The buzz word or words of 2023 must be "AI". The unprecedented popularity of ChatGPT meant artificial intelligence exploded into the public consciousness early in 2023 – and soon became front of mind for investors and regulators, too. That focus is going to be more intense in 2024, albeit by moving away from the hype around bots such as ChatGPT and towards more innovative and practical uses of AI in a myriad of sectors and industries, some of which are known and some likely to be novel creations as use-cases evolve.
What does that mean for private capital firms?
Much like the dot-com era of the late 1990s, in which organisations of every description repositioned themselves as "internet" or "technology" businesses, we have seen an explosion this year in the number of companies touting their AI-enabled credentials. In some cases, these companies are using AI and machine learning technologies to launch new product and service offerings. But most are leveraging AI to innovate around their existing processes – developing new medicines, pricing insurance risk and screening job applicants, to name but three. As a result, the investment landscape in 2024 will require firms to spend a good deal of their time assessing whether these AI-enabled businesses are the real deal – both now and for the future.
In addition, and besides the usual factors to consider in any investment opportunity, a key focus for private capital firms should also be on how the emerging – and inconsistent – approaches to AI regulation will impact those investments in the coming years. In mid-December, the European Union agreed to the world's first set of comprehensive rules to regulate AI. That approach, which splits AI uses into risk categories, has already been criticised by stakeholders on both sides of the pond for prioritising regulation over innovation. The UK has taken a different path by declining to regulate AI – at least for now – so as to enable growth in the industry. That said, there is a strong possibility of an election in 2024, and the UK Labour Party favours AI regulation, so the current government's approach may be short-lived.
Will a harmonised regulatory approach across Europe help investors? On the one hand, statutory regulation should allow investors to know what they are dealing with, which should make it easier to pick winners (although the process of securing those winners will be more competitive).
On the other hand, a lighter-touch regulatory landscape – or a wait-and-see approach – has the benefit of allowing investors to assess potential acquisitions without navigating laws that may soon be outdated, given the speech at which AI technologies are developing. We may not have the answer to that question in 2024, but the next 12 months are guaranteed to involve AI – and plenty of it.
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