When it comes to hedge funds and private equity firms, there is the erroneous belief that both firms are incredibly challenging to secure digitally. While partially true, the reality is that hedge funds are much easier to secure due to three key points: the allure of information, the complexity of data, and location of employees.
The Allure of Insider Information
Hedge funds deal almost entirely with public information, whereas private equity firms do not. The nature of private equity means that firms often work on secretive deals for months at a time, which are only unveiled when everything is in place and ready (such as purchasing a company on the stock market).
This makes the type of information that the two kinds of firms deal with very different. Public information is something everybody has access to; hedge funds take it a few steps further than an everyday investor with their analysis and data processing. In the end, the hedge fund understands what investments have potential.
Private equity firms work on secretive deals that will impact the stock market. If an entity were to get access to insider information on a deal, then it can potentially spell millions in value. Therefore, it’s no surprise that insider information from private equity deals is a much more attractive target for hackers.
Complexity of Data
Another area where hedge funds have a leg up over private equity firms is the complexity of data. Most hedge funds deal with a tremendous amount of information, and that data is often processed in a way specific to the fund. This means if an outsider were to get their hands on this information, it could take a great deal of time to understand what it means – which could be too late to have any value.
Read more here about how to start to start a private equity firm
Because private equity firms often deal with high-level board members and investors, a great deal of data is stored in common forms (documents, spreadsheets, PowerPoint slides…). This makes sensitive data incredibly easy to digest for a would-be hacker whereas the hedge fund’s complex data is more difficult to stomach.
Predictable Location Matters
Finally, private equity firms tend to be more difficult to secure due to the high amount of travel their employees have to do. Hedge funds typically require minimal travel – analysts and managers rarely have to spend weeks on the road to meet with companies and potential investors. Private equity firms, on the other hand, may have to travel for any number of reasons such as meeting clients, working with companies, or going on roadshows.
It’s far easier to digitally secure a company where employees are easy to predict. Hedge funds typically have a single office where employees work from, making it easy to create secure networks to connect. When a device is traveling all around the world, there are far more variables to consider such as open Wi-Fi networks or the path that data travels over the internet.
Physical security is also an aspect to consider. Information no longer becomes valuable if everybody knows about it, which is why keeping prying eyes away from sensitive information is essential. It’s an easy task in an office environment with physical security, but working on the road can mean devices are accessed in all sorts of different scenarios. Wandering eyes at a coffee shop may accidentally see something.
Hedge Fund Cybersecurity is Inherently Stronger
Fortunately for hedge funds, they are easier to secure due to their esoteric data, predictable employee locations, and lack of insider information. Bart McDonough, CEO, and Founder of Agio says that “technology has fundamentally changed the infrastructure underpinning financial services.” He asserts that technology makes it easier to gather and trade intelligence, but that fast dissemination of information also makes it very difficult to manage from a compliance perspective – data leaks more rapid than ever.
It’s essential to take a proactive approach to digital security. IT infrastructure needs to be up to date, but employees need to be trained too. It’s critical for employees to understand and avoid phishing attempts. All the technology infrastructure in the world can’t prevent user error.