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AI–particularly Generative AI– is a buzzy sector for a reason. Advances in AI could dramatically change how industries function. And private market investing is no exception. 

I asked ChatGPT how AI will impact the future of M&A deal sourcing. Here was our conversation.

‍(ChatGPT was edited in certain sections for brevity or emphasis.)

Interviewer: Can you take a look at this article How AI Will Impact Private Market Investing in the Next 5 Years written by Grata’s co-founder and COO, Nevin Raj? What are your thoughts?

ChatGPT: As an AI language model, I don't have personal opinions. However, I can provide an analysis based on the information presented in the article.

The article makes valid points about the potential benefits of AI in private market dealmaking. AI, particularly machine learning and natural language processing, has the capability to analyze large volumes of data, provide advanced search capabilities, offer personalized recommendations, and assist in scaling interactions. These are all areas where AI technology has shown promise in various industries, including finance and investment.

That said, it's important to note that the actual implementation and success of AI in private market investing may vary based on several factors. The effectiveness of AI systems depends on the quality and availability of data, the accuracy of the algorithms, and the expertise of the investment professionals using the tools. 

It's crucial to consider the limitations and challenges associated with AI, such as data biases, interpretability of AI-generated insights, and the need for human oversight and judgment.

While the article presents an optimistic view of AI's impact on private market dealmaking, it's essential to approach AI adoption with a critical mindset, thoroughly assess the capabilities and limitations of AI tools, and consider how they can complement and enhance human decision-making processes rather than replace them entirely.

Interviewer: Can you elaborate on this: "The effectiveness of AI systems depends on the quality and availability of data, the accuracy of the algorithms, and the expertise of the investment professionals using the tools."

ChatGPT: Certainly! Let's delve into the different aspects mentioned:

  • Quality and availability of data: The effectiveness of AI systems relies heavily on the quality and availability of data. AI algorithms require access to relevant, accurate, and reliable data to generate meaningful insights and predictions. If the data used is incomplete, outdated, or biased, it can negatively impact the outcomes and reliability of the AI system.
  • Accuracy of algorithms: The accuracy of the algorithms used in AI systems is crucial. Algorithms need to be trained on appropriate datasets and validated to ensure they can effectively handle the specific tasks they are designed for. Proper testing, validation, and refinement are necessary to enhance the accuracy and performance of AI algorithms.
  • Expertise of investment professionals: While AI can provide valuable insights and automate certain tasks, the expertise of investment professionals remains essential. Investment professionals possess domain knowledge, industry expertise, and experience that enable them to interpret AI-generated insights, make informed decisions, and understand the context and limitations of AI tools. The collaboration between AI and human expertise is crucial to leveraging the full potential of AI in private market investing.
  • Limitations and challenges of AI: AI systems have inherent limitations and challenges that need to be considered. One such challenge is data biases, where AI algorithms can reflect biases present in the training data, leading to biased outcomes. It's essential to regularly evaluate and address any biases to ensure fair and unbiased decision-making. Additionally, interpretability of AI-generated insights is a concern. Some AI models, like deep learning neural networks, can be complex and provide black-box outputs, making it challenging to understand the reasoning behind their conclusions. Lastly, human oversight and judgment are necessary to ensure that AI-generated insights align with ethical, legal, and regulatory considerations and to mitigate any potential risks or errors introduced by AI systems.

Interviewer: What kinds of hires will financial sponsors and strategic corporates need to make in the future as it relates to AI?

ChatGPT: To ensure that firms have the right expertise of investment professionals in the context of incorporating AI into their processes, several types of hires can be considered. 

Here are some key roles to consider:

  • AI Strategist/Manager: Hiring an AI strategist or manager can help firms develop a comprehensive AI strategy aligned with their investment objectives. This role involves understanding the potential applications of AI in the investment process, identifying suitable AI tools and technologies, and overseeing the implementation and integration of AI solutions.
  • Data Scientist: Data scientists play a crucial role in leveraging AI effectively. They possess expertise in data analysis, machine learning, and statistical modeling. They can help firms identify relevant data sources, clean and preprocess data, develop AI models, validate and optimize algorithms, and interpret AI-generated insights. Data scientists with experience in finance and investment domains would be particularly valuable.
  • AI Analyst/Researcher: Hiring AI analysts or researchers with a strong background in both AI and finance can be beneficial. They can explore and evaluate the latest AI techniques and developments relevant to investment analysis and dealmaking. They can also assist in building AI models, conducting research on AI-driven investment strategies, and staying up-to-date with advancements in the field.
  • Investment Analysts with AI Knowledge: Augmenting the existing investment team with professionals who have a solid understanding of AI can be valuable. These individuals can bridge the gap between investment expertise and AI capabilities. They can work closely with data scientists and AI specialists, providing domain knowledge, understanding investment nuances, and effectively interpreting and incorporating AI-generated insights into the decision-making process.
  • Compliance and Ethics Expert: Given the importance of ethical and regulatory considerations when using AI in investment, hiring a compliance and ethics expert with knowledge of AI can ensure that the firm's AI practices align with legal and ethical standards. This role can help navigate potential risks, biases, and transparency issues associated with AI systems and ensure compliance with relevant regulations.

In addition to specific hires, fostering a collaborative and interdisciplinary mindset within the investment team is crucial. Encouraging knowledge sharing, facilitating cross-functional collaboration between investment professionals and AI specialists, and promoting continuous learning and up-skilling in AI-related areas can help develop the right expertise within the firm.

It's worth noting that the specific roles and expertise required may vary based on the firm's investment strategies, scale, and existing capabilities.

Interviewer: How will AI change the day-to-day tasks of a private market investor?

ChatGPT: AI has the potential to significantly change the day-to-day tasks of a private market investor. Here are some ways AI can impact their daily workflow:

  • Data analysis and research: AI can automate data gathering and analysis processes, enabling private market investors to process and extract insights from vast amounts of structured and unstructured data more efficiently.
  • Deal sourcing and screening: AI-powered platforms can enhance deal sourcing by providing advanced search capabilities. Investors can leverage AI algorithms to sift through extensive databases, news articles, company filings, and other sources to identify potential investment targets.
  • Due diligence and risk assessment: AI can support due diligence processes by analyzing historical financial data, industry trends, and market conditions. AI algorithms can assist in identifying risks, anomalies, and potential red flags associated with investment opportunities.
  • Portfolio management and optimization: AI can assist private market investors in portfolio management tasks. By continuously monitoring market data, financial performance, and risk factors, AI algorithms can provide real-time insights and recommendations for optimizing asset allocation, rebalancing portfolios, and identifying potential opportunities or risks.
  • Investment decision-making: AI can augment the investment decision-making process by providing data-driven insights and recommendations. AI algorithms can analyze historical data, market trends, and other relevant factors to generate investment signals or predictive models.
  • Communication and client interaction: AI-powered tools can enhance communication and client interactions. AI chatbots or virtual assistants can handle routine client inquiries, provide basic information, and assist with account management.

It's important to note that while AI can automate and enhance certain aspects of a private market investor's workflow, human expertise and judgment remain crucial. Investors will still need to interpret AI-generated insights, exercise critical thinking, and consider factors beyond quantitative analysis, such as market dynamics, regulatory changes, and industry trends, to make well-rounded investment decisions.

AI should be viewed as a complementary tool that empowers investors to extract valuable insights and make more informed choices.

Conclusion

The ability to "have a conversation" with an AI like ChatGPT shows how far along AI has come in the past few years. But even ChatGPT recognizes the limitations of a language learning model vs an experienced dealmakers. ChatGPT cannot site specific examples or demonstrate an understanding of the practical elements of a dealmaker’s day-to-day workflows. AI can only produce based on its inputs. No one knows exactly how AI will affect private market investing, but least of all, the AI. 

For more on this topic, read our similar interview with a machine learning engineer. 

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