Capital market regulator Sebi is likely to keep family offices and special purpose vehicles (SPVs) out of the proposed regulations on private capital pools like private equity and real estate funds.

"Sebi has received feedback that the definition is too broadly worded," said a person familiar with the matter. He added that the regulator is likely to exempt these entities as the intention of the new rules is different. In August, Sebi had announced draft rules for alternative investment funds, proposing a categorisation of private equity into nine formats, higher sponsor contributions and caps on investments among other things.

"Considering the all encompassing definition of AIF, there is a definite need for certain specific exclusions for certain types of pooling structures like family offices as well as certain other pooled structures like employee trusts, omnibus accounts set up by distributors and co-investment vehicles. Failure to do this will cause administrative hardships for creation of such structures which may not pool investors from the public or in other cases are an intermediate or supplemental pooling structures investing in or alongside a AIF," said Siddarth Shah, head of funds practice, Nishith Desai Associates, a leading law firm.

The regulator has received over 100 responses on the proposed norms from various stakeholders and will come out with the new rules soon, the person quoted first said. "One has to distinguish between the pool capital be it either family offices or private funds. Typically, you have a singlefamily capital or multi-family capital but in either case each family portfolio is kept separate and distinct," said Dinesh Vaswani, MD, Acuitas Capital Advisors, a firm that advises wealthy families.

Vaswani said that there was a huge difference between a private equity fund where people pool money on a pro-rata basis in the fund and family offices. In India, the concept of family offices and multifamily offices is new. Family offices help in non-traditional areas like succession planning and philanthropy among others things. "Family offices are not a fund as there is no discretionary pool of capital like most of the entities that Sebi wants to regulate," said a person in the industry.

"The family is making the final investment decision unlike in the case of a private equity fund where it is done at the discretion of the fund manager," said the person.

"Similarly for special purpose vehicles, which have a very limited number of investors, could be treated separately from SPVs with large number of investors, similar to private equity funds. The difference is in the structure," Vaswani said. "But there have been situations where people have pooled into SPVs and made investments."

Private equity funds have expressed concerns on the Sebi proposal to introduce multiple categories of funds and have asked for three broad categories: venture capital (covering social SME fund), private equity and hedge funds.

"There is a need for rationalisation of the categories of AIFs so as to create a framework for directed benefits and regulations to a particular strategy and at the same time retaining sufficient flexibility for the participants on investment strategy," said Shah.  (Economic Times)