Will AI lead to the extinction of the finance analyst?

OpenAI’s ChatGPT public debut in November 2022 triggered some sensationalist headlines on whether this technology holds the potential to replace a vast array of white collar jobs, ultimately upending the US labor market.

ChatGPT (GPT is an acronym for Generative Pre-Trained Transformer) is an open-source, end-to-end dialogue system built on top of the GPT-3.5 language model, based on a deep learning model with an awareness of prior queries. It is so named because it is powered by the GPT-3.5 language model, which is a powerful natural language processing (NLP) model that can generate human-like text from a few words of input.

Some analysts suggest that we could be on the verge of achieving the type of natural language computer interactions that would allow for one of the following use cases posited by Byrne Hobart in this The Diff newsletter:

1. An interface that could handle cases like “I’m ten minutes early for a meeting — which other client should I check in with right now, and, by the way, what should I say to them?”, or
2. A financial analysis tool that could answer questions like “Which of our costs has been subtly drifting up and what’s a good checklist for figuring out why?”

We’re already hearing about more basic — albeit significant — use cases for AI automation of white-collar job functions, to the extent that some white-collar workers are automating enough of their jobs that they can essentially do no work and still collect a full salary. In one such example, an IT specialist at a mid-sized law firm claims to have fully automated his ‘full-time’ job, which entailed transferring the firm’s thousands of digital files (i.e., digital documents, photos, etc.) from a local drive to the cloud on a daily basis.

Within the finance world, OpenAI’s applications are showing incredible promise, including the following use cases:

1. Financial modeling: Excel’s OpenAI Tabulate allows users to automatically generate spreadsheet tables about a given topic (i.e., populate row 5 with market caps for B2B SaaS companies). The same underlying tech automates construction of complex excel formulas and macros, and facilitates error detection. We would expect future OpenAI versions to also facilitate production of financial forecasts, as well as valuation and credit models.
2. Trading & Risk Management: OpenAI has the potential to generate sentiment analysis and infer correlations with market signals from large volumes of text. In fact, AI systems maker SambaNova is already providing GPT-3 as a pre-packaged service. For banks and asset managers seeking to enhance asset optimization models constrained by their inability to incorporate unstructured data sources such as SEC filings, earnings reports, news, social media, and other publicly available data, SambaNova’s Data-Flow-as-a-Service interface would allow these firms to capture these previously inaccessible inputs at scale and at a low cost.
3. Written Materials; At the time of GPT-3’s launch, OpenAI found that humans have difficulty distinguishing between articles written by humans versus articles written by GPT3. In fact, ChatGPT has already proven capable of writing horror stories and restaurant reviews. It would follow that this tech would be enormously useful in drafting 10 K’s, research reports, and all types of investor materials.

On January 16th, real world applications for OpenAI came one step closer, following Microsoft’s announcement that it will make the technology available through the Azure Open AI Service, making the underlying technology accessible to a wider set of users, including non-technical folks.

What does this mean for the future of finance? We would envision nimbler, more dynamic financial services firms, offering accelerated career tracks for the most talented, motivated college graduates. At the same time, we would likely hear fewer complaints from junior investment bankers about poor ‘work-life balance’. Conversely, bankers and other finance specialists would have greater opportunities to start their own firms, less reliant on large teams and the associated fixed costs.

We expect to see growing enthusiasm for OpenAI as it continues to show progress in its quest to transform business fields as varied as finance, healthcare and software development. In fact, this technology could pose an existential threat to Google search, as suggested by Bing’s plans to add search features powered by GPT3.

Finally, we decided to have a short conversation with ChatGPT on the topic of GP-led secondaries, and here is the transcript of the conversation.

Q: What are GP-led secondary transactions?

ChatGPT: GP-led secondary transactions refer to transactions in which the general partner (GP) of a private equity fund, venture capital fund, or other type of limited partnership sells a portion of the fund’s portfolio companies or assets to a buyer, rather than having the individual portfolio companies or assets be sold by the companies themselves. These types of transactions can provide liquidity for the fund’s limited partners and allow the GP to raise capital for new investments.

Q: What’s the market size?

ChatGPT: The market size for GP-led secondary transactions is difficult to estimate as it is a relatively niche market and data on the size of the market is not widely available. However, the market has been growing in recent years as more institutional investors and family offices have been seeking liquidity options for their private equity and venture capital investments. The overall private equity secondary market is estimated to be worth around $40 billion to $50 billion in 2021, and GP-led transactions are a subset of this market. Additionally, it’s worth noting that the market size for GP-led transactions can be affected by a number of factors such as the overall performance of the private equity and venture capital markets, the availability of buyers for the assets being sold, and the willingness of GPs to sell portions of their funds

Q: What are some advantages of investing in them?

ChatGPT: Investing in GP-led secondary transactions can provide a number of advantages for investors, including:

1. Access to high-quality assets: GP-led secondary transactions can provide investors with access to high-quality assets that may not be available through traditional primary market investments.
2. Reduced competition: Because GP-led secondary transactions are typically not as widely marketed as primary market investments, there may be less competition among buyers, which can lead to better pricing.
3. Increased flexibility: GP-led secondary transactions can provide investors with increased flexibility in terms of the size and structure of their investments.
4. Reduced risk: Investing in GP-led secondary transactions can provide investors with reduced risk as compared to primary market investments because the assets have typically been held by the fund for a number of years and have a track record of performance.
5. Potential for higher returns: GP-led secondary transactions can provide investors with the potential for higher returns as compared to traditional primary market investments, as the assets have typically been held by the fund for a number of years and have a track record of performance.

It’s worth noting, however, that as with any investment, there are also potential risks associated with GP-led secondary transactions, and investors should carefully consider these risks before making an investment.

Q: How is it looking for 2023?

ChatGPT: It is difficult to predict with certainty how the GP-led secondary transaction market will perform in 2023 as it can be affected by a number of factors such as economic conditions, the performance of the private equity and venture capital markets, and the availability of buyers for the assets being sold. However, based on current trends and market conditions, it is likely that the market will continue to grow in the coming year.

The private equity secondary market has been growing in recent years as more institutional investors and family offices have been seeking liquidity options for their private equity and venture capital investments. This trend is likely to continue in 2023 as more investors look to diversify their portfolios and gain access to new investment opportunities. Additionally, GP-led secondary transactions are expected to become more popular as a way for GPs to raise capital for new investments and provide liquidity for their limited partners.

It’s worth noting that the market could be affected by the economic conditions, if there is a downturn, it may be more challenging for GPs to raise capital and for buyers to purchase assets.

While it is impossible to predict how quickly AI will evolve, it’s telling that OpenAI recently raised $10billion at a $29bn valuation, which is close to 10% of Meta’s current market cap.