Two experts on Nepal’s investment climate

Last week, Nepali investment professionals formally launched the Association of Investment Professionals Nepal (AIPN), a non-profit billed as a Chartered Financial Analyst Society in formation. Ashutosh Tiwari caught up with Nick Pollard, the Managing Director for Asia Pacific of the CFA Institute, and with Manoj Shahi, the first CFA from Nepal and founding chairman of AIPN.  

Ashutosh Tiwari: How does the Chartered Financial Analyst credential help Nepali investment professionals?

Nick Pollard: The CFA Institute is the global association of investment professionals that sets the standard for excellence and credentials. Our organisation is a champion of ethical behavior in investment markets and a respected source of knowledge, and thought-leadership in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow.

Our role is to develop and nurture future investment professionals through relevant and accessible credentialing programs, and also to deliver value to charter holders that accelerates their professional success and builds the kind of market integrity that benefits investors and the charter holders that serve them. We also support the creation and adoption of rules and standards that improve and expand investment industry professionalism. Our main credential, the CFA Program, is considered the gold standard for investment management globally, and there are over 165,000 charter holders around the world.

What makes you hopeful about the growth of the investment industry in Nepal?

Whilst Nepal may not be the largest market for the CFA Institute, we have seen the number of charter holders double in the last five years, and this year we have over 100 candidates studying for the CFA program. This is driven by a genuine desire to join a network of investment professionals around the world, and to be competent and credible on the global stage.

There are encouraging signs of development – new international hotels being built in Kathmandu, hydroelectric projects and a growing tourist trade. With the continuous growth of the financial industry in Nepal and continuous regulatory reform, there is an obvious hunger for new talent, and we are positive that more and more investment professionals will strive for the CFA qualification to achieve further career and professional development.    

Some say investment and ethics do not go together in Nepal. But you emphasise the importance of developing professionals who make ethics the cornerstone of their work.

To create trust, remain competitive, and to develop the most effective capital markets, the investment management industry must be ethical. Investors big and small have a choice about where they do business, and Nepal needs to attract investment to grow. With an abundance of information available about company values, beliefs and culture, having a reputation for being ethical is vital to attract talents and new business. So being ethical isn’t a nice to have – it is an essential component of individual and corporate success. CFA qualification gives charter holders the clear moral compass to guide the business decisions.

What are your long-term plans in and for Nepal?

We are here to support the launch of AIPN, and our long-term plan is to assist AIPN to join over 150 other CFA societies around the world by becoming a CFA Society here in Nepal. We also plan to provide more services here through working with local organisations to raise investment industry standards and market integrity, and also to provide a variety of career resources including continuing professional development, networking and social events.

Ashutosh Tiwarui: What are your long-term plans in and for Nepal?

Manoj Shahi: The mission of AIPN is to promote professionalism, ethical practice and continuous learning in the investment industry for the ultimate benefit of society. We have set a high bar for ourselves and we aim to do this by focusing on three fronts: development of ethical professionals, creating value proposition for our members, and working towards development of ethical capital markets through collaboration with all stakeholders. This will take time but we are optimistic that we can be a positive catalyst to the investment and capital markets industry in Nepal.

There are other finance and investment professionals in Nepal. How are AIPN different?

Our members will be required to sign onto a code of ethics they agree to adhere to during their membership. In addition, most will have some affiliation with the credentialing programs of the CFA Institute. Either they will be CFA charter holders or CFA candidates at different levels of progress. We will focus strongly on ethical investment practice, adoption of international best investment practices and increasing financial literacy among the investment public for the ultimate benefit of the society. Finally, we will have strong institutional support from the CFA Institute, the standard setter for the global investment industry.

What are some of the key elements that hinder investment in Nepal?

Foreign investments come in two types: Portfolio and Direct. Nepal’s capital market is not ready for portfolio investments since we do not have the liquidity nor the depth that portfolio investors would expect. Besides, the regulatory framework does not exist to allow for such investments.

For foreign direct investment are the risk adjusted returns acceptable to the investor? Why should a foreign investor come to Nepal when there are 200 plus countries to choose from?  There must be a compelling profit motive for them. If I can make similar risk adjusted returns in my own country or a nearby country (home country bias) why should I go all the way to Nepal to invest? Therefore, we as a country need to determine how much initial cost we are willing to bear for longer term benefits to the country and society.

Whether we like it or not, our natural foreign investors are Chinese and Indian. If we cannot attract and retain them, you might as well forget about others. That is not to say foreign investors from other countries will not come to Nepal. If the market potential is there, they will come if they can navigate around our regulatory and business practices. This is why we are seeing some interest in the hospitality and cement sector. But because of our geographical location, we will always be viewed as investment opportunity from their Indian arms. That is the reality we need to deal with.

How could we unblock those hindrances?

We first need to decide where we want to attract foreign investments.  Then we must determine how much cost we are willing to bear in the short term for long term gain for the economy and society. 

At the fundamental level this is an allocation of value of the enterprise between foreign investors who provide capital and know-how and domestic stakeholders who are in need of them. Obviously it helps if regulatory and business practices are simplified, transparent, corruption free, and the investment environment is stable and apolitical but the bottom line is that foreign investors are not going to come to Nepal if they cannot make acceptable risk adjusted returns on their investments. Investors will, therefore, welcome any measure that reduces their risk or increase their return. 

We can have all the summits and consultant studies that we want but if they cannot be translated into actionable, implementable rules and regulations that gives the foreign investor their expected risk adjusted return, nothing much is going to happen. We want FDI but are afraid that the foreigner will take advantage of us. We need to reset that mentality and look for positive win-win investments.

In all this, CFA charter holders could play a very constructive role in the creation of these win-win investment contracts. They can leverage the deep knowledge base that they have acquired to identify the risk and returns relevant to investments and come up with solutions to bridge the gap in expectations between the parties. Local CFA charter holders with their global credential will allow domestic parties to negotiate with strength to maximise their interests.