Private equity investment firm Ethos has launched a new fund, targeting R1-billion, that will invest in artificial intelligence (AI) companies in South Africa.

Ethos said on Tuesday that it has already completed a first close — valued at R600-million — and concluded two investments, in Channel VAS and Vertice MedTech Group.

Known as Ethos AI Fund I, the fund has already raised investments from Ethos Capital and Standard Bank, it said.

Channel VAS is a fintech player that “deploys algorithmic decision-making technology”, while Vertice seeks to disrupt the medical technology value chain by “leveraging AI to enable smarter decision making”.

The fund has been established in partnership with Nic Kohler and Roger Grobler, both former insurance industry CEOs with extensive experience in actuarial science.

“This fund will co-invest alongside other Ethos-managed funds, originate proprietary investments, and is expected to generate differentiated value for our investors by helping our portfolio companies to navigate and benefit from artificial intelligence,” said Ethos CEO Stuart MacKenzie in a statement.

“The fund’s aim is to identify and invest in businesses which we believe will benefit disproportionately from artificial intelligence — specifically algorithmic decision making,” he said. “These algorithms typically help companies make high-frequency decisions in multiple places along the value chain. As these decisions are not ideally suited to human capabilities — typically due to computational complexity and volume of data utilised — the use of algorithms releases intellectual capacity, allowing people to focus on other rewarding areas of work, such as creativity, relationships, strategy or communication.”

Ethos — historically known for its large buyout funds — has been successfully attracting capital to a number of specialist fund offerings, raising about R4.5-billion in the past 24 months from institutional and development investors: R2.5 billion for Ethos Mid Market Fund I; over US$100-million in the first close of Ethos Mezzanine Partners 3, which is targeting $150-million by mid-2019; and R600-million in first-close commitments to AI Fund I.