US private equity groups have invested billions of dollars in data centres serving TikTok owner ByteDance, in a dealmaking frenzy now threatened by a US crackdown on Chinese companies’ access to the best chips.
Blackstone, Bain Capital, Warburg Pincus and General Atlantic have backed companies that run Malaysian data centres that count Beijing-based ByteDance as a tenant, according to four people with knowledge of the arrangements.
Some have done so without knowing whether ByteDance has been using, or is planning to use, the sites to exploit a legal loophole to access high-end Nvidia chips as it develops its artificial intelligence potential.
Chinese companies have been banned from buying Nvidia’s highest-performing chips outside the US since 2023. But they have been able to secure access to them lawfully by renting space in data centres overseas, often in Malaysia, which contain chips owned by third-party companies.
The loophole is set to be closed in May by rules that ban Chinese groups not only from owning such advanced US technology, but also from accessing it to help build AI large language models that are transferred back to China.
The rules were issued by Joe Biden’s administration just before it left office.
“If you want to build a data centre in Malaysia with Nvidia [chips] . . . you’re going to have to meet these kinds of security requirements that include not allowing [China] training large language models on those data sets,” Alan Estevez, then the US under-secretary of commerce for industry and security, told the Financial Times just before he left the role last month.
The type of chips used in the data centres is unclear, and the private equity groups do not always know, in part because the data centre companies do not own the chips or rent them to clients.
However, multiple people with knowledge of the matter have told the FT that ByteDance plans to use data centres in Malaysia to access high-end Nvidia chips.
Buyout groups tend to take the view that “you’re providing a building with electricity and a cooling system; the server and what’s in the server is not your business”, said a private equity executive.
In recent years, ByteDance has made growing use of data centres outside China, particularly in Malaysia, as it becomes a key player in China’s AI race. It is planning large orders to build up its overseas AI capacity this year, including through such rental agreements, the FT reported last month. Separately, General Atlantic has invested in ByteDance itself.
“There has been this game of cat and mouse where the [US] commerce department has amended the parameters to capture the chips,” said Matt Rabinowitz, a partner at the law firm Pillsbury.
Under the new rules, the identity of both the owners and operators of the chips used in data centres will have to go through a review process to ensure compliance.
It is not clear whether US President Donald Trump, who stepped up measures against China in his first term, will further alter the regulations governing chip exports and their use.
The rules set to take effect in May could hit the value of the buyout groups’ investments by reducing demand for the data centres if ByteDance and other Chinese groups are unable to use them to secure access to the best Nvidia chips, said an adviser working in the industry.
However, high demand for data centres globally might fill the gap, they added.
Global private equity groups have raced to invest in data centres in recent years, even as other dealmaking activity has slowed, drawn to the prospect of getting exposure to growing internet use and the AI boom.
They have attempted to distance themselves from the complex and politically fraught business of chip supply by backing companies that run data centres’ physical buildings, but do not own the chips inside.
“We have no visibility or influence on the servers and equipment that our customers install in the data centres,” said Princeton Digital Group, a data centre operator backed by Warburg Pincus.
Bain said its portfolio companies did not have access to the servers inside the data centres they run and added that they “comply with relevant laws and regulations in all the jurisdictions we operate”. Blackstone and General Atlantic declined to comment.
ByteDance is the anchor tenant at a data centre in Johor, a state in southern Malaysia, that is owned by a unit of Bain Capital portfolio company WinTrix. It is also a tenant at several other facilities in Johor, including ones run by Blackstone-owned AirTrunk, PDG and Epoch Digital, run by General Atlantic-owned infrastructure manager Actis.
ByteDance plans to spend more than $12bn on AI infrastructure this year, with $6.8bn of that earmarked for investment outside China. But the US rules could complicate that investment.
“ByteDance complies with all applicable laws and regulations,” the company told the FT.
Warburg Pincus agreed to invest up to $300mn in PDG in 2017 and has since injected further funds. Blackstone completed its A$24bn ($15bn) acquisition of Sydney-based AirTrunk, which has sites in Malaysia, Singapore, Hong Kong, Australia and Japan, in December.
Bain bought China’s Chindata in 2019, merged it with Bridge Data Centres and listed the combined company on Nasdaq in 2020. It took the combined company, now known as WinTrix, private at a $3bn valuation in 2023.
General Atlantic completed its purchase of Actis last year.
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