Can AI augment private market investing?

While the essence of private market investment thrives on human relationships and astute judgement, the potential of AI to revolutionise its processes, augment decision-making, and optimise costs cannot be overstated. This transformative technology holds the key to unlocking new efficiencies and opportunities within the private market sphere and its application to investment screening, due diligence and portfolio management will have a far-reaching impact on the industry.

AI applications in private markets
Like most industries, private markets stand to gain materially from advanced AI. It has the potential to build efficiencies into processes, enhance decision-making both pre and post-investment and reduce costs. Key applications for private markets include:

Investment screening and analysis – AI tools can efficiently collect and screen vast amounts of data, allowing investors to quickly identify suitable investment opportunities, analyse industries and compare companies.

Due diligence – using AI, managers can efficiently capture and analyse data from financial statements, legal documents and publicly available information on targeted investment opportunities. Deal teams will be able to move with greater speed and accuracy, avoiding manual data capture.

Portfolio monitoring – managers can leverage broader data sources to analyse portfolio companies, industry trends and identify risks.

Exit strategies – AI can support managers to optimise exit strategies, by identifying market trends and forecasting financial performance to predict optimal exit timings.

Secondary transaction pricing – secondary transactions often involve portfolios with multiple underlying funds and portfolio companies. AI can potentially analyse underlying financials in combination with broader market pricing, and provide live, continuous pricing estimates for private market portfolios. 

For many years, innovative private equity managers have explored technology solutions to gain a competitive edge. One of the earliest and best-known examples of AI and machine learning tools in private equity is EQT’s Motherbrain. It captures hundreds of millions of data points used for market analysis and monitoring, expert talent sourcing, and company benchmarking.

More recently, there have been reports of managers testing generative AI tools like ChatGPT, while some general partners (GPs) have hosted hackathon events to build new AI tools. Others have suggested implementing an AI bot with a seat on the investment committee to enhance investment decision-making and reduce biases. Although many of these ideas are still nascent, we expect AI advancement to have a material impact on the private market landscape.

In summary
Successful investments will always rely on strong relationships and human judgement. There is no doubt, however, that AI offers a multitude of opportunities to build efficiencies, improve decision-making processes and reduce operating costs. While still in its infancy, AI’s trajectory is clear, and the impact of advanced AI-based data collection and analysis on the future of private markets promises to be both transformational and exciting.

Important disclosures
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Investment in private placements, and private equity via feeder funds in particular are complex, highly illiquid, and speculative in nature and involve a high degree of risk. The value of an investment may go down as well as up, and investors may not get back their money originally invested. Investors who cannot afford to lose their entire investment should not invest. Past performance is not indicative of future performance. There can be no assurance that any current or future investments will achieve results comparable to historic results or that any investment objectives or return targets will be met. For private equity investments via feeder funds, investors will typically receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investments in private equity are highly illiquid and those investors who cannot hold an investment for the long term (at least 10 years) should not invest. Please refer to the Confidential Offering Memorandum of the Titanbay Master Fund SCSp-RAIF before making any investment decisions.

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