King Street Capital Acquires AI Data Center Firm
Hedge fund King Street Capital Management has acquired a majority interest in Colovore, an AI-focused data center operator.
The deal, which King Street announced Monday morning, marks the first foray into the data center business for the alternative investment firm with more than $25B in assets. The firm didn't disclose the terms of its stake in Silicon Valley-based Colovore, which specializes in data centers capable of hosting the high-powered computing equipment needed for artificial intelligence.
Colovore operates a modest portfolio of data centers with small facilities in Santa Clara, California, and Nevada. The leadership of both Colovore and King Street say that Monday's transaction is intended to fuel a rapid expansion of the company’s footprint into major data center markets to meet growing demand for facilities capable of supporting AI computing.
"We founded Colovore to allow engineers from Fortune 500s to startups to seamlessly create successive waves of innovation in compute-intensive and AI-oriented services," Colovore co-founder and Chief Technology Officer Peter Harrison in a statement. "Our partnership with King Street will expand our platform to many additional markets, and together we will continue to transform the data center industry and enable these emerging technologies and applications to thrive."
AI-oriented data centers like those operated by Colovore have fundamentally different designs from most traditional data centers.
The high-performance processors used for generative AI and other emerging technologies, such as those produced by Nvidia, use far more power per square foot and produce far more heat than the servers that have traditionally lived in data centers. These higher rack densities, as they are called, require different cooling systems that use liquid refrigerant instead of the chilled air cooling that is standard in most older facilities.
These systems to support AI computing typically can’t be shoehorned into older facilities. As a result, demand for AI-specific data center capacity is on the rise as major tech companies and other data center tenants ramp up investment in the infrastructure to support AI.
"The next-generation chips and power-dense platforms that support AI and other high-performance computing applications are quickly overwhelming legacy, air-cooled data centers," said Brian Higgins, co-founder and Managing Partner of King Street. "Colovore is uniquely positioned to meet the needs of these high-density customers, with a business focused exclusively on liquid-cooled data centers and over a decade of successful operating history supporting many of the leaders in the AI and [High Performance Computing] industries."
While the acquisition of Colovore is King Street’s first data center investment, the firm first moved into the real estate sector in 2019 when it raised $300M for a fund initially focused on assets in markets recovering from distress, like Spain and Italy.
King Street most recently made headlines when it bought into the debt of struggling flexible office provider WeWork in early 2023. The deal made it WeWork’s second-largest bondholder behind Softbank at the time.
