The growing role of private equity in defence: a $150bn rethink for the U.S. Army

The growing role of private equity in defence: a $150bn rethink for the U.S. Army

In September-October 2025 the U.S. Army began formal talks with major private-equity groups to help finance an estimated $150 billion programme to modernise infrastructure and fast-track defence-technology capabilities. Facing a large funding gap (reported as roughly $135 billion shortfall against initial plans), Army leaders and Treasury officials have openly courted buyout and infrastructure investors to design public-private partnership (PPP) structures, asset swaps and concession models that could accelerate delivery while transferring some execution risk to private owners.

Why private equity — and why now?
Three converging forces explain the Army’s pivot. First, political momentum in Washington has delivered large appropriations and high-profile defence bills — including packages that free up procurement and investment levers — increasing the scale of planned programmes but exposing financing gaps. Second, private capital sits on tens to hundreds of billions of “dry powder” and faces mounting pressure to deploy: buyout dry powder alone is estimated at about $1.2 trillion, while broader private-markets liquidity measures point to over $2 trillion available for deployment across private equity, credit and infrastructure. That capital is searching for yield and durable cash flows—characteristics many defence infrastructure projects can provide. Third, a shift in procurement models at the Pentagon toward faster, outcome-oriented contracting (e.g., pilot programmes, concession arrangements and “asset monetisation”) lowers political and legal friction for PPPs.

What forms might private capital take?
Private capital can plug into defence modernisation through several structures:
* Concession deals where private investors fund, operate and maintain bases, logistics hubs or data centres under long-term contracts.
* Build-to-suit and availability-payment models that shift upfront capex to the private partner in exchange for a stream of government payments.
* Joint ventures for critical manufacturing (for example, magnet or semiconductor fabs) where private equity provides capex and industrial partners supply know-how.
* Structured financing and asset swaps, where under-utilised military land or facilities are exchanged for services or outputs. Army leaders have explicit interest in creative proposals that deliver capability rather than simple cash injections.

The economics for private investors
Defence infrastructure projects can deliver predictable, inflation-linked cashflows—an attractive profile for private funds that face low public bond yields and compressed return prospects in some sectors. For buyout and infrastructure funds, the appeal is twofold: the prospect of long-dated, indexed revenue streams that match institutional investor liabilities; and potential government credit enhancement (guarantees, concessional loans or availability payments) that improve project leverage economics. With buyout dry powder estimated at ~$1.2tn, large managers (and consortia) have both the scale and the incentive to pursue multi-billion dollar mandates. At the same time, private capital typically demands higher hurdle rates than public borrowing — investors will price in political and regulatory risk, pushing the need for contractual clarity on revenue mechanics and termination rights.

Strategic and governance risks
Bringing Wall Street into national security invites scrutiny. Key risks include operational security (safeguarding classified activity on leased sites), foreign-ownership sensitivities, long-term political risk (contract renewals and policy reversals), and reputational exposure if private owners prioritise returns over readiness. Equally important is competition policy: concentrated ownership of key defence suppliers by large PE houses could raise antitrust and national-security questions. Policymakers are therefore discussing guardrails — transparency, approved-vendor lists and retained sovereign control over critical functions — as prerequisites for larger deals.

Market signals and private-markets appetite
Private-markets specialist commentary and recent fund activity indicate a rising appetite for defence: several buyout houses have publicly signalled interest and deployed record European capital this year, while specialist funds targeted at defence and critical supply-chains are raising dedicated pools. That said, fundraising across private markets slowed in 2024–25 compared with the boom years, increasing emphasis on win-rate, operational value-add and sponsor-LP alignment. The basic arithmetic — abundant dry powder versus attractive, government-backed cashflows — explains why PE is now a central part of the Army’s funding conversation.

Investment implications and what to watch next
For investors and advisers the development creates two avenues: Direct private-markets exposure via infrastructure and defence-focused funds or co-investments that bid for Army projects; and Public-market plays through contractors and suppliers that could benefit from faster project execution and private-sector capex (watch revenue guidance, backlog growth and margin outlooks). Critical near-term indicators to monitor include the legal frameworks Congress adopts for PPPs, the Army’s shortlist of project types (barracks, datacentres, industrial plants), and the structure of any credit enhancement (guarantees or availability payments) that improves project bankability. Also watch how major firms (Apollo, Carlyle, KKR, Cerberus) position capital and disclose allocations to defence or national-security infrastructure.

Conclusion
The Army’s outreach to private equity over a $150 billion programme marks a material shift: budget shortfalls, political will for faster modernisation, and abundant private capital have aligned to create a plausible public-private financing paradigm for defence. The promise is faster delivery and off-balance-sheet mobilisation of resources; the peril is a complex governance and security landscape that requires carefully designed guardrails. For investors, the opportunity is significant but contingent on contractual clarity, acceptable risk-adjusted returns, and the willingness of policymakers to enshrine protections for national security while harnessing private finance.

The image added is for representation purposes only