May 3, 2023 - Economy & Business

How private equity could rapidly change as generative AI advances

Illustration of an unimpressed emoji at the center of a bullseye made of binary code.

Illustration: Brendan Lynch/Axios

Private equity has always been an apprenticeship business. But what happens if the apprentices are no longer needed?

The big picture: Many PE firms already have begun to experiment with GPT and other artificial intelligence technologies, seeking both efficiencies and competitive advantage.

  • Given the rapid pace of AI innovation, it's only a matter of time before many PE analyst jobs are being done by algorithms. Modeling, diligence, etc. And then just a little more time before "many" becomes "most."
  • PE firms are not in the habit of hiring people to sit on their hands.

The big question: If PE firms no longer hire young, inexperienced professionals, then who fills the future partnership pipelines?

  • This question also implies to industries like investment banking, law and venture capital.

Zoom out: The counterargument is that old tech chestnut about tractors and farmers. Sure, current tasks will be automated. But they'll be replaced by different tasks that require flesh-and-blood participation.

  • Maybe. We do still have accountants in the age of spreadsheets. But there's a counter-counterargument that AI is a more transformative than even tractors, with none of us really able to conceive how this all plays out.
  • For context, a recent email from Alan Patricof, founder of both Apax Partners and Greycroft: "I have been in the VC business since 1970 — just at the major start of the chip revolution with Intel; then the biotech revolution with the discovery of gene splicing by Genentech in 1976; then the PC revolution in 1977 with Apple et al; then cellular in 1982; then the internet in 1980's; then cloud in the 90's. AI and Chat GPT is a bigger and more profound revolution than all of these in my opinion."

The bottom line: Private equity may change more in the next five years than it has in the past 50.

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