GP-Led Secondaries & Continuation Funds — A Growing Global Trend, Barely Discussed in India Yet

Globally, GP-led secondaries have become one of the fastest-growing corners of private capital markets — continuation vehicles now regularly represent a significant share of total secondaries market volume, giving fund managers a mechanism to hold on to their best-performing assets beyond a fund's original tenure while still providing existing investors a liquidity option. In India, by contrast, the concept remains largely theoretical for most Alternative Investment Fund managers — not because the commercial logic doesn't apply equally here, but because the regulatory and structural building blocks are still catching up.

What a GP-Led Secondary Actually Is

A GP-led secondary transaction is one initiated by the fund manager itself (as opposed to a traditional "LP-led" secondary, where an individual investor sells their fund interest to another investor on the secondary market). The most common form is the continuation fund — the manager sets up a new vehicle, typically to hold one or a small number of high-conviction assets from an existing, maturing fund, and transfers those assets into the new vehicle. Existing investors in the original fund are given the choice to either cash out at a price set through the transaction (often validated by a competing bid process) or roll their interest into the new continuation vehicle, alongside fresh capital typically brought in by new investors to fund the transaction and provide liquidity to those who choose to exit.

The commercial rationale is straightforward: a fund's tenure is a legal construct, not necessarily aligned with the optimal holding period for its best assets. A manager convinced that its top-performing portfolio company still has significant value-creation runway left, but facing a fund-end deadline that would force a premature sale, can use a continuation vehicle to keep holding the asset — while still giving existing investors, who committed capital on the understanding of a defined fund life, the choice to realise liquidity now rather than remain locked in indefinitely.

Why This Is Still Nascent in the Indian AIF Market

Regulatory Architecture Not Originally Built for GP-Led Transactions

Each scheme of an Indian AIF is registered with SEBI as a distinct entity under the SEBI (Alternative Investment Funds) Regulations, 2012, with its own PPM, its own tenure, and its own investor base. A classic continuation fund transaction — the same manager setting up a new scheme and transferring assets from an existing, maturing scheme into it — is, by definition, a transaction between two SEBI-registered entities managed by the same manager. This structurally places the transaction squarely within the AIF Regulations' related-party and associate transaction framework, which generally requires the consent of investors holding a defined majority (commonly at least 75% by value of investment in the scheme) before the AIF or its manager can transact with an associate or related entity — a threshold that appears consistently across SEBI's AIF-related consent requirements, including those governing dealings with associates. A manager pursuing a continuation fund structure needs to build this consent process, together with robust independent valuation to justify the transfer price to a related entity, into the transaction timeline from day one.

The Dissolution Period — India's Closest Existing Regulatory Analogue

Rather than a purpose-built continuation fund regime, India's current regulatory framework addresses a narrower but related problem — what happens to a scheme's unliquidated investments at the end of its tenure — through the dissolution period mechanism introduced by the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024, effective April 25, 2024, together with SEBI's circular of April 26, 2024. Under this framework, once a scheme's liquidation period (the one-year period following expiry of the fund's tenure within which it must wind up) has run its course without full realisation, the AIF may, with the consent of investors holding at least 75% of the scheme's value, enter a dissolution period rather than being forced into a fire sale or the earlier liquidation-scheme mechanism (which the 2024 amendment discontinued for new cases). The dissolution period allows the manager to continue holding and managing the unliquidated investments — after arranging a bid for at least 25% of their value to provide an exit option to dissenting investors, and after filing an information memorandum with SEBI through a merchant banker — for a further period, failing which the assets must be mandatorily distributed in-specie to investors at the end of that period.

The dissolution period is a genuinely useful tool for the situation it was designed to solve, but it is not a true continuation fund mechanism. It operates within the same scheme, without transferring assets into a new vehicle, without bringing in fresh third-party capital, and without the structured "roll or cash out" choice that defines a GP-led continuation transaction globally. It solves the problem of "we can't sell this asset in time," not the strategic problem a continuation fund solves — "we don't want to sell this asset yet, and we want to give existing investors a real liquidity choice while bringing in new capital to fund it."

Valuation and Pricing Discipline

A defining feature of a credible GP-led secondary globally is a competitive process establishing a fair transfer price — typically involving one or more independent valuers and, increasingly, a process where the continuation vehicle's proposed pricing is tested against interest from third-party secondary buyers, precisely because the manager is transacting on both sides of the deal and faces an inherent conflict of interest that needs an external check. Indian AIF managers structuring an analogous transaction would need to layer in equivalent independent valuation and, ideally, a competing-bid process, given that the underlying related-party consent requirement under the AIF Regulations already anticipates this kind of conflict and expects it to be addressed through disclosure and independent validation rather than manager discretion alone.

FEMA and Cross-Border Considerations

Where a continuation vehicle brings in new foreign investors, or where existing foreign investors are rolling their interest into a newly structured vehicle, the transaction needs to be assessed against FEMA pricing guidelines and sectoral conditions applicable to the downstream investee companies, in the same way any other primary or secondary transfer involving non-resident investors would be. A transfer of an existing portfolio company's shares from one AIF scheme to another — even where both schemes share a common manager — is not exempt from ordinary FEMA valuation and reporting requirements applicable to transfers involving non-resident shareholders.

Why This Represents a First-Mover Opportunity

Despite the structural friction, the underlying demand driver for GP-led secondaries — Indian AIFs, particularly Category II funds that invested through the venture and growth-stage boom of the past several years, now approaching the end of fund tenures while holding assets their managers still have high conviction in — is very much present in the Indian market. As more Category II and Category I schemes approach their original tenure end dates over the next few years, the commercial pressure to solve the "great asset, wrong fund-life" problem will only increase, and managers who have already thought through the related-party consent architecture, valuation discipline, and cross-border considerations required to execute a compliant continuation-style transaction will be better positioned than those encountering the issue for the first time under deadline pressure.

For now, the more immediately usable tool for most Indian AIF managers facing this problem remains the dissolution period mechanism introduced by SEBI's 2024 amendments — a narrower but currently operative solution — while the market, and potentially SEBI's own regulatory approach, continues to evolve toward something closer to a purpose-built continuation fund framework.

What AIF Managers Should Be Doing Now

• Track scheme tenure timelines proactively, well ahead of the liquidation period, for any scheme holding assets the manager has strong conviction in continuing to hold.
• Understand the dissolution period mechanism in detail as the current, available tool — including its 75% investor consent requirement, the 25% bid requirement for dissenting investor exits, and the information memorandum filing obligation through a merchant banker.
• Build independent valuation practice into any related-party transaction contemplated between schemes managed by the same manager, anticipating that SEBI's consent framework will require robust, defensible pricing.
• Engage FEMA counsel early where cross-border investors are involved in any prospective continuation-style structure, given the added layer of pricing and reporting compliance.
• Monitor SEBI's regulatory direction on this specific issue, given the pace at which SEBI has been actively amending the AIF Regulations' liquidation and dissolution framework in recent cycles.

Conclusion

GP-led secondaries and continuation funds are a well-established, rapidly growing feature of mature private capital markets, and the underlying commercial need for them is emerging clearly in India as the current generation of AIF schemes approaches maturity. The regulatory building blocks — related-party consent norms, the dissolution period mechanism, FEMA pricing discipline — exist in pieces, but not yet as a purpose-built framework. Managers who understand how these pieces fit together, and who plan tenure and asset-continuation strategy well before a scheme's liquidation period forces the issue, will be the ones best placed to actually execute a continuation-style transaction if and when the opportunity arises.