Blackstone’s Schwarzman: No room to be a second-mover on AI

The adoption of artificial intelligence could make the difference between good and lacklustre investments, according to Blackstone’s chief executive.

“This is not sci-fi. It’s going to happen to you,” Stephen Schwarzman said, speaking at the IPEM conference in Paris last week. “Don’t be an ostrich. Don’t put that head in the sand and say, well, I don’t know what that is. I’ll catch up with it.”

At present, artificial intelligence has the power of a “genius-level person’s IQ of 180 to 200,” Schwarzman said. In the next three to five years, it will have an IQ of 12,000, he said.

Private equity firms that have improved their portfolio companies with AI could create a formidable competitor “much more than it [could be] today,” he said. Firms finding themselves a second-mover on the implementation of AI could end up with mediocre investments, he added.

Between 60-75 percent of LPs think the use of AI will become significant in PE investment processes in the next five years, according to Coller Capital’s Global Private Equity Barometer Summer 2023, published in June. Three-quarters of LPs think AI will be useful in deal origination, while 64 percent believe the technology will make a “significant contribution” in the deal assessment and 61 percent think this about the post-deal portfolio company engagement stages.

Firms including Blackstone are using AI to help with due diligence, and the alternative asset management giant has directed each of its portfolio companies to look thoroughly at the technology, Schwarzman said.

PE to see more tech talent

Every decent-sized organisation – private equity or not – will one day have data scientists and engineers, the veteran investor said. Firms cannot approach AI like “buying a product and it just works” as it has to be implemented. When looking to apply it to companies, they and their private equity partners will have to pre-engineer their processes.

“The actual implementation of AI will be much clutchier… than the development of the technology itself because we don’t have enough engineers to do all these things yet,” Schwarzman said.

Regulation required for good outcomes

Giving examples of AI innovation, Schwarzman pointed to a range of sectors that could see significant leaps in development as the technology improves.

AI is anticipated to increase the ability to develop new drugs by three to five times, he said. In education, smartphones will provide users with access to their own curriculums across the world, leading to more people in countries with lower incomes gaining access. It can also change the way governments work – increasing efficiency downscale so people can focus on larger-picture improvements to society.

There are risks, Schwarzman warned. Technology in the hands of rogue states and criminals provides them with a “much more formidable resource” than they have previously had.

“Everybody involved in this technology that I know certainly wants the technology to be regulated to some degree because they don’t want bad outcomes and they want all these good outcomes,” Schwarzman said.

Ultimately, AI is meant to be a partner, Schwarzman said.

“It’s not supposed to replace you. It’s supposed to make you more effective faster.”