From LP to GP, Why More Investors Are Launching Their Own Funds

A quiet shift is taking place in India’s private markets. Investors who once allocated capital as Limited Partners (LPs) are now stepping forward to launch their own funds, moving from passive backers to active General Partners (GPs). This trend—where veteran investors, former startup founders, and ex-bankers break away from large institutions to run independent firms—is beginning to reshape how private capital is raised, deployed, and managed in India.

Historically, India’s private equity and venture capital space was dominated by large global firms and a few homegrown players with institutional backing. Limited Partners—pension funds, family offices, sovereign funds, and high-net-worth individuals—provided capital to these GPs, trusting them to generate returns. But in recent years, a growing number of former LPs and seasoned operators have decided to launch their own vehicles, leveraging their networks, sector expertise, and deep understanding of market cycles to directly invest in opportunities they once had to access through intermediaries.

Several factors are fueling this transition. One of the biggest drivers is capital availability. As India’s private market ecosystem matures, the traditional barriers to launching a fund—capital constraints, regulatory hurdles, and credibility concerns—are beginning to fade. Domestic and global LPs are more willing to back first-time fund managers than ever before, especially those with a track record in deal-making, deep industry experience, or operator-led expertise.

The numbers reflect this shift. In 2024, first-time private equity and venture capital funds in India raised record commitments from family offices, institutional investors, and ultra-high-net-worth individuals . These new funds are more specialized, smaller in size, and focused on sector-specific plays rather than broad, diversified bets.

This trend is particularly visible in growth equity, secondaries, and private credit, where experienced investors see clear inefficiencies they can capitalize on. Many of these emerging GPs cut their teeth in top global firms before choosing to spin out, applying the lessons they learned in large-cap investing to build leaner, more nimble, and more founder-friendly firms.
Former startup founders are also joining this movement. Having experienced both fundraising and exits firsthand, many founders are transitioning into full-time investors, often backed by LPs who once funded their ventures. These founder-led funds are attracting capital not just for their ability to pick winners but for the operational depth they bring, something that traditional financial investors often lack.

Another major catalyst is changing investor behavior. LPs are demanding more transparency, better alignment, and greater access to direct investments, rather than simply committing capital to large institutional funds. Many family offices and institutional investors who once relied solely on blue-chip PE and VC firms are now open to backing emerging managers with more focused mandates.

At the same time, the Indian regulatory environment is evolving to make fund launches more accessible. The rise of Alternative Investment Funds (AIFs) has provided a structured framework for smaller, independent funds to operate legally and efficiently. More LPs are willing to test emerging managers through co-investments before committing fully to a fund, creating a smoother transition for first-time GPs.

But the transition from LP to GP is not without challenges. Raising capital as a first-time fund manager is still difficult, and establishing credibility with institutional LPs takes time. Many emerging GPs rely heavily on personal networks and prior relationships to secure anchor commitments. Unlike established PE firms with decades of track record, newer funds must differentiate through specialization, investment discipline, and a unique approach to portfolio management.

The shift from LP to GP signals a deeper evolution in India’s private markets. As more capital is managed by sector-focused, operator-led, and independent funds, the competitive landscape is changing. Large institutional funds will continue to dominate billion-dollar deals, but nimble, emerging GPs are carving out space in the mid-market, early growth, and secondary segments.

The big question is: Will this wave of new funds outperform the old guard? If these emerging GPs can prove their investment thesis, deliver strong DPI, and build trust with LPs, they may redefine how private capital is deployed in India.

What was once a rigid hierarchy—where LPs wrote checks and GPs deployed capital—is starting to blur. In India’s next phase of private market growth, more investors won’t just be backing funds—they’ll be running them.

Data Souce – EY-IVCA PE/VC Monthly trend analysis: December 2024

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