Liquidity, Locks and Secondaries: How Indian HNIs Are Solving the Illiquidity Problem in Alternative Investments?

Alternative investments - from private equity and venture capital to real estate and private credit, have become a core part of the portfolios of India’s High Net-Worth Individuals (HNIs). These investments promise higher returns and diversification, but they also come with a challenge: illiquidity.

Unlike listed stocks or mutual funds, investors can’t simply sell and exit when they wish. As allocations to alternatives grow, Indian HNIs are finding new, smarter ways to overcome this liquidity gap, often through secondary markets, structured exits, and innovative fund designs.

This blog explores how HNIs are tackling the illiquidity challenge and reshaping India’s alternative investment landscape.

The Rise of Alternative Investments Among HNIs

Over the past five years, Indian HNIs have significantly increased exposure to alternatives. According to a 2024 Bain & Co report, allocations to private markets among Indian HNIs have grown nearly 3x since 2019, with private equity, venture capital, and real assets being the top choices.

This trend is driven by:

• Search for higher yields: Traditional assets like debt funds and FDs are offering modest post-tax returns.

• Desire for diversification: Alternatives help balance market volatility and correlation risk.

• Institutional-like access: Through AIFs (Alternative Investment Funds), even individual HNIs can participate in institutional-grade opportunities.

But with these benefits comes one key trade-off — liquidity.

Understanding the Illiquidity Problem

Illiquidity in alternatives arises because these assets are not easily tradable.

For instance:

• Private equity funds often have lock-in periods of 7–10 years.
• Venture capital investments may take years before exit opportunities emerge.
• Real estate or private credit deals can be even less liquid, with uncertain timelines for payout.

For HNIs who want flexibility, this poses a serious issue. They may need liquidity for reallocation, new opportunities, or personal financial planning.

How Indian HNIs Are Responding?

1. Secondary Market Transactions

The secondary market for alternative assets is growing rapidly in India. HNIs are increasingly using it to sell existing fund units or stakes to other investors, freeing up capital before maturity.

• According to Preqin data (2025), India’s secondary private market volume grew over 40% year-on-year in the first half of 2025.

• Wealth managers are also facilitating peer-to-peer secondary transactions within their client base, creating liquidity options where none existed before.

This evolution means that an HNI doesn’t need to wait till the fund’s natural exit. They can partially or fully exit based on their liquidity needs.

2. Structured Liquidity Solutions

Wealth management firms and family offices are designing structured solutions that blend liquidity and returns.

Examples include:

• Hybrid AIFs combining listed instruments with private assets to ensure periodic liquidity.

• Credit lines against AIF units, allowing investors to borrow against illiquid holdings without selling them.

• NAV-based financing, where investors can access capital based on the net asset value of their investment.

Such innovations provide flexibility without disturbing long-term compounding.

3. Shorter-Duration Funds and Evergreen Models

Fund managers are responding to investor preferences by introducing shorter-duration AIFs (3–5 years) and evergreen fund structures, which allow rolling entry and exit.

This not only enhances investor comfort but also attracts new participants who may have avoided alternatives earlier due to long lock-ins.

4. Increased Transparency and Reporting

HNIs today demand greater visibility into how their money is deployed.

Enhanced reporting, quarterly updates, portfolio-level transparency, and digital dashboards, helps investors plan exits better and assess liquidity scenarios in advance.

According to EY India’s Private Wealth Report 2025, over 68% of Indian HNIs cite improved transparency as a key reason for increasing allocations to AIFs and other alternatives.

Looking Ahead: The Future of Liquidity in Alternatives

As India’s wealth ecosystem matures, liquidity innovation will be central to growth.

The interplay of secondary markets, tech-enabled exchanges, and structured credit solutions is set to define the next decade of private investing.

For HNIs, this evolution brings a crucial advantage — the ability to stay invested long-term while maintaining financial agility.

Key Takeaways

• Illiquidity is no longer a deterrent: Indian HNIs are actively solving it through creative mechanisms.

• Secondary markets are maturing: Liquidity solutions are now integral to the wealth management offering.

• Technology and structure matter: Platforms and innovative AIF models are enhancing flexibility and confidence.

• Transparency builds trust: Frequent updates and valuation clarity are improving investor comfort levels.

Conclusion

The HNIs of 2025 are not just looking for high returns - they are seeking control, flexibility, and transparency in their alternative portfolios.

By leveraging secondary markets, technology-driven platforms, and structured solutions, they are redefining what it means to invest in private markets. The future of wealth in India is not just about who can hold the longest but who can stay agile while thinking long-term.

FAQs

1. What is a secondary market in alternative investments?

It allows investors to sell their existing AIF or private equity fund units to other investors before maturity, providing liquidity.

2. Why is liquidity a challenge in alternative investments?

Unlike stocks or mutual funds, alternatives are not publicly traded and often have long lock-in periods, making them hard to exit quickly.

3. How do HNIs manage liquidity without exiting investments?

HNIs often use credit lines against their AIF holdings or participate in structured liquidity programs offered by wealth managers.

4. Are shorter-duration AIFs becoming popular in India?

Yes, several fund houses are launching 3–5-year AIFs to attract investors who prefer moderate-term commitments.

5. Will liquidity options reduce returns?

Liquidity features may slightly lower potential returns but provide flexibility and risk management, which many investors value.