Illustration by The Atlantic. Source: Getty Images
Private equity is supposed to be patient. In Nepal it is being tested to the limit. Over 30 firms have applied for licences to manage private equity and venture capital (PEVC) funds, nearly triple the number of current operators in a country with fewer successful exits than ministers in a coalition government. For a market with scant liquidity, embryonic deal flow and institutional investors that prefer concrete to cap tables, this sudden enthusiasm is less boom than bubble.
Also read: PEVC in Nepal lacks exits but not optimism
At first blush, the country seems ripe for private capital. A youthful population, rising smartphone penetration and a fragmented business environment present textbook conditions for operational value creation. Yet the reality is less compelling. Most funds resemble venture capitalists in PE clothing, chasing quick multiples in a shallow pond. Deals remain sporadic, exits rarer still. If this is private equity’s golden hour, no one seems to have sent the companies a calendar invite.
The local troubles are formidable. Nepali capital market is thin. Its regulatory regime is sporadically enforced. And its banks are still digesting the indigestion of pandemic-era credit splurges. The central bank, wary of speculative forays, bars banks from investing in PEVCs altogether. Those that dared were told to scrub their exposures from core capital. Insurers may invest in theory but they are reluctant to fund a startup weekend, let alone a leveraged buyout.
Nor have the country’s institutional giants stepped in. The Employees’ Provident Fund and the Social Security Fund sit on a mountain of idle capital, but display the reflexes of a hibernating marmot. A structured partnership could change the game. Rather private-capital managers find themselves cursed with a bureaucratic pinball machine: bounced between ambiguous laws, slow-moving approvals and a regulator uncertain whether it’s refereeing a sport or managing a casino.
The SEBON, the securities watchdog, now faces a peculiar conundrum. Approve too few funds and it may smother a nascent industry. Approve too many and it might inadvertently license a shell game. Its chairman, Santosh Narayan Shrestha, insists the reviews are nearing completion. But diligence is only part of the equation. The bigger question is philosophical: can the SEBON distinguish between ambition backed by capital and ambition backed by PowerPoint?
Some applicants appear motivated less by asset management than asset flipping. In a policy environment known for opaqueness and patronage, a PEVC licence can be more useful as a bargaining chip than a business plan. Others are earnest but underprepared, struggling to raise anchor capital or convince foreign partners to brave the country’s procedural quicksand. FITTA, the country’s foreign investment law, adds its own hurdles. Only a handful of firms have managed to raise cross-border capital—usually from patient, development-minded institutions who, it turns out, are more tolerant of Nepal’s idiosyncrasies than its own pension funds.
The irony is that Nepal might actually need PE more than most. Its firms are commonly under-managed, under-documented and under-digitalised. A classic “buy and hold” strategy—hands-on, operationally focused, locally grounded—could make a material difference. Not the champagne-financed financial engineering of Wall Street, but the sweat-equity slog of Main Street. That means fund managers who can do more than model returns—they must manage inventory, recruit CEOs, wrestle with provincial tax forms and tiptoe through the minefield of local-patronage networks.
Elsewhere, the model has evolved accordingly. In India firms like True North and ChrysCapital have moved from spreadsheet jockeying to sectoral specialisation. In sub-Saharan Africa PE houses act more like industrial incubators, coaxing maturity out of fragmented supply chains and family firms. Nepal’s future stars may look more like these than their glossy Western counterparts. The glamour may be absent, but the returns—steady, long-term, developmentally aligned—could prove more durable.
Some domestic funds are adapting. ESG criteria, once a box-ticking exercise, are now appearing in term sheets. A few have stopped chasing flashy valuations and started building pipelines in healthcare diagnostics, agri-processing, last-mile logistics—unglamorous, yes, but essential. Blended-finance initiatives and public co-investment schemes hint at a more coordinated approach. Still, these are green shoots in a high-altitude desert. Most fund managers are still waiting for scalable deals while entrepreneurs wait for funding. Both risk frostbite.
Exit routes remain the thorniest problem. The NEPSE, the national stock exchange, is too illiquid to serve as a reliable off-ramp. Strategic buyers, foreign or domestic, are in short supply. Continuation funds and NAV loans may buy time, but cannot manufacture exits. Until credible pathways emerge, even the best-managed firms may become stranded assets.
Globally, private equity is undergoing its own reckoning. The era of cheap capital papered over structural laziness: financial engineering masquerading as growth. With interest rates higher than a decade or so ago and investor patience thinning, the industry is being forced to return to its roots: long-term value creation, not only leverage-and-leave. Nepal has no choice but to start there.
The flood of new-licence applications suggest a strange cocktail of optimism and opportunism. But in a market where ambition outpaces absorption capacity, the bigger risk is misallocation: of capital, of credibility and of time. A sector that was meant to bring discipline and dynamism could rather replicate the very dysfunction it promises to reform.
Still, if private equity in Nepal can resist the temptation to sprint, and instead build for the marathon, it may yet pay off. Not with unicorns, but with sturdy, well-run enterprises that gradually lift productivity and employment. That, in the end, is the only exit that matters. ■
