Artificial Intelligence May Slash Operating Teams
Fewer operating professionals will be required to get the same (or better) outputs at the portfolio company level.
The rocky private equity landscape after 2022 made operating teams all the rage — according to a September 2022 survey from Alvarez & Marsal, more than half of firms aimed to grow their operating teams by at least 50 percent through 2024. Indeed another consultancy, Hendricks & Struggles, found that between 2022 and 2024, the number of firms that employed operating executives tripled.
But the buck likely stops here. With the advent of generative artificial intelligence, most tasks completed by operating partners stand to be automated.
Coming for your job?
This isn’t the classic tale of technology replacing humans. Rather, with AI automating so many tasks operating partners are expected to complete, the overall size of the team employed will likely be significantly reduced. The same (or better) outputs for tasks like data modeling, KPI dashboards, and competitive analysis can be completed with just one or two people working on them.
And this technology isn’t something that’s on the horizon — it’s already here.
“The top three things that seem to be more popular among all the clients we serve are investor onboarding, investor reporting, and enterprise data presentation and data management. But we are able to add additional modules like due diligence, etcetera,” explained Trilliam Jeong, chief executive and co-founder of WealthBlock.
WealthBlock is an AI-enabled platform used to streamline capital-raising processes and GP-to-LP reporting. However, it's dipping its toes into asset-level reporting, too.
Jeong noted that as private equity firms aim to fundraise with more high-net-worth individuals and family offices, the use of AI for investor onboarding has become essential, adding that this is often just a starting point for his clients.
“People started thinking maybe there's some more [sub-fund level], asset-level reporting, even portfolio company-level reporting [we can help them achieve],” he explained.
“We can build infrastructure that allows anyone to create any kind of assistant for operational assistance. That's the path we're on,” he concluded. “The first productization of a portal operation assistant, I would say [will take] two years… for the ultimate productization, the training model, allowing anyone to create any AI [operations] agent, that's not far from us either. Four or five years.”
The upside
For the private equity ecosystem as a whole, the implementation of automated operating processes will likely be a net positive. Beyond reliable data and communication with LPs, operating teams will also be able to look over more portfolio companies with deeper insights per portco.
This could do wonders to bridge the ‘missing middle’ funding gaps in sectors that struggle to scale, namely infratech and new energy.
Operations professionals looking to weather the transition may need to shift their specialty set soon. Private equity firms are poised to trade in generalist operations partners for more targeted hires focused on AI oversight, data strategy, and change management.
Indeed, a McKinsey study found that between 2020 and 2024, the number of private equity firms using a data operating partner model doubled from 20 percent to 40 percent. The rise of the AI-focused operating partner is seen to be the next frontier for this transformation.