Private Equity Faces Challenges Amid AI Boom

The AI boom has boosted private equity funds by opening up the IPO and M&A markets, providing liquidity and exit strategies for firms. However, it has also created a 'frothy' investment landscape, making it harder to identify promising startups. Some investors are now focusing on companies with tangible cash flows and strong use cases, rather than chasing theoretical potential. The AI narrative has become a prerequisite for successful public offerings, but has also driven valuations to alarming levels, drawing comparisons to the dot-com boom. Industry figures warn of the risks and challenges posed by AI, including the potential to render some business models obsolete.

The article discusses the growing trend of private equity firms opening up to retail investors, which is causing concern among traditional institutional investors. The influx of retail money could distort pricing, erode returns, and destabilize fund structures. Experts warn that retail investors have different liquidity expectations and incentives than institutional investors, which could lead to a loss of long-term focus in private markets. Private-equity managers are responding by creating semi-liquid funds that allow investors to come in and out on a monthly or quarterly basis. However, some experts caution that these funds may not be as liquid as they seem, and that the increased demand for private assets could drive up prices and lead to poor underwriting discipline.

Blackstone has reached its US$10 billion target for its latest Asia buyout fund despite investor caution about private equity due to high borrowing costs, fewer listings, and declining secondary buyouts. The fund's success is attributed to Blackstone's entrenched presence in India and expanding footprint in Japan, which are expected to drive strong returns. The fundraising comes amid a challenging market, with global investors growing more cautious about private equity. However, large alternative asset managers like Blackstone continue to attract commitments due to their global reach, long track records, and dedicated fundraising teams.