By Kapish Sanga, Investment Banking Analyst at Bardi Co.
The most significant challenge in Indian private equity today is not necessarily a lack of quality assets, but increasing pressure around liquidity and exits. A capital overhang estimated by industry observers to exceed $100 billion remains tied up in funds from the 2015-2020 vintage, reflecting the growing strain on traditional exit mechanisms. As an investment banker specializing in the US-India corridor, I increasingly hear concerns from investors around delayed liquidity and extended holding periods. In this context, GP-led secondary transactions are emerging as an important area of discussion within the industry.
For years, the Indian private equity model has relied on two primary exit routes: IPOs and strategic sales. While the IPO market has remained relatively active, it may not be sufficient to accommodate the growing number of mature assets seeking exits. Strategic sales have also seen relatively slower momentum, accounting for approximately $1.1 billion in exits in the first half of 2024. This has resulted in several mature companies remaining within aging funds for longer durations.
The GP-led secondary, particularly the continuation vehicle (CV), is increasingly being viewed as one potential liquidity solution. It allows a GP to transfer one or more assets from an existing fund into a new vehicle, while offering existing LPs the option of liquidity or continued participation.
However, executing such transactions in India remains complex, involving regulatory considerations, valuation processes, and stakeholder alignment. SEBI AIF regulations, indirect transfer tax frameworks, and FEMA-related guidelines all play an important role in structuring these transactions.
Despite these challenges, global interest in secondary transactions continues to grow, with India gradually emerging as a market of interest. Domestic and international participants are becoming increasingly active in this space, reflecting broader evolution within the private equity ecosystem.
For Indian GPs, understanding continuation vehicles and related secondary structures may become increasingly important as the industry explores new approaches to portfolio liquidity and long-duration asset management.
