Behind the Curtain: Exploring AI's Transformative Power in Private Equity

Abstract

This study investigates private equity (PE), a crucial segment of the global financial ecosystem where funds and investors directly invest in private companies or buy out public companies. Unlike public equity markets, PE offers essential capital for growth, restructuring, and management buyouts, predominantly from institutional investors and high-net-worth individuals. The study outlines the structure of PE firms as limited partnerships, where general partners manage investments while limited partners provide capital and share profits. It explores various types of PE investments, including venture capital, growth capital, buyouts, and distressed situations. The research highlights significant growth in the PE sector, driven by superior returns compared to traditional asset classes, despite challenges from evolving technology and regulatory changes. A central focus is the role of artificial intelligence (AI), which is transforming deal sourcing, due diligence, portfolio management, and operational efficiency. The objectives of this study are to understand the operations and significance of private equity firms, explore AI's impact on PE functions, and assess the market landscape of AI within the private equity sector. This exploration provides insights into AI's potential to reshape investment strategies and enhance value creation in private equity