Traditionally, at large, private equity firms have relied on their employees’ institutional expertise to discover investment opportunities and predict trends in the industry. They have often used spreadsheets, investment memos, and CRMs to achieve their goals. However, the latest private equity trends 2021 suggest that they have been increasingly adopting Big Data and Artificial Intelligence in recent years.
The increasing appetite for automation technologies is growing as PE firms start recognizing the benefits of automation in improving portfolio insights and potential businesses. Apart from the improved analysis of data sets, let’s see how Big Data and AI are transforming the private equity landscape.
Portfolio Monitoring
Lack of real-time, quality data causes PE firms to struggle with their day-to-day portfolio management operations. They primarily rely on conventional manual analysis and data reporting methods that are slow and outdated compared to automated methods their competitors use. Consequently, PE firms that have not yet digitized find themselves struggling with KPIs and financial performance reporting. They fail to get timely analysis of their business drivers, ESG reporting, and economic and tax automation.
Private equity trends 2021 suggest that 42% of PE firms aim at improving their operations and increasing productivity by adopting AI in their system. Building a PE strategy around Big Data addresses these issues and establishes a data-driven landscape for portfolio monitoring. It makes accruing, storing, analyzing, and reporting information much faster and more accurate than ever.Â
Target Screening
Identifying potential targets is an area where a lack of automated analysis causes issues in how PE firms approach their investment strategy. They fail to take timely action as they cannot assess data on their companies of interest. A PE firm’s growth strategy is largely dependent on the data required to back it up, which enables the firm to perform adequate due diligence.
Big Data and AI help companies set clear criteria to identify investment targets with good value. Data analysis helps them assess the associated costs and risks for potential investments. Consequently, they can quantify and standardize an investment’s value proposition and gain a better position than competitors in analyzing risks.
Back-office Processes
Everyday operations in PE firms frequently become inefficient and outdated. In terms of data, workflows containing crucial information fail to integrate into the platforms that can make good use of that data. As a result, processes remain manual and inefficient, creating an environment where information is not available quickly enough.
On the other hand, private equity firms that use AI can streamline their workflows by facilitating data transfer instantly without any manual intervention. Apart from streamlining the operations and getting the right data at the correct place at the best time, it also helps implement cyber security standards to ensure compliance.
Interest in Big Data and Artificial Intelligence is rapidly growing among PE firms today. As the private equity trends 2021 show the competitive benefits of technology implementation, digital adoption is slowly taking hold in the industry, especially concerning investment opportunities, portfolio management, and internal workflows. The level of AI adoption in PE will continue to rise in the future as their implementation provides substantive advantages to the industry.
