Hedge fund managers express concern over cyber crime

Date: Monday, July 4, 2011
Author: Charles Gubert, COO Connect

Hedge fund managers are becoming increasingly alarmed about the threats posed by cyber-attacks to their businesses.

Several high profile institutions including the US Central Intelligence Agency, Sony, Lockheed Martin and Nintendo have all fallen victim to cyber attacks over the last few months. Earlier in June, Michael Hintze, founder of hedge fund CQS, told investors these threats were one of his main business concerns.

“If an individual hacks into a fund manager’s computer, it can cause a significant amount of difficulties,” said John Metzner, president at the New York-based long/short equity hedge fund Plural Investments.

“The reputational risks to the manager can be severe. Somebody could access a manager’s email and start firing off random messages. Or more seriously, an individual could access portfolio data and possibly even trade, which could have a major effect on the portfolio,” he warned.

Many institutional investors will take a dim view of a manager if their security is breached in such a way – particularly as many of these risks are seen as preventable. Managers, said Metzner, should invest in quality technology systems and software to curb the risk of cyber-crime.

“Some of the preventive measures are fairly basic – for example – encouraging staff to regularly change their email passwords and use complex passwords. It is also essential for managers to have a solid firewall and perimeter protection. These systems should be regularly stress tested to identify any weaknesses. There are service providers out there which businesses can hire to try and hack into their systems to identify any vulnerabilities or flaws,” said Metzner.

Most brand name hedge funds will have software, systems and protocols in place to reduce the risk of hacking. However, Metzner acknowledged smaller shops’ preparedness for such an event may be more varied. “Plural Investments invests in technologies to help avoid these constantly changing threats,” he said.