting control in companies where it holds equity.

“While we recognize potential value in this tool, opinions vary on its scope,” the staffer remarked. “This approach addresses long-term challenges in reshoring strategic sectors like critical minerals and batteries, which require multi-year solutions.”

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