Long-term capital keeps bridging the asset-class divide

Recently, we’ve been spending some time analysing whether data centres are best suited to real estate or infrastructure strategies (see here and here). They are, admittedly, the odd man out of the digital infra sector. While you wouldn’t spend much time debating whether a real estate GP should manage a fibre-optic rollout, you could conceivably make a case as to why said GP would be a better fit for certain types of data centres.

The house view? While some data centres can blur the lines between infra and RE, you’re probably best-served with an infra manager, particularly if you want access to the wider digital infra sector (think fibre, towers, 5G). But don’t take our word for it: storied real estate investment firm Colony Capital announced Tuesday that it and subsidiary Digital Colony would rebrand to DigitalBridge, completing a multi-year transformation that sees it re-focus exclusively on “the fast-growing digital infrastructure sector”.

As if to underscore how debatable (and academic) this conversation is, though, Blackstone has just launched the $10 billion privatisation of QTS Realty Trust, a Kansas-based data centre company, using its open-ended Infrastructure Partners fund and BREIT, its unlisted perpetual life real estate investment trust.

Rather than focusing on whether data centres are infra or RE, Blackstone’s QTS Realty deal highlights a more interesting topic: the flexibility of long-term capital, regardless of which asset-class bucket it comes from.

We already drew attention to this last November, when we posited whether long-life private equity was poised to eat infra’s lunch. Funnily enough, Blackstone also figured in that debate. Since then, the New-York mega-manager has shown that, at Blackstone at least, it’s not about eating another asset class’s lunch: it’s about sharing it. Want another example? Signature Aviation, where Blackstone Infrastructure Partners and Blackstone Core Private Equity – its long-life PE vehicle – teamed up with Global Infrastructure Partners and Bill Gates’ Cascade Investments in a $4.7 billion bid to take over the private aviation services firm.

Blackstone is not the only manager mixing different pools of capital, though. Partners Group also matches funds from mandates and blind pool vehicles across asset classes when it suits its needs. KKR too: in 2019, the GP made its $1 billion foray into aircraft leasing using capital from its infra and credit funds (this week, it doubled down on aviation with the $4.5 billion purchase of Signature rival Atlantic Aviation from Macquarie Infrastructure Corporation).

The reality, of course, is that there are several sectors – data centres, aviation, healthcare, theme parks, among others – that are equally well-suited to different types of long-term capital. You could argue this maybe dilutes the asset-class focus of these long-term PE, infra and RE strategies. But what it also does is highlight the benefits (scale, expertise) that come with having access to those long-term, cross-asset class pools of capital.

For those limited firms that can draw on them, it certainly provides a competitive edge. Given the choice, we’re sure Blackstone’s LPs prefer to reap the long-term benefits of owning QTS Realty rather than missing out for the sake of asset-class puritanism.