Defence is becoming an asset class: why fund structures are playing a growing role in Europe's defence and dual-use economy

Key takeaways

• EUR 381 billion and rising. EU member states are expected to spend approximately EUR 381 billion annually on defence. The UK has also committed to increase defence spending to 2.5% of GDP from 2027, with spending projected to reach approximately GBP 79 billion by 2029/30.
• Defence is becoming a mainstream asset class. The investment opportunity now extends well beyond traditional defence contractors to include AI, cyber security, autonomous systems, drones, space technology, critical infrastructure and other dual-use technologies.
• The debate has shifted from whether defence is investable to how investments should be structured. Fund sponsors and investors must navigate ESG considerations, sanctions, export controls and investor-specific requirements while maintaining scalable and commercially viable structures.

 

Defence and dual-use funds move into the mainstream

DLA Piper's London Investment Funds team, led by partner Sam Whittaker, has recently advised strategic investors on investments into specialist defence and dual-use funds, including allocations to established venture and growth strategies focused on defence, security and dual-use technologies.

Alongside this, we are advising sponsors launching defence-focused strategies and investors backing technology-led platforms across Europe, including businesses operating in autonomous systems, cyber security, advanced sensing, next-generation drone capability, secure communications and space technology.

These mandates reflect a broader shift taking place across Europe. Strategic investors are increasingly using fund structures to access innovation, diversify exposure to emerging technologies and build long-term capabilities beyond traditional procurement models.

What was once a niche area of private capital is rapidly becoming a recognised investment theme, bringing together institutional investors, strategic corporates, specialist managers and government-aligned initiatives.

Sam Whittaker, Investment Funds Partner, commented:

“Defence and dual-use investing has moved from a niche area of the market to a major investment theme across Europe. It is a privilege to be working with clients at the centre of this evolution, helping them navigate the legal, regulatory and fundraising considerations that come with deploying capital into one of the most strategically important sectors in the market today.”

The definition of defence is changing

Part of the reason for this growth is that the definition of "defence" has expanded considerably.

Historically associated with defence primes, armoured vehicles and military hardware, today's defence ecosystem includes AI, cyber security, autonomous systems, space infrastructure, energy security, critical minerals, supply-chain resilience and secure communications networks. Many of these technologies are dual-use, with both civilian and defence applications.

As a result, investors increasingly view defence not as a single sector but as a broad investment theme spanning technology, infrastructure, resilience and strategic autonomy.

 

Why private capital is becoming increasingly important

Defence spending across Europe has accelerated significantly in response to heightened geopolitical uncertainty and evolving security challenges.

EU member states are expected to spend approximately EUR 381 billion annually on defence. At the same time, the UK has committed to increase defence spending to 2.5% of GDP from April 2027, with spending projected to reach approximately GBP 79.1 billion by 2029/30, and has stated an ambition to increase spending further to 3% of GDP in the next Parliament when economic and fiscal conditions allow. Source: Link 1, Link 2, Link 3

These commitments are creating one of the most significant and sustained periods of defence-related investment seen in Europe for decades. Importantly, they extend beyond traditional defence procurement and into the broader technology and resilience sectors increasingly viewed as critical to national security.

Governments have also recognised that public funding alone will not be sufficient to support the scale of innovation and capability development required. As a result, private capital has become an increasingly important component of Europe's broader defence and strategic autonomy agenda.

Defence is no longer being viewed as a cyclical investment theme. Increasingly, it is being viewed as a long-term area of capital deployment.

 

Capital is flowing into the sector

The increase in investor activity is already evident in the data. More than EUR 18 billion has been invested into aerospace and defence start-ups, demonstrating the strength of investor appetite for defence and security-related innovation.

Long-term spending commitments from the UK, Europe and NATO are providing investors with greater confidence that demand for defence, security and dual-use technologies will remain structurally supported for years to come. As a result, capital is increasingly flowing towards businesses operating at the intersection of defence and technology, particularly across AI, autonomy, robotics, cyber security, advanced sensing and space technologies.

Europe is also developing its own defence technology ecosystem, with London, Paris, Munich and Helsinki emerging as important centres for innovation and investment activity. Dedicated defence and dual-use funds are being launched across the continent to support the next generation of security-focused technologies and strategic capabilities.

Increasingly, investors are analysing defence alongside infrastructure, energy transition and digitalisation: a long-term investment theme underpinned by structural government spending, technological innovation and sustained capital formation.

Defence is no longer simply a sector. It is becoming an asset class.

 

The key challenge: structuring investments correctly

As the market matures, investors and fund sponsors must navigate an increasingly complex regulatory landscape.

Defence-focused funds sit at the intersection of fund formation, ESG considerations, sanctions compliance, export controls, foreign direct investment screening and national security requirements. Successfully structuring these vehicles requires careful consideration of investment restrictions, investor-specific requirements, governance frameworks and regulatory obligations.

Importantly, recent developments across Europe have helped clarify that conventional defence and dual-use investments are not prohibited under sustainable finance frameworks. As a result, the debate has increasingly shifted from whether defence investments should exist to how they should be structured, governed and monitored.

For many investors, the challenge is no longer identifying opportunities. It is understanding how investment restrictions, side letter obligations, export controls, sanctions regimes and ESG considerations can be accommodated within a scalable fund structure.

 

Looking ahead

For fund managers, strategic corporates and institutional investors alike, the opportunity is clear.

Defence, security and dual-use technologies are expected to play an increasingly important role in supporting European resilience, security and strategic autonomy. The combination of sustained government spending commitments, NATO-led investment targets, rapid technological innovation and growing private capital participation is creating a market that appears increasingly institutional, scalable and durable.

The question is no longer whether defence is investable; rather, how to structure defence and dual-use investments in a way that is compliant, scalable, investor-friendly and capable of supporting long-term strategic objectives.

 

How we can help

DLA Piper advises sponsors, institutional investors, strategic corporates and asset managers across the defence and dual-use ecosystem on fund formation, fundraising, strategic investments and regulatory considerations.

Whether you are considering launching a defence-focused fund, investing in an existing strategy, exploring opportunities in the dual-use technology market or assessing the implications of evolving regulatory and ESG frameworks, our team would be delighted to discuss your objectives and share our market insights.

Please contact Sam Whittaker, Partner, Investment Management & Funds or another member of the DLA Piper Investment Management & Funds team if you wish to discuss your defence-related investments.