Mega Investors Navigating AI Risks and Opportunities

One topic that’s been coming up in our conversations with mega investors recently is how to manage AI risks in their organizations. Clients’ business, legal and compliance teams are navigating how best to enable potentially value-driving tools both directly within their organizations and at their portfolio investments, in each case in a manner that avoids unnecessary risks. For example, can an institutional investor use AI tools to aggregate confidential fund information and reporting to facilitate internal reporting? What about using AI to facilitate the pricing of a portfolio in a secondary transaction? AI tools can be transformative, so many of our mega investor clients are trying to craft a path that is responsive to their institutional risk appetite for questions such as data security, etc., while not proving to be a roadblock to institutional evolution. This is not “one size fits all.” For example, some clients are building proprietary tools, while others are using commercially available tools.

There also are institutional culture implications. For example, simply disabling AI tools may nudge junior colleagues ‘outside’ the corporate box, adding more risk than the tools themselves. And for any tools that are onboarded, clients are working through appropriate trainings and what updates may be needed to their compliance policies. In our experience, the most effective programs incorporate role-specific training and clear acceptable-use guidelines that are integrated into existing compliance frameworks rather than treated as standalone mandates.

Another key question is how to leverage AI learning within a mega investor to its underlying investments – e.g., how can one best help those portfolio companies implement AI in a tailored fashion, especially if those companies don’t have as sophisticated of an internal IT team? All of these questions can be further complicated by the reputational concerns many of our largest mega investors have.

Ropes & Gray attorney, compliance, legal and technology colleagues discuss these questions on a daily basis with clients (with conversations almost always including the overarching question of “what are others doing?”). These are all ongoing dialogues, as the landscape is clearly changing incredibly rapidly and will continue to evolve rapidly over the foreseeable future.