Artificial intelligence continues to emerge as a transformative force in investment management, shaping decision-making and how firms create value. In fact, according to a recent Bain & Co. report more than 60% of private equity firms are investing in AI to improve their data management and gain a competitive edge. A separate study reveals 59% of PE businesses now view AI as a key driver of value creation.
And it makes sense. With generative AI’s remarkable ability to analyze large unstructured data sets, identify patterns and extract valuable insights, many things that were difficult to do have become much simpler and faster.
Redefining the art of the possible
But this transformation is not merely about adopting new technologies. It’s also about reshaping the culture of investment itself and redefining the art of the possible.
Historically, investors have wanted visibility into just the core financial trends. PE firms, in turn, have traditionally relied on experience, intuition and network intelligence to identify and create value — supported by a basic level of analysis.
However, rising asset prices and heightened market competition make it increasingly risky to rely solely on these methods. The rapid pace of change driven by advances in AI also means that even seemingly strong investments can deteriorate quickly during the hold period. Investors are acutely aware of this and now have much higher expectations for transactions on a data front row, and are much more interested in obtaining a deeper understanding of the ‘how and why’ certain financial and operational trends are occurring.
While traditional skills remain essential, the shift toward data-driven strategy is fostering a culture where factual, high-resolution analysis underpins decision-making. In an era shaped by generative AI, the capacity to assess opportunities and risks swiftly and thoroughly is now critical for identifying upside potential and protecting downside exposure.
AI applications and adoption
Take, for example, exit strategy. Founder-led companies, once focused mainly on growth, now face rising expectations from buyers who demand more than basic financials. Investors want granular, data-backed insights that validate both past performance and future potential.
Without this, companies risk lower valuations and tougher transitions post-acquisition. Get it right, though, and it becomes possible to present a more compelling, evidence-based equity story — building investor confidence and ultimately securing stronger exit valuations and deal terms.
Firms can also harness this new data capability to increase valuation through shifting business and operating models. For example, once a PE owner and portfolio company develop and implement their value creation plan, they can use AI to monitor data aspects such as pricing, level sales and margins across key dimensions (i.e., business unit, product category), and use it to help accelerate performance, decrease costs or spot problems as they arise.
And this is just a couple of ways AI integration can enable firms to harness data to craft a compelling equity narrative for portfolio companies that resonates with stakeholders, investors and potential buyers.
Whether considering an acquisition, implementing a value creation strategy, monitoring performance or planning an exit, leveraging data-driven insights can enhance the clarity and attractiveness of the investment proposition.
What’s interesting, too, is that this movement is democratizing investment opportunities. Advanced investment tools and insights that might have only been available to large-cap technology businesses with the budget to develop or own the technology to train AI models are now trickling down to mid-sized and smaller businesses. This is not only leveling up the playing field, but also creating a situation of “haves vs. have-nots.”
An innovation advantage
It’s no exaggeration to say that the rapid integration of AI is poised to reshape the future of modern investment. In the next few years, we can expect a surge in automation and a wave of innovative approaches that challenge conventional thinking about investment strategy. For PE firms and investment managers willing to prioritize innovation over the status quo, this shift presents a significant opportunity to gain a lasting competitive advantage.
Christian Davis is an associate partner at commercial data solutions provider JMAN Group.
Illustration: Dom Guzman
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