Private equity firms looking to intensify focus on technology
FIRMS in the private equity space have been investing in technology companies and ideas for more than a decade now. However, most are yet to use technology in their own business.
Fortunately, things are changing — according to a new survey by asset management company Intertrust.
Their study found that private equity companies believe that technology will bring even greater value to their organizations and their clients in the near future.
At present, only a handful of private equity firms are aware of how digital innovation such as artificial intelligence (AI) and blockchain can impact their business and the way they operate, however, those that are pioneering and championing these use cases are moving forward in leaps and bounds and unlocking new synergies and efficiencies.
Private equity leaders are excited by the fact that AI can help handle large volumes of investor queries, and respond to them efficiently. These entities are also exploring the use of blockchain for KYC-related activities.
In some cases, private equity firms are also exploring how AI can help them enhance their financial models to ultimately make better predictions, but Accenture Asset Management MD Paulo Salomao feels this is a long-term goal — although similar use cases are already being deployed in the public equity markets.
Salomao, in a recent blog post, highlights that since data on private equity transactions is hard to gather. Further, unstructured data plays a much more critical role in private equity investing, as there is no “efficient market” governing valuations.
As a result, training algorithms for the private equity market is quite complicated and challenging.
Accordingly, Intertrust’s research suggests that early adopters are reaping the benefits of applying new technologies to business processes, especially time-consuming manual tasks that can now be safely automated. Obviously, those who crack the modeling and decision making code in the private equity space will win big in the long-run.
Private equity interested in senior tech leaders
Although training AI to help make better decisions might be far off, Salomao does recommend getting started with using AI to improve manager selection, assess potential targets heading into distress to front-run a formal sale process more efficiently, and bring in more transparency into the due diligence process.
In order to be able to identify these opportunities, private equity firms believe they need more senior leadership with expertise in technology.
As a result, Intertrust’s survey found that senior management teams in private equity firms are looking to increase in size between now and 2023 as they establish technology roles at a C-suite level with a mandate to drive strategic change.
Eighty-two percent of private equity professionals believe firms will appoint senior technology leaders to the board, higher than any other sector (wealth management, capital markets, real estate, and a few others) analyzed in the report.
At present, however, private equity firms are focused on using technology to increase operational effectiveness rather than large-scale disruption.
More than half of the respondents (56 percent) to Intertrust’s survey said that digital innovation is currently having the biggest impact on the efficiency of back office systems.
Predictions for the impact of innovative technologies beyond the back office in five years’ time, however, underline respondents’ awareness that disruptive change is happening — and underscores why strong tech-savvy leadership is needed at this point.