Flywheel in Focus: From Data to Diligence–Building AI-Enabled Edge Across Private Markets

At TPG, our firmwide AI initiative spans how we invest, drive value across our portfolio, and transform our own operations. In this edition of The TPG Take x Flywheel in Focus, we highlight our disciplined, thematic investment approach, anchored by four meta themes – AI Infrastructure, Vertical AI Apps, AI Security & Observability, and Services Transformation.

Hear how we’re navigating the AI revolution by partnering with category leaders, building resilient businesses, and leveraging internal innovation to unlock growth across private markets.

Note: the below is an edited transcript of interviews with leaders across the firm. For more, please be sure to watch the full videos.

Perspectives on the State of Artificial Intelligence

Paul Daugherty: "One way to think about the impact of AI is the overall impact that it stands to have on the economy. There's lots of projections out there, but the one that I use is that it stands to create $10 trillion of opportunity-added GDP around the world. And that creates tremendous opportunity to find those pools of growth and invest in the right way to take advantage of it."

Nehal Raj: "Where private capital and private equity, in particular, can add value is that this is really a change management problem. Implementing AI in a big way has the potential to disrupt an existing business model or an employee structure, for example, and so, this combination of control-oriented private equity and AI-related transformations is really interesting. You have the enabling technology ready to go, but the missing piece is that day-to-day change management, which is what we in private equity do best."

Paul: "If you froze AI right now and had no other innovation, there's tremendous latent potential just to use the existing technology with generative AI to drive years of transformation in business. I think the challenge for business is to stay on top of that. That's where TPG comes in with the forward visibility, the insight, the connections into the tech ecosystem to understand where this is going and help provide that roadmap to navigate the transformation."

Nehal: "At TPG, we have three separate workstreams:

1. Thematic Investing in AI: What are the themes and how do we find the best investment opportunities for the firm?
2. Enhancing Portfolio Performance with AI: How do we use AI for the benefit of our portfolio companies to help them both on the revenue and the cost side?
3. Internal Use of AI: How are we transforming our own operations to enhance efficiency and productivity?

Before we make any new investments in a space, we like to identify the themes that we're most interested in, and then we go and find the most interesting companies within those theme areas. Earlier this year, we hosted an AI Themes Day where each of our investment platforms presented their most interesting ideas around AI. Then as a leadership team, we distilled that into four meta themes that were most compelling – AI Infrastructure, Vertical AI Apps, AI Security & Observability, and Services Transformation."

AI Meta Theme #1: AI Infrastructure

Mike Zappert: "One of the first areas we focused on was AI infrastructure. Think of it as all of the enabling technologies that you need to have a successful AI footprint in the market. First, you need to have the actual foundational models. Next, you need access to data centers, access to real estate, to chips, etc. And all of those things are enabling infrastructure that you need to have before you even think about having a product. As a firm, we think that we have an incredible opportunity to really invest across all aspects of that value chain as you're looking to deliver AI at scale."

David Trujillo: "Initially, you need to be weary in our industry of the hype cycles in certain spaces. That being said, there are incredibly important platform shifts that we've all experienced throughout our careers. For me, it goes back to when we went from mainframe to desktop, then desktop to mobile, and finally, the advent of the internet. Similarly, we think these gen AI models, or LLM models, are another paradigm shift that's going to create huge, new addressable markets. We firmly believe gen AI is here to stay."

Nehal: "Our recent LLM investments fall under our AI infrastructure meta theme. And you can think about that as a picks-and-shovels way to play the adoption and penetration of AI technologies. With respect to the LLM companies themselves, they've only been in existence with revenue for two or three years. We spent the first year or so waiting and developing our views, and once we felt like we had enough conviction around investing in the LLM space, we came to the conclusion that there was not going to be just one winner – in fact, the market is segmented between consumers, enterprises, and the physical world, and what we wanted to do was identify and invest in the leader in each of those areas."

Arun Agarwal: "These companies need a tremendous amount of money. Demand is insatiable and it's a heavily supply-constrained market. Anthropic is literally the fastest growing company to $5 billion of revenue in history. There's a huge opportunity for private capital to step in and finance these companies."

AI Meta Theme #2: Vertical AI Apps

Art Heidrich: "One of the areas we're very excited about is vertical AI and the ability to tailor workflows for specific verticals. AI is going to be hugely TAM expanding for many of these solutions. Things that historically were more adjacent to workflows that we were already addressing with our software, will come into scope with AI, and there will be a lot more automation opportunities for customers to drive efficiency, and in many areas, will be critical for customers to remain competitive and can keep scaling their businesses."

Arun: "What's interesting about vertical AI is a lot of these companies have unique data that's specific to their verticals. For example, Toast is powering all the restaurants in the world, so they're getting tons of data that the horizontal AI companies are going to have. Similarly, ServiceTitan powers all the plumbing, electrical, and home services shops, so they have specific data to use in their AI. We believe it's in this gold rush – how do you find the pockets of defensible value, and vertical AI feels like a reasonable one."

Tim Millikin: "One of the things that we look for as we're assessing platforms to invest in around AI is companies that have core system of record or are in a deeply embedded workflow. So they have a strong, sticky customer base where we can then build AI tools on top of that workflow software and on top of that data.

For example, our recent investment in Elite, which is a core, vertical market ERP software serving the legal and accountant industry is that core system of record. And what we were able to do very quickly, because we have an entrenched customer base, is deliver AI solutions built on top of our existing technologies and rapidly deploy them out into market much more quickly than a new entrant could have because we have those existing customer relationships."

Art Heidrich: Our original investment in Nextech in many ways grew out of our investment with WellSky, which is also an electronic medical record (EMR) and practice management solution. They've made a lot of progress on their AI products, which has improved clinician productivity by allowing healthcare providers to focus on patient interactions versus typing into the EMR. We can now deal with a lot of that on the backend via an ambient listening scribe solution. We believe there's a lot more potential to automate workflows to make the doctor's life easier and improve the patient experience, and we're very excited about the AI opportunity ahead for that business."

AI Meta Theme #3: AI Security & Observability

Tim: "With any infrastructure shift comes the security and threat landscape behind it, and we think this is a big market opportunity that's going to be ripe for security investing over time."

Mike: "What we're seeing in that space is really two things: One is AI for security, and the other is security for AI.

• The basic idea within AI for security is how do our existing portfolio companies like Tanium or EverFox use these next generation technologies and provide a better, more complete solution to their customers that wasn't possible using existing software technologies.
• The other area we're focused on is security for AI, which is the newest threat vector that we're seeing across the space. We're seeing more threats that are using these next generation technologies to automate and deliver attacks that weren't possible before. We're focused on companies that are going to be well-positioned to drive new, scalable solutions for our underlying customers."

Robert Roley: "We're excited to continue to partner with Everfox, which is a leading cybersecurity provider predominantly serving the United States government and our allies in defense and intelligence. This is an area where we have seen and will continue to see a great deal of innovation. One thing that Everfox has been able to do is really partner with the leading, next generation defense and defense technology companies to build software and AI-first applications to protect the US and our allies. If anything, we're leaning further into cybersecurity because we think the demand and need for great security companies is only going to continue to increase."

AI Meta Theme #4: Services Transformation

Peter Munzig: "This is a watershed moment as we think about the role that AI is playing in our lives. As we think about translating that from the consumer realm to the services realm, there are a number of key areas where we are spending time as a firm. Our services transformation approach has been predicated on a couple of different areas:

• We are looking for leading services companies in growing markets where we think we can improve and change the cost structure in a pretty dramatic way. And that actually leads to a number of positive knock-on effects where it allows them to be able to take market share because the price may change in the context of their delivery model.
• That allows these companies to invest further and play offense with some of their agentic tools that they're developing. And that's really the holy grail that we're spending time around. We as the enterprise can capture more value on behalf of the interaction between the client and the actual delivery of the product.

And it's embedded into everything we do – we have a standard investment committee template where we spend time talking about the components of AI and how any given business model may be impacted over time. Those areas where we feel like it will be a beneficiary are where we tend to lean in much more.

One example within our portfolio where we're seeing tangible results is G&A Partners by driving incremental AI investments and automation-related investments as we think about the delivery model itself and how they interact with their clients."

Portfolio Company Transformation: AI-Driven Value Creation

Robert: "There's been a lot of focus on AI in the last two or three years really since the introduction of ChatGPT in 2022. But TPG’s track record in AI goes back many years, and it's been a thematic area of focus for us because we've seen the transformative power of the technology to make companies more efficient and effective.

Our portfolio operations team works shoulder-to-shoulder with our investment teams from very early on in thematic research, diligence and underwriting, setting up the opportunity for us to recruit and partner with A+ management teams, and capitalizing on market tailwinds by bringing the best of the TPG platform to bear for the benefit of these companies."

Brian Goffman: "We have the ability to bring these technologies and do what's called applied AI, where we bring the science to our companies, and then we can help implement those technologies and really have a meaningful impact on both the growth of those companies and the bottom line.

First, we're showing everybody what are the best practices. AI is a little bit of an overlay in the sense that there isn't an AI role per se, but there's AI in sales, AI in marketing, AI in product development, etc. Part of what I do is help the other teams within TPG to integrate AI in their own playbooks.

For example, we have a lot of focus at TPG on carve-outs. And when you have a carve-out, you're essentially rebuilding systems from scratch because you're carving out the company... Even though it's not a new company per se, it now has the potential to be an AI-first company. So that offers a great opportunity for us to have really meaningful impact."

Robert: "I think adopting AI in a responsible manner is critical to the success of any AI project. When we think about responsible AI, we first think about AI that is secure – is it protecting data privacy and the data of our companies? Second, is it tested, accurate, and compliant? Third, is it transparent?

When we're making decisions with AI, we want to be able to understand why AI made a certain decision, and can we train it a different way? When we think about adoption of AI, we have to look at it through a responsible lens, not just because it's ethical, but also because it's going to allow us to have impact and drive the results that we want, in a way that also manages risk appropriately."

Brian: "What we're doing in operations at TPG is trying to take those examples where we have companies that we're transforming very rapidly and bring that to the rest of the portfolio.

• One example that I'm really excited about is Lyric. Lyric is a company that produces content used by healthcare providers to determine, among other things, how much they should pay for a particular procedure. They crawl the web, scanning regulatory information and policies, which has gone from approximately one policy a week to 10 policies per day using AI models, while upholding the same, if not better, quality.
• Another example in the portfolio is Boomi. Boomi is a software company that creates agents and they’ve built out an agentic framework, which they're using internally, as well as selling to their customers. They've seen dramatic improvement internally using their own agents in a change management program, while also allowing and enabling their customers to build agents on top of their own models.

So we have companies that are at the leading edge of both implementing AI, but also selling it to customers."

Reimagining Work: How AI is Driving Internal Transformation at TPG

Paul: "One of the key things that every organization needs to tackle is how to use AI to transform yourself in your own operations. A fundamental belief that I have – that's also reflected in TPG’s approach – is that the best path to AI success is a human plus machine approach. Combining the best of AI capabilities with the best of human capabilities will create superior business outcomes. So, really starting from the outset with this mindset and looking at the way work can be redesigned to be a combination of human and agentic AI capabilities is really the path to success in the future."

Ayanna Clunis: "At TPG, we started our AI journey in 2019, when we set up an internal team called Lab 39, which is a group of data analysts and scientists. We knew we had this wonderful set of data that we were sitting on, and didn't have the power to really harness it. And so, we created a tool called Samantha, which is our agentic platform or orchestrator layer, that allows us to interrogate the data.

We also consider it hybrid because it leverages best-in-class external tools like Grok, OpenAI, Copilot, and others, which allows our teams to be able to access a lot of information to perform complex research, query information, compare documents, etc."

Tim: "Our team at Lab 39 has developed a purpose-built TPG AI assistant. This is a tool that will ingest documents and data every week and output a report for the investment committee to review that includes risks, opportunities, and net takeaways around any specific investment opportunity we're assessing. It's a very powerful tool because it can also normalize, look back at data over the past several years from investment memos, and our own portfolio performance. Ultimately, the investment decision remains with the humans in the room, but it's a very powerful supplement to the discussion.

As investors, it's allowing us to focus on theme identification, building relationships, finding companies to transform, and actually accelerating the transformation of those businesses over time. And AI can help power each one of those steps along the way, which is ultimately going to make us more successful investors over time."

Ayanna: "Having a strong internal AI strategy is important to remain commercial. There's a huge demand in our firm now that people see the power of AI, and we also want to make sure that we are solving problems that are accretive for the firm. We focus on things that are: 1) commercial, 2) mitigate risk, and 3) are going to drive efficiency. This is something I consider a competitive advantage for TPG, and one that we continue to build on day-by-day."

ICYMI: Other News & Views from TPG...

Recently, we were excited to bring together TPG’s Capital, Growth, Tech Adjacencies, and Life Sciences Innovations businesses for our 32nd Annual Investors Meeting, convening much of our private equity ecosystem to share insights with our investors from around the globe. Firm leaders shared their perspectives on market trends, how AI is shaping our investing thesis across the firm, and explored key investing themes driving innovation across the portfolio. Check out some highlights below:

In this episode of Partnerships in Focus, Altimetrik CEO Raj Sundaresan discusses how partnering with TPG is accelerating innovation and supporting their mission to help clients unlock value from data and generative AI, while driving platform modernization in a rapidly evolving digital landscape.

Thank you to all of our followers and readers for joining us for another edition of The TPG Take. Please share the newsletter with anyone you think would be interested and we look forward to being back in your inboxes in the new year.