Making big deals of defence: Joe Hockey and Ashok Jacob launch 1941 ‘club’
The Australian | November 7, 2021
On Friday Bondi Partners’ Joe Hockey and Ellerston Capital’s Ashok Jacob closed the fund raising for Australia’s first pure private investment play into national security.
“1941” brings together the door-opening power of Hockey, former Australian treasurer and ambassador in Washington with Jacob, one of the country’s savviest investment advisers, and the pair have managed to attract some heavy artillery investors. Shrapnel is still flying from the AUKUS spat between Scott Morrison and French President Emmanuel Macron but the world order has changed. For Hockey and Jacob, opportunity knocks in the AUKUS partnership and the imperative to deal with tensions in the Pacific, heightened by the pandemic.
The backers of 1941 are a group of high-net-worth patriots from the US and Australia looking to put big licks of private capital behind dual-use technology in defence, intelligence, cyber and space, as well as commercial uses.
Hockey and Jacob say they are targeting the best mid-sized businesses in Australia and the US to fund and, in doing so, will put Australian capability on the map to ensure the country keeps its share of defence business.
Hockey says only as ambassador did he fully understand the extraordinary relationship of the US-Australia alliance behind the scenes.
“People have got more of an understanding of that with the announcement of AUKUS, which is much more than submarines. And it’s time that the private sector and investors step up,” he said from Washington.
The name 1941 reflects a watershed year for the alliance. “It was not only the year that Australian prime minister John Curtin turned to the US. It was also the year the US entered into a whole new era after Pearl Harbor.”
Jacob says 1941 is not a fund, but a club. “We don’t want to be thought of as a fund. It’s about bringing together a group of like-minded people who have a vision. National security is a government-induced gale-force tailwind for the next decade and that is the space that we want to be in.”
Bondi Partners has recruited military and intelligence officials who have retired from the public service with a combined 200 years of experience in the US and Australia: former secretary of the navy Richard Spencer, Air Vice-Marshal Gavin Turnbull, Rear Admiral Mark Purcell, Air Vice-Marshal Peter Yates and former diplomat and national security official Mark Watson.
When Bondi Partners approached Jacob, he jumped at the proposal. “We suddenly realised there were businesses all over Australia who were allied to government and doing stuff in the cyber space, security space, in some cases even the intelligence space. We started looking at these businesses and we found it very hard.”
Jacob’s problem was accessing the clients of these businesses, the government and Defence Department. “Nobody, not a single PE firm or growth firm was focused on this. I knew we couldn’t do it by ourselves because we didn’t have the connection we needed with government and with Defence. The rolodex of Bondi Partners, it is peerless” he said.
1941 will not reveal the amount raised so far, but Hockey does share some of the founding investors’ names, about 30 in total, drawn from both sides of the alliance. “The Saltieri family, who have had a profound impact on Australian defence industries over a long period of time; Peter Freedman at RODE, who is now venturing into defence industries; you’ve also got the founders of US investment bank Jefferies that invested from over here, and Ajay Banga, the global chairman of MasterCard, who has put private money in.”
What, then, is the difference between a fund and a club? Jacob says it is a commonality in thinking, as distinct from individual investors lumped together into a fund. “We have bonded together by putting in some money so this club can do two or three or four transactions without having to go to co-investors. If the transaction is large enough, the net worth of this club or the funds behind them runs probably to tens of billions.”
As ambassador in Washington, Joe Hockey was a one-man masterclass in building and leveraging connections. Whether chairing the G20 finance meeting as treasurer or seeking opportunities in Washington, it is always about operating at altitude, going in at the top.
When prime minister Malcolm Turnbull faced a new, unfathomable president in Donald Trump, furious at the deal Barack Obama had agreed to take asylum-seekers from Australia, Hockey turned to his mate, Greg Norman, golfing buddy to almost a third of America’s 46 presidents.
“I knew he’d played golf with Donald Trump” Hockey told Sky News in 2019. “It was a phone call to Greg. I said do you have Donald Trump’s phone numbers? He said try this. I rang Malcolm Turnbull and said ‘give this a shot’ and it worked.”
Perhaps most significant was his work with former US senator John McCain, which gave the Australian defence industry green light access to America’s industrial technology base. “It sent a very clear message to the defence establishment here in the US and it emboldened the intelligence community here to work even closer, knowing that they had overwhelming congressional support,” Hockey said.
Governments are spending more and more on defence, but the private sector too is funding national ambitions, such as Elon Musk and Jeff Bezos in space. Hockey says many SMEs, particularly in Australia, are also part of the supply chain.
The 1941 founders talk with zeal about investing in Australian business. “The Defence Department is going to be spending $50bn a year even before submarines,” said Jacob. “If we are not careful, all this money will be sent off to the US, UK or France. It is a matter of extreme importance that this capital is spent in the Australian economy, which means you are going to see a lot of small businesses spring up and take advantage of these things.”
1941 is looking at a producer of amphibious vehicles.
“They are already over in the US going to the Marines, trying to get their hardware into the Defence Department,” said Jacob. “We want to be the first port of call. It’s a case of identifying half a dozen opportunities over the next couple of years that give us the exposure to this ramped-up defence spend. That money has to stay in Australia and we want to be a part of it.”
Australians have struggled to access big defence contracts and Hockey acknowledges defence has been the domain largely of the American primes. He now sees this changing. “I do, and a number of the primes want it to change. They are very aware that increasingly from time to time there are technology gaps. The US is now challenged by Russia and China. The great strength of the Western world is private enterprise. We want to marry innovation and capital, and no one else in Australia has done that.”
Eighty years on from Pearl Harbor, the Pacific is again in focus. Hockey played a pivotal role in the recent sale of Pacific telco Digicel to Telstra, a deal backed by the Australian government for national security reasons. Hockey advised billionaire seller Dennis O’Brien, who had interest from both the Chinese and the Russians.
Without private sector investment, Hockey says the national security equation for AUKUS or Five Eyes or the Quad will not work. How does he see the bizarre bickering between leaders in Glasgow has been handled? “I’ll leave the handling to the diplomats. But AUKUS has strengthened the fundamental ties between the US, UK and Australia. It has opened doors in defence, intelligence, cyber and space that had previously been closed to Australia. It is beyond Five Eyes, because Five Eyes is focused on intelligence. There will be lots of rhetoric and concern, but the reaction of Mr Macron goes beyond submarines. A lot of people want to be a member of the AUKUS partnership.”
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