By Jose Goicoechea, Head of Digital and Commercial AI, and Yashendu Joshi, Head of COE, Artificial Intelligence
Capital markets have never been more complex to navigate, with increasing regulation and fiscal policy changes. Market participants must act fast to seize business opportunities and adapt quickly to changing situations or environments, which, of course, is easier said than done. Thankfully, AI is bringing unprecedented efficiency and clarity to complex, data-intensive areas like securitisation, CLOs and aviation finance.
The due diligence bottleneck
For those who operate in the sophisticated world of capital markets, the term “due diligence” conjures images of deal rooms, late nights and immense manual effort. In large-scale transactions, such as the creation of a collateralised loan obligation (CLO) or the financing of an aviation portfolio, the sheer volume of documentation is staggering. The process traditionally involves teams of lawyers and analysts manually reviewing thousands of deal documents, loan agreements and legal contracts to identify key clauses, assess risks and ensure compliance.
This process is not only incredibly time-consuming and expensive but also carries the inherent risk of human oversight. A single missed clause or misinterpreted term in one of hundreds of documents can have significant financial and legal repercussions.
The AI-assisted deal room: From weeks to days
This is where the power of AI-assisted due diligence and document review becomes a game-changer. By leveraging advanced natural language processing (NLP), we can now deploy AI systems to analyse massive volumes of legal and financial documents in a fraction of the time it would take a human team.
These AI platforms don’t just read text; they understand context. They can be trained to:
- Identify and extract specific key clauses across thousands of documents
- Flag non-standard terms or deviations from a predefined template
- Assess risks by comparing terms against a matrix of legal and financial parameters
- Cross-reference information across multiple documents to ensure consistency
The AI performs the exhaustive, repetitive work, allowing human experts to focus their invaluable time on the outputs.
An illustrative scenario: Streamlining due diligence for loan portfolios
Consider the review of a portfolio containing 500 individual commercial loans – a common task in securitisation.
- The “Before” scenario: A team of analysts and legal professionals would embark on a manual review process that could easily take a month. They would methodically work through each loan agreement, populating a spreadsheet with key data points and manually flagging any perceived risks or unusual terms
- The “After” scenario with AI: The entire portfolio of 500 loan agreements is uploaded to an AI platform. Within 48 hours, the platform completes its initial review. It provides the human team with a summarised dashboard highlighting critical risks, identifying all loans with non-standard covenant terms, and flagging any missing documentation
Faster execution, deeper insight
The business case is compelling and clear. This approach leads to faster deal execution, more thorough and consistent due diligence, and the identification of potential risks that might otherwise be missed in a purely manual review. It transforms the role of the expert from a manual document sifter to a strategic negotiator and risk mitigator. They can enter negotiations armed with a comprehensive, data-driven understanding of the entire portfolio, focusing their energy where it matters most.
Interested in how AI is impacting other administrative areas of the investment sphere? Read our earlier articles in this series:
- AI in action: Transforming modern fund administration
- Smarter compliance: How AI strengthens regulatory and risk frameworks
- Beyond spreadsheets: AI’s impact on modern accounting and corporate administration
And stay tuned for further insights soon as we shine the AI spotlight on ESG compliance and investor reporting.
