Global Market: Wall Street's top asset managers bet big on AI infrastructure boom - The Economic Times

Wall Street's leading alternative asset managers are positioning themselves to benefit from the artificial intelligence boom by investing in data centres and other critical infrastructure, according to Reuters-sourced reporting in The Economic Times. The managers are seeking to limit risk through long-term leases with financially strong tenants, even as concerns mount that heavily indebted cloud infrastructure companies, known as neoclouds, could default and that AI infrastructure spending may not generate sufficient returns.

Blue Owl co-CEO Marc Lipschultz said the firm owns physical infrastructure critical to the growth of the digital economy. Blue Owl typically leases these assets for 15 to 20 years with annual rent increases, according to Reuters. The company operates or is constructing more than 130 data centres, representing nearly 14 gigawatts of leased and owned capacity, with a further 21 gigawatts in its pipeline. CFO Alan Kirshenbaum said the investments are not simply a bet on AI growth but involve credit exposure to major technology companies including Microsoft, Amazon and Meta.

Ares Management focuses its data centre development on major metropolitan markets including Tokyo, Osaka, London and Sao Paulo, pre-leasing projects to investment-grade hyperscalers under 12 to 15 year contracts with inflation-linked rent increases. Ares estimates AI-related capital expenditure demand will exceed $5 trillion through 2030, including about $2 trillion for data centre buildings and associated power generation and transmission. CEO Michael Arougheti said investors are becoming more selective about counterparty risk and its pricing following an AI-related stock selloff earlier in the month, and he played down concerns that higher borrowing costs would significantly undermine spending, noting companies could finance projects through equity. Blackstone said its data centre portfolio largely carries initial lease terms of 15 to 20 years, with about 96% of counterparties rated investment grade and an average market capitalisation of $2.5 trillion. President Jonathan Gray said these characteristics make the sector exposure relatively low-risk.

Funding is shifting from equity and investment-grade debt toward leveraged finance and private credit, creating opportunities for alternative managers. Moody's said the sector is generating substantial, long-duration financing needs, while highlighting borrower concentration, construction challenges, residual-value uncertainty and circular financing arrangements as risks, even though many borrowers carry investment-grade ratings. Shares of alternative managers rose on Thursday, with Blue Owl up 6.5%, Apollo up 3.7%, Ares up 2%, and KKR and Blackstone each up 2.5%. The sustainability of the trade ultimately depends on continued demand for computing power, tenant financial strength and technology companies' ability to earn sufficient returns on their infrastructure spending.