By Manya Saini

(Reuters) -Alternative asset manager Ares Management said on Tuesday it will buy smaller rival GLP Capital Partners' international business, excluding China operations, in a deal valued at $3.7 billion.

The deal would help Ares to expand into the infrastructure sector, an area where Wall Street is making significant bets, expecting the artificial intelligence boom to drive substantial returns due to increasing demand for data center and power.

The companies said they expect data center demand from both hyperscale and enterprise customers to accelerate, with capital expenditures projected to surpass $1 trillion over the next three years.

"There is particularly intense focus among Alts (alternative asset managers) on positioning themselves in front of the multi-trillion-dollar opportunity of building out the world's digital infrastructure," said Oppenheimer analyst Chris Kotowski.

"Clearly, the opportunity is so large and complex that large tech companies are increasingly turning to Alts for project finance and other creative financial solutions."

The deal for GCP International includes a $1.8 billion cash consideration and the remainder will be paid through Ares class A common shares. It also allows for an additional payout of $1.5 billion, if certain performance targets are met.

"GCP International is very well positioned for strong global growth in the new economy, powered by continued growth in ecommerce, evolving global supply chains, the AI revolution and rising global demand for clean energy," said Ares CEO Michael Arougheti in a conference call.

Ares expects the deal to take its total assets under management to $492 billion. Shares of the company were last down 4.5% in afternoon trading.

The broader industrial real estate sector, valued at about $2 trillion, continues to demonstrate strong and resilient fundamentals through various market cycles.

Alternative asset managers, who invest beyond traditional stocks, bonds, and cash, are poised for further gains as central banks around the world cut interest rates, revitalizing the real estate market.

The fund management and alternative asset management sectors have seen an uptick in M&A activity globally this year.

BlackRock agreed to buy Global Infrastructure Partners for $12.5 billion in a major bet on alternative assets in January. Earlier this week, alternative asset manager Blue Owl struck a $1 billion deal for IPI Partners, which also invests in digital infrastructure.

GCP International had $44 billion in AUM, and managed 23 funds and over 320 million square feet of industrial properties, as of June 30.

Ares said it expects the deal to close in the first half of 2025.

(Reporting by Manya Saini in Bengaluru; Editing by Shinjini Ganguli and Alan Barona)