From cheap AI data to human judgment: A fund manager guide

This article summarizes an episode of VC10X with Prashant Choubey’s video series featuring Tom Duffy, director of private markets at TIFF Investment Management.

Image credit: Timmy Loen

AI speeds up market research and makes data easier to access. As a result, the advantage shifts from people who gather information to those who know how to assess its value.

Tom Duffy, director of Private Markets at TIFF Investment Management, says this sets a higher standard for fund managers. They must focus on specific sectors, evaluate new technologies carefully, and stay patient instead of rushing to sell investments.

AI forces a premium on niche specialization

As automated analysis becomes more widespread, broad sector coverage can become a liability because competitors can access similar insights at the same time.

Duffy notes that “in a world where AI has commoditized data and everyone has access to the same information, focus and expertise in a specific area of the market can truly differentiate a good manager from the rest of the pack.”

To identify expertise amid a flood of presentations, investors must evaluate managers against criteria:

• Targeted focus: Managers must articulate a strategy explaining why their specific niche yields a structural advantage.
• Proprietary networks: Sourcing deals through unique channels provides better diversification than allocating to multiple generalists tracking identical assets.
• Qualitative taste: Machines accelerate data processing but cannot replicate human judgment when assessing founder capabilities or market shifts.

Fundamental underwriting trumps technology hype

Translating this specialized expertise to the competitive AI market requires evaluation frameworks that separate viable businesses from hype:

• Identify the core customer need. Companies must solve tangible problems for specific buyers rather than just showcasing sophisticated models.
• Verify product stickiness. Enterprise customers must experience clear benefits and maintain usage rates long after trial periods expire.
• Assess operational scalability. Businesses need the capacity to expand their customer base rapidly without breaking under manual service requirements.

Applying these fundamentals helps investors avoid funding unproven ventures simply because they purchased new software.

Duffy notes that while automation accelerates research, “the best GPs still have to make qualitative calls on people and markets that no tool can make for them.”

Liquidity pressures distort portfolio design

The same discipline required to underwrite complex technology is vital when navigating delayed cash returns in mature portfolios. Slow distributions can indicate that quality assets are simply taking longer to mature rather than signaling business failures.

To avoid destroying long-term value through premature exits, investment boards should adopt patient portfolios: