Cybersecurity has evolved from IT concern to LP due diligence priority. According to the Private Funds CFO Insights Survey 2025, LPs view cybersecurity as a fundamental aspect of risk management and value preservation. This shift reflects escalating threat levels: one 2023 survey found 68% of firms had experienced a cyberattack during the year. With IBM's 2024 report showing average breach costs near $5 million—10% higher than the prior year—fund managers face material financial risk alongside regulatory and reputational exposure.
The Evolving Threat Landscape for Private Markets
Private equity and alternative investment managers present attractive targets for cybercriminals. Large wire transfers for capital calls and distributions create opportunities for business email compromise. Confidential portfolio company data enables corporate espionage. Wealthy LP personal information supports identity theft and fraud schemes. The combination of valuable targets and historically underinvested security makes the sector vulnerable.
Ransomware threats intensified in 2024-2025. WTW's 2024 Cyber Claims Analysis reported average ransom demands near $5 million, excluding IT forensic costs and business interruption losses. A successful ransomware attack can halt fund operations for weeks while encrypted systems are recovered, damaging LP relationships and potentially triggering reporting obligations under emerging cyber disclosure rules.
The attack sophistication also increased. Threat actors moved beyond generic phishing to targeted spear-phishing impersonating specific GPs, LPs, or portfolio company executives. Deepfake audio and video enable convincing impersonation of executives authorizing wire transfers. Social engineering attacks exploit the relationship-based nature of private markets, where trust often substitutes for verification protocols.
What LPs Now Expect From Fund Manager Cybersecurity
Due Diligence Questionnaire Requirements
LP cybersecurity diligence has systematized. The ILPA DDQ now includes dedicated sections on data security and technology practices. LPs expect detailed responses covering security governance structures, incident response plans, vendor management procedures, employee training programs, and technical controls like multi-factor authentication and encryption.
Generic responses no longer satisfy. LPs want specifics: which MFA solution do you use? When was your last penetration test? Who conducts security awareness training and how often? What's your incident response plan, and when was it last tested? Fund managers unable to answer these questions credibly lose allocation consideration.
Ongoing Monitoring Expectations
Initial due diligence represents just the beginning. Sophisticated LPs increasingly request ongoing security attestations. Annual SOC 2 reports, penetration test summaries, and security metric dashboards demonstrate continued vigilance versus point-in-time compliance. The expectation mirrors how LPs monitor portfolio companies—security isn't a one-time checkbox but an ongoing operational discipline.
Best Practices From Leading PE Firms
Baseline Security Controls
Apollo's 2024 cybersecurity disclosures highlighted key practices that leading firms implement: vulnerability assessments and annual penetration testing to identify and remediate weaknesses before attackers exploit them; multi-factor authentication across all systems, eliminating password-only access; and annual security awareness training programs ensuring staff can identify and report threats.
These baseline controls address the most common attack vectors. MFA prevents compromised passwords from enabling unauthorized access. Security awareness training reduces successful phishing attacks. Penetration testing identifies vulnerabilities before attackers discover them. Together, these foundational practices prevent the majority of successful attacks.
Portfolio Company Security Standards
Leading PE firms recognize that portfolio company breaches create GP reputational and financial exposure. They've moved beyond ad hoc security assessments to standardized frameworks applied across portfolios. According to Thomas Murray's analysis, firms with effective cyber breach management provide baseline cybersecurity services to all portfolio companies, then work with each company to elevate their individual security posture.
This portfolio-wide approach creates economies of scale. Negotiated pricing on security tools, shared incident response resources, and standardized training programs benefit the entire portfolio. The GP's security team becomes a center of excellence rather than duplicating capabilities across each investment.
Regulatory Pressures Intensifying
Regulators tightened oversight of fund manager cybersecurity in 2024-2025. SEC examination priorities explicitly include information security practices. State attorneys general increased enforcement of data breach notification requirements. Industry-specific regulations like NYDFS cybersecurity requirements apply to managers with New York operations.
The evolving regulatory landscape demands proactive compliance. Waiting for enforcement action signals inadequate governance. Managers demonstrating mature security programs—with documented policies, tested incident response, and regular assessments—satisfy regulators during examinations and reassure LPs conducting diligence.
Building a Security Program That Satisfies LPs
Governance Structure
Effective security begins with clear accountability. Designate a senior executive responsible for cybersecurity—whether a dedicated CISO, the CFO, or the COO. This individual owns the security program, reports to leadership on risk posture, and ensures adequate resources for security initiatives. LPs want to know who's accountable when they ask about security governance.
Technical Controls
Layer technical defenses to create defense-in-depth. Email security filtering blocks malicious attachments and phishing attempts. Endpoint detection and response identifies and contains malware. Network segmentation limits lateral movement if attackers breach perimeter defenses. Data encryption protects information at rest and in transit. Together, these controls make successful attacks substantially harder.
Incident Response Preparation
Every organization will eventually face a security incident. Preparation determines whether incidents become breaches and whether breaches become catastrophes. Documented incident response plans specify who does what during an incident. Tabletop exercises test the plan before real emergencies. Pre-negotiated relationships with forensic investigators and legal counsel enable rapid response when incidents occur.
Vendor Security Management
Fund managers rely extensively on third-party vendors—fund administrators, custodians, technology providers, cloud platforms. Each vendor relationship creates potential security exposure. Vendor security assessments before engagement, contractual security requirements, and ongoing monitoring ensure that vendor practices don't undermine your security posture.
Key Takeaways
Key Takeaways
- •68% of firms experienced cyberattacks in 2023, with IBM's 2024 report showing average breach costs near $5 million—a 10% year-over-year increase.
- •LPs now view cybersecurity as fundamental due diligence, with ILPA DDQ sections specifically addressing data security, incident response, and technical controls.
- •Baseline controls—MFA, penetration testing, security awareness training—prevent the majority of attacks and satisfy LP expectations for foundational security.
- •Leading PE firms implement standardized security frameworks across portfolios, providing baseline services to all portfolio companies while elevating individual postures.
- •Regulatory oversight intensified in 2024-2025, with SEC examinations explicitly including information security practices as priority focus areas.
Protecting sensitive LP and portfolio company data requires security-first infrastructure. Polibit's platform is built with enterprise-grade security controls including encryption at rest and in transit, role-based access controls, and comprehensive audit logging. Schedule a Demo to learn how our security architecture supports LP due diligence requirements.
Sources
• IBM (2024). Cost of a Data Breach Report 2024 - Average breach cost near $5 million
• WTW (2024). Cyber Claims Analysis - Average ransom demand statistics
• PEI Group/RSM (2025). Private Funds CFO Insights Survey 2025 - LP cybersecurity expectations
• Thomas Murray (2025). How Private Equity Leaders Turn Cyber Security Investment into Competitive Advantage
• S&P Global (2025). Private Equity Inflows to Cybersecurity Analysis - Investment trends