US Private Equity Firm Ties Up With Equinix Vets for $1B APAC Data Centre Fund

Asia Pacific’s fast-developing market for server hosting facilities got a bit more crowded last month as a New York-based private equity firm teamed up with a group of veteran tech executives to set up a $1 billion data centre platform, which has already launched a pair of Japan projects.

Stonepeak Infrastructure Partners introduced its new data centre operator last week under the name Digital Edge, with the Singapore-based firm aiming to meet the requirements of digital infrastructure users under the leadership of Samuel Lee, who formerly served as president for Asia Pacific at Equinix.

“The Asia Pacific digital infrastructure market is among the fastest growing in the world, with demand continuing to outpace supply,” said Stonepeak senior managing director Brian McMullen in a statement.

Stonepeak, which joined with Digital Edge’s management and a set of unnamed investors to commit $1 billion in equity to the new venture, is aiming to catch some of the potential of the APAC market after having acquired a majority interest in US co-location provider Cologix in 2017.

Off to a Fast Start in Japan

The platform has already started allocated some of its capital, with Digital Edge announcing the closing of two Japan investments on the day of its debut. The first facility is a partnership with Keihanshin Building and Kanden Energy Solutions to develop a 12 megawatt centre in Osaka. The second project is a strategic partnership with ITOCHU Techno-Solutions on the Mejirozaka Data Center in Tokyo.

“We are very excited to partner with Stonepeak and to have completed the initial capacity acquisitions to fulfil our vision of bridging the digital divide in the Asia Pacific region,” commented Lee. “The transactions in Tokyo and Osaka give the platform a dual footprint offering to customers in Japan’s two primary data centre markets.”

In addition to Lee, who worked for Equinix from 2005 to 2019 and will serve as the new platform’s CEO, Digital Edge has brought on board a crew of top level techies with experience in the region.

Also joining from Equinix are Kei Furuta, the company’s former managing director for Japan; Andrew Rigoli, the firm’s former vice president for corporate development in Singapore and Southeast Asia; and former vice president for corporate development, Jonathan Chou. Also on board are former Facebook engineering VP Jay Park, John Freeman from the legal team at Tata Communications, and Jonathan Walbridge, previously a managing director with Macquarie Group.

Armed with its cash backing and management team, Digital Edge say it aims to make infrastructure deployment easier and more efficient, and do so at a lower cost than traditional players.

Stonepeak, which currently manages $25.2 billion worth of assets focused on infrastructure, hard-asset businesses and essential consumer services, has made data centres one of its prime targets in recent years.

Through its control of Cologix the private equity firm already owns and operates four carrier neutral hyperscale facilities in North America, and earlier this year it acquired Xplornet Communications, which serves rural Canada.

In Europe Stonepeak holds a controlling interest in digital infrastructure provider euNetworks which provides fiber and Internet backbone in 17 European cities in 15 countries, and last year bought into Taiwan’s infrastructure space by purchasing Swancor Renewable Energy.

Rising Demand and Rising Challenges

In Asia Pacific, Digital Edge and Stonepeak are targeting a digital services market which networking giant Cisco Systems predicted in a March whitepaper will be home to 13.5 billion networked devices by 2023 — up from 8.6 billion in 2018. That 57 percent jump in gadgets will be clutched in the hands of some 3.1 billion Internet users around the region — a 48 percent increase over the 2018 number.

In a data centre report published in April, Colliers International in Hong Kong noted that cloud services offered by the banking and finance, multimedia and gaming, and telecoms sectors in that city alone rose 20 percent from 2017.

Cloud computing has also made a leap in usage this year due to the global coronavirus keeping workers at home and increasing their Internet usage — a trend which coincides with fresh data centre investments in 2020.

In addition to Stonepeak, Equinix and GIC in April announced their own $1 billion joint venture to build hyperscale centres across the region. Hyperscale centres are the super storage centres built to respond to the increasing computing, networking and memory demands that are crucial to cloud services.

While demand is rising and investors increasingly turn to data centres as a viable asset, challenges remain.

“The data centre market is still a niche market. Not everyone wants to be involved in Hong Kong [and APAC] due to long term commitments — leases are over 10 years — despite some institutional investors considering data centres as a core asset,” reasoned Colliers’ Hannah Jeong, head of valuation and advisory services.

She added that there may be some limits on the potential growth, noting that, “The tenant pool is limited, adding a higher risk profile, and in China [investors] need a local ICT licence to run the data centre, which makes it even harder to go in as a ‘property investor’.”