US personal fairness teams have invested billions of {dollars} in knowledge centres serving TikTok proprietor ByteDance, in a dealmaking frenzy now threatened by a US crackdown on Chinese language firms’ entry to the very best chips.
Blackstone, Bain Capital, Warburg Pincus and Basic Atlantic have backed firms that run Malaysian knowledge centres that depend Beijing-based ByteDance as a tenant, in line with 4 folks with information of the preparations.
Some have carried out so with out realizing whether or not ByteDance has been utilizing, or is planning to make use of, the websites to take advantage of a authorized loophole to entry high-end Nvidia chips because it develops its synthetic intelligence potential.
Chinese language firms have been banned from shopping for Nvidia’s highest-performing chips exterior the US since 2023. However they’ve been in a position to safe entry to them lawfully by renting house in knowledge centres abroad, usually in Malaysia, which include chips owned by third-party firms.
The loophole is ready to be closed in Could by guidelines that ban Chinese language teams not solely from proudly owning such superior US expertise, but additionally from accessing it to assist construct AI massive language fashions which are transferred again to China.
The principles had been issued by Joe Biden’s administration simply earlier than it left workplace.
“If you wish to construct a knowledge centre in Malaysia with Nvidia [chips] . . . you’re going to have to fulfill these sorts of safety necessities that embody not permitting [China] coaching massive language fashions on these knowledge units,” Alan Estevez, then the US under-secretary of commerce for trade and safety, informed the Monetary Instances simply earlier than he left the function final month.
The kind of chips used within the knowledge centres is unclear, and the personal fairness teams don’t all the time know, partially as a result of the info centre firms don’t personal the chips or lease them to shoppers.
Nonetheless, a number of folks with information of the matter have informed the FT that ByteDance plans to make use of knowledge centres in Malaysia to entry high-end Nvidia chips.
Buyout teams are inclined to take the view that “you’re offering a constructing with electrical energy and a cooling system; the server and what’s within the server is just not your enterprise”, stated a personal fairness government.
In recent times, ByteDance has made rising use of knowledge centres exterior China, significantly in Malaysia, because it turns into a key participant in China’s AI race. It’s planning massive orders to construct up its abroad AI capability this yr, together with by means of such rental agreements, the FT reported final month. Individually, Basic Atlantic has invested in ByteDance itself.
“There was this sport of cat and mouse the place the [US] commerce division has amended the parameters to seize the chips,” stated Matt Rabinowitz, a accomplice on the regulation agency Pillsbury.
Beneath the brand new guidelines, the id of each the house owners and operators of the chips utilized in knowledge centres should undergo a overview course of to make sure compliance.
It isn’t clear whether or not US President Donald Trump, who stepped up measures in opposition to China in his first time period, will additional alter the laws governing chip exports and their use.
The principles set to take impact in Could may hit the worth of the buyout teams’ investments by decreasing demand for the info centres if ByteDance and different Chinese language teams are unable to make use of them to safe entry to the very best Nvidia chips, stated an adviser working within the trade.
Nonetheless, excessive demand for knowledge centres globally would possibly fill the hole, they added.
World personal fairness teams have raced to put money into knowledge centres in recent times, whilst different dealmaking exercise has slowed, drawn to the prospect of getting publicity to rising web use and the AI growth.
They’ve tried to distance themselves from the advanced and politically fraught enterprise of chip provide by backing firms that run knowledge centres’ bodily buildings, however don’t personal the chips inside.
“Now we have no visibility or affect on the servers and tools that our prospects set up within the knowledge centres,” stated Princeton Digital Group, a knowledge centre operator backed by Warburg Pincus.
Bain stated its portfolio firms didn’t have entry to the servers inside the info centres they run and added that they “comply with related legal guidelines and laws in all of the jurisdictions we function”. Blackstone and Basic Atlantic declined to remark.
ByteDance is the anchor tenant at a knowledge centre in Johor, a state in southern Malaysia, that’s owned by a unit of Bain Capital portfolio firm WinTrix. It is usually a tenant at a number of different amenities in Johor, together with ones run by Blackstone-owned AirTrunk, PDG and Epoch Digital, run by Basic Atlantic-owned infrastructure supervisor Actis.
ByteDance plans to spend greater than $12bn on AI infrastructure this yr, with $6.8bn of that earmarked for funding exterior China. However the US guidelines may complicate that funding.
“ByteDance complies with all relevant legal guidelines and laws,” the corporate informed the FT.
Warburg Pincus agreed to speculate as much as $300mn in PDG in 2017 and has since injected additional funds. Blackstone accomplished its A$24bn ($15bn) acquisition of Sydney-based AirTrunk, which has websites in Malaysia, Singapore, Hong Kong, Australia and Japan, in December.
Bain purchased China’s Chindata in 2019, merged it with Bridge Knowledge Centres and listed the mixed firm on Nasdaq in 2020. It took the mixed firm, now often known as WinTrix, personal at a $3bn valuation in 2023.
Basic Atlantic accomplished its buy of Actis final yr.
