Dutch majority supports pension fund investment in defense amid rising global tensions

A large majority of Dutch citizens support their pension funds investing in defense, according to a recent RTL survey. The shift in public opinion marks a significant change, as defense investments were once seen as controversial. Currently, 45 percent of respondents support increased pension fund investments in defense, while another 24 percent are neutral on the matter. Only 19 percent are opposed to such investments.

Despite the growing demand, pension funds face several challenges in making these investments, especially in small and medium-sized enterprises (SMEs) within the defense sector. The larger, publicly traded defense companies have no trouble raising capital on their own, leaving the smaller innovators in need of financial backing. However, pension funds may not be able to offer the support these smaller companies need.

Small and medium-sized defense companies often require millions of euros in capital to scale their production, but this amount is considered too small for pension funds, which typically focus on larger investments. For pension funds, the costs associated with managing small-scale investments often outweigh the potential returns for pensioners.

Eric Uijen, director of the PME pension fund, explained that smaller defense companies pose logistical challenges for pension funds. "If they are smaller businesses, it's a lot of work. That has to be well organized," Uijen told RTL. One potential solution is the creation of a new defense fund, where both the government and private investors, including pension funds, could pool their money.

“We need a vehicle in which pension funds can invest. When money is pooled, the risk is spread out enough that it becomes a good investment,” Uijen explained. The manager of such a fund would determine which companies receive funding, removing the need for pension funds to directly manage the investments.

The call for increased defense funding is more urgent than ever, as tensions around the globe escalate. PME, a large Dutch pension fund, has long invested in defense but is now feeling the pressure of a rapidly changing geopolitical landscape. "We’ve always invested in defense, but the pressure is now very high. The stable world is under pressure," Uijen said.

One company that could reportedly benefit significantly from increased investment is High Eye, a drone manufacturer based in Dordrecht. High Eye specializes in creating drones with combustion engines, which offer long flight times and are ideal for use in defense. These drones can be used for inspection of pipelines, wind turbines, and are especially useful for the military, including the Dutch navy, which faces space constraints aboard ships.

"These drones are perfect for the navy because we don’t need much space on a ship. We can fly for 3 to 4 hours and get a good look at the surroundings or reach a point of interest," Joost de Ruiter, director of High Eye, told RTL.

After ten years of development, High Eye is now ready to begin full-scale production, but the company faces financial hurdles. To move from prototype to mass production, High Eye needs millions of euros to order parts in bulk, with around half of this amount required upfront. "We don’t have those millions," de Ruiter said. Like many SMEs in the defense sector, High Eye relies on payments from customers after delivery, creating a cash flow gap that is difficult to bridge without upfront financing.

A defense investment fund, in which pension funds could participate, would provide the necessary capital. "It would mean everything for us," de Ruiter said. "Many people want companies like ours to grow, but we need that investment to make it happen."

Minister of Finance Eelco Heinen expressed support for pension funds playing a role in defense investment, but noted that the specifics of how such investments would be structured are still unclear. “We want more private capital. So I’m glad that pension funds say they want to invest in this area. But how we shape that is still really too early to say," Heinen said.

One of the easier options for pension funds would reportedly be to invest in defense bonds, which are government-issued loans that fund military and defense projects. However, Heinen cautioned that it may be some time before this becomes a viable option for pension funds.