Artificial Intelligence Won’t Steal Your Private Equity Job, But It Will Make You Better at It

The robots are coming for your jobs! There’s scarcely a day that goes by without someone publishing an article about how artificial intelligence (AI) is making inroads into a given industry. And while the reality is far more nuanced, there is some truth to the idea that automation is gearing up to replace a portion of the labor force.

Recurring, predictable jobs are prime candidates for automation, which is why we’re seeing the technology carving out workers in food service jobs, retail, and manufacturing. However, insights from a McKinsey and Company report revealed that AI and automation are making inroads into every profession because every job, no matter how technical, always involves some percentage of repetitive work that computers excel at.

“…currently demonstrated technologies could automate 45 percent of the activities people are paid to perform and that about 60 percent of all occupations could see 30 percent or more of their constituent activities automated…”

Michael Chui, James Manyika, and Mehdi Miremadi

Private equity firms are no different. On a daily basis, firms engage in gathering data, data entry, data analysis, search projects, and a host of other repetitive tasks that computers are already very good at. As machine learning and AI grow in complexity, the types of repetitive tasks they’ll be able to perform will scale as well. They can already find patterns in the noise, uncovering opportunities and deal flow that others miss.

But can computers buy and sell companies? Of course not. They’re simply a tool, and just as a hammer can’t steal a carpenter’s job, AI isn’t remotely advanced enough to steal yours. But if you use it properly it can give you a significant edge on your competition.

“…a hammer can’t steal a carpenter’s job…”

AI Helps Source Deals

Computers can’t build relationships or navigate the arduous interpersonal complexities involved in sealing the deal. But they can help in finding the deal, and this is an area where any extra edge can return considerable dividends.

Various tools are emerging that take advantage of large datasets to help PE professionals identify key information about potential deals earlier in their process than was previously possible. Most are still fairly early in development, but initial results have been positive for most firms. AI is taking this a step further by looking in places that humans don’t know to look and for signals that humans can’t see. In the next five to ten years you can expect these sorts of data analysis tools to be commonplace across firms of all sizes.

“… AI is taking this a step further by looking in places that humans don’t know to look…”

More imminently applicable are AI tools that help facilitate the due diligence processes that PE firms follow to assess the viability and risk levels of the deals they’re considering. These AI applications excel at delivering actionable intelligence more rapidly than their human counterparts, which could allow you to see potential deals that others will miss, as well as move on deals before competing firms have completed their initial research.

Overall, AI helps PE professionals keep up with the snowballing investment information they’re required to parse and understand. Automation will help ingest this data, organize it, and crunch it for actionable insights into prospective companies and the competitive landscape. Whether you’re tracking signals, events, catalysts, social conversation, or general sentiment, AI allows you to do more with the data you have, as well as take advantage of data sources you haven’t yet considered.

Providing Additional Value to Portfolio Companies

Automation helps PE firms find efficiencies across their portfolios that will net them additional value in the short term and significant extra gains over the entire investment horizon.

PE companies with substantial holdings already use AI to help consolidate portfolio company reporting functions. Not only can it help standardize processes, but it also furnishes management teams with a fully consolidated financial picture of the entire portfolio. This data can be mined to quickly discover key metrics and other critical areas of focus that are important to realizing specific business goals.

AI is capable of tracking a massive amount of data through a wide range of variables, identifying opportunities for growth, potential prospects and partners. Embedding this technology within the structures of each portfolio company will allow each to run more efficiently in its own market as well as fulfill its investment role more fully. These efficiencies, across all back-office and front-office functions, bring considerable cost-savings and open the door to faster, better-informed decision making. Add to this the ability to predict market trends, and AI becomes a critical tool for portfolio company management and growth.

Shrinking the Org Chart

The intent of AI isn’t to reduce the positions at a firm, but rather to change their focus. Currently, you see most PE firms organized into a pyramid structure, with various researchers, analysts, and novice investment professionals doing the grunt work to keep the flow of information and deals moving. As more of these repetitive tasks are augmented by technology, you’re likely to see private equity companies organizing more like a column. Support staff positions would refocus on managing the firm’s tech stack, with more equity professionals to engage in buying and selling activities.

“…The intent of AI isn’t to reduce the positions at a firm…”

This means you and your firm will be able to accomplish more with a leaner, focused staff. Allowing firms to grow into new verticals and act on opportunities that they previously wouldn’t have had the bandwidth to address. Companies will be able to focus intently on the interpersonal side of the business, building relationships and laying the groundwork for deals that their AI tools will help to identify, track and move through the deal funnel.

The Challenges of Automation

There are certainly challenges that the industry will need to grapple with as AI adoption ramps up. Acquiring new and powerful capabilities will require a rethinking of the deal processes firms have employed, in some cases for decades at a time. Something PE firms have been apprehensive to do is stray too far from how they have historically operated. This can be worrisome considering the commitment needed for an AI strategy to actually work. In fact, an AI strategy is only as effective as those operating it. PE firms will need to address the knowledge and expertise gap with either in-house talent or external consultants in order to get the most out of their efforts.

Additionally, machine learning improves AI systems through a self-directed process. This means that as the AI improves, our ability to understand how it reaches its conclusions diminishes. In a sense, the smarter AI becomes, the less we know about how it thinks. When data is gathered, processed, and analyzed by a computer algorithm, who can explain with confidence the insights it produces? Again, is this an in-house resource or an outside expert?

“…the potential ROI far outweighs the cost of getting started…”

This leads us to the biggest challenge PE firms will need to overcome: cost. Depending on a combination of size, strategy and comfort with technology, either building a team internally, working with an independent AI resource or some hybrid of the two may be the answer. The investment required will vary considerably based on approach. Regardless, the potential ROI far outweighs the cost of getting started. The real question is can firms afford to not make the investment?  

Looking Forward

While PE firms won’t be automated out of existence, like a stock trader on the exchange floor, AI provides a competitive edge that firms will need to adopt to survive the next decade. The key to a successful adoption of these technologies is finding partners you trust, whether internal, external or both, to create solutions that align with your firm’s strategy. AI is a key element in the future of private equity. The sooner firms begin including these tools in their standard practices, the more rapidly they will be rewarded.

If you have any questions about this article or want to learn more, feel free to reach out to

Similar Posts