How LVF Reforms Could Reshape Private Market Fundraising in India

For most alternative investment fund (AIF) managers in India, fundraising is a balancing act between product design, regulatory constraints, and investor appetite. The Large Value Fund (LVF) structure, introduced by SEBI in 2021, promised greater flexibility for managers catering to sophisticated investors, but its ₹70 crore minimum commitment per investor meant the addressable pool was tiny.

Now, SEBI’s proposed reforms lower that minimum to ₹25 crore, lift the 1,000-investor cap, and relax compliance burdens. On paper, these changes look like a simple access expansion. In practice, they could alter how managers think about fundraising, fund structuring, and long-term strategy.

The Structural Shift

The current LVF regime already offers advantages over standard AIFs:

• Faster scheme launches.
• Higher single-investee exposure limits.
• Longer permissible tenure extensions.

Lowering the ticket size from ₹70 crore to ₹25 crore dramatically expands the potential LP base. It’s still a high bar, well above AIF Category II’s ₹1 crore minimum, but it is no longer prohibitive for domestic institutions or large family offices constrained by diversification rules.

For managers, this means LVFs can shift from being ultra-niche products to viable mainstream strategies for a broader set of sophisticated investors.

Revisiting the Fundraising Playbook

1. Expanded LP Universe
   Previously, most LVF fundraising targeted offshore LPs, sovereign funds, or a handful of ultra-high-net-worth investors. The new ₹25 crore threshold makes it possible to court:
   • Domestic insurers within exposure caps.
   • Pension and provident funds piloting AIF allocations.
   • Multi-family offices and corporate treasuries seeking illiquidity premium.
2. Layered Commitment Strategies
   Managers can now design LVFs that blend anchor LPs with a larger number of smaller (but still accredited) investors. This diversification:
   • Reduces reliance on a single anchor’s capital.
   • Increases fundraising resilience during market volatility.
   • Improves secondary market depth for LP interests.
3. More Evergreen and Category III Opportunities
   For open-ended or evergreen strategies (common in Category III AIFs), removing the investor cap is a material advantage. Managers can run perpetual fundraising models without hitting the 1,000-investor ceiling, making LVFs a more scalable long-term product.

Operational and Compliance Relief

The reforms propose:

• Exemption from standard PPM template
• Waiver of NISM certification for key investment team members (if running only LVF schemes)

For managers, this means lower friction in launching and operating schemes, especially those with complex or specialised investment strategies.

Potential Migration from Existing AIFs

Allowing existing schemes to convert into LVFs (with unanimous investor consent) could be a strategic unlock.

For example:

• A Category II fund with mostly large, sophisticated investors could switch to LVF status at ₹25 crore minimums, gaining operational flexibilities and freeing itself from certain regulatory constraints.
• A Category III fund running an open-ended strategy could migrate to LVF to remove the investor cap and align with institutional fundraising.

This option also allows managers to consolidate LP bases and simplify their product lineup, rather than launching entirely new vehicles.

The Competitive Positioning Shift

With the lower LVF threshold, managers now compete not just with other AIFs, but with portfolio management services (PMS), direct equity/debt mandates, and even certain structured products.

This competition works both ways:

• Upside: LVFs can market themselves as the institutional-grade step-up from PMS, offering access to private and illiquid assets with governance oversight.
• Challenge: LPs will expect performance, transparency, and reporting standards at least on par with PMS.

Managers who position LVFs as aspirational yet accessible will likely win a greater share of this overlapping market.

Risks for Managers to Navigate

While the reforms are positive, managers need to plan for:

• Higher LP volume management: More investors mean more relationship management, onboarding, and reporting complexity, even if each investor is sophisticated.
• Portfolio construction discipline: Broader LP bases can bring more divergent liquidity and risk preferences.
• Greater scrutiny from domestic LPs: Local institutions may demand governance structures and fee terms mirroring global best practices.

Fundraising Implications by AIF Category

Category I & II LVFs

• Could attract domestic LPs for private equity, venture, and infrastructure strategies.
• Migration from standard Category II to LVF could become common for large-ticket pools.

Category III LVFs

• Evergreen and open-ended strategies become easier to scale.
• Removal of investor cap supports larger, more continuous fundraising.

Domestic Capital Will Become The Strategic Prize

For too long, India’s private market fundraising has been overly dependent on foreign LPs. Domestic LPs, even those with deep pockets, have struggled to participate at scale due to regulatory thresholds, product mismatch, and operational friction.

LVFs at ₹25 crore minimum, combined with compliance and scalability benefits, give managers a credible vehicle to:

• Anchor domestic LPs.
• Build track records that attract offshore co-investment.
• Reduce currency and geopolitical risk in their capital base.

Looking Ahead: Product Innovation

If the reforms are implemented, expect to see:

• Thematic LVFs: Sector-focused funds in healthcare, renewables, deep tech, and infrastructure.
• Hybrid LVFs: Blending private equity, credit, and structured opportunities in a single vehicle.
• Co-investment platforms: Using LVFs as the core pool with sidecar co-investment rights for larger LPs.

Managers who innovate here will gain first-mover advantage, especially in attracting domestic institutional anchors.

From Constraint to Catalyst

SEBI’s proposed LVF reforms don’t just lower a number; they remove structural barriers that have kept many managers from seriously engaging domestic LPs. The ₹25 crore threshold, investor cap removal, and operational streamlining collectively turn LVFs from a niche regulatory carve-out into a scalable fundraising platform.

For managers, the opportunity is clear: design products that align with institutional needs, compete credibly with PMS and global offerings, and position LVFs as the go-to vehicle for India’s next phase of private market growth.

If done right, the LVF could become the bridge that finally connects India’s deep pool of domestic savings with its equally deep pool of private market opportunities.