Cybersecurity trends for hedge funds in 2025. What firms need to know

As in previous years, the financial sector remains one of the most affected industries by cybercrime, even in 2024. A recent report by the World Economic Forum shows that finance, healthcare, and telecommunications are the top three sectors most impacted by cybercrime. This report highlights the importance for all players in the financial sector, including hedge funds and their stakeholders, to stay informed about common cyberattacks, emerging trends, and how these attacks are carried out.

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If you're reading this, chances are you’re either a stakeholder in the financial sector or simply interested in understanding what’s happening in this space. In this article, I will explore some of the key cybersecurity trends that are expected to impact hedge funds in 2025. For each trend, I will explain its implications and how hedge fund stakeholders can prepare effectively, thereby avoiding becoming victims of cybercrime. Let’s jump right in!

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Guardrails for AI Tools Like GenAI

Generative AI (GenAI) tools can help hedge funds improve efficiency by generating code, analyzing large datasets, and automating routine tasks. However, if these tools are not properly secured, they could introduce serious vulnerabilities.

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Why It’s Important for Hedge Funds

·????? AI tools could create flawed code that attackers exploit.

·????? Misuse of GenAI could expose sensitive client data or trading strategies.

·????? Regulatory scrutiny is increasing to ensure safe AI use, which hedge funds need to comply with.

What Hedge Funds Should Do

·????? Secure AI-Generated Code:?Ensure developers thoroughly review and test AI-generated code for security gaps before being implemented in the production environment.

·????? Set AI Usage Policies:?Define clear rules on what AI tools can and cannot do in hedge fund operations.

·????? Train Developers:?Provide security training specifically focused on using AI tools securely.

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Hackers Are Becoming More Patient During Attacks

Some cyberattacks are no longer about quick gains. Instead, hackers may infiltrate systems and wait months—or even years before launching an attack.

Why It’s Important for Hedge Funds

·????? Attackers could access critical financial systems and remain hidden, gathering data or positioning themselves for a major disruption.

·????? Persistent threats like these are particularly dangerous because they are hard to detect and may strike at the worst possible moment (e.g., during a market crisis).

What Hedge Funds Should Do

·????? Focus on Resilience:?To ensure resilience, hedge funds need to assume that some attacks will succeed. That’s why hedge funds need robust backup and recovery systems to minimize damage.

·????? Segment Systems:?Use micro-segmentation (isolating workloads) and macro-segmentation (separating broader systems) to limit what attackers can access.

·????? Conduct Regular Threat Hunting:?Proactively search for hidden threats using advanced monitoring tools that use cutting-edge machine learning techniques.

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Growing Attacks on Open-Source Software (OSS)

Open-source software such as such as Zipline and Backtrader is widely used because it’s flexible and cost-effective. However, attackers are targeting OSS more frequently by embedding malicious code into open-source libraries.

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Why This is Important for Hedge Funds

·????? Hedge funds use OSS for trading algorithms, data analytics, and platform development. Malicious code in OSS libraries could compromise operations or leak sensitive data.

·????? Governments are starting to enforce stricter OSS regulations, which hedge funds will need to comply with.

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What Hedge Funds Should Do

·????? Vet Software Thoroughly:?Demand Software Bills of Materials (SBOMs) from vendors to know what’s in the code.

·????? Run Security Scans:?Use source code analysis and vulnerability scanning tools to check OSS for hidden threats. Hedge should consistently keep themselves informed about the latest vulnerabilities in any open-source software (OSS) tools they use.

·????? Stay Compliant:?Monitor and prepare for new regulations about OSS usage in financial services.

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Quantum Computing Threats

Quantum computing is advancing quickly. Google recently released a quantum computing chip (Willow) that completed a benchmark computation in under five minutes, a task that would take today’s fastest supercomputers 10 septillion years. Other players are expected to announce major releases next year. While it offers incredible processing power for tasks like data analysis, quantum computers also pose a major cybersecurity risk by breaking traditional encryption.

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Why Hedge Funds Should Care

·????? Sensitive data, such as trading strategies and client records, are currently protected by encryption. Future quantum computers could crack these encryptions, leaving data exposed.

·????? Competitors or nation-states could use quantum computing for financial espionage.

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What Hedge Funds Should Do

·????? Adopt Post-Quantum Cryptography:?Transition to encryption methods designed to withstand quantum attacks.

·????? Stay Ahead of Developments:?Partner with quantum technology researchers and vendors to understand advancements.

·????? Prepare for the Shift:?Start budgeting and planning for upgrades to quantum-resistant infrastructure.

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Phishing (with Ransomware) Is Still the #1 Threat

For many years now, phishing remains one of the easiest and most effective ways for hackers to gain access to sensitive systems. AI tools are now helping attackers automate and improve phishing campaigns.

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Why It’s Important for Hedge Funds

·????? Employees could fall victim to phishing scams, exposing passwords or sensitive data.

·????? Ransomware attacks, which often start with phishing, could shut down trading systems or lock important data until a ransom is paid, ultimately affecting hedge fund operations.

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What Hedge Funds Should Do

·????? Enhance Employee Training:?Regularly train employees to recognize phishing emails and messages.

·????? Use Multi-Factor Authentication (MFA):?Even if passwords are stolen, MFA makes it harder for hackers to gain access.

·????? Deploy Advanced Email Security:?Use AI-driven email filters to catch suspicious emails before they reach employees.

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AI Agents Becoming New Targets for Hackers

AI agents are software tools that make decisions and take actions automatically, just like human agents do. Hedge funds may use used for customer support, workflow automation, and investment research. However, these tools are now becoming prime targets for cyberattacks.

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Why This is Important for Hedge Funds

·????? Hackers could exploit AI agents to leak sensitive data, like financial records or trading strategies.

·????? Attacks like prompt injections could manipulate AI agents into making costly mistakes, such as executing bad trades or granting unauthorized access to systems.

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What Hedge Funds Should Do

·????? Harden AI Systems:?Secure AI agents by validating input data and limiting their permissions.

·????? Monitor AI Interactions:?Track the decisions and actions taken by AI agents for unusual patterns or errors.

·????? Simulate Attacks:?Test how AI agents respond to cyber threats to uncover and fix vulnerabilities before they are exploited.

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Compromised Identities in Hybrid Work Environments

As hedge funds continue to operate in hybrid work models, compromised user identities pose a significant security risk. Attackers use stolen credentials to access sensitive systems unnoticed.

Why Hedge Funds Should Care

·????? Employees and partners accessing systems remotely create more opportunities for credential theft.

·????? Attackers can move laterally within systems, compromising trading algorithms, client data, or investment strategies.

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What Hedge Funds Should Do

·????? Zero Trust Architecture:?Implement policies where users are verified at every access point.

·????? Identity Protection Tools:?Use conditional access tools that assess the risk level of login attempts based on location, device, or behavior.

·????? Frequent Credential Updates:?Require regular password changes and enforce MFA for all users.

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Web3 and Crypto Heists

Hedge funds investing in Web3 projects or cryptocurrencies face an increased risk of theft as attackers are increasingly targeting these high-value digital assets.

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Why Hedge Funds Should Care

·????? Cybercriminals can steal cryptocurrencies or NFTs stored in poorly secured wallets.

·????? Smart contract vulnerabilities could lead to massive financial losses.

·????? The decentralized nature of Web3 projects makes them harder to regulate and secure.

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What Hedge Funds Should Do

·????? Audit Smart Contracts:?Perform regular security audits on blockchain-based investments.

·????? Use Secure Wallets:?Store digital assets in hardware wallets or other highly secure solutions.

·????? Monitor the Market:?Stay updated on new attack techniques targeting Web3 and crypto projects.

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Faster Exploitation and More Vendors Targeted

The time between discovering a vulnerability and hackers exploiting it is getting shorter thanks to advancements in technologies like AI and access to massive computing resources in the cloud. Attackers are also broadening their targets, impacting a wider range of software vendors.

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Why It’s Important for Hedge Funds

·????? Hedge funds rely on third-party software for analytics, trading, and reporting. If vendors are compromised, hedge funds may become indirect victims.

·????? Faster exploitation means there’s less time to patch vulnerabilities, increasing the risk of data breaches.

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What Hedge Funds Should Do

·????? Vendor Security Assessments:?Evaluate the security practices of all third-party vendors before using their products.

·????? Automated Patching:?Use tools that quickly identify and patch vulnerabilities as soon as updates are released by the software vendors.

·????? Incident Response Plans:?Have a plan in place for responding to breaches caused by vendor vulnerabilities.

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Key Takeaway

In 2025, hedge funds must proactively address emerging cybersecurity threats, including AI misuse, advanced persistent attacks, open-source vulnerabilities, and quantum computing risks, while securing hybrid work environments and digital assets. By adopting robust defenses like zero trust, quantum-safe encryption, and regular vendor assessments, hedge funds can safeguard their operations and data against evolving cyber threats. Hedge funds also need to teach their teams about new trends and threats in cybersecurity because employees are typically the first line of defense.