AI in Private Equity: Navigating the Opportunities, Risks, and Pitfalls

As the PE industry continues to grow and become more competitive, more and more PE firms are turning to AI as a means of gaining an advantage over their competitors. PE firms have utilized AI to simplify some traditionally inefficient processes, enhance their due diligence practices, and improve the overall quality of their investment analysis. If implemented effectively, the benefits of AI can be substantial and provide smaller managers and PE sponsors a disruptive edge in what is a highly competitive and consolidating industry.

Although the use of AI in the PE context offers many advantages and efficiencies, there are also risks and legal considerations that PE firms need to be prepared for in implementing this technology. PE firms need to ensure they are protecting their intellectual property rights and trade secrets in connection with their proprietary AI processes. Also, there are currently AI-specific regulations and state privacy laws in place that could be implicated by a PE firm's use of AI. Further, the use of AI has been under increasing scrutiny by the SEC and this trend is expected to continue.

Because of the growing availability of AI technology, it will be important for PE firms to understand how AI is being used both within their organizations and at their portfolio companies. It is imperative that PE firms take action now to implement policies, procedures, and guardrails to allow the firm to take advantage of the benefits of AI without being exposed to undue risk both for current technology and for new tools as they become available.

Listen as Mark Stignani, Partner at Barnes & Thornburg, explores the potential and opportunities for AI in the PE context and provides best practices for mitigating the risks associated with a PE firm's AI implementation.