JPMorgan’s $5 billion bet on American security; the Castelion and Hadrien startups

JPMorgan Chase has made $5 billion in seed investments in the first year of its U.S. Security and Resilience Initiative, the company said Monday, a faster-than-expected pace that indicates the bank is finding plenty of opportunity in emerging defense, manufacturing and supply chain companies.

The bank, which announced last year that it would deploy $10 billion to startups over a decade, could expand the program beyond that initial amount, JPMorgan co-chairman Doug Petno told CNBC in an interview.

Todd Combs, the former Berkshire Hathaway The executive who heads the JPMorgan group in charge of investing in startups has “taken over,” Petno said. “He’s done a great job and put us in some really interesting companies,” he added.

Most of these investments have not yet been disclosed, but two known issues seem emblematic of the project’s mission to support necessary businesses in a more dangerous and chaotic geopolitical era. JPMorgan, the largest U.S. bank by assets, has taken direct stakes in defense-related startups Hadrian and Castelion.

Wars in Ukraine and the Middle East, as well as trade disputes with China, have threatened the flow of energy and key components needed for U.S. industries and defense, prompting JPMorgan CEO Jamie Dimon to create the initiative a year ago.

He put Petno, widely seen as one of two main possible successors, in charge of the entire investment project. Combs, a former member of the bank’s board of directors, reports directly to Dimon.

The scope of the project extends beyond supply chain, defense and manufacturing to include advanced technology and the pharmaceutical and health technology industries.

“A lot of really interesting companies have been working to solve some of these problems,” Petno said.

These “advanced, early-stage manufacturing companies have found ways to develop these capabilities in the United States” rather than relying on foreign business partners, he said.

In August, the bank helped raise $1.4 billion in Hadrian, which is building automated factories making parts for the defense, aerospace and maritime sectors. A California factory run by Hadrian has 10 robots for every human employee, according to the startup founder.

That month, JPMorgan also participated in a billion-dollar funding round for Castelion, whose flagship product is a relatively inexpensive hypersonic missile called Blackbeard. Castelion was founded in late 2022 by a group of former SpaceX engineers.

“Our approach is to find generational companies and partner with them for the long term,” Combs said in a statement Monday.

“Investing more than $5 billion in our first year shows how many exceptional companies are being created in sectors that strengthen critical supply chains,” Combs said.

JPMorgan’s direct investment of billions of dollars into fledgling companies is a departure from its usual role as lender and advisor.

Before the defense initiative, the bank had shied away from taking stakes in startups, which could be relatively risky bets on unproven technologies. JPMorgan established its private equity business, One Equity Partners, more than a decade ago.

In its more traditional role, JPMorgan has also financed and facilitated more than $230 billion for industries that support U.S. national interests, according to the bank.

This part of its security and resilience project, expected to reach $1.5 trillion over 10 years, is led by Jay Horine, a former co-head of the investment bank.

JPMorgan has assembled a team of about three dozen bankers for the project, who are aided by hundreds more within the firm as it expands the initiative across Europe and Canada.

Its bankers are mapping the distribution lines of key products, from submarines and missiles to aircraft, to identify suppliers that might lack the capital or capacity to meet growing demand, according to Petno.

JPMorgan is also in regular communication with the U.S. Department of Defense and the Department of Commerce about the government’s needs, he said.