Developing a Cybersecurity Strategy for Private Equity Firms

In today's digital age, cybersecurity is not just a technical issue but a strategic business imperative. For private equity (PE) firms, which handle vast amounts of sensitive data and substantial financial transactions, developing a robust cybersecurity strategy is crucial, both for the firm and its portfolio companies. This article explores how PE firms can create comprehensive cybersecurity frameworks that extend to their portfolio companies, addressing both top-level management and operational strategies to safeguard sensitive data and investments.

Understanding the Cybersecurity Landscape

PE firms are uniquely positioned in the financial ecosystem, often dealing with high-value transactions and sensitive information across various sectors. This makes them attractive targets for cybercriminals. The cybersecurity landscape is continuously evolving, with threats ranging from data breaches and ransomware to sophisticated phishing attacks. As such, a dynamic and comprehensive approach to cybersecurity is essential. 

Similarly, portfolio companies face a myriad of cybersecurity challenges, including targeted attacks such as ransomware, data breaches, and insider threats, which can compromise sensitive information and disrupt operations. Additionally, the increasing reliance on third-party vendors and cloud services introduces additional vulnerabilities, making robust vendor risk management crucial. As PE firms seek to maximize the value of their investments, ensuring that portfolio companies have strong cybersecurity frameworks is imperative.

The recommendations listed below align with the Investment Adviser Rule. This rule mandates that investment advisers — including PE firms — uphold fiduciary responsibilities, which encompass safeguarding client information and assets from cyber threats. This alignment ensures that PE firms are not only protecting their assets, but are also adhering to legal expectations and enhancing their reputational integrity in the financial market.

Internal Security for PE Firms

1. Leadership Commitment: Cybersecurity must be a priority at the highest levels of management within the PE firm itself. Executive leaders should champion cybersecurity initiatives and allocate resources to ensure the firm is prepared to handle potential threats. This includes integrating cybersecurity into the firm's overall risk management strategy.
2. Risk Assessment and Management: Conduct regular risk assessments to identify vulnerabilities within the firm's infrastructure and operations. Develop a risk management plan that includes cybersecurity as a critical component. This plan should address both external threats and internal risks, such as employee negligence or insider threats.
3. Employee Training and Awareness: Human error is a significant factor in cybersecurity breaches. Conduct regular training sessions to educate employees about cybersecurity best practices, phishing scams, and the importance of data protection. Create a culture of cybersecurity awareness across the organization.
4. Data Protection, Privacy, and Resiliency: Implement robust data protection measures, including data encryption, access controls, and regular audits. Ensure compliance with relevant data privacy regulations, such as general data protection regulation (GDPR), to protect sensitive information and maintain trust with stakeholders. It’s also important to ensure the organization has proper backups that can be restored in the event of a cyber event or other outage. Note: even if your data is in the cloud, backups are still critical to maintain. 
5. Vendor and Third-Party Risk Management: Assess the cybersecurity posture of vendors and third-party partners, as they can be potential entry points for cyberattacks. Establish stringent cybersecurity requirements for partners and conduct regular audits to ensure compliance.
6. Incident Response Plan: Develop a comprehensive incident response plan to quickly and effectively address cyber incidents. This plan should include protocols for communication, containment, and recovery, as well as post-incident analysis to prevent future occurrences.

Supporting Security at the Portfolio Company Level

Safeguarding each portfolio company not only reduces the risk of cybersecurity incidents, but provides an added advantage during the exits and valuations process. PE firms can support their portfolio companies by setting standards and expectations in the areas below:

1. Cybersecurity Governance: Establish cybersecurity governance frameworks at the portfolio company level that outline roles, responsibilities, and accountability. Ensure that each portfolio company has dedicated cybersecurity leadership, such as a chief information security officer (CISO), to oversee their cybersecurity posture.
2. Enforce Routine Assessments: To consistently monitor portfolio company risks, the PE investment lead should ensure the company is performing — at minimum — annual assessments of their security program. These assessments should cover essential controls, such as leadership commitment, vendor and third-party risk management, and incident response plans. The evaluation can utilize established frameworks, such as the National Institute of Standards and Technology cybersecurity framework (NIST CSF), or employ a custom framework assessment developed by the PE firm.
3. Strategic Investment in Technology: Encourage portfolio companies to invest in advanced cybersecurity technologies to enhance threat detection and response capabilities. Implement encryption, multi-factor authentication, and secure communication channels to protect sensitive data.
4. Continuous Improvement: Promote regular reviews and updates of cybersecurity strategies at the portfolio company level to adapt to emerging threats and technological advancements. Encourage engagement with cybersecurity experts and participation in industry forums to stay informed about the latest trends and best practices.

Developing a cybersecurity strategy for PE firms requires a comprehensive approach that involves both internal security measures and support for portfolio companies. By prioritizing leadership commitment, risk management, employee training, and continuous improvement, firms can create a resilient cybersecurity framework that protects sensitive data and investments. As cyber threats continue to evolve, PE firms must remain vigilant and proactive in safeguarding their assets and reputation.

How Ankura Can Help

Ankura continues to serve as a trusted partner to PE firms and their portfolio companies in navigating the complex cybersecurity landscape. With expertise in assessing security controls, identifying risks, and supporting remediation efforts, Ankura offers tailored solutions that address the unique challenges faced by these entities. Their services ensure that firms not only protect their sensitive data and investments but also comply with regulatory requirements such as the Investment Adviser Rule. By providing comprehensive support, including virtual CISO services, Ankura empowers firms to enhance their cybersecurity posture, mitigate potential threats, and foster a culture of security awareness. This collaboration helps PE firms and their portfolio companies to safeguard their assets, maintain operational integrity, and ultimately drive value in a competitive market.

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^{© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.}