Federated Hermes boss: AI’s private equity journey “is an evolution not a revolution”

The use of artificial intelligence has as much capacity to benefit private as public markets, according to Karen Sands, the chief operating officer for private equity of the US-based investment firm Federated Hermes.

The more secretive aspects of private equity, compared with public markets, has fed a common but inaccurate perception that private equity is more conservative in embracing technology compared with public markets.

Speaking at the inaugural FundsTech Forum in London today, Sands told delegates that investment due diligence, reporting, the onboarding of clients, anti-money laundering, know-your-client and marketing were all aspects of private markets that could benefit from the greater use of technology.

Federated Hermes uses AI to extract data from investment documents, enabling employees to focus on higher value activities.

“Part of the challenge with private equity, and the clue’s in the name, is that unless you’re in the sector, it’s quite hard to assess how far AI is being used, whereas in public markets it’s more open,” Sands said.

“AI lends itself very well l to tasks that are data heavy and require a lot of manual input. It will allow us to assess information, assimilate information and produce summaries much quicker.

“In turn that allows our employees to work on more value-added tasks. It will augment the way that we work, as opposed to replace human intervention. And I think that’s because of the way that humans have the ability to understand emotion.”

On the issue of standardisation, Sands said that, similar to some of the taxonomy of ESG reporting, standardising terminology would be helpful in private markets by introducing greater consistency.

ILPA, IPEV the BVCA and Invest Europe provide useful tools and guidance to support standardisation, but the nature of private equity structures and operating models means it will never be possible to standardise everything.

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