May 3, 2023 - Economy & Business
How private equity could rapidly change as generative AI advances
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.