Why Cybersecurity for Private Equity Firms Is Essential

On May 31, 2023, one of the world’s largest private equity firms found itself in the crosshairs of a sophisticated cyber attack. The breach didn’t just compromise data; it shook the very foundations of trust that the $991 billion giant had built over decades. Your next big loss won’t come from a market downturn or bad investment—it will come from a line of code you never saw coming.

Considering that 75% of PE firms now view cybersecurity a top priority in evaluating acquisition targets, the question you need to ask is: What steps is your firm taking to protect investments?

Private equity isn’t just about high stakes; it’s about high targets. Your firm sits on a treasure trove of sensitive data, strategic plans, and high-value assets that would make any cybercriminal salivate. But in this digital age, with great value comes unprecedented risk.

Cyber threats aren’t a distant possibility…they’re a ticking time bomb. And when (not if) your IT infrastructure is compromised, you’re not just losing data. You’re hemorrhaging reputation, portfolio performance, and long-term returns.

In this article, we’ll get into why cybersecurity isn’t just another checkbox on your risk management list—it’s the new bottom line that could make or break your firm’s future.

 

Unique Cybersecurity Challenges for Private Equity Firms

PE Firms In The Cyber Crosshairs

Cybercriminals are rapidly evolving their tactics, putting private equity (PE) firms squarely in their crosshairs.

Cybersecurity Threats in Private Equity

The digital arms race is accelerating. Artificial intelligence, quantum computing breakthroughs, and Internet of Things (IoT) vulnerabilities are arming cybercriminals with unprecedented capabilities. These threats target the very sectors that fuel your investment growth.

From ransomware attacks to phishing schemes, cybercriminals are sharpening their tools, knowing that private equity firms manage vast amounts of sensitive information and financial data.

Furthermore, hackers know that early stage private companies are likely not as invested in cybersecurity as public companies are. These cyber risks aren’t just a blip on the radar—they’re a persistent, evolving threat that can jeopardize the long-term value of your investments.

Private equity firms face unique challenges. Unlike other sectors, your focus isn’t just on securing a single organization. You’re managing a diverse portfolio of companies, each with its own IT maturity and vulnerabilities. This diversity complicates your cybersecurity strategy.

What works for one PortCo might not work for another, and failing to address these nuances can leave gaps wide enough for cyber threats to walk through.

The Portfolio Diversity Delema

Managing cybersecurity across a diverse set of portfolio companies is like conducting an orchestra where every instrument is from a different era. Consider this:

Challenges in managing diverse portfolios:

• Some PortCos have cutting-edge IT systems.
• Others may have outdated or inadequate cybersecurity measures.
• Vulnerabilities in one company can compromise the entire portfolio.
• A unified, resilient defense strategy is essential.

Think about it. You wouldn’t secure your house with a state-of-the-art security system but leave the back door wide open, would you? That’s essentially what you’re doing if you ignore the cybersecurity of even one portfolio company.

As a PE investor, you’re in it for the long haul. You’re not just looking to protect your assets for a day or a week, but for years to come. This means every company in your portfolio needs to be brought up to speed, cybersecurity-wise.

Your mission is clear. Identify your weakest links, strengthen them, and create a unified defense that turns your portfolio from pray to predator.

PE Firms Are Cybercriminals’ Favorite Target

Let’s face it—private equity firms are prime targets for cybercriminals. Here’s why:

Why PE Firms are Prime Targets:

• PE firms manage high-value assets and sensitive data.
• Cybercriminals are aware of the potential for quick, illicit profit.
• The stakes for PE firms are extremely high.

Your firm is an attractive target for those looking to make a quick, illicit profit. The stakes are sky-high, and the cost of neglecting cybersecurity can be astronomical. A breach doesn’t just result in financial losses; it erodes the value of your investments, damages your reputation, and shakes the trust of your investors.

“Cybercrime is the greatest threat to every company in the world.” – Robert Herjavec of Shark Tank

 

Consequences of Ignoring Cybersecurity for Private Equity

Uncover The True Cost Of Cybersecurity Breaches

Ignoring cybersecurity is akin to playing Russian roulette with your firm’s financial future. A single breach can lead to direct financial losses, from stolen funds to ransoms paid. But the ripple effects don’t stop there. Legal penalties and regulatory fines can add up, and the cost of remediation can be staggering. According to research by IBM, the average cost of a data breach across industries reached $4.88 million in 2024. These expenses compound over time, chipping away at your firm’s bottom line and ultimately affecting your long-term returns.

Financial Costs of Cybersecurity Breaches:

• Direct financial losses (e.g., stolen funds, ransoms).
• Legal penalties and regulatory fines.
• Cost of remediation and recovery.

Over time, long-term neglect of cybersecurity can act like a slow poison, eating away at the value of your portfolio. And in the world of private equity, where internal rate of return (IRR) is king, any hit to your financial performance can be devastating. The direct costs of a breach are just the tip of the iceberg. Below the surface are the hidden costs that can cripple your long-term profitability.

The Silent Cost of Cyber Neglect…Your Reputation

A cybersecurity breach doesn’t just affect your balance sheet—it affects your brand. Private equity firms trade on trust, and once you lose it, it’s nearly impossible to regain. A breach can tarnish your firm’s reputation, leading to a loss of confidence from investors and stakeholders.

Reputational Damage:

• Loss of investor confidence.
• Erosion of trust in the firm.
• Long-lasting damage to the firm’s reputation.

For firms focused on sustaining long-term relationships and investment horizons, the reputational damage from a breach can be catastrophic. It’s more than just the immediate fallout; it also the damaging of lingering doubts that could shadow your firm for years to come.

How Cyberattacks Disrupt PE Operations

A cyberattack can bring your operations to a grinding halt. From deal flow to day-to-day activities, the ripple effects of an attack can disrupt your entire operation. Imagine trying to flip a portfolio company when its IT systems are compromised, or worse, losing a deal because of operational inefficiencies caused by a cyberattack. The impact on your long-term growth strategy can be severe.

Operational Disruptions Due to Cyberattacks:

• Delays in deal flow.
• Reduced EBITDA.
• Long-term impact on investment value.

In private equity, time is money. Any disruption to your operations can delay deals, reduce EBITDA, and ultimately affect the value of your investments. Cybersecurity isn’t solely about protecting data—it ensures the smooth operation of your entire firm.

 

Why Cybersecurity Needs to Be a Priority for Long-Term Investors

Make Cybersecurity Your Best Risk Management Strategy

Cybersecurity isn’t an optional expense; it’s a fundamental component of risk management for private equity firms. As a long-term investor, you know that mitigating risks is essential for protecting your investments and ensuring sustainable growth. Cyber threats are one of the most significant risks facing your portfolio today, and ignoring them is simply not an option.

Risk management is about more than just protecting against potential losses—it’s about positioning your firm for long-term success. When you integrate cybersecurity into your risk management strategy, you not only safeguard your investments but also enhance their value.

Stay Ahead of Regulatory Risks

With NEW mandates coming from a growing number of government agencies and insurance companies, failing to keep up can result in heavy penalties and loss of business. Regulators constantly shift compliance requirements, and failing to meet them can devastate your firm.

For private equity firms, the stakes are even higher.

Regulatory Risks:

• Non-compliance can lead to fines, legal action, and reputational damage.
• Regulatory compliance is critical for maintaining investor confidence.
• Staying ahead of regulatory changes protects your portfolio’s value.

 

Key Compliance Frameworks for Private Equity Portfolio Companies:

Compliance Framework	When It’s Required
GDPR	If the company handles EU citizens’ personal data.
PCI DSS	If the company processes or stores credit card information.
HIPAA	If the company operates in healthcare or handles patient data.
CCPA	If the company collects personal data from California residents.
NIST CSF	If the company needs strong cybersecurity practices, especially with sensitive data.
ISO/IEC 27001	If the company requires robust information security management.
SOC 2	If the company manages data on behalf of clients.
SOX	If the company is public or preparing for an IPO.
FERPA	If the company manages student education records.
GLBA	If the company is in the financial services sector.
CFPB Regulations	If the company is involved in consumer financial services.
FISMA	If the company contracts with federal agencies or handles government data.

 

Staying ahead of regulatory changes is critical for maintaining investor confidence and protecting your portfolio’s value. Cybersecurity compliance isn’t just a box to check—it’s a cornerstone of your firm’s long-term strategy.

Boost Investor Confidence With Strong Cybersecurity

In today’s investment landscape, robust cybersecurity measures are becoming a key factor in due diligence processes. Investors are increasingly looking for firms that demonstrate a commitment to long-term growth and sustainability, and cybersecurity is a critical part of that equation.

Boosting Investor Confidence:

• Demonstrating commitment to long-term growth.
• Signaling to investors that their interests are safeguarded.
• Strengthening the firm’s position in the market.

By prioritizing cybersecurity, you’re not just protecting your firm; you’re signaling to investors that you’re serious about safeguarding their interests. This proactive approach can boost investor confidence, making your firm a more attractive partner for long-term investments.

 

The Importance of Cybersecurity Assessments in Pre-Acquisition Due Diligence

Leverage Cybersecurity Due Diligence As A Hidden Asset

When considering a new acquisition, the importance of a thorough cybersecurity assessment cannot be overstated. Cybersecurity due diligence should be as critical as financial due diligence. By evaluating the cybersecurity posture of potential acquisition targets, you can identify vulnerabilities and risks that could undermine the long-term security and viability of the investment.

Cybersecurity Assessments in Due Diligence:

• Identify vulnerabilities in potential acquisition targets.
• Assess the long-term security and viability of the investment.
• Strengthen the security and value of your portfolio.

However, it’s not enough to ONLY assess cybersecurity risks before an acquisition. Ongoing cybersecurity risk assessments are critical (and in many cases required) for maintaining and enhancing the security of your portfolio companies over time. These continuous evaluations guarantee that your investments remain resilient as they grow and evolve.

These assessments go beyond finding flaws; they identify opportunities to strengthen the security and value of your portfolio from the outset and throughout the entire investment lifecycle.

Turn Cybersecurity Flaws into Negotiation Power

The findings from cybersecurity assessments can be a powerful tool in negotiations. Identifying cybersecurity risks allows you to negotiate a better purchase price or require the current owners to address these issues before the sale. This proactive approach not only protects your firm from inheriting cybersecurity risks but also strengthens your position at the negotiation table.

Negotiation Advantages from Cybersecurity Assessments:

• Negotiate better purchase prices.
• Require current owners to address issues BEFORE the sale.
• Protect your firm from inheriting cybersecurity risks.

Cybersecurity isn’t just a cost, it’s a value creation lever. By leveraging cybersecurity assessments in negotiations, you can ensure that you’re making informed decisions that protect and enhance the value of your investments.

Start Cybersecurity At Acquisition

Proactive cybersecurity risk assessments are about more than just protecting your firm—they’re about safeguarding your investments from day one. By addressing cybersecurity risks before they become problems, you can ensure the long-term stability and success of your portfolio companies.

This proactive approach isn’t simply about avoiding losses—it aims to maximize the value of your investments and set the stage for long-term growth.

 

3 Key Cybersecurity Strategies for Private Equity Firms Focused on Long-Term Growth

Implement A Three-Layered Cybersecurity Strategy for PE Firms

A three-layered cybersecurity strategy (prevention, detection, and response) is essential for long-term protection.

Three-Layered Cybersecurity Strategy:

1. Prevention. Stopping threats before they happen.
2. Detection. Quickly identifying and responding to threats.
3. Response. Mitigating damage when an attack occurs.

This holistic approach provides a robust defense that can adapt to the evolving threats being unleashed daily on private companies. By implementing a three-layered approach, you can protect your investments, reduce risks, and enhance the long-term value of your portfolio.

Adopt Zero-Trust Solutions For Private Equity

Zero-trust security is a game-changer for private equity firms. In a zero-trust model, no one is trusted by default—whether they’re inside or outside the network. This approach along with aggressive patching, multi-factor authentication (MFA/2FA), and building a strong cybersecurity culture minimizes internal and external threats. It’s crucial to take these measures to maintain the long-term security of your portfolio companies.

Adopting a zero-trust model is about more than just protecting current investments—it also future-proofs your portfolio against emerging threats.

Equip Your PE Firm With A Unified Security Operations Center (SOC)

A centralized Security Operations Center (SOC) that offers 24/7 monitoring and response is vital for maintaining consistent security across all portfolio companies.

Advantages of a Unified SOC:

• Real-time threat detection and response.
• Seamless defense across all portfolio companies.
• Strategic advantage for long-term growth.

A unified SOC ensures that all threats are detected and responded to in real-time, providing a seamless defense against cyber threats. For private equity firms focused on long-term growth, a unified SOC is not just a security measure—it’s a strategic advantage.

 

RELATED: Threat Detection and Response: Definitions, Methods, and Best Practices

 

The Role of Managed Security Service Providers (MSSPs)

Prioritize Expertise Over Tools in Cybersecurity

When it comes to cybersecurity, expertise trumps tools every time. Partnering with a Managed Security Service Provider (MSSP) can provide better security outcomes than relying solely on internal resources or disparate security tools.

Benefits of MSSP Expertise:

• Specialized knowledge and experience.
• Enhanced security posture for your firm.
• Protection by the best in the business.

MSSPs offer specialized knowledge and experience that can enhance your firm’s security posture. By leveraging the expertise of an MSSP, you can ensure that your portfolio companies are protected by the best in the business.

Scale Cybersecurity Without Growing Pains

One of the key benefits of working with an MSSP is scalability. As your portfolio grows, so too does your need for robust, scalable IT solutions.

An MSSP can provide flexible solutions tailored to the unique needs of your portfolio companies, ensuring that your cybersecurity measures can scale with your investments.

Scalability isn’t just about growth; it’s about ensuring that your cybersecurity infrastructure can keep pace with the demands of your portfolio.

Harness The Power Of Proactive Cybersecurity

In cybersecurity, being proactive is key. MSSPs shift the focus from reactive to PROACTIVE security measures, ensuring continuous monitoring and threat intelligence.

This proactive approach allows you to stay ahead of emerging threats, rather than just reacting to them after the fact.

How to Choose the Best MSSP

Choosing the right Managed Security Services Provider (MSSP) is critical for private equity firms focused on long-term investments.

Criteria for Choosing the Best MSSP:

• Comprehensive suite of services, from threat detection to regulatory compliance.
• Tailored solutions that match your firm’s unique needs.
• MSSP that enhances your firm’s cybersecurity posture.

Look for an MSSP that meets the above criteria. The best MSSPs will also have their own SOC to reduce the risks involved with sharing your data with third-parties.

By selecting the right MSSP, you won’t just enhance your firm’s cybersecurity posture and ensure the long-term success of your investments. You’ll be ready to dominate.

Looking for a trusted MSSP? Look no further! 7tech’s IT Services and Cybersecurity for Private Equity has you covered!

 

Real-World Implications of Cybersecurity For Private Equity

Success Story: See How One PE Firm Dodged A Cyber Bullet

Consider a private equity firm that implemented robust cybersecurity measures across its portfolio. By partnering with a top-tier MSSP, the firm was able to protect its investments from cyber threats, enhance operational efficiency, and ultimately increase the value of its portfolio. This proactive approach not only safeguarded the firm’s assets but also boosted investor confidence, leading to greater returns and a stronger position in the market.

Failure Lesson: A Cautionary Tale of Cybersecurity Complacency

Contrast this with a firm that neglected cybersecurity. A significant breach led to massive financial losses, reputational damage, and a loss of trust from investors. The firm struggled to recover, and the long-term impact on its portfolio was severe. This cautionary tale highlights the critical importance of making cybersecurity a priority in your investment strategy.

 

Stay Ahead Of Evolving Cyberthreats With 7tech MSSP

For PE firms and investors, strong cybersecurity isn’t just a protective measure—it’s a competitive advantage. By prioritizing cybersecurity, you’re not just protecting your firm—you’re enhancing the value of your investments and positioning your portfolio for long-term success.

At 7tech, we specialize in private equity cybersecurity, offering scalable IT solutions that protect your current and future assets. Our experts are ready to help you identify risks and develop a plan to improve the security posture of all your portfolio companies.

Contact us today at (844) 701-6777 to book a Discovery Call and learn how we can help you secure your investments and maximize your returns.

Don’t wait until it’s too late. Reassess your cybersecurity strategy today to guarantee your investments are protected against cybersecurity threats. In this case, an ounce of prevention really is worth a pound of cure…if not more.

Remember, in private equity, your next big loss won’t come from the market—it will come from your IT system. Make cybersecurity a priority and turn it into a lever for growth.