Deal Talk: Interviews with Private Equity Leaders

Mike O’Sullivan, Moonfare’s Chief Economist: Unlike the internet, AI is the domain of private markets

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Aug 14, 2024

In this engaging discussion, Mike O’Sullivan, Moonfare’s Chief Economist and veteran investor, teams up with co-CEO Steffen Pauls to delve into the transformative impact of AI on private markets. They explore the parallels between AI's rise and the internet boom, analyzing the unique financial framework surrounding AI investments. Key topics include the urgent need for private equity to adapt to technological disruptions and the growing focus on data centers and AI tools. O'Sullivan emphasizes the importance of innovation in securing returns in this dynamic landscape.

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ANECDOTE

ChatGPT's Rise

Mike O’Sullivan recalls being fascinated by ChatGPT in early 2023, initially observing limited usage.
Within weeks, it became a widespread phenomenon, highlighting its rapid adoption rate.

INSIGHT

AI vs. Dot-Com

Unlike the dot-com bubble, AI's current growth is not hype; it's fueled by large companies and bigger financial markets.
AI is built on established ecosystems, unlike the dot-com era, suggesting a more sustainable structure.

INSIGHT

Private Market Focus

AI's growth differs from the internet boom because major companies and governments support it, creating a robust ecosystem.
Companies stay private longer now, so value creation happens primarily in private markets, not public ones.

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In this Deal Talk conversation, Steffen Pauls, Moonfare’s founder and co-CEO, and Mike O’Sullivan, chief economist, explore the current technological revolution that promises to surpass the internet and the smartphone.

Is this all just hype, or the dawn of a new era? Drawing parallels with the early 2000s internet bubble, the pair provided insights into the future trajectory of AI, addressing whether we might see a similar pattern of euphoria followed by a period of stagnation before substantial growth.

Here are some of the key takeaways from the conversation:

Domain of private markets

We’re on the cusp of a new technology. What’s different compared to the internet era is the financial market behind it. The internet was effectively the child of the equity markets. AI is the realm of private markets.

Reinvention

AI is not only disrupting the broader economy. It’s also a fundamental disruption for the entire private market industry — from buyouts to growth and venture. The industry needs to reinvent itself both in terms of how they apply AI to existing portfolios and new investment themes.

PE’s focus

Data centres are a major focus for private equity, as well as cloud infrastructure, AI models, and digital tools. Private equity managers are also very active as owners — half of PE-backed companies are investing in AI, compared to family-owned companies, where this number is 27%, according to Deloitte.

AI’s role in turnarounds

PE has done very well in terms of returns over the past decade — some of the performance has come from leverage, but now attention is shifting to business turnarounds. A lot of these turnarounds are AI-driven in the sense of operators using data and analytics to understand consumer behaviour and to analyse where the business has gone astray.

Important notice: This content is for informational purposes only. The opinions expressed by the interviewee are their own. They do not purport to reflect the opinions or views of Moonfare. Moonfare does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorised advisor. Past performance is not a reliable guide to future returns. Don’t invest unless you’re prepared to lose all the money you invest. Private equity is a high-risk investment and you are unlikely to be protected if something goes wrong. Subject to eligibility. Please see https://www.moonfare.com/disclaimers.