In this light, we see increasing investment among the larger private equity funds on using next-generation data (i.e., social media sentiment vs. market data) to support the investment process. The number of private equity firms relying on next-generation data rose by nearly one-third over the past 12 months.
AI and security
Private equity firms have been a bit slower to adopt artificial intelligence (AI) to support the investment process. This is not surprising given the nature of the investment cycle, especially when compared with others in the alternatives industry. The increasingly competitive landscape of obtaining limited partner commitments and closing investment opportunities will challenge CFOs to reassess their views about the relevance of this technology in their operations.
AI may create future opportunities to provide value to the broader organization in support of the investment process. While the innovative use of technology offers significant opportunities to private equity organizations, it also brings a greater risk of exposure to a potential cybersecurity breach.
Once thought of as only an IT issue, cybersecurity is now being viewed as a broader business risk that CFOs have to mitigate. The survey results reveal a disconnect between investors and fund managers. Only 40% of investors believe that their managers have adequate cybersecurity policies and procedures in place. On the other hand, most private equity managers, across all firm sizes, consider themselves well prepared to detect and prevent breaches.
Generally speaking, except for the largest organizations most firms believe that the biggest risk of a breach lies within their internal systems, such as e-mail phishing. Relatively few see the business risks posed by engaging third-parties, from service providers to fund administrators, as a meaningful risk.
Moving forward, this disconnect presents an opportunity for private equity CFOs to better educate their investment base about their firms’ cybersecurity efforts. Revealing that they have an effective strategy in place will help to raise the profile of the broader organization in the minds of investors.
Download the full EY 2020 global private equity survey (pdf).