The European Investment Fund, in partnership with the European Commission, has invested €30 million through the InvestEU Defence Equity Facility into Sienna Hephaistos, a private credit fund dedicated to financing SMEs in Europe's defense sector.

Sienna Hephaistos is designed to support the European defense supply chain by providing loans for working capital, capital expenditure, external growth, and bridging existing bank financing, targeting 30 to 40 companies across Europe.

The fund aims to bolster regional development, reindustrialization, and national sovereignty by helping companies expand production, build inventories, and facilitate industry consolidation to enhance Europe's strategic autonomy.

Managed by Sienna Investment Managers, the fund held its first closing on September 17, 2025, securing over €270 million and planning to raise between €500 million and €1 billion by the end of 2026.

The European Union views this initiative as crucial for reducing reliance on US defense technology and achieving strategic autonomy, with policies targeting increased intra-EU defense procurement to reach 50% by 2030 and 60% by 2035.

While companies like MBDA can pivot away from US components, recent restrictions on Ukraine highlight ongoing dependencies, emphasizing the need for a more autonomous European defense industry.

European countries are pursuing 'strategic autonomy' in defense, aiming for intra-EU defense trade to reach 35% of the EU defense market value, with plans to increase procurement within the union.

The EU considers this fund vital for addressing sector risks such as long procurement cycles, high customer concentration, and cash flow issues, which traditionally hinder SMEs' access to funding, especially amid geopolitical instability.

The EU's defense industrial strategy, supported by increased defense budgets and debt financing initiatives like this €30 million fund, reflects a move towards greater defense spending and self-reliance to meet long-term military needs.

This strategic investment aligns with broader efforts to strengthen Europe's defense industry, ensuring resilience and independence in a context marked by ongoing conflicts and geopolitical challenges.