Inside Infrastructure: Defense and infrastructure: What a changing security landscape means for investors

Private capital interest in defense is growing. Against the backdrop of rising geopolitical tensions, governments across Europe have not only increased their defense spending but have opened the doors to private capital investment at a scale not seen in generations. 

In this week’s post we explore:

• Why infrastructure investors including those who may not have ever considered a defense investment need to understand what is happening in defence; 
• Where the defense opportunities lie outside of traditional notions of defense; and
• Why modern defense and warfare is quietly redrawing the risk and opportunity map for the infrastructure assets many of them already hold.

A need for private capital

At the Hague summit in June 2025, almost all 32 NATO members agreed to raise defense spending by 2035, including the UK, which committed to raising its defense budget to 5% of GDP, well above the 2% previously committed, with 3.5% earmarked for core defense and a further 1.5% for resilience and critical infrastructure. The Defence Investment Plan (DIP) released in 2026 set out how the UK intended to implement the conclusions of the 2025 Strategic Defence Review (SDR) to transition the UK to defense readiness. The DIP committed to spending £298bn on defense over the four years to 2029/30, including £15bn in new funding. Perhaps most important however was the acknowledgement that delivering on this commitment could not be done through existing budgets alone. Indeed, the DIP dedicates an entire section to “Mobilising public and private capital: a partnership approach,” sending a clear message that UK defense is open to private capital investment and the government is committed to partnering with the private sector and unlocking opportunities for private capital.

This dynamic is the same across Europe. The EU’s “ReArm Europe/Defence Readiness 2030” plan is capable of mobilizing up to €800bn in defense-related investment over four years; the European Defence Industrial Programme carries a dedicated €1.5bn budget for 2025-2027; and Germany has established a €500bn special fund spanning infrastructure and climate neutrality alongside defense-adjacent capacity. Each of these creates a new pipeline of co-investment opportunities for private capital to sit alongside the state. Recognising that public investment alone will not suffice, Defence Readiness 2030 pairs this ambition with guarantees to de-risk defence investment, broader European Investment Bank financing to channel private capital towards priorities including defense. It also makes clear that the EU’s Sustainable Financial Disclosures Regulation does not prevent defense financing.

Together, these developments point to a growing role for private capital alongside the existing defense universe of primes, national champions and global strategic supply chains.

A paradigm shift: From blanket exclusion to nuanced engagement 

For many institutional investors, defense has historically been subject to a blanket exclusion, a sector ruled out by ESG considerations or limited partnership agreement restrictions regardless of the underlying activity. The conflict in Ukraine has prompted a reassessment of defense spending, investors are increasingly moving towards a more nuanced approach. Rather than ruling out the sector entirely, investors and their limited partners increasingly recognize defense as essential to national and collective security, paving the way for investments in the critical technologies, supply chains and infrastructure that support it. Private equity firms launched a series of defense funds and platforms in 2026.

What does an investment in “defense” really look like? 

For infrastructure investors, the most immediate opportunities lie in the defense estate and core support infrastructure, which is where capital commitments under the DIP are being directed first. Upgrading naval dockyards and port facilities, army bases and defense housing programs all represent tangible investment opportunities in assets familiar to infrastructure investors. 

Beyond the physical estate however, investment opportunities are expanding rapidly. Historically, defense investment was largely synonymous with military materiel such as heavy platforms, vehicles, ships and munitions. The nature of defense and warfare has changed, and with it the breadth of investment opportunities. The SDR was candid in its conclusion: the measure of military effectiveness is “not solely the number of people, vehicles, planes and ships fielded.” As military capabilities increasingly incorporate autonomous systems, AI and data investment in supporting technologies and infrastructure is becoming more important. 

For infrastructure investors these are all areas that are supported by digital infrastructure, from grid resilience to the supply chains that feed manufacturing as well as satellite communications underpinning both civilian connectivity and secure military use.

Dual-use technology investment opportunities also deserve particular attention. Technologies such as AI, semiconductors and autonomous systems have applications across both defense and civilian markets. This creates opportunities further down the value chain and may make some investments easier to accommodate within existing investment mandates than pure-play defense assets. Dual-use investments may also be more commercially resilient to investors because revenue is not dependent solely on defense contracts and therefore dual-use businesses can offer more diversified, and potentially more resilient returns, derisking reliance on solely defense revenues.

However, while these sorts of opportunities provide new avenues for investment, the same fundamentals of good infrastructure diligence and investing still apply and considerations like how secure is the underlying technology, how resilient is the supply chain, are there contracted and durable sources of revenue, and does the opportunity withstand the long-term thesis as any other long-term infrastructure asset, will still need to be thought through.

A “new” asset class? 

Rather than treating defense as its own, unfamiliar sector, infrastructure investors may find that defense shares a lot of the same characteristics of infrastructure that make it a compelling asset class in the first place. 

Like core infrastructure, defense delivers an essential function with somewhat inelastic demand; and while the amount of defense budgets are subject to political debate, the baseline requirements for national security remains across economic cycles. Revenue is similarly regular and contracted, although the mechanism differs – classic infrastructure typically relies on concessions or long-term contracts indexed to inflation, whereas defense relies on long-term government contracts with government bodies such as the Ministry of Defence in the UK. Barriers to entry are similarly high like regulated infrastructure, given the security clearances and procurement qualification requirements involved. And while infrastructure investors are well used to governments as a counterparty, the nature of that relationship in defense where the government can be a direct or indirect customer, differs from the often co-investor nature of the relationship of infrastructure assets. The similarities are real enough to make defense be seen as a credible infrastructure investment opportunity while the differences highlight where the diligence focus should be concentrated.

Why do infrastructure investors need to think about defense?

As the capability requirements of modern defense and warfare change, investors who invest in, operate, or are otherwise involved with critical national infrastructure (CNI) are being drawn into the defense conversation whether they want to be or not. Recent conflicts have demonstrated the growing vulnerability of critical infrastructure and economic assets to attack, alongside conventional military targets. The SDR was clear that this is not a hypothetical concern, noting the UK should expect sub-threshold attacks, including cyberattacks and sabotage, on its CNI, such as public utilities, that could threaten public safety and social order.

As Karl Engelbrektson, former chief of the Swedish Army stated earlier this year “What concerns me most is that war is becoming more total. Civilian and military targets are being linked not just politically but in terms of actual targeting. Power grids, bridges, water treatment plants. War is always an extension of politics, but the line between civilian and military is blurring in a way we have not seen for a very long time.”

For investors that hold critical infrastructure assets, including energy supply and water, ports, airports, data centers and communications infrastructure, this risk matters and will increasingly be part of the risk profile of any investment opportunity being considered as well as their asset management obligations. The SDR frames this as a structural rather than a one-off risk, stating that “infrastructure that is critical to the UK economy and way of life must be protected” and places CNI protection on the same footing as nuclear deterrence and alliance-building.

Infrastructure investors are already familiar with national security sensitivities in the types of assets held, airports and ports have long carried this kind of scrutiny as standard practice. What is changing is the scope of assets being drawn into that scrutiny. Modern warfare is pulling new infrastructure asset classes into the defense sphere, with the clearest example of this being subsea cables. 

Off the back of an increasing threat of Russian-linked activity around UK undersea cables, the DIP allocated £330m to investment in protecting critical underwater infrastructure including subsea cables, pipelines and other subsea assets and also specifically called out the need to invite further private investment to bolster the protection of undersea cable due to their strategic importance. This moved investment in subsea cables into the political and national security spotlight and shows how even a traditional infrastructure asset class can become drawn into the defense spectrum. For existing and potential investors in this asset class, this will have real practical considerations and expect to see this reflected in increased public oversight, enhanced national security obligations as well as increased scrutiny in any investment approvals, even if the asset was not originally conceived as a security asset.

What this means for infrastructure investors 

Defense is becoming an increasingly relevant area for private capital investment, and the same rules that govern good investment when assessing any opportunity apply in this space.

Just as importantly, infrastructure investors do not need to make an active decision to invest in defense in order to be affected by it. The assets many investors already hold, including energy networks, ports, airports, subsea cables and data centers, are being redefined as part of the defense and national resilience conversation. Understanding that shift, and the regulatory and security obligations it is likely to bring, is now a necessary part of infrastructure investment strategy.

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