Hedge funds tackle the threat from cyberspace

Asset manager CQS was the most recent group to give its client conference the theme of ‘uncertainty’ – around the global economy and asset classes, for example – but it surprisingly also included risks from cyberspace among its key concerns.

Risk is on the lips of most asset managers, a full two years since the financial crisis.

One traditional firm’s marketing head said: “Whether or not we use the word ‘uncertainty’ in the title of our event, we’d talk mainly about risk and uncertainty, anyway”.

Michael Hintze, CQS’s chief executive, opened his firm’s ‘Investing in an age of anxiety’ seminar yesterday by detailing what “keeps me awake at night”.

Broadly, the issues are, can China maintain growth and job creation rates, and control inflation? What happens post-QE2? Will systemic risks around Europe’s debt woes materialise? And, further out, what of some oil-rich territories variously claimed by four competing nations in Southeast Asia?

Hintze bought gold and metals and oil producers to tackle inflation.

On the eurozone’s crisis, he says there are “massive systemic risks”, but it is “a very good thing” the UK has at least excluded itself from the latest support mechanism.

The final item on Hintze’s ‘insomnia agenda’ was cyber threats.

Hintze cites one industrialist who told him they face 10 million unauthorized attempts to breach electronic barriers every month. “As managers of businesses we have to be cautious [about it], too,” Hintze says.

The issue of intrusion of IT systems hit headlines this week as $2.5bn hedge fund Ikos defended itself against claims it conducted surveillance on senior staff.

It said in a statement it identified “the theft of Ikos confidential information, software and trade secrets, [then] initiated investigations and subsequent civil actions against a number of former employees, including Martin Coward.”

Coward, estranged husband of Ikos’s co-founder Elena Ambrosiadou, authored some of its trading programs. Ikos said it had “taken all appropriate steps to protect its technology and has obtained injunctions to prevent any unlawful use of its software and databases” after unearthing “the unauthorised copying of its software by a number of former staff”.

Coward could be contacted for comment.

While investors may still quiz fund managers more about investments and allocation plans at present, it may not be long until questions seek details about electronic resilience to various threats.

David Walker

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