KPMG Survey: AI and Emerging Technologies Reshape Private Market Investment Landscape

Private market investors are increasingly prioritizing AI and emerging technologies, alongside robust governance and cybersecurity measures, according to a new KPMG survey. This shift reflects a dynamic market landscape where technological innovation, financial performance, and risk management are key drivers of investment decisions, even amidst economic uncertainties.

AI and Tech Drive Investment

A recent KPMG study, "Private Markets Pulse: Private market investment priorities," reveals that private market investors are significantly re-evaluating their strategies. The survey, which included over 300 US private equity, asset management, venture capital, and family office investors, highlights a strong focus on companies demonstrating innovation and early adoption of emerging technologies.

• AI's Transformative Impact: Investors anticipate AI will revolutionize nearly every aspect of portfolio companies within the next year, particularly in data analytics and business intelligence (52%), cybersecurity (52%), and finance and accounting (50%).

• Key Tech Sectors for Investment: Over the next 18 months, significant investment activity is expected in:AI, machine learning, and big data (63%)5G and advanced connectivity (36%)Blockchain/cryptocurrency (33%)

The Growing Importance of Governance and Cybersecurity

As technology adoption accelerates, so do the associated risks, particularly concerning data. The survey found a substantial increase in the importance of cybersecurity and data reporting measures in investment decisions.

• Cybersecurity Concerns: 81% of investors reported an increased emphasis on cybersecurity and data protection reporting over the past year. This aligns with previous KPMG findings where 66% of financial function leaders cited cybersecurity as the most relevant non-financial reporting area.

• Governance as a Pillar: 77% of investors noted an increased focus on governance over the past 18 months. Strong governance, ethical practices, and social responsibility are now seen as crucial for long-term resilience and sustainable growth, complementing traditional financial metrics.

Shifting Investment Priorities Across Investor Types

While financial performance, ROI, and scalability remain top considerations, different investor types are emphasizing distinct factors:

• Private Equity: Primarily focused on pricing and profitability (63%).

• Venture Capital: Prioritizing a company's unique value proposition (56%).

• Asset Managers: Placing importance on technological capabilities and innovation pipelines (56%).

Navigating Risks and Opportunities

Investors are cautious about macroeconomic risks, with inflation (35%), interest rates (33%), and cybersecurity risk (27%) being the top concerns. Despite these risks, 45% believe technological advances will be the primary driver of economic growth over the next 18 months. The survey underscores a balanced approach, where financial performance is weighed against non-financial metrics like governance and sustainability, reflecting a broader trend towards responsible investing.