Imagine a country where the largest pools of domestic capital are deliberately kept idle. This is not a theoretical puzzle in development economics: it is the reality of modern Nepal. The nation’s three main pension funds sit on a war chest of over $5bn. For a country starved of investment, such hoarding is an act of economic self-harm.
Nepal has grand plans but empty pockets. To meet its development goals, it needs a surge of investment, much of which must come from the private sector. Its banks are overextended. Its stockmarket is a casino. The only institutions with the scale and long-term horizon to fund growth are the pension providers: the Employees Provident Fund, the Citizen Investment Trust and the Social Security Fund.
Yet they invest with the daring of a monastic order. Their portfolios are stuffed with government debt and fixed deposits. Less than 5% touches anything resembling risk capital. For the SSF to boast of placing millions in a fixed deposit is to mistake prudence for paralysis.
One can sympathise with their timidity. Nepal’s politics are volatile and its regulations murky. What is more its corporate governance tends to be a family affair. Preserving capital is a rational goal. But prudence has curdled into pathology. Whereas these domestic giants slumber, foreign investors are seizing the best opportunities. Institutions like the World Bank’s International Finance Corporation are financing everything from clinics and tech to renewable projects. The upside of Nepal’s growth is being captured abroad while its own savings gather dust.
This creates a vicious circle. Promising Nepali firms cannot raise money at home. Although the local private-equity industry is booming with some reliant on foreign donors, there are no clear exit routes. A dysfunctional stock exchange and non-existent mergers market complete the trap. The fallout is capital-market schizophrenia: a nation desperate for investment whose own institutions refuse to provide it.
Elsewhere, this stillness is provoking debate. Britain’s government frets that its pension funds are outbid on domestic assets by Canadian and Australian rivals. If foreigners believe in your economy more than your own stewards do, something is amiss. In Nepal the embarrassment is acute, but the debate is muted. The funds’ mandates are narrow and their governance outdated. Furthermore, their boards are neutered by bureaucratic risk-aversion.
A small shift would make a world of difference. Directing even 5-10% of their assets into private markets would be a nudge with teeth. To manage risk rules could channel investments through accredited “funds-of-funds” targeting priority sectors like digital infrastructure or small-business finance. The objection that this betrays fiduciary duty is misguided. That duty is to seek sustainable long-term returns rather than to avoid volatility at all costs.
From Ontario to Australia, sophisticated pension funds allocate heavily to private assets. Even Kenya and Vietnam are building frameworks to allow it. Nepal is still debating whether private equity is too exotic to touch.
That fear underlines the need for bigger reform. Regulators must modernise rules to recognise asset classes like private equity. The government must develop a pipeline of investable projects. The funds’ boards need an injection of expertise, perhaps via partnerships with experienced foreign institutions. The stockmarket needs an overhaul. The diaspora, now seen only as a source of remittances, could be tapped as co-investors.
The cost of inaction is generational. Today’s contributors are tomorrow’s pensioners. If their savings are left in low-yielding deposits they will be eaten by inflation and left behind by the economy. A polite strategy of guidance has failed. A soft mandate with clear thresholds would give pension boards the political cover to act, spur market development and, crucially, signal that Nepal’s own institutions believe in its future.
The funds are not villains. They are cautious stewards in a tricky environment. But when caution becomes institutional torpor, it is itself a big risk. Nepal has a long list of excuses for underdevelopment. Its pension funds could be powerful tools to scratch them off. Instead they remain asleep on a bed of cash. It is time to wake them up. ■
A version of this piece previously appreared in April 2025, and has since been updated and rewritten.
