DEER ISLE: Insights, Flows & Investment Trends
Data Centers: Core to the National Security Race with China? Yes!
Given China’s technological advancements, data centers are central to the national security race between the U.S. and China, acting as the infrastructure that powers the storage, processing, and analysis of vast amounts of critical data. In the race for dominance in artificial intelligence (AI) and advanced computing—both essential for military superiority, cybersecurity, and economic leadership—data centers are indispensable. They support high-performance computing and machine learning that drive AI advancements in areas like autonomous weapons, surveillance, and cyber defense.
Recognizing the strategic importance of maintaining technological superiority, it is likely that data centers will continue to receive government support, particularly through access to affordable energy, despite their significant strain on energy resources.
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Capital Provider Interest: Continued interest from Independent Sponsors for stable businesses in fragmented industries with a strong possibility of a roll-up strategy.
Real Estate: Warehouse investments are now jumping on the technology bandwagon. Companies prior to leasing space want to understand how much technology is embedded in the center and how to ensure that it will be relevant as technology changes. Are there embedded robots, sensors and other technology that reduce operating costs, etc. and will these be relevant to the lessors’ operations, are more and more frequently standard questions.
Venture Capital: Strategics continue to provide a ballast to financing and valuations for venture companies looking for capital. The strategics are willing to buy a “tech option” and the amounts they are investing tend to be insignificant to their overall financial outcomes so are not looking for financial returns.
Private Equity: LPs continue to be frustrated by lack of DPI and are also highly concerned about NAV loans. Does a distribution that is created by an NAV loan count towards DPI? Many LPs don’t believe it should – DPI is meant to be a measure of exits which is what the LP expects as part of their investment as well as distributed proceeds.
