Industry
Investment Funds
Fund formation, SECP licensing, and investor documentation for private equity and venture capital investing into Pakistan.
The shape of the market
Fund investing into Pakistan runs on two parallel tracks. Onshore, the SECP regulates a small but real ecosystem of private equity and venture capital funds formed under its Private Fund Regulations 2015, managed by licensed NBFCs and constituted as trusts with an independent trustee. Offshore, a larger pool of capital — regional VC funds, development finance vehicles, diaspora syndicates — invests into Pakistani companies from funds domiciled in DIFC, ADGM, the Cayman Islands, or Delaware, often meeting Pakistani founders halfway through holding companies incorporated abroad. Neither track is wrong; they answer different investor bases. Our fund practice covers the Pakistani law content of both: the whole stack for onshore vehicles, and the Pakistan leg — investment entry, portfolio documentation, regulatory perimeter, exit mechanics — for offshore ones, working alongside offshore counsel.
Forming onshore: the SECP route
An onshore fund is built in a fixed order. First the manager: a non-banking finance company licensed by the SECP for private equity and venture capital fund management under the NBFC Rules 2003 and the NBFC and Notified Entities Regulations 2008, which means minimum capital, sponsor vetting, and fit-and-proper clearance of directors before anything can be raised. Then the fund: registered under the Private Fund Regulations 2015, constituted by a trust deed with a trustee the regulations recognize, offered by private placement only to eligible investors above the prescribed minimum commitment, and documented through a placement memorandum that the SECP will read. The provincial Trusts Acts of 2020 added a further layer — trust registration and beneficial-ownership disclosure — that fund trustees and managers now carry as of mid-2026.
The regulations leave meaningful room for negotiation inside the trust deed: management fee and carry mechanics, drawdown and default provisions, key-person and removal terms, conflicts and co-investment policy. We draft these with the same discipline an LPA would get, because the investors reading them increasingly include institutions that will hold the manager to them.
The offshore reality, honestly
It would be tidy to say Pakistani funds form in Pakistan; the market says otherwise. The absence of a limited partnership vehicle, investor preference for familiar governing law, and the offshore domicile of many founders' own holding companies mean the LPA for a Pakistan-focused fund is often governed by foreign law in a foreign forum. What cannot be offshored is the Pakistan layer: the operating companies are here, employment and IP sit here, the rupee revenues are here, and the foreign exchange rules governing what leaves are here. Entry of foreign equity must move through authorized-dealer banking channels and be reported so the shares carry repatriation rights; exits, dividends, and even convertible instruments' conversion mechanics live under the State Bank's framework built on the Foreign Exchange Regulation Act 1947. We make that layer clean at entry — the point at which it is cheap — and we run the SBP and documentation work at exit, where sloppiness at entry surfaces as delay.
Portfolio governance after the wire
A fund's rights in a Pakistani portfolio company are only as strong as their implementation under the Companies Act 2017. The closing set we build for portfolio investments pairs the shareholders' agreement with conformed articles, board resolutions and filings that record the new issuance correctly, and — for foreign investors — the proceeds-repatriation paperwork noted above. Post-closing, we advise funds through the governance life of the investment: reserved-matter consents, further rounds and anti-dilution mechanics, founder departures, distressed bridge terms, and the drag, tag, and exit provisions that were negotiated years earlier and must now actually operate. Where an investment fails, we advise on enforcement and workout with a realistic view of Pakistani insolvency and court timelines, which is a view every fund should have before it invests, not after.
Exits deserve the same early attention. The realistic paths out of a Pakistani portfolio company as of mid-2026 are a trade sale, a secondary to another fund, a buyback under the Companies Act 2017's share purchase provisions, or — rarely, but genuinely for the largest positions — a listing on the Pakistan Stock Exchange under its listing regulations. Each path has mechanics that reach back into the original investment documents: transfer restrictions and rights of first refusal that must not obstruct the sale they were never meant to catch, drag thresholds set where a real buyer would need them, and the foreign exchange registration that lets a foreign seller actually receive its price abroad. We stress-test exit mechanics at entry, because a right that cannot be executed in Pakistan is a term sheet decoration.
How we engage
Managers engage us for formation and licensing as a defined project, then on retainer through the fund's investing period covering deal execution, regulatory filings, and portfolio governance as it arises; funds without Pakistan counsel engage us deal by deal for the local leg, usually starting with legal diligence on the target and ending with the conditions-precedent checklist closed. Scope and fees are set by engagement letter in each mode.
The Five Recurring Problems
The problems this sector keeps producing.
- 01
Choosing where the fund lives
Pakistan has no limited partnership statute, so the onshore route is a private fund constituted as a trust and registered with the SECP, while much of the capital investing in Pakistani companies sits in funds domiciled abroad — DIFC, ADGM, Cayman, Delaware — investing through holding structures. The domicile decision drives regulation, tax, and what your anchor investors will accept, and it is hard to reverse.
- 02
Licensing the manager before raising the fund
Managing a private fund onshore is a licensed NBFC activity under the Non-Banking Finance Companies framework — the 2003 Rules and 2008 Regulations — with capital requirements and fit-and-proper vetting of sponsors and directors. The licensing timeline belongs in the fundraise plan, because the fund cannot launch before the manager exists in regulatory form.
- 03
Investor documents split across two legal worlds
An onshore private fund raises on a trust deed, placement memorandum, and subscription documents under the SECP's Private Fund Regulations 2015; an offshore fund raises on an LPA with side letters. Funds that run both — an offshore vehicle with a Pakistan feeder or parallel structure — need the two document sets to say the same thing about economics, governance, and conflicts.
- 04
Getting money in and out across the border
Foreign capital entering Pakistani portfolio companies, and proceeds leaving on exit, move under the Foreign Exchange Regulation Act 1947 and the State Bank's foreign exchange framework. Repatriation of dividends and sale proceeds depends on the investment having been properly reported and registered through banking channels at entry. Fixing entry paperwork at exit time is the expensive version.
- 05
Portfolio governance that survives Pakistani company law
Term-sheet rights — board seats, reserved matters, anti-dilution, drag and tag — have to be implemented under the Companies Act 2017, where the articles, not the shareholders' agreement, bind the company. Rights left only in the SHA are weaker than founders and funds assume. Conforming the articles is where protection becomes real.
The Regulators That Matter
Who you answer to — and for what.
- SECP
- Licenses fund managers as NBFCs, registers private funds under the Private Fund Regulations 2015, and supervises the trustee arrangements onshore vehicles require.
- State Bank of Pakistan
- Administers the foreign exchange regime under FERA 1947 — entry reporting of foreign equity, and the approvals and banking-channel mechanics that make dividends and exit proceeds repatriable.
- Federal Board of Revenue
- Determines the tax treatment of the fund, its investors, and carried interest; historic exemptions for venture capital vehicles have been time-limited and need current-year confirmation.
- Provincial trust registration authorities
- Onshore funds constituted as trusts sit under the provincial Trusts Acts of 2020, which added registration and beneficial-ownership disclosure to what was previously a light-touch regime.
Mapped Services
The practices this industry draws on.
- Fundraising & Investment Deal execution into portfolio companies is the fund's operating activity, from term sheet to closing.
- SECP Advisory Manager licensing, fund registration, and ongoing SECP compliance define the onshore regulatory perimeter.
- Corporate Law Holding structures, articles conformed to investor rights, and board arrangements at portfolio level.
- Commercial Contracts LPAs, side letters, subscription and shareholder documents are negotiated instruments, not forms.
Questions, Answered
What clients in this industry ask.
Not in the classic form — Pakistani law has no limited partnership vehicle as of mid-2026. The Partnership Act 1932 gives only general partnerships with unlimited liability, and the Limited Liability Partnership Act 2017, while available, is not the market's fund vehicle. Onshore funds are trusts registered with the SECP; GP/LP economics are replicated through the trust deed and management arrangements, or the fund domiciles offshore.
Two regulatory events: licensing of the management company as an NBFC authorized for private equity and venture capital fund management, and registration of the fund itself under the Private Fund Regulations 2015 with a trust deed and an appointed trustee. Offering is by private placement to eligible investors meeting the regulations' minimum-investment threshold [CURRENT FIGURE — TO BE VERIFIED BY REVIEWING LAWYER].
Investor familiarity and enforceability: international LPs know Delaware, Cayman, DIFC, and ADGM documentation, and founders increasingly hold their own top companies abroad. The offshore fund then invests into Pakistani operating companies directly or through a holding layer, with entry reported through banking channels so exits are repatriable. We paper both ends — the offshore documents with foreign counsel, the Pakistan leg ourselves.
Yes, if the entry was done properly. Under the foreign exchange framework administered by the State Bank as of mid-2026, remittance of dividends and divestment proceeds on foreign equity turns on the original investment having been routed and reported through an authorized dealer with the shares registered accordingly. The diligence question on any secondary purchase is whether the seller's entry paperwork exists.
It depends on the vehicle and the year. Collective investment structures have enjoyed conditional exemptions under the Second Schedule to the Income Tax Ordinance 2001, and venture capital funds have had time-limited exemptions whose current status must be confirmed against the latest Finance Act [TO BE VERIFIED BY REVIEWING LAWYER]. We treat fund tax as a structuring input verified at formation, not an assumption carried forward.
Only to the extent the articles reflect them. Under the Companies Act 2017 the company is governed by its memorandum and articles; a shareholders' agreement binds its signatories contractually but a company acting per its articles can cut across it. Our closing checklist for every portfolio investment includes conformed articles and, where relevant, statutory filings that make the rights visible.
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Prepared by The First Counsel · As of 2026-07-12 · Pending professional review — statements flagged in the text are being verified
This publication is provided for general information only. It is not legal advice, and neither reading it nor corresponding with the firm about it creates a lawyer–client relationship. The position stated must be verified against current law before it is relied upon.