Rise of secondaries and continuation funds in India

Secondaries and continuation funds will not replace traditional exits such as IPOs or strategic sales. However, they are poised to become essential complements. Here's how

By Puneet Gupta and Siddharth Shekhar Singh

Published: Apr 29, 2025 04:32:37 PM IST

India's PE landscape has been dominated by minority growth capital investments, with exits largely binary: a public listing or a strategic sale. Image: Shutterstock

India's private equity (PE) market is entering a new phase of sophistication. Liquidity no longer hinges solely on IPOs or promoter-led buybacks. As institutional depth grows and governance standards rise, alternative exit pathways are gaining prominence. Chief among them are secondary transactions, including continuation funds and sponsor-to-sponsor deals. Once viewed as opportunistic or exotic, these mechanisms are fast becoming mainstream tools for portfolio optimisation, long-duration value creation, and fund scaling.

Historically, India's PE landscape has been dominated by minority growth capital investments, with exits largely binary: a public listing or a strategic sale. However, PE-backed businesses have become significantly more transparent and transferable with the rise of control transactions, improved financial reporting, and enhanced corporate governance. This evolution has paved the way for a more active and credible secondary market, where funds exchange assets without promoter intermediation and with increasing alignment on value-creation narratives.

What's Driving the Shift?

Three structural forces are catalysing this shift.

First, asset quality. As funds take control positions or drive deep operational transformation, the resulting enterprises are more resilient, better governed, and highly scalable. These improved fundamentals make them attractive targets for other sponsors, particularly those specialising in later-stage value creation. For instance, a growth-focused domestic general partner (GP) may pass the baton to a global buyout fund with more profound operational expertise or international market access.

Second, exit pressure. As funds near the end of their lifecycle, GPs often face liquidity constraints even if portfolio companies continue to show growth potential. Rather than force an ill-timed IPO or premature sale, a secondary transaction allows for a seamless transition. The outgoing GP can monetise fully or partially while a new sponsor takes the lead on the next chapter of growth.

Third, 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 improved governance protections. For Indian GPs looking to extend holding periods or roll out high-performing assets into new vehicles, this creates a scalable and LP-aligned path forward.

The Continuation Fund Playbook

Among the most sophisticated forms of secondaries are continuation funds. In these structures, high-performing assets are spun out of an existing vehicle into a new one, backed by fresh capital and a longer time horizon. While this model is still emerging in India, global precedents set by firms such as Blackstone and KKR are capturing the attention of domestic managers.

This approach offers multiple benefits. LPs in the original fund are typically given the choice to cash out or roll into the new vehicle. This optionality deepens trust, aligns incentives, and strengthens the GP-LP relationship. For Indian entrepreneurs and management teams, continuation structures provide greater operational continuity, minimising ownership disruption while preserving long-term strategic vision.

Also read: Curious case of SME IPOs in India

Evergreen Funds: A Conceptual Parallel

To better understand the role of continuation vehicles, it is helpful to consider the model of evergreen funds. These are investment structures with no fixed end date. Popular among family offices and long-duration investors, evergreen funds allow managers to hold high-quality assets for extended periods, reinvesting proceeds and compounding returns over time. While traditional private equity funds operate under defined life cycles, continuation funds serve as a structural workaround. They offer the benefits of long-term ownership without departing from the vintage constraints of closed-end funds. In essence, a continuation vehicle can be seen as a targeted, asset-specific evergreen sleeve that provides liquidity for exiting LPs and additional value creation potential for the GP. For Indian managers seeking to balance exit needs with conviction in long-term upside, this hybrid model offers a pragmatic path forward.

Sponsor-to-Sponsor Deals: A Growing Trend

Parallel to continuation funds is the rise of sponsor-to-sponsor deals. These transactions are increasingly common between funds with complementary capabilities or differing risk-return profiles. Consider a scenario where a domestic mid-market GP scales a company from ₹300 crore to ₹1,500 crore in revenue. A global platform investor might then step in, bringing expertise in global expansion, M&A consolidation, or IPO readiness.

Such layered ownership models reflect a broader evolution in private equity. The industry is shifting from episodic capital deployment to an ecosystem of coordinated value transfer. Rather than "invest and exit," the new paradigm encourages "build and transition," enabling companies to move smoothly through different phases of institutional ownership.

A Strategic Lever for Fund Scaling

Beyond enhancing exit flexibility, secondary strategies also address a key constraint in Indian private equity. Many managers face challenges in scaling their 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 the assets under management (AUM) without diluting sectoral focus or stretching investment teams too thin.

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

Navigating Challenges and Guardrails

Despite the promise, these innovations are not without risk. Valuation transparency and the management of conflicts of interest are essential, particularly in continuation structures. GPs must demonstrate fiduciary discipline, often requiring independent third-party valuations, fairness opinions, and co-investment frameworks to build trust with LPs.

Regulatory clarity is another critical factor. While India's market regulator, SEBI, has made meaningful progress in modernising fund governance, there remains ambiguity around the treatment of continuation funds and multi-sponsor transfers. Standardised practices will be essential to ensure long-term credibility and global investor confidence as the ecosystem matures.

The Road Ahead

Secondaries and continuation funds will not replace traditional exits such as IPOs or strategic sales. However, they are poised to become essential complements. In a market as diverse and fast-evolving as India, diversification of exit strategies is not only desirable but also vital for long-term sustainability.

More broadly, the rise of secondaries signals a deeper transformation in Indian private equity. GPs are no longer just providers of episodic capital. They are evolving into lifecycle stewards of enterprise growth, offering continuity, flexibility, and strategic depth.

This evolution reflects a maturing asset class for LPs, entrepreneurs, and the wider financial ecosystem. It increasingly aligns with global best practices while remaining uniquely attuned to India's dynamic investment landscape.

Puneet Gupta is and Adjunct Professor (IMT Ghaziabad); Managing Partner, Kentrus Investment Advisors; Board Member, UTI Pension, Fusion Finance, and NCDEX eMarkets. He can be reached at pgupta.acad@gmail.com

Siddharth Shekhar Singh is an Associate Professor of Marketing (Indian School of Business, Hyderabad & Mohali); Board Member, DLabs Incubator Association (ISB), Atal Incubation Centre (ISB), and NCDEX eMarkets. He can be reached at Siddharth_Singh@isb.edu

The article expresses the personal views of the authors.

[This article has been reproduced with permission from the Indian School of Business, India]