PE Beat: The Reckoning Year

The Reckoning Year

Abby Barlow runs a single family office's investment desk alone and has not hired. She says why without embarrassment. "I joke with my team here in the family that my analyst's name is Claude. He works all hours of the night and he's amazing. I'm going to put him on our org chart."

Adding a name is the only direction anyone moves. Matt Bank, CIO of the outsourced investment office GEM, went from "about 90% of our spend and our tool set was externally developed" to mostly built in house inside a year, at around 30,000 lines of code a month. The staffing effect ran the other way from the brochure. "We still have all the same people. In fact, we've added folks."

2027 budgets are being drafted now, and the spend needs a defense it has never had to mount. Justin D'Onofrio is a managing director at Accordion, which sells the fix. His diagnosis is not about the technology. "From my experience, it's not that the pilots are failing, it's just that they don't really belong to anyone." His warning is about consumption pricing, which finance teams have not managed before. "You can approve spend for an initiative, uncap that token spend behind it, and just have a complete budget blowout if you're not managing the process successfully." Budget the outcome, not the tool, which gets replaced underneath you.

Asked the question every sponsor asks, he gives the answer nobody underwrote. "I have not seen a lot of clients look to do cost takeouts yet with AI." His name for next year: "And I would call it the reckoning year, because I think it's already starting to happen"

What is being bought is smaller than advertised, and buyers say so. Brian Sugrue of the Irish family office Shannonbridge says the preparation burden has not moved and the savings are modest. "it's not about producing analysis that we could not do before, it's about creating a little more space for us to use judgment in analysis." Jon Webster, who runs technology and operations at CPP Investments, puts a clock on it. "We are getting to the point in the next 12 to 18 months where you've got to feel confident that you are getting a return on investment of the technology." His caution is older than the subject: "Technology never confers a lasting competitive advantage"

The exit market already applies that standard elsewhere. Lane McDonald of OMERS Private Equity, on sellers who lead with the upside: "I think you have to earn the right to get to the upside story."

Two weeks ago this was an incremental lever. Now it is a budget line with a date on it.

Sources: Interviews from Capital Allocators (Sep 14, Abby Barlow of Westwood Management, Matt Bank of GEM, Brian Sugrue of Shannonbridge and Jon Webster of CPP Investments), Private Equity Funcast (Sep 16, Justin D'Onofrio of Accordion), and Private Equity Spotlight (Sep 15, Lane McDonald of OMERS Private Equity).