GP-Led Secondaries in India – Considerations and Challenges

The secondaries market constitutes an important facet of the global alternative investments ecosystem. At its core, the secondaries market seeks to address two fundamental issues: (i) providing liquidity to investors (limited partners); and (ii) avoiding premature disposal of promising assets and upside potential of the assets. The existence of a robust secondaries market has had a ripple effect on fundraising since sponsors are able to raise funds with longer lifespans.

In this piece, we examine the features of GP-led secondaries and discuss some of the considerations and challenges involved with GP-led secondaries in India.

Key Takeaways:
  • GP-led secondaries have become fairly popular globally given that they solve for the liquidity concerns among some LPs whilst allowing the GP to capture more upside from an investment.
  • In a GP-led secondary deal, it is important to find a pricing that works for the exiting investors but keeps the acquisition attractive for the incoming investors.
  • Owing to the bespoke nature of a GP-led deal – where the seller as well as the buyer are controlled and managed by the same entity – LPs of both funds will want to be satisfied that the GP has acted fairly and in their respective best interests.
  • Cat I and Cat II AIFs are generally not permitted to invest more than 25% of investible funds in a single investee company. This could make AIFs unworkable for GP-led secondaries if the continuation fund cannot house the assets proposed to be rolled over.
  • The tax and regulatory frameworks applicable to AIFs do not currently provide for a tax-neutral rollover 

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