Artificial intelligence is transforming nearly every industry, and according to renowned finance scholar Steven Kaplan, it is also reshaping the future of private equity and venture capital.
Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, shared his insights during the Lubar College of Business’ Bradley Distinguished Lecture Series. His talk examined how private capital markets have evolved, how firms create value, and what investors can expect as AI continues to change the business landscape.
Private equity has grown dramatically over the past decade, with assets under management increasing nearly fourfold. While the industry often faces criticism, Kaplan said decades of research paint a more nuanced picture.
“Almost all the research finds that firms get more productive on average,” Kaplan said. “Relative to other companies in the same industry, they actually seem to improve performance.”
He noted that the common perception that private equity firms succeed primarily through cost-cutting and layoffs is not supported by most large-scale studies. Instead, successful firms tend to focus on growth, operational improvements, stronger leadership teams and strategic planning.
“They’re looking to grow their businesses, not to bleed them,” Kaplan said.
Kaplan also explored how private equity firms generate returns. According to surveys of industry leaders, the most important drivers of success are increasing revenue, improving operations and creating value within portfolio companies.
Looking ahead, AI is becoming a major focus across the industry.
“They are super focused on AI,” Kaplan said of private equity investors. “They’re trying to figure it out for themselves, and they’re trying to figure it out for their portfolio companies.”
While some existing businesses may face disruption from AI, Kaplan believes the technology will also create significant opportunities.
“I’m pretty excited about AI and what you can do with it to make companies more productive,” he said.
Kaplan offered a similar outlook for venture capital, where investors are seeing a wave of new AI-related startups and innovations. Although valuations remain high and recent venture capital returns have been challenging, he sees strong long-term potential.
“The venture capitalists I talk to are very happy because they’re seeing tons of investments that are interesting and really exciting with AI,” Kaplan said.
His overall message was one of cautious optimism. While higher valuations, interest rates and market uncertainty present challenges, firms that successfully leverage AI and focus on operational excellence may be well positioned to create value in the years ahead.