Who Pays, Who Wins? Centralised Versus Decentralised AI Funding
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June 02, 2025
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Artificial intelligence (“AI”) is no longer an emerging tool in private equity, it’s a defining one. In our report, AI Takes Center-Stage for Value Creation in Private Equity Firms, 59% of private equity professionals said they expect AI to drive a significant share of value across their portfolio companies (“PortCos”) and another 75% are already leveraging AI or planning to within the next 12 months. Yet despite all this momentum and buzz, one critical question remains largely unsettled – who should pay for it?
The instinctive answer has been for the responsibility and cost to sit at the PortCo level, particularly as value creation is most visible on the operational side. However, nearly four in ten are now considering some form of centralised AI funding, either via pooled capital across PortCos or through a dedicated centre of excellence at the PE firm level.
This is more than a budget line item, it’s a strategic question about how to unlock value at scale, how to overcome execution bottlenecks and how to ensure AI investments deliver more than just promises.
Centralisation: A Cure for Fragmentation?
Most PortCos are not AI-first businesses, instead they have traditionally focused on core operations and growth. Whilst this has its benefit when it comes to focus, it does give rise to practical constraints when it comes to launching AI initiatives. With this fragmented approach, similar challenges could be addressed independently and inconsistently and early-stage pilots may take time to scale.
Centralised funding offers a compelling solution. It enables firms to attract and retain specialised AI talent at the PE level, where expertise can be shared across the portfolio. It also allows for standardised frameworks to assess opportunities and guide implementation. By reducing duplicated effort across similar companies and sectors, firms can accelerate time to value — especially by scaling proven models more efficiently.
One Size Doesn’t Fit All
Centralisation has limits, though. PortCos vary widely in digital maturity, sector dynamics and leadership appetite. A one-size-fits-all approach risks the possibility of misalignment and can slow down innovation if central approval processes either become, or are perceived to be, burdensome.
Going further, it’s important to keep in mind that AI funding is not binary. Funding for kick-off, including feasibility studies, opportunity identification and early-stage experimentation, differs greatly from funding to scale solutions once value is proven.
Centralised funding can be highly effective at kick-off, building momentum, sharing risk and ensuring a coordinated start. But execution often requires ownership, particularly when integration with core operations is needed. But should that ownership be individual only, or is there place for a more collaborative approach?
Some of the most advanced PE firms are now exploring co-creation models, partnering with consulting firms with deep AI capabilities and mature teams, technology providers or even other investors to share AI development costs. This allows for innovation at speed and scale, without each firm reinventing the wheel.
Avoiding AI Washing
With interest in AI surging, there's a growing risk of AI-washing. Whether exaggerating their AI capabilities, putting forward basic software as AI or downplaying human involvement, such misrepresentation can inflate valuations, erode trust and risk reputational and legal consequences.
To avoid this, companies should prioritise transparency and substance over hype. It’s vital to rely on AI experts that can accurately design, develop, deploy, assess and describe AI systems, including their capabilities and limitations, establish strong AI governance and ensure aligned and honest messaging.
AI’s momentum is undeniable, but exaggerated claims threaten long-term credibility, progress and value. Companies that communicate responsibly and focus on genuine innovation, rather than trends, will build lasting trust, foster investment, and lead meaningful technological advancement.
Final Thoughts
AI is becoming a cornerstone of value creation in private equity and who funds it matters. While PortCo-led initiatives remain important, centralised investment can help overcome early hurdles and unlock repeatable and scalable impact. Hybrid approaches where the PE firm partners with specialised third parties to support their PortCos consistently can represent a valid solution, too.
There is no universally correct answer, but the firms that engage deeply with this question and design funding models that align with both opportunity and capability will be best placed to lead in this next era of transformation.
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Published
June 02, 2025
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