AI Better Use? Improve IRR Through Due Diligence, Not RIFs

Many PE firms see AI as a path to headcount reduction. But Schroders makes a more interesting case: using AI in diligence to pick winners and avoid losers may be the real play.

In buyouts, roughly one in four deals clears a 50%+ gross IRR. One in ten returns nothing. A single missed winner, or a bad deal that should have died in diligence, can move fund performance more than any headcount cut.

Which means the highest-value AI use case may not be “do the same work with fewer people,” to harvest an immediate EBITDA bump. It may be “make better calls before capital is committed.”

Of course, the old computer maxim of "garbage in, garbage out" applies to LLMs, too. The inputs and preferences used in Schroder's AI solution come from the PE firm's historical investments and assumptions, so a healthy dose of sober self-analysis may not hurt in the process, either.

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