Dispersion Is the Story Behind Manager Selection in Private Markets

India’s private markets are showing strength and maturity. Capital is scaling, institutional participation is deepening, and benchmark data points to outperformance versus public markets.

No Ifs About AIFs 3.0, the third edition of Oister Global and Crisil’s benchmarking work, supports this at the aggregate level. Across seven benchmarking cycles, the combined benchmark for VC and unlisted equity AIF schemes shows average alpha of 8.69% over the BSE Sensex TRI.

But that headline is only the surface. An important nuance to understand is dispersion. Returns are uneven across managers, strategies, and vintages, and the spread is wide enough that private markets cannot be treated as a single product category. The report explicitly flags significant dispersion across equity-oriented AIF strategies, which is another way of saying that where you land in the distribution matters more than the average suggests.

As the ecosystem grows, dispersion becomes the driver of allocator experience and market credibility. Averages still exist, but they stop describing what most people actually get. This is also where manager selection stops being a secondary consideration and becomes the core of the private markets decision.

Why dispersion matters more as the market scales

In small ecosystems, a few big winners can define the story because there are fewer data points and fewer distinct strategies. In larger ecosystems, dispersion is unavoidable. The number of schemes rises quickly, strategy variety expands across stages, entry valuations vary by vintage, exit environments shift across years, and governance and execution quality differ sharply across managers and portfolios.

This year’s report gives you a sense of the size of the system that now has to be interpreted rather than narrated. By September 2025, AIF commitments reached roughly Rs 15.05 lakh crore, growing at 30.7% CAGR between FY21 and H1FY26. SEBI-registered AIFs crossed 1,600, with nearly two-thirds launched since 2021.

A market of that breadth will not behave like a single distribution but rather like a spread.

The report quantifies dispersion

Within the aggregate benchmark, the top 50% of funds (by IRR) generated alpha of 13.6%. Two implications follow, and both are easy to miss.

First, the average alpha number is not wrong, but it is not representative of many investor experiences. If the top half is producing 13.6% alpha, the bottom half necessarily drags the mean down. That means outcomes are polarised enough that the mean can hide as much as it reveals.

Second, style is not a detail. Early-stage, growth, and late-stage don’t behave like one risk-return engine. Dispersion exists across styles, but the shape and magnitude differ. Any simplistic framing of private markets as one category will inevitably blur the underlying differences.

This is also why benchmarking becomes more valuable as markets scale. It separates category narrative from distribution reality.

Limited liquidity and uneven information amplify the spread between winners and laggards.

Public markets have dispersion too, but pricing is continuous, information is broader, and liquidity allows repricing in real time. Private markets amplify dispersion because information is uneven, valuations are periodic rather than continuous, governance and execution have a more direct impact on outcomes, and exits are path-dependent.

The report reinforces this in one line that deserves to be taken literally: as the market matures, exit execution becomes a primary driver of realised outcomes. That belongs in any serious discussion of dispersion because exits are where dispersion becomes real.

A fund can look similar to peers on paper for years. The differences appear when liquidity is tested: when a portfolio needs to sell, when a buyer needs conviction, when governance quality is scrutinised, and when timing meets reality.

Manager selection is the practical expression of this reality. In public markets, broad exposure can be a defensible default because price discovery is continuous and underperformance is quickly revealed. In private markets, the same frictions that create opportunity also create separation: the gap between strong and weak underwriting, governance influence, portfolio construction, and exit execution tends to persist for longer and compound.

Dispersion is not something the market “fixes” over time. Mature private markets still have dispersion. What maturity changes is whether the ecosystem develops mechanisms to manage it: stronger processes, better benchmarking, clearer disclosures, and deeper liquidity options that reduce dependence on perfect exit windows.

The interaction between IRR dispersion and DPI dispersion is where credibility gets made

IRR dispersion is important, but trust is shaped by cash flows. That’s why the DPI section is the most useful companion to the dispersion discussion.

The report defines DPI (Distributions to Paid-In) as a realisation multiple focused on timely distribution, and it provides scheme-level distribution facts. Out of 170 schemes in the aggregated universe (vintages up to FY21), 142 had made distributions. Among schemes that have made distributions, it reports an average DPI of 0.72x for the aggregate benchmark, with 2.03x for the top quartile and 1.32x for the top 50%.

The range is the point. For schemes in the top 50% by DPI, the report shows outcomes spanning from around 5.03x down to 0.33x. For the top quartile, it shows a maximum around 5.03x and a minimum around 1.01x.

It also quantifies the time dimension of liquidity. Only about 25.35% of schemes in the aggregate benchmark had reached 1.0 DPI, taking an average 7.21 years to reach that milestone.

Put together, you get a more realistic view of dispersion:

IRR dispersion tells you outcomes differ. DPI dispersion tells you liquidity differs. Timing tells you that even good paths can be long. And the interaction explains why two investors can both say they invested in private markets and have completely different experiences.

Regulation and benchmarking are the antidotes to narrative-driven markets

Dispersion is dangerous only when it is invisible. When it is measurable, it becomes manageable.

This is why the regulatory timeline in the report is part of the maturity story. It tracks steps such as mandated benchmarking (2020), valuation standardisation (2023), due diligence to prevent evergreening (2024), and compliance officer requirements (2025). It also summarises operational reforms such as digitising PPM audit reports, aligning valuation norms, mandating professional certification, enabling co-investment with safeguards, dematerialising AIF units, and strengthening due diligence frameworks.

Regulatory standardisation doesn’t reduce dispersion in business outcomes. What it reduces is dispersion in information quality, valuation discipline, and process reliability. In a market where outcomes differ widely, those stabilisers protect credibility.

What the dispersion story really implies

The report gives enough evidence to hold two truths at once.

First, India’s unlisted equity AIF benchmark, in aggregate, has delivered meaningful alpha over public markets across multiple benchmarking cycles.

Second, dispersion is substantial, and large enough that the category cannot be understood through a single average return number. The top-half alpha figures make that plain.

The takeaway is that benchmarks become more important as scale grows because scale increases the consequences of dispersion. A large ecosystem needs a clear way to measure outcomes, discuss cash-flow realities, and build liquidity mechanisms that reduce dependence on perfect exit windows.

Dispersion is not something India’s private markets need to solve. It is something they need to acknowledge, measure, and design around. This report, by putting dispersion and realised outcomes in the foreground, is doing exactly that.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: What does dispersion mean in private markets?

A: It refers to how widely outcomes vary across managers, strategies, and vintages, even within the same broad category.

Q: What does the report’s alpha number represent?

A: It reflects benchmark outperformance of the aggregated VC and unlisted equity AIF universe versus the BSE Sensex TRI over multiple benchmarking cycles.

Q: Why can private markets outperform while still producing uneven experiences?

A: Because private markets behave like a distribution, not a single return stream, and outcomes differ sharply based on underwriting, governance, and exit execution.

Q: What is DPI and why is it discussed alongside IRR?

A: DPI (Distributions to Paid-In) focuses on realised cash returned relative to capital invested, complementing IRR which can include unrealised valuations.

Q: Why does exit execution matter so much?

A: Exits convert paper gains into realised outcomes. Differences in timing, routes, and governance readiness often determine how returns are actually delivered.

Sources

No Ifs About AIFs 3.0