AI Readiness How to use AI in Private Equity?

AI technology is not new. It has been around for years. In the past 18 months, new mainstream tools like OpenAI’s ChatGPT and CoPilot are making AI more accessible, with day-to-day use cases that work for many sectors. 

Private equity firms are under pressure to be more operationally efficient and to embrace new technologies for competitive advantage. AI can be the solution to both. 

 

Uses cases of AI in Private Markets today

Use cases for Generative AI in private markets are limited today but tech savvy Investment and Investor Relations teams are experimenting with gaining insights from unstructured data sets. Machine Learning use cases (e.g. legal agreements, DDQs, and data scraping) are proven and are already being adopted by private equity firms. 

ROI is hard to quantify when AI is not fully replacing a manual process, so many firms are focussing on simple use cases to shift the culture and build awareness. 

Microsoft Copilot is a great tool to use as a starting point, as it takes existing business processes and improves them. Copilot may not be the AI tool that everyone is using in 10 years, but it might be the thing that opens the floodgates. 

We are still far away from advanced AI use cases and tools becoming widely available in private markets, but firms must prepare now to be ready to move quickly when they do.  

 

Preparing for AI is the first and most important step 

The challenge that most private equity firms face is that they don’t have the architecture and governance in place to trust their data, so how can they trust an AI tool leveraging this data to offer meaningful, reliable insights?  

To be able to leverage AI technology, you need strong data architecture, with core operational systems in place (i.e. CRM, Portfolio Monitoring & Fund Accounting – whether in-house or outsourced) that is integrated in a Data Platform. The Data Platform gives you the agility to quickly integrate and benefit from new technology when it becomes available. 

You need high-quality, proprietary data to be able to use AI tools to gain true competitive advantage. If you apply AI tools to market data, available to everyone, you will have no advantage over peers. Where we are starting to see Holland Mountain clients making their first foray into developments such as private ChatGPT deployment, this is always preceded by comprehensive Enterprise Data Management and Mastering – something we facilitate and support with our ATLAS data platform and services. 

 

Predictions of adoption by private markets firms 

A private markets technology trend we have seen multiple times is the largest firms (e.g. BlackStone, KKR) moving first, putting huge amounts of money into developing technology which is then normalised and productised for the wider industry. Such firms are already doing this now with AI technology, and we expect this to flow into the wider market in the coming years. 

For the small and medium-sized firms, it is hard to justify spending vast amounts of time and money to develop your own technology. You will likely replace it with off-the-shelf technology in a few years if not sooner – we are already seeing vendors launching viable products designed to add value to all kinds of processes in private capital.  

Our advice for firms considering AI strategy today is twofold: 

  • Focus on data architecture & data governance and refining processes that AI can support you with. 
  • Understand the evolving market for third-party products already leveraging AI to add value and efficiency for private capital use cases. 

Want to get ready for AI in 2024? Talk to us

 

Get AI Ready in 2024. Speak to our experts

 

A strong data architecture is the backbone of a successful AI strategy. Our team of specialists can guide you in structuring and setting core operational systems in place, preparing your firm for leveraging AI. 

We are also tracking established and emerging use cases where third party software and technology providers are already leveraging AI to facilitate more tactical enhancements to existing workflows. Our team can help you to understand the ecosystem and prioritise the adoption of tools as they emerge and evolve. 

Reach out to us now for a short introduction call.

This article was based on Holland Mountain’s Jeremy Hocter speech at the SS&C Private Markets Club about how private equity firms can best prepare to benefit from AI.