"We have allowed them to take equity in certain sectors. We have, what I think, is a very robust reporting regime and ethics regime," a congressional staffer with the Senate Armed Services Committee told reporters last week.
Office of Strategic Capital: new explicit authority
The Senate Armed Services Committee’s draft language for the 2027 National Defense Authorization Act would explicitly give the Office of Strategic Capital the authority to take equity stakes in private companies deemed critical to national security. The office already facilitates private investment in critical technologies through loans; the bill would codify equity-taking power and create a "defense equity investment account" in the U.S. Treasury to house those activities.
The staffer said the intent is to "reorganize or rationalize equity at the department by co-locating it with the loan authority at the Office of Strategic Capital" while leaving the Pentagon’s industrial-based fund, IBAS, "as a tool for smaller dollar grants…as it's traditionally been used." That reorganizational push follows a period in which the Pentagon has used existing authorities to acquire more than $1 billion in equity stakes, including a $400 million stake in a rare-earths producer last July and a $1 billion stake in L3Harris’ solid rocket motor business in April.
Key provisions the Senate bill would impose
- Create a defense equity investment account in the Treasury and vest explicit equity power with the Office of Strategic Capital;
- Require congressional notification of both debt and equity investments;
- Mandate the defense secretary to conduct ownership reviews, including "any conflicts of interest before obligating or disbursing any funds for an equity investment;" and
- Prohibit using the Pentagon’s industrial-base fund for equity stakes, reserving IBAS for its traditional role addressing supply chain vulnerabilities and smaller-dollar actions.
Those measures are packaged as oversight and structural guardrails around a tool the Pentagon has already deployed, and the bill text seeks to make limits and processes explicit rather than ad hoc.
Investment limits, caps, and the Economic Defense Unit
The SASC text narrows the scope of allowable direct equity investments to a set of sectors spelled out in the bill: "critical minerals, materials, and chemicals; and batteries." It also places numerical limits on equity positions: any direct equity stake would be limited to 40 percent "of the total amount of all equity investments made to the entity," and individual equity investments would be capped at $500 million.
The bill would create an Economic Defense Unit that must meet quarterly and enforce briefing requirements. Those briefings would include the defense secretary’s "ownership review of all companies in which the Department of Defense holds equity" and a certification that the Pentagon "does not hold, and does not have the option to hold, any seat on the board of directors or any other form of voting representation or control in any entity in which the Department holds equity," according to the bill’s executive summary.
Parallel appropriations action in the House is already moving money toward the same office: the House Appropriations Committee’s defense panel would give the Office of Strategic Capital $2.16 billion in loan authority and $216 million "to carry out the capital assistance program, including loans, loan guarantees, and technical assistance," per legislative language and the committee’s bill summary.
What this means for the Pentagon, Senators on SASC, and L3Harris
- Pentagon: The department already has used authorities to take equity stakes and would gain a clearly defined home for those activities in the Office of Strategic Capital, with new requirements for ownership reviews and certifications before funds are disbursed.
- Senators on the SASC: Committee members framed these provisions as building long-term tools to reshore supply chains and "match the yearslong challenge" of rebuilding domestic capacity, a process the staffer characterized as likely "a decade-plus long project."
- L3Harris: High-profile purchases, like the $1 billion stake in L3Harris’ solid rocket motor business, have already drawn scrutiny; under the SASC text, similar transactions would be subject to the newly specified caps, notifications, and ownership-review requirements.
Where this goes next
The SASC passed its version of the 2027 NDAA earlier this week and the bill will be considered on the Senate floor. Meanwhile, the House Appropriations Committee’s defense panel has moved companion funding language. Together, the provisions represent an effort to keep the Pentagon’s use of equity both targeted — to minerals, materials, chemicals, and batteries — and constrained, through caps, notifications, and a standing Economic Defense Unit that must certify limits on control and board representation.
Lawmakers on the committee say they see value in the tool but differ on how much; the coming floor debate and any conference between House and Senate versions will determine whether the new guardrails, budgets, and institutional arrangements become permanent policy.
