Introduction
Limited Partners (LPs) are fundamentally changing how Alternative Investment Funds (AIFs) are evaluated. What was once a due diligence process focused primarily on fund strategy, track record, governance structure, and financial controls has expanded decisively into IT governance, cybersecurity maturity, and operational resilience. Today, LPs increasingly view technology risk as inseparable from fiduciary risk.
This shift is driven by three realities. First, AIFs now operate almost entirely on digital infrastructure, cloud platforms, email systems, SaaS tools, and third-party service providers. Second, cyber incidents in the financial sector have become frequent, material, and highly visible. Third, regulators such as the Securities and Exchange Board of India (SEBI) compliance are tightening expectations around IT and cybersecurity governance, making these areas a proxy for overall management discipline.
As a result, LP due diligence questionnaires now routinely include detailed questions on cybersecurity controls, incident response preparedness, vendor risk management, and business continuity planning. Funds that cannot answer these questions clearly and credibly risk delayed commitments, increased side-letter obligations, or outright rejection.
This article explains how LP due diligence is raising the bar on IT and cybersecurity in AIFs, what LPs are actually assessing, where most funds struggle, and how AIFs can prepare without building large IT teams or overengineering controls.
Why LPs Care About IT & Cybersecurity Risk
LPs are not becoming technology auditors. They are responding to risk exposure. A cyber incident at an AIF can lead to:
- Exposure of LP personal and financial data
- Leakage of confidential investment strategies
- Disruption of capital calls, distributions, or reporting
- Regulatory scrutiny and reputational damage
From an LP’s perspective, these risks translate directly into operational, legal, and reputational exposure. Consequently, LPs now assess whether fund managers demonstrate foresight, governance discipline, and preparedness in managing technology risk.
Cyber Risk as an Indicator of Management Quality
Increasingly, LPs use IT and cybersecurity maturity as a proxy for overall operational excellence. A fund that cannot explain:
- Who owns cyber risk
- How incidents are handled
- How vendors are governed
- How data is protected
raises concerns that extend beyond technology. LPs often interpret weak cyber IT governance for funds as indicative of broader weaknesses in risk management, controls, and leadership oversight.
Alignment Between LP Expectations and SEBI Scrutiny
LP expectations are not developing in isolation. They increasingly align with regulatory trends driven by the Securities and Exchange Board of India. SEBI inspections and LP due diligence now converge on common themes:
- Clear IT and cyber governance
- Accountability and oversight
- Evidence of execution
- Proportionate, risk-based controls
Funds that address SEBI expectations proactively often find themselves well-positioned for LP scrutiny as well.
How LP Due Diligence Has Evolved
Historically, LP due diligence included limited technology-related questions, often focused on:
- Fund administrator systems
- Data backup existence
- Basic access controls
Today, LPs, particularly institutional and global investors, ask far more detailed and structured questions, including:
- Cyber risk ownership and governance
- Incident response and breach history
- Third-party and cloud risk management
- Business continuity and disaster recovery readiness
- Evidence of testing and reviews
The depth of questioning reflects LPs’ desire for confidence, not perfection.
What LPs Are Really Looking For (Beyond Tools)
LPs rarely expect enterprise-grade security stacks from AIFs. Instead, they look for five signals:
- Awareness: Does management understand cyber risk?
- Ownership: Is accountability clearly defined?
- Structure: Are there documented processes and policies?
- Oversight: Are risks reviewed at leadership or trustee level?
- Evidence: Can the fund demonstrate execution?
Funds that demonstrate these consistently outperform peers during due diligence.
Key IT & Cybersecurity Areas Under LP Scrutiny
1. Governance and Accountability
LPs want clarity on:
- Who owns IT and cybersecurity risk
- How decisions are escalated
- How trustees or boards are involved
Ambiguous ownership is one of the fastest ways to lose LP confidence.
2. Cyber Risk Identification and Management
LPs increasingly ask:
- Whether cyber risk is documented in risk registers
- How risks are assessed and prioritised
- How often risks are reviewed
This mirrors regulatory expectations and reinforces fiduciary discipline.
3. Email, Cloud, and Endpoint Security
LPs understand that most breaches originate from:
- Phishing emails
- Compromised cloud accounts
- Unsecured or unpatched devices
They therefore assess whether basic but effective controls exist in these areas.
4. Third-Party and Vendor Risk Management
LPs are acutely aware that outsourcing amplifies risk. Due diligence often probes:
- Vendor due diligence processes
- Contractual security obligations
- Oversight and monitoring practices
Blind reliance on reputable third parties and vendors risk management without oversight is viewed negatively.
5. Incident Response and Breach Preparedness
LPs increasingly ask:
- Whether the fund has an incident response plan
- How incidents are escalated and communicated
- Whether incidents have occurred previously
A well-articulated response plan often matters more than a spotless history.
6. Business Continuity and Disaster Recovery
LPs expect assurance that:
- Critical operations can continue during disruptions
- Data can be restored reliably
- Vendor outages are accounted for
BCP/DR readiness is now a standard LP expectation, not an exception.
Why Evidence Matters More Than Assurance
One of the most common LP concerns is over-reliance on verbal assurance. Statements such as “we take cybersecurity seriously” carry little weight without supporting evidence.
LPs increasingly request:
- Policy documents
- Sample reports or dashboards
- Evidence of reviews or tests
- Summaries of incidents or near-misses
Funds that can share structured evidence significantly reduce diligence friction.
Common Gaps Exposed During LP Due Diligence
Across LP reviews, recurring weaknesses include:
- No formal IT or cyber governance framework
- Cyber risk absent from risk registers
- No documented incident response plan
- Weak vendor oversight
- Lack of BCP/DR testing evidence
These gaps often delay closings or lead to additional LP conditions.
LPs Do Not Expect Perfection, They Expect Maturity
It is important to note what LPs do not expect:
- Zero cyber incidents
- Bank-level security controls
- Large in-house IT teams
They expect maturity: an honest understanding of risk, proportionate controls, and continuous improvement.
How LP Due Diligence Impacts Fundraising Outcomes
Funds that handle IT and cybersecurity diligence well often experience:
- Faster diligence cycles
- Fewer follow-up questions
- Reduced side-letter obligations
- Stronger investor confidence
Conversely, poorly prepared funds may face:
- Delayed commitments
- Increased reporting obligations
- Reduced allocation sizes
Cyber readiness increasingly affects fundraising velocity and outcomes.
Preparing for LP Due Diligence Without Overengineering
AIFs can prepare effectively by focusing on:
- Clear governance documentation
- Risk-based control descriptions
- Simple, tested incident response plans
- Vendor inventories and oversight records
- BCP/DR summaries with evidence
Preparation should be ongoing, not reactive to fundraising.
Using SEBI Readiness as an LP Readiness Strategy
Funds that align their IT and cybersecurity posture with SEBI expectations often find that LP diligence becomes significantly easier. Regulatory readiness and LP readiness reinforce each other.
This alignment reduces duplication and creates a single, defensible governance narrative.
How Infodot Helps AIFs Meet LP Due Diligence Expectations
Infodot Technology works with AIFs to build LP-ready and SEBI-aligned IT and cybersecurity frameworks. Infodot focuses on translating technical controls into governance narratives that LPs understand and trust.
Infodot helps AIFs by:
- Designing proportionate IT and cyber governance models
- Preparing LP-friendly diligence responses and evidence packs
- Implementing managed security and resilience controls
- Supporting incident response and BCP/DR readiness
- Acting as an extended IT and cyber governance partner
This enables fund managers to approach LP due diligence with confidence and consistency.
Conclusion
LP due diligence has permanently raised the bar on IT and cybersecurity expectations for AIFs. Technology risk is no longer a peripheral concern, it is a core component of fiduciary assessment, regulatory confidence, and investor trust.
Funds that proactively invest in governance, preparedness, and evidence not only reduce cyber risk but also strengthen their fundraising position. Those that treat cybersecurity as an afterthought increasingly face delays, conditions, or lost opportunities.
In today’s investment environment, strong IT and cybersecurity governance is not just about risk mitigation—it is a strategic differentiator in LP due diligence.
FAQs
Why do LPs assess IT and cybersecurity?
Because cyber incidents directly impact investor data, fund operations, regulatory exposure, and reputational risk.
Is LP cyber due diligence aligned with SEBI expectations?
Yes, LP and SEBI expectations increasingly overlap on governance and evidence.
Do LPs expect enterprise-grade security controls?
No, LPs expect proportionate, well-governed controls aligned to fund size.
Is documentation important for LP diligence?
Yes, evidence demonstrates seriousness and reduces diligence friction.
Can cyber readiness affect fundraising speed?
Yes, strong readiness often accelerates LP decision-making.
Are small AIFs exempt from LP cyber scrutiny?
No, expectations apply to all funds proportionately.
What cyber area do LPs focus on first?
Governance, ownership, and incident preparedness are usually first.
Do LPs expect breach-free histories?
No, they expect honest disclosure and strong response capability.
Is incident response planning important to LPs?
Yes, it demonstrates preparedness and leadership judgment.
Do LPs review vendor risk management?
Yes, outsourcing risk is a major LP concern.
Are cloud security controls assessed by LPs?
Yes, especially access and data protection practices.
Is BCP/DR readiness part of LP diligence?
Yes, operational resilience is increasingly assessed.
Can MSPs satisfy LP expectations?
Yes, if governance and oversight are clearly demonstrated.
Do LPs expect cyber risk registers?
Yes, structured risk identification is viewed positively.
Is MFA expected by LPs?
Strongly expected for sensitive access.
Do LPs review access controls?
Yes, least-privilege and review practices matter.
Are policies alone sufficient?
No, LPs look for evidence of execution.
Can cyber gaps delay commitments?
Yes, unresolved gaps often slow or block closings.
Is cyber insurance sufficient for LPs?
No, insurance complements but does not replace controls.
Do LPs expect regular cyber reporting?
Increasingly, yes, especially for larger funds.
Is vendor breach treated as fund risk?
Yes, LPs view vendor incidents as fund exposure.
Do LPs assess endpoint security?
Yes, endpoints are common breach vectors.
Are phishing controls important to LPs?
Yes, phishing remains the most common attack method.
Is audit readiness relevant to LPs?
Yes, audit discipline signals governance maturity.
Can cyber readiness improve LP confidence?
Yes, it directly influences trust and allocation comfort.
Do LPs expect continuous improvement?
Yes, maturity over time matters more than static controls.
Is SEBI compliance enough for LPs?
Often yes, if supported by clear evidence.
Can cyber maturity be a differentiator?
Yes, especially in competitive fundraising environments.
Do LPs expect third-party audits?
Not always, but structured assurance is valued.
Is transparency valued by LPs?
Yes, honest disclosure builds trust.
Can poor cyber posture reduce allocations?
Yes, LPs may limit exposure to perceived risk.
Do LPs assess governance tone from leadership?
Yes, leadership engagement strongly influences confidence.
Are lean funds penalised by LPs?
No, if governance is clear and controls are proportionate.
How does Infodot support LP diligence?
By preparing governance frameworks and evidence packs.
Why should AIFs prepare early for LP scrutiny?
Because proactive readiness reduces risk, delays, and fundraising friction.
