The private equity industry is making cautious yet steady strides towards adopting innovative digital tools, with firms investing heavily in data platforms and AI to enhance operational efficiency, investor engagement, and portfolio management.
The private equity (PE) industry is cautiously but steadily advancing towards a transformative technological future, with fund managers increasingly laying the necessary groundwork to fully harness the potential of innovative digital tools, including artificial intelligence (AI). According to Justin Partington and Chris Robinson, senior leaders at IQ-EQ, a prominent fund services provider, this shift from dialogue to decisive action is particularly evident among large-cap and mid-market managers who are investing in technology to enhance operational efficiency and, crucially, improve investor engagement.
Historically, private equity firms have been slower than some sectors to embrace comprehensive digital transformation, often relying heavily on manual processes and legacy systems. IQ-EQ’s recent surveys reveal a striking contrast: while 96% of private equity firms recognise technology as a key value-creation lever—with a similar portion prioritising digital transformation within the next two years—82% continue to depend on traditional tools like spreadsheets for core functions. This digital gap underscores the pressing need for foundational upgrades in data management and integration. Building robust, centralised data platforms—described as “a single source of truth”—is essential before firms can exploit AI and other advanced technologies for analytics, reporting, and predictive insights.
The critical role of quality data is echoed by industry experts, who note that attempts to overlay AI applications on poorly managed or fragmented data tend to produce suboptimal results. Consequently, most private equity firms are currently focusing investment on modernising data platforms, implementing effective data governance, and developing internal technology expertise. Recruiting professionals with the right digital skill sets is seen as indispensable given that many firms lack large dedicated IT teams.
Security considerations are paramount, especially given the sensitivity of financial and client data handled by private markets. IQ-EQ, one of the largest fund administration service providers with a demonstrated cybersecurity pedigree (including ISO 27001 certification), has leveraged its strong data security infrastructure to earn trust among PE firms and attract investment interest. Clients are increasingly demanding clear assurances on data protection and expect administrative service providers to offer not just automation but also value-added insights such as predictive analytics, which can advise on trends and recommend actions rather than merely report historical performance.
The integration of AI within private equity operations is becoming tangible in certain targeted applications. AI is being used for deal origination, exemplified by EQT’s Motherbrain platform, and for summarising extensive documentation and board minutes, thereby saving time and allowing professionals to concentrate on higher-value activities. Industry leaders envision expanded AI use cases, including natural language querying of complex investor data and sophisticated predictive analytics forecasting fund cashflows and portfolio company performance.
However, technology adoption in private equity continues to be mindful of inherent risks. AI’s limitations—such as the generation of erroneous or “hallucinated” outputs and an inability to replicate human emotional intelligence—necessitate rigorous human oversight and caution. Generative AI tools are not suitable for producing client deliverables without expert review, in part due to regulatory and accuracy requirements. Nonetheless, ongoing advances in AI models signal that some current challenges may soon be mitigated.
Moreover, while robotic process automation (RPA) has been an established tool to automate repetitive, standardised tasks, its applicability in private equity is limited by the industry’s typically bespoke processes. AI’s flexibility, by contrast, allows cost-effective automation of less standardised functions, making it a more immediately beneficial technology in this context. Sentiment analysis using AI is also emerging as an innovative means to gauge client feedback beyond traditional surveys.
Looking ahead, experts predict that technology will not replace the fundamentally people-driven nature of private equity but will enhance it. Automation of routine tasks such as bookkeeping and payments will free up capacity for interpersonal engagement and high-quality client service. Additionally, data and technology will deepen operational collaboration between PE firms and their portfolio companies. By moving from reactive management to predictive and prescriptive decision-making, firms can better anticipate market trends and optimise portfolio company performance, thereby delivering improved returns for investors. For instance, real estate investors might integrate data on hybrid work trends to forecast office occupancy rates, while pharmaceutical investors could leverage predictive analytics for regulatory and consumer health trends.
Despite varied readiness levels globally—highlighted by IQ-EQ’s research into emerging markets like Africa, which still shows heavy reliance on manual systems—there is consensus that investment in data platforms and digital tools is critical to bridging the digital divide and realising the full benefits of technology-driven transformation in private equity.
In sum, the PE industry stands at a pivotal juncture, with cautious but accelerating adoption of technology laying the foundation for potentially revolutionary changes in how firms operate, engage investors, and manage portfolios. The coming years will likely see a blending of human expertise with AI-powered insights, reshaping the competitive landscape and creating new avenues for value creation in private equity.
Source: Noah Wire Services
