Most of the talk around AI in Private Markets has been that it is in its ‘early days’. There is no real consensus around what ‘good’ looks like yet, and caution is therefore advised.

While some of this sentiment is appropriate, there have been some important developments that are worth discussing to take the thinking further in the industry. 

Taking place at Tech Innovation conference on 21st of March, the focus of the opening panel “Unleashing the Power of AI” was to find practical ways in which firms can be approaching AI today to gain immediate benefits and put themselves in a strong position to benefit from future evolution of the tech. 

Speakers on the panel included: 

  • Simon Bowley, Technology Director at 17Capital 
  • Alpesh Doshi, CEO at RedCliffe Capital 
  • Matthew Guy, Associate Director at Hermes 
  • Jamaria Kong, Managing Director at Towerbrook Capital 
  • Jon Dodson, CTO at Sourcescrub 

Moderated by Tim Friedman, Director at Holland Mountain.

Microsoft Co-pilot’s potential, risks and limitations

Co-pilot is perhaps the most accessible tool for private markets firms, driving a lot of discussions around its potential. Panelists agreed that while meeting transcripts and email summaries are useful tools for any employee, they require careful review for accuracy. The tool is not yet perfect, and employees must be aware of it.

One panelist shared that while training people for Co-pilot is important, fostering an environment that encourages exploration and self-driven learning among team members can lead to innovative uses of the technology. The key area to focus training efforts is on crafting effective prompts for AI; a skill that is becoming increasingly intuitive for the younger generation. 

It was unanimous that Co-pilot has some potential, and its accessibility can’t be neglected. However, like any AI tool, its effectiveness is directly tied to the quality of the data it operates on.

The importance of data strategy, management and security

Effective data strategy is fundamental to being able to effectively leverage AI. Today, most firms have a high volume of low quality, incomplete and duplicated data. Panelists all agreed that if you apply the tool to poor data, you’ll get poor answers. 

Equally critical is data protection. Private markets firms need to make sure they have the right policies in place, comprehensive training, and stringent information security measures to dictate what data the model can access. 

Lastly, we see firms often overlooking the importance of controls and permissions around documents. Very few firms have effective document classification and permissioning models. Without a clear model, there’s a significant risk that AI systems might retrieve and reveal data not meant for all employees’ eyes. 

This leads us to the most ‘exciting’ part of the panel – what are the current use cases? 

Specific AI use cases in Private Markets 

A notable observation is that the leading Private Markets software vendors are putting most of their product development budgets into use cases for AI.  

We can see today that CRM systems are releasing relationship intelligence functionality, using data to establish who has the strongest relationship with a particular person or company. Regarding portfolio monitoring tools, AI helps software users build smart dashboard for better insights.  

AI also have a huge impact on software development lifecycles, where it is supporting developers in writing code, test cases and preparing documentation. But also, on the sales and marketing side by automating contact centres, follow ups and copywriting. 

Across all firms, AI can impact every business process specifically on the writing side, where one panelist mentioned that AI can be used to write up requirements in 2 hours instead of months.  

Debating ‘Build vs Buy’ 

With the huge demand for private equity firms to do something regarding AI, there is a general pressure in the industry.

The sentiment is that there is an underlying assumption that AI necessitates the development of proprietary solutions rather than the adoption of available off-the-shelf tools. 

Although early, the AI tooling market is already vast with offerings that provides benefits for firms. That being said, some generalist service providers are jumping on this trend and claim to be able to help firms with AI, when really, they’re doing a discovery exercise, with limited private equity expertise. This trend carries the risk of delivering marginal benefits for firms, casting a shadow over the potential of AI to revolutionise the sector. 

Humans in the loop

Is AI replacing humans in Private Markets? No. In fact, a lot of the tools claiming to be machine learning today still have humans working on at least part of the process. 

Will AI replace humans in Private Markets? Clearly not. AI is very impressive at areas like maths, coding, writing, playing chess… but not relationship building and being empathetic. Private markets continue to be, and are likely to remain, fundamentally rooted in relationship-driven dynamics.

AI is not set to replace humans in private markets; instead, it will serve as a powerful tool to augment human expertise, automating tasks of lower value and enabling firms to innovate more rapidly. The integration and adoption of AI within firms also hinge on cultural acceptance.

For younger generations, using AI may be second nature, whereas others may need to adapt. Successful AI adoption must be led by example, with senior leadership advocating for creativity and automation, always within a framework of appropriate controls, to shift focus towards higher-value activities. 

Concluding thoughts

The narrative surrounding AI in private markets has often been tinged with caution, underscored by the sentiment that we’re only scratching the surface of what’s possible. However, we can see an acceleration in discussions, pilot programs by firms, and the introduction of new services by providers.

AI is a long-term opportunity that firms should prepare for, requiring a solid data strategy and a risk-aware approach to unlock its full potential across the organization.

Thank you to Real Deals and The Drawdown for hosting the conference, and to all the panelists for their insights and contributions to this enlightening discussion.

By Tim Friedman

March 26th, 2024

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