Private Equity’s Increasing Exposure to Cyber Threats — And What to Do About It
Private equity (PE) firms operate in a high-stakes environment where cybersecurity risks extend beyond their own digital infrastructure to encompass every company in their portfolio. With vast amounts of sensitive financial data, frequent mergers and acquisitions (M&A) activity, and complex regulatory landscapes, PE firms face unique vulnerabilities that demand proactive and layered security strategies. Below, we explore the critical cybersecurity concerns these firms must address and provide actionable insights for mitigating risks.
Why Are Private Equity Firms Prime Cyber Threat Targets?
PE firms are attractive to cybercriminals due to their access to high-value financial data, deal flow visibility, and interconnected ecosystems of portfolio companies. Key factors driving this risk include:
1. High-Value Financial Transactions
PE firms are involved in large-scale financial dealings, including mergers, acquisitions, and investments, which attract cybercriminals seeking substantial payouts through fraud, theft, or ransomware.
PR firms raise large sums to be deployed the moment an attractive opportunity arises, but due to the PE business model, that money typically has to be spent within a certain time frame. That “ready cash” and the promise of ongoing deal-making makes these firms especially appealing to attackers looking for quick, illicit profits.
2. A Wealth – Literally and Figuratively – of Sensitive Data
As we’ve covered before – data is the driver for cyber attacks, and PE firms hold stockpiles of it. PE firms collect and manage troves of confidential and sensitive information: investor details, financial records, deal specifics, personal data, and strategic plans.
Such information can be exploited for identity theft, insider trading, or sold on the dark web.
3. Underdeveloped Cybersecurity in Portfolio Companies
Many portfolio companies, particularly startups or early-stage firms, have less mature cybersecurity postures, making them easier entry points for attackers.
Also, by the nature of the ultra-competitive business they are in, PE firms prioritize rapid value creation and cost efficiency. This can encourage corner-cutting on any expenditures that can slow down a deal or the growth of a portfolio company.
Finally, cybersecurity can be seen as a cost center rather than a value driver, especially in early acquisition stages, leading to underinvestment. PE firms frequently inherit outdated systems along with acquisitions, especially in sectors like manufacturing, healthcare, logistics, or energy. Modernizing technology is not always prioritized post-acquisition if it doesn't directly impact EBITDA or immediate growth. This is a perception that must change; the cost of breach (see #5 below) has gotten severe enough that protection has intrinsic value.
One more thing to note: PE firms simply have more entry points with less immediate visibility than other organizations. A breach in a single portfolio company or third-party provider can open pathways to the entire PE firm’s network, increasing overall risk.
4. Complex and Diverse Digital Ecosystems
Many PE firms own multiple portfolio companies across various industries and maturity levels. These companies may have inconsistent, outdated, or nonexistent cybersecurity controls, making standardization complex and costly.
Private equity (PE) firms must standardize IT and cybersecurity across their portfolio by building a centralized, scalable framework that balances control with flexibility for portfolio companies.
5. Operational and Reputational Stakes
A successful cyberattack can result in direct financial losses, regulatory fines, lawsuits, and severe reputational damage, eroding investor trust and jeopardizing future deals. According to the IBM Cost of a Data Breach report, the average cost of a breach is $4.88 million. But an average data breach in the financial sector is 22 percent higher at $6.08 million.
While those costs are severe, reputation is at the core of how well a PE firm can perform. The reputational harm a cyber breach can cause a PF firm is beyond calculation.
What Steps Can Private Equity Firms Take to Ensure a Strong Cybersecurity Posture?
To mitigate the increased risk they face, PE firms must take a comprehensive and proactive approach to cybersecurity, both within their own organizations and across their portfolio companies. The following steps are supported by recent industry surveys and best practice recommendations:
1. Conduct Rigorous Cybersecurity Due Diligence
Evaluate the cybersecurity infrastructure, policies, and incident response plans of target companies before investment.
Assess compliance with relevant regulations and the effectiveness of existing cybersecurity training programs.
2. Standardize and Enforce Cybersecurity Frameworks
Provide portfolio companies with standardized cybersecurity policies and frameworks to ensure consistent best practices across the investment ecosystem.
Require baseline technical security measures such as data loss prevention, endpoint protection, privileged access management, and multifactor authentication.
3. Implement Regular Risk Assessments and Penetration Testing
Perform regular cybersecurity risk assessments and penetration testing to identify and address vulnerabilities within both the PE firm and portfolio companies.
Include third-party and supply-chain cybersecurity assessments as part of ongoing risk management.
4. Establish and Test Incident Response Plans
Develop and maintain robust incident response plans for both the PE firm and portfolio companies, outlining steps for detection, containment, and recovery from cyber incidents.
Conduct regular simulations and tabletop exercises to test the effectiveness of these plans.
5. Provide Cybersecurity Training and Foster Awareness
Offer ongoing cybersecurity awareness training to employees at the PE firm and portfolio companies to reduce the risk of human error and phishing attacks.
Foster a culture of cybersecurity vigilance and accountability.
6. Maintain Continuous Monitoring and Reporting
Deploy advanced security monitoring tools to detect suspicious activity in real time.
Require portfolio companies to provide regular visibility and reporting on cyber incidents and attacks.
7. Ensure Regulatory Compliance
Stay current with industry-specific regulations (e.g., HIPAA, SOX, GDPR) and ensure all entities in the portfolio maintain compliance.
Provide support to portfolio companies in navigating regulatory changes and requirements.
9. Invest in Cybersecurity Solutions and Insurance
Allocate resources for a coordinated plan that incorporates layered cybersecurity solutions, including protection for your
External perimeter
Internal network
Remote access
Cloud network
Endpoint, email, web, and application security
Incident response and monitoring
Consider cyber insurance to mitigate financial losses from potential cyber incidents.
10. Support Ongoing Improvement and Governance
Regularly review and update cybersecurity practices and policies, both at the PE firm and portfolio company level, to address emerging threats.
Host workshops and provide resources on cybersecurity threats, regulatory updates, and best practices.
By systematically implementing these steps, private equity firms can significantly strengthen their cybersecurity posture, protect their investments, and reduce the risk of financial and reputational damage from cyber incidents. As always, if our team at JSCM Group can be of help, we’re here for you!