By: Raj Bakhru, CEO and Co-founder of BlueFlame AI
2023 was the year of experimenting with various AI tools available and alternative investment managers have acknowledged the potential it holds for their firms. But despite the widespread use of ChatGPT and personal AI tools, many are still not using them professionally. Initial AI deployments in our industry lacked enough clearly defined objectives, pre-identified use cases, and coherent strategies. These concerns combined with many fear-based assumptions resulted in the industry failing to fully realize the true potential of AI.
The future of AI for alternative investment managers is promising. 2024 stands to bring a significant surge in AI deployments, accompanied by a strategic shift towards ‘productionizing’ AI. Determining where AI can yield maximum benefits will be key, such as enhancing portfolio research, refining risk management strategies and automating essential yet repetitive tasks such as DDQ and RFP responses. Hedge funds will harness AI to aggregate sell-side reports while private equity firms will leverage AI’s content search capabilities for improved diligence and search. Private credit will also benefit by deploying AI to aggregate convenants from credit agreements. The primary focus for alts will be on optimizing ROI as they seamlessly integrate AI into their workflows. AI should elevate human decision-making – not replace it – for alts to make more informed, data-driven decisions.
Integrating AI into your workflows
To ensure success on their AI journey in 2024, alts will look to plug into platforms that meet them where they work and offer pre-built connections to the data stores and applications they already use daily. That includes CRMs, research systems like DealCloud and Dynamo, market data providers like Pitchbook, collaboration tools, messaging applications and local drives and data rooms. And during a chaotic time for AI providers like OpenAI, it will also be critical that they leverage solutions that are Large Language Model (LLM) and provider agnostic and can build on top of existing OpenAI, Copilot and/or other Big Tech solutions.
It’s vital that AI solutions for our industry go beyond mere automation to actually simplify everyday activities. If your AI platform can natively connect with the systems you’re already working in, there’s no fundamental change to how your team performs its work – only upside.
Making AI secure and reliable
Any AI solution must strike an optimal balance between cost, benefit, complexity, ease of use and functionality. If a firm has an overload of AI software that is incorrectly deployed and/or teams that are not properly trained, the challenges could quickly negate the benefits and heighten the risk of data loss or security breaches. To really put the AI in AIM, firms must also embrace effective change management and staff training to drive smooth integration and maximum value, and ensure any deployment is done in a secure and compliant way. As regulators will likely soon weigh in on this space, firms must ensure they have the right strategy and solutions in place to leverage AI’s strengths while meeting client and regulatory expectations on security, privacy, and compliance.
It’s just as important that alts have reliable, high-quality data to drive critical investment decision-making, fundraising and investor relations activities, especially when the data they use is augmented by AI. While many smaller or mid-size firms may not have the resources for full-time data scientists and developers, it’s imperative that they be able to enhance their data sources and undertake rigorous data cleansing to ensure the dependability of AI-supported decisions.
Tailoring AI for alts
In 2024, it will be imperative that firms deploy AI solutions that are tailored for the alternatives space. From deal diligence to investment research, portfolio value creation to fundraising, it’s critical to ensure your AI provider knows how to make this technology work for this industry.
At a minimum, look for AI solutions that can help your team:
- Connect with systems like Pitchbook to provide details including team summaries, deal histories, files, news headlines, and more.
- Accelerate the review of PDFs and unstructured content, such as earnings transcripts, expert network calls, sell-side research, 10-Ks/10-Qs, market research reports, board decks and news.
- Aggregate views across dozens of documents at a time, extract key data points and put them into tables or create time-series of views.
- Prepare for LP meetings by looking up contact biographies from selected market data sources and by looking across internal emails, calendar invites, files and CRM activity.
- Draft initial responses to DDQs/RFPs or create draft emails with proposals.
- Connect to your research management system (RMS) to review historical notes, summarize views, and post notes and commentary.
- Quickly pull deal data, past deal history and save updates and tasks after meetings with targets within your Deal Management Systems (DMS)
- Interact with your CRM using natural language prompts to pull select data, mass email prospects, add interaction details and update statuses
- And more.
Simplifying the future of alts
While the opportunity of AI is immense, it doesn’t mean properly deploying AI at your firm has to be overwhelming. When fund managers have the right AI solution, it will eliminate the FUD that can accompany AI projects. AI solutions that simplify everyday activities and properly integrate into your existing workflows will give you significant time and efficiency gains. While there are still more use cases to be defined and strategies to be implemented across our sector – alts will continue to see exciting, new ways AI can support these roles. Only those that ensure they have the right solution in place to meet future regulatory requirements and elevate critical tasks will set themselves up for success in 2024.
