Questions are mounting about a new Pentagon plan to funnel government loans, potentially worth billions of dollars, through private investment fund managers to companies promising to deliver the critical materials needed for missiles, aircraft and other advanced military technology.
The proposal, known as the National Security Fund Finance program, or NSFF, is part of the Trump administration’s aggressive push to transform America’s defense and critical minerals industries. That effort aims to close significant production gaps with China, which dominates the world in processing rare earth elements and other key materials.
But the NSFF’s core tenet — introducing private investment funds into the middle of the traditional Pentagon-to-company loan process — is fueling concern in defense and national security circles. It’s unclear how the Defense Department will ensure the plan doesn’t inadvertently lead to lost taxpayer money or profiteering by private investors capitalizing on the administration’s defense investment push.
Some analysts say those investors have fundamentally different interests than the U.S. military.
“They are looking to make an attractive financial transaction. They are not necessarily primarily motivated, in terms of financial incentives, to create a successful business and fulfill these production promises that DoD is making,” said Julia Gledhill, a research analyst for the Stimson Center’s National Security Reform Program. Ms. Gledhill closely tracks the Department of Defense’s equity investments, loans and other financial moves to overhaul the country’s defense industrial base.
“There’s a very high risk [of the NSFF program] using public funds for private gain,” she said in an interview Tuesday. “Taxpayers deserve more transparency and accountability if they are helping foot the bill for investments in companies about which they know very little.”
The introduction of the NSFF program comes as the Pentagon’s defense and critical materials investment strategy has reached a dizzying pace. That effort has taken on increased urgency amid the nation’s declining stockpile of key munitions such as missile interceptors and because the defense industrial base cannot refill those stockpiles quickly enough.
The Defense Department has taken direct financial stakes in at least five companies that produce critical components for munitions and other war fighting tools. The latest is an $85 million investment in a bauxite mine in Guyana. Bauxite is a key component in producing military-grade steel and aluminum.
The Trump administration as a whole, through the Commerce Department and other agencies, has taken ownership stakes in more than 20 companies, many involved in the mining and processing of rare earth elements and other critical materials, according to a tally compiled by the libertarian Cato Institute.
Separately, the Pentagon is doling out billions of dollars in conditional loans to companies in those same arenas. This month, for example, the Pentagon’s Office of Strategic Capital announced a $1.4 billion conditional loan commitment to Sila Nanotechnologies Inc., a manufacturer of advanced battery materials.
Much of that money comes from President Trump’s “One Big Beautiful Bill,” which authorized up to $100 billion in direct loans, loan guarantees and other forms of financial backing for companies delivering critical materials.
Analysts say the investment approach is virtually unprecedented.
“The pace they’re going at is a pace I’ve never seen,” said Jerry McGinn, director of the Center for the Industrial Base at the Center for Strategic and International Studies, in an interview.
Following the money
The Pentagon’s industrial investment push has centered on the government taking its own financial stake in a company or directly giving loans or other backing to a firm.
The NSFF program appears different because the Pentagon plans instead to give the loans to qualified private investment funds.
It seems to be an example of the “crowding-in” approach to capital, where government investment helps drive more private money toward a given sector, usually with a specific policy goal in mind.
In this case, that policy goal is expanding America’s ability to produce its own critical materials for war fighting capabilities.
The Pentagon in a press release last month said the program — to be operated out of the Office of Strategic Capital — aims “to provide capital support to credit funds addressing shortages, gaps and vulnerabilities in critical minerals vital to United States national security.”
The investment funds, the Pentagon said, will use those government loans in conjunction with separate pools of private capital “to invest in portfolio companies focused on addressing U.S. national security shortages related to critical minerals and materials.”
Top Pentagon officials acknowledge they are taking unorthodox steps to overhaul the defense industrial base.
“OSC is taking decisive action to restore our domestic critical minerals supply chain, revive our industrial base, and rebuild our military to achieve President Trump’s goal of peace through strength,” said OSC Director David A. Lorch in the July 14 statement.
A Defense Department official told The Washington Times on Tuesday that OSC has not started receiving applications for the program.
The Pentagon did not address other specific questions The Times posed about the NSFF program, including:
• Whether there is a cap on how much money could be loaned to investment fund managers.
• If the Pentagon will require any type of pre-notice from those fund managers before government money is directed to a specific company.
• Whether company-level investment data be made public, or provided to Congress, including in cases where a fund-backed investment fails.
• And what mechanisms are in place to prevent conflicts of interest in the NSFF process.
That final point could fuel more questions because of administration officials’ links to private capital.
Deputy Defense Secretary Steve Feinberg, for example, founded Cerberus Capital Management in 1992 and led the global investment firm for three decades. There is no indication that the firm might be a part of the NSFF or that its theoretical participation would represent an ethical or legal issue.
But there are other examples that critics may seize on. In November, OSC announced a $620 million conditional loan commitment to Vulcan Elements, a North Carolina-based company that produces rare earth magnets. That company has received financial investments from 1789 Capital, an investment firm with ties to Donald Trump Jr., according to a ProPublica report.
The Trump administration has vehemently denied that any favoritism was at play with the Vulcan deal. Pentagon officials said it is a financial investment in the domestic production of magnets used in chip manufacturing, drones, electric vehicles, fighter jets, industrial motors, nuclear submarines and satellites.
Defenders of the administration’s approach also argue that even if private capital firms or companies have links to current government officials, those entities may still represent the best financial investments to help America achieve its national security aims.
But analysts say it’s crystal clear what the trend line is.
“What I see is the DoD introducing more and more mechanisms to funnel public capital to private entities supposedly for the public’s benefit,” said Ms. Gledhill, the Stimson Center analyst.
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