In the world of finance, too much enthusiasm is usually a warning sign. In Nepal more than 30 firms have applied for licences to manage private equity and venture capital (PEVC) funds. This would nearly triple the number of players in a market where even the licensed dozen are having trouble deploying capital. If this is a sign of bullishness, it may be more speculative than sustainable.
The frenzy stems from the Securities Board of Nepal (SEBON), which is inching toward final approvals under its “Specialised Investment Fund Regulations”. But the bottleneck is not bureaucratic alone. Structural constraints (regulatory ambiguity, shallow capital pools, lukewarm institutional appetite) threaten to undercut the incipient foray into private capital.
That hasn’t deterred a colourful cast of applicants. Merchant banks, investment firms and new ventures bearing aspirational names—Emerging, Everest, Trust, Zerodha—are queuing up for a licence. Their motives vary. Some see a genuine opportunity to plug capital into underserved businesses. Others appear lured by the PEVC model itself: a 2% management fee provides steady cash flow, regardless of performance. Compared with the three-year lock-in for public company promoters, the one-year lock-in for PEVCs feels positively nimble. For certain promoters the structure is less a vehicle for investment than an elegant workaround: that liquidity disguised as long-term commitment, as Bibhor Jha, of Sanima Bank, put it.
All this would be less worrisome if the capital markets were bursting with surplus cash. They are not. Banks, which command the lion’s share of investible capital, have been explicitly barred by the central bank from investing in PEVCs. Those that already dipped their toes were ordered to write off the exposure from core capital, which underlined just how tightly the Nepal Rastra Bank guards its prudential perimeter. Insurance companies may legally invest, but their balance sheets are too modest to underwrite dozens of ambitious funds.
Meanwhile, institutional giants like the Employees’ Provident Fund and the Social Security Fund sit atop trillions of rupees in assets but remain aloof. A well-structured partnership with such entities could revolutionise capital mobilisation. But it requires something the current regime lacks: clarity; credibility; and coordination.
The origins of Nepali PEVC ecosystem are humble. Introduced in concept in the early 2010s and only formalised later, the model gained traction chiefly due to foreign-funded entities such as Dolma Impact Fund and Business Oxygen. These pioneers braved regulatory thickets to invest in sectors where traditional credit feared to tread. Their example showed what private capital could do when backed by deep pockets and patient investors.
But the replication effort has proved less replicable. A new crop of domestic fund managers—Team Ventures, Alpha Capital, Two North—has emerged with credible aspirations. Yet even they struggle with the basics: raising anchor capital; attracting limited partners; and convincing regulators to move at a pace quicker than geological time.
The latest gold rush reflects both hope and opportunism. As with any nascent market, early entrants may enjoy first-mover advantages. But in Nepal’s case, the sheer number of hopefuls suggests something else: the belief that licences themselves might be monetised: either by flipping firms, courting foreign tie-ups or using them as bargaining chips in a policy environment known for its opacity.
The SEBON’s hands are tied between risk and reward. Approve too few and it risks stifling innovation and hoarding opportunity. Approve too many and it may inadvertently license a bubble. Chairman Santosh Narayan Shrestha insists reviews are in the final stages. The real trouble, however, transcends due diligence: can the SEBON distinguish between ambition backed by capital and ambition backed by PowerPoint?
Critics like Dr. Manish Thapa of Global Equity Fund have a more sobering view. He warns most existing licensees are yet to mobilise meaningful capital, let alone deliver returns. Expanding the pool, without recalibrating the rules of the game, risks spreading thin an already shallow market.
Worse, legal ambiguities exist over who qualifies as a fund manager. Banks and insurers are themselves applying for PEVC licences, raising eyebrows about conflicts of interest. Without a coherent policy on things like fund ownership, governance and fiduciary responsibility, the line between institutional investor and fund promoter grows dangerously blurry.
Foreign capital, seen as a panacea, has proved elusive. Under the Foreign Investment and Technology Transfer Act (FITTA), only three domestic PEVC firm has reportedly succeeded in raising funds from development finance institutions. If foreign investors find the red tape off-putting, domestic investors find the risk-return profile unconvincing.
All of which poses an awkward question: are there simply too many firms chasing too few deals with too little money?
The PEVC sector for now remains a promise more than a product. If its regulators can craft clear rules, unlock institutional capital and enforce discipline post-licensing, the sector may yet deliver. If not, it risks becoming a footnote in a country already littered with good ideas badly executed.
The SEBON may soon finish vetting its new applicants. But it is the market, not the regulator, that will deliver the final verdict. After all, it is one thing to win a licence. Quite another to put it to work. ■
