Canada Pension Plan Investment Board is forming a joint venture that aims to raise US$15-billion to buy land and build new data centres catering to the largest technology companies in the United States, in partnership with Singaporean sovereign wealth fund GIC and data centre owner Equinix Inc.
The joint venture is CPPIB’s first direct investment in U.S.-based data centre projects and its first venture with California-based Equinix, although CPPIB already owned a small stake in the company (less than 1 per cent or $877-million of the company’s stock as of March 31).
CPPIB and GIC – the Government of Singapore Investment Corp., which invests Singapore’s sovereign wealth – will each own 37.5 per cent of the joint venture, and Equinix will own 25 per cent. Financial terms of the partnership were not disclosed, but include plans to take on debt to reach the US$15-billion target. The money will be spent to buy sites and build data centres on campuses in the United States with a capacity greater than 100 megawatts each, and the joint-venture structure allows CPPIB and GIC to evaluate and underwrite each project site by site, and to decide whether it makes financial sense to commit more capital.
There is rapidly growing demand for data centres, which form the backbone of a boom in artificial intelligence and a major shift to cloud computing. Much of that need comes from the largest global cloud computing providers, called “hyperscalers” – such as Microsoft Azure, Amazon Web Services and Google Cloud Platform – as well as other major technology companies and corporate customers.
As the pace of growth in the sector picked up speed, CPPIB reviewed its existing investments in data centres and found they didn’t match the sheer scale of its investment portfolio, which manages $647-billion in assets for more than 22 million contributors and beneficiaries to the Canada Pension Plan.
“We realized that we were actually underweight one of the themes that we had the biggest amount of conviction in,” especially in the U.S., CPPIB’s head of infrastructure James Bryce said in an interview.
The pension fund started a project that brought together its real estate and infrastructure teams to work together on data centre investments, which are a core theme in an infrastructure strategy that has committed more than $9-billion across several sectors over the past 18 months. Last month, CPPIB agreed to acquire a 12-per-cent stake in AirTrunk, a data centre operator in the Asia-Pacific region, through an established investment platform led by Blackstone Inc.
“We really do believe this is an excellent investing vintage,” Mr. Bryce said.
Faced with almost insatiable demand, Equinix is forming the joint venture to speed up the expansion of its xScale data centre portfolio. The company currently operates 264 data centres in 72 metropolitan areas. If the new partnership reaches its US$15-billion target, it will nearly triple the investment capital available to build out its footprint. It is expected to take between five and 10 years to build out all of the envisioned projects.
GIC has made prior investments in Equinix, helping the company raise billions of dollars for several data centre projects in Asia, Europe and the Americas.
“Over the course of the last two years, I’d say we were seeing very, very strong demand signals from the hyperscalers in particular,” Jon Lin, Equinix’s executive vice-president and general manager of data centre services, said in an interview. “There’s a huge amount of capital right now being deployed to basically build out and construct the platforms to be able to support not just generative AI, but AI in general, workloads inside of those cloud compute environments.”
Equinix has already purchased some of the first parcels of land that will be home to its next wave of large data centres. Like most real estate, “it’s location, location, location” that matters, Mr. Lin said, as data centre operators look for locations with lower energy and development costs, access to renewable energy and reasonably proximity to the tech companies’ systems.
The partners in the joint venture are awaiting regulatory approvals that they expect to receive in the fourth quarter of this year.