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Pre-requisites:

All VM's in the VM folder to be hidden, including the subfolders (if they exist), should have the protection status 'Deactivated' (gray ball icon) on the DSM console.

Solution:

1. Log in to the vSphere Client console.

2. Go to the VM's and Templates section either by the icon tab on the left column, or the Menu.

Icon Tab:

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Menu:

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3. Highlight the target folder to be hidden and select Permissions tab. Look for the user account used to register the vCenter to the Deep Security Manager console. Right-select it and choose the option to Change Role.

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4. On the Change Role settings window, change the Role to "No access" and check the "Propagate to Children" box. Hit OK to apply the changes. 

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5. Login to the DSM console and from the Computers tab, run a vCenter synchronization. The process is successful if the target VM folder is no longer listed in the DSM console.