Nepal's private capital market matures, but honesty and broader growth are key

Nepal's private capital market has matured significantly, now featuring nineteen licensed Specialized Investment Fund (SIF) managers overseen by the Securities and Exchange Board of Nepal. This growth represents a meaningful achievement for the market's current stage.

The crucial question ahead is whether new investors and fund managers will build upon this foundation responsibly or repeat past errors. Early institutional investors, primarily Development Finance Institutions (DFIs), provided essential capital, credibility, and governance standards. However, their catalytic capital carries an implicit duty to benefit the broader market, not just a select few.

Future institutional investors, especially those with blended finance tools, must ensure their capital fosters wider market development. A persistent issue is the conflation of "PE/VC" strategies. Nepal's market primarily supports the growth of small and medium-sized enterprises (SMEs), not high-risk startups. Therefore, return benchmarks should align with frontier markets, not Silicon Valley or London firms. Fund managers marketing themselves as venture investors while deploying growth equity into established SMEs create misaligned expectations.

Furthermore, a regulatory dynamic involves some fund managers achieving strong reported Internal Rate of Return (IRR) figures without equivalent value creation in underlying businesses. This is partly due to a provision requiring SIFs to hold shares for twelve months post-IPO. While intended as a safeguard for early investors, it can be exploited by timing investments to benefit from the IPO surge. Correcting these misnomers and practices is vital for honest expectation-setting and sustainable market growth.