Hedge funds and private equity firms have to handle sensitive data as well as monetary assets, which means that being safe against the threat of cyber crime is an area that the two types of financial service institutions have to pay close attention to. Preventing, detecting and mitigating cybersecurity threats is important for both types of institutions, as they both must have a strong governance program.
Agio is a cybersecurity provider, offering a span of services designed to meet the needs of private equity firms, hedge funds, as well as other financial organizations. For Agio, hedge fund cybersecurity is both preventative and reactive to the inevitable threats of hacking. The company has experience when it comes to supporting the alternative investment space, and they offer monitoring, technology hosting, cybersecurity programs, virtual CISO, and more. Besides servicing the financial industry, the New York-based company also services healthcare and payments industries.
While the popular belief would be that hedge funds deal with more complex system, more transaction, cash movements and data, volume is not the only attribute determining how difficult it would be to secure a financial entity. While hedge funds can be very large organizations, understanding the way they operate and what they stand for can be easily done by investors through the due diligence questionnaire – also known as “DDQ”.
Due diligence questionnaires are basically designed to highlight the firm answering to the most frequently asked questions. Being a marketing tool to attract investors, DDQ’s are used to present information about the hedge fund in a positive light. A popular standard format used by many hedge funds is the one created by the AIMA (Alternative Investment Management Association) – hedge funds using a standard question format in an attempt to legitimize their DDQ’s.
Manager provided due diligence questionnaires represent good starting points when it comes to the due diligence process. The next step in the process would be whether or not investors should require hedge funds to complete their own due diligence questionnaires – in some cases called an RFP (request for proposal). Agio says, DDQ is a useful tool in the due diligence process, there are certain aspects that need to be addressed in regards to it and how they will be put to use – such as the way investors will incorporate the information received from the DDQ into the due diligence process.
Other aspects that are important for investors to keep in mind about DDQ’s or RFP’s are how they will follow up with managers who offer vague answers, whether or not they would accept DDQ’s that have been previously prepared or if they would want a specific format, if the responses should be provided in writing, etc.
In recent years, when it comes to the due diligence’s operational aspect, there has been a trend to not require managers to complete a bespoke operational DDQ- also offered through Agio. On the other hand, some investors tend to use DDQ’s as crutches, replacing the completion of the document in place of operational due diligence. It should be noted that when requesting the completion of a custom DDQ, the element of surprise that due diligence comes with is often times lost, due to the fact that investors basically show their process to the managers by the questions they ask.