Senior executives in private equity have expressed growing concerns about the disruptive potential of artificial intelligence (AI) on professional services firms, particularly within law and accountancy sectors. At the annual SuperReturn conference in Berlin, leaders from major buyout and credit firms highlighted how advances in generative AI could reshape advisory businesses that rely heavily on hourly billing, posing challenges to their traditional revenue models.

Kevin Marchetti, chief investment officer and head of US direct lending at Man Group, noted that while much attention has focused on the impact of AI on software companies, its reach extends far beyond. He described how AI could affect activities such as claims auditing, billing automation, proxy voting management, and legal services, warning of significant operational changes across these sectors.

The concern follows a trend of declining valuations in professional services companies, exemplified by a nearly 50% drop in shares of Accenture, the world’s largest listed consultancy, over the past year. Scott Kleinman, an executive at Apollo Global Management, cautioned attendees at SuperReturn of mounting pressures on lawyers, accountants, and consultants as AI tools become more sophisticated.

Private capital investors have increasingly been cautious about committing new capital to certain white-collar service firms due to uncertainties over disruptive AI technologies and their long-term impact on earnings. Joana Rocha Scaff, head of European private equity at Neuberger Berman, identified businesses involved in writing, translation, and legal services as especially susceptible. While AI offers possibilities for efficiency gains and margin improvement, she emphasized risks of revenue decline, particularly for firms charging clients by the hour.

Regulatory status also influences vulnerability to AI disruption. Andrew Sillitoe, co-chief executive of Apax Partners, pointed to hourly-booked bookkeeping businesses not subject to regulated audit requirements as more exposed. In contrast, he suggested that audited accounts, which carry added value beyond the time spent, are less likely to experience revenue erosion due to AI.

The potential upheaval poses risks to private equity returns, given that firms have invested billions in professional services platforms in recent years. As a result, some executives are shifting focus toward sectors such as industrials, which tend to have substantial physical assets and are viewed as less prone to obsolescence from technological changes.

One senior credit executive from a leading private capital group observed that market attention has disproportionately centered on software, despite AI’s broad implications. “AI could be valuable to accounting firms, but will small accounting roll-ups be able to compete with KPMG [in deploying AI]?” the executive questioned, underscoring competitive dynamics likely to emerge as firms adopt AI technologies at different scales.