Indian fund managers are increasingly leaning on domestic institutions, family offices and high-net-worth individuals to anchor new funds, as global private equity (PE) fundraising remains under pressure due to weak exit-driven liquidity.
Singapore-based mid-market PE fund Affirma Capital, which is currently raising its second India-focused fund, is also tapping domestic limited partners (LPs) for the first time, said Udai Dhawan, founding partner and India head.
“Over the last few years, liquidity constraints of LPs have made fundraising more challenging because they haven’t received as much money back from GPs as they used to,” he said, adding that if LPs are getting less money back, they naturally have less capital to deploy. However, the slowdown in foreign capital is being partly offset by the steady rise of domestic investors in India’s PE market.
New LP Mix
According to Dhawan, insurance companies, government-linked institutions, family offices and high-net-worth individuals (HNIs) are increasingly allocating capital to private funds, including from smaller cities. “You are now seeing cheques coming in from tier 2 and 3 towns as well, ranging from Rs 2 crore to Rs 50 crore,” he said.
Historically, domestic LP participation in Indian PE funds has been limited, with most capital coming from overseas investors. But this trend is now changing. Last year, homegrown private equity firm ChrysCapital closed its latest Fund X at a record $2.2 billion, for which it also tapped domestic LPs for the first time.
Dhawan adds that domestic investors tend to be more comfortable backing India-focused funds, partly due to regulatory restrictions on overseas investments, and partly due to their familiarity with local business. In contrast, global LPs typically compare India with multiple markets, including Japan, Australia and other parts of Asia, and often consider pan-Asian funds for diversification.
On the investment side, Dhawan said the firm remains focused on mid-market companies valued between Rs 500 crore and Rs 2,500 crore, and cheque sizes ranging from Rs 200 crore to Rs 500 crore for a meaningful stake. Its core sectors include consumer, financial services, healthcare and technology, with a preference for B2B and B2B2C models over pure consumer-facing businesses.
In India, the fund has invested in companies such as Varun Beverages, TBO Tek, Cafe Coffee Day, and Belstar Microfinance, among others. From its latest fund ‘Agastya Capital India Growth Fund’, it has invested in RMSI, an engineering and data analytics firm. The fund aims to close its new fund by the end of this year or early 2027.
Dhawan added that Indian PE returns have improved significantly over the past five years, supported by deeper public markets, more active private dealmaking and the emergence of continuation funds. “Liquidity from Indian PE managers has been much better than the global average,” he said.
Mid-Market Whitespace
Looking ahead, Dhawan sees a shift among large domestic and global funds towards bigger deals, making more space in the mid-market segment. “There is some overcrowding at the large-ticket end, while in the mid-market segment, the comparative intensity from seasoned players has reduced,” he said.