The Canada Pension Plan Investment Board (CPPIB) has invested $350 million with an affiliate of the Keppel conglomerate to buy data centres across the Asia-Pacific region and Europe.
CPPIB, which invests the funds not needed by the Canada Pension Plan to pay current benefits, said in a statement on Friday that it has an option to invest another $150 million.
Data centres house computer systems and telecoms equipment. On a large scale, one facility can use as much electricity as a small town. Early investors have spotted a shortage across Asia at a time when demand is soaring due to cloud, mobile and video streaming.
Vigorous data sovereignty laws are also bolstering demand from corporates and cloud providers for data centre space.
“The continued strong growth in data requirements globally has driven demand for quality data centre space, particularly in the Asia-Pacific region where digital infrastructure is relatively under-developed,” said Jimmy Phua, head of real estate investments Asia at CPPIB.
Investors with a mandate for higher return strategies continue to migrate up the risk curve, both in terms of sectors – pursuing niche strategies such as sub-logistics facilities or data centers – and geographically, with emerging markets drawing increasing attention, according to the Urban Land Institute and PwC.
Asset managers are seeking to put that capital to work. Private equity firm Warburg Pincus said in June that it would back telecoms entrepreneur Rangu Salgame build a platform focusing on data centres in emerging markets and digital media services.
Telecom companies are increasingly divesting non-core assets, which should lead to a number of attractive investment opportunities in data centres and the broader TMT infrastructure sector.
The asset class can make an attractive investment opportunity for investors given that data centres' future cash flows are extremely stable and visible. High entry barriers also mean new entrants to establish themselves.
Existing tenants tend to stay put because of the high costs of switching from one data centre to another and the mission-critical nature of the information being held. Security and stability are the two key requirements for data centre clients and cities that are successful in attracting them tend to enjoy a cluster effect.
Singapore has worked hard to provide a supportive regulatory regime and, partly as a result, the Lion City commands the bulk of South East Asia's data centre business. In recent years it constructed a 13-hectare data centre park.
Just in Singapore, CPPIB sees the asset class’s compound annual growth rates at 6.2% until 2020.
Keppel spun out Asia's first data centre Reit in 2014, to strong demand from investors.
Team work
CPPIB, which is well known for its direct and co-investing capabilities among asset owners, is investing alongside Keppel’s Alpha Data Centre Fund (ADCF), a five-year closed-ended development and value-added investment vehicle.
CPPIB’s latest commitment and option will bring the ADCF’s firepower up to $1 billion, double the fund’s initial target size of $500 million.
When fully leveraged and invested, the fund will potentially have assets under management of approximately $2.3 billion. Its pipeline of deals includes exclusivity on a large scale seed asset and the fund is in advanced negotiations for a pre-commitment with a global technology company.
ADCF was launched in July 2016 by Alpha, the private fund management arm of Keppel Capital, amid strong demand from institutional investors for quality alternative asset classes.
CPPIB plans to tap into Keppel Data Centre’s experience in designing, building and managing data centres for more than a decade. Keppel Data Centres is a 70:30 joint venture between Keppel Telecommunications & Transportation and Keppel Land.
In July, ADCF acquired a 70% stake in the Keppel DC Singapore 4, a carrier-neutral data centre which features 182,000 sq. ft. of gross floor area. In December, ADCF announced its maiden acquisition of a 60% interest in Keppel DC Frankfurt 1 in Germany, a two-storey facility located in close proximity to the city centre and Frankfurt airport.
