Tech and AI Shape New Era for Private Market Investors, McKinsey Analysis

What's New

According to McKinsey's recent analysis, institutional investors in private markets are radically shifting their approach to technology adoption, with top performers spending over 3.5 basis points on tech and AI to unlock new alpha generation strategies in an increasingly challenging market environment.

Why It Matters

As private markets enter what McKinsey calls a "slower era of growth," the ability to leverage technology, particularly AI, becomes crucial for identifying early-stage opportunities and managing increasingly complex private market portfolios, including emerging asset classes like private credit.

Big Picture Drivers

• Portfolio Complexity: Higher allocation to private assets correlates with increased tech spending

• Direct Investing: Growth in co-investment and direct deals demands robust technological infrastructure

• Data Challenge: Private market investors struggle with data quality and granularity, especially in emerging asset classes

• Operational Scale: In-house management of private assets requires sophisticated technology platforms

• Cost Pressure: Market slowdown forces firms to find operational efficiencies through automation

By The Numbers

• 3.5+ basis points: Tech spend by top-performing private market investors

• 20% increase in absolute tech spending since 2020

• <20% of institutions ready for AI integration in private markets

• Higher tech spending correlates with 3 factors: in-house management, private asset allocation, risk management focus

Key Trends to Watch

• AI Adoption: Leading private equity firms are using generative AI to accelerate due diligence and synthesize thousands of private asset documents

• Platform Evolution: Legacy systems struggle to support newer private market asset classes like private credit, driving modernization

• Data Integration: Firms are building unified data platforms to handle complex private market investments across multiple asset classes

• Co-investment Tech: Investors are developing specialized platforms to manage resource-intensive activities in direct and co-investment deals

The Wrap

Success in private markets increasingly depends on technological transformation, with leading investors leveraging AI and modern platforms to identify opportunities, manage complex portfolios, and drive operational efficiency in a challenging market environment.

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