Australian Spotlight - September 2024

When the world’s biggest alternative asset manager, USD 1.1 trillion AUM, makes some big bets on Australia, the world takes notice.

Over 13 years, Blackstone has invested USD 17 billion in Australia. However, a single new investment announced on September 4 nearly doubles its total investment here. It also represents Blackstone’s largest ever investment in the Asia-Pacific region. Why Australia? Why now? 

An industry giant

Blackstone is the leader in the alternative assets space and is the first to join the S&P 500. It invests in private equity, real estate, private credit, insurance, and infrastructure. It owns more than 230 companies and 12,600 real estate assets around the world. 10% of its funds are invested in the Asia-Pacific.

Bagging AirTrunk

On September 4, Blackstone doubled its investments in Australia by buying out Airtrunk for USD 16.1 billion. The Canadian Pension Fund also participated in the deal.

AirTrunk built Australia’s first hyperscale data centre in 2017 and has quickly expanded to over 12 data centres in Hong Kong, Japan, Singapore, and Malaysia. 

“AirTrunk took the first mover advantage and pioneered hyperscale data centres in the Asia Pacific and Japan region, offering unmatched scale, speed, efficiency and reliability to support this unprecedented growth.” Robin Khuda, founder and CEO, AirTrunk.

AirTrunk’s timing could not have been more perfect. The arrival of ChatGPT in November, 2022, ushered in the LLM (Large Language Model) revolution in AI. And these LLMs are hungry for computing power and electricity.

As a result, data centres have become the key digital infrastructure and a massive growth opportunity. Worldwide data centre revenue was USD 373 billion in 2023 and is expected to surpass USD 600 billion by 2029 (see chart below)

At the moment, there are simply not enough data centres to meet demand and there are not enough GPUs and electricity to furnish all the planned new data centres. The Three Mile Island nuclear power station in Pennsylvania plans to reopen just to meet the electricity needs of new Microsoft data centres.

Blackstone bought its first data centre company in 2010 but seriously entered the space in 2021 with the acquisition of QTS Realty Trust in the US.

Data centres are a perfect investment for large PE and alternative investment companies. The capital requirements are huge but so are the returns.

“There’s definitely a lot of capital moving towards this space – but the space needs a lot of capital,” Jon Gray, President and COO, Blackstone.

However, building competitive data centres is not easy to do, particularly when everyone is trying to capitalise on the gold rush. That is why AirTrunk was such a tantalising target. They had already built a leading presence in Asia and the know-how to go further.

“AirTrunk is another vital step as Blackstone seeks to be the leading digital infrastructure investor in the world,” Jon Gray.

Airtrunk CEO Robbin Khuda has gone from a poor foreign student in 1998 to a billionaire today. And he is ambitious for more. Blackstone’s acquisition provides the capital for AirTrunk to become even larger and a big flag bearer for Australia in the region.

“We’re obsessed about mining and resources. We’re obsessed about properties etc. But if you look at the future, I think that [data centres] will be a big contributor to our economy. … “We can bridge the gap between Australia and Asia.” Robin Khuda.

Betting on Australia

Prior to its AirTrunk investment, Blackstone’s biggest investment in Australia was its USD 6.3 billion acquisition of Crown Resorts in 2022. Crown operates casinos in Sydney, Melbourne , and Perth. Blackstone already owns casinos in the US and sees Australia as a growth tourism market.

Blackstone has been in Australia for over 13 years and is keen for more opportunities.

“There’s more happening here that could create some opportunity for us, and we’re spending more time [looking at Australia]. We see Australia as a place where we can have the best of Blackstone.” Jon Gray.

No only does Australia provide unique opportunities in real estate, mining, and startups, but it is ideally placed to have an impact as part of the Asia-Pacific region. 

“Asia is the growth engine of Blackstone” and we see a lot of bright spots: India, Japan, Korea, Australia, southeast Asia, and we have been very active across all these markets.” Amit Dixit, PE Head of Asia, Blackstone.

Final thoughts

Blackstone’s acquisition of AirTrunk is an endorsement of the future growth of data centres, Australia, and the Asia-Pacific region. Robin Khuda was born in Bangladesh but it was Australia that gave him wings. With companies like AirTrunk, Atlassian, and Canva, Australia is punching above its weight in the new digital economy and is attracting investors from around the world.