Everyone has been talking about ChatGPT – the natural language processor by OpenAI.

Since its grand reveal in November 2022, it’s sent shockwaves across all industries, with people either extremely impressed by the technology or fundamentally unsettled by it.

In our recent webinar on the impact of ChatGPT in private equity, we asked over 500 investment professionals how they feel about the chatbot. Of the respondents, interestingly, 56% feel it’s groundbreaking technology and 25% can see some limited use cases in the private equity field. Surprisingly, only 18% are experiencing an existential crisis!

Much of the unsettlement professionals are feeling comes from the thought that their jobs will be replaced by artificial intelligence. Although ChatGPT is the most powerful technology we’ve seen in recent years, we don’t believe that it will replace investors. But that’s not to say it won’t change the way we do business in private equity.

Already, there are plenty of use cases for ChatGPT in private equity – both in-house and in portfolio companies. And if investment professionals start leveraging this technology, even while it’s still in its infancy, you can open opportunities to create significant efficiency and optimization.

ChatGPT capabilities and limitations in private equity

Even though ChatGPT 3.5 is impressively good, it’s far from perfect.

The chatbot has self-proclaimed limitations that sometimes make its responses incorrect or outright outlandish:

• It only holds information up until the year 2021

• It can and sometime does produce harmful or biased content

• It may generate incorrect information

Because of these limitations, you should only use this AI for tasks that have a high margin of error. With this in mind, there are still ways to use ChatGPT in private equity. 

ChatGPT use cases for private equity firms

ChatGPT is known for a number of capabilities, but most notably writing, information extraction and graphical structuring. With these capabilities, there are a number of ways PEs can use this technology in their in-house operations: 

Creating investment thesis

A lot of the work that’s required to create an investment thesis is compiling and condensing information on specific sectors. When Pietro Casella, Chief Architect at EQT joined us on a recent webinar, he spoke about how he believes that a futuristic version of ChatGPT will be able to do this work for investors. 

Pietro suggests that investors can have ChatGPT collect all data and information on a sector, summarize it, then explain it in a specified way. You can then pinpoint where you’d like the chatbot to expand on certain topics, which will then allow you to formulate a broad understanding of the space. 

Once this is done, “advisors can then think creatively about the implications of the sector that are not so obvious,” says Pietro. 

While investors should not necessarily rely on ChatGPT for creative thinking or for high stakes decision making at this point, Pietro feels that in the future, these chatbots could potentially complete even this part of the task, as he’s seen the bot perform logical reasoning. 

Performing company comparisons

In the same way you can create an investment thesis, you can use ChatGPT to quickly understand businesses and perform company comparisons. You can have ChatGPT summarize a business based on the information available. Once summarized, you can then have the chatbot compare it against other businesses for further analysis. 

The chatbot can structure the information in whatever format you need, helping you perform a quick competitive analysis. 

This was highlighted in our webinar where AI expert Brian Leenen demonstrated ChatGPT live in action.

Improving data quality

Quality data and information is the lifeblood of private equity. It’s what allows investors to make informed decisions in everything from deal origination to portfolio management. So leveraging ChatGPT to increase the quality of your data is one of the smartest ways to use it.

With ChatGPT’s data structuring capabilities, Pietro Casella believes that it will help increase the quality of data with minimal effort. According to ChatGPT, some of these text data capabilities include,

• Cleaning

• Generation

• Classification

• Summarization

Frister Haveman, co-founder and co-CEO of Gain.pro, notes that there’s a lot of untapped potential in data for private equity firms. “You can do lots of structuring of data that's currently unstructured, and doing so could provide you with a great amount of insight,” said Frister.

Writing reports and presentations

One of the most common use cases for ChatGPT is writing. This is because the task itself is very subjective, and because ChatGPT is actually pretty good at it. 

Apart from using it for general writing tasks like emails, you can use the chatbot to help you create reports and presentations – arguably one of the more tedious aspects of an investor’s job.

While you’ll still have to review all the documents ChatGPT writes, you can free up a lot of time by using this technology.

ChatGPT use cases for portfolio companies

At the same time as using ChatGPT to optimize your in-house operations, you can also use it in your portfolio companies where there are tasks that have high margins of error. 

Writing and media

Writing and media related tasks are the low hanging fruit where you can leverage ChatGPT in portfolio companies.

Marketing, for instance, is a great example of a vertical where there are many use cases for artificial intelligence. You can use chatbots to compose ads or campaigns, increasing the overall efficiency within the department. But, teams need to be aware of best practices when using such tools.

Apart from marketing, customer service is another great vertical for artificial intelligence. You can use it to automate certain tasks and standardized communication, freeing up valuable human resources for more value-add tasks like building relationships and delivering great customer satisfaction. 

Large scale business model classification

ChatGPT’s ability to extract and structure data through specified guidelines means that companies could potentially leverage it for large scale analysis of business model classification or ‘tags’. Gain.pro AI expert, Brian Leenen, suggests that ChatGPT could make this process a whole lot easier to perform, though would still require human analysis for quality assurance. 

Even though tasks like this would still require a human in the loop, having artificial intelligence complete even a few steps in the process would be a huge step forward towards automation and efficiency. 

Capability overhang – The future of ChatGPT in private equity

ChatGPT has only been available to the public for 3 months, so most of us, including AI experts, don’t yet know the full power of this technology. The capability overhang of this technology is huge, with likely many more use cases. 

Capability overhang exists for many tech tools, but what makes it so exciting for ChatGPT is that this tool is the tipping point in technology where even the seemingly impossible is no longer out of the question. It is set to revolutionize the way we do business in all industries across the globe.

More and more use cases will arise over time as professionals uncover new capabilities and as the system itself becomes more sophisticated. In the future, it's very possible that we could use it in high precision industries, like healthcare or pharmaceuticals. But as for now, we’re not quite at that point! 

Even so, leveraging it in its current state puts us at the forefront of this technology – a position with opportunities for significant growth. 

This leads us to wonder: what will the future of private equity look like with ChatGPT at our fingertips?  Why not ask yourself?