Why PE must embrace AI as a long-term strategy - and investment
Private equity (PE) firms and their portfolio companies are increasingly adopting artificial intelligence (AI), but too often, this adoption is framed as a one-off project or a fleeting experiment. The reality is clear: AI is a process, not a project. For firms that want to realise its transformative potential, AI demands sustained commitment, strategic alignment, and cultural adaptation.
As we reflect on the year, the regulatory landscape evolved rapidly, with new laws like the EU AI Act and the UK’s Digital Markets, Competition and Consumers Act (DMCC Act) setting stricter compliance standards. These changes are not just legal hurdles; they are wake-up calls for investors and portfolio companies to integrate AI into their operations and investment strategies as long-term value drivers – and even (value) differentiators.
Here’s how this shift is reshaping the AI journey for PE firms and their portfolio companies—and the commercial considerations they must address to succeed.
2024: FROM TALK TO ACTION
Strategically driving AI from the boardroom: Boards are embedding AI into long-term strategies, shifting discussions from technology to measurable value creation. There’s urgency and accountability, reframing AI as a time-sensitive priority for value creation.
AI readiness across the ecosystem: Success demands readiness across technology, people, processes, data, and use cases. Cultural transformation is as vital as technological progress, with a clear focus on building the necessary infrastructure and skills.
Blending Data & AI Strategy: AI and data are inextricably linked. A blended Data & AI Strategy aligns data quality, governance, and accessibility with AI ambitions, creating a scalable foundation for sustained growth.
CxOs as data champions: CEOs, CCOs and CFOs are increasingly becoming the champions of AI initiatives, linking them directly to value creation. These leaders prioritise AI’s impact on business outcomes, such as efficiency, revenue growth, and operational improvements.
Future-focused diligence: PE firms are now asking “What value could we gain from these data assets?” during diligence. This forward-looking approach evaluates AI’s potential for operational and financial impact, alongside compliance with evolving regulations.
Navigating regulatory change: With the EU AI Act enforcing transparency, accountability, and fairness for high-risk AI systems, and the DMCC Act (in the UK) prioritising competition and consumer protection, compliance is now a strategic priority. PE firms must embed regulatory alignment into AI initiatives, viewing compliance as a route to differentiation – underpinning valuation confidence.
COMMERCIAL CONSIDERATIONS FOR LONG-TERM AI SUCCESS
To fully realise the potential of AI, investors and management teams must address several critical commercial considerations, ensuring a holistic and strategic approach to adoption. Success begins with building capacity and capability. This requires developing the necessary technical skills and frameworks while balancing internal expertise with strategic partnerships or external resources. Teams must integrate technical proficiency with commercial acumen to deliver impactful AI initiatives.
Data quality and governance are the foundation of effective AI. Firms need to invest in building a single source of truth—a unified, scalable data infrastructure that ensures accessibility and reliability. Without robust governance practices, AI systems risk delivering inconsistent or suboptimal results.
Cost is another crucial factor. Beyond initial investments, scaling AI demands sustained spending on infrastructure, including cloud platforms, compute power, and integration systems. Maintenance activities, such as updating models and refining algorithms, add further expenses. Additionally, firms must allocate resources to change management, including team training and cultural transformation, to embed AI effectively across the organisation.
Ethical and regulatory compliance is non-negotiable in today’s landscape. With regulations like the EU AI Act and DMCC Act, firms must adopt privacy, fairness, and ethics by design. These compliance-driven approaches not only mitigate risks but also create market differentiation by building trust with investors and consumers alike.
Benchmarking efforts should focus on readiness rather than abstract maturity. AI’s potential is unlocked by aligning efforts with business ambitions and real-world applications. Pragmatism is key. At DataDiligence, we encouraged all our clients to pursue quick wins that build momentum while laying the groundwork for larger, transformative projects. Measuring outcomes, such as efficiency gains or revenue growth, ensures initiatives remain outcome-driven and aligned with business priorities.
Finally, AI adoption requires a long-term commitment. Firms must continuously learn, adapt, and refine their strategies to remain competitive as technologies and markets evolve. By addressing these commercial considerations holistically, private equity firms can position themselves and their portfolio companies for sustained success in an increasingly AI-driven world.
AI FOR LIFE!
The impact of AI extends far beyond efficiency gains. It enables product innovation, creates new business models, and transforms industries. For PE firms and portfolio companies, the shift in 2024 from experimentation to systematic adoption reflects the need to treat AI as a long-term process.
Firms that integrate AI deeply into their strategic operations will secure competitive advantages.
Compliance will no longer be a burden but an opportunity for differentiation and trust-building.
CEOs, CCOs, and CFOs must champion AI, ensuring it drives business outcomes, not just technological advancements.
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As the famous RSPCA campaign reminded us that ‘a dog is for life, not just for Christmas’, the same applies to AI. Treating AI as a process and way of life, rather than an ad hoc initiative, enables investors and their portfolio companies to unlock enduring value.
In 2024, the firms that strategically embrace AI—integrating it with data strategies, prioritising readiness, and embedding compliance—will thrive in a landscape shaped by innovation and regulation. AI isn’t a trend; it’s the foundation for value creation in the years to come. The question is: will your firm treat AI as an investment for life, or as a fleeting experiment?
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