How GenAI is actually being used today to enable Private Equity investment teams

There’s now widespread recognition across the Financial Services sector that AI will fundamentally transform how organisations operate and how their people work. While the Private Equity (PE) industry is no exception, opinions vary widely on what the AI-driven transformation of PE will ultimately look like. However, a handful of use cases centered on PE investment teams are now emerging as major focus areas for AI solutions. 

This is happening at a time when GenAI adoption within PE firms is still generally at an early stage. While there’s plenty of experimentation underway, and many firms have set up small scale proofs of concept or prototypes of various use cases, few have progressed these to production. As a result, the amount of value created to date through GenAI applications has been relatively limited. 

Structural barriers to overcome 

There are a number of reasons why progress has been sluggish so far. First, most PE firms still rely heavily on manual processes driven by Outlook and Excel. Currently, there is little standardisation across investment teams, workflows are often loosely defined and the level of discipline applied to data management is mixed. All of which make it difficult to implement GenAI use cases – let alone to deploy successfully a new business application such as deal pipeline/CRM or portfolio monitoring technology. 

A second challenge for many PE firms is that their IT teams tend to be relatively lean, meaning they generally lack in-depth expertise in GenAI. This means they need to look outside for the insight they need, which puts a further brake on progress. Meanwhile, the headlong change and innovation underway in GenAI technology itself, which makes firms wary of investing in tools or solutions that might suddenly be rendered obsolete by the next GenAI model update. 

PE firms also tend to share a number of underlying concerns about GenAI that lead to a more cautious approach. Data privacy is a major worry, especially when entrusting sensitive data to public cloud-based GenAI solutions. Firms are also concerned about data accuracy when GenAI tools are pulling data from a range of web sources whose provenance may be questionable. And both of these worries can exacerbate concerns over compliance risks and a potential lack of explainability. 

Use cases firms are investing their limited resources on so far 

While these challenges may have slowed initial adoption of GenAI by PE firms for their investment teams, take-up is increasing steadily – often starting with back-office use cases in areas like finance and HR, as these are lower-hanging fruit. And we’re also beginning to see increasing traction in three specific use cases for PE investment teams. 

Finding and sourcing deal opportunities. The final decision on differentiating a good deal from a bad one is taken by a human. However, GenAI is playing a growing role in locating, surfacing and analysing the data that informs these decisions. That enhances and accelerates PE managers’ identification of M&A opportunities or acquisition targets. This use case capitalises on GenAI’s unrivalled ability to bring together data from diverse sources – proprietary information, cloud-based software platform data, public filings and more – and analyse it to reveal previously unseen insights.

Data room query and summarisation. Once a PE firm has identified a potential target, it collects hundreds of documents about that company from the company itself, investment bankers, consulting firms and so on. All of that information goes into a virtual repository called a data room. Traditionally, a junior associate would trawl through these documents, pulling out key information and transferring it into applications like Excel or PowerPoint. But putting GenAI on top of the data room enables PE professionals to query and interrogate the data though a free-form conversation, saving time and effort. This is a use case that’s being targeted by several providers of commercial-off-the-shelf (COTS) software products, boosting the pace of adoption.

Investment Committee support. After performing due diligence on a target, a firm will convene an Investment Committee (IC) of senior members to challenge the deal team and rule on a go/no-go decision. Preparations for the IC include the compiling of memos and presentations summarising the due diligence findings and financial details. Here GenAI is being used for two purposes. First, creating the content for the memos and decks for the IC to consider. Second, acting as a virtual IC member, generating questions and challenging the team with them.

Steps to take 

Use cases such as these underscore the value and relevance of GenAI to PE investment teams. The scene is now set for PE firms to accelerate and escalate their GenAI investments to realise significant business benefits and competitive advantage. We suggest they consider five actions as a matter of priority. 

Advance from experiments to robust pilot programs, especially for use cases around deal sourcing and portfolio analytics. GenAI is already proving its value – and a failure to progress towards putting GenAI tools into live production will leave firms playing catch-up with their faster-moving competitors. 
Invest in cleaning your data. Currently, much of the information used by PE firms is processed manually and held in legacy platforms like Excel and Outlook. GenAI stands or falls by the quality and integrity of the data input into it, so before implementing it you should improve the quality of your data by identifying and correcting errors and inconsistencies. 
Focus on integrating GenAI into existing deal flow management systems. GenAI can’t simply be bolted on to existing processes and expected to deliver its full potential. Processes and workflow need to be rethought and reinvented with GenAI as an enabler. 
Create relationships with AI vendors specialising in private markets. While there’s no clear market leader as yet, more and more GenAI solutions are emerging that are PE industry-specific or even asset class-specific. Engaging and collaborating with the developers of these products can benefit both PE firms and vendors. 
Build understanding and enthusiasm for GenAI across the workforce. Embracing GenAI isn’t just a step-change in technology, but a major shift in culture and behavior. Making the most of it demands new skills and ways of working, together with momentum for change driven by influential “GenAI champions” across the business. This effort can be aided by the fact that people are already using GenAI on a daily basis in their private lives, meaning they should be ready to embrace it for professional uses.

What’s next? 

Thanks for reading our thoughts on both the current state of maturity and outlook for GenAI within investment teams. If you have any comments or feedback on anything we’ve said, please feel free to get in touch. In our next blog in this series, we’ll explore the role that GenAI can play for fundraising teams. In the meantime, please read how how businesses can create value from GenAI here.