Why Private Equity Firms Should be Investing in Cybersecurity
Private equity firms are a big target for hackers due to the amount of personal and financial data being handled. Because of this, it’s critical for firms to invest now in cybersecurity to build a strong foundation and grow a culture of security for the future.
Read on to learn more about some of the common threats aimed at private equity firms and how cybersecurity solutions can help secure network vulnerabilities
Common Cyberthreats Aimed at Private Equity Firms
Private equity firms have become major targets for hackers due to the sensitivity of the information they handle like financial and personal data. Here are some of the most common attacks pointed at private equity firms and the threats they pose to firms, their portfolio companies, and investors.
Because of the amount of sensitive information being used by firms, ransomware is a common form of malware used in the industry. Hackers will steal data and hold it until a cash ransom is paid before releasing it.
Not only will this cost firms a lot of money, but it also affects the trust of their investors and can do irreparable harm to their reputation.
Spyware is also a big concern in private equity as it secretly records your actions, capturing passwords, login info, financial data, and private market and research data.
Next-gen antivirus and having fully updated software are two ways to protect yourself against malware threats. It is also important to have a backup plan in the event of an attack to re-establish key systems and preserve data.
As with many industries, phishing is a major concern in private equity and has resulted in major data breaches, stolen money, and identity theft. The main way that hackers use phishing to attack PE firms is through impersonation emails asking for private data like financial information, personally identifiable information, and more.
Firms can protect themselves against phishing through awareness training that focuses on helping employees spot the signs of a phishing email and by encrypting data and using access management tools to control who has access to certain information.
Stolen Data and Money
In 2020, the Internet Crime Complain Center reported that more than $4.1 billion was lost in cybercrime attacks. When hackers know that money is involved, it creates a target, and PE firms are dead in the center and, without proper security measures, are very vulnerable.
Why It’s Important for Firms to Invest in Cybersecurity
Protecting Customer Data
Whether it’s private investor information (financial or personal), confidential research, or transaction information, private equity firms handle a lot of very sensitive information—names, emails, phone numbers, social security numbers, investor information, etc.—that, if stolen, could fetch a large price from hackers selling to a third party or holding the data for a ransom. Not to mention having data stolen can severely impact public image and investor trust as well as the possibility of additional lawsuits.
In 2021, the average cost of a data breach rose to $4.24 million
Increased Risk from Portfolio Companies
Smaller portfolio companies can pose a large threat to private equity firms by acting as a doorway for hackers to find entry into a network.
Purchased companies may not have as much cybersecurity infrastructure in place, creating a potential weakness. By investing in their own cybersecurity, private equity firms can mitigate these risks.
Additionally, it’s a good idea for firms to invest in cybersecurity for their portcos, too.
Building a strong security foundation in portfolio companies can provide ROI by curbing value erosion that can occur from penalties accrued by data breaches (financial and reputational) and keeps deals from collapsing during due diligence, and gives managing firms a better idea of a company’s risk profile to help plan future investments.
Firms that implement cybersecurity measures like incident response and network monitoring can $2 million. Those that use AI and security automation saved an average of $3.58 million over those without cybersecurity measures.
Firms can also be held responsible for any data breaches that occur to their portfolio companies, inviting fines, lawsuits, and regulatory penalties.
Rise in Attack Frequency
In 2020, financial firms saw a 238% increase in cyberattacks, and that number has only risen since. Since 2020, cyberattacks in many industries have increased, but especially so in industries like private equity which are responsible for handling more valuable information.
Being under more threat than ever before, firms need to adapt by implementing strong cybersecurity standards and practices into their organizations to stay one step ahead.
How Cybersecurity Helps Protect Private Equity Firms
A cybersecurity strategy for private equity firms involves a lot of different solutions that work together to form a complete protection plan. Here are a few of the things that a cybersecurity team can bring to protect firms.
Password Management and Access Controls
Controlling who can access critical information is a major step toward having a strong cybersecurity culture in an organization. Access management controls assign access to certain data only to those who need it to complete their jobs, limiting the number of people who have access to data reduces the chances of credential misuse internally and better protects those credentials from outside sources.
Additionally, these controls allow leadership to monitor who accesses information, from where they access it, what device they use, and more.
The second part of access control is ensuring you have a password management strategy in place to ensure that passwords and passphrases are strong, consistently updated, and securely stored.
Backup and Disaster Recovery
Part of a comprehensive cybersecurity strategy is having a plan in place to recover quickly with backups in place and a set course of action to mitigate costly downtime and get your business back up and running as soon as possible.
Old antivirus software simply won’t cut it against the modern threats facing private equity firms anymore and most are no longer being updated by their developers, leaving the same vulnerabilities standing for hackers to figure out and overcome.
Because bad actors are constantly innovating and creating new ways to penetrate your system, firms need next-gen antivirus to elevate protection against viruses and malware. Plus, the latest editions are consistently updated to defend against changing threats.
Constant network security monitoring helps firms prevent and quickly react to potential threats to lower the risk of a major breach. At DOT Security, our experts at the Security Operations Center (SOC) are always monitoring business networks looking for anything out of the ordinary that signals a potential attack.
Cybersecurity Awareness Training
The best security strategy against phishing and other social engineering attacks is based on employee training on cybersecurity awareness and best practices.
Cybersecurity is a must-have for private equity firms who want to secure their data, protect their investors, and avoid fines, reputational hits, and other consequences of a breach. Investing in your security now can pay big dividends in the future and provide a major competitive advantage.
Learn more about DOT Security’s services and solutions by exploring the blogs, videos, infographics, and other resources available on their insights page.