India’s era of secondary funds is here

With limited liquidity options and a slowdown in cash distributions, fund investors are facing prolonged holding periods and constrained returns.

By Shapath Parikh

Venture capitalists and private equity investors have immensely contributed to the thriving startup ecosystem in India having funded over10,000 startups with investment value exceeding $150 billion over the past 10 years. But as these investment funds approach the end of their typical 7–10-year lifecycle, a pressing challenge confronts them: timely exits.

With limited liquidity options and a slowdown in cash distributions, fund investors—known as Limited Partners (LPs)—are facing prolonged holding periods and constrained returns.

While IPOs are the holy grail for investors seeking exit, an alternative liquidity solution is available globally for exiting companies that are not yet IPO-ready – Secondaries Funds. A secondary transaction involves buying and selling of shares between investors, as opposed to the investment of primary capital into companies.

Global secondaries funds have in fact outpaced traditional private equity funds in AUM (assets under management) growth with more than $580 billion being raised in the asset class over the past 15 years. AUM for secondaries funds has quadrupled over the past 10 years at a CAGR (compound annual growth rate) of 20.2%, vs private equity AUM CAGR of 12.9%. However, the secondary asset class has been largely absent in India with a handful of funds being active in the space.

That may be about to change.

Secondary transactions usually attract a discount to the prevailing valuation. This salient feature provides an added cushion to buyers, thereby enhancing the overall risk / reward profile. Global data supports this: secondaries funds have delivered the highest median returns among alternative asset classes, including private equity, venture capital, real estate, and natural resources. They also show the lowest return dispersion, making them a more consistent and reliable source of performance.

Secondaries in late stage, IPO-bound Indian companies present a particularly attractive opportunity in the current times. Investors in such opportunities benefit from the dual factors of strong organic growth prior to an IPO as well as a valuation uplift that typically accompanies a public listing. Despite the current slowdown, strong IPO activity in recent years has reaffirmed that IPO events remain the ultimate goal for investors seeking lucrative exits.

As India’s PE/VC ecosystem matures, secondary transactions are poised to become not just relevant, but essential. Regulatory changes—such as SEBI’s tightening of fund liquidation timelines—further underscore the need for liquidity solutions.

The case for secondaries in India has never been stronger. With a deepening pool of late-stage companies, maturing funds, and increasing demand for investor liquidity, the market is ripe for the emergence of a robust secondaries ecosystem. The time has come for this asset class to take its rightful place in India’s private capital landscape.

(Shapath Parikh is Co-Founder, White Whale Ventures.)

Views are personal and do not represent the stand of this publication.