DDQs for Alternative Investment Firms
As the CTO, COO or CFO of a hedge fund, you’re all too familiar with your investors providing you time-consuming due diligence questionnaires (DDQs) to audit your operational safeguards and overall data security and compliance measures. If you’re already using Agio for your managed IT and cybersecurity needs, you’re conversant with the support we provide by delivering a complete buttoned-up tech and cybersecurity DDQ to share with your investors, and the ongoing assistance we offer for any additional in-depth questions that may arise.
You’re probably aware that the number one reason an alternative investment firm encounters a security breach is due to phishing, but did you know the second most common reason a hedge fund is hacked is through a vendor?
What you’ve possibly overlooked with regards to DDQs is auditing your own vendors for similar tech and security compliance benchmarks, which will make your hedge fund much more attractive to new investors.
Whether you’re a seasoned hedge fund manager or are just starting out, you’re acquainted with the changing landscape of managed IT and cybersecurity and know firsthand about the rise of security threats and financial fraud within the industry. Alternative investment firms must take steps to protect themselves from these common vulnerabilities, and Agio’s DDQ is the logical first step.
Screening Your Vendors (And Why It Matters)
Central to the vetting process of your vendors is a pre-packaged, comprehensive vendor DDQ. A proper DDQ will offer you much-needed insight into the financial, legal, and operational integrity of each of your vendors, including the cybersecurity controls they have in place for data protection. Failure to follow due diligence procedures can open up a company or an investor to security risks and even fraud. Given such high stakes, DDQs must be decisively structured when vetting a vendor.
If you’re currently completing and managing your vendors using in-house DDQs, you’re well aware that this due diligence process takes time and effort from both your company and the vendor being vetted, so it’s essential you tackle them with a methodical process.
A well-structured DDQ will review the operations of each vendor. Important topics to cover include compliance with regulations, the vendor’s financial status, and an overview of the vendor’s contracted services. To streamline the process, when working with third-party vendors or software, make sure that only relevant data is sent over. For example, a trade settlement vendor does not need each client’s name, phone number, or social security number – an account identifier is enough.
The DDQ needs to be a reflection of the entire business as well. Each department that works with a vendor should have the opportunity to raise questions relevant to them. This likely means inquiring into a vendor’s cybersecurity practices (with the question originating from your CTO), while an investigation into current and past litigation involvement with your vendor may stem from your legal department.
Agio’s specialized expertise working with alternative investment institutions as the premier vendor for tech and cybersecurity solutions lends itself to our authority in assisting with the DDQ process. Our intimate understanding of the risk mitigation that comes with properly implemented DDQs will streamline this process entirely, ensuring you can allocate your time to attracting new investors and focus on optimizing the performance of your fund. Contact us for a free consultation.
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