On the defensive: an update on aerospace and defence fund considerations

On 20 May 2025, the Victorian State Government released the 2025-26 Victorian State Budget, announcing A$11.5 million of investment over four years for the State’s defence and aerospace (A&D) sector,^[1] with a view to growing the industry in alignment with ‘the Commonwealth Government’s strategic defence priorities’.

Of that A$11.5 million commitment, A$3.9 million will be provided to support Victorian businesses to win work in defence and ancillary supply chains, with a focus on trade and investment facilitation, small to medium-sized enterprises (SMEs) capability uplift programs, workforce development initiatives, and supporting industry networks.^[2] A further A$7.6 million will be provided to support the State Government’s wider ‘Victorian Defence Vision’, which contemplates funding for ‘Victoria’s defence and space industry and supply chains to secure major defence contracts through advocacy, advisory and capability development’.^[3] The State Government also wants to provide ‘continued support for the Victorian Defence and Space Network’,^[4] a newly formed network established by the Victorian Government to ‘promote Victorian defence and space industry capabilities’ and ‘connect industry with domestic and global defence and space opportunities’, among other things.

Under the Budget, the State Government also committed A$150 million to establish the Victorian Investment Fund;^[5] a consolidated fund providing support to domestic and international investors with a view to growing Victoria’s ‘priority sectors’, including advanced manufacturing and defence.^[6]

These initiatives follow A&D commitments at the federal level, including the Federal Government increasing the total funding available to SMEs under the Defence Industry Grants Program to A$169.1 million, in an effort to strengthen Australia’s ‘sovereign capability, global competitiveness, technical superiority and national security’.

A previous Corrs article anticipated significant increases in military spending in Australia, in line with the United States and Europe, and highlighted likely opportunities for private investment in the A&D sector. It noted that, while private funds with a defence-focused investment strategy remain a relatively novel concept in the Australian market, Australian fund managers who begin to target A&D as an asset class could benefit from potential Government programs incentivising the flow of private capital into the industry. In this context, the recent Victorian State Budget - alongside the federal defence budget reaching A$100 billion over the next decade - may signify the beginnings of a larger, nation-wide focus on strengthening Australia’s A&D industry as foreshadowed earlier this year. In fact, heightened attention on the A&D industry has already prompted some Australian fund managers to refocus their investment strategy. Beaton Zone Venture Partners (BZVP), a Brisbane-based ‘specialist defence technology’ venture capital firm, recently announced its first capital call following the successful first close of Fund I. The close secured more than A$10 million in commitments, taking BZVP to its final condition for Early Stage Venture Capital Limited Partnership status. BZVP will invest in sovereign early-stage businesses with A&D exposure, seeing an opportunity to capitalise on shifts in global defence budgets and to make high-value equity investments in businesses that are often overlooked by traditional capital. With final close expected within 18 months, BZVP is targeting a total fund size of A$60 million.

Periscope Capital Partners, a specialist defence and national security fund, launched in April 2024 with the goal of supporting Australian SMEs in the A&D sector access private capital, bridging the gap between early-stage funding and capital market support. The private equity fund is aiming to deploy A$1 billion of private capital investment into Australia’s sovereign defence industry over the next 10 years.

This trend is not isolated to Australia, and there is proven interest in A&D-focused funds elsewhere in the world, particularly in Europe. Danish buyout firm CataCap recently announced plans to raise its first A&D-focused fund, targeting €500 million to invest in European SMEs across the A&D sector amid growing institutional appetite for such assets in the region. Additionally, French alternative asset management and investment firm, Tikehau Capital, has launched the Tikehau Defense and Security private equity fund, with an initial commitment of €150 million equally contributed by three major insurers. With phase one set to commence in September 2025, the fund will deploy capital into European companies operating in the A&D and cybersecurity sectors and become available to other institutional investors after one year.

This global momentum underscores that investor appetite for A&D assets is both genuine and accelerating. There are clear opportunities for fund managers in the Australian A&D sector, and it’s no surprise that some are already moving to capitalise on this growing interest.

For further insight into the considerations that will shape the viability and attractiveness of defence-focused private funds to investors in Australia, view our article titled ‘On the defensive: considerations for an Australian aerospace and defence fund’.

^{[1]  Victorian State Budget, Vol. 3, “Service Delivery”, ch 1, pp 8, 61.}

^{[2]  Victorian State Budget, Vol. 3, “Service Delivery”, ch 1, p 13.}

^{[3]  Victorian State Budget, Vol. 3, “Service Delivery”, ch 1, p 64.}

^{[4]  Victorian State Budget, Vol. 3, “Service Delivery”, ch 1, p 64.}

^{[5]  Victorian State Budget, Vol. 3, “Service Delivery”, ch 1, p 61.}

^{[6]  Victorian State Budget, Vol. 3, “Service Delivery”, ch 1, p 67.}