Sebon brings regulation to govern private equity, venture capital funds

Published On: March 14, 2019 02:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, March 14: The Securities Board of Nepal (Sebon ) has issued the Specialized Investment Fund Regulation, 2075 (2019), paving the legal way for operation of various funds like private equity fund, venture capital fund and hedge fund, among other specialized types of investment funds, in the securities market.

The new regulation is aimed at allowing start-ups, innovative business ventures and services to secure funding and financing from specialized investment funds like venture capitals and equity funds.

To run or manage any specialized fund, the fund manager should get permit from the Sebon. According to the regulation, the fund manager should register the specialized fund that it wants to operate with the Sebon.

Sebon has fixed minimum paid-up capital requirement for the fund manager at Rs 20 million. Fund managers, who are already registered with the Office of Company Registrar or operating with the government's approval before the regulation came into effect, will get six months to get license from the Sebon.

Some firms like WLC Ventures Pvt Ltd, Avant Ventures, Dolma Fund Management, One to Watch, True North Associates have already been operating private equity and venture capital type funds in the country.

The minimum size of the funds like private equity fund, venture capital fund and hedge fund must be Rs 150 million and the fund manager should have at least two percent stake in such funds, according to the regulation. The unit holder of any fund should not exceed 200 and the fund should be close-ended type.

Bank and financial institutions, insurance companies, pension funds, international investors and Nepali as well as non-resident Nepalis, among others, can invest on such funds.

The regulation has fixed the lock-in period in such fund at one year, restricting the fund to divest its stake before one year of allotment after the public issuance of such fund. The life cycle of such fund could be between five and 15 years, according to the regulation.

However, Sebon has said that the hedge fund will be allowed to come into operation only after it introduces a separate directive to operationalize such fund.

The new move is expected to help the new companies and business projects, which are struggling to get financing, in securing capital or equity from alternative funds.

Sebon officials say the decision to promote alternative financing instruments rather than conventional funding facilities will help to expand capital market, mobilize domestic resources, and facilitate and attract foreign direct investment in the country.

The government's move to introduce regulation for governing specialized funds comes in the wake of the preparation to host the Investment Summit in the last week of March.

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