Featured image by Jenna O’Malley/PitchBook News
Private equity firms have raced to embed AI into portfolio companies, betting it will reshape businesses and boost valuations, yet few have results to show for it.
A round of conversations with advisers provided a reality check on the hype, laying bare the distance between what the PE industry is hankering for from AI and what its experiments have delivered so far. While most firms have been tinkering enthusiastically, many haven’t done it in a way that has translated into financial gains.
The mainstream effort is aimed at automating unglamorous back-office work—coding invoices, generating reports, managing contracts and procurement—at this point, rarely is AI used to fuel growth.
“AI is an efficiency play, for sure,” said Anil Kumar, a managing director at Alvarez & Marsal who develops and deploys the firm’s generative AI tool suite for PE firms. The bigger value lies in using AI to improve revenue, generate more revenue streams and stay competitive, he said.
In a May survey by Alvarez & Marsal, which polled 100 executives across large-cap and midsized PE firms and their portfolio companies, 73% expected AI to increase the value of their portfolios over the next 12 months. Only 8% described themselves as “leading,” meaning that AI is making a material impact on EBITDA or moving the needle in exit narratives.
The bulk of the industry is still experimenting with selective use cases or running pilots; far fewer have wired AI into their workflows and delivered financial gains.
Meanwhile, the most common use of AI, named by 55% of respondents, is financial planning and analysis (FP&A) and performance management, the most ‘back-office’ of the different use cases covered in the survey.
“A lot of these use cases have improved personal productivity, but they’re not hitting the P&L,” said Christy Carter, the global head of Boston Consulting Group‘s PE sector. “But using AI to drive accounts receivable faster and to reduce working capital versus just having an individual accountant or someone in finance using GPTs to make their day easier, those are two very different things.”
Consider HVAC—an industry PE has been actively tapping for roll-up plays. On a blistering summer evening, a customer calls with a broken air conditioner. An AI-powered virtual agent picks up, takes down the information, and dispatches a technician either that night or first thing in the morning. The competitors who directed after-hours calls to voicemail lost the job at first light.
“Winning an HVAC business is all about who picks up the phone and gets to the house first, and AI can do that,” Carter said. “That’s the kind of thing AI should drive—new customers, new revenue, market share. That’s where we think the most value is.”
