Private Equity Insights Q3 2023

Q3 2023

The big picture: Our difficult-to-predict economic climate continues, making it difficult for private equity and portfolio company leaders to chart a clear path ahead.

But there are positive indicators in view. The just-announced pricing and valuation of Instacart at the high end of its offering range could be the latest sign that the IPO market is beginning to warm up.

Meanwhile, AI and ESG continue to drive new narratives among boards and leadership teams seeking to meet market and stakeholder expectations for sustainability and innovation.

In our latest issue of Private Equity Insights, we offer Protiviti’s latest thinking on ESG issues – specifically, assessing sustainability through an investment and value creation lens. We offer further thoughts on AI (including generative AI) from the board’s and the CFO’s point of view, and we bring the general counsel into the mix through an informative discussion on building legal operations in a technology-driven world. 

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The ESG regulatory landscape is starting to form: In the public markets worldwide, companies are trying to determine how to respond to and incorporate stringent sustainability-related disclosure requirements from the EU. Meanwhile, the International Sustainability Standards Board has completed its work on a set of voluntary standards for public companies globally. In the U.S., the SEC is poised to adopt a highly anticipated climate disclosure rule this fall.

Why it matters to PE firms: While private markets are exempt from public market regulatory scrutiny, they are not exempt from deepening interest on the part of influential limited partners who want ESG principles integrated into their investments. Many private funds have integrated those principles into their investment strategies and are continuing to put their money where their mouths are. 

The bottom line: With increasing global environmental and social uncertainties, it is incumbent on investing fiduciaries — general partners and investment managers — to risk-proof their portfolios against financial and nonfinancial risks, including sustainability. They should also view sustainability as a value proposition. Strengthening prospective acquisitions’ ESG posture through a structured approach ensures an important element is in place for favorable returns upon exit.

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The big picture: So much has been written about generative AI (GenAI), it seems like a constant buzz inspiring both wonder and fear. But the value proposition is alluring. After witnessing OpenAI’s ChatGPT in action, Bill Gates said, “I knew I had just seen the most important advance in technology since the graphical user interface.”

Between the lines: The opportunities for using GenAI to enhance customer experiences, increase process efficiencies, innovate products and services, and improve productivity are immense.

Yes, but: There are risks and limitations. The risks of disinformation and misinformation span an ever-expanding list of potential, egregious abuses, fueling alarm and cries for regulation.

Our point of view: Armed with a baseline understanding, directors should consider several important questions when engaging CEOs and their teams in strategic conversations regarding GenAI.

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The big picture: ChatGPT is among numerous large language models that will transform industries, corporate functions, the global economy and other realms. These models also pose something of an innovation litmus test for finance leaders.

  • Many CFOs remain wary of GenAI applications in, and implications for, the finance group and throughout the rest of the organisation.

A key point: Leading finance groups already are putting GenAI tools through their paces to improve cash flow management, FP&A, liquidity risk management, fraud detection, workflow efficiency, scenario planning and more.

  • GenAI adds an entirely new layer—a narrative that explains the why behind financial analyses—to these existing capabilities.

Our view for PE firms: There are tangible benefits associated with being a smart, early adopter when it comes to the transformational opportunities GenAI offers finance functions.

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Blast from the past: Remember the old days when war rooms were inundated with document boxes stacked to the ceiling? Fast forward to today and legal departments are capitalising on technology as they become stronger centers of excellence within their organisations.

Hear from the experts: In this podcast, Managing Director Chad Volkert, leader of Protiviti’s Legal Consulting practice, interviews Debbie Hoffman, founder and CEO of Symmetry Blockchain Advisors, Inc. Debbie shares her leadership experience and best practices as an executive leader in legal operations.

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