More private equity, venture capital funds plan to create equity value beyond fees, carry: Fundamentum’s Ashish Kumar

Indian venture capital and private equity firms have traditionally made money in two ways: fees for running funds and a share of the profits. Some now want a third, holding equity in a fund management platform that could eventually get listed, Ashish Kumar, co-founder of Fundamentum Partnership and F2A, said.

Kumar expects at least four or five firms to try some version of this in the next two to three years. The thinking is simple—hold the best companies for longer and, in time, sell shares in the fund-management business itself.

“Traditionally, funds, whether venture capital or private equity, have made money through carry and fees. Now, public markets have started looking at different types of companies, and people have understood that you can also make money through equity value,” Kumar told Mint, in an interview.

Most firms are still thinking it over and haven’t turned the idea into plans, he said. F2A is focused on putting its recently raised $370 million fund to work. A listing is too early to consider, he said, if it happens at all.

Mint reported on 13 October that F2A raised its maiden fund target to ₹3,500 crore from ₹3,000 crore, including a ₹2,500-crore domestic allocation after stronger-than-expected interest from local investors.

Publicly listed private equity firms are common in the US. Blackstone went public in 2007, followed by KKR in 2010. Apollo Global Management and Carlyle Group listed in 2011 and 2012, respectively. The latest major private equity firm to enter the public markets was TPG, which went public in 2022.

In India, Gaja Capital listed on the National Stock Exchange (NSE) and BSE Ltd on 26 August, marking a milestone as one of the country’s first mainstream pure-play private equity and alternative asset management companies to go public.

Why the traditional fund model is changing

Kumar said three factors are driving the interest in building investment platforms.

The first is the possibility of creating equity value in the asset management business itself, rather than relying only on the fees and carried interest generated by individual funds.

The second is the longer growth trajectory of technology companies. Traditional private equity funds typically hold investments for five to six years, while venture capital funds operate over longer cycles.

“But successful technology businesses can continue to grow for 15-25 years, creating a case for investors to remain invested well beyond the life of the original fund,” he said.

This creates a structural challenge for fund managers. A platform with multiple investment vehicles and strategies could give managers more flexibility to retain exposure to such businesses.

The third driver, Kumar said, is demand from limited partners (LPs) who do not want to choose a new fund every five, eight or 10 years.

“If they have invested in a fund that has backed a successful company, they would rather continue holding that investment for longer,” he said. Sophisticated LPs, he added, want the fund manager—not themselves—to continue holding the asset.

Entrepreneur-led firms may have an advantage

Kumar said this goes beyond investment firms managing multiple funds or strategies.

“The idea is to build an enduring asset management business that creates equity value of its own, while allowing managers to retain successful portfolio companies beyond the life of individual funds through vehicles such as continuation funds,” he said.

Kumar believes entrepreneur-led investment firms may be better placed to build such platforms than those run by professional fund managers.

Entrepreneurs, he said, tend to think about building businesses over longer periods, rather than operating within the life cycle and economics of an individual fund.

According to a recent internal F2A study, of roughly 400 funds in India, around 300 were started in the past five years.

For Kumar, the larger ambition is to build an institution that can outlast its founders rather than remain dependent on a few individuals.

He said succession remains a challenge for venture capital firms, many of which are closely identified with their founding partners.

“Can you structure it in a way that the institution continues beyond its founders?” he said. “Otherwise, most venture funds die after their initial founders move out. So, it also depends on succession,” he said.