India’s alternative investment fund ecosystem, which has expanded rapidly over the past five years, is now moving into a phase where performance scrutiny and cash realisation matter more than headline fundraising numbers. According to the third edition of the CRISIL–Oister benchmarking report, the focus is clearly shifting from capital formation to outcome accountability.

The report tracks 170 Category I and II AIF schemes investing in unlisted equities and covers seven benchmarking cycles between March 2022 and March 2025. Over this period, the aggregated benchmark delivered a pooled internal rate of return of 24.02%, compared with 15.3% for the BSE Sensex Total Return Index. The implied alpha of roughly 8.7% underscores that private market strategies, on aggregate, have continued to outperform listed equities.

For industry participants, however, the headline alpha is only part of the story. Oister Global Co-CEO Sandeep Sinha described the evolution as structural. The first benchmarking edition aimed to establish a credible baseline. The second dissected stage-wise outcomes. The third, he argued, reflects a market where investors are less interested in momentum and more focused on realised results.

One defining feature of the current phase is dispersion. While aggregate returns remain strong, the gap between top-quartile and average managers remains wide. In private markets, where sourcing is proprietary and information asymmetry is high, manager selection becomes central to performance. Unlike listed markets, where price discovery is continuous and data widely available, unlisted investing demands deep diligence and domain expertise. As a result, dispersion in outcomes is structurally higher.

This divergence is increasingly visible when one shifts from internal rate of return to distributions. Of the 170 schemes analysed, 142 have made distributions. Around 42.25% have returned at least half of paid-in capital, taking an average of 6.51 years to reach that threshold. About 25.35% have crossed the 1x distributed to paid-in capital mark, taking 7.21 years on average. At that level, average DPI stood at 2.03x, while top-quartile funds that fully returned capital recorded DPI of 3.49x.

These numbers highlight a more sober reality. Capital is being returned, but over multi-year timelines. Investors are now asking more pointed questions: how long to liquidity, how consistent are exits, and how much of the IRR is backed by realised cash rather than unrealised mark-ups. In a global environment where IPO windows have become selective and exit cycles elongated, the quality and timing of distributions have become critical differentiators.

Secondary transactions are emerging as a structural response to this liquidity challenge. India’s secondary deal value rose to Rs 377 billion in FY25, up 32% year-on-year. In the first half of FY26 alone, deal value reached Rs 361 billion, nearly matching the prior full fiscal year. Average deal size has expanded significantly, from Rs 2.28 billion in FY20 to Rs 8.39 billion in H1 FY26.

This trend suggests that secondaries are no longer opportunistic but increasingly embedded in the liquidity framework of the ecosystem. With IPOs unable to serve as the sole exit route, structured secondary sales are helping funds recycle capital and provide partial liquidity to investors. Compared with early-stage investing, secondaries also tend to exhibit relatively lower dispersion, offering a more predictable risk-return profile within private markets.

Another structural shift is the rising participation of domestic capital. Domestic investors now account for about 55% of commitments in Category I and II AIFs, up from roughly 50% a year ago. Improved regulatory clarity and benchmarking transparency appear to have strengthened confidence among local institutions and family offices. From a policy perspective, this deepening domestic ownership aligns with the broader objective of ensuring that value creation within India’s innovation and manufacturing ecosystem is not disproportionately captured by offshore capital.

The scale of the ecosystem underscores its systemic relevance. Cumulative commitments stand at nearly USD 160 billion, or around Rs 15 lakh crore. Nearly 1,600 AIFs are registered, with two-thirds launched since FY21. Sector concentration is also easing. The share of the top five sectors in total PE and VC investments has fallen from about 85% to 66%, indicating broader capital allocation into themes such as health technology, climate-linked businesses and manufacturing.

For Indian markets, the sustained alpha relative to listed equities reinforces the case for private market allocation within diversified portfolios. However, the data also signals that returns are far from uniform.