AI innovations: Revolutionizing Private Equity Fund Management
By: Bobby Dormanesh
Artificial intelligence (AI) has been a hot topic with the release of ChatGPT (by Microsoft) and Bard (by Google). It is also being leveraged by fund managers and rapidly transforming the private equity industry. Specifically, AI-powered tools are being used to improve decision-making, enhance due diligence, increase operational efficiency, and improve portfolio management.
Here are some of the ways that AI is being used by private equity fund managers:
- Identifying investment opportunities: AI can be used to analyze large amounts of data to identify potential investment opportunities. For example, AI can be used to analyze financial data, market trends, and company performance to identify companies that are undervalued or that have the potential for growth. This leads to improved decision-making with the incorporation of more data driven models that help identify patterns and trends.
- Performing due diligence: AI can be used to automate many of the tasks involved in due diligence, such as collecting and analyzing financial data, identifying potential risks, and conducting interviews with company management. This can help to save time and money, and it can also help to improve the quality of due diligence.
- Managing portfolios: AI can be used to manage portfolios of investments. For example, AI can be used to track the performance of investments, identify potential risks, and make recommendations for rebalancing portfolios. This can help to improve the returns of portfolios and to reduce risk.
AI is still a relatively new technology, but it is already having a significant impact on the private equity industry. All new technologies have their challenges, and this is no different. Fund managers need to overcome issues such as data quality, model bias, and interpretability. As AI technology continues to develop, it is likely to have an even greater impact on the industry in the years to come.
How we can help
Maybe you are not ready to take a full plunge into incorporating AI into your operation, but it’s never too early to start your digital transformation journey. Pause and evaluate those moments where you are performing repetitive tasks like aggregating and formatting data for reporting purposes. Those repetitive tasks are opportunities to leverage CLA’s Digital team to come alongside you to create efficiencies and optimize your reporting.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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