Q1 2023 - (released May 2023)
SA's quarterly Private Equity & Venture Capital magazine
AI revolutionising private equity investments
by Michael Avery
Artificial intelligence (AI) has been a buzzword in the tech world for decades, but it’s only recently that its potential is starting to make an impact – and the smart money is taking notice.
Michael Jordaan, founder of Montegray Capital, understands the power of AI and is taking it to new heights with the launch of two groundbreaking ventures: AI Asset Management and AI Capital.
Thanks to the phenomenal success of ChatGPT, the well-known chatbot from Open AI, everyone seems to be talking about artificial intelligence. ChatGPT reached one million users within five days of launch and, according to a UBS study released in late February, is estimated to have amassed 100 million monthly active users in January, just two months after its debut, making it the fastest-growing consumer application in history.
According to the report, which used data from the analytics company Similarweb, ChatGPT saw more than twice as many unique visitors in January than it did in December—an average of about 13 million per day. It received one billion visits in February and 1,6 billion visits in March 2023.
Open AI was valued at US$29bn after the launch of ChatGPT, and Microsoft has since increased its initial 2019 investment by $10bn. ChatGPT integration has also resulted in a 15% increase in daily traffic for Bing.
GPT-4 (available in ChatGPT Plus) recently demonstrated “sparks of AGI” (a type of artificial intelligence that possesses the ability to understand, learn, and apply knowledge across a wide range of tasks – just like human intelligence – which is thought of as the holy grail in the science) and scored in the 90th percentile on a number of difficult human examinations, including the US Bar exam, and International Biology and Maths Olympiads.
It’s fair to say that the large language model has pushed generative artificial intelligence into the mainstream.
In a recent interview with Catalyst, Jordaan explained the inspiration behind these ventures and the incredible impact that they could have on the world of private equity.
“AI has been around for a long time, but it has had many false dawns," Jordaan said. "However, with recent breakthroughs like ChatGPT, which allows you to have conversations with an intelligent human-like AI, it’s clear that AI has come of age.”
Jordaan's excitement about the potential of AI is palpable. He describes the experience of using AI tools like ChatGPT or DALL·E 2, which can generate any image you want, as “an exciting new era” that has the potential to transform industries across the board.
It is from this excitement and belief in the power of artificial intelligence that Montegray Capital has launched AI Asset Management and AI Capital.
AI Asset Management aims to revolutionise the way investments are made in the stock market. Using algorithms and big data, the platform analyses trends and patterns from the past to predict future market movements. While Montegray Capital initially tried this approach in the South African market with a project named NMRQL, the limited data available prompted them to shift their focus to the larger and more data-rich NASDAQ market in the United States.
“We believe that AI can unlock the true potential of the stock market,” Jordaan said. “With the vast amount of data available in the NASDAQ market, AI can make more informed investment decisions and build a track record of success.”
On the other hand, AI Capital takes a different approach by investing in businesses that are already leveraging AI tools. Jordaan likens this strategy to Warren Buffett’s analogy of investing in companies that use the tools and not the toolmakers themselves, the way Coca-Cola leveraged the technology of refrigeration in their business model.
“We think those businesses that lean into the trend of AI are going to outperform,” Jordaan said. “AI has the potential to revolutionise industries like agriculture, healthcare, crime prevention, advertising, and tax compliance, just to name a few. The possibilities are endless.”
To bring these ventures to life, Montegray Capital has teamed up with Ethos Private Equity, a renowned investment firm that shares their vision for the potential of AI in the Private Equity space.
AI Capital Partners is a private equity fund, based in Singapore, focused on institutional investors, and Nic Kohler, Willem Roos, Michael Jordaan and Roger Grobler are the founding partners.
“We have been working together for three decades, in various forms,” says Jordaan. “We have been investing together for the last eight years, including as founding investors in Rain and founders of Ethos AI Fund 1, in partnership with Ethos Private Equity.”
The Ethos AI Fund 1 (Fund 1) is a closed end private equity fund in partnership with Ethos Private Equity. The fund is almost fully deployed and has achieved attractive returns to date. Fund 1’s investments include Vertice MedTech, Tyme Bank (and GoTyme in the Philippines), Optasia, and Crossfin Holdings.
Ethos Capital CEO, Peter Hayward-Butt sees the partnership with Montegray as a natural evolution following on from the partnership with Nick and Roger in Ethos AI Fund 1, which was started in 2018.
“It’s been a very successful fund. It was around about R750m, and I think the fund is currently sitting at about two and a half to three times money back. So, it’s been a very positive partnership with Roger and Nick. And we’re looking to expand it,” explains Hayward-Butt. “We’ve proven its ability to find good opportunities to work in partnership with Roger and Nick and, in this case, with Michael and Willem, to find the opportunities, execute on those, and then exit them at good returns. The world has moved on and we’ve got to move with it.”
“We invested, in the first fund, in a business called Optasia, which, for all intents and purposes, is a credit scoring business. Again, the computer makes those decisions, thousands and thousands and thousands of decisions over; in this case, 560 million customers every second, which we could never do as humans. So, I think there are those businesses that benefit from it.
“And what we look to do is to take stakes in those businesses – as a private equity investor, obviously – working with Michael and his team and finding those businesses which we think will have a better moat around their business, or a better competitive advantage.”
It's clear that Jordaan and Hayward-Butt are not only passionate about the potential of AI, but also about surrounding themselves with great people who share their vision.
As the interview concludes, Jordaan leaves us with a self-deprecating parting shot: "The secret to life is to surround yourself with great people or people that are better than you, which, in my case, is pretty easy.”
Maybe he might add to that in future, that the secret to success in life is surrounding yourself with the best intelligence – human or artificial.