How AI can help accelerate family office deal origination
Family offices are now the fastest growing body of investors in emerging technologies. So, how do family offices reduce operational pains?
The last decade has seen significant uncertainty across the financial markets thanks to increasing economic tensions; so much so that many family offices are now shoring up their operations to protect them for future generations to come. In fact, nearly half (42%) of family offices are realigning their investment strategies to focus on capitalizing opportunistic investments in order to mitigate risk, according to the latest UBS/Campden global family office report.
This strategy is working – family offices are now the fastest growing body of investors in emerging technologies. From 2015, a record-breaking $5bn was invested in early-stage technology companies. There is clear appetite from executives, with nearly nine in 10 (86%) predicting that artificial intelligence (AI) will be the biggest disruptive force in business throughout the world. Over half (57%) also believe blockchain technology will profoundly impact how investments are managed.
However, many are starting to see technology as more than just an investment opportunity. Over a third (37%) of family office executives believe that ‘virtual family offices’ will replace traditional structures by 2025. Indeed, we are already seeing a trend towards increasing operational professionalism within the sector by increasing governance and reporting structures.
This is reflective of a long-standing issue across family offices; the process of identifying an undiscovered investment opportunity is a painstakingly long, drawn-out and costly one. While the trend of leveraging families’ personal networks looks only set to continue, the need to conduct extensive due diligence on all potential investment opportunities remains essential. This is a constant headache for family offices, which are, for the most part, modestly staffed.
The relatively small size of operations is exacerbated by the fact that this essential due diligence process is done manually – taking months to complete and stalling the signing of deals. However, if a fraction of the time and resource dedicated to completing due diligence was freed up, family offices would be able to overcome their operational headaches and investigate significantly more opportunities and strategies.
The key to creating a more productive operation like this lies in the emerging technologies that family offices are so heavily investing in. By leveraging AI algorithms and taking a data-driven approach to due diligence, family offices will be able to rapidly scale their processes while reducing costs.
For example, at present the gathering of essential data such as debtor and creditor positions, P&Ls and balance sheets is a manual process that takes hundreds of hours to compete; relying on executives to trawl through the internet to collate the information – with no guarantee it is correct or up to date. The data then has to be manually analysed to draw out actionable insights. The whole process can easily take months.
The alternative, harnessing AI, automates the entire process. The algorithms scour the internet in real-time for the relevant information, reducing the time it takes to identify and understand target companies from months to minutes.
Introducing an intelligent AI-driven process is what family offices need to overcome the operational pains they currently endure.