Practical Applications of An Inside Peek at AI Use in Private Equity

Abstract

In <b><i>An Inside Peek at AI Use in Private Equity</i></b>, from the Summer 2021 issue of <b><i>The Journal of Financial Data Science</i></b>, <b>Thomas Åstebro</b> of <b>HEC Paris</b> explores the rapid adoption of artificial intelligence (AI) technology among private equity (PE) and venture capital (VC) firms. In particular, he examines AI use among four PE firms: Jolt Capital, Hone Capital, EQT Ventures, and SignalFire. While the use of AI technology ranges from comparatively modest applications, such as screening models, all the way to full-scale employment in end-to-end decision support systems (DSSs), the author argues that even limited use of the technology increases profitability and operational efficiency. He also explores how AI can potentially overhaul how VC firms conduct their day-to-day business and outlines new potential revenue streams and investment strategies enabled by AI. Åstebro predicts that adoption of AI technology among established firms will steadily increase while new, AI-based PE firms will continue to enter the market. Looking ahead, he argues that the influx of investors using AI will lead to competition and eventually an industry shakeout.