The Evolution of India’s Private Equity Landscape

India’s private equity (PE) market is undergoing a significant transformation, moving beyond traditional exit strategies like public listings and promoter-led buybacks. As the landscape matures, new pathways for liquidity are emerging, driven by a combination of institutional depth, enhanced governance standards, and innovative financial structures. This article explores the evolving dynamics of India’s PE sector, focusing on the rise of secondary transactions, continuation funds, and sponsor-to-sponsor deals.

The Shift in Exit Strategies

Historically, India’s PE landscape has been characterized by minority growth capital investments, with exits primarily limited to binary outcomes: either a public listing or a strategic sale. However, as PE-backed businesses become more transparent and transferable, alternative exit pathways are gaining traction. The rise of control transactions, improved financial reporting, and enhanced corporate governance have paved the way for a more active secondary market. This market allows funds to exchange assets without the need for promoter intermediation, fostering a more aligned approach to value creation.

Driving Forces Behind the Shift

Three key structural forces are catalyzing this shift in India’s PE landscape:

1. Asset Quality: As funds take control positions and drive operational transformations, the resulting enterprises become more resilient and scalable. These improved fundamentals make them attractive targets for other sponsors, particularly those focused on later-stage value creation. For instance, a domestic growth-focused general partner (GP) may transition a company to a global buyout fund that offers deeper operational expertise.

2. Exit Pressure: As funds approach the end of their lifecycle, GPs often face liquidity constraints, even when portfolio companies exhibit growth potential. Secondary transactions provide a seamless transition, allowing the outgoing GP to monetize their investment while a new sponsor takes the reins for the next growth phase.

3. Limited Partner Receptivity: Global limited partners (LPs) are increasingly open to continuation funds and structured secondaries. These mechanisms offer interim liquidity, NAV-based reinvestment options, and enhanced governance protections, creating a scalable path for Indian GPs to extend holding periods or roll out high-performing assets into new vehicles.

The Continuation Fund Playbook

Among the most sophisticated forms of secondary transactions are continuation funds. In this structure, high-performing assets are spun out of an existing fund into a new one, supported by fresh capital and a longer investment horizon. While this model is still emerging in India, global precedents set by firms like Blackstone and KKR are capturing the attention of domestic managers.

Continuation funds offer several benefits. LPs in the original fund typically have the option to cash out or roll into the new vehicle, fostering trust and aligning incentives. For Indian entrepreneurs and management teams, this structure provides operational continuity, minimizing disruptions while preserving long-term strategic vision.

Evergreen Funds: A Conceptual Parallel

To better understand continuation vehicles, it’s helpful to consider the model of evergreen funds. These investment structures have no fixed end date, allowing managers to hold high-quality assets for extended periods and reinvest proceeds to compound returns. While traditional PE funds operate under defined life cycles, continuation funds serve as a structural workaround, offering long-term ownership benefits without departing from the constraints of closed-end funds.

In essence, a continuation vehicle can be viewed as a targeted, asset-specific evergreen sleeve that provides liquidity for exiting LPs while enhancing value creation potential for the GP. This hybrid model offers a pragmatic path for Indian managers seeking to balance exit needs with long-term growth conviction.

Sponsor-to-Sponsor Deals: A Growing Trend

Alongside continuation funds, sponsor-to-sponsor deals are becoming increasingly common. These transactions often occur between funds with complementary capabilities or differing risk-return profiles. For example, a domestic mid-market GP that scales a company from ₹300 crore to ₹1,500 crore in revenue may attract a global platform investor, bringing expertise in global expansion or IPO readiness.

This layered ownership model reflects a broader evolution in private equity, shifting from episodic capital deployment to a coordinated ecosystem of value transfer. The new paradigm encourages a "build and transition" approach, enabling companies to navigate different phases of institutional ownership smoothly.

A Strategic Lever for Fund Scaling

Beyond enhancing exit flexibility, secondary strategies address a key constraint in Indian private equity: the challenge of scaling funds without over-relying on new deal origination. Through continuation vehicles and secondaries, GPs can double down on proven winners, extend holding periods, and grow assets under management (AUM) without diluting sectoral focus.

This creates a reinforcing cycle where larger funds attract stronger talent, build deeper domain knowledge, and enhance operational capabilities. These improvements lead to better outcomes, making portfolios more appealing to future sponsors and investors.

Navigating Challenges and Guardrails

Despite the promise of these innovations, challenges remain. Valuation transparency and conflict of interest management are critical, especially in continuation structures. GPs must demonstrate fiduciary discipline, often requiring independent third-party valuations and fairness opinions to build trust with LPs.

Regulatory clarity is another essential factor. While India’s market regulator, SEBI, has made strides in modernizing fund governance, ambiguity remains around the treatment of continuation funds and multi-sponsor transfers. Standardized practices will be crucial for ensuring long-term credibility and global investor confidence as the ecosystem matures.

The Road Ahead

While secondaries and continuation funds will not replace traditional exits like IPOs or strategic sales, they are poised to become essential complements. In a diverse and fast-evolving market like India, diversifying exit strategies is vital for long-term sustainability.

The rise of secondaries signals a deeper transformation in Indian private equity. GPs are evolving from mere capital providers to lifecycle stewards of enterprise growth, offering continuity, flexibility, and strategic depth. This evolution reflects a maturing asset class for LPs, entrepreneurs, and the broader financial ecosystem, aligning increasingly with global best practices while remaining attuned to India’s unique investment landscape.