Welcome back! It’s Cory and Valida in Los Angeles.
News this week about private equity firms’ new joint ventures with OpenAI and Anthropic came at the right time for PE giants: just as they were about to sit down with their investors for days of meetings at the annual Milken Institute conference.
The AI partnerships put the slew of PE firms involved—in Anthropic’s case, Blackstone, Hellman & Friedman and Apollo, and, in OpenAI’s case, TPG, Bain Capital and Advent, to name a handful—closer to the center of the hyper-bullish AI action. The tie-ups, including a new one reported Tuesday involving Google, Blackstone and KKR, were a change from the darker questions hanging over PE firms, including what they’ll do with their overvalued enterprise software firms and when they’ll return cash to their backers.
What happy timing.
Regardless, the days of background meetings we had with investors in Beverly Hills, Calif., as well as some of the discussions on the event’s mainstage, reinforced the idea that Silicon Valley and Wall Street both are racing toward automating white-collar jobs in legal work, healthcare, insurance and any other sector you can name.
For OpenAI and Anthropic, the push will help with sales to bigger customers, revenue that could help justify potential $1 trillion-plus valuations. “OpenAI and Anthropic are attracted to insurance, healthcare, financial services—people and process-intensive things,” said a fund manager who worked on one of the joint ventures.
That’s an opportunity for private equity firms, which own lots of those kinds of businesses. They can become testbeds for the technology and then help sell new kinds of standardized AI agents and applications to other firms.
Private equity sees a big business opportunity. Two separate PE fund managers compared the new joint ventures to the work of Accenture, the IT and management consulting giant that helped offshore a lot of white-collar jobs. Another fund manager compared the PE ventures to the moment in the early 2000s when businesses offshored more of their labor to China. “The next wave of it is AI,” he said.
We have to wonder if future Milken panels will be devoted to political unrest from job losses.
It’s still far from settled whether private equity’s AI joint ventures will succeed, of course. On a panel Monday, KKR’s co-head of global private equity Pete Stavros conceded that AI was improving earnings across its portfolio by 5%, not 50%. He didn’t specify how that was happening, but was less upbeat about the change. “If you read the headlines, you come to believe there’s these massive transformations happening, and that’s not what we’ve seen so far,” he said.
The private equity giant was using AI inside one of its education technology companies to detect plagiarism, for instance. “Some of it is really bespoke and not so easy to spread across the portfolio,” he said. (KKR and Blackstone are in talks with Alphabet to give their portfolio companies access to Google’s AI models, Bloomberg reported Tuesday.)
But private equity leaders were determined to figure out how to incorporate AI in a meaningful way. Another is Martín Escobari, who runs General Atlantic’s growth equity arm. He suggested AI could resolve one major PE headache: what to do with the enterprise software firms they bought during the pandemic’s low-interest rate period.
“As an industry, we way over-deployed into too much software” in 2020 and 2021, he said on stage. Now PE firms would find “alpha,” or above-average returns, in part by “infusing AI” in their portfolios, he added.
He pointed to General Atlantic joining the joint venture with Anthropic as part of the solution. “The technology is ready to automate most white-collar work,” he said. “The challenges we find in our portfolio are prioritization and diffusion.”
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