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3 AI-Driven Growth Potentials for Private Equity Firms

Capital Markets CIO Outlook | Wednesday, November 20, 2019

A private equity firm can significantly gain from AI technology resulting in better portfolio management and efficient utilization of available capital.

FREMONT, CA: A private equity firm provides financial backing to the startup or operating companies through a variety of loosely affiliated investment strategies such as leveraged buyout, venture capital, and growth capital. Private equity firms also acquire a controlling position in a company and try to maximize the value of the investment. However, with increasing complexities and dynamic market fluctuations, private equity firms need technological assistance to improve their chances of success. Artificial intelligence (AI) is one such technology that can add immense value to the operational as well as the decision-making capabilities of a private equity firm.

Investment Research

Private equity can benefit from the AI-driven solutions that are refined to serve the private equity market space. AI-based solutions can utilize the vast amount of a firm’s proprietary data and aid in investment research efforts. As private equity players realize the importance of AI technology, the trend can be seen reciprocating with the growing popularity of AI solutions in the private equity landscape.

Portfolio Company Reporting

AI is enabling the private equity firms to process and consolidate Portfolio Company reporting more efficiently. For instance, investment firms are using AI to automate their processes to design a consolidated financial view across the portfolio. Further, early adopters of AI spend more time on a specific issue than their counterparts who spend more time identifying them.

Capital Preservation

Continuous identification and management of risk involved in the capital is an integral part of the private equity sphere. Modern AI solutions can assist investment professionals with the above task. AI solutions can also scan a wide range of business aspects such as business news and social media to develop strategies against each risk category that are being dealt with by private equity investors. AI solutions enable users to have a consistent view of risk over time, which is free from human bias.

Due to the above advantages, several private equity firms are restructuring their processes to utilize the potential of AI across their portfolio companies. AI solutions are also enabling private equity firms to streamline their processes and optimize the available capital for better returns.