Blain’s Morning Porridge 30th, April 2026 – Defence: too complex, too difficult, which is why you must invest!
“If you want to value the price of freedom and defence – take a look at the failed Soviet economies.”
Defence is among the most difficult areas to invest. Who would become an analyst after 30-years as a Cinderella sector in the wake of ESG and peace dividends? Now, the imperative for new defence investment is crying out for private capital. That puts a clear premium on knowledge, contacts and skill to invest. Here is a solution.
Regular readers of the Morning Porridge will be aware that a large part of my “day-job” focus is on the defence sector. This morning I will be part-talking my own book – I am senior advisor to the Defence Fund, Spitfire Strategic Capital.
Security is the single most important function of government. Defence is a critical part of the economy in terms of multipliers and innovation. Yet the sector is widely misunderstood by politicians and under-analysed by the investment community. Politicians box-tick security spending as if it’s a choice rather than necessity. Many major funds simply don’t invest in defence – full-stop. Other’s dip cautious toes in the water, thinking a small allocation to BAE or Rheinmetall will make the war-risks to the global economy go away.
Time to wake up and smell the coffee. The world has changed.
Conflicts happen because states perceive weakness and see the opportunity for a win. Trump spun the dice on Venezuela and won. He doubled down seeing an easy play in Iran. Bad roll. Now the war is a Stalemate, with oil touching record levels this morning. The economic consequences will likely cost Trump the November mid-terms, leaving him lame-ducked and very, very angry – raising additional US political polarisation risks.
Let me blunt about the consequences of War.
If the current hegemonic struggle between the US and China escalate into a kinetic Global Conflict, it will destroy current investment assumptions, taking down trade and supply chains, making hopes, like AI driven growth pipedreams unfeasible, while unleashing all kinds of monetary cataclysm upon investment markets.
If you want to hedge against it and avoid it, then strategic deterrence and the art of demonstrating willingness and ability to fight is critical. That means ensuring it doesn’t happen through intent and re-armament. Forcing nations to Jaw, Jawrather than War, War, is the best option. (Another is to buy a bunker on NZed’s South Island.) The bottom line is there is a massive private investment opportunity with the upside of strong returns and hedging against economic destruction – what’s not to like?
However, Defence Investment isn’t helped by the process being a political swamp.
Defence procurement is the least efficient part of bloated state bureaucracies characterised by cost escalations and poor project management which tip into dramatic overspends and delayed deliveries. For decades nations like the UK have spent billions inefficiently – failing to improve military capabilities while allowing defence to become a peacetime political football with an easy to slash budget to favour “critical” welfare options (like gender reassignment programmes (!!)
As a result, many investors think defence investment is an inefficient Giffen sector – where companies (the defence primes) compete to sell goods and services to the single monopoly buyer – defence departments. (It’s not… the primes are experts in gold-platting and being overpaid.)
Security is not an option. It’s a national requirement. The threat board is immense, ranging from subsea infrastructure, hacking vulnerabilities, satellites and space, air, sea and land defence. You name it and someone will be looking to exploit the opportunity. Which means there are many holes to be plugged with effective solutions.
Here in the UK the government is still a dither about defence spending plans. There is said to be a £28 billion hole in the defence budget that’s holding up the publication of the long-delayed Defence Investment Plan. As a result, vital decisions are delayed as politicians hope against hope an outbreak of peace in Ukraine and Iran might relieve some of the immediate pressure to rebuild capabilities and recruitment. It’s another major failure of the Starmer Government – failing to take critical decisions on national security.
In Gung-Ho Trumpian DC, anyone watching US Defence Secretary Pete Hegseth in full rabid attack-dog mode y’day was like a snuff-movie where the victim was democratic accountability. Hegseth (former junior officer, crusader-tattooed, and ex-news-host) proved his singular lack of qualifications for, perhaps, the most important job in the Western Hemisphere: convincing US lawmakers the massive $1 trillion US defence budget is well-spent and effective. (Clue: the definition of the best defence is one that never has to be used.)
Hegseth was there to justify Trump’s plan to increase the budget to $1.5 trillion. How did he do that? By attacking each and every question asked by the lawmakers on the stalemated Iran war as treason, and lashing out at them as “reckless, feckless and defeatist” – and that was before any of them had asked a question. Probability markets are pricing Hegseth being exited from the Pentagon at 44% by the end of the year.
Through the noise and bluster it emerged the US has spent $25 bln on the war thus far. We think that is a substantial underestimate based on how munitions have been run down, assets lost (including a $700 mm E-3 Intel plane), and general costs. But, for $25 bln the Iranians are “weaker and less credible”, according to General Dan Craine. Hegseth defined the war as being about denying the Iranians the ability to develop nuclear weapons. OK – no one disagrees that’s a bad thing, but how? Expending the bulk of US war stocks to fight a war without clear objectives, while neglecting Ukraine and leaving the Taiwan strait open on Taiwan?
Given the volatile state of the world today, geopolitical brinksmanship, rising conflict risks, and how quickly the battlespace is changing in terms of the demand for autonomous warfare systems, and understanding conflict consequences, it should be a boom time for defence investment.
The reality is it’s a sector that’s been ignored for over 30 years as a result of peace-dividends and the ESG (Environmental, Social and Governance) agenda. Many funds still believe spending money on defence would be an offence in the eyes of the ESG pantheon. They don’t see the enormous value in war fighting assets that are never used. Fund managers still think investments in war-stocks, weaponry, systems or defence logistics are immoral and have to be stopped. A new sector called “dual-use technology” of innovative tech that is primarily defence driven is dressed up in potential civilian applications to make it investible by non-defence funds is one response.
Knowing how to invest in defence is proving problematic for many institutional investors. Because defence was a no-go-zone, they simply don’t have the inhouse expertise or experience to understand the complexity of the defence environment or ecosystem. There are few investment professionals who understand the economics of defence and the pace of battlespace evolution we’re seeing in Ukraine and now Iran.
The Ukrainians have proved incredibly resilient and adaptive – developing new forms of land, sea and air autonomous attack weapons. Across the Western Alliance the lessons being learnt by Ukraine are being shared and addressed at all military levels. My colleagues in Spitfire have seen that first-hand.
Around the world militaries are moving to new swift acquisition systems based on Ukraine’s Brave1. It’s a digital marketplace where troops effectively order the weapons they need on an online market where price, effectiveness and delivery times can be seen and tested.
Last month the Pentagon launched its own UAS marketplace (unmanned aircraft system) (built by Amazon!) which allows US Army units to buy drones direct, as they compare price, range, payload, speed and reviews in terms of other war fighters’ ratings and comments. The key consideration is speed of delivery from vendor to front-line. The new Defence Autonomous Warfare Group (DAWG) has seen its budget rise from $225 mm to $55 bln in the new 2027 budget! That’s to build US capability in attack-drones, drone-swarms, uncrewed vessels and other platforms to make fast, deploy quickly and make them “attritable” (replaced easily)!
Here in the UK, it’s the usual muddle thru. British troops are adapting and making do as they wait for the government to actually make spending decisions. I was recently being shown a display of drone weaponry by a Company Sergeant Major of a famous UK regiment. I looked and asked if that was a commercial drone with a mortar-round cable-tied to it… “that sir, is exactly what it is. Simple and it works.” He went on to describe how every soldier in the regiment is now drone trained and how operating them has become a competitive aspect of inter-squad rivalry. (The most valuable players in the Ukraine conflict are the drone teams.) Tank regiments are now fielding specialist units in every squadron (but have been them Bulldog AFVs (refurb FV432s, some of which are older than me) to fight from!)
The drone space is constantly evolving. Recently fibre-optic cable flown drones have enabled Russian units to stop Ukraine EWS (Electronic Warfare Specialists) from hacking and taking control of their drones. Last week, Hezbollah used them against Israeli forces in Lebanon.
Acquiring the knowledge, the contacts and the insights to successfully invest in Defence is the big problem that is keeping funds nervous of the defence sector.
This is where Spitfire provides a solution. We have the knowledge, the contacts and the insights.
The Ukrainians have formed a Military Expert Council called ARES (“Allied Reform and Expert Support”) as an advisory body to the Ukraine Command. It’s headed by the UK’s General Richard Shirreff – he is one of four Advisory Board members of Spitfire who are on ARES. Combined with Spitfire’s technical expertise team on the ground, no other investment firm has that degree of insight into the What, Why, Where, When and How of the modern battlespace. Combined with Spitfire’s technical advisory teams, that expertise gives the fund unparallelled insights into battlespace developments and how to speed up deployment. Invest in Spitfire and invest in that knowledge.
Equally critical is being connected into the manufacturing and logistics side to ensure the swift delivery and deployment of new systems – another specialisation that Spitfire has created.
The future of defence investment will always involve the big picture programmes like a new plane, ship or tank, but the reality is it’s what’s deployable now and its effectiveness that will act as the deterrent or stop enemies from successfully attacking. The cycle time for new kit in Ukraine is now measured in weeks – not years.
If any Institutional Investors reading the Morning Porridge would like to learn more, I will be putting a lunch together in late May to talk it all through. Please DM me for more details.
Out of time, and back to the day job…
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Please don’t forget about my new book, The Battle For Hamble. It’s a proper grown-up examination of how bureaucracy has failed: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It explains how a wholly unnecessary Gravel Quarry will be dug in middle of a prosperous village – putting 6000 jobs at risk. The truth is no one wants gravel, and the quarry company understands it’s not what you dig out, but what you stuff back into a hole in the ground that matters. Gravel sells for £30 a tonne – Landfill earns £150 a tonne to bury. Go figure.
