PE has yet to prove its AI bets to investors

Summary

Private equity firms have rushed to embed AI into portfolio companies expecting valuation gains, but an Alvarez & Marsal survey of 100 PE executives found only 8% describe themselves as 'leading'—meaning AI is materially impacting EBITDA or exit narratives—while 73% expect AI to increase portfolio value over the next year, exposing a wide gap between AI hype and delivered financial results.

Market Impact

The survey reveals that most PE AI deployment targets back-office efficiency—55% cite financial planning and analysis as the top use case—rather than revenue growth, with advisers noting these applications improve personal productivity without hitting the P&L. The 8% pulling ahead concentrate in services and software, where AI is already compressing margins and making adoption a competitive necessity, while manufacturers and industrials lag due to complex supply chains. Bain Capital represents the leading edge, projecting that AI could lift one industrials distributor's margins by two percentage points and grow revenue 200-300 basis points faster than peers, compounding to roughly 30% more EBITDA over a five-year hold—though these remain projections rather than realized returns.

Why It Matters

The gap between PE's AI investment enthusiasm and demonstrable financial returns signals that AI value creation in private equity remains largely unproven, with implications for how the industry justifies AI-driven valuation premiums to limited partners.

Key Points

• In an Alvarez & Marsal survey of 100 PE executives, 73% expect AI to increase portfolio value over the next 12 months, but only 8% describe themselves as 'leading' with AI materially impacting EBITDA or exit narratives
• The most common AI use, cited by 55% of respondents, is financial planning and analysis and performance management—the most back-office of use cases—rather than revenue growth
• The 8% pulling ahead are mostly in services and software where AI is compressing margins; manufacturers and industrials are slower to adopt due to complex supply chains
• Bain Capital projects AI could lift one industrials distributor's margins by two percentage points and grow revenue 200-300 basis points faster than peers, compounding to roughly 30% more EBITDA over a five-year hold

Key Entities

Evidence

In a May survey by Alvarez & Marsal, which polled 100 executives across large-cap and midsized PE firms and their portfolio companies, 73% expected AI to increase the value of their portfolios over the next 12 months....

Supports: Grounds the central survey findings on AI expectations versus material impact

the most common use of AI, named by 55% of respondents, is financial planning and analysis (FP&A) and performance management, the most 'back-office' of the different use cases covered in the survey.

Supports: Documents that the dominant AI use case is back-office rather than revenue-generating

In one industrials distributor, Bain expects AI to lift its margins by two percentage points and grow its revenue by 200 to 300 basis points faster than peers, Agarwal said. Over a five-year hold, the growth will like...

Supports: Grounds the leading-edge Bain Capital projection for AI-driven value creation