The ever-expanding AI ecosystem has created a new advisory opportunity for private equity law firms. Private fund managers lack the internal bandwidth and expertise to navigate the AI due diligence and implementation process on their own. Yet, they know they need to — LPs are expecting it.
In Dynamo’s Frontline Insight Report, approximately 85% of LPs said they think AI will either revolutionize investment management or at least play a major role in decision-making. They expect GPs to harness AI safely to enhance due diligence, manage risk, identify trends, optimize portfolio strategies, and reduce costs.
Given this pressure, private market clients need their outside counsel to step in as a trusted adviser with knowledge about the latest Generative AI (GenAI) solutions. Thomson Reuters’ 2023 Future of Professionals Report noted that, given law firms’ relationships with corporate clients, firms have a unique ability to ensure that businesses implement AI in a trusted way.
Becoming a trusted AI adviser takes considerable effort and time for a firm, which is why Ontra offers a blueprint for what to do.
Evaluate industry-specific AI tools
Build expertise in AI tools relevant to private equity, private capital, and venture capital. This gives firms the ability to advise clients on which tools might suit their specific needs and workflows.
While there are many AI solutions available (and more every month), all of them won’t accurately and efficiently address private markets’ use cases. For example, a variety of contract management platforms use AI to streamline repetitive contract workflows. However, they aren’t structured for private fund contracts, such as limited partnership agreements and side letters. GPs are better off with solutions built for their specific industry and use case, or they won’t see a good return on investment.
Conduct pilot programs
Partner with AI vendors to pilot specific tools for the firm alone or with select private equity clients. This process enables both the firm and its clients to assess the tool’s effectiveness, identify integration challenges, and provide valuable feedback.
Leading firms are already doing this. Harvard Law School’s Center on the Legal Profession conducted a study of AMLaw 100 partners and COOs responsible for deploying AI. It found that law firms are working directly with their clients and even AI software providers to test use cases and find where AI can deliver value.
Ontra has found there’s a healthy appetite for pilot programs. “We’re having a lot of smaller pilot programs to understand what is the best solution, the best tool that we can use to help our junior bankers and professional support staff be more efficient,” said Carlos Soto, Managing Director and Head of H.I.G. Business Development during Ontra’s webinar, Scaling Success: How IB & PE Firms Drive Deal Flow at Scale.
Curate a trusted vendor network
Compile a list of trustworthy AI vendors. Through due diligence and pilot programs, the firm can establish which AI software providers offer solutions with proven track records to empower clients to make informed decisions without extensive independent research.
Leverage AI to the clients’ benefit
Leverage AI internally. By adopting AI software for internal use, law firms build the hands-on, practical expertise necessary to be credible advisers to their clients. Clients may seek out the firm for AI guidance if they experience the direct benefit of the firm leveraging AI. Ultimately, by streamlining or automating aspects of the client’s legal needs, the clients may even feel more comfortable with these tools and their potential benefit.
Address in-house AI security & privacy
Implement thorough AI security and privacy measures. Firm leadership must be prepared to explain how they’re protecting client data, including with regard to the use of AI software.
Verify that any AI provider the firm or its staff uses doesn’t retain its customers’ proprietary or sensitive information. Clients need their data to be safe and secure, and firms can assure them of that as the firm works with new AI software vendors.
Other important vendor certifications and criteria to look for include SOC 2 Type 2, ISO 27001:2022, and GDPR Compliance
Clients are looking to their legal advisers to help craft and implement their own internal AI governance policies. Leading by example in terms of AI security and privacy is essential.
Monitor the regulatory landscape
Review regulatory announcements and advisory opinions carefully. Under the current Trump Administration, the private markets continue to expect federal agencies to move away from novel theories and new regulations. The SEC, for example, has made it clear it’s focused on the fundamentals, such as investor harm. That said, regulatory bodies and industry organizations are already proposing guidelines and publishing advice that law firms should know for themselves and pass on to their clients.
- The American Bar Association’s Guidance on AI Use
- ABA Issues First Ethics Guidance on a Lawyer’s Use of AI Tools
- ABA Formal Opinion 512, Generative Artificial Intelligence Tools
- AI and Attorney Ethics Rules: 50-State Survey
- Executive Order 14179—Removing Barriers to American Leadership in Artificial Intelligence
- SEC Withdraws Proposed AI Rule
Share thought leadership
Share the wealth of knowledge the firm has accumulated related to AI software, private markets use cases, implementation, security, and more.
- Organize AI-focused workshops: Host workshops or seminars for private markets clients to educate them on the benefits and applications of AI in their investment process.
- Publish insights and original research: Publishing articles, reports, or webinars showcasing how clients can leverage AI for better outcomes.
- Contribute to industry discussions: Participating in private markets conferences or forums to position the firm as a leader in AI integration and success.
Reach out to clients
Proactively engage with private markets clients regarding AI, and encourage them to reach out for guidance early and often.
Many private fund managers aren’t sure when to loop in their outside counsel when it comes to new, advanced tech. In Ontra’s webinar, PE Firms, External Counsel & AI: Building Seamless Partnerships for the Future, we asked attendees when they thought it was the right time to involve outside counsel in AI decisions? One-third of respondents said they’d involve counsel after they identified a few tools, while 50% were split between once there’s been an internal decision made OR they weren’t sure at all. The fewest respondents said they’d include counsel from the start.
And how did the webinar attendees see the role of external counsel when it comes to evaluating new AI or legal tech tools? Only 20% said they saw counsel as a strategic partner to help guide the evaluation, while 40% saw counsel as a stakeholder who should be consulted for input. Of concern were the 40% who said they weren’t sure yet.
While a small sample, the attendees’ responses are enlightening. Law firms have a significant opportunity to connect with clients and demonstrate the value counsel can add during the AI exploration and implementation processes.
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Ontra works closely with leading private markets law firms to drive transformational results for their lawyers and clients. Learn more about our strategic partners.
