Wall Street’s AI bet: Own the infrastructure, collect the rent

Wall Street's largest alternative asset managers are building exposure to the AI boom by owning the physical infrastructure behind it and locking in rent through long-term leases, Reuters reported on October 29. The positioning comes as concerns mount that debt-laden neocloud companies at the center of the AI buildout could default, and that heavy spending on the sector may not generate adequate returns. In response, industry executives are emphasizing high-quality, long-term tenants.

Blue Owl Co-CEO Marc Lipschultz said the firm leases its infrastructure for 15 to 20 years with annual rent escalators, producing what he described as a highly predictable and growing income stream for investors. He said Blue Owl seeks to limit risks tied to short-term leases and token pricing. Blue Owl CFO Alan Kirshenbaum said the firm does not expect demand for computing power to decline and added, "We are taking Microsoft, Amazon, Meta, credit risk." Shares of alternative managers rose on the day of reporting, with Blue Owl up 6.5%, Ares Management up 2%, KKR and Blackstone each up 2.5%, and Apollo Global up 3.7%.

Ares said its data center strategy targets metropolitan areas including Tokyo, Osaka, London and Sao Paulo, pre-leasing projects to investment-grade hyperscalers under 12- to 15-year leases with no termination rights and inflation escalators. Blackstone, in a post-earnings call, said the vast majority of its data center portfolio has initial lease terms of 15 to 20 years, with 96% of counterparties rated investment grade and an average market capitalisation of $2.5 trillion. Blackstone President Jonathan Gray said, "So when we think about risk, that doesn't feel particularly risky to us."

Ares estimates AI-related capital expenditure demand at just over $5 trillion through 2030, including roughly $2 trillion for physical data center buildings and adjacent power generation and transmission infrastructure. Ares CEO Michael Arougheti said investors are becoming more discerning about counterparty risk and how to price it, and downplayed the effect of higher borrowing costs on AI capex financing, arguing the alternative would be equity funding. He said funding has shifted from equity to high-grade debt and is now flowing into leveraged finance and private credit markets.

Moody's said this week that AI and digital infrastructure are creating large, long-duration financing needs that broaden the private credit market beyond traditional direct lending. The rating agency noted that "many borrowers and counterparties are investment grade. However, concentration, construction, residual-value and circular-financing risks are growing."