Modern PE COO Drives Value Through Data Integration

In Brief:

Karen Sands, COO of Federated Hermes' private equity division ($6bn AUM), shares insights on operational excellence in an evolving PE landscape. In this Fund Shack podcast interview with Ross Butler, Sands discusses how Federated Hermes strategically expanded into private markets in 2018, bringing strong ESG capabilities to their portfolio. She emphasizes that today's challenging fundraising environment will persist due to macroeconomic pressures and liquidity constraints, predicting a "rebirth of private equity" as emerging managers disrupt established players with superior performance, despite investors' hesitation to back newer firms.

Big Picture Drivers:

• Evolving COO Role: Far from "back office," now client-facing and strategic

• Technology Integration: Target operating models connecting portfolio, fund, and investor data

• Investor Relationships: Customization and transparency driving service expectations

• Market Challenges: Difficult fundraising environment amid macro uncertainties

Key Topics Covered:

• Federated Hermes: Pittsburgh-based firm that acquired Hermes in 2018 for ESG expertise

• Target Operating Model: System integration enabling nimble data analytics and reporting

• Risk Management: Multi-dimensional approach covering operational, client, and liquidity risks

• Emerging Managers: Experienced professionals from established firms challenging status quo

Key Insights:

• Customization Growth: "There's a lot more customization in private equity now versus 10 years ago"

• Data Integration: Creating repositories that connect portfolio, fund, and investor information

• Valuation Scrutiny: Industry needs to better educate outsiders on robust valuation frameworks

• Performance Metrics: Focus shifting from IRR to cash-based metrics like DPI and TVPI

Data & Technology:

• Three-Layer Integration: Sands envisions a target operating model connecting asset, fund, and investor data in a central repository

• Real-Time Responsiveness: During crises like the Silicon Valley Bank event, data integration enabled quick counterparty exposure reporting

• Automation Trajectory: While still requiring manual processes today, the trajectory is toward AI-powered query systems

• Competitive Edge: Firms investing heavily in technology infrastructure gain service advantages with investors requiring customized reporting

By The Numbers:

• $770 billion: Total AUM at Federated Hermes

• $20 billion: Assets in private markets

• $500 million: Upper limit enterprise value for investments

• 1990s: When Federated Hermes began investing in private equity

Memorable Quotes:

• "I don't like the term back office... the regulatory landscape and investor due diligence now focus a lot of attention on the infrastructure surrounding the investment team."

• "There'll be over the coming years almost a rebirth of private equity... emerging managers coming up really challenging some of the status quo."

• "You can be the best technical expert in the world but if you cannot convey your point and bring people with you, then the opaqueness still exists."

• "Emotional intelligence can sometimes be the difference. You need diversity of thought, otherwise you're pre-programmed for everybody to have the same outcome."

The Wrap: 

As private equity navigates fundraising challenges and increased investor scrutiny, operational excellence has become a key differentiator. Sands' perspective highlights how the modern PE COO role has evolved from administration to strategic leadership, with technology integration, relationship management, and data-driven decision-making now critical to success. For newer managers challenging established players, these operational capabilities will be essential to winning investor trust in an increasingly competitive landscape.