The use of AI in financial decision-making has a mixed track record, not least as people tend to prefer to rely on their own judgment than that of the technology.  New research from HEC Paris explores the track record for the technology and finds that while it can increase efficiency, it can also destroy junior-level jobs.

The study saw interviews conducted with a number of executives at private equity (PE) and venture capital (VC) firms to understand how they’re using AI-based technologies.  The researchers also assessed performance data in these firms.

Operational improvements

The analysis finds that AI has the potential to boost the operational efficiency in both PE and VC firms while also transforming the ways in which partners undertake their work.  It does have consequences, however, not least in terms of the technological arms race it invokes and the resultant shakeout in the industry.

The use of AI has a range of both positive and negative consequences.  For instance, among the benefits are a reduction in travel and meetings, a diversification of portfolios, and even the launch of new firms to capitalize on the technology.  These can help to significantly increase the efficiency of firms while also redesigning their workflows and deal-making processes.  It can also result in the almost complete elimination of many junior-level tasks, however, which almost inevitably results in job losses.

For instance, one firm that introduced AI was Jolt Capital, which used the technology as a decision support tool for partners.  The company saw rapid improvements in its operational efficiency, not least due to the pace of learning after the technology had managed to understand how partners operated and was able to make intelligent recommendations.

Adopting the technology

The researchers believe it’s inevitable that AI-based technologies will be adopted at an increased rate in the years ahead, with the rollout beginning on specific tasks before ultimately changing existing processes and ways of working entirely.

This will be helped by the entry into the market of firms that specialize in using AI, with the competitive nature of the sector encouraging innovation and investment in any technologies that can give firms an edge.

This will almost inevitably result in disruption in the industry, with new entrants squeezing out existing firms who aren’t able to adapt as successfully to the new opportunities presented by the technology.