KKR’s Raj Agrawal Warns of Froth in AI Investment Stampede
KKR is focusing on data centers in so-called tier-one locations such as Virginia and ensuring it can get 100% property and casualty insurance coverage on the assets, he said.
KKR & Co.’s Raj Agrawal said he’s among those concerned about excess exuberance in data centers and artificial intelligence and that the firm is being selective to mitigate risk.
“Some of these investments are likely not going to work out, that’s just the reality when you have this much capital moving this fast,” Agrawal, KKR’s head of real assets, said in an interview at the firm’s New York headquarters.
KKR is focusing on data centers in so-called tier-one locations such as Virginia and ensuring it can get 100% property and casualty insurance coverage on the assets, he said. The firm is also investing in data centers that support AI models catering to end-users, not just in training or development, as well as building those that aren’t overly customized to one client so that they can be re-purposed.
The firm has identified digital infrastructure as a key growth area for its $186 billion real assets business, which Agrawal was appointed to lead earlier this year. KKR owns stakes in five data-center companies, including developer CyrusOne in the US and two each in the Middle East and Asia.
KKR’s pitch to large cloud-service providers, known as hyperscalers, hinges on offering an “all-in-one” solution that focuses on managing the entire process. That includes securing land and power, as well as providing data-center construction and connectivity, Agrawal said. In September, KKR hired former Amazon Web Services Chief Executive Officer Adam Selipsky as a senior adviser to assist in the effort.
“Hyperscalers aren’t asking for another developer, they’re asking for someone who can handle the grid, the megawatts, the land and the build,” Agrawal said. “We’re organizing around that.”
KKR struck a deal earlier this year for CyrusOne to construct a data center in Bosque County, Texas, for an unidentified hyperscaler as part of its tie-up with Energy Capital Partners. It also has a partnership with ECP and Calpine Corp. to build a power plant alongside the data center.
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Amid the stampede, independent power producers are being acquired at 17 to 18 times earnings, roughly double historical premiums, driven by high demand and growth expectations, Agrawal said.
“That can create problems if the asset doesn’t reach that potential,” he said. “You just have to be disciplined. Paying growth multiples is one thing, assuming that growth automatically shows up is another.”
