Private equity's mandate: create value, govern AI and be ready to respond

Sponsors are building growth rather than buying it. 66% of PE leaders still see significant revenue opportunity, but with entry multiples near prior highs, the growth needed to earn a target return is materially higher than in the last cycle. Firms are concentrating on margin and working capital inside the existing book, buy-and-build in fragmented sectors, carve-outs from corporates rationalizing portfolios, and shared platforms that spread capabilities across portfolio companies.

For most portfolio companies, the AI value gap lies in people, governance and data, not the technology itself. PE leaders rank equipping the workforce (45%), improving AI governance and accountability (42%) and integrating AI with existing processes (39%) as top priorities. 26% also prioritize assessing AI investments for meaningful returns, compared with 15% globally. One governance and data standard across the portfolio can replace dozens of uncoordinated pilots.

Cyber threats lead at 3.53 on a five-point impact scale, up from 3.01, followed by AI implementation (3.41), disruptive innovation (3.40), economic conditions (3.40) and regulatory change (3.35). Of 30 comparable risks, 29 scored higher than last year. Third-party risk jumped to sixth after missing the top 10, and access to capital and liquidity was the largest riser, reflecting the exit backlog and pressure on distributions.

Organizations can't react effectively to a market they can't see. Advanced data analytics rose 10 points as a PE investment priority, the biggest mover after business process improvement. Better data supports the ability to respond, which only 34% of PE leaders rate with high confidence. It also drives exit readiness: assets that sell are the ones with reliable data, defensible numbers and professionalized governance, work that can take 18 months.

Markets and economies lead PE leaders' 10-year outlook, followed by customers and competition, security and privacy, AI deployments and talent. AI is the only top-five risk that declined, as it shifts from an existential concern to an operational one. Quantum computing more than tripled, from 4% to 13%. Organizational resilience and culture sits at 26% for PE versus 31% globally, a gap worth watching given how much the ability to respond depends on it.