A Strategic Investor: Federal Equity Investing Approaches to Advance National Security

Abstract

The U.S. government has begun purchasing equity in private companies as a tool for advancing national security. This approach can be appropriate for a narrowly scoped set of conditions: gaps in the capital markets for investments requiring large volumes of capital, with high levels of risk, for which debt is inappropriate, and the need to govern firms in sensitive industries where existing control mechanisms are insufficiently robust. This complex and powerful form of industrial policy is unfamiliar to most national security professionals. Yet, if government equity activities continue to expand, the acquisition workforce will increasingly encounter these instruments. This paper argues that although equity investing can advance national security, the risks are also acute, and managing those risks will require a major investment in training, governance, and control mechanisms.