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Democrats Question Pentagon on Promoting Private-Equity in Defense Contracts

"Private equity funds are not required to disclose investors or the source of their capital, and may be influenced by foreign investors from nations that are adversarial to the United States or misaligned with our national interests, even as they gain access to sensitive and classified information when they acquire or control defense contractors."
Legislators' Letter to Defense Secretary
"Private equity funds are not required to disclose investors or the source of their capital, and may be influenced by foreign investors from nations that are adversarial to the United States or misaligned with our national interests, even as they gain access to sensitive and classified information when they acquire or control defense contractors."
Legislators' Letter to Defense Secretary

Democratic legislators questioned the Secretary of Defense on promoting private equity investment in defense contracting and asked about reported plans to create an "Economic Defense Unit" to interact with private-equity firms.

In a letter to Defense Secretary Pete Hegseth, Senator Elizabeth Warren, Senator Richard Blumenthal and Representative Ro Khanna asserted that private equity involvement in the defense industry poses significant risks to national security and to taxpayers. They cited research that shows (i) that private equity-backed defense contractors are more likely to go bankrupt than their peers, (ii) that takeovers frequently result in credit downgrades, and (iii) that consolidation can reduce supply-chain resilience and competition. They referenced the Pentagon's own 2022 "State of Competition" report, which warned that consolidations reduced required capability and capacity and "would have serious consequences for national security." 

The legislators also highlighted a 2025 settlement in which a defense contractor and a private-equity firm agreed to pay $1.75 million to the Justice Department over allegations that they failed to comply with Defense Department's cybersecurity requirements and that they provided sensitive defense information to a foreign software company. The legislators also referenced public reporting that the Defense Department was establishing an "Economic Defense Unit" that would "service private-equity firms and pitch deals critical to national security, provide advice, and arrange loans." According to the reporting, the unit would work to execute approximately $200 billion in defense deals. Further, the legislators noted media allegations that Deputy Defense Secretary has "surrounded himself with advisors linked to private equity firms," and that the Department's new technology chief, was "turning the Pentagon into a venture capital firm."

The legislators requested answers to their questions and document requests by June 10.

Primary Sources

  1. Letter to Hegseth re PE

Tags

Individuals
Elizabeth A. Warren
Regulated Entities
Investment Funds (SEC Exempt) Regulatory Agencies
Body of Law
Commerce
Jurisdiction
US - Federal
Organization
US Congress