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Cybersecurity for private equity (PE) firms is a central concern given the sensitive nature of the data they handle, and the high stakes involved in their transactions.

Risk assessment and management

PE firms must conduct thorough risk assessments to identify potential vulnerabilities within their own systems and those of their portfolio companies. This involves evaluating the security posture of each company, identifying potential threats, and implementing strategies to mitigate these risks.

Kevin Groves
Kevin Groves

Sales Director | Cyber Risk

kgroves@thomasmurray.com

Due diligence

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

  • security audits to evaluate the current cybersecurity 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 cybersecurity regulations and standards. Non-compliance can lead to significant fines and reputational damage to.

Post-acquisition integration

After acquiring a company, PE firms need to integrate the new company into their cybersecurity 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 cybersecurity, 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 cybersecurity requirements and service level agreements (SLAs).

Investment in cybersecurity technologies

Leveraging advanced cybersecurity 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 cybersecurity efforts. Appointing a chief information security officer (CISO) or equivalent role is a good place to start with cybersecurity leadership, as is ensuring the involvement of the board. Cybersecurity 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

Cybersecurity in private equity is a multifaceted challenge requiring a comprehensive and proactive approach. By integrating robust cybersecurity 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 cybersecurity environment for PE firms, download our whitepaper, The private equity guide to cybersecurity.

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