Private equity firms profit from Israel’s war on Gaza

As the Israel Defense Forces (IDF) uses bombs, fighter jets, and other military equipment in its attack on Gaza, share prices of publicly-traded weapons manufacturers have soared. Private equity-owned defense contractors will likely also profit from a prolonged war on Gaza, which has left more than 18,500 Palestinians (likely a low estimate as the Gaza Health Ministry struggles to keep up with the deaths) and nearly 1,200 Israelis dead. President Biden faces mounting criticism as he has continued to sell weapons to Israel without conditions, bypassing Congressional approval. The United States has repeatedly rejected calls for a ceasefire – in early December, the U.S. singlehandedly vetoed a United Nations Security Council resolution backed by 90 other countries.

The pace of death in Gaza exceeds that of most other current and recent military campaigns, with the New York Times reporting in November 2023 that in less than two months, “More than twice as many women and children have already been reported killed in Gaza than have been confirmed killed in Ukraine, according to United Nations figures, after almost two years of Russian attacks.” A former US senior intelligence analyst asserted that Israel’s bombing campaign has no 21st century comparison – that to find a comparable scale of destruction we would “have to go back to Vietnam, or the Second World War.”

The IDF has used the deaths and hostages from October 7 to justify months of attacking refugee camps, journalists and their families, hospitals, and places of worship in Gaza. The Israeli military has also struck Gaza’s oldest mosque and increased arrests of Palestinians in the West Bank, which is not under the control of Hamas, the group responsible for the October 7 attack. The United Nations repeatedly deemed Israel’s occupation of Palestine and blockade on Gaza illegal.

Israeli military practices since October 7 have displaced more than 1 million people. Scholars of genocide and ethnic cleansing have warned the world that Israel’s atrocities must be stopped with an immediate ceasefire. While nearly 70 Members of Congress have called for a permanent ceasefire and a movement grows to end what Palestinians and Amnesty International have identified as Israeli apartheid, private equity-owned defense contractors continue to profit.

Private equity firms like Veritas Capital and the Carlyle Group have long invested in defense contractors, with the General Dynamics’ 2006 purchase of PE-owned Anteon International as an example of the potential for high returns. In recent years, private equity firms have increased their investments in aerospace, defense, and government (ADG) industry – a 2022 report found that “private equity has become a driving force in the ADG market after years of persistent growth and now accounts for 47 percent of transactions and 41 percent of deal value.”

U.S. Firms
AM General, acquired by KPS Capital Partners in 2021, produces the High Mobility Multipurpose Wheeled Vehicle (Humvee) in Mishawaka, Indiana. The IDF has more than 2,000 Humvees, often fitted with weapons like machine guns. Humvees were first used in combat in the US invasion of Panama in 1989 and also served as the basis for the civilian Hummer.

Arotech Corporation, headquartered in Delaware with a manufacturing facility in Israel, began developing the David Urban Light Armored Vehicle (ULAV) for the IDF in 2006. In October 2023, The US Department of Defense delivered more than $20 million worth of David vehicles to Israel which were “intended to replace vehicles within the Israel Defense Forces (IDF) damaged during the war.” Greenbriar Equity Group acquired Arotech in 2019.

While AM General and Arotech produce vehicles, companies also produce smaller parts that advance IDF tactics. In addition to the David, Arotech has provided batteries and charging systems to Israeli forces. Technologies from Cobham and Ultra Electronics, bothowned by Blackstone and Advent International, are embedded in Lockheed Martin F-35 jets used by the IDF.

Israeli Firms
Israeli private equity firms FIMI Opportunity Funds and Kedma Capital both own companies that provide tools and services to the IDF. Ashot Ashkelon, acquired by FIMI Opportunity Funds from Elbit System in 2022, manufactures parts for the IDF’s Merkava tank, which is now in its 5th generation. Ashot Ashkelon assisted the IDF in developing the newest tanks to increase technological capabilities “in Gaza, usually in urban environments.” The IDF has been using the Merkava since 1982, and the Israeli Ministry of Defense has placed orders for more assemblies and spare parts for the tanks from Ashot Ashkelon as recently as September 2023. Before investing in Ashot Ashkelon, FIMI acquired 50 percent of BIRD Aerosystems in July 2018. BIRD Aerosystems technology “provides hemispheric detection of threats and provides target data for passive or active countermeasures” on IDF vehicles.

Kedma Capital acquired 70% of Brand Industries Group in 2008, including the company’s subsidiary Carmor. Carmor was founded as Hatehof in 1947, just before the State of Israel was established in 1948, displacing more than 700,000 Palestinians in what is known as the Nakba (some have referred to the current military campaign as a second Nakba). Carmor produced equipment for 1947 militias and, eventually, the IDF once it was established in 1948, and continues to supply the IDF with vehicles today, including the Wolf Armored Vehicle and the Mantis all-terrain combat vehicle.

While Kedma Capital is a relatively small private equity firm with primarily Israeli investors, FIMI Opportunity Funds manages $7 billion in assets and has multiple US public pension fund investors according to Pitchbook.

G4S is one of the most well-known private equity-owned defense contractors, though the company also operates prisons in the United Kingdom, Australia, New Zealand, and South Africa; offers private security operations, and provides patient transport and sexual assault support services in the UK. The company operated and owned the Israeli National Police Academy and provided services for Israeli military checkpoints in the West Bank and Gaza. G4S was acquired by Warburg Pincus-owned Allied Universal in 2021. In June 2023, G4S announced it would divest from Israel by selling its remaining assets there after more than a decade of pressure from activists in the Palestinian Boycott, Divest, and Sanctions (BDS) movement. Other private equity-owned companies can follow G4S’ lead by selling assets that provide services to the Israeli military.

In January, the International Court of Justice ordered Israel to prevent acts of genocide against Palestinians, increase humanitarian aid, and to return to court in a month to demonstrate progress. This ruling potentially implicates other nation states that may risk complicity in genocide by supplying weapons to Israel. According to Chief Strategy and Impact Officer Nadia Daar at Amnesty National, “failure to suspend such arms transfers could mean the U.S. would run afoul of the court’s preliminary measures related to the prevention of genocide.” The Center for Constitutional Rights has already sued President Biden and other officials for failure to prevent genocide.

Private equity firms around the world have a responsibility to ensure that products made by their portfolio companies are not used to violate human rights. Private equity investors and limited partners should demand that their investments are not being used in war crimes against civilians.