Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that explores the big ideas and trends moving money across
Speaker 1: the region. I'm John Lee in Hong Kong.
Speaker 2: And I'm Katie Dmitrieva, also in Hong Kong.
Speaker 1: Katya. When investors think of AI, they always think of Nvidia.
Speaker 1: That did you know there was a stock last year
Speaker 1: called Vertive Holdings that went up four times more than
Speaker 1: in Vidia.
Speaker 2: What does the company do?
Speaker 1: They make cooling systems for data centers.
Speaker 3: Cooling systems, so not the data centers themselves, but the
Speaker 3: infrastructure for the data centers. Imagine there's a lot of
Speaker 3: investment opportunity there. You know, I was reading the Moody's
Speaker 3: report recently and in this region in particular, data center
Speaker 3: capacity is set to double just the next four years.
Speaker 3: So you can think about how much opportunity is there.
Speaker 3: And that's actually what we're going to be discussing today.
Speaker 3: We have a guest today, Projesh Banerjee, who's the director
Speaker 3: of Infrastructure at KKR, joining us.
Speaker 2: Hello Projesh, thank you, thanks very much for having me.
Speaker 3: I wanted to ask you, is there a race to
Speaker 3: build data centers right now?
Speaker 2: Across Asia. What does that look like?
Speaker 4: Eris is probably a strong representation. There's certainly enormous demand
Speaker 4: for data centers. There are really two major trends that
Speaker 4: are driving these volumes. One that's been playing out for
Speaker 4: a long time, and that's just the continued migration of
Speaker 4: data to the cloud from on site servers, and this
Speaker 4: trend has been a key driver of DC capacity growth
Speaker 4: over the last few years. Globally. ISSHA is playing catch
Speaker 4: up on this front as well. And the new trend,
Speaker 4: of course is AI and I'd say we're probably seeing
Speaker 4: this a little more in the West, in North America
Speaker 4: and increasingly in Europe than we are in Asia at
Speaker 4: the moment, but it's almost certain to play out here
Speaker 4: over the next few heres as well. And this is
Speaker 4: driving another step change in DEMI. So yes, there is
Speaker 4: an enormous amount of demand and activity across is in
Speaker 4: the DC space at the moment.
Speaker 1: And PROTESSHA, can we take a step backwards? What exactly
Speaker 1: is a data center? I think people have some preconceptions,
Speaker 1: but I'd love to hear your explanation.
Speaker 2: Yeah, what do they look like?
Speaker 4: Well, thankfully they aren't particularly eye catching. Something's gone wrong
Speaker 4: if someone's invested a lot in the architecture and then
Speaker 4: you sort of drive by and you go, ooh, this
Speaker 4: is a tourist attraction. Hopefully these are buildings that you
Speaker 4: drive past and never really realize are there. They're just
Speaker 4: very large structures with a lot of different data holes.
Speaker 4: Just think of them as cold dark rooms, very purpose
Speaker 4: built for the most part to house a huge number
Speaker 4: of servers and digital infrastructure where data is stored, very
Speaker 4: very specifically built from a power water cooling perspective to
Speaker 4: be energy efficient or as an energy efficient dispossible and
Speaker 4: essentially maximize space and minimize power usage to the extent
Speaker 4: possible to keep the service cool. So a physical structure
Speaker 4: recently nondescript building which is basically full of goal of
Speaker 4: dark rooms which house service.
Speaker 3: Yeah, you mentioned the water and electricity component. Is there
Speaker 3: kind of a trend and where these things are located
Speaker 3: and also does that kind of impact your investment outlook
Speaker 3: and where these data centers are actually going to get built?
Speaker 4: Yes, there is, and it gets a little nuanced because
Speaker 4: it goes into the type of data centers and they're
Speaker 4: you know, historically say three types of data centers. So
Speaker 4: there are some that focused on interconnects, so these are
Speaker 4: more carrier hotels where there's just a lot of cross
Speaker 4: connectivity between people who house equipment in those data centers.
Speaker 4: The same there's enterprise data centers, which is a little
Speaker 4: more focused on enterprise clients. And then there's what is
Speaker 4: driving a whole lot of growth and capacity, and that
Speaker 4: is the hyper scale data centers, which is where you
Speaker 4: see this week step change in demand. That's more AI driven.
Speaker 4: Obviously from a cloud computing perspective, those are the types
Speaker 4: of clients you know we speak with as well, and
Speaker 4: from a location perspective, the hyper scale side gets quite
Speaker 4: technical around the client's network architecture as well. So if
Speaker 4: you think about how most companies architect their networks, to say,
Speaker 4: Amazon for example, has what it calls a cloud region,
Speaker 4: and when it opens cloud regions in certain countries, there
Speaker 4: are multiple availability zone so think of these is just
Speaker 4: basically zones that have multiple different data centers with their
Speaker 4: own power, cooling, physical security, connected through very low latency
Speaker 4: and redundant fiber networks as well, and cloned so that
Speaker 4: if you one data center goes down, hopefully the end
Speaker 4: customer doesn't experience an outage. So yes, absolutely. When we
Speaker 4: look at investing in data centers, we think very carefully
Speaker 4: through the type of data center and whether or not
Speaker 4: specific parcels of land from a development perspective are located
Speaker 4: within these zones and regions where the customers are building
Speaker 4: out their own network architecture. And if you do have
Speaker 4: you know the sites that are flood proof, connected to
Speaker 4: the utilities, with access to power transmission so substations and
Speaker 4: transmission capacity as well, then they can be frankly as
Speaker 4: valuable as called. They're very very attractive pieces of land
Speaker 4: at the moment.
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Speaker 1: You mentioned the hyperscalers like Amazon, Google, Microsoft, Where are
Speaker 1: the hyper scalers and your cells? Which countries are seeing
Speaker 1: the biggest demand for creating these data centers?
Speaker 4: So honestly, there are different drivers across regions. In markets
Speaker 4: like frankly, in almost every market across Asia, there's an
Speaker 4: almost demand. India, for example, I think it's forecast to
Speaker 4: grow it over a twenty percent giga over the next
Speaker 4: five to seven years. That's true off Tokyo as well,
Speaker 4: that is true of the Philippines, true of Indonesia. These
Speaker 4: are very very high growth fits. And of course they're
Speaker 4: starting off of small bases as well. So one of
Speaker 4: the reasons we see the growth is because they're also
Speaker 4: historical under investment or there just wasn't a need for
Speaker 4: this type of capacity to be set up in these regions.
Speaker 4: But for a whole bunch of reasons, you know there
Speaker 4: is that need today. Data sovereignty is one of them.
Speaker 4: But also from a market perspective, these markets are maturing
Speaker 4: and are attractive enough for the hyperscalers themselves to be
Speaker 4: investing in a very meaningful way. And so for us
Speaker 4: as data center investors, we're investing alongside or ahead of
Speaker 4: our end clients, typically Big Deck on the hyperscale side,
Speaker 4: to ensure that we have this capacity up and running
Speaker 4: as and when they need it.
Speaker 2: So you guys sort of pave the way you come in.
Speaker 3: You kind of lay the groundwork and then you get
Speaker 3: the Googles and Amazons of the world on board.
Speaker 4: It's it's a close partnership, I would say. So you
Speaker 4: do need to invest ahead of the client, but it's
Speaker 4: not quite speculative, so there's a strong sense of whether
Speaker 4: or not there is demand. So it's very collaborative in
Speaker 4: terms of working with the Googles and Amazons and Microsoft's
Speaker 4: to follow them or and often in many cases to
Speaker 4: actually have them direct the management teams to where their
Speaker 4: needs are. So these companies are very large owners and
Speaker 4: operators of data centers themselves, so these are captive data
Speaker 4: centers that they themselves manage and build. So often if
Speaker 4: we see them moving into a certain market and executing
Speaker 4: on a self build plan, then we know that there
Speaker 4: is demand there, and we know that there's probably room
Speaker 4: for a third party provider as well.
Speaker 1: Building these data centers, especially those related to AI, must
Speaker 1: be really expensive. A lot of people are talking about
Speaker 1: how expensive it is to buy these Nvidia chips used
Speaker 1: for artificial intelligence. Now, can you give us some information
Speaker 1: who actually buys the invidio chips? Is it yourselves or
Speaker 1: is it the hyperscalers?
Speaker 4: So that part the active equipment, the stuff that goes
Speaker 4: into the servers themselves is typically the client's responsibility, so
Speaker 4: that would be the hyperscalers themselves. The data center owners
Speaker 4: and operators typically are just responsible for the physical to
Speaker 4: more the gore shell, the civil infrastructure of the M
Speaker 4: and E, just making sure that the data holes are available,
Speaker 4: which we then lease out to the hyperscalers, you know,
Speaker 4: for them to put that equipment in. And to your point,
Speaker 4: the active equipment, so the servers and the chips going
Speaker 4: into the data centers are often a lot more expensive
Speaker 4: than the data centers themselves. So the rule of thumb
Speaker 4: is that it's called it sort of ten dollars of
Speaker 4: what for a data center itself. The equipment going in
Speaker 4: will be many times that.
Speaker 1: There's a lot of discussion of how much computing power
Speaker 1: AI requires, and this is obviously sounds like it's driving
Speaker 1: the demand for these data centers. Can you give us
Speaker 1: some numbers if AI really takes off, is there enough
Speaker 1: capacity right now? And how much needs to be built
Speaker 1: to satis fi all that demand.
Speaker 4: Look, there are many numbers that get thrown out, so
Speaker 4: I'll refrain from giving you numbers because they're quite country
Speaker 4: specific and client specific, just in terms of the power needs.
Speaker 4: But yes, it's not just the absolute megawatts. It's also
Speaker 4: the architecture within the data centers themselves. So the intensity
Speaker 4: of the power use is quite different for the latest
Speaker 4: generations of chips versus historical ones. And this is changing.
Speaker 4: You know, in two or three years, we're seeing enormous
Speaker 4: differences in terms of the types of power from a
Speaker 4: racked density perspective. You know, the needs of the latest
Speaker 4: generation of say the in video chips. So you know,
Speaker 4: some of the examples are just from a power demand perspective.
Speaker 4: I think globally, data centers, if historically accounted for maybe
Speaker 4: two to three percent of overall power demand, that is
Speaker 4: expected to go up there maybe about ten percent in
Speaker 4: some mats. In some markets, like say Singapore, DC is
Speaker 4: already account for ten percent of power demand, and so
Speaker 4: there's actually a moratory in some countries in terms of
Speaker 4: letting data centers continue to run unleashed, so power is
Speaker 4: being rationed out. But this is an enormous step change
Speaker 4: from a power demand perspective and what that means for
Speaker 4: associated infrastructure as well, both on the power generation side
Speaker 4: but also the transmission lines that you need the utilities
Speaker 4: that manage these electric networks is frankly an upgrading of
Speaker 4: a lot of old architecture because it is moving nations
Speaker 4: as power demands in a meaningful way.
Speaker 3: If data center demand is rising, if it's becoming a
Speaker 3: lot more energy intensive. Are all countries prepared for that
Speaker 3: right now? I know you mentioned India, the Philippines, US
Speaker 3: with DC there. I mean, are all of these places
Speaker 3: ready or do you see the potential for the need
Speaker 3: to do a lot of upgrades.
Speaker 4: I think you probably need to see upgrades across the
Speaker 4: board because it's also just the way some of these
Speaker 4: electrical networks, of the utilities, transmission and distribution networks were
Speaker 4: built didn't necessarily require that volume of power to certain
Speaker 4: regions and sights. So there's often bottlenecks in these systems,
Speaker 4: and it's ensuring that there is that substution capacity and redundancy,
Speaker 4: and you know there are no bottlenecks in terms of
Speaker 4: just how that transmission system was built out. So there's
Speaker 4: different degrees of upgrading that are required. That's on the
Speaker 4: utility side, but in a lot of different places. Countries
Speaker 4: that are power shot need more primary electrons in the
Speaker 4: grid anyway, So lots of markets were playing catch up.
Speaker 4: From a power perspective, there is now a whole new
Speaker 4: stack of demand that has come in, further increasing the
Speaker 4: need to have more electrons in the grid. So, yes,
Speaker 4: it's a lot to think through.
Speaker 1: And is this extra power demand coming from renewable energy
Speaker 1: or is it just traditional sources or both both.
Speaker 4: I think it depends on the market. It can be
Speaker 4: important powers. So Singapore is talking about multiple import projects
Speaker 4: around the region. Obviously most of Singapore's powered ninety plus
Speaker 4: percent today is gas. A lot of other countries will
Speaker 4: be in a similar position.
Speaker 2: Yeah, you had mentioned that. You know, there's this picture
Speaker 2: of demand growing.
Speaker 3: This is a trend that's not going away, but are
Speaker 3: there also risks to that outlook? You know, we were
Speaker 3: speaking with Deron Amoglu a few weeks ago in an episode.
Speaker 3: He's one of these AI critics. He sees this sort
Speaker 3: of as AI not having as big of an economic
Speaker 3: impact or perhaps as big impact on industry as we
Speaker 3: previously thought or as people assume. So if a lot
Speaker 3: of these data center growth is being led by AI,
Speaker 3: you know, is that one of the risks going forward
Speaker 3: that we could see maybe a pullback in that trend
Speaker 3: or do you see that as as staying.
Speaker 4: Another great question. Look, so there are definitely different points
Speaker 4: of view here right around whether investments in AI makes
Speaker 4: sense for the people who are really buying the chips
Speaker 4: right investing behind the architecture and all the costs, and
Speaker 4: people will say, oh, this is a bubble. There have
Speaker 4: been deck bubbles in the past as well, but this
Speaker 4: is very different. So you have some of the largest,
Speaker 4: most sophisticated and well capitalized technology companies in the world
Speaker 4: investing behind this wave, as opposed to say, you know,
Speaker 4: the late nineties, early two thousand and one, it was
Speaker 4: a lot more startup. Is there some degree of hype? Frankly,
Speaker 4: you know, it's not my place to comment on what
Speaker 4: the fair price for some of these companies should be.
Speaker 4: I think a lot of people can can form their
Speaker 4: own opinions on that front. But on the data center side,
Speaker 4: these investments are typically underpinned by long term contracts to
Speaker 4: these very high quality counterparties, and so there's enormous comfort
Speaker 4: in knowing that the counterparty will honor the contract because
Speaker 4: these tend to be pretty rock solid contracts as well,
Speaker 4: and provided you're in resting in the right regions. There
Speaker 4: could be other use cases. Will it be a large
Speaker 4: language model that is ultimately trained there, or inference occurs.
Speaker 4: Could there be a cloud zone. So long as you're
Speaker 4: in the right location, there are lots of different uses
Speaker 4: that you can put power and that capacity to. So
Speaker 4: maybe the numbers won't play out to the extent that
Speaker 4: they are projected today. But one thing about the data
Speaker 4: center space is that anyone who's historically forecast growth here
Speaker 4: has typically been wrong in terms of being conservative. Demand
Speaker 4: is actually outstripped historically what almost anyone has forecast as
Speaker 4: the market demand to be. So you wager a beer
Speaker 4: at your own perle. But I my estimate is that
Speaker 4: demand's actually going to be creative in what most people
Speaker 4: expect today.
Speaker 1: It sounds like a great business, like you make these
Speaker 1: long term contracts. Your counterparties are these massive hyperscals with
Speaker 1: a lot of cash. Everyone knows how strong they are
Speaker 1: in terms of the balance sheet. There must be a
Speaker 1: lot of competitors in this space. Is like tell us
Speaker 1: about the competitive landscape that you guys are doing.
Speaker 4: You're right, they are great businesses if you can access
Speaker 4: the customers, if you have the right team and the
Speaker 4: right sites, and it takes a long time to build
Speaker 4: that trust and that connectivity and to have frankly invested
Speaker 4: in the space for years to be able to now
Speaker 4: reap the rewards of those early investments and those locations
Speaker 4: and that power capacity and so on. So there are
Speaker 4: lots of different folks who are trying to enter this space,
Speaker 4: and it is i would say, getting tougher and tougher
Speaker 4: to do so because access to capital is a differentiata.
Speaker 4: These are enormous gazzlers of capital these businesses, and obviously
Speaker 4: without the fundamental assets, without the land and the power
Speaker 4: and the mutility connectivity, the fib or the water, ultimately
Speaker 4: you can't build. So the people who are best positioned
Speaker 4: to capitalize on the wave are the ones who've been
Speaker 4: investing in their business for many years now and in
Speaker 4: the relationships with these hyperskillers. And the markets are fragmented.
Speaker 4: There's no player that is such a larger market here
Speaker 4: that we would say, you know, is the only one
Speaker 4: that wins. This isn't a winner take all market. This
Speaker 4: is one where frankly, many firms should be able to
Speaker 4: do well provided they execute and deliver for their clients.
Speaker 3: Is it mostly large firms in the space or you
Speaker 3: just said it was fragmented.
Speaker 2: Is there a lot of smaller players?
Speaker 4: It depends on the market. So every nation will have
Speaker 4: some firms that are very large. The guys who are
Speaker 4: very large in Australia aren't necessarily very large in Singapore
Speaker 4: or India or Japan.
Speaker 2: For example, So it's really domestic.
Speaker 4: It's a combination. So there are some players who are
Speaker 4: multi country platforms, and there are others who are very
Speaker 4: large in one country and are now looking at building
Speaker 4: out across the board. Ultimately, our viue is that good
Speaker 4: platforms will move from country to country as their customers
Speaker 4: expanding those countries as well, So you sort of follow
Speaker 4: your customer in.
Speaker 1: This business and protecs, who are your main investors? Are
Speaker 1: they sort of pension funds, sovereign wealth funds? Like are
Speaker 1: they rich individuals? Tell us like, who are the people
Speaker 1: that's backing you to invest in these data centers.
Speaker 4: So our LPs are a combination of exactly those types
Speaker 4: of folks, typically a blue chip roster of the most
Speaker 4: sophisticated capital alligators in the world, and they can be
Speaker 4: pension funds, sovereign wealth funds, large insurance companies, institutional investors.
Speaker 4: It's a broad mix of both types of investors and
Speaker 4: cross geographies as well in terms of where these investors
Speaker 4: are domiciled and pratrescia.
Speaker 1: You mentioned quite a few regions, in particular in Southeast Asia,
Speaker 1: and it seems like Southeast Asia is getting a lot
Speaker 1: of the growth, but you did not mention China. Now
Speaker 1: there's obviously a lot of geopolitical tensions between the US
Speaker 1: and China. Is this in any way impacting where hyperscalas
Speaker 1: build their data centers?
Speaker 4: I think what I can probably say is that data
Speaker 4: is regulated, whether that's requirements to store data domestically, you
Speaker 4: know how that data is used. It gets quite technical
Speaker 4: and illegal quite quickly. Companies, I think are taking a
Speaker 4: view on where their growth is going to be, and
Speaker 4: Western hyperscalas are probably expanding across regions where they see
Speaker 4: more prolonged growth and less regulatory challenges.
Speaker 3: Yeah, so lots of things to consider when you're trying
Speaker 3: to open a data center. Yeah, what is something that
Speaker 3: people might be missing when it comes to data centers.
Speaker 4: I think there's a tendency to assume that all data
Speaker 4: centers are the same, or just to paint the entire
Speaker 4: sector with one brush, and that is actually not the case.
Speaker 4: So with all the changes that are happening now on
Speaker 4: the chip side and then there architecture side, the older
Speaker 4: data centers are in a lot of cases increasingly more challenged,
Speaker 4: so deployment sizes and that's just effectively megawatts are getting larger.
Speaker 4: So it's possible to have you know, a ten year
Speaker 4: old or fifteen year old site that is not quite
Speaker 4: after scratch in terms of where technology or design and
Speaker 4: architecture have moved on from a power usage effectiveness and
Speaker 4: from a scale perspective. So while there's a lot of
Speaker 4: excitement around the sector as a whole, there is a
Speaker 4: buyer beware sort of you know disclaimer as well around
Speaker 4: what type of data center you're buying and how relevant
Speaker 4: that is in terms of lease up and location for
Speaker 4: future growth as well. There's so much need for new
Speaker 4: assets to be created, there's real risk of some stuff
Speaker 4: getting outdated in the space.
Speaker 2: What are some examples of that?
Speaker 3: I know you can't talk about specific companies probably, but
Speaker 3: you know general, what's an example of that situation? Where
Speaker 3: is it just a data center that becomes very old
Speaker 3: and maybe even so old that.
Speaker 2: It can be updated.
Speaker 3: Or is it more that you know, technology is advancing
Speaker 3: so quickly that even if you start building one now,
Speaker 3: it might be outdated by the time it's done.
Speaker 4: Now, it's more the former, I would say, because remember here,
Speaker 4: the long term contracts protect you for the duration of
Speaker 4: that contract, so at least for a while. For so
Speaker 4: long as you have that contract, you're in a pretty
Speaker 4: good place. One example I can give you is actually
Speaker 4: in our portfolio. One of the underlying PCs for our
Speaker 4: investment in Cintel's data centers, a company called Etceera for
Speaker 4: finance last year, is actually the reallocation of power to
Speaker 4: more efficient and new data centers as opposed to some
Speaker 4: of the older stuff which is the first generation. So
Speaker 4: third and fourth generation data centers today, especially in a
Speaker 4: market like Singapore, will be a lot more efficient and
Speaker 4: you can get a lot more by aggregating the power
Speaker 4: supply that goes into some of these older sites and
Speaker 4: reallocating that to a new facility that is just more
Speaker 4: purpose built. It's a great story, you know, to give
Speaker 4: the centrality team credit. They thought this through and real
Speaker 4: at least to us pioneers in the space around trying
Speaker 4: to rebuild or repower these facilities in Singapore and effectively
Speaker 4: squeeze more it megawatts out of the same power allocation,
Speaker 4: so really avoiding emissions. There's a real environmental story here
Speaker 4: around avoided emissions because the data center itself takes the
Speaker 4: same power down from the grid, but is able to
Speaker 4: sell on more of that power to its customers because
Speaker 4: it's just more efficient. So the building needs a lot
Speaker 4: less power to cool itself, among other things. So we're
Speaker 4: seeing that as a very interesting angle in certain markets
Speaker 4: that are more power constrained, and we're frankly investing behind
Speaker 4: that team as well, just just building, reallocating from the
Speaker 4: old and building new, more purpose built facilities.
Speaker 3: Sort of what's happening with the office space now, I
Speaker 3: guess as well? A lot of empty space and then
Speaker 3: you're just reallocating it to apartments or yeah.
Speaker 4: Yes, I so I'm more sure what the environmental angle
Speaker 4: is there, and if the apartments are more powered you know.
Speaker 3: Oh no, just from like a space usage perspective, yeah.
Speaker 4: Yes, repurposing and redesigning absolutely from that perspective. Yes, The
Speaker 4: interesting thing here is you're actually creating a lot more
Speaker 4: value by reinvesting in the assets, because the scarcity of
Speaker 4: power in certain markets just mean that the value ascribed
Speaker 4: to each lease is getting higher and higher. Sur pricing
Speaker 4: is going up, and so by rebuilding, oftentimes you're actually
Speaker 4: creating more value for yourselves and for your customers who
Speaker 4: are looking for larger footprints to deploy.
Speaker 1: Across Katya data centers. A lot more technical than I
Speaker 1: originally thought.
Speaker 2: Yeah, there's so much to think about with the data centers.
Speaker 3: Where to put them, who's investing, how to cool them off?
Speaker 1: Very educational. Thanks for joining us, Prajesh, thank you so much.
Speaker 1: I'm John Lee in Hong Kong.
Speaker 2: I'm kadjd me true, but also in Hong Kong.
Speaker 1: This podcast was produced by Clara Chen and you've been
Speaker 1: listening to the Asia Centric podcast