Starting a Private Equity Firm

Starting a private equity firm is not a small task. There are a huge number of steps that you need to wrap your head around, but it’s likely that IT infrastructure or cybersecurity were never really considerations that crossed your mind. That is a mistake. It’s possible to hobble along in the short term, but proper IT infrastructure is a key component for building a scalable organization and avoiding headaches down the line.

Cybersecurity Cannot be Neglected

Since 2016, over 70% of private equity firms have reported that their organization has experience at least three cybersecurity breaches over the past year. It’s no small secret that private equity firms deal with sensitive information, much of which is private due to company acquisitions. That specific, insider information is extremely valuable for any entity that gets their hand on it, so it comes as no surprise that private equity firms are high value targets for entities looking to find actionable information. And since they are stooping to get information through illegal means, insider trading is probably not a huge concern for them either.

There is no magic bullet for IT infrastructure or cybersecurity. The solution needs to fit the firm. For many private equity firms, this means very device-specific cybersecurity measures, since employees will spend a significant amount of time traveling. The fact that these employees deal with non-public and sensitive client information means that a potential leak can potentially cause millions in losses on the stock market.

An Early Start Avoids Headaches

Over the past few years, the percentage of IT budget private equity firms dedicate to cybersecurity projects has increased. Much of this is spent in overhauling old systems, testing new systems, and training employees on best practices. This makes a good portion of costs associated with advancing cybersecurity can be avoided if your firm starts with scalability and improvements in mind.

Perhaps an easy solution is to outsource IT and cyber security requirements to another firm. It eases the requirements to hire top talent and stay on top of the field. Agio, an IT infrastructure and digital security vendor, is an example of an easy way to stay on top of the game.

As of April 16th, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released a formal Risk Alert on notable deficiencies among financial institutions on safeguarding key information. Some of these deficiencies range from failure to keep customer information off of private devices to huge system vulnerabilities. When figuring out how to start a private equity firm, Agio has an offering called the SEC cybersecurity mock audit service, which simulates the process of undergoing an audit. It looks at the same areas and touches on the same level of detail that a regulatory agency would undergo – and Agio’s process was recently updated to take OCIE’s Risk Alert findings into account.

Expertise Does Not Have to Stay In-House

Starting a private equity firm requires many steps. There are so many tasks to juggle and keep track of – adding IT infrastructure and digital security to that list can make it overwhelming. For most newly-started firms, it might not be necessary to spend the money on cultivating a top talent IT team. Instead, it may be more feasible, both from a financial perspective and management perspective, to work with a third party IT vendor. It can also shift much of the liability for data leaks to the vendor, making it a way to lower risks associated with technology systems.