By Kapish Sanga, Investment Banking Analyst at Bardi Co.
The Liquidity Crunch in Indian Private Equity
The most significant challenge in Indian private equity today is not a lack of quality assets, but a profound lack of liquidity. A capital overhang estimated to exceed $100 billion is trapped in funds from the 2015-2020 vintage, a direct result of an exit mechanism that is no longer fit for purpose. As an investment banker specializing in the US-India corridor, I see the consequences daily in my conversations with US investors: their capital is stuck, and their confidence is waning. At Bardi Co., where we structure these transactions for the US-India corridor, we see this not as a cyclical fix, but a structural necessity: the GP-led secondary transaction.
Why Traditional Exit Routes Are Breaking Down
For years, the Indian private equity model has relied on two primary exit routes: IPOs and strategic sales. While the IPO market has been a source of strength, it is a narrow gate, unable to accommodate the sheer volume of mature assets ready for an exit. Strategic sales have become sluggish, accounting for just $1.1 billion in exits in the first half of 2024, a fraction of the capital deployed in the preceding years. This has left a generation of high-quality, mature companies stuck in aging funds, with GPs and LPs both searching for a workable path to realization.
How Continuation Vehicles Can Release the Logjam
The GP-led secondary, specifically the continuation vehicle (CV), provides the necessary structural release valve. It allows a GP to move one or more of their best assets from an old fund into a new vehicle, bringing in new investors and giving existing LPs the choice of liquidity or continued investment. The approach has moved from a niche instrument to a mainstream tool in global private equity markets over the past several years, and Indian managers are now building the institutional capability needed to execute them.
Executing Secondaries in India’s Regulatory Framework
Executing such transactions in India is complex, involving regulatory challenges, valuation discipline, and stakeholder alignment. SEBI AIF regulations, indirect transfer tax laws, and FEMA pricing guidelines all play a critical role. Getting the structure right requires early engagement with tax counsel, careful management of cross-border capital flows, and transparent LP communication throughout the process. Pricing in particular demands rigor, since the perceived fairness of the transaction hinges on the independence of the valuation process.
The Road Ahead
Despite these challenges, global capital is already moving into secondaries, and India is emerging as a key market. Domestic and global players are increasingly active, signaling strong future growth. For Indian GPs, mastering continuation vehicles is no longer optional. It is essential for the liquidity and long-term future of private equity in India.
Disclaimer: This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Consult a qualified financial advisor for advice specific to your situation.
