In a sign of the times, investing in defence stocks (weapons manufacturers) is back in vogue.
As reported by Bloomberg, Germany’s sovereign wealth fund is abandoning long-held restrictions on investing in weapons manufacturers as it responds to an increasingly tense geopolitical reality.
This is a reaction to increased Russian aggression towards the West post Moscow’s invasion of Ukraine and to tensions between Donald Trump and European countries over funding for Nato.
Known as Kenfo, the German fund oversees €25.6 billion and will now be free to buy stocks and bonds issued by defence firms, its chief executive Anja Mikus said in an interview.
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The fund had previously been barred from holding liquid assets in companies that generate more than 5 per cent of revenue from defence-related activities.
According to Bloomberg, the move is part of a broad-based recalibration among investors in Europe, with many characterising the need to allocate funds to weapons manufacturers as a “sustainable strategy targeting the defence of democracy”.
“We continue to believe that armaments are not sustainable,” she said. “But they have become necessary due to a changed security situation.” And with Germany now stepping up its defence spending, it wouldn’t be feasible for the country’s sovereign wealth fund to refuse to engage, Mikus said.
Kenfo can now invest in arms manufacturers based in the EU, the UK, Norway and Switzerland.
Given the wars in Ukraine and the Middle East and all that flows from them, investors who had previously viewed exposure to the arms industry as a reputational risk are increasingly dropping long-standing exclusion policies.
What about neutral Ireland, which is set to crank up its annual spend on defence to bolster our national security?
In response to a Dáil question, Minister for Finance Simon Harris said the Ireland Strategic Investment Fund (ISIF) operated a policy that excluded investments in cluster munitions, anti-personnel mines and nuclear weapons.
He said ISIF, which operated under the umbrella of the National Treasury Management Agency (NTMA), published details of individual investments each year in the NTMA’s annual report.
The next list could make for interesting reading.
