Disruptive Supernova: How Emerging Technology Will Upend the Private Capital Landscape (Just Like ChatGPT Has Reshaped the Future of Work and Search)

OpenAI’s ChatGPT recently took the world by storm, quickly amassing over 100 million active users in January 2023 alone. This is the fastest any application has ever grown to this size, with the prior two record keepers being TikTok at nine months and Instagram at 2.5 years.

Outcomes of this phenomenon: $30B dollars of Google’s profit potential appeared to be threatened almost overnight, setting off a new arms race between AI heavyweights Microsoft, Google and Baidu, who are zealously trying to figure out how they can further bake-in generative AI technology into their search engines and broader solutions. What’s more, people have been stunned with ChatGPT’s proficiency in executing “white-collar” job tasks—it can flawlessly write advanced computer programs, author thought-provoking articles, and even automate complex back office processes; thereby, potentially eliminating exhaustive resource overhead and saving companies millions of dollars. This is why I affectionately refer to ChatGPT—a type of generative AI—as a ‘disruptive supernova.’

In this article, I argue that just as supernovae are so powerful that they create atomic nuclei that forge the elements for new life, so too will new platform and AI technologies breathe new life into how private capital firms do business; thus, upending their daily operations and delivering a new competitive edge. The following overview describes how private capital firms can benefit from these technologies.

The Impact of Disruptive Technology at Your Firm

If one thing is clear, it’s that the pace of innovation in private markets and the potential for disruption has accelerated. Now, consider for a moment, if emerging platform technologies and AI could have the same disruptive impact on the private capital landscape as ChatGPT has had on the future of work and search technology. What if your firm could harness the power of automation and deep learning techniques to generate more human-like responses to your audience segments, while aiding in fundraising operations, the onboarding of investors, compliance and more?

Well, that time has come. Here’s how these technologies can disrupt current back office scenarios and broader firm operations:

• Remove Friction from the Outset of the Fund Raising Process

  
  Your investors expect a frictionless investment process that is characterized by streamlined, digitized approaches. Gone are the days when 100+ page private placement memorandums (PPMs) are printed and institutional investors are educated through paper, leaving miniscule audit trails and endless eco waste. Now, when you leverage a purpose-built private capital platform, fund profiles can be made available online 24/7 and they’re easily navigated, tracked, and audited for consumption through online platforms.
   

• The Digitization of the Entire Investment Process

  
  The digitization of the investment process can go far beyond just the issuance of PPMs and online education. Today, leading firms are increasingly digitizing the entire investment process—from onboarding investors to managing subscription documents, accounting, administering funds, reporting and compliance—effectively, this encompasses the lifecycle of the investor experience. Let’s review in greater detail where savings and operational efficiencies are realized through digitization:
   

• Investor Onboarding and Service

  
  

  Traditionally, investor onboarding involved time-consuming, in-person meetings that often yielded NIGO (not in good order) errors. This is a rather demanding human capital endeavor. Today, however, smart firms have eliminated confusing paperwork and have moved the process online by offering user-friendly investor portals that enhance the visibility of where an investor is in the process, while concurrently reducing NIGO errors.

  
  
  And, by potentially injecting natural language processing (NLP) capabilities into this realm, firms can also build chatbots that can assist LPs with inquiries and other everyday tasks. Also, with big data and the possibility to analyze your investors’ behavior, there's the possibility to understand their needs and preferences better; ultimately, giving you the opportunity to deliver more personalized assistance and recommendations. As generative AI has recently shown us, we have now reached a whole new level of hyper-personalized interactions.

  
   

• Executing Subscription Documents

  
  

  Historically, subscription documents were printed and emailed to investors—an often time consuming process given the increased popularity and legal recognition of electronic (e-)signatures. Such an old school approach used to present an inherent data security risk that was occasionally characterized by postal and/or advisor delays. But, today, e-signatures are ubiquitous and allow subscription documents to become securely available to investors immediately via platforms, such as DocuSign, as well as the platforms that integrate with such applications.

  
   

• Accounting

  
  

  AI can be applied to fund management accounting in a platform, including related travel and expense (T&E). For example, machine learning can be used to evaluate a set of data to find savings opportunities, while concurrently flagging financial risks.

  
   

• Forecasting and scenario generation

  
  

  This is particularly helpful if you consider the need to analyze a large amount of historical data, identify patterns and relationships, and generate multiple scenario simulations, while considering different market conditions. This allows firms to evaluate a range of possible outcomes with more sophisticated and accurate financial forecasts and scenario analysis capabilities. What’s more, by using platform technology combined with generative AI to make predictions about future market trends and investment opportunities, there's a clear opportunity to improve overall investment strategies while further reducing risk.

  
   

• Fund Administration

  
  

  Like other legacy private capital firm processes, fund administration interactions with fund administrators were traditionally offline. This entailed the emailing of documents and supporting IDs—a disintegrated, time consuming and error-prone process that often slowed fund raising. Today, however, progressive firms have accelerated fund raising by automating the transfer of subscription documents, IDs and other signed documents. They have further leveraged APIs to integrate transaction data, tax documents and funding notices, while concurrently, integrating Know Your Customer (KYC) and Anti Money Laundering (AML) checks for the fund administrator. Taking it a step further, redemption requests can now be centrally managed and seamlessly passed via a platform, which further enhances an investor’s experience.

  
   

• Automated Investor Reporting and Compliance Management

  
  Many private capital firms understand that automated investor reporting and online compliance management has become essential. However, satisfying investor requests for financial data is one of the more difficult areas in which fund managers struggle to manage costs, and some fear that automation could sacrifice flexibility; thus, potentially decreasing investor satisfaction. This does not have to be the case. In fact, once you have completed fund raising, investor reporting and compliance management can be less costly and more efficient when executed via a single online platform, such as Asset Class.

  
  
  At the end of every month, firms are challenged to develop consolidated reports that bring together information from multiple companies within their portfolios. It can be a laborious process of harmonizing data from multiple sources to fit into a single, unified reporting framework. Today, however, a unified platform can ease the burden of this apparatus and give your team back valuable hours to dedicate to other initiatives.

  
  
  Similarly, on the compliance management front, consider how legacy approaches are now being reformed. Historically, offline management interactions posed considerable risks, since PPMs could be easily copied for nefarious purposes, while at the same time email transfers represented considerable security and data protection risks (since they were seldom encrypted when transferred). Today, however, these processes are increasingly being brought online via a single platform, whereby all interactions are tracked and date/time-stamped with full reporting. Under this apparatus, broker dealer integration is easily supported for full visibility and gated content is subject to accreditation responses and suitability assessments. Ultimately, in such an environment, data security is paramount and encryption should be offered at every stage.

It Starts with a Mindshift in Leadership

To fully unlock the benefits of platform technology and AI at private capital firms, the mindset of firm leaders needs to change. There are several ways leading firms have acknowledged this and executed accordingly:

• Use purpose-built platforms to experiment with and incorporate AI technology. Also, ensure that any outsourcing firms or consulting firms that you engage have (a) a roadmap for leveraging the latest platform and AI technologies, (b) robust integration opportunities (via APIs), and (c) and are making strong investments in those areas.

  
   

• Hire individuals with savvy platform and AI technology experience for specific roles. For example, statistics, programming, and business process understanding surrounding platform and AI tech yields greater opportunities to become a trailblazer in this space, while also setting your team up for success when you selected target investments in this realm.

  
   

• Choose the right person to oversee your tech stack. This leader should emphasize to your firm the organizational importance of your firm’s platform and AI journeys. For example, that practice may include actively discussing it in all-hands meetings and/or during new hire orientations.

Summary

So, why haven’t all fund leaders invested more in purpose-built platform and AI technology to date? Unfortunately, there remains pockets of old school, traditional thinking that holds some private capital firms back from unlocking the complete benefits of these technologies.

But, just as there’s an element to ChatGPT that feels like the early launch of the internet, I would draw a parallel to how game-changing purpose built platform technology and AI can be for firms.

As both sets of technology advance, we’ll see them become less expensive and utilized more successfully in real-world private capital scenarios. As evidenced by the recent infusion of VC and PE interest in this realm, it is safe to assume that a whole new group of private capital leaders will emerge in the wake of adopting the latest platform technology, while weaving it together with generative AI.

This movement echoes disruptive supernova of the past. You may recall that the app-ification of society was sparked by the mass adoption of smartphones and the cloud computing economy grew from the mass adoption of the Internet. Similarly, the very best private capital firms will recognize that a new dawn is upon us. Those that do will realize that the benefits of being early adopters of emerging private capital technology and AI will yield more solid investor relationships and the opportunities to hasten time to profit.

Discover How Asset Class Can Help Your Team

Want to discover how your firm can leverage a purpose-built private capital platform and weave it together with AI? The Asset Class Private Capital Cloud powers over 450 private capital funds around the world. Whether you’re a PE or venture capital firm, you can discover how our platform helps make the future of finance frictionless. Schedule a demo with one of our team members today.

Sources:

https://www.semianalysis.com/p/the-inference-cost-of-search-disruption

https://www.businessinsider.com/why-generative-ai-chatgpt-the-defining-tech-of-this-year-2023-1

https://www.nytimes.com/2023/01/07/technology/generative-ai-chatgpt-investments.html