(Bloomberg) –The flood of capital pouring into AI infrastructure is elevating the dangers of overcapacity because the world’s greatest traders look to money in on the unreal intelligence increase, in accordance with Ares Administration Corp. Co-President Kipp deVeer.
“If you happen to look traditionally in areas like this over the previous 20 or 30 years, usually when this a lot capability comes on-line, a few of it on the finish of the day needs to be marginal,” deVeer mentioned, talking on the sidelines of the Greenwich Financial Discussion board in Connecticut on Tuesday. “These developments are likely to result in overbuilds in sure locations, so us being selective and measured in what we construct is essential.”
Various asset administration giants, together with Blackstone Inc., Brookfield, Apollo World Administration Inc. and Ares, have poured into knowledge heart initiatives as a method to money in on booming demand for processing energy unleashed by the arrival of synthetic intelligence. Many have pitched their investments as a extra dependable method to play the AI increase whereas avoiding the dangers of a gold rush into AI shares, as a result of it’s laborious to foretell winners and losers.
Los Angeles-based Ares final month unveiled extra aggressive asset-raising targets, notably for knowledge heart investments and its wealth enterprise. The agency mentioned it’s aiming for greater than $8 billion of fairness fundraising to again knowledge facilities within the close to time period throughout London, Japan and Brazil. It additionally hiked its fundraising goal for the wealth enterprise by $25 billion, to $125 billion, by 2028.
Ares, which has traditionally targeted on financing knowledge facilities via its credit score enterprise, raised $2.4 billion within the first half of the yr for the services and has a devoted fund for digital infrastructure investments in Japan. Final yr, it acquired GLP Capital Companions Ltd.’s operations outdoors of China for as a lot as $5.2 billion, a deal that doubled Ares’ actual property property and has allowed the corporate to do extra direct knowledge heart growth, in accordance with deVeer.
“If you happen to keep in difficult markets – i.e., with hard-to-find entitled land – after which you’re constructing actually high-quality services, which we expect we’re as a result of now we have an in-house staff which got here with the acquisition, it’s fairly simple for us to seek out nice leases from investment-grade tenants just like the hyper scalers,” he mentioned.
Ares’ technique is basically targeted on pre-leased developments with phrases of 15 years or longer with so-called hire escalators, which it says reduces the chance in the long term. The financing for these investments might be catered for insurance coverage capital.
The agency mentioned it’s additionally looking for to boost $70 billion for various credit score by 2028. And it expects the marketplace for secondaries – typically discounted gross sales of secondhand non-public market funds, together with credit score, non-public fairness and infrastructure – to greater than double within the subsequent 5 years.
The agency has purchased $7 billion value of continuation automobiles, which permit fund managers to roll non-public stakes into new funds.
One space of alternative for corporations has been opening up additional to retail cash.
Within the US, President Donald Trump signed an govt order in August that was meant to make it simpler for retirement plans like 401(okay)s to incorporate non-public fairness, actual property, cryptocurrency and different various property. Ares could be supportive of bringing its merchandise into most of these channels the place there may be curiosity, deVeer mentioned.
