Private equity professionals are predicting an imminent robot uprising. Seemingly in contrast to what we have said on the subject, over 90 percent of private equity firms believe AI will disrupt their sector by 2024, according to a report by Intertrust.
There is “disruption” and there is disruption; whether these survey respondents saw the private equity industry undercut or turned upside down – in the way that video rental shops or active asset management has been – is not entirely clear. They may simply mean “make dramatically more efficient.” Indeed, 56 percent of respondents say they see the greatest impact of digital innovation in their back-end facilities, with 59 percent predicting this will be the case in five years. This is the type of impact that foresees a leaner, more profitable industry, not really a disrupted one.
AI is already at work in the industry. For example, BDO told us this week they have a program that will predict how long employees will stay at a portfolio company and when they will leave. In the finance function, some more mundane tasks – like processing invoices – will very soon be taken over by robots, leaving finance staff to put their human brains to better use.
It would be an exaggeration, however, to think the revolution is here quite yet. As James Fung, the chief technology officer of Canada-based PE firm, Northleaf Capital tells us, AI technology that can automate finance and operations functions for a private equity firm may be available within the next five years, but it will be unproven. Couple that with the fact that private equity professionals are not the fastest adopters of tech. As one CFO told us back in February when we asked what piece of tech he could not live without: “I still go back to Excel.” It’s cheap – because you already have it – and it can do whatever you want it to, just not by design.
AI technology is only as good as the data you provide it with, which is probably the biggest hurdle facing the adoption of the technology across the industry. Before firms can take advantage of AI technology, automation processing and robotics, they will have to create a data warehouse or “single source of the truth”. This requires investment in something that may seem low priority for the average mid-market fund. Firms that focus on return on investment may find it difficult to commit to such a project, since it’s difficult to calculate how much would be gained from its implementation.
Despite the hurdles, it’s clear that AI technology as well as machine learning, robotics and other tech will continue to seep its way into the industry. It may take five years or 50 years, but it’s exciting to think of all the possibilities. Will the industry be disrupted? Probably not. Will it be better? Probably.
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