Many have pitched their investments as a more reliable way to play the AI boom while avoiding the risks of a gold rush into AI stocks, because it is hard to predict winners and losers
[NEW YORK] The flood of capital pouring into artificial intelligence (AI) infrastructure is raising the risks of overcapacity as the world’s biggest investors look to cash in on the AI boom, according to Ares Management co-president Kipp deVeer.
“If you look historically in areas like this over the past 20 or 30 years, typically when this much capacity comes online, some of it at the end of the day has to be marginal,” deVeer said, speaking on the sidelines of the Greenwich Economic Forum in Connecticut on Tuesday (Oct 7). “These trends tend to lead to overbuilds in certain places, so us being selective and measured in what we build is important.”
Alternative asset management giants, including Blackstone, Brookfield, Apollo Global Management and Ares, have poured into data centre projects as a way to cash in on booming demand for processing power that’s been unleashed by the advent of AI. Many have pitched their investments as a more reliable way to play the AI boom while avoiding the risks of a gold rush into AI stocks, because it is hard to predict winners and losers.
Los Angeles-based Ares last month unveiled more aggressive asset-raising targets, particularly for data centre investments and its wealth business. The firm said that it’s aiming for more than US$8 billion of equity fundraising to back data centres in the near term across London, Japan and Brazil. It also hiked its fundraising target for the wealth business by US$25 billion, to US$125 billion, by 2028.
Ares, which has historically focused on the financing of data centres through its credit business, raised US$2.4 billion in the first half of the year for the facilities and has a dedicated fund for digital infrastructure investments in Japan.
Last year, it acquired GLP Capital Partners’ operations outside of China for as much as US$5.2 billion, a deal that doubled Ares’ real estate assets and has allowed the company to do more direct data centre development, according to deVeer.
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“If you stay in tricky markets, ie, with hard to find entitled land, and then you are building really high-quality facilities, which we think we are because we have an in-house team which came with the acquisition, it is pretty easy for us to find great leases from investment-grade tenants such as the hyper scalers,” he said.
Ares’ strategy is largely focused on pre-leased developments with terms of 15 years or longer with so-called rent escalators, which it says reduces the risk in the longer term. The financing for these investments could be catered for insurance capital.
The firm said that it’s also seeking to raise US$70 billion for alternative credit by 2028. And it expects the market for secondaries, generally discounted sales of secondhand private markets funds, including credit, private equity and infrastructure, to more than double in the next five years.
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The firm has bought US$7 billion worth of continuation vehicles, which allow fund managers to roll private stakes into new funds.
One area of opportunity for firms has been opening up further to retail money.
In the US, President Donald Trump signed an executive order in August that was meant to make it easier for retirement plans such as 401(k)s to include private equity, real estate, cryptocurrency and other alternative assets. deVeer said that Ares would be supportive of bringing its products into these types of channels where there is interest. BLOOMBERG
