Asian private equity firms plan to spend less on cybersecurity this year, even as their peers elsewhere look to boost their outlay in this area, according to a survey* from PE fund administrator Augentius. This could leave their clients' investments more vulnerable to hacks.

The paper, due for release today, polled both investors and managers and highlighted other findings on market sentiment, Brexit and industry challenges. 

The bulk of European and American managers raised their cybersecurity spending during the last year and intend to do the same over 2018, noted the report. “However, the trend is worryingly reversed among managers in Asia.” (See figure 1 below.)

Figure 1: GP spending on cybersecurity and technology
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“2017 saw a notable spike in cybercrime, both in terms of the volume and scale of attacks,” noted Augentius. “The private equity and real estate industry is increasingly realising that is it a prime target for attacks, and that outdated approaches to infrastructure and security are leaving it uniquely vulnerable.”

A slight majority of Asian PE firms invested less in 2017 than the year before, and an even larger majority intend to spend less in 2018, according to the report. 

The survey received about 100 responses across general partners (PE managers) and limited partners (investors) globally, 17% of which came from Asian GPs, 20% from LPs, 33% from US GPs and 30% from European GPs. 

“Asian GPs have been making far less investment in cybersecurity than those in Europe or the US,” noted David Bailey, London-based head of communications, marketing and product development at Augentius. “Only 36% are planning to invest more this year in this area.”

Attacks on PE firms can take various forms, Bailey told AsianInvestor: one example is that criminals have created fake investor-drawdown notices and redirected the proceeds.

Limited partners—that is, investors—may want to ensure their PE managers are doing all they can to secure their systems against hackers. Interestingly, though, LPs globally put cybersecurity relatively low on their list of concerns: this year just a quarter named it among their biggest challenges, down from 38% in 2017.

BULLISH ASIA GPS

The lag in cybersecurity investment among Asian GPs comes despite the fact that PE managers in the region are notably bullish on their prospects in 2018 after a good year. GPs in the region had a better-than-expected 2017, said Bailey. 

Indeed, PE managers in Asia are more optimistic than those in Europe and the US about the market climate this year; and globally GPs in general are far more positive than LPs (see figures 2 and 3 below).

Figure 2: Market climate, 2017 vs 2016
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Figure 3: Market climate, 2018 vs 2017
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“LPs will be worried about Brexit and the American political situation,” Bailey said. “The world is not a terribly happy place at the moment, and I think all of that is feeding through into their more bearish answer.” Indeed, LPs view 'investment opportunities' as their biggest challenge this year, with 75% citing it, up from 50% in 2017.

Meanwhile, GPs' bullishness is reflected by the number of managers looking to raise capital in the region this year, and the amount they are targeting. Asia-focused funds are seeking more than a third ($266 billion) of the $744 billion being targeted globally and represent seven of the 10 largest vehicles raising money, according to research house Preqin. Last year Asia-focused funds raised $64 billion of the record-high $453 billion raised globally.

The Augentius survey also polled respondents on the effect of Britain's planned exit from the EU.

While just over half (55%) of Asian PE firms said they had seen no real impact from Brexit, curiously around a third (36%) said it had made investment harder. Just 17% of European managers said the same, while 39% of them said it had made fundraising more difficult, as one might expect it to.

For Asian PE managers, Brexit is unlikely to have a big impact from a fundraising perspective, suggested Bailey, as not many marketing their funds into continental Europe.