India’s US$ 20 billion deals pipeline lures secondary investors to grab a piece of the pie

Secondary investors in India are increasingly acquiring stakes in assets held by private equity funds, aiming to tap into a deal pipeline valued at approximately US$ 20 billion. Demand for these transactions has surged in recent months, as highlighted by the founder and CEO of TR Capital, Mr. Paul Robine, an Asia-focused secondary buyer. This trend comes as managers look to divest nearly US$ 92 billion in unrealized deal value from companies, they backed over 6 years ago. He noted that while the exit environment has improved significantly, selling these companies remains time-consuming, especially for venture capital funds investing in innovative, fast-growing firms in India.\

Investors purchase existing assets or commitments from primary investors or the private equity fund in a secondary deal. A notable market segment involves continuation funds, where assets are transferred to a separate vehicle, allowing the fund or general partner to retain them longer. Secondary funds are actively seeking deals that range from firms anticipated to go public within the next 18 to 24 months to the sale of asset portfolios by venture capital funds and the establishment of continuation funds by private equity managers. According to secondary buyers and advisors, these transactions could generate up to US$ 20 billion annually. The success of ChrysCapital Management Co.'s continuation fund, which raised US$ 700 million earlier this year to maintain its stake in the National Stock Exchange of India Ltd., has sparked interest among other private equity firms. Global head of the private capital advisory group at Raymond James Financial Inc., Ms. Sunaina Sinha, predicts that at least 3 to 4 continuation funds will be launched in India within 12 months.

Additionally, venture capital funds, facing a sluggish deal-making environment for growth assets, are pursuing exits to return funds to investors ahead of future fundraising efforts, as noted by the chief investment officer at 360 One WAM Ltd., Mr. Sameer Nath, one of India's largest wealth managers. Unlike the US and Europe, where secondary deals predominantly involve buyouts, transactions in India focus on assets where managers hold minority stakes, according to Brooke Zhou, partner at LGT Capital Partners. LGT Capital, which allocates 20% to 25% of its global fund to Asia, is increasingly eyeing opportunities in India as the pipeline expands. Most deals are priced at discounts of 20% to 25% of their net asset values, making them attractive to secondary buyers, said a founding partner at TPG NewQuest, Mr. Amit Gupta, which expects to deploy up to 50% of its latest secondary fund in India. More global managers are exploring deals in India, with some entering the market for the first time. Managing director at Pantheon’s Asia investment team, Mr. Kunal Sood, remarked that this trend reflects the maturation of Indian markets, as general partners are less concerned about bringing in secondary investors and disrupting their existing investor base.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.