LP investments in direct purchases are surging worldwide, including in India.

Indian Limited Partners (LPs) Embrace Active Role in Private Equity and Venture Capital

A growing trend in India's private equity (PE) and venture capital (VC) landscape is the increased participation of Limited Partners (LPs) in direct investments. This shift is driven by a combination of factors that offer LPs greater control, higher returns, and strategic opportunities.

One of the primary motivations for LPs moving into direct investments is the desire for greater control and influence. Traditional fund investments often position LPs as passive investors, but direct investments allow them to have more operational influence and strategic control. This shift is reflected in the fact that 88% of deals in India are minority investments, demonstrating a preference for strategic, long-term involvement while allowing promoters to retain control.

The robust investment opportunities and growing deal sizes in India's PE/VC market also attract LPs. With strong inflows in sectors like infrastructure, technology, financial services, energy, and real estate, LPs see an opportunity to capitalize on high-growth segments by taking direct stakes.

The Indian market's maturity and sophistication is another factor driving this trend. Increasingly, LPs, including sovereign wealth funds and institutional investors, have strategic mandates that encourage direct investments for better risk-return profiles and niche sector plays. For example, India's National Investment and Infrastructure Fund (NIIF) boosts infrastructure and innovation sectors, indirectly fostering private equity and venture capital ecosystems to which LPs gain exposure.

India's strong economic fundamentals and favorable policy environment also make direct investments attractive. With a high GDP growth rate of 7.4% year-on-year as of 2024-25, an expanding consumer base, large infrastructure needs, and supportive government policies, including rising foreign direct investments, LPs see an attractive backdrop for engaging directly and capturing growth.

LPs are also motivated by the potential for strategic diversification and long-term value creation. Direct investments offer LPs the opportunity to diversify their portfolios, participate in emerging sectors firsthand, and generate higher returns by avoiding intermediary fees and aligning closely with venture growth strategies.

Notable LPs, such as CPPIB and Temasek, have already invested over $20 billion in India. This trend, which is global and growing in India, is also being observed among institutional and high net worth individual (HNI) LPs in the private equity pipeline.

As LPs become more active in the PE/VC landscape, they are not only investing but also taking on a more significant role, such as integrating their supply chain or increasing the value of their core business. This shift reflects a new era in India's private equity and venture capital landscape, where LPs are not just investors but strategic partners in the growth journey of companies.

References:

KPMG, 2021
Bain & Company, 2021
NIIF, 2021
Reserve Bank of India, 2022
Ministry of Finance, Government of India, 2022
The increased role of Limited Partners (LPs) in India's private equity (PE) and venture capital (VC) landscape is driven by the desire for greater control and influence over investments, allowing for strategic involvement and more operational control.
The robust investment opportunities and growing deal sizes in India's PE/VC market, combined with the maturity and sophistication of the industry, make it an attractive market for capitalization on high-growth segments by taking direct stakes.
LPs are motivated by potential strategic diversification and long-term value creation through direct investments, which offer opportunities to avoid intermediary fees, participate in emerging sectors, and align closely with growth strategies.
India's strong economic fundamentals, favorable policy environment, and attractive backdrop, including high GDP growth, an expanding consumer base, large infrastructure needs, and supportive government policies, make direct investments an appealing option for LPs.
Notable LPs like CPPIB and Temasek have already invested over $20 billion in India, reflecting a growing trend among institutional and high net worth individual (HNI) LPs that is being observed in the private equity pipeline, making them more than just investors, but strategic partners in the growth journey of companies.