UPP Invests in Data Centre Developer Rowan Digital Infrastructure

Jessica Hamlin of PitchBook also reports on how a Canadian pension bets on digital infrastructure’s momentum:

A Canadian pension plan’s latest investment capitalizes on digital infrastructure’s momentum.

The University Pension Plan Ontario, which manages $11.7 billion on behalf of four Ontario-based universities, completed a co-investment alongside Quinbrook Infrastructure Partners in data center company Rowan Digital Infrastructure, the firms announced Tuesday. The deal is another example of outsize investor interest in the sector, which has been bolstered by market tailwinds and inflation hedging characteristics over the past decade.

Propelled by growing demand for telecommunications infrastructure and rapid technological change, digital infrastructure deals have outperformed all other sub-sectors within the infrastructure asset class since 2010, according to a recent PitchBook analyst note.

Data centers are a particularly profitable area within digital infrastructure. Demand for data center capacity has grown substantially over the past decade on the heels of the widespread adoption of technologies like cloud computing and artificial intelligence.

Rowan, which was formed as a joint venture between Quinbrook and Birch Infrastructure in 2020, is developing four data center sites across Texas, Oregon and Maryland with planned minimum capacity of 300 megawatts per facility.

As a result of demand for data center capacity, asset owners like UPP have poured capital into the space. From 2014 to 2023, private infrastructure and real estate funds with exposure to digital infrastructure raked in $800 billion in commitments, according to the analyst note.

The COVID-19 pandemic also fueled consumer demand for digital infrastructure through increased remote work, ecommerce activity, and video streaming and calls.

The infrastructure asset class more broadly is often touted as a way for institutional portfolios to hedge against inflationary pressures, thanks to long-term revenue contracts and the tangibility of the underlying assets—a reality UPP hopes to capitalize on through the Rowan Digital transaction.

The deal also contributes to UPP’s target to commit $1.2 billion to investments in companies and assets that mitigate the impacts of climate change. With the proliferation of renewable energy and climate infrastructure assets as well as mounting obligations on infrastructure owners to decarbonize, infrastructure is increasingly seen as an asset class that will be necessary to support the energy transition.

The financial terms of the deal were not disclosed.

And Michael Brook of the UK's Current reports Quinbrook & UPP partner for Rowan Digital Infrastructure co-investment:

Last week, UPP issued a press release stating it invested in data centre developer Rowan Digital Infrastructure:

Toronto / New York – August 13, 2024 – Quinbrook Infrastructure Partners (“Quinbrook”) and University Pension Plan Ontario (“UPP”) today announced that UPP has completed a co-investment in a Quinbrook portfolio company, Rowan Digital Infrastructure (“Rowan”). This investment builds on a partnership initiated in 2023 with UPP’s investment to Quinbrook’s Net Zero Power Fund. The financial terms of these transactions were not disclosed.

Rowan was established in 2020 to provide ‘turnkey’ solutions for US-based hyperscale data centre users, or digital businesses requiring data centres engineered for large-scale workloads, infrastructure scalability, and streamlined network connectivity. Rowan’s flexible build-to-suit offering delivers customized and configurable solutions that provide its customers the ability to scale fast and help meet their energy needs from renewable sources.

Quinbrook, a specialist global investment manager focused exclusively on the infrastructure needed for the energy transition, is developing and constructing some of the largest renewable power generation and storage infrastructure projects in the UK, US, and Australia. UPP’s investment in Rowan will allow Quinbrook to further advance its efforts to provide innovative solutions that help support the net-zero transition in high growth, energy-intensive industries.

“We are thrilled that UPP shares our focus on investing in energy infrastructure that helps support the net-zero transition and are very pleased to welcome them as a co-investor in Rowan, and to our broader infrastructure platform,” said John Lucas, Managing Director and North America regional lead for Quinbrook. “The large load requirements of new-build data centres means that there is likely to be increasing investment in and demand for data centres powered by renewable energy. Rowan’s platform has been built and well placed to capture hyperscale customers’ demand for ‘build ready’ sites powered by renewable energy solutions.”

UPP’s investment in Rowan, an asset with inflation-hedging characteristics, aligns with UPP’s strategy to offer members pension security while reducing inflation risk. It also contributes to UPP’s 2030 target to invest or commit $1.2 billion in climate solutions, which are companies, assets, and technologies that can help mitigate the impacts of climate change or adapt to a changing climate.

“We are excited to partner with Quinbrook in their mission to support the transition to a net-zero future, in line with our own climate-related commitments. Beyond adding important inflation-hedging properties to UPP’s investment portfolio, our investment in Rowan Digital Infrastructure provides a unique opportunity to help fund the critical infrastructure required for the growth of data centres with renewable energy sources,” said Peter Martin Larsen, Senior Managing Director, Head of Private Markets at UPP. “This partnership underscores UPP’s dedication to making investments with strong and stable long-term returns for our members that can contribute to the decarbonization of key industries and the wider economy.”

More information about Quinbrook’s renewable energy strategy is available at www.quinbrook.com. To learn more about UPP’s investment strategy and Climate Action Plan, visit myupp.ca.

About Quinbrook

Quinbrook Infrastructure Partners (www.quinbrook.com) is a specialist investment manager focused exclusively on the infrastructure needed to drive the energy transition in the UK, US, and Australia. Quinbrook is led and managed by a senior team of power industry professionals who have collectively invested c. USD 5.6 billion of equity capital in 43.3 GW of energy infrastructure assets representing a total transaction value of USD 48.3 billion. Quinbrook has completed a diverse range of direct investments in both utility and distributed scale onshore wind and solar power, battery storage, reserve peaking capacity, biomass, fugitive methane recovery, hydro and flexible energy management solutions in the UK, US, and Australia. Quinbrook is currently developing and constructing some of the largest renewables and storage infrastructure projects in the UK, US, and Australia.

About University Pension Plan Ontario (UPP)

University Pension Plan Ontario (UPP) is a jointly sponsored defined benefit pension for Ontario’s university sector. UPP manages CAD$11.7 billion in pension assets and proudly serves over 40,000 members across four universities and 14 sector organizations. UPP is growing a resilient fund to secure pension benefits for members today and for generations to come and is open to all employers and employees within Ontario’s university community. For more information, please visit myupp.ca.

 UPP's co-investment with Quinbrook in Rowan Digital Infrastructure checks all the boxes from delivering outstanding returns to continue to invest in sustainable investments to lower the carbon footprint.

Once again, UPP partnered up with a great strategic partner which focuses exclusively on the infrastructure needed for the energy transition, and is developing and constructing some of the largest renewable power generation and storage infrastructure projects in the UK, US, and Australia.

This investment builds on a partnership initiated in 2023 with UPP’s investment to Quinbrook’s Net Zero Power Fund. The financial terms of these transactions were not disclosed.

Peter Martin Larsen, Senior Managing Director, Head of Private Markets at UPP, summed up what attracted them to this deal:

A Canadian pension plan’s latest investment capitalizes on digital infrastructure’s momentum.“We are excited to partner with Quinbrook in their mission to support the transition to a net-zero future, in line with our own climate-related commitments. Beyond adding important inflation-hedging properties to UPP’s investment portfolio, our investment in Rowan Digital Infrastructure provides a unique opportunity to help fund the critical infrastructure required for the growth of data centres with renewable energy sources. This partnership underscores UPP’s dedication to making investments with strong and stable long-term returns for our members that can contribute to the decarbonization of key industries and the wider economy.”

Peter and his team have been making key investments in private markets and while the PE downturn has impacted many larger peers, it's offering a chance for UPP to cozy up to new GPs:

While many institutional investors find themselves overweight private markets, struggling to price and exit illiquid investments in the current market, C$11 billion University Pension Plan Ontario is aggressively building out its 20 per cent allocation to private assets.

UPP was only established in 2021 following the culmination of a decade-long process by three founding universities to amalgamate their existing pension schemes into one umbrella organization.

But the private markets team led by Peter Martin Larsen has already committed or invested CAD$900 million, most of which has gone into inflation-proof infrastructure assets.  Now their focus is turning to return-enhancing private debt and private equity with new partners in close relationships that will open the door to co-investment and direct participation down the line.

“The return enhancing element of the portfolio is gathering steam. We have been very busy adding to it and are looking to do a lot more. Our private markets target allocation is significantly higher than the current 20 per cent,” says Larsen in an interview with Top1000Funds.com.

Moreover, the current market is allowing UPP to get a foot in the door with sought-after and specialist mid-market managers by offering meaningful ticket sizes. Many asset owners lack dry power in the current environment but newcomer UPP still in the foothills of building its allocation can fill a gap as an attractive partner while other Limited Partners remain strapped for cash.

“We are in the fortunate position of expanding our exposure and are focused on making new investments, not trying to realise existing ones. It’s been great timing for us to create partnerships in this market,” he says.

Bold ticket sizes and portfolio exposure within the mid-market space also mean UPP can ensure a seat on Limited Partner Advisory Committee boards, where LP investors in a fund can take an oversight role and offers another way to cosy up to GPs.

“In addition to creating close partnerships around co-investments and achieving the long-term benefits of that approach for our members, we are also focused on governance in our fund investments. We typically target the mid-market, where we can be meaningful, and every fund investment we have done so far has included an LPAC seat. In fund investments this is one way to increase ongoing due diligence and governance and be close to our partners.”

Partnerships pay off

As he expands the portfolio, Larsen has turned his focus beyond fund investment to co-investment opportunities. He says UPP is targeting a selective, smaller group of GPs to develop strategic co-investment partnerships that will enhance returns, lower fees, and offer greater control and governance oversight, allowing UPP to align investments with its own risk tolerance and sustainability goals.

Co-investments will also allow UPP to develop shared best practice and a consistent approach to risk-return assessments including accessing opportunities at the intersection of asset classes, he continues.

“Co-investments are a critical part of our strategy. They really are the core of what we are trying to do.”

He adds: “Our focus is on finding partners for value creation and outperformance through our people who are market leaders in their fields. We are also very focused on being an attractive partner ourselves. The key words for us are in-house expertise and a cohesive approach across our four private asset classes, which enable deeper partnerships.”

The skills of UPPs diverse 12-person internal team span asset class expertise and an ability to draw on their own networks to source opportunities in funds, co-investment and direct private market investment.

“We have an amazing and experienced team who have been around the block and invested through cycles,” he says. “We have people who have invested in funds, co-investments and direct with global relationships who can originate opportunities.”

Larsen says his own move from institutional investment in Denmark to join UPP in Canada has been made easy by similarities between the two regions that include a deep institutional investment ecosystem and talent pool. “The investment approach in pension funds in Canada and Denmark are similar, inspiration in Denmark come from Canada.”

He says the skills of the team is already born fruit. Like UPP’s recent €150 million investment in offshore wind veterans Copenhagen Infrastructure Partners’ latest fund, and stake in Angel Trains, the UK rolling stock company.  “We have a team with global relationships that can originate these opportunities.”

With its focus on people and partnerships, UPP’s strategy is typical of the Canadian Maple Eight. He began by building in-house expertise focused on accessing opportunities, executing; building partnerships and monitoring the portfolio. Now he’s developing partnerships that will transition into co-investment and direct participation. He also wants to integrate sustainability and diversification, tapping long-term, secular trends that are robust in any interest rate or inflation environment.

“Coming out of COVID, diversification was one of the biggest learnings”

Sustainability is incorporated into the screening and underwriting process, overseen by the internal team.

“Besides being a key way in which we seek to invest responsibly on behalf of our members, integrating material ESG factors across all investment processes is the right commercial thing to do to avoid undue risks such as stranded assets. There must be a buyer in 15–20-years time when we may look to sell the asset.

We want to partner with GPs with a track record in responsible investing (RI) and we actively engage with GPs to influence their investment decision and management practices. ESG is integrated into our portfolio construction.”

As Larsen builds out the allocation, today’s overweight LPs is a reminder of the risk and long-term nature of private investments. He says UPP has a five-year strategy to reach its (undisclosed) target allocation and won’t rush – despite the opportunity – to ensure vintage diversification.

“We will invest for the long term and target value creation over 10-15 years. All the data shows consistent out performance from private markets over a 10-15 year period vs public markets. But you need to be patient and accept and embrace the illiquidity. You don’t want to be a forced seller of private assets.”

And unlike most upstarts, UPP has cash saving it from selling in the secondary market. 

An enviable liquidity profile, an experienced team and solid strategic partners aligned with their responsible investing objectives are driving the expansion of UPP's private market exposure.

I love their approach, choosing strategic partners carefully and leveraging off them to secure great co-investment opportunities (to lower fee drag and maintain healthy allocation to private markets).

UPP is a smaller shop than the rest of the big funds but it already has the experienced team, infrastructure, governance and culture of larger peers and is well on its way to becoming a very important global institutional investor. CEO barb Zvan did a great job recruiting a solid team there.

Below,egardless of whether a network operator has an ‘open’ or ‘traditional’ strategy, and relies on the public cloud or is mostly on-premise, even a software-first service provider still needs chips, modules and boxes. But what infrastructure will they need, from which supplier(s) and where will it be operated? 

This session explores the impact on service creation and the delivery of hardware selection, deployment and operations, and examines which options make the most sense in certain network domains and in relation to which services. White box hardware has been around for years now, but in what instances is it ‘carrier grade’, does that matter, and how do such considerations impact procurement strategies? 

This panel features Francesca Serravalle, Head of Infrastructure and Energy, Vodafone UK; Darrell Jordan-Smith, Chief Revenue Officer, Wind River; Dean Dennis, Managing Director Global Solutions, Verizon Business; and Vivek Chadha, SVP & Global Head of Telco Cloud, Rakuten Symphony.