IMAGE: SHUTTERSTOCK/KATMANDU JOURNAL
THIRTY-SEVEN percent of all private capital ever deployed in Nepal arrived in 2024 alone. The Nepal Private Equity Association, the industry’s trade body, counts $64m invested that year—a record—spread across hydropower plants, fintech ventures and pharmaceutical manufacturers. By one measure, the frontier is open for business.
By another, it has barely moved. Of 137 deals completed since records began, only 19 have produced exits. The average holding period runs past five years. Investors have made roughly two-and-a-half times their money on the transactions that did close, which is respectable—until one notices that most of the capital has simply not moved at all.
Also read: Nepal’s private-equity boom has an exit problem
Nepal’s stock exchange is too slim to absorb big stakes. Domestic acquirers with balance-sheets adequate to buy a growing start-up can be counted without removing a glove. Secondary sales—one fund offloading to another—account for much of what passes for liquidity. As one fund manager in Kathmandu puts it: “We need bigger fish or a river to the ocean.” The ocean is not yet visible.
The easy diagnosis is that Nepal is young and needs time. The harder one is that the wrong machinery was imported for the terrain. The standard venture vehicle—a ten-year blind pool, management fees of two percentage points and a fifth of profits as carried interest—was engineered for markets where start-ups scale by writing code, public listings absorb whatever equity the founders leave behind, and corporate buyers queue for assets that grow.
Nepal’s entrepreneurs operate in a different economy. Many firms are what practitioners call “phygital”: they run apps, true, but also manage inventory, move goods in cash and extend credit to distributors. They need working capital before growth capital. The classic fund treats working capital as a secondary concern; in Kathmandu it is the enterprise itself.
That mismatch has produced a specific set of pathologies. The first is the clock. A fund raised in 2020 must return capital by 2030. A company that took money in 2025 therefore has five years to engineer an exit that its 2021-vintage peer had a decade to prepare for. Timetables compress and distort. Start-ups are pushed to scale before securing product-market fit, because the fund’s deadline overwhelms the company’s rhythm. Forced growth in a thin market tends to mean buying customers with subsidies that evaporate when the next funding round fails to materialise.
The second pathology is one the industry has been slow to acknowledge. Early fund managers raised more capital than the market could responsibly absorb. Pressure to deploy at pace inflated valuations, says an insider. Assets once priced as if they were in big, active markets are still recorded at values that no new investor would pay.
The incentive structure compounded the error. Management fees—drawn from committed capital before exits arrive—generate comfortable income on small funds. A $30m vehicle, large by local standards, yields $600,000 a year in fees before a single rupee of carry is earned. When exits are fifteen years away rather than ten, the general partner’s rational response is to court the next fund’s limited partners rather than produce returns for the current one. The alignment of interests that carried interest is supposed to enforce has drifted. LPs are funding comfortable operations; managers are harvesting fees.
A third, less discussed problem involves the nature of the capital itself. A dollar from a development finance institution—a DFI, a government-backed lender tolerating lower returns for social impact—is not the same animal as a dollar from a purely commercial domestic investor seeking returns above a market benchmark. Nepal’s funds have blended both without always being honest about the tension. DFI money subsidises patience; commercial money demands performance. Mixed together without clear governance, neither discipline prevails.
Most troubling is what has emerged around initial public offerings. Licensed managers in Nepal may exit positions 12 months after a portfolio company lists, with no requirement on how long they were investors beforehand. The rule has produced a class of operators better described as merchant bankers than private-equity investors: they identify companies approaching IPO readiness, take stakes, help push them to market and sell into the retail buying frenzy that typically follows a new listing. This is not private equity: it is preparation for a public pump, and its victims will be the small savers who buy at the peak.
Meanwhile the first vintage of funds, raised around 2018 and 2019, is approaching expiry. General partners must return money and establish credible track records before larger, more patient capital arrives. If they fail Nepal risks ending up with stranded capital, inflated valuations and a bruised public market. Today’s encouraging numbers already carry that reckoning. ■
