In a recent ION Influencers fireside chat, Neil Evans, a Partner at Clifford Chance, shared his insights on the evolving landscape of private capital investments, with a particular focus on data centers. The discussion, hosted by Giovanni Amodeo, covered several key topics that are crucial for investors and stakeholders in the industry. Here’s a summary of the main points discussed:

Background and Expertise: Neil Evans introduced himself, highlighting his 15 years of experience advising private capital investors, particularly in the real assets sector. He emphasized his focus on data centre investments, leveraging Clifford Chance’s expertise in various related fields such as real estate, planning, power connections, environmental and technology regulation, development, construction, outsourcing, leasing, M&A, joint ventures, and debt financing.

Evolution of Data Centers: Evans discussed the significant changes in the data centre sector over the years. Initially, data centers were smaller and less complex, primarily serving the cloud computing industry. However, the explosion of data, driven by advancements in AI, has led to a rapid evolution in the sector. He noted that more data has been created in the last three years than in the entire rest of history, underscoring the growing demand for data centers.

Geographical Trends: The geographical distribution of data centers has also evolved. Traditionally, data centers were located near large cities and significant conurbations. Evans pointed out that in the future, data centers are likely to be built in non-traditional locations with lower demands on the grid and proximity to large power sources like wind farms.

Investment Trends and Challenges: Evans highlighted the substantial capital being raised and deployed in the data centre sector. He mentioned notable partnerships, such as KKR and ECP’s $50 billion data centre partnership and BlackRock’s collaboration with Microsoft. Despite the influx of capital, challenges remain, including labour shortages, supply chain issues, sustainability concerns, and ensuring sufficient power availability.

Sustainability: Sustainability is a critical consideration in data centre investments. Evans cited Microsoft’s commitment to impeccable sustainability credentials for their data centers. He also mentioned regulatory incentives, such as Finland’s expedited permitting process for data centers using certain sustainable technologies.

Regulatory Landscape: The regulatory environment for data centers varies across Europe. Evans noted that while there is little negotiation with regulators, each country has its unique regulatory framework. He emphasized the need for increased sophistication and speed in regulatory processes to meet the growing demand for data centers.

Private Equity and Data Centers: Evans discussed the attractiveness of data centers for private equity firms. He noted that large funds like Blackstone and KKR have the scale to make significant investments in the sector. For smaller private capital firms, opportunities exist in co-investing and taking minority positions in larger platforms.

Future Outlook: Looking ahead, Evans predicted that the complexity and sophistication of commercial contracts for data centers would increase. He also highlighted the importance of genuine expertise in planning, permitting, and power connections for successful data centre investments.

Macroeconomic Concerns: Evans touched on macroeconomic concerns, particularly the impact of interest rates on data centre investments. He noted that while interest rates have affected valuations, the long-term demand for data centers remains strong.

Key timestamps:

00:06 Introduction to Private Capital Trends
00:40 Neil Evans’ Background and Expertise
01:48 Evolution of Data Centers
05:22 Investment Trends in Data Centers
07:39 Challenges in the Data Center Sector
09:55 Sustainability in Data Center Development
11:54 Regulatory Landscape for Data Centers
13:08 Private Equity Perspectives on Data Centers
15:30 Future Considerations for Data Center Investments
18:33 Macroeconomic Concerns Affecting Data Centers
19:00 Impact of Interest Rates on Data Center Valuations
19:50 Client Concerns in a Changing Economic Landscape
20:58 Closing Remarks and Insights