As private markets grow in size and complexity, allocators are struggling to keep up with the rapidly changing investment landscape, with many limited partners lacking a full understanding of the underlying risks in their portfolios. As a result, most LPs believe that the solution is to adopt artificial intelligence.
New data from Institutional Investor and Clade show that only 8.8 percent of allocators feel like they know where the investment risk is in their portfolio. Many also view their current investment processes as outdated: More than 42 percent expect to fall behind rather than maintain their edge if investment processes remain unchanged over the next five years.
“Only 8.8 percent of allocators feel like they know where the investment risk is in their portfolio because the underlying alternatives have gotten so complicated and the markets are now so large that they can’t keep up with it,” said Jonathan Lipton, CEO of Clade, a global fintech platform.
Meanwhile, more than 70 percent of LPs believe AI will influence performance over the next decade. And more than 90 percent of LPs report spending up to half their time on repetitive, non-investment work.
“They’re overwhelmed with PDFs and emails, and they just can’t keep up with them. No one has the time to read it all,” Lipton said. “AI is the big solution to help them digest all that information quickly and accurately.”
While widely viewed as essential to future performance, AI remains largely absent from allocators’ core daily decision-making processes. Apart from using general purpose AI chatbots like ChatGPT and Copilot, only a fraction of allocators has implemented such tools into their daily workflows. Core processes such as manager diligence, portfolio monitoring, and risk identification remain heavily manual.
So, what’s stopping LPs from fully implementing AI in their underwriting, diligence, and investment committee processes? According to most LPs, it’s an alignment issue, not a technology issue. More than half of allocators say internal organizational issues are the biggest barrier to implementing AI. This is driving AI proficiency to quickly become a baseline expectation of new hires, with more than 75 percent of LPs prioritizing AI fluency when hiring investment professionals.
II and Clade gathered answers from hundreds of institutional investors representing over $3 trillion in global capital in March; 73.8 percent of the respondents were institutional investors and 26.2 percent were large, institutional-sized family offices and RIAs.
