Exploring ChatGPT's Impact on Private Equity: Use Cases, Limitations, and Future Potential

Since its unveiling in November 2022, OpenAI's natural language processor, ChatGPT, has generated significant buzz across industries, sparking both awe and concerns. In a recent webinar on the influence of ChatGPT in private equity, insights were gathered from over 500 investment professionals, shedding light on the technology's perceived impact. While 56% viewed it as groundbreaking, 25% recognized limited use cases in private equity, with only 18% expressing existential concerns.

ChatGPT Capabilities and Limitations in Private Equity

Despite its impressive abilities, ChatGPT 3.5 has acknowledged limitations that include information only up until 2021, potential for harmful or biased content generation, and the possibility of incorrect information. As a result, cautious consideration is advised, emphasizing the need to deploy ChatGPT for tasks with a high margin of error.

ChatGPT Use Cases for Private Equity Firms

1. Creating Investment Thesis

Pietro Casella, Chief Architect at EQT, envisions a future where ChatGPT aids investors in compiling, condensing, and summarizing sector-specific information to formulate investment theses. Although creative thinking and high-stakes decision-making may remain human domains, Casella foresees ChatGPT evolving to contribute even to these aspects in the future.

2. Performing Company Comparisons

ChatGPT's capabilities in summarizing information can be harnessed to quickly understand businesses and conduct company comparisons. Investors can utilize the chatbot to structure information for a rapid competitive analysis.

3. Improving Data Quality

Recognizing data as the lifeblood of private equity, leveraging ChatGPT for data structuring can enhance the quality of information. Capabilities such as cleaning, generation, classification, and summarization offer potential benefits, aiding in deal origination and portfolio management.

4. Writing Reports and Presentations

ChatGPT's proficiency in writing tasks positions it as a valuable tool for generating reports and presentations, freeing up time for investors. Although documents must be reviewed for accuracy, the technology streamlines the otherwise time-consuming process.

ChatGPT Use Cases for Portfolio Companies

In addition to optimizing in-house operations, private equity firms can extend ChatGPT's application to portfolio companies for tasks with high margins of error. Use cases include:

1. Writing and Media

Portfolio companies can leverage ChatGPT for writing and media-related tasks, such as marketing. The chatbot can compose ads or campaigns, enhancing overall departmental efficiency. Similarly, customer service automation can be implemented, allowing human resources to focus on relationship-building and customer satisfaction.

2. Large-Scale Business Model Classification

ChatGPT's ability to extract and structure data according to guidelines offers potential for large-scale business model classification within portfolio companies. While human analysis is still essential for quality assurance, the technology can streamline certain steps in the process, contributing to automation and efficiency.

Capability Overhang – The Future of ChatGPT in Private Equity

As ChatGPT has only been publicly available for three months, its full potential remains largely untapped. The concept of capability overhang suggests that the technology holds even more use cases and possibilities than currently known. While professionals continue to explore its capabilities, the future of ChatGPT in private equity could potentially extend to high-precision industries like healthcare and pharmaceuticals.

In leveraging ChatGPT in its current state, private equity firms position themselves at the forefront of this transformative technology, paving the way for significant growth opportunities. The ongoing evolution of ChatGPT invites contemplation on the future landscape of private equity and the unprecedented possibilities it might unlock.