Wall Street asset managers bet on AI infrastructure with long-term data centre leases

Top alternative asset managers including Blue Owl, Ares Management and Blackstone are investing in AI data centres, locking in 15- to 20-year leases with investment-grade tenants such as Microsoft and Amazon. Executives stress they are taking tenant credit risk, not betting on AI itself, as a US$5 t

Wall Street's top alternative asset managers are betting on the AI boom by owning the physical infrastructure behind it and locking in rent through long-term leases. With concerns growing that debt-laden neocloud companies could default and that massive spending on the sector may fail to deliver adequate returns, industry executives are emphasising their focus on high-quality, long-term tenants.

Blue Owl Co-CEO Marc Lipschultz said the company owns physical infrastructure critical to the growth of the digital economy. "We typically lease it out for 15 to 20 years with annual rent escalators, creating a highly predictable and growing stream of rental income for our investors," Lipschultz said, adding Blue Owl focuses on limiting risks including those tied to short-term leases and token pricing. Blue Owl has more than 130 data centers operating or under construction, representing nearly 14 gigawatts of leased and owned capacity, with another 21 gigawatts in its pipeline.

"We are not making a bet on AI when we invest in data centers," Blue Owl CFO Alan Kirshenbaum said. "We are taking Microsoft, Amazon, Meta, credit risk." Ares Management said its data center development strategy focuses on 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 last week also highlighted its focus on physical infrastructure and long-term contracted assets. The vast majority of its data center portfolio has initial lease terms of 15 to 20 years, with 96 per cent of counterparties rated investment grade and an average market capitalisation of US$2.5 trillion. "So when we think about risk, that doesn't feel particularly risky to us," Blackstone President Jonathan Gray told analysts on a post-earnings call.

The AI spending spree across data centers, power, equipment and software is one of the biggest investment waves in history, rivaling those that accompanied the advent of the internet and the expansion of railways. Ares estimates AI-related capex demand at just over US$5 trillion through 2030, including roughly US$2 trillion for physical data center buildings and adjacent power generation and transmission infrastructure.

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

Shares of alternative asset managers rose on Thursday, with Blue Owl up 6.5 per cent and Ares Management gaining 2 per cent. KKR and Blackstone each rose 2.5 per cent, while Apollo Global gained 3.7 per cent.