Tech Investment vs Cost Cuts: Balancing PE Portfolios in 2025

Regulatory Technology: A Non-Negotiable Investment

For PE firms managing financial services portfolios, increasing regulatory demands mean that investing in compliance technologies is no longer optional, even when cost reduction is a priority. This imperative creates a distinct area of technology spending that cannot be easily reduced or deferred.

PE managers must find innovative ways to finance these essential investments while maintaining overall financial discipline. Budgets for financial crime prevention, for instance, have increased significantly since Brexit [6].

These compliance investments are non-negotiable. Compromising here can expose businesses to severe regulatory penalties and reputational damage. The FCA has emphasised the importance of operational resilience, particularly with the upcoming PS21/3 regime deadline on 31 March, mandating fintech firms to integrate resilience into their infrastructure and ensure rapid recovery from disruptions [20].

To effectively manage regulatory technology investments while maintaining cost discipline, PE firms should:

1. Implement modular compliance architectures for incremental upgrades
2. Prioritise technologies with multi-jurisdiction capabilities to maximise ROI
3. Explore shared service models across portfolio companies to distribute compliance costs
4. Leverage AI-powered regulatory monitoring tools to reduce manual oversight

Recent regulatory changes in the UK financial sector further emphasise the need for robust technology compliance. The Financial Conduct Authority (FCA) is adopting a ‘tech-positive’ approach to support fintech innovation, yet also reinforces the importance of operational resilience, especially with the PS21/3 regime deadline [8].

This dual focus means PE-backed firms must invest in technologies that not only foster innovation but also ensure robust compliance and operational stability. AI and machine learning are now crucial in compliance processes, reducing false positives and enhancing efficiency [7].

Fivecast recently launched an AI-driven platform aimed at revolutionising financial crime compliance, demonstrating a four-fold increase in efficiency compared to manual approaches [21].

Innovative Financing for Technology Investments

To fund essential technology upgrades without overburdening portfolio company finances, PE firms are increasingly exploring creative financing solutions. Strategies such as private credit, vendor financing, and technology-as-a-service models are gaining momentum.

These approaches enable PE managers to pursue critical digital transformation projects while preserving financial stability and reserving capital for other strategic priorities. 63% of UK private equity firms now utilise private credit to finance acquisitions within their portfolios [9].

The rising popularity of private credit offers PE firms greater financial flexibility. It allows for strategic funding of technology investments without directly impacting equity returns. This means portfolio companies can undertake necessary digital transformations while remaining financially sound.

For financial services firms, this financial agility is particularly valuable for funding essential technology improvements that might otherwise be delayed due to budget limitations. Private credit markets are projected to grow, with assets under management potentially reaching $2 trillion globally by late 2027 [10].

ROI-Focused Investment Frameworks

PE firms are refining their methodologies for evaluating technology investments, prioritising measurable returns and strategic value. These advanced frameworks help portfolio managers distinguish between essential technology spending that drives genuine value and less critical investments that can be deferred during periods of cost consciousness.

Despite substantial global investment in AI, the average return on investment for AI projects was only 2.5% last year [11]. This surprisingly low ROI highlights the challenge PE firms face in achieving rapid financial returns from AI investments. It underscores the need for improved evaluation frameworks that accurately assess both immediate financial impacts and long-term strategic benefits.

Predictive analytics is transforming accounting, improving forecasting accuracy and aiding strategic decision-making, revealing cost-saving opportunities through insightful financial data analysis [12].

To ensure ROI, PE firms should focus on metrics such as:

1. Operational efficiency gains
2. Revenue enhancement potential
3. Risk reduction value
4. Competitive advantage metrics

AI-driven cybersecurity platforms are proving highly effective for real-time threat detection in financial services. Platforms like Seceon offer AI-driven real-time threat detection and response, automating threat detection for quick deployment and scalability [22].

AI-powered security solutions can reduce overall security costs by 15-20% through automated threat detection and response [5].

Resistance to technological change remains a significant barrier to successful implementation within portfolio companies. PE firms should allocate resources not just to the technology itself, but to comprehensive change management programmes that address cultural resistance. Research indicates that technology implementations with robust change management are six times more likely to meet objectives.

Overcoming Resistance to Technology Change

PE firms frequently encounter resistance when implementing new technologies across portfolio companies. This resistance can significantly hinder value creation timelines and ROI realisation. Research indicates that 67% of technology transformation initiatives face active or passive resistance from operational teams [13].

Successful change management in technology implementations should prioritise reliability, usability, and integration into operations [23].

Successful PE firms address this challenge through:

1. Stakeholder mapping
2. Targeted communication
3. Phased implementation
4. Executive sponsorship

These structured change management approaches can reduce implementation timelines by up to 40% and significantly improve ROI realisation rates [13].

Key performance indicators (KPIs) for successful change management include:

1. Employee engagement and retention rates
2. Financial performance metrics
3. Innovation and adaptability scores
4. Customer satisfaction and usability [24]

Leadership alignment, stakeholder engagement, phased implementation, change impact analysis, and continuous learning programmes are crucial for successful technology adoption.