Lending lowdown Podcast

Opportunities in Digital Assets Financing

Episode 23, Season 1

The huge growth in AI applications and data consumption is driving the need for financing of digital assets. Host CJ Doherty sits down with IFR Senior Reporter Richard Leong to discuss the demand for financing in this asset class. "Private credit and insurers are stepping in to provide longer term capital to fund this tremendous amount of money needed," said Leong. "For the capital markets...just increasing use of securitization to term out loans for these players."

Host: CJ Doherty

Listen to the podcast

  • CJ Doherty: Welcome to the lending lowdown. I'm CJ Doherty, director of analysis at LSEG LPC. Today, we're gonna be talking about digital assets financing. Digital assets are very topical these days given it's an industry which is expected to continue growing at a rapid rate and impact our lives both at home and at work. And so the huge growth in AI applications and data consumption is driving the need for financing of digital assets. And so to shed some light on this topic, I'm happy to be joined by Richard Leong, senior reporter at our sister company, IFR. Welcome Richard. Thanks for joining me.

    Richard Leong: Great. CJ, thank you for having me.

    CJ Doherty: Richard, I want to start by asking, can you provide an overview of what's driving interest and money into the area of digital assets financing? You know, in my introduction I mentioned the growth in AI applications and data consumption, but can you provide more details on what's providing the impetus here?

    Richard Leong: I think of this means so much talk and excitement about the use of AI, so that's been sort of added an additional layer of interest from investor base and just even folks like you and I ourselves just to just get a better sense of this grappling of the AI revolution as is often being referred to. You know, as we know businesses, banks for for examples are leaning more heavily to AI. For example, for things like mortgage approval and credit card application, even outside the financial sector, AI potential is being talked about. Maybe to help doctors to make diagnosis faster and more accurately. So there's just a lot of excitement right now on the business side, but also on the consumer side. Uh in general is the usage of data just how you and I are just using a phone constantly for various things. I mean, especially things like home entertainment, streaming movies, streaming games, and just even things like doing a simple more searches to look for bargains online. Or booking reservation for flights and for hotels and to accompany that is also that companies are running the AI application to track all the searches that we're doing online. So there's just a lot of our expectation that the trend of just being online both for businesses and as consumer are just going to continue to go to grow in the foreseeable future.

    CJ Doherty: OK, great. And what industries are seeking funding, you know, worth that amount coming from here?

    Richard Leong: I think the the ones that I've been keeping my eyes most closely on are are things industries like data centers. Umm, on telecommunication company that operate fiber optic networks and also just anything that's sort of involved with the building and the plumbing of the whole, you know Internet ecosystem that we live in right now. They also include things like just even makers of semiconductors and servers that make a whole virtual world run.

    CJ Doherty: Yeah, it's always good to to try and put a number on it to help provide some context. So what is the estimated size of the need for funding and investments when it comes to digital assets?

    Richard Leong: The forecast figures for this part of the market is just quite staggering. Some of them the IMF recently did a study that was just saying to just bring the whole entire global operation to be online. We need at least $418 billion. The estimates of five and a half trillion to 6 1/2 trillion dollars that's needed to build new data center to support the potential use of AI applications.

    CJ Doherty: So that's a very substantial amount, Richard. And what form will funding take for the rising CapEx needs to build these assets? Will it be bank lines, loans, bonds, securitization?

    Richard Leong: A a good overview in breaking down of the funding we're seeing banks obviously in play here are the funding these businesses of working capital like bank lines and revolvers and we have seen a lot of headlines about private credit and insurers are stepping in to provide longer term capital to fund this tremendous amount of money needed. Uh, in this space and for the capital market, which is my focus, just just increasing use of securitization to term out loans for these players, which the use of them is essentially to offload some of their risks and also to enhance the returns on their investment with additional leverage.

    CJ Doherty: Yeah. And it's the demand for financing global. Are we seeing it across regions?

    Richard Leong: Yes. Uh, the it's fair to just say it is a global phenomenon. Obviously, the more developed areas of the world, with a lot of. Developed infrastructures like in the US and Europe and parts of Asia, obviously there's a lot of funding going to Biltmore data centers and try to upgrade their fiber optic networks, but there's also. Developments in parts of Africa and Latin America, for instance, it's also very much trying to catch up with what's happening to the rest of the world.

    CJ Doherty: And final question I want to ask is you know, given the amount of energy consumption when it comes to powering digital assets, are there concerns around sustainability?

    Richard Leong: Those concerns are real, and the tremendous amount of energy that data centers in particular uses. It's a concern for investors and just for anyone that is watching the growth of this industry. In 2022 just to see the figure we talked about data centers or consuming 2% of the world global electric output and to kind of put that in perspective. I’m going in a few more years, data center power consumption is going to grow to 1000 terawatt hours, which is basically equivalent to the electric usage of all of Japan, and that figure was coming from the International Energy Agency. So people are watching very closely about the data consumption from data centers going forward. Some of the other concerns, just to add to the energy consumption, is simply just the location of these data centers. For instance, just because they're not the not the prettiest looking buildings, do you ever driven or been in one and the cost and timing of of replacing like older copper networks with fiber optics and just also another concern is about the limited supply of these kind of rare earth materials that's needed to make things like semiconductors and other sort of parts that needs to operate some of these facilities.

    CJ Doherty: And on that note, we'll wrap up for today and we'll certainly be keeping a close eye on the growing market for financing digital assets. Richard, thanks for sharing your insights with us and I look forward to reading more of your reporting on this topic.

    Richard Leong: Great. Thank you so much.

    CJ Doherty: And thank you all for tuning in. I invite you to check out IFR's coverage of digital assets financing and indeed the broader capital markets at ifre.com and follow them on X at IFR tweets. I'm CJ Doherty, subscribed to the lending lowdown on your favorite podcast platform.

    AD: When you contribute your fixed income deals to LSEG, they’ll reach over half a million buy and sellside professionals around the word. And be included in our industry-leading league table rankings. To ensure we are capturing your entire deal flow, visit contribute.lseg.com/FIsignup. Or contact our team at contribute@lseg.com. Make your deal count.

Also available on