Fund economics

Recycling

Also called reinvestment of proceeds, reinvestment right.

Definition

Recycling is the reinvestment of proceeds from realised investments, or of capital returned early, into new or follow-on investments instead of distributing them to limited partners, permitted by the limited partnership agreement up to a cap and usually only during the investment period.

Updated October 9, 2026Checked against our editorial standards

Example

A $100M fund expects management fees and expenses of $18M over its life, so only $82M would ever reach portfolio companies. The LPA permits recycling up to the amount of fees and expenses. In year three the fund sells a seed position that cost $2M for $6M. It distributes the $4M profit and retains the $2M of cost to reinvest. Over the investment period it retains $12M this way, so total capital invested in companies rises from $82M to $94M on the same $100M of commitments.

Confused with

Recallable distributions. With a recallable distribution the money goes out to LPs and is called back later. With recycling it never leaves the fund.

Follow-on reserve. A reserve is uncalled commitment the GP has earmarked for existing companies. Recycling is proceeds already received that are put back to work.

In practice

The cap, the window and what counts as recyclable (cost only, or cost plus profit) are LPA terms and differ widely. LPs want recycled amounts shown separately on the capital account statement, because they change the relationship between paid-in capital and invested capital and therefore how DPI and TVPI read. The administrator tracks the running total against the cap.

Related terms

Distribution waterfallA distribution waterfall is the sequence in which a fund's proceeds are allocated between limited partners and the general partner, typically return of contributed capital first, then a preferred return to LPs, then a catch-up to the GP, then the remaining profit split at the carried interest rate.
Recallable distributionsRecallable distributions are amounts distributed to limited partners that the limited partnership agreement allows the general partner to call again, usually proceeds returned within a set period of the investment or capital returned before it was invested, so the distribution restores unfunded commitment instead of permanently reducing it.
Management feeThe management fee is an annual charge paid by the fund to the management company, typically 2% of committed capital during the investment period, often stepping down afterwards to a lower rate or a basis of invested capital, to cover salaries, rent and the cost of running the firm.
Unfunded commitmentUnfunded commitment is the portion of a limited partner's capital commitment that the fund has not yet called, calculated as total commitment less contributions to date plus any distributions the LPA makes recallable, and represents the LP's remaining obligation to fund capital calls.