From Information to Decisions

So far in this series we have shared perspectives from throughout the PE career ladder. In this week’s edition of Agents of Change, we’d like to focus on the vision and insight coming from those with the most technical leadership experience - the chief information officer (CIO).

Over the past decade, the role of technology leadership within private equity-backed companies has transformed dramatically. Once viewed primarily as a cost center, technology is now recognized as a pivotal element of the investment thesis, with CIOs and chief technology officers (CTOs) emerging as essential partners in driving business success. Today’s leading private equity firms rely on their technology leaders not only to manage IT operations but to actively contribute to strategic decisions, making technology a fundamental lever for operational effectiveness and, increasingly, a central feature of the product offering itself.

Of course, not all PE shops will have a CIO on staff. Many lower middle market firms may have a COO with fractional technology ownership, and many small firms run even leaner operations with all tech decision-making effectively decentralized to deal teams and the occasional managing director input.

Still, the CIOs of the largest funds and competitive middle market firms are often the ones setting the tone for the industry, pushing forward the boundaries of productivity, insight and ROI by leveraging tech. We spoke with several of them to form a perspective on how the role of technical leaders is changing in the age of AI.

CIO Priorities in the AI Age

In the past decade, a significant shift has occurred in how private equity-backed companies perceive their technology strategies. CIOs and CTOs are now seen not just as operational leaders but as central figures in executing the investment thesis itself. This evolution is underscored by insights shared publicly from Amar Ghai of KKR and Vikram Mahidhar of Apollo Global Management, who emphasize the necessity for technology leaders to possess a blend of deep technical expertise and robust financial acumen.

"The role of the CIO in our portfolio companies is evolving from back-office support to front-line value creation," notes Ghai. This sentiment is echoed by Mahidhar, who adds, "Our technology leaders are tasked with turning strategic vision into tangible outcomes that align directly with our investment objectives."

The first thing we wanted to know when connecting with leading CIOs for this article was how they juggle the immense set of technological interests that a PE firm might have. With AI, blockchain, data science and enterprise tech affecting operations, risk, portfolio management, and investing, how do tech leaders in finance prioritize their time and resources to drive transformational change inside their company and across the industries in which they invest?

While perspectives varied fairly widely, Info-Tech Research Group’s matrix of CIO priorities does a fairly good job of capturing some of the top themes that arose within our interviews as well.

1. Augment the Business with Generative AI: Every CIO is thinking about how AI becomes a “product moat”, in the sense that their unique investment thesis and process is strengthened by the strategic application of AI. This could be in the processes of diligencing an investment (business valuation), deploying portfolio company strategies at scale (for vendor or cost management) or simply making the team more operationally effective to enable bidding on more deals.
2. Right-Size AI Governance: Many PE investment leaders are going to their CIO or CTO to understand how to run their AI adoption. More and more technical infrastructure is starting to be re-organized to optimize for AI. For example, finding the right structure for feeding data into AI models and applications is going to be the new standard data architecture.
3. Assess Vendor Risk: Deal teams are generally excited about bringing AI research and co-pilots into key workstreams. CIOs are playing a key role in determining which vendors to work with, and how. With the additional strategic, legal and ethical risks that come into play with AI, tech leaders must develop high-relationships with key vendors to meet the risk expectations of LPs.
4. Exponentially Increase Innovation: How do the firm and its outside stakeholders need to be reorganized to benefit from technological change? CIOs are not just engineers and product managers, but leaders of the culture and organizational change required to implement technologies as consequential as AI.

Accelerated Transformation and Urgency

One CIO we spoke with at a leading southeast mid-market fund emphasized that the urgency of transformation in PE-backed companies today is acute, with a typical expectation to initiate and start realizing the benefits of strategic changes within the first two years of investment. This compressed timeframe places a premium on decisiveness and the ability to drive change rapidly—a quality that technology leaders must embody.

"Transformative initiatives must be impactful and swiftly implemented to meet the investment return objectives," stated the technology leader.

This urgency is compounded by the need for technology to not only support but actively drive business innovation and efficiency, making the CIO's role critical in maintaining the momentum of AI adoption.

Of course, much of this is driven by the 8-10 year fund cycle times and 4-5 year investment horizons that many PE firms use. If investors want to see meaningful results within the lifecycle of their fund, or a particular investment, process updates based on technology must move much faster than that. Many of the CIOs we spoke with expect to implement on a rapid, experimental basis, and aim to scale out at least preliminary AI efforts within the next year.

Will AI Actually Make a Difference?

It is clear that AI has been taking up much of the mind share of leading CIO offices, but we wanted to dig deeper to understand whether leading finance technologists actually believed that the potential could live up to the hype. The picture that ultimately emerged was one of cautious optimism: being the chief engineer at many of the funds we spoke with, their excitement about AI certainly came through. However, many CIOs and CTOs also view themselves as business leaders and product managers who must carefully craft business cases and manage the limited resources at their disposal.

One CIO at the southeast firm we referenced above tended to analyze the effectiveness of AI from a use-case perspective. In particular, he was enthusiastic about applications that enhance decision-making through data-driven insights, streamline due diligence processes, and optimize operational efficiencies. The evaluation for each use case typically involves a detailed analysis of potential ROI, scalability, and integration capabilities.

CIOs seek to identify areas where AI can deliver immediate value, such as automating routine tasks to free up analyst time for higher-value activities. This is often quantified by assessing hours saved and the potential for error reduction, which directly correlates to cost savings and enhanced accuracy in financial reporting.

Among the solutions gaining traction, broadly available tools like Microsoft’s Copilot and ChatGPT stand out. Copilot has been useful for teams in one off instances, though much of its adoption seems to hinge on Microsoft’s existing dominance in the finance industry rather than having found a killer use case.

In that vein, specialized solutions for particular pieces of the investment work flow are gaining traction, too. When it comes to assisting in data gathering and preliminary analysis, where AI solutions like Keye are making headway, general platforms like OpenAI’s still lag behind. Using the latest models in combination with context-laden vector databases, these custom tools can often offer more than generic chatbots and significantly accelerate the pace at which deals can be assessed.

CIOs are also exploring AI applications that can predict market trends and consumer behavior, thereby informing investment decisions and identifying emerging opportunities more swiftly. Tools that support scenario modeling and risk assessment are seen as critical, allowing PE firms to simulate various market conditions and their potential impacts on investment performance.

Ultimately, a big factor in the successful deployment of AI solutions is their seamless integration into existing systems. Many leaders we spoke with highlighted the necessity of choosing AI tools that can be easily plugged into the firm’s data ecosystems without disrupting current operations. The preference is often for AI platforms that offer customizable workflows and can be adapted to the specific needs of the firm, ensuring that the technology complements rather than complicates the existing processes.

Building a Network of Trusted Partners

Given the scale and speed of changes required, PE-backed companies often rely on a network of trusted external partners to fill gaps in expertise and accelerate execution. As tech talent becomes more globally dispersed, these networks have taken on a larger role in providing the scaffolding for rapid scale-up and integration, particularly in environments where in-house capabilities are still being developed.

Antoine Boatwright, former CIO of PE-backed company Go Instore, wrote in a recent article about the importance of those external partners in driving tech transformation, including AI adoption:

“The organization will typically not have all the relevant skills in-house and/or the sheer number of resources required to execute these changes. That is where a strong network of trusted partners is important. Emphasis is on “trusted” as there is no time to make an error or to fail one or more projects, especially as many projects are interconnected. These partners will be companies and/or contractors who will have your back and have demonstrably delivered in the past.”

The ability to leverage these relationships effectively is often a determinant of how successfully a fund can implement its technology-driven transformation strategies, including implementing AI into key workflows.

The CIO’s Perspective: Risk and Reward

From an investor's perspective, the role of technology in creating competitive advantage is clearer than ever. Cache Merrill of Zibtek, a technology firm that serves as outsourced IT for many smaller PE funds, points out that "leveraging technology is not just about enhancing efficiency but also about creating new avenues for revenue generation and market expansion."

LPs and managing directors of funds are increasingly turning to their top CIOs (both those employed at the firm, as well as at the portfolio company level) to advise on how AI can not only optimize current operations but also create investment strategies and position companies for future growth.

Several IT leaders shared that they have become more involved in fund-level decision making over the past year, as PE firms of all sizes have scrambled to nail down a strategy for using generative artificial intelligence. CIOs are expected to not only deeply evaluate their investment stakeholders’ investment theses and have the capability to create a product roadmap aligned to the firm’s strategy, but in many cases also lead its execution internally. If you are working in the space and would like to share your insights with us, please get in touch at founders@keye.co. Thank you, and see you next month.