The Securities and Exchange Board of India sees family offices playing a key role in the development of the alternative investment fund (AIF) ecosystem as investors backing innovation and assuming a stewardship role to ensure proper governance of the funds, said a senior regulatory official at the VCCircle Family Office Summit 2026.
In a fireside conversation titled ‘Public guardrails for private capital’, SEBI chief general manager Aparna Thyagarajan spoke on family offices’ participation in the AIF and startup ecosystem, the opportunity that is open to them, and the regulatory guardrails that protect their capital.
Thyagarajan leads that team that frames policies for AIFs, foreign portfolio investors (FPIs), foreign venture capital investors (FVCIs) and custodians. With over two decades of experience, she has worked across various divisions in SEBI including handling regulation for secondary markets and market intermediaries.
The AIF ecosystem has grown in leaps and bounds since the inception of the current regulatory framework in 2012. As of March 31, 2026, it has drawn over Rs 16.94 trillion in investment commitments and Rs 7.02 trillion in funds raised, according to SEBI’s database.
But, as Thyagarajan noted at the event held in Mumbai last week, only around 3% of this capital goes into backing startups. This and social-impact funds are where she sees family offices playing a significant role.
“There is a lot of talk of drawing domestic institutional capital into AIFs. While there are banks and pension funds and insurers to tap, they are governed by their respective regulators. Meanwhile, family offices have no prudential limits to maintain or similar restrictions. They operate in a relatively open space, so they can support innovation and enterprises in their newer ventures (like those that meet environmental, social and governance goals),” she said.
Family offices can also play a stewardship role, raising questions on the way the funds are governed. She pointed out how SEBI noted a few years ago that AIFs were sometimes being used to circumvent norms of other financial regulators. In 2024, the then SEBI whole-time member Ananth Narayan had said that 20% of the AIF investments were being used to get around other regulators’ norms.
While SEBI has since plugged this loophole by saying that what cannot be done directly cannot be done indirectly through AIFs, Thyagarajan said that sophisticated investors such as family offices could take the lead in ensuring that such bad practices do not continue.
“We also look at family offices as a segment that can take a lead in terms of playing that stewardship role when it comes to questioning the governance of the funds or even the investee companies themselves,” she said. “For example, they can question the investment decisions made by the fund manager or check how issues such as conflict of interest is being handled.”
Conflict of interest
With single-family offices anchoring AIFs by contributing a large portion of the capital pool, market players have raised questions on whether the fund structures are being used only for tax efficiency and not to pool risk capital, and whether a single LP will have a disproportionate say in the fund’s decisions and their asks will be in detriment to other LPs.
To this, Thyagarajan said that the regulator does not have such concerns because the AIF regulations have adequate guardrails to deal with conflict of interest.
“There are no restrictions on how many investors you need per scheme; you can have one or a few,” she said.
“But whenever there is a conflict of interest between an investor and investee company, there are due diligence checks to be undertaken by the fund manager before they execute the transaction. They also have to do checks before onboarding investors. These would address fears that fund structures could be potentially misused. SEBI does not have concerns about the investor composition of funds,” she said.
Elaborating on the conflict-of-interest guardrails, she said that whenever there are associate relationships between the manager and the investor, related-party norms kick in. These norms define what associate relationships are, whether through cross-ownership or the existence of influence or control of one investor over the manager or the investee entity.
“These are matters that have been examined recently and there is a consultation paper that is open now in terms of how conflict of interest needs to be managed, including the investor approvals that are needed for such transactions,” she said.
Dispute resolution
Family offices are also choosing the AIF structure for better governance these days. In this context, when there are conflicts between the fund and the LPs or among LPs, would SEBI’s dispute mechanism kick in?
Thyagarajan said that schemes for accredited investors only are subject to less regulatory intervention since they are meant for sophisticated investors.
“Accredited-investor-only schemes [in which family offices that have been registered as AI can participate] offer a lot of flexibility for fund managers to curate transactions for the investors. In such instances, the regulator’s thinking is that these sophisticated investors can handle their own disputes and these arrangements with the fund managers are largely contractual agreements between GPs and LPs,” she said.
“With non-AI schemes, SEBI does step in and we have a full-fledged mechanism for handling such disputes, when it is between the registered intermediary [AIF in this case] and investor. The regulator does not step in when the dispute is between the LPs,” she added.
