The New Era of Defense Investing: Technology, Capital and the Family Office

So intersection of geopolitical movement and, you know, these multi-cycle investment opportunities coming back around.

I know the term gets thrown around a lot.

It's not monolithic.

If a family office principal or professional manager, investment managers listening to this and trying to develop an investment thesis around the space, how would you break down the different sectors, you know, across traditional tech, aerospace, we've referenced SpaceX.

Obviously, drones and autonomous systems, AI, cyber, there's all kinds of different ways to go about this.

How should investors think about the space broad brush?

So I'll give you our philosophy at Scout, which, as Guy said, we invest in a bunch of the same stuff and alongside of each other.

You know, broadly defined AI, autonomy, robotics, cyber, quantum as a sector, space as a sector, and power.

Now, that list has kind of come through these executive orders and these policies that have come out in a rolling basis since 2016 to really identify what these key technological centers are.

So my list comes out of an extrapolation of kind of that.

I'll maybe give a different slice because I don't disagree with anything there.

But I'll also say that as investors, you also have a few ways to attack the market or enter the market, if you will.

Obviously, you can come in to the defense industry via the public markets.

And you can get into the traditional large primes on one side.

And you could enter into what we like to call the neoprimes that have entered into the public markets.

Companies like Palantir, like Air Environment, for example, at a different side.

And so you have that optionality.

In the private markets...

There's a few ways to slice the pie.

Traditionally, I think what you first can split the world into products versus services.

There's been, even over the last 30, 40 years, a very healthy defense system.

an aerospace services industry that is backed by a lot of, and there's some great firms out there, you know, the Arlington Capitals of the world, for example, DC Capital Partners, Veritas.

I mean, you know, you have these like large PE type players and their model historically, not to overly simplify it, but it's been, hey, let's go buy and put together a bunch of services industries, vendors, buy them a six times EBITDA, put a little bit of debt on it, sell it for 12 times EBITDA and make people three to four times their money.

And that industry has printed money over time because those companies have never gone down.

Those contracts have never been reduced.

So intersection of geopolitical movement and, you know, these multi-cycle investment opportunities coming back around.

I know the term gets thrown around a lot.

It's not monolithic.

If a family office principal or professional manager, investment managers listening to this and trying to develop an investment thesis around the space, how would you break down the different sectors, you know, across traditional tech, aerospace, we've referenced SpaceX.

Obviously, drones and autonomous systems, AI, cyber, there's all kinds of different ways to go about this.

How should investors think about the space broad brush?

So I'll give you our philosophy at Scout, which, as Guy said, we invest in a bunch of the same stuff and alongside of each other.

You know, broadly defined AI, autonomy, robotics, cyber, quantum as a sector, space as a sector, and power.

Now, that list has kind of come through these executive orders and these policies that have come out in a rolling basis since 2016 to really identify what these key technological centers are.

So my list comes out of an extrapolation of kind of that.

I'll maybe give a different slice because I don't disagree with anything there.

But I'll also say that as investors, you also have a few ways to attack the market or enter the market, if you will.

Obviously, you can come in to the defense industry via the public markets.

And you can get into the traditional large primes on one side.

And you could enter into what we like to call the neoprimes that have entered into the public markets.

Companies like Palantir, like Air Environment, for example, at a different side.

And so you have that optionality.

In the private markets...

There's a few ways to slice the pie.

Traditionally, I think what you first can split the world into products versus services.

There's been, even over the last 30, 40 years, a very healthy defense system.

an aerospace services industry that is backed by a lot of, and there's some great firms out there, you know, the Arlington Capitals of the world, for example, DC Capital Partners, Veritas.

I mean, you know, you have these like large PE type players and their model historically, not to overly simplify it, but it's been, hey, let's go buy and put together a bunch of services industries, vendors, buy them a six times EBITDA, put a little bit of debt on it, sell it for 12 times EBITDA and make people three to four times their money.

And that industry has printed money over time because those companies have never gone down.

Those contracts have never been reduced.