Private Markets 360° | Episode 50: Redefining the Edge: Private Equity’s New Playbook

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Jocelyn Lewis [00:00:01]:

Welcome to Private Markets 360, your insider's guide to the world of private investments. Today, we're joined by Rachel Barton, Global Private Equity Lead at Accenture. Rachel's career places her at the epicenter of the industry's transformation, where she brings a wealth of experience advising private equity firms across the entire deal lifecycle, from diligence and value creation to exit readiness, to helping them adapt to the rapidly evolving landscape where technology, data, and operational excellence are more critical than ever. In today's episode, Rachel will share her perspective on what feels fundamentally different about today's private equity environment compared to just a few years ago. We'll explore how the definition of having an edge has shifted, with firms now relying on advanced analytics, artificial intelligence, and ecosystem collaboration to stay competitive as traditional sources of value become less reliable. So whether you're an industry veteran or a rising professional, Rachel's insights offer a practical roadmap for navigating complexity, building resilience, and unlocking growth in private markets today. Rachel, welcome to Private Markets 360. It's such a pleasure to have you join us.

 

Jocelyn Lewis [00:01:21]:

How are you?

 

Rachel Barton [00:01:23]:

I'm great. Thank you very much for having me, Jocelyn.

 

Jocelyn Lewis [00:01:26]:

Absolutely. We're thrilled to have you. And Rachel, to start the discussion, we'd like to focus on the state of private equity today, where you sit at that center of global private equity, really across the whole ecosystem. What feels fundamentally different about today's environment versus just 3 to 5 years ago?

 

Rachel Barton [00:01:49]:

Great question to start with. And If we step back and look at the evolution over the last few years, the growth of private markets has grown, I think, 20 times over the past 25 years. And in the last 5, our assets under management within private equity has grown significantly to what's now being reported as double-digit trillions. So this increased scale alongside the changing economic landscape and the rise of AI creates the platform for several shifts, several important shifts in private equity. The first one is, of course, the higher cost of finance. This leads private equity firms to think about operational value creation, and we see it starting to overtake financial re-engineering as a value creation lever. It means that PE firms are changing the playbook, and they're becoming more formulaic versus relying on multiple expansion alone. So standard levers like go-to-market, operational efficiency, AI, and talent are becoming far more interventional in the way that they drive value.

 

Rachel Barton [00:02:54]:

Connected to this, of course, are longer hold periods. And these have created a rise in the exploration of more complex transactions like carve-outs or bolt-ons, particularly as the economic backdrop is leading many corporates to relook at their business model and sell off non-core businesses. And then tech and AI have, of course, become increasingly critical, not only in the last 3 to 5 years, but I would say even in the last 12 months. This is a rapidly changing landscape, and we are increasingly seeing tech play a central role to decision-making and value creation, and PE firms questioning how they really see the P&L impacts of AI within their portfolios. And then finally, talent. There's an increasing connect between the pre- and post-deal worlds as this shift from financial to operational re-engineering plays out. Operating partners are playing a stronger role in the development of the investment thesis. There is a much greater scrutiny on the middle management layers within a portfolio company and those who are really going to chart the organization into a modern future.

 

Rachel Barton [00:04:15]:

So to thrive now looks quite different, and it means the definition of what creates an edge has changed. Success now depends on having unique insights, speed, and the ability to connect into those wider ecosystems for rapid value creation.

 

Chris Sparenberg [00:04:34]:

Rachel, it feels like we could do an entire episode just on having an edge. And I do want to dig into that a little bit more and think about what the definition of that is. If we go back through the history of just buyouts, for instance, from the '80s strategies of reorganizing middle management and really unlocking dormant value inside larger companies to a book like Kings of Capital that describes the realization of large GPs that their collective portfolio companies and employees were a valuable leverage point for how they worked with vendors to control costs. As we move into today, what does having an edge mean? How has the industry evolved and what does it take to maintain that? What are you seeing across your client base and the industry more broadly?

 

Rachel Barton [00:05:19]:

Yeah, I love the way that you described the evolution of what constituted an edge. And as you were describing that, While things do change, there are also some things that stay true. And I think having an edge can almost be boiled down into 3 key points. The first one is knowing something before anybody else knows it, because we know that being able to get the best deal before the process starts is crucial. And that means having the foresight to predict, to spot, and to respond faster than anybody else, to the extent of even having an exit strategy at the point of acquisition. So to me, the first component of having an edge is know something before anybody else and get in there super quick. And we're seeing AI now play a very important role in the ability to create foresight, the ability to sense, spot, intuit, and the ability to identify the right targets to go after as quickly as possible. So that's become even more important.

 

Rachel Barton [00:06:44]:

I think the second component is that it's really crucial to remember that There is a skill involved in creating value, and being more skilled in doing something really well than somebody else remains extremely important. We can't just rely on data and technology and AI to be able to fill in some of those gaps. And we are increasingly seeing now private equity firms become much more industry specialized. Even subsectors within industries, I would say, where they are really building a craft in deeply understanding how to unlock value within a particular sector. Where, and you gave the analogy to some of the structural cost resets that were done in the '80s or the '90s, that has shifted to having a much more superior approach to specific value creation levers. Many PE firms are getting really good at just top-line growth creation. And they're going after very specific sectors or portfolio company characteristics because they know that formula works. But we actually surveyed around 650 dealmakers earlier this year, and we found that private equity firms were also outpacing corporate buyers around 1.5 times more advanced at, for example, embedding generative AI into deal theses and in value creation planning.

 

Rachel Barton [00:08:18]:

So That ability to really understand value creation in a unique way that's authentic to your PE firm is becoming far more prevalent. And then I think the third point of having an edge is talent. I spoke to a headhunting firm recently, and they said that the number one request they get from private equity firms for new searches is the AI operating partner. Because they're recognizing that the role of the operating partner or the operator is so crucial as they move through this shift into operational value creation that someone has to roll their sleeves up and really understand how to get into the weeds of an organization and create value. So this real focus on talent And a level of specificity and accountability in the value creation process is also, I'm seeing, becoming more and more important in that edge. An edge to me is a positive differential. It's about understanding potential pitfalls and knowing how to navigate them effectively, but in a way that is authentic to the differentiation and the advantage that you're able to create for your people.

 

Jocelyn Lewis [00:09:36]:

I love that description, Rachel. It's really interesting to hear you talk about those 3 components of having that edge, which is so important in today's environments. And the idea of that edge is really interesting because many of the sources of a competitive advantage that you described, whether it's that pattern recognition, the faster decision-making, or connecting the right people and information, are increasingly tied to technology, as you cited, even the use of agent-based AI in some cases. And as the market becomes more competitive and financial engineering alone delivers less differentiation, firms are having to rethink how they use data analytics and AI to create value. So let's turn to technology for a moment. And Rachel, I'd love to get your insight on how private equity firms are rethinking the role of technology in data as returns normalize and leverage becomes harder to rely on?

 

Rachel Barton [00:10:45]:

Thank you, Jocelyn. We recently ran a survey called the Pulse of Change at Accenture, where we spoke to over 3,000 C-suite leaders. So in the corporate world and also in the private markets world, to really understand how they were thinking about AI investments, even in the face of what is continued uncertainty in the macro environment. And over 80% of those leaders plan to increase AI investments in the next 12 months. Only 1 in 10 believe a significant AI bubble currently exists. Most believe that AI is now becoming something that has to be ingrained within not just the mindset of the organization, but the operating model, the way that investments are constructed. And so what does this mean for private equity? Technology and data are now central to PE operations. I remember about a year ago talking to many private equity firms about AI, and honestly, most exhibited a healthy cynicism, I would say.

 

Rachel Barton [00:11:59]:

Private equity is so value-focused that they don't gravitate towards the new shiny object, and they are very discerning about what they experiment with in order to create value, given the risk that may create across their portfolio. Now the conversation has completely changed, and they're well-educated. They are thinking about technology and data and advanced analytics essential to the way that they search, do that pattern recognition you were describing, conduct diligence, create value creation tracking plans, and even learn their edge by understanding in much greater granularity what works authentically for them. Seeing also over 50% of those C-suite leaders remain very confident that agent-based AI initiatives in particular will deliver quantifiable outcomes. And that's probably the area that I'm seeing PE get most excited about. As they take on new organizations, how can they truly reinvent them almost from the ground up through agent-based capabilities, which can contribute to top-line growth and also Contribute to bottom line optimization. They're really now leveraging technology for competitive advantage and efficiency as a key differentiator.

 

Chris Sparenberg [00:13:29]:

So as we see managers embrace AI in this way, I imagine it's got a knock-on effect, not just in how they think about the talent within their own deal teams, but also within their own portfolio companies. projects. From the C-suite perspective, how is that shifting the transformation story for these PE-backed firms?

 

Rachel Barton [00:13:52]:

I think the biggest mistake that any firm can make, and PE is no exception to this, is viewing AI as a technology initiative rather than a business transformation. Because AI absolutely can automate parts of an existing operating model. It can change how work gets done, but it can also change how decisions are made, how organizations are structured, and ultimately how value is created. And what we often see missing in the way that organizations think about AI and technology and AI is that they are missing the redesign of processes, decision rights, roles, governance, and business models. They are thinking about how to overlay AI in a way to automate their existing business. And the nudge that I would give private equity firms is to think beyond those individual use cases and ask a much bigger question, which is what should this company look like when AI is embedded into every function, workflow, and customer interaction? Because the winners are those that are redesigning the business around AI, not just layering AI onto the processes or the current ways that they do work today.

 

Chris Sparenberg [00:15:25]:

While AI certainly permeates every part of the industry and how we're all thinking about it. It's important to point out that Accenture works across diverse and sometimes obscure subsectors. Are there other industries or trends that you're most excited about when we think about value creation opportunities in the coming year or even longer?

 

Rachel Barton [00:15:46]:

Yeah, as exits become more selective, buyers are also looking beyond the current performance to assess whether a business is well positioned to create value In the future or in an AI-enabled economy. So that foresight that is now coming in much earlier to the sensing and spotting of exciting opportunities is, I think, really interesting. And technology maturity and AI readiness are now key diligence areas. So buyers want confidence in the company's data quality, technology architecture, digital processes. They're looking at whether the organization is likely to be disrupted by AI and what a credible roadmap could be for value creation. But from a subsector point of view, it's— we have done diligence in subsectors as obscure as salmon fishing, in the Nordics, or very innovative battery storage portfolio companies or machine learning businesses. And private equity firms are starting to expand into the edges of these subsectors as they even learn from what is now becoming a much more mature venture landscape that have got quite a lot of experience in taking the obscure into something that is slightly more scaled, which which is actually now being started to be picked up by PE. So that transition almost from the venture world into the private equity world, where we're seeing obscure subsectors like those that I described, you know, renewables, innovative sustainability programs, maybe smaller organizations that are using entirely AI or agent-based-enabled workforces.

 

Rachel Barton [00:17:50]:

are pretty interesting in the ways that PE firms are starting to make those investments. So I'm excited about this space, and I think we will start to see PE really giving birth actually to sectors and organizations that we probably haven't seen at scale before.

 

Jocelyn Lewis [00:18:12]:

Rachel, that makes me think of, there's recent news about a traditional venture capital firm now investing alongside others in buying the Lakers, the LA Lakers. So with that, you're seeing exactly what you're describing there, where it's going from more of those venture types of investments to something that's really proven along the way. But clearly there's something there that really ignites them to want to be in that particular arena.

 

Rachel Barton [00:18:48]:

Yeah. Yeah. I often think that none of us can predict the future, but for me, probably the easiest way to have an attempt at it is to look to the fringes. You start to see this, this groundswell of stuff that is emerging on a pattern recognition basis. I think sport is a great example where we've seen very interesting and exciting venture plays in sport that are now 5, 6+ years into that journey. And thus those sorts of subsectors, you know, or areas of specialization are then picking up a momentum that creates a lot more confidence in the private equity world. So yeah, I think it's a fascinating area to watch out for. in the next few years.

 

Jocelyn Lewis [00:19:42]:

Absolutely. And then going back to another theme that you mentioned that I also thought was very interesting in talking about that transformation of a firm can't wait until the company is preparing for sale. It's embedding AI into workflows rather than layering it on top of what exists to really produce transformation and ultimately value. And the investment that firms are making today in data reporting, those AI capabilities, it can directly influence how buyers perceive both the risk as well as the future upside, which makes technology maturity increasingly important, not just as an operating advantage, but really as a driver of exit value. And Rachel, as exits are becoming more selective, how are buyers evaluating that technology maturity and AI readiness during the exit process? And what maybe can a portfolio company do to prepare better?

 

Rachel Barton [00:20:50]:

Yeah, the exit strategy is becoming discussed much earlier in the process from what I'm observing, to the degree that even during the selection and the diligence, activities. There are new forms of assessment that are being applied, like digital maturity or like AI disruption indices. There will be different terms given to these things, but essentially looking at, given the hold period is getting longer, we want to make the best choices possible. We clearly all saw a few years ago when SI or tech services software assets were very attractive. They are less attractive now because of AI. And so the PE firms have learned from that and they are bringing the assessments or diligence add-ons much earlier in the process. They're also really being far more thoughtful about talent. I think you said right at the beginning of the call that we saw in the '80s or the '90s, or even the 2000s, that often a PE firm would maybe change the CEO and CFO, but really then trust that leadership would do what was needed to achieve the investment thesis.

 

Rachel Barton [00:22:17]:

They're now being much more focused on getting the right talent into that organization, not only within the executive team, but I'm increasingly seeing PE firms look at almost the next 100, if you will, managing the control points of a business, because they recognize that if AI isn't adopted within the core of the business and they don't have the individuals with the mindset to really propel that organization into the future, they cannot alone rely on just having a strong executive team to be able to do that. And hence the role of the operating partner is becoming more important. And even perhaps the advisory networks of these PE firms where they are recruiting individuals that have got real hands-on experience of seeing businesses through these levels of disruption that we're going through today. So that exit strategy is becoming almost increasingly discussed. And as a decider on whether to even move forward with the acquisition in the first place.

 

Jocelyn Lewis [00:23:33]:

Rachel, this has really been great, and it leads me to another question just to get your opinion on. If you were advising a PE firm that was raising its next flagship fund, what would you say are the top 3 strategic priorities that they need to get right to stay competitive in today's market?

 

Rachel Barton [00:23:56]:

Great question. And I think for me, there are probably 3 priorities that I would encourage all PE firms to think about. The first one would be build a differentiated value creation engine. Hold periods are longer. The economic climate remains volatile. And authentic approach to driving growth, margin improvement, and operational transformation beyond financial engineering. But the second would be embed AI, data, and technology into the investment model. It is not going away.

 

Rachel Barton [00:24:36]:

And the ability to use AI and technology as sources of advantage, through whether it's through sourcing, diligence, management and exits, including using it to help inform that exit strategy from day one, is so important. But remember, technology is not just about putting in a new system or automating an old process. There is a reinvention mindset that needs to accompany it if it's really going to create the value you need. And then the third one is develop some level of sector expertise. Combine your industry insight with proprietary networks to source better deals, become faster, and support your management teams more effectively. Be really good at something so that you create that edge. And I think the bottom line is that The PE firms that are most likely to outperform are those that combine this sector specialization, AI-enabled capabilities, and can prove value creation at scale with a level of foresight that helps them to, as much as we all can, predict the future. Thank you.

 

Chris Sparenberg [00:25:57]:

Thank you for joining us for this episode of Private Markets 360, where we had the privilege of hearing Rachel Barton's perspectives on the rapidly evolving world of private equity. Rachel's experience at the intersection of technology, data, and operational transformation has illuminated the critical priorities shaping private markets today. From redefining what it means to have an edge, to leveraging AI and ecosystem partnerships for accelerated value creation. We explored how firms can adapt to heightened complexity, the importance of early and robust data strategies, and the need for resilient leadership And talent in a digital-first environment. Rachel's insights offer practical guidance for industry veterans and emerging professionals alike as they navigate the challenges and opportunities ahead. We appreciate you tuning in and hope you found this discussion as engaging and insightful as we did. Don't forget to subscribe to Private Markets 360 for more expert conversations and market intelligence. Until next time.