Fund Structure
Recycling
A fund structure provision allowing GPs to reinvest early capital returns back into new portfolio investments rather than distributing them immediately to LPs.
In standard fund structures, when a portfolio company returns capital early — through a partial secondary, dividend, or small exit — those proceeds are distributed to LPs. Recycling provisions allow the GP to reinvest those early returns into new investments, effectively keeping the fund's investable capital at its full committed size for longer.
Recycling helps GPs manage fund deployment more efficiently and can increase returns by keeping capital working longer. LPs generally accept recycling provisions up to a cap (often 100-120% of committed capital deployed).
In Practice
If a $100M fund invests $80M and gets $15M back from an early exit, without recycling the fund has $20M left to deploy. With a recycling provision, the GP can reinvest that $15M return, keeping $35M available for follow-ons and new investments.
Why It Matters
Recycling provisions are a technical but important LP negotiating point. Extensive recycling can delay distributions and change the effective risk profile of the fund — LPs should understand exactly what's being recycled and under what terms.