AI may change private markets on two levels: through better analysis – and through falling transaction costs. The second effect has hardly been discussed so far.
Ronald Coase received the Nobel Prize in Economics in 1991. One of the cornerstones of his later award-winning work was created as early as 1937 (“The Nature of the Firm”): the realization that markets do not work for free. Information must be obtained, contractual partners found, risks assessed and contracts negotiated. These transaction costs shape the organization of markets.
Coase’s core idea was as astonishingly simple as it was far-reaching: If transaction costs change, the structures of a market often change as well.
This is precisely why it seems sensible to deal with a question that has hardly been asked in the discussion about artificial intelligence so far.
What will happen to private markets if AI significantly reduces transaction costs?
Of course, AI will not override the economic reality of real estate, infrastructure or private credit. The assets themselves remain illiquid. What AI can do, however, is to make many of the previously complex processes around these products much more efficient.
For example:
- Evaluate product documents and due diligence documents.
- Compare funds and managers.
- Identify buyers and sellers.
- Scale digital third-party product sales.
- Making matching platforms and secondaries more economical.
This could be the real potential – a potential that the industry has hardly exploited so far. AI doesn’t change the assets themselves. It changes the costs of processing information, bringing together market participants and preparing transactions.
This gives rise to some exciting questions about the future:
- Does this make secondaries in the private markets sector a larger market?
- Are new platform models emerging for private markets?
- Does the previous logic of “size wins” still apply without restriction even if AI drastically reduces the costs of information processing, product evaluation and market access?
- Regulation speaks in favor of larger platforms. What happens if AI reduces transaction costs at the same time? Which force will prevail in the end?
- Will the illiquidity discount decrease in the long term – not because the assets become more liquid, but because their brokerage becomes more efficient?
There are still no reliable answers to these questions today. This is precisely why it is worthwhile to ask them now. For if Coase’s considerations prove true again, structural changes will not only begin when they have become obvious, but already when the underlying economic forces shift.
📌 Result:
There is much to suggest that the impact of AI in private markets will be will not be limited to better analyses. Their influence on transaction costs is likely to be at least as relevant.
Should Ronald Coase If they were right, this would be much more than a technological development. It would be a change in the economic forces that would affect the structure of the private sector. Shaping markets sustainably.
