PE firms embrace AI for compliance but lack use policies

Private equity firms are rapidly adopting artificial intelligence for compliance and regulatory reporting but few have established formal policies governing its use in these areas, according to a survey by asset services provider Ocorian.

The research highlights a growing gap between technology adoption and risk management.

Based on a survey covering private equity managers across the US and Europe with a combined $3.51tn in assets under management, the research found that only 5% have formal policies governing the use of AI for compliance and regulatory purposes.

That compares with 89% of firms that have established formal policies covering AI use in investment decision-making.

Despite the governance gap, AI is already widely embedded in compliance processes. Around 69% of managers surveyed said they use AI for compliance and regulatory reporting related to deals and investment decisions, making compliance one of the areas where the technology has gained the greatest traction.

Portfolio monitoring and performance analytics were cited by 57% of respondents, while 44% use AI for due diligence and data analysis. A further 41% have adopted AI for investor communications and LP reporting.

AI adoption within investment processes is still developing, however. Around 37% of respondents said they are currently piloting AI tools, while just 1% said they do not use AI at all.

The rapid adoption of new technology is also exposing challenges associated with legacy infrastructure. Some 70% of respondents identified integrating new technology with existing systems as their biggest technology-related compliance challenge over the next two years.

Governance is another major concern. Some 57% expect adapting AI systems to governance requirements to be a significant challenge, while 56% cited cybersecurity and data protection.

Keeping pace with evolving regulation was identified by 50% of respondents as a key challenge, while only 28% highlighted the cost of compliance technology, such as regulatory technology platforms, suggesting that investment budgets are less of a constraint than implementation and governance.

Abi Reilly, partner in Regulatory & Compliance at Ocorian, said the limited adoption of formal AI compliance policies was concerning given how extensively firms are already using the technology.

She said managers that have introduced policies governing AI in investment decision-making should consider extending similar controls to compliance as adoption spreads across their operations.

The findings suggest private equity managers face a growing need to establish clear frameworks covering how AI tools are selected, monitored and used in regulatory processes, particularly as firms integrate the technology with legacy systems and increasingly sensitive investor and portfolio data.

For private equity firms, the challenge is therefore shifting from whether to adopt AI to how to embed it within existing compliance, cybersecurity and governance frameworks without creating additional operational or regulatory risk.