Asset owners who want to participate in the dynamic growth of the data centre sector need to take an “asset-class-agnostic” approach to allocating capital to it, the Investment Magazine Fiduciary Investors Symposium has heard.

Earlier this year alternatives manager Blackstone, in collaboration with the Canada Pension Plan Investment Board (CPP Investments), acquired the hyperscale data centre business AirTrunk from Macquarie at an implied enterprise valuation of $24 billion, after Macquarie acquired the business for just $3 billion in 2020.

But despite the global hype around digital infrastructure assets, AirTrunk founder and CEO Robin Khuda told the symposium it’s “not too late” in invest in the data centre thematic. The now Blackstone-owned company has an estimated expansion pipeline valued at some $110 billion and fiduciary investors in Australia and overseas are potentially significant suppliers of that capital.

But while many asset owners concur with the investment opportunity, they continue to grapple with how to characterise these assets: are they real estate, infrastructure, private equity, all of the above or something else altogether?

Chris Tynan, Blackstone’s head of real estate in Australia, said the manager settled the question of what asset class AirTrunk was part of by “deciding not to decide”.

“AirTrunk and QTS [Quality Technology Solutions] before it are actually collaborations between different sleeves, if you like, of capital within Blackstone,” Tynan said.

“So it is real estate, yes. I was the partner in Australia on the ground, leading the transaction; there were partners in our infrastructure business, in the US who were up every single night – we just destroyed them; and we have partners in our private equity business as well.

“So we totally echo [that question of] what is this? Is this infrastructure? Is this real estate? Is this actually an operating asset that looks more akin to private equity? It’s all of those things.”

Blackstone ultimately “decided that it would be a collab, as opposed to trying to put it in a sleeve and decide that it would forever be real estate or infrastructure or what have you”.

Beyond land and shell

Khuda said the business of data centres is expanding to include activities such as power generation to deal with issues like energy security, which can make them even more challenging to categorise.

“You’re building the shell, but that portion – the land and shell component – is probably somewhere between 20 to 30 per cent of our overall investment,” says Khuda, who was born in Bangladesh but migrated to Australia to study at the University of Technology Sydney before founding AirTrunk in 2015.

“Basically our commitment to our customers is we want to offer power, cooling, right temperature, right humidity and physical security.

“You need to make sure you’re building all the infrastructure [and] there is a level of redundancy if, for example, there is an impact on the power grid you know it’s going to interrupt your data centre. So we have backup generators, we have 48 hours’ fuel storage, then we have a contract with someone like Shell, they can come and top it up.”

Khuda said that in Ireland “the data centre operator is building a transmission network”.

“They’re going up in the value chain as well,” he said. “I’m not saying we will do it today, but we might do it one day.”

AirTrunk is working with utility companies to address energy supply and demand issues, particularly as the mix of generation sources changes.

“Once you have so much renewable coming into the grid, it’s unpredictable,” Khuda said.

“If it’s sunny days, it’s great. But if it’s [an overcast] day, your generation is very minimal. How can we deal with those sorts of things?

“Batteries are going to play big part of it. I think that’s super important. Matter of fact, we are planning some of our gigawatt campus with on-site [generation].

“So, I think you’re going to see that utility companies and us, probably will co-locate, and we probably build up enough level of redundancy to support each other.

New generation

Tynan noted that in the US Blackstone has announced “a new generation facility in Pennsylvania and a QTS data centre, sort of as the one package”.

“Sometimes it’s helpful to look at the US and think that it might be three years in the future, and other times it’s obviously not, but that is definitely something that, if you look at the US context, is happening because the consumption and the supply imbalance needs to be sorted out,” he said.

But customers of data centres are under pressure from their own customers to manage their environmental impact, and fiduciary investors who have made their own commitments to decarbonisation are also looking for evidence that data centre operators are considering their impact on the environment.

“[When] you are building these big facilities there would be associated carbon for us and our customer,” Khuda said. He noted that the company was due to release its first sustainability report on the morning of his FIS appearance.

“We’re on track to get to net zero by 2030 so that’s very important, and I think also very important because it’s also important to our customers as well, because our customer wants that, because their end customer [wants] to know what’s your carbon footprint, what you are you are doing [about] that?” he said.

“We have done a 200-megawatt renewable project in Hong Kong. We basically bought out over 50 per cent of renewable in Hong Kong. We’re in the process of buying half a gigawatt renewable.

“Look, a data centre has changed. I probably didn’t have to think about this 10 years ago when I first built but, of course they’re getting a lot of focus. There is a social aspect as well. There is a regulatory aspect as well, and you need to make sure you take ownership and you find the solution.”
The company is also carefully managing its water consumption, which is critical to cooling a data centre facility.

“We’re funding the largest recycling water project in Johor Bahru with the Malaysian government, so we are investing [that] infrastructure so that we don’t take away the drinking water from the communities,” he said.

“It’s not just building these facilities. You need to do all those other things to make sure you are a good corporate citizen.”