UDHAY MATHIALAGAN:  The amount of data that’s being used in the world is growing at such a fast rate that the pieces of infrastructure that need to support it haven’t just been assembled at the scale and at the level of complexity that’s required. So we see an enormous opportunity.

ERIC JANSON:  Huge amount of capital is needed. It’s needed all over the world in all different countries. And I think, by the sheer nature of that, you’re going to see more formalized blended models of financing, where public and private capital figure out ways to work together.

UDHAY: Data centers are not islands of infrastructure. They’re actually only effective if they are interconnected with other data centers. So there is an ecosystem of connectedness that creates almost a flywheel of economic activity that comes from a particular start, if you will, of infrastructure in a new area.

FEMI OKE: In this series, we’ve been exploring new opportunities for business and society when we do things differently—and how industries will meet to solve complex needs. But without enough money to pay for it all, businesses will miss out. So how can the way projects are funded drive a real change across industries?

LIZZIE O’LEARY: This is a time for new, creative financing models to develop—and an opportunity for the financial services sector, and beyond. I’m Lizzie O’Leary, a podcaster and journalist.

FEMI: And I’m Femi Oke, a broadcaster and journalist. And this is a special series of Take on Tomorrow, the podcast from PwC’s management publication, strategy and business, that’s charting the next decade of change—and the impact on business and society.

LIZZIE: Today we’re following the money. As data centers drive our digital world, we’ll hear more about how they’re funded.

FEMI: Now, data centers are just one example of the impact that capital has on major transformations. So, why does money matter so much in this industry reconfiguration? To help us better understand, we want to bring in Eric Janson, Global Private Equity and Principal Investors Leader for PwC US. Eric, it’s good to have you on Take on Tomorrow. Welcome.

ERIC: Happy to be here.

LIZZIE: Eric, we are about to talk about data centers with our guest from Brookfield. But first we’re talking with you, and that’s because all of these huge transformations we’re covering in this series need capital. Can you talk about that with us? Why do we need to pay attention to where the money comes from? How this transformation is funded.

ERIC: I think it’s really important, in setting the stage for this, to have this discussion. 'Cause when we talk about infrastructure transformations, —whether it’s digital transformation like data centers or even something like energy transition–related infrastructure, there’s one common denominator. They’re very, very capital intensive. These aren’t small projects, right? That can be funded off the balance sheet of one company or by one investor. We’re talking about massive multibillion dollar type investments that are made over a number of years. An infrastructure that has to be built to last, and has to be built to support the capacity that we’ve outlined for it. So, very, very complicated and requires lots of capital. That to me is why the funding process matters, right? How these projects are financed, whether it’s private equity, whether it’s infrastructure funds, whether it’s institutional investors, even sovereign wealth funds, partnerships with governments. It ultimately is going to shape the speed and the scale and the success of this sort of transformation.

FEMI: Why is it so important when we think about data centers that we are considering the funding aspect of these transformations? Why are data centers such a good example?

ERIC: I actually think they’re a great example because, on the one hand, they’re so essential in terms of infrastructure, right? They’re the background of everything we’re doing, the foundation of, actually, this podcast that we’re doing as well, in the digital economy, that we continue to move more and more toward every day. But they are incredibly capital intensive, and they’re very, very complex to build and operate. Which I think is why you’re seeing so much focus on it, but also a lot of risk and opportunity that needs to be managed as you develop your way through it.

FEMI: Thanks, Eric. We’ll hear more about the opportunities for the investors financing all the change—as well as business in other industries—a little bit later. But first, Lizzie, you’ve been looking into some of the infrastructure receiving the capital.

LIZZIE: As AI becomes an integral part of our societies, data centers are popping up in communities around the world. And with the global data center industry projected to be worth over [US]$584 billion by 2032, according to the World Economic Forum, money is piling in, working out how to power, cool down, and build these centers at scale.

To find out more about this, I spoke to Udhay Mathialagan, managing partner in Brookfield’s Infrastructure Group and the CEO of their Global Data Center Group. He began by explaining how data centers have become such an important part of their investment plans.

UDHAY: So, I think our initial foray into digital infrastructure started with investments in telecom towers and fiber. Probably seven years ago, we made our first investment in data centers. And then, I guess, progressively over the last seven years or so, we’ve built up both organically through businesses we bought and through acquisitions of new businesses. Now we’ve created a platform of what’s become six businesses across, you know, a number of geographies—the Americas, Europe, APAC. And I think we’ve reached more than a hundred data centers across 17 countries today.

LIZZIE: Listening to you, you’re using the words critical infrastructure, and I hear you’re using data centers just as an extension of that. Is that how you think of them, is that they’re now this sort of intrinsic piece of what we all need to exist in a 21st century economy?

UDHAY: Absolutely. I think, there's talk about AI being this, you know, the most important, most consequential general purpose technology that’s come into our lives. Data itself has been growing at a phenomenal rate over the last many, many years. And, I think, in the last three years, there’s been more data created than at any time in previous history. So that’s the momentum with which data is seeping into our lives. And all this data needs to go somewhere. It needs to be stored, needs to be managed. And so, it’s as important, if not getting to be more important, than other pieces of critical infrastructure like transport or electricity or water or whatever else. The amount of data that’s being used in the world is growing at such a fast rate that the pieces of infrastructure that need to support it haven’t just been assembled at the scale and at the level of complexity that’s required. So we see an enormous opportunity in what needs to be created, funded, and managed. We’re very excited as investors and critical infrastructure in terms of the opportunities that sit within the data space.

LIZZIE: A lot of our listeners work in business. They’re executives in different industries. If they are not in a business where they think about tech and data front and center, why is this something they should be paying attention to?

UDHAY: Two things I’d probably highlight. One is, the amount of data that’s embedded in products that people use, or processes people use, have just grown and grown. So even on the surface, if it might not look like a high-tech type product or process, there’s always lots of data-related aspects to most so-called, you know, linear businesses. That's one. Two, it is going to be almost unavoidable, or it’s already happening, but in a few years’ time, when AI has sort of crept into almost everything people do. And in that world where one, data is embedded in your products and processes. And now you’ve got AI needed to make decisions around how things happen on your factory floor or in your distribution channel. And it’s hard to imagine the world where there's almost any industry which could be divorced from having really good access to data capability and AI capability, and then you bring all that together. Where does it come from? It comes from data centers and fiber networks and other forms of transport that bring it to you.

LIZZIE: What is particularly interesting or challenging about looking at this data center explosion with the eyes of an investor?

UDHAY: Yeah, look, there’s probably three things. The amount of capital that’s required to fund these very large scale data centers has meant that this is one that’s a lot more money that’s required. But, actually, there’s a lot more expertise that’s required to fund finance contract around this kind of infrastructure. The second point I would make is, the technical aspects of the data center have changed as well. When you think about what sits inside.

LIZZIE: Right. You have these massively powerful GPUs.

UDHAY: Absolutely. These GPUs process a lot of data, and they produce heat. And this heat needs to be dissipated in some form. And it requires a fairly sophisticated way of cooling and maintaining a particular temperature range. An the other thing that’s changed is, you know, you just need lots more power available at the site. We are reaching a point where power is just simply not available in a number of different locations. And so, developers of large data centers need to think about power generation almost as a parallel development before they can actually get a big project going.

LIZZIE: Does that have a different way of interfacing with multiple players than a traditional real estate investment would? I mean, I’m thinking about, kind of, the buy-in that is necessary when you are thinking about a data center. You’ve got government; you have local community; you have the high-tech companies; you have energy providers. Is that sort of a new suite of partners to be working with? Or does that follow on from, you know, similar types of real estate investments?

UDHAY: I’d say it’s a much broader category of partners and partnerships that’s required than with more straightforward real estate type investments. Clearly, we’re talking about complex large scale data centers, partnerships with power providers and power solutions.But equally, you’re needing to work with local government oftentimes in terms of permitting. Because these are not just critical, but also oftentimes unique and new pieces of infrastructure in a community. The equipment that goes into the data center is— these often can be long lead time type equipment. So you need to have established good partnerships with providers of power systems and cooling systems at scale in a variety of different geographies. So you’re talking about a piece of infrastructure that’s, you know, typically has billions of dollars of investment required. And, clearly, there’s a lot of partnership that’s required to make all that happen on a timely basis.

LIZZIE: We are talking about partnerships here, and I think it’s important to also talk about some of the criticism that data centers get when they are being built or conceived in some communities. How do you make sure that there is a fair balance between the growth that is needed to power these infrastructure assets that you’re talking about and the needs of the people who live there, who might raise a very skeptical eyebrow toward a data center coming into their community?

UDHAY: It’s no different from any new piece of infrastructure, I guess, that is being built in or around a community. There’s, a set of trade-offs that, at the end of the day, the local stakeholders will need to decide on. And the developers of the infrastructure need to present both the benefits and, in a transparent way, the costs of that development and investment that’s taking place in the community. I think it’s a lot around education to make sure people are aware of what the true costs are and being able to highlight the benefits that come from that investment. Clearly, power is front and center in terms of people’s minds around, like, where is this power going to come from? Or, you know, power is not available, so you’re taking power off the grid. So will we be able to support the local school? Or, the other aspect that’s popped up more so recently is around water and the use of how much water is going to be used by the data center. There’s got to be an open dialogue with the community to highlight what exactly is happening in terms of consumption of those sorts of resources. And look, there’s a lot of benefit that comes from this infrastructure being located in a particular community. There’s, you know, employment opportunities. Data centers are not islands of infrastructure. They actually only are effective if they’re interconnected with other data centers. So there is an ecosystem of connectedness that creates almost a flywheel of economic activity that comes from a particular start, if you will, of infrastructure in a new area.

LIZZIE: What are the benefits that you lay out, both local and regional, and then sort of widening concentrically beyond that to society from these data centers? Because I think a lot of people think of them as just something powering a large language model.

UDHAY: There's a wide range of benefits. There’s clearly investments that go into the community. There’s jobs that are created. But zooming out, it is a lot more than AI and large language models. It’s the heartbeat of the economy. It’s the heartbeat of everybody’s work life. And, you know, without data being processed and managed in a particular way, you’re not going to get your day-to-day banking or transport working. It touches almost every aspect of life that needs some element of information and decision-making.

LIZZIE: Yeah, I guess you and I are doing this interview on two different sides of the world right now—pretty good example.

UDHAY: Well, exactly, exactly. Things that happen at data centers touch everything that we do in day-to-day life.

LIZZIE: I’m going to ask you to do a little bit of crystal ball gazing. If you were to make a bold prediction, you can go as bold as you’d like, for how you will be investing into data centers ten years from now. What’s that going to look like?

UDHAY: From a Brookfield house view, we think about [US]$7 trillion is required just to get the AI ecosystem set up over the—

LIZZIE: Not a small number.

UDHAY: Not a small number at all. And almost [US$]2 trillion of that [is] probably just focused on physical infrastructure, like data centers. That’s an enormous amount of capital required. And most of the infrastructure that’s needed is yet to be built. And so, I see a period of a lot of development, a lot of build, to just catch up with the amount of data that’s already embedded in people’s plans. And this is not going to be an easy task. A large amount of investment is required, but also the expertise to pull together different types of capital to make all that happen.

LIZZIE: Udhay Mathialagan, thank you so much for talking with me.

UDHAY: Oh, absolute pleasure, Lizzie. Thank you.

FEMI: Eric, we just heard about the massive capital required to fund data centers globally. You touched on it earlier. What’s your reaction to what Udhay said about how Brookfield is investing in that infrastructure?

ERIC: I think what Udhay described in his interview really highlights the scale and the sophistication of the capital that’s required to meet this opportunity. So I think it’ll be really interesting to see how they can actually bring their expertise in energy, real estate, sustainability, aligning that all in and around this digital infrastructure need. Because that’s what a lot of these large private equity funds and alternative asset managers bring to the table.

LIZZIE: Listening to you, Eric, you’re talking about something that clearly sounds pretty transformative. So where else are we seeing changes in the way money is being invested right now?

ERIC: I mean, data centers are just one piece of the puzzle in my view, right? There are several other critical infrastructure areas where private capital is playing a very transformative role. I think about energy transition, right? Everything from renewable power, building nuclear power plants. Again, not something that’s going to take a small amount of dollars to actually do— modernizing the electricity grid, battery storage for all the renewable power that we’re actually driving. You know, these are requiring trillions of dollars globally to actually invest in; and they’re all essential, not just for sustainability, also for energy security, and to make sure that we can actually fuel and power these data centers that we were talking about earlier. So I think they’re all in some ways linked together. Another area in my view is transportation and logistics infrastructure, right? You think about ports, railroads, airports, supply chains, the need to modernize and keep up with everything around geopolitics and global trade in those areas. We require enormous investments in those areas as well. Which leads to the need to be able to rely not just on the private capital players. You’ve got to partner with government; you’ve got to partner with corporates, in order to successfully meet these challenges and manage the risks. I think, when you bring all those pieces together—and don’t get me wrong, it’s going to be incredibly difficult and challenging—but the folks that can bring all those folks together, I think are going to be the ones that are going to get the rewards. And I think we’re going to see some sort of optimization and operations from that, if you’re able to do that. And, likely, also in returns.

LIZZIE: Are there examples of interesting partnerships in this space that you want to highlight?

ERIC: There is one great example that, fortunately, is in the data center space, which I think is worthy of—it’s called the AI Infrastructure Partnership. So it goes to a financial firm, MGX, which most people probably don’t know them. It’s an Abu Dhabi–based investment firm that was founded by Mubadala, which is a sovereign investment fund, as well as G42, which is an AI company. They’ve actually put together a partnership around trying to address the data center needs that we’re seeing here over the next ten to 20 years. And a couple things I’d specifically note about this: one is the nature of the partnership. So first, right? Partnership brings capital. It’s going to bring technology and energy in a way that no other entity has in the past. The second thing I’d point out about this partnership, which is unique, is that this MGX secured a [US]$30 billion equity commitment to start the partnership and then is in the midst of securing lending that would go on top of that. So leverage on top of that equity that ultimately is going to have [US]$100 billion of capital to invest. So it just strikes back to the conversation we’ve had before, the size and the scale of this warrants big investments and big partnerships; and a hundred billion dollars partnership is a pretty significant partnership and should actually be able to make some pretty significant inroads in addressing this opportunity as well as some of the challenges around it.

FEMI: Eric, as we look at the way projects are funded differently in the future, how does this impact other industries?

ERIC: It’s interesting, like, the way data centers are funded, which as we’re seeing here through large scale partnerships, through infrastructure funds, long-term institutional investors. I think it creates a model that you’re going to see that’s going to go across different capital-intensive industries. I think what it shows you is that when the demand is rapidly growing, and where infrastructure is essential, the private and public capital players need to and are showing that they can actually work together. And I think you’ll see similar dynamics pretty quickly evolving around energy transition, transportation hubs, even things like healthcare infrastructure, I think will all benefit from the structures that are being put in place around the things like the digital infrastructure.

LIZZIE: Are you seeing new kinds of companies in the financial services sector fund, I guess, different industries than they normally would when we think about this transformational moment?

ERIC: I do see that. And you’re starting to see it really start to come to light here over the last probably six to 12 months. Couple examples, maybe, to lay that out. One is insurance companies. You think about insurance companies, and I think, particularly, let’s think about life insurance companies, right? You’re taking in premiums early on with the expectation that eventually you’re going to pay a death benefit out over time, likely years and years down the road. You’re trying to match—in a perfect world, you try to match your investment returns that will align with when you’re going to have to pay out that ultimate liability several years down the road. So, you’re looking at insurance who’ve typically invested in fixed income and traditional real estate, which are longer-term investments, which in some ways match that profile. But now you’re starting to, actually, when you start to see them, they can invest in things like this in infrastructure—whether it’s energy infrastructure, whether it’s the data centers. Those are long-term projects. So you’re seeing things like that with insurance companies. That certainly, certainly is going to make a big difference. The other one I’d mention are the sovereign wealth funds, right? And the pension funds. In the past, passive investors. They’re similarly, right? Pension investors. Those are long-term obligations paid out over time. Sovereign wealth funds ultimately being put in a position to fund the long-term sustainability of those particular geographies or countries. Again, here’s another opportunity where they can make direct investments. And they are making direct investments in long-term infrastructure type plays, where it better matches the return with where they need to actually fund things going forward. So there’s a natural symmetry there that I think you’re going to see more and more folks start to take advantage of.

LIZZIE: So when we zoom out and think about the societal impact of all this change, how do you start to see that playing out?

ERIC: I mean, at the most basic level, all of these things we’re talking about, these large scale transformation and infrastructure are the backbone of economic growth—whether it’s here or it’s in developing economies, right? So there’s that natural synergy there. The renewable energy, that part of the infrastructure investing, right? That leads to energy independence and, in theory, leads to cleaner air for all of our people to breathe and hopefully better health. If you look at the modern transport system, putting in better infrastructure around transportation, right? That allows our people to better connect in their markets. So in my view, right? societies that invest in these assets should be more competitive, and they should be better positioned to attract future industries and therefore, in theory, provide more opportunity for their people.

FEMI: Possibly the hardest question we’re going to pose to you, which is, think ahead by ten years. What should investors be looking out for?

ERIC: I do think, and we’ve, kind of, painted the picture here as we’ve had this discussion, right? Huge amount of capital is needed. It’s needed all over the world in all different countries. And it’s going to be large in size and complex in the ability to actually implement off of. And, I think, by the sheer nature of that, I think what you start to see is you’re going to see more formalized blended models of financing, where public and private capital figure out ways to work together. Not happened very well in the past. Most governments don’t have the surplus to make these types of investments. So the public needs to figure out how to manage and work with the private. The private’s going to need the public players in order to help manage the risk and provide some of that protection as well, and even provide some more capital. And same thing with the sovereign wealth funds, right? Investing alongside the private equity. So I don’t think there’s any one pool of money that’s going to be able to meet the scale of demand that we’re talking about here. I think investors are going to expect sustainability to move from what, probably today in some, and I'm overgeneralizing here, being called optional to [becoming] mandatory. You know, whether it’s a data center, whether it’s a port, a power plant. I think the capital providers here are going to have to show that their projects and their investments can prove to have low carbon releases, they’re resilient, and they have a positive societal impact. I don’t think any of this stuff happens overnight. Right? These [are] investments over long periods of time. They have a ton of complexity. But I don’t think there’s any question that you’re going to lead into a transformation on how we fund these things over time.

FEMI: Eric, thanks for joining us.

ERIC: All right. Thank you, guys.

FEMI: I found it so informative the way that Eric broke down how expensive investment is. I found that so instructive.

LIZZIE: I also think that it followed very naturally then to take the second thought of, OK, where does that money come from and how does it then necessitate these different kinds of partnerships, different kinds of investors, you know. That is a non-traditional way of making big infrastructure projects happen? And that is a major takeaway for me.

FEMI: You can’t do it alone.

LIZZIE: All right, well, that’s it for this episode. For more, please follow Take on Tomorrow wherever you listen to podcasts. Or visit pwc.com/takeontomorrow.

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LIZZIE: Take on Tomorrow is brought to you by PwC’s strategy and business. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.