*From a birds-eye view, both hedge funds and private equity firms seem to share a lot of similarities. Both handle tremendous amounts of information, both have a roster of clients, and an internal team crunches all of their key financial metrics. However, the differences become quite stark when comparing the day-to-day operations – and these differences have huge implications on the ease to secure data.

Private vs. Public Data

One way private equity firms differ from hedge funds is the
type of information that they deal with. Hedge funds typically only operate on
the buy-side, meaning that they purchase all sorts of securities and assets
that fit within their strategy.

Private equity firms, on the other hand, operate on both
buy-side and sell-side roles, meaning that there are parts of the firm (or all
of the firm) that is privy to extremely sensitive information that must be
disclosed to the public if leaked. In addition, this information can only be
accessed by certain parties, which means that nonauthorized employees cannot
see that information. Most firms create something called the “Chinese
Wall” to prevent leaks.

The existence of the Chinese Wall means a PE firm’s data is
not equal and could have potentially market-wide ramifications. Having access
to insider information makes private equity funds a desirable target for
entities that are searching for actionable information – and the deals that PE
firms work with can cause stock prices to swing.

Location Matters

PE firms don’t just have more valuable information, but they
are also harder to secure due to location.

Hedge funds typically require minimal travel – analysts and
managers rarely have to spend weeks at a time on the road to meet with
companies and investors. Private equity firms, on the other hand, require
significantly more travel. The travel can be due to meeting clients, working to
close a deal, or going on roadshows. 

From a digital security perspective, it’s easy to lock down
and secure machines in a single location. When devices and laptops are
connecting from all around the world, sometimes through open Wi-Fi networks,
ensuring data travels through a safe path becomes incredibly challenging.

It’s also easier to supplement a traditional office with
physical security (such as on-premise guards) who can deter unwanted people
from even getting a glimpse of sensitive information. For employees on the
road, the risk of wandering eyes and potential theft of devices is far higher.
This makes it an overall digital security solution for PE firms very expensive,
as there often have to be device-specific considerations, whereas a hedge fund
can take a more one-size-fits-all approach.

Hedge Fund Cybersecurity is Inherently Stronger

Hedge fund cybersecurity is less attractive to potential hackers, often due to the esoteric data that some employees work with. PE firms, on the other hand, have investor-specific and insider information that is both more actionable and easier to understand.

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 faster
than ever.

For a firm to reduce its risk of leaking sensitive
information, it’s essential to take a proactive approach. IT infrastructure and
digital security aren’t the only aspects that need to be upgraded, but
employees also need to be educated on how to identify and avoid a new
generation of phishing attempts.