2025 Will Be the Year of AI Adoption in Private Equity: 10 Ways to Prepare

Although generative AI (Gen AI) adoption rates surged across most industries in 2024, the financial services sector was slower to follow. However, 2025 is shaping up to be a pivotal year for AI adoption in private equity (PE). 

According to a recent BlueFlame AI webinar poll, 51% of alternative investment managers are currently in the discovery phase of AI implementation. This indicates a growing interest and readiness among these firms to harness AI's potential to enhance their operations and strategic decision-making.  

Here are 10 action items for private equity (PE) firms to prepare for implementing Gen AI and realizing its full potential in 2025 and beyond. 

10 Gen AI Action Items for PE Firms in 2025

1. Establish an AI working group

Form a cross-functional team comprising members from various departments such as investment, operations, IT, and compliance. This team will be responsible for identifying potential AI use cases, prioritizing them based on impact and feasibility, and overseeing the implementation process.

This approach ensures that AI initiatives are aligned with the firm's strategic goals and that diverse perspectives are considered. It fosters collaboration and accelerates the adoption of AI technologies across the firm.

2. Invest in knowledge management infrastructure

Develop a comprehensive system to capture, store, and organize proprietary data and insights. This includes implementing data lakes, data warehouses, and advanced analytics platforms.

A robust knowledge management system enhances data accessibility and usability, enabling more informed decision-making. It also supports the development of AI models by providing high-quality, structured data.

3. Evaluate and select AI tools

Conduct a thorough evaluation of available AI platforms and tools, considering factors such as accuracy, processing speed, scalability, integration capabilities, and vendor support.

Selecting the right AI tools ensures that the firm can effectively leverage AI technologies to improve efficiency, reduce costs, and gain a competitive edge.

4. Develop an implementation strategy

Create a phased approach for deploying AI tools, starting with high-impact, low-risk use cases. This strategy should include timelines, resource allocation, and success metrics.

A structured implementation strategy minimizes risks and maximizes the return on investment. It allows the firm to learn and adapt as they scale AI initiatives.

5. Focus on data integration

Prioritize the integration of key internal systems (e.g., CRM, document management) and external data sources to ensure seamless data flow and accessibility.

Effective data integration enhances the accuracy and reliability of AI models, leading to better insights and decision-making. It also reduces data silos and improves operational efficiency.

6. Upskill teams

Provide comprehensive training programs on AI tool usage and effective prompt engineering to ensure that employees can effectively utilize AI technologies.

Upskilling employees increases AI adoption rates and empowers teams to leverage AI for enhanced productivity and innovation.

7. Monitor model performance

Implement a system for regularly assessing the accuracy and effectiveness of AI outputs, particularly for critical decision-making processes.

Continuous monitoring ensures that AI models remain accurate and relevant, reducing the risk of errors and enhancing trust in AI-driven decisions.

8. Explore agentic AI capabilities

Experiment with advanced AI agents capable of performing complex, multi-step tasks autonomously. This involves pilot projects and controlled testing environments.

Exploring agentic AI capabilities can lead to significant efficiency gains and open up new opportunities for automation and innovation within the firm.

9. Consider ethical and compliance implications

Develop comprehensive guidelines for responsible AI use, addressing issues such as data privacy, bias, and decision transparency. This includes establishing an ethics review board.

Addressing ethical and compliance considerations ensures that AI initiatives are sustainable and aligned with regulatory requirements, protecting the firm's reputation and stakeholder trust.

10. Stay informed on AI advancements

Regularly update the firm on new developments in AI, such as advancements in reasoning models and computer vision, through workshops, seminars, and industry conferences.

Staying informed enables the firm to quickly adapt to new technologies and identify emerging opportunities for AI applications, maintaining a competitive advantage.

Conclusion

While we're still in the early stages of AI adoption in PE, the potential for transformation is immense. Firms that invest in building a strong AI foundation now will be well-positioned to reimagine their entire investment process in the coming years, potentially unlocking significant competitive advantages.

AI "utilities" provide an opportunity to transform existing processes and fundamentally redesign workflows from the ground up. The key will be balancing innovation with the need to maintain business continuity and deal execution in the near term.

By taking concrete steps to prepare for this AI-driven future, PE firms can ensure they're ready to capitalize on the next wave of technological advancement in the industry.