While private equity firms excel in deal-making risk-taking, they lag behind in modernising their back-office systems, risking operational, regulatory, and reputational setbacks in a rapidly evolving market landscape.
Private equity firms have long been synonymous with bold decision-making and risk-taking on the deal front, yet a notable paradox exists within the industry’s operational backbone. While the front office embraces uncertainty and innovation to drive outsized returns, the back office frequently remains tethered to antiquated systems such as Excel spreadsheets and manual processes. This cautious approach to technology modernisation is increasingly viewed as a liability, magnifying operational, regulatory, and reputational risks.
Jamie Nascimento, Co-founder and Chief Commercial Officer at LemonEdge, highlights this contradiction and the escalating pressure on private equity firms to modernise. Historically, the back office was perceived merely as a cost centre, something to be managed rather than optimised. However, as the private markets have grown more complex—amplified by regulatory demands, data proliferation, and rising investor expectations—this mindset is fast becoming unsustainable. The industry is at a tipping point as firms face mounting demands for enhanced operational resilience, transparency, and compliance.
One of the chief drivers behind the urgency to modernise is the evolving regulatory landscape. Firms must now meet stricter reporting requirements and demonstrate robust operational resilience to guard against threats including fraud, errors in fee calculations, and data breaches. Investor expectations have also shifted dramatically. With the introduction of European Long-Term Investment Funds (ELTIF) 2.0, retail investors now demand transparency and real-time access to fund information akin to public markets. This shift compels firms to offer responsive service and up-to-date reporting, accelerating the need for automation and centralised data platforms.
Industry data reinforce the growing consensus towards technological transformation. A recent survey by Private Equity Wire found that 93% of private equity managers list technology transformation as a top priority within the next two years, focusing on workflow automation and modern data platforms. Similarly, State Street’s 2025 Private Markets study reveals that 83% of respondents plan to implement generative AI or large language model (LLM) use cases to convert unstructured data into actionable insights.
Artificial intelligence (AI) stands out as a transformative enabler across the private equity value chain. Firms such as EQT and The Carlyle Group have pioneered AI-driven platforms—Motherbrain and AI-assisted due diligence respectively—that enhance deal sourcing, improve operational efficiencies, and enrich investor relations. Approximately 64% of private equity firms now incorporate AI into portfolio operations, harnessing tools like AlphaSense and Quid to sift through vast datasets and generate strategic insights. These technologies not only speed up data processing but also improve accuracy, reducing manual errors endemic in legacy systems.
Beyond AI, broader technological adoption in the sector increasingly encompasses enterprise resource planning (ERP) systems, automation workflows, and compliance platforms. Centralised ERP systems streamline complex tasks including payables, procurement, and multi-entity accounting, delivering cost savings and operational scale. Automated workflows reduce manual interventions, help detect anomalies, and reinforce cybersecurity postures—addressing vulnerabilities that could otherwise lead to costly breaches or operational disruptions.
Digital transformation is further accelerated through agile methodologies such as “digital sprints,” where cross-functional teams rapidly prototype and implement solutions within 12- to 16-week cycles. McKinsey highlights that while global digitisation averages near 40%, private equity firms have been slower to digitalise internally. Embracing such focused and iterative approaches can unlock efficiencies, mitigate risk, and drive superior returns on IT investments.
The cultural shift underpinning technological adoption is vital. Forward-thinking firms are reframing back-office modernisation as a strategic investment rather than a sunk cost. By automating repetitive processes and centralising data, talented professionals are liberated to concentrate on higher-value activities—analysis, strategy, and insight generation—thus enhancing both operational and investment decision-making.
The stakes are high. Failure to modernise exposes firms to regulatory penalties, operational errors, and investor dissatisfaction—costs that can easily outweigh investments in upgraded infrastructure. Indeed, operational excellence is emerging as a key competitive differentiator. Firms that judiciously embrace technology not only mitigate risk but also position themselves to capitalise on the increasing complexity of private markets and investor demands.
In conclusion, the greatest risk for private equity is no longer rooted in the uncertainty of markets but in resisting technological progress. By making calculated bets on IT modernisation, the industry can reconcile its front-office daring with back-office resilience, ensuring sustainable growth and investor confidence in an evolving landscape. The private equity paradox—that of risk-taking at the forefront yet risk aversion behind the scenes—is steadily being resolved in favour of innovation, efficiency, and transparency.
Source: Noah Wire Services
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