Where to start with cyber security for private equity

Due diligence

During the acquisition process, due diligence is essential to assess the cyber security maturity of target companies. This includes:

• security audits to evaluate the current cyber security measures in place;
• compliance checks to ensure that the requirements of relevant regulations and standards are being met (for example the General Data Protection Regulation (GDPR) in the UK and the EU, the ASX Listing Rules in Australia, and SEC rules affecting Canada and the US); and
• historical breach analysis to review any past security incidents and the responses to them.

Regulatory compliance

PE firms must ensure that both they and their portfolio companies comply with cyber security regulations and standards. Non-compliance can lead to significant fines and reputational damage, too.

Post-acquisition integration

After acquiring a company, PE firms need to integrate the new company into their cyber security framework. This includes:

• Aligning security policies – in other words, standardising security policies and procedures across the firm and its portfolio companies.
• Implementing security controls through the deployment of appropriate security controls and technologies.
• Continuous and ongoing monitoring to detect and respond to threats.

Employee training and awareness

Human error is often a significant factor in cyber security, but often because of a lack of investment in training and awareness. Training employees across the firm and portfolio companies on best practices, recognising phishing attempts, and responding to potential breaches is crucial.

Incident response and recovery

Developing and maintaining a robust incident response includes:

• mechanisms for detecting and reporting security incidents;
• clear response protocols for responding to breaches; and
• plans and strategies for business continuity and disaster recovery.

Third-party risk management

PE firms often rely on third-party vendors for various services, which can introduce additional risks. Third-party risk management (TPRM) involves, but is not limited to, vendor assessments (i.e., evaluating the security practices of vendors), and ensuring that contracts include cyber security requirements and service level agreements (SLAs).

Investment in cyber security technologies

Leveraging advanced cyber security technologies can enhance protection. These technologies include:

• endpoint protection – solutions to protect devices from threats;
• network security – firewalls, intrusion detection systems (IDS), and intrusion prevention systems (IPS);
• data encryption – encrypting sensitive information to protect it from unauthorised access; and
• security information and event management (SIEM) – tools to monitor and analyse security events in real-time.

Governance and leadership

Strong leadership and governance structures are necessary to oversee cyber security efforts. Appointing a chief information security officer (CISO) or equivalent role is a good place to start with cyber security leadership, as is ensuring the involvement of the board. Cyber security should be a regular agenda item for the board of directors.

Cyber insurance

Investing in cyber insurance can help mitigate financial losses from cyber incidents. Policies should be carefully reviewed to ensure they cover relevant risks.

Take a comprehensive, proactive approach

Cyber security in private equity is a multifaceted challenge requiring a comprehensive and proactive approach. By integrating robust cyber security measures into their operations and portfolio management, PE firms can protect their assets, maintain investor confidence, and ensure regulatory compliance.

For more in-depth information, including a threat intelligence analysis of the current cyber security environment for PE firms, download our whitepaper, The private equity guide to cybersecurity.