WASHINGTON — As part of a new initiative aimed at bolstering national security, JPMorganChase has pledged to invest $10 billion over the next decade in areas like defense and advanced manufacturing — and the financial giant isn’t just going to be looking at venture-backed startups as potential recipients for capital, executives told Breaking Defense.
The planned investments are part of a wider $1.5 trillion effort known as the Security and Resilience Initiative (SRI), which was announced by the world’s largest bank in October.
Days after launch, J.P. Morgan revealed its first investment as part of initiative: a $75 million equity investment in Perpetua Resources, which is aiming to become the first US-based producer of the versatile critical mineral antimony, which has applications in the defense sphere for items like batteries and ammunition.
In a new interview with Breaking Defense, Jay Horine, who leads the Security and Resilience Initiative, and Mark Marengo, who oversees the effort’s aerospace and defense portfolio, detailed the strategy behind the new initiative and some critical focus areas, including a big ticket Pentagon push: nuclear submarine construction.
This Q&A has been edited for length and clarity.
BREAKING DEFENSE: How did the Security and Resiliency Initiative come about, and what are its goals?
JAY HORINE: The reality is J.P. Morgan has been doing this for a long time. We have been supporting America, America’s companies, our entire ecosystem.
[JPMorganChase CEO] Jamie [Dimon] wrote an op-ed piece on Oct. 13, when he announced the formation of the Security and Resiliency Initiative, where he talked about the need to provide America and these companies with an acceleration in response to the understanding that we had of being behind on a variety of — we named four — but a variety of critical areas, in defense, in a number of others.
So we’ve always done this, but we actually formalized it and put forth the $1.5 trillion support of these various industries over a 10-year period, [including] $10 billion of our own money, not third party money, $10 billion of our own money to make investments.
Beyond that $10 billion for investments, how should we think about that $1.5 trillion? Where is that going toward?
HORINE: We’re going to count money that we raise on behalf of companies. We’re going to talk about the value of the advice that we give. It’s going to be a combination of M&A [mergers and acquisitions] support, capital support, as well as our own money to help concentrate and bring about more investment in these critical areas.
What’s the strategy for the defense and aerospace vector? What kinds of technologies are you looking to invest in, and are there any specific Defense Department programs that are underlying that?
MARK MARENGO: I’d point to a couple of different areas. And this isn’t meant to be exhaustive, but these are certainly some of the higher priority ones.
Number one: submarine production. If you think about what is one of the biggest deterrents to China, longer term, and the defense complex that they’re building up, submarines are probably one of the highest priorities.
If you look at the stated goal of the DoW, to take submarine production from two-a-year to three-a-year … we don’t have the infrastructure in place to be able to accommodate that today, and it’s going to require a lot of investment in bricks and mortar. It’s going to require a lot of investment in processes. We need to become more efficient, and it’s going to require a lot of investment in employment and talent and making sure that we have the skills, the welding skills and [other] things necessary, in order to be able to hit that long term target.
As we look at that ecosystem, we think there’s going to be a lot of opportunities within the supply chain because you have hundreds and thousands of smaller suppliers that don’t necessarily have the capital to be able to increase their production by a half. And so we think there’s going to be opportunities to be able to invest alongside them, invest equity in them, to help them expand their industrial footprint so that they can hit those increasing build rates.
Similarly, I’m sure you’ve probably read about some of these war game scenarios that have been published where in a war with China, it’s anticipated that we would basically run out of missiles and some weapons and munitions within a week.
We just don’t have an industrial base and a supply chain that’s capable of ramping up. In many cases, they may need additional capital to be able to make those investments. And so we’re spending time within all of those supply chains to make sure it’s secure, they have adequate capacity and it’s resilient to be able to hit those needs.
I’ve been doing this for roughly 30 years. There are more startup defense companies, VC-backed defense, defense tech companies, than I’ve seen at any point in time over that career. At J.P. Morgan, we have an innovation economy team that spends time with many of these companies, and that are very much aligned with the team that Jay and I work with.
In some cases, we actually lend to these companies. And so I think that gives us better insights than most, to be able to assess … where the investment opportunities are, and we’re spending a lot of time in that regard. I would fully anticipate that when we project forward here, you’re probably going to see some SRI related investments in some of these earlier stage companies.
So is the focus more on newer, venture-backed startups or legacy players in the supply chain?
MARENGO: It’s all of the above, because in some instances where you have, especially in the nuclear submarine side, you’ve got suppliers who have been qualified, right? Those are not easy qualifications to get.
So in some cases, it may not be reasonable to assume that some of the emerging tech companies will be able to, you know, get qualified and put themselves in a position where they can, they can ramp up to hit those, those delivery requirements. But that’s the nice thing about SRI, is that we have the ability to invest whether it’s the early stage upstart company or it’s the more mature supplier that’s been supplying General Dynamics or HII, for decades.
What does the timeline look for your next investment?
HORINE: We’re just talking about defense right now, but across healthcare and natural resources and some of the other areas that we’re focused in, including frontier and strategic technologies, I think we’ve been gratified by the outreach from clients, gratified from the response to our outreach as well. We’ve literally had hundreds of fantastic companies talk to us about their hopes and dreams and what they can do, and that’s also in consultation with people down at Department of War, Department of Commerce, [and] amongst other agencies.
What kinds of conversations are you having with the Pentagon?
MARENGO: I think this is an administration and a DoW that is very receptive to input from the private sector, right? They know we can be part of the solution. They want us to be part of the solution. I think you’re going to see a little bit more of this kind of public private partnership, similar to what you saw in kind of the MP Materials deal, where the government is investing alongside.
We are spending a lot of time down with the DoW. We are trying to find ways in which we can be helpful and provide solutions to various problems. In some cases that may be debt financing, in some cases that may be equity financing, in some cases that need may be in partnership with the government, where they’re looking to provide a capital solution through the different pockets of capital that they have.