Data centres. Are they infrastructure? Are they real estate? And does it really matter who’s investing in them?
In a way, you could politely argue these are all interesting, if slightly academic, questions. After all, data centres are attracting investment from almost everyone in private markets. Certainly from real estate and infrastructure investors, with some private equity ones in the mix too.
The more engaging question, perhaps, is what are the key skills needed to invest in data centres going forward, as generative artificial intelligence supercharges their development?
When you frame it like that, one crucial requirement appears to be emerging above all: the ability to source clean power.
In a presentation last year on the early impacts of generative AI, specialist manager DigitalBridge outlined what’s coming in clear terms: “The new specialised AI chips and GPUs consume 2-3x the power of prior generations. There is going to be higher power density on a per rack basis with each rack filled with power-hungry GPUs drawing 40 or more kW compared to traditional data centre racks drawing 10kW or less.”
This power hunger matters when you consider the scale of the generative AI opportunity. DigitalBridge again offered some guidance on what to expect: “With the speed of adoption of generative AI being the fastest on record, we believe the generative AI opportunity is going to be at least as big as the cloud market today over the next five-10 years. We describe generative AI as a cloud-scale opportunity and one that’s frankly just in the first inning.”
There’s growing evidence that LPs are aware of the scale of the data centre investment opportunity, and are increasingly thinking about it in clean power terms.
Late last year, Australian superannuation fund Rest committed A$1 billion ($656 million; €601 million) to Quinbrook Infrastructure Partners, with exposure to green data centre investments a “key part” of the rationale behind its commitment.
“In a world increasingly reliant on data, and through the global growth in cloud-based technologies and AI, data centres have become big business, and demand for this critical infrastructure is expected to accelerate,” Rest chief investment officer Andrew Lill explained at the time.
“Repositories for the storage, management and dissemination of data require significant investments and huge amounts of energy. Maximising their energy efficiency and minimising their environmental impact through our commitment to Quinbrook is just one way we believe we can contribute to strong long-term financial benefits for Rest members, while supporting our objective to achieve a net-zero carbon footprint for the fund by 2050,” he added.
Quinbrook, of course, is a well-known energy transition manager that has been increasingly expanding into the digital infrastructure space. It scored a significant coup in the summer of 2022 when it launched its Supernode project, a A$2.5 billion ($1.68 billion; €1.54 billion), 800MW green data storage project in the Australian state of Queensland, which includes one of the largest batteries in the Australian National Electricity Market.
“Data centre operators are now prioritising renewables as part of their commitments to net zero, especially for new-build data centre infrastructure,” Quinbrook co-founder David Scaysbrook told us, following the announcement. “The growth in storage, particularly with 5G streaming, is going through the roof, and the number-one operating cost for data centres is power.”
The direction of travel is clear, then: data centres are a power play now. You can argue that’s been the case for quite some time, but generative AI is lighting a fire under that notion, marking an inflection point for the sector.
So, if you’re an LP eyeing exposure to this burgeoning market, ask yourself this: can your manager source clean power, and lots of it?
We certainly know which asset class tends to excel at that.