GPs of all sizes ramping up use of AI: Allvue

Nearly a quarter of private capital GPs are already investing in AI and machine learning to enhance their operations, and 42 percent are planning to do so within two years, according to an early copy of a 2024 outlook survey from Allvue Systems obtained by Private Funds CFO.

Of private equity managers, specifically, 33 percent have already deployed the tech, while another 30 percent are planning to do so in the next couple of years, according to the survey.

The tech provider said the pulse survey, due to be published next week, “paints the picture of tempered optimism for the year ahead,” as GP have more trust in the emerging technology and the effects it can have on the private capital sector, not just as an investment target, but as a tool to optimize fund operations.

Managers with less than $5 billion in assets under management are using AI or machine learning to assist in their fund operations at about the same rate as larger enterprise managers (over $5 billion in AUM), with 23 percent already using the tech compared to 24 percent of larger firms responding to the survey.

But that gap looks likely to widen. Of those who have yet to invest in these technologies for their operations, 58 percent of enterprise managers are planning to in the next two years, compared to only 37 percent of emerging managers.

“We were surprised that emerging managers were just as far along in adopting AI and machine learning into their fund operations as larger enterprise managers. We’re accustomed to seeing larger managers with more resources and deeper pockets leading adoption of emerging tech. Smaller managers have historically placed an emphasis on scaling their funds and investor base while staying lean,” chief technology officer Brandon Meeks told Private Funds CFO.

Private debt managers are lagging the pace of the overall industry, though. No private debt respondents to the survey have implemented AI or machine learning as of yet, but 92 percent say they plan to within two years. Meanwhile, 81 percent of venture capital firms and 67 percent of private equity firms have already adopted the tech.

Meeks recommended that firms that already are, or are considering, using AI and machine learning in their fund operations implement some basic guidelines and oversight.

“AI and machine learning have been making an impact on managers’ fund operations and workflow efficiency for some time, but we have now rapidly entered the era of AI democratization with the emergence of GenAI and the elimination of the barrier to entry. Now that access and appetite are pervasive, establishing governance and validating data security needs to be the very next step. Basic guidelines and oversight are key to ensure that business processes optimized and augmented by AI are done so with the right controls and technology decisions,” Meeks said.

As to what functions AI or machine learning can help optimize, nearly a quarter (24 percent) of all private capital GPs most often use the tech to support data collection, portfolio monitoring and dealmaking.

The tech is not as often being applied to back-office functions, such as investor reporting and accounting, Allvue said.

For private equity managers in particular, 66 percent use AI or machine learning for data collection and 67 percent find it helpful with portfolio monitoring. When it comes to back-office functions, 33 percent adopted AI or machine learning for investor reporting and 25 percent use it for accounting.