Setting up a SIF Fund in Nepal: A Guide for Fund Managers
Private equity (PE) has emerged as a transformative force in the global investment landscape. According to McKinsey & Company, private markets reached $9.8 trillion in assets under management (AUM) by July 2021, reflecting investors’ increasing appetite for alternative assets amid volatile public markets. With this momentum, private equity funds have evolved from simple investment pools to complex contractual ecosystems involving sponsors, investors and regulators, all structured to align interests and manage risk.
Nepal has also witnessed a surge in private equity activity. Among various fund types, Specialised Investment Funds (SIFs) have gained prominence as structured, SEBON-regulated vehicles for channelling capital into long-term private market investments. As of now, 13 SIF management companies are licensed under the Securities Board of Nepal (SEBON) regulatory framework, reflecting growing institutional interest in alternative assets.
The growing significance of private equity and venture capital is further evident from data published by Nepal Private Equity Association (NPEA). According to its 2024 Market Snapshot, $35 million was invested in 2023 alone, bringing the cumulative total from 2012 to 2023 to $101 million, with 16 active funds operating in the market. Investment activity was concentrated in sectors such as information technology (34.6% of 2023 investments), renewable energy (27.2%), manufacturing, and healthcare.
NPEA’s public investment database also records 88 disclosed PEVC deals as of 2024, with peak activity in 2023/24, especially across sectors like manufacturing and technology demonstrating increasing interest in private capital solutions to support Nepal’s emerging enterprises.
Private equity funds are typically closed-ended pooled investment vehicles, organised most often as limited partnerships, where the General Partner (GP) manages the fund and Limited Partners (LPs) commit capital over a fixed term. Several theories underpin their structure and operation. Agency theory explains the incentive misalignments between GPs (agents) and LPs (principals), which are mitigated through performance-based carry, claw backs, and key person provisions. Contract theory highlights the role of Limited Partnership Agreements (LPAs), side letters, and governance frameworks in allocating control and defining rights.
Capital structure theory informs how funds use leverage, particularly in leveraged buyouts in order to boost returns through tax shields and disciplined capital deployment. However, some academic perspectives challenge the fairness of negotiation processes within private equity. For instance, the Yale Journal article titled ‘The Private Equity Negotiation Myth’ critiques the assumption that large LPs effectively negotiate protections for all investors. Instead, these powerful LPs often secure individualised benefits like fee discounts and co-investment rights, which can dilute broader investor protection and leave smaller LPs exposed.
In Nepal, the formalisation of private equity began with the introduction of the Specialised Investment Fund Regulations, 2075 (2018) by the Securities Board of Nepal. These regulations enable the establishment of SIFs and Fund Management Companies, offering a legal and operational foundation for pooled private investment vehicles. While still in its infancy, the market has seen the licensing of several fund managers and funds targeting key sectors like infrastructure, technology and SMEs. Most SIFs in Nepal are closed-ended with fund sizes ranging from Rs 500 million to Rs 2 billion, supported by Development Finance Institutions (DFIs), commercial banks and private investors.
Establishing a fund under SIF Regulations involves two separate but interlinked processes, licensing the fund manager and registering the fund itself. To become a licensed fund manager, an applicant must submit an application to SEBON in the prescribed format along with a fee of Rs 300,000 and all required documents as outlined in Schedule-3 of the regulations. These documents include the certificate of incorporation, Memorandum of Association and Articles of Association, audited financial statements, board resolutions, promoter details, and organisational and infrastructure details.
SEBON reviews the submission and, after a necessary inquiry, either issues a fund manager licence or provides reasons for rejection. Once licensed, the manager may apply to register a fund by submitting an application, paying a registration fee of Rs 50,000 and enclosing documents prescribed by SEBON which include the fund’s constitution, template of agreement with investor, financial projections, board resolutions and investor commitments. The fund registration fee varies based on fund size – Rs 500,000 for funds up to Rs 500 million; Rs 700,000 for funds up to Rs 1 billion; and Rs 1 million for funds exceeding Rs 1 billion.
To ensure credibility and operational soundness, SEBON also prescribes detailed eligibility and infrastructure requirements. A fund manager must be a company incorporated under Nepali law with a minimum paid-up capital of Rs 20 million. The board of directors, CEO and promoters must not have any record of criminal conviction, blacklisting or regulatory default. The CEO must possess a Master’s degree with at least 10 years of experience in finance, law or management, or a Chartered Accountant or CFA qualification with 15 years of experience. Regular directors must have at least a Bachelor’s degree with five years of relevant experience and independent directors must meet stricter criteria and have no ownership interest in the fund management company. SEBON also mandates a designated compliance officer with relevant academic or professional qualifications.
SEBON’s Circular dated 2077/05/22 BS outlines the minimum infrastructure requirements for fund managers. The office must cover at least 1,000 square feet and include space for customer service, IT operations, storage and visitor reception. The fund manager must have a valid lease agreement for a minimum of two years in case of renting the premises. Office infrastructure must include computers, servers, printers, internet connectivity, CCTV, UPS and attendance systems. A functional organisational structure must be in place with clearly defined departments and a documented set of policies governing fund operations, investment evaluation, risk management, internal controls and compliance. The fund management unit must include at least one Chartered Accountant or Financial Analyst and two professionals with a Master’s degree in commerce, finance, economics or law.
In addition to initial licensing and registration fees, fund managers must pay SEBON an annual fee of Rs 150,000 and remit 2% of service fees earned from the fund to SEBON within two months of receipt. A 10% annual penalty applies for delayed payments. Once the fund and fund manager are approved, SEBON issues a certificate of registration and authorisation to issue units.
Nepal’s Specialised Investment Fund regime represents a critical step in institutionalising private capital formation. While global private equity funds operate through sophisticated offshore structures for tax neutrality, regulatory arbitrage and investor comfort, Nepal’s SIF framework offers a domestic alternative aligned with international standards but tailored for local market conditions. To fully realise its potential, fund sponsors must combine compliance discipline with governance best practices and operational professionalism.
As DFIs, banks and institutional investors increasingly seek impact-driven, long-term capital vehicles, Nepal’s private equity space stands at the cusp of transformation. The success of this transformation will depend not just on regulatory clarity but on the ability of fund managers to build trust, demonstrate transparency and deliver measurable returns to investors and the economy.
Nandita Kharel has been associated with Pioneer Law Associates since January 2025, working as part of the corporate team. She supports the team in various corporate matters, facilitating legal drafting, research, and the preparation of advisory opinions on various matters, including but not limited to Energy Law, Private Equity, and Finance.
