ILLUSTRATION: SHUTTERSTOCK
PRIVATE EQUITY has arrived in Nepal. After a decade of donor-backed experiments, offshore vehicles and patient lobbying, the country’s alternative investment industry is crossing once-unreachable thresholds. In 2024 PE and VC funds deployed a record $64m across forty deals. Over 74% of that capital came from funds licensed under Nepal’s Specialized Investment Fund (SIF) framework, launched in 2019. Nineteen SIF management companies now hold licences from the Securities Board of Nepal, with more in the pipeline. The Employees’ Provident Fund, the Citizen Investment Trust and the Social Security Fund—together managing more than Rs900bn in public savings—have been authorised to invest in mutual funds, private equity and venture capital.
Yet a bigger question is: are these structures suited to the economy Nepal actually has; or to the one its financial elite hopes it will become?
Modern private equity’s intellectual foundations rest on deep, liquid public markets; enforceable legal systems; scalable consumer bases; and institutional investors comfortable with ten‑year lock‑ups. Nepal has none of these. Its economy is small and dominated by family conglomerates. Public markets are shallow and illiquid. Legal enforcement is weak. Entrepreneurship is nascent. Institutional investors are only just learning to look beyond fixed deposits.
Yet the models arriving in Kathmandu—limited partnerships, 2‑and‑20 fees, five‑to‑seven‑year hold periods, IRR‑targeted exit assumptions—are drawn verbatim from Silicon Valley, Mumbai, Singapore and Dubai. The question is: can they work here?
Consider exits. Private equity is a business of buying, improving and selling companies. Without the “selling”, the model traps capital. Nepal’s exit pathways are severely constrained: the IPO market is shallow and sporadic; M&A is rare; strategic buyers are thin. As one fund manager put it, the most common exit strategy is “waiting for divine intervention”.
The data bear this out. Since 2012 PE and VC investments in Nepal have totalled over $165m, yet documented exits through IPOs or secondaries remain negligible. The Nepal Private Equity Association’s market reports are notably silent on realised returns. Exit projections circulate in marketing materials; executions are far harder to find.
Several structural factors explain the blockage. NEPSE’s limited depth means even successful listings may not provide the liquidity a PE fund requires: a significant minority stake cannot be offloaded easily without depressing the share price. Nepali family businesses rarely acquire one another; consolidation tends to happen within existing conglomerate networks, not at arm’s length. Many entrepreneurs are unwilling to cede control, making buyouts—the dominant PE strategy in developed markets—nearly impossible. Poor accounting standards and limited due diligence make it hard to price targets accurately.
The lock‑in period for PE investments, extended last year from one year to two, may paradoxically worsen the problem. It encourages funds to target pre‑IPO stakes in established companies, exiting via the secondary market in a fraction of the time required for ordinary investors. As Manish Thapa of Global Equity Fund notes, “Lock‑in flexibility has made the model far more attractive. But regulators must ensure it aligns with the sector’s original development goals.”
Critics warn the trend risks turning PE into short‑term arbitrage rather than patient capital. A quiet truth few in Kathmandu’s financial circles openly acknowledge: raising a fund, despite its regulatory complexity, may ultimately prove easier than exiting one.
Then there is the family business reality. An estimated 85–90% of Nepali businesses are family‑owned. They are structured around personal relationships instead of formal governance; they resist external oversight; they favour debt over equity dilution; and decision‑making is often dynastic rather than financial. That is not a flaw; in fact it is a rational adaptation to a low‑trust institutional environment.
Yet it is fundamentally incompatible with the governance model that modern PE imports. Wealth in Nepal has historically been built through land ownership, import‑export, banking licences, government procurement and regulatory arbitrage: rather than through the kind of entrepreneurial value creation PE funds are designed to capture. The “tycoon economy” operates through what economists call “rent‑thick” governance, where discretionary authority enables transactional relations.
When Western PE governance meets this reality, friction is immediate. PE funds typically demand board seats, information rights, veto powers and performance covenants: the kinds of external oversight family businesses have spent generations avoiding. The result is often a standoff: PE managers frustrated by opacity, family owners suspicious of interference. The bigger question is whether institutional capital can coexist with deeply personalised business systems at all; or whether imposing Western governance norms on Nepali family firms is a category error.
The May ordinance authorising pension funds to invest in PE was greeted with optimism. With combined assets topping Rs900bn, these are the largest pool of domestic institutional capital in Nepal.
Yet the narrative glosses over inconvenient realities. These are not sophisticated allocators in the global sense. Until recently the EPF was restricted almost entirely to fixed deposits, government bonds and shares of banks and insurers. Its staff have limited experience with illiquid assets or LP‑GP negotiation. Political pressures weigh heavily on allocation decisions; the risk of capital being directed to favoured sectors or business groups is not theoretical. In a political economy where proximity to power matters more than innovation, discretionary institutional capital raises obvious governance concerns.
A “Nepali” fund model would likely look different from imported private equity templates. It would rely on patient capital without fixed exit horizons, since the conventional five-to-seven-year fund life fits poorly in an economy with limited exit options; evergreen structures would better match the slower pace of value creation.
It would also favour revenue-sharing arrangements over pure equity, given founders’ reluctance to dilute ownership. Diaspora capital could play a larger role, providing a significant but underused pool of funding with a better understanding of local business realities and more patient return expectations. Finally, governance would likely depend more on trusted, relationship-based structures rather than purely independent professionals operating at arm’s length.
None of these is a magic solution. Each carries risks. But together they suggest a different philosophy of capital: one meant for Nepal’s economic realities, and not imported from contexts that bear little resemblance to them.
Imitation may attract capital and confer prestige. But it is also fragile—vulnerable to the first stress that reveals the gap between appearance and reality. Frontier markets need capital philosophies that are cognisant of scale, respectful of culture, patient with exits and honest about governance. The long‑term viability of Nepal’s emerging PE industry may ultimately depend on its ability to develop such a philosophy, rather than continuing to import one designed for entirely different economic geology. ■
