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Article by Natália Vieira, Events & Communications Officer at LPEA, as published in Insight/Out magazine #34.
In a sharp change from historical caution, Europe is ramping up defence spending—and Luxembourg’s private market players are positioning themselves at the heart of this transformation.
As geopolitical tensions rise and the EU embraces a new strategic autonomy doctrine, the traditionally under-financed European defence sector is becoming fertile ground for investment. Luxembourg, known for its fund structuring expertise and agile regulation, is emerging as a prime hub for asset managers and venture capitalists exploring defence and dual-use technologies.
The EU is backing this shift with significant financial firepower. The European Defence Fund (EDF) has earmarked over €1 billion for collaborative R&D in 2025, while instruments like The European Defence Industry Reinforcement through common Procurement Act (EDIRPA) and The Act in Support of Ammunition Production (ASAP) reinforce industrial capabilities and cross-border procurement—vital for scaling start-ups and established suppliers alike.
Furthermore, EDIRPA, which promotes joint procurement by EU Member States, could significantly ease market entry for new suppliers—offering investors the prospect of more stable and predictable revenue streams.
Meanwhile, the Defence Equity Facility—launched by the European Investment Fund (EIF) with €175 million in InvestEU capital—is actively committing to VC and PE funds with a defence or dual-use thesis. The target: €500 million in mobilized capital by 2027.
From satellites to cybersecurity, and from battlefield AI to secure communications, the focus is broad. Generalist funds are also being encouraged to carve out partial defence strategies, boosting flexibility for asset managers.
Luxembourg’s financial industry is already responding. Several local funds have started including defence allocations, while others explore launching dedicated vehicles. Following the domiciliation of the €1 billion NATO Innovation Fund in Luxembourg in 2023 and the growing ecosystem of deeptech start-ups, the Grand Duchy is becoming a magnet for institutional defence capital.
Looking Ahead: Forecast for 2027 and Beyond
By 2027, defence will no longer be a niche thematic strategy. Europe is poised to institutionalize it across capital markets, with Luxembourg serving as both a structuring hub and thought leader.
We anticipate a rise in specialised Luxembourg-domiciled defence funds—both VC and PE—with increased backing from EIF, NATO-aligned LPs, and sovereign investors.
This is not just a trend. It’s a structural shift. Defence is becoming a critical pillar of Europe’s industrial policy—and private capital will be essential to its success.
