AI adoption is posing cybersecurity challenges for private equity firms

By Puja Sharma

Just 6% of private capital funds say they have built a mature tech platform incorporating advanced solutions such as blockchain and AI

Almost half (48%) of private capital firms believe their ad hoc and exploratory approach to adopting advanced technologies such as blockchain and AI has left them facing a growing list of challenges including cybersecurity breaches, poor quality data, and higher operating costs, according to a new study commissioned by Intertrust Group.

The study, Introducing the Halo Framework, based on interviews with 150 senior decision-makers in private capital firms, hedge funds, and private wealth managers with $12.5 billion to $29.5 billion assets under management, reveals that just 6% of respondents say they have built a mature tech platform incorporating next-generation technology across the firm.

The war for tech talent was cited as the biggest obstacle facing private capital firms looking to improve their data analytics and onboard next-generation technology, with almost two-thirds (64%) admitting that they struggled to recruit and retain suitably qualified staff.

More than half (53%) of respondents reported data management problems, leading to inefficient analytics due to their inability to consolidate data across multiple disparate sources and asset classes to achieve a coherent picture. Almost half (49%) say that a lack of automation resulting from continued reliance on spreadsheet-based manual systems is increasing operational costs and reducing efficiency; while 47% have concerns over cybersecurity and data privacy-related breaches.

Given the challenges facing private capital firms attempting to build technology solutions in-house, the majority (58%) of respondents believe that their firms are likely to significantly increase outsourcing within their fund operations in the short to medium term.

According to the findings, the three biggest drivers to outsource are cost savings and efficiency gains, access to people with specialised skills, and better handling of complex regulations.

Chitra Baskar, President, of Fund Solutions, Intertrust Group, said, “By their admission, most private capital GPs have been slow to fully embrace and invest in new technologies to improve their operating models. The increasing risk of cyber threats is now adding to these tech challenges and associated costs.

“As private capital firms progressively look to upgrade, update or modernise their operating model, they are increasingly looking for trusted third-party vendors and partners that can provide established platforms and solutions to support their technology needs. Moving to the cloud or licensing SaaS platforms are just some options available to the funds, besides using an outsourced service provider who can bring all of them together as a package. Best-in-class technology and practices will improve operational efficiency and meet the data needs of private capital firms.”

Key findings:

• Just 6% of private capital funds say they have built a mature tech platform
• The war for tech talent was cited as the biggest obstacle facing private capital firms looking to improve their data analytics and onboard next-generation technology
• Around 64% are struggling to attract and retain IT talent
• Over 53% report data management problems
• About 49% say that a lack of automation is increasing operational costs and reducing efficiency
• Out of which 47% have concerns over cybersecurity