In 2023, ChatGPT marked the biggest release in technology since Google. Since then, GenAI has seeped its way into industries across the globe, compelling businesses to think innovatively about their product offering as well as their internal operations. The same goes for the private equity market.

But given that private equity is traditionally a less technology-driven space, Frister Haveman, co-founder and co-CEO of Gain.pro, explores the impact AI has had on the market thus far. Haveman, along with co-founder Nicola Ebmeyer, built the private market intelligence platform by combining the best of AI technology with expert analysts. 

Haveman shares insights drawn from his own experience in private equity and consulting, as well as interactions with clients who are actively implementing GenAI in their operations.

RD: Do you think we are in an AI bubble?

Frister Haveman: I have been working in private equity for seven years and the adoption of technology within that timeframe has increased significantly. 

I think we are certainly in an AI investment bubble, but I am also bullish on AI. I am comparing it to the beginning of the 2000s when we had a dotcom bubble and then the dotcom crash. Back then, people wrongly thought the internet hype was over; I think the same is going on with AI. 

While there is a lot of hype and likely overinvestment, I think there is significant future potential with AI. The technological breakthrough is real and the magnitude of its impact is huge. Specifically as an investor, you need to be cautious – widely investing in a bubble market can be a risky endeavour. But overall, I think we are going to see genuine innovation from AI of the kind that we have not seen in decades.

RD: How do you think AI will impact private equity in the next few years?

Haveman: It is important to separate between the internal operations of a private equity firm and its investment opportunities and portfolio. I see a few distinctions on the investment side.

Private equity investors are already diligent in checking the impact of the operations of the companies they invest in. They are thoroughly scanning such companies for any risks and opportunities. With AI, this will only accelerate. As the impact of AI becomes bigger on the general economy, it will touch on all the investment opportunities that present themselves. On the one hand, investors will want to invest into this trend but on the other, they will be keen to avoid companies that will be negatively impacted or disrupted by it.

When it comes to the internal operations of a private equity firm, I personally do not feel we are about to see major disruption of the core of investing. I just do not think that the key function of private equity as a capital allocator and an active owner of private assets will be dramatically changed. 

However, the impact on the ‘engine room’ of doing deals is likely quite major and transformational. Throughout the stages of fundraising, sourcing, transaction execution, portfolio work and exits, there are efficiency-gaining improvements to be made. Like any professional service, there are several opportunities to streamline processes and improve efficiency by simply leveraging the technology that is out there. While we may not be on the cusp of being disrupted by AI, you can certainly use it to develop a competitive edge.

RD: How has PE deal sourcing changed over the years and how will it change further with AI? 

Haveman: If you look back 30 years, people found companies by leveraging their network or literally driving through an industrial area and writing down the names of the companies they wanted to reach out to. That process has progressed as markets have professionalised and early technology, such as structured databases, has
been introduced. 

Now we are at the stage where, with AI, intelligence platforms can offer a holistic view of the market. What the best private equity firms are doing is combining this technology with a strong understanding of their sweetspot to prioritise opportunities that are exactly right for them. This way, they streamline their deal-sourcing process and, as a result, source better deals faster than ever before.

But as the markets get increasingly transparent with this technology, they also become more competitive.

RD: How do firms differentiate themselves in today’s transparent market?

Haveman: If finding a company is no longer differentiating, your differentiation must come from what you bring to the table. To stand out, it is important to allocate as many resources as possible into differentiation. You can do this by freeing up your teams through automating manual work.

Perhaps paradoxically, in the age of AI, the right strategic response may be to double down on the distinctly human parts of the deal work such as building trusted relationships. However, this can only be done with significant automation of other processes. 

RD: On the portfolio operations side, what are some best practices you recommend investors take when communicating with their management teams about implementing AI?

Haveman: I think that depends on what role you take as an investor. Do you see yourself driving change and educating your portfolio companies, or as the party that looks at financing the balance sheet and having a constructive board dialogue, taking a hands-off approach
with operations?

If you are looking to be more hands on, you need to upskill technically within your own firm first before helping your portfolio companies navigate a digital transformation, whether that is about AI or otherwise. If you do not understand GenAI, how are you going to help your portfolio companies?

RD: What role do humans play alongside AI in private equity operations and should we fear AI?

Haveman: GenAI is useful for research and analysis in our space, but it in no way threatens the core of human creativity in the construction of deals. I see it more as an augmentation tool more than anything else. Humans also play an important role in validating the output of technology. Not everything produced by AI can be fully trusted just yet.

Ultimately, you can automate certain jobs, which allows humans to focus on more value-adding tasks – those that AI cannot do. 

RD: What are some unique ways you’ve seen PE firms leverage AI?

Haveman: I think AI is still at a quite early stage. There are firms out there that have built their own platforms or advanced integrations of third-party data into their own systems, but I have yet to see a firm holistically apply this throughout their entire processes. 

I believe some large firms are paying quite a bit of learning money from wanting to be a first mover. Taking the ‘buy’ route in build-or-buy can certainly be a valid strategy still. The best firms are leveraging third-party platforms to absorb data on the outside world and then focusing their efforts on integrating that with the unique and proprietary data they sit on. 

There are some very strong examples of that, both on the investment side and with advisers. In general, you also see that VCs are ahead of the game relative to private equity. There is a lot to be learned from them that private equity firms can smartly apply now.

This content was produced in association with Gain.pro - click here to find out more about Gain.pro on our Drawdown Service Provider Profile