Private markets’ adoption of artificial intelligence is not a new phenomenon. Over the years, firms including EQT and TA Associates have harnessed data and analytics for deal sourcing, transaction evaluation and portfolio management. Yet the use of generative AI systems like OpenAI’s ChatGPT – one of the largest and most powerful pre-trained transformer language processing models to date – is another story. Over the past year in particular, this specific form of AI has grabbed headlines and been a hot topic in boardroom discussions.
Temasek is one of the most advanced investors with regards to AI. Michael Zeller, head of AI strategy and solutions at the firm, tells affiliate title Private Equity International that specialized AI capabilities form part of its T2030 growth strategy. In addition, Aicadium, Temasek’s “global AI center of excellence,” has built a team of AI talent, including data scientists, machine learning engineers, and software and product management experts, to partner with portfolio companies to co-innovate and scale AI products.
Allianz Capital Partners, meanwhile, hopes AI’s influence will be further-reaching in the mid-term. At the Association of the Luxembourg Fund Industry’s Private Assets Conference in November, Helge Baur, head of private markets operations at ACP, said he wishes AI could perform oversight, or at least prepare oversight reports, for the investor. “We simply ask the machine: ‘Tell me what’s the most pressing topic. What’s on the agenda for today?’ And then, coming to a risk-based oversight approach, ‘What are [the riskiest] capital calls or capital events happening within the next two weeks?’”
Most firms, however, are still taking tentative steps, weighing the possibilities and pitfalls to the adoption of generative AI in improving their operations and investment decision processes.
Partners Group rolled out an integrated generative AI program called PRIMERA GPT into its global employee base last year. Patrik Bless, co-head of business applications and chief information security officer at the firm, told PEI in June staff had used it for RFP writing support, coding, tracking behavior analytics in cybersecurity, and analyzing contractual language, but the use cases were starting to evolve to include sector analysis for investment teams.
In the secondaries market, several firms including Clipway are understood to be using machine learning, data analytics and AI to help them model and price LP portfolios.
Regulatory challenges
In spite of AI’s accelerated adoption, regulation and governance remain concerns. “One of the biggest regulatory problems to solve will be how to protect IP and how to guard consumers against breach of privacy,” says Silverpeak senior adviser Osman Kent. “When you use OpenAI, the material you upload becomes training material for the AI. There was recently an instance where a company uploaded circuit diagrams, and that became public information.”
To add to these concerns, the US Securities and Exchange Commission proposed new rules in July limiting AI use by registered investment advisers and broker-dealers. At issue are potential conflicts of interest that could see a firm’s interests being placed ahead of investors’ when using predictive data analytics and similar technologies, including AI. The rules would require firms to adopt and implement written policies and procedures to prevent such violations.
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