What is Capital Recycling?
Capital recycling allows a fund to reinvest early distributions back into new investments, effectively increasing the amount deployed beyond the original commitments. It extends a fund's investment capacity without requiring more capital from LPs.
When a fund distributes proceeds from an early exit, some LPAs allow the GP to "recycle" those proceeds back into new investments within the investment period rather than distributing them to LPs. This lets the fund deploy more total capital than was technically committed.
Recycling provisions vary by fund. LPs typically accept limited recycling (e.g., only from returns of cost, not gains) but watch it carefully, as aggressive recycling can extend the investment period beyond what LPs expected.
Also known as: recycling, recycle