Glossary · Fund life

What is recycling in a fund?

Recycling lets a fund reinvest proceeds from early sales instead of distributing them, so it can invest more than investors committed, usually up to a stated limit.

In practice

Recycling rights sit in the LPA and vary in scope. Some funds recycle only proceeds from investments sold within a set period, often the investment period, or only the cost of those investments. Others also recycle returned fees or expenses. A cap, often a share of commitments, limits the total. It differs from recallable distributions, which are returned capital that investors must fund again.

An example

Round numbers, not a real fund

Say a fund with $1 billion committed sells a company for $150 million early on. If its terms allow recycling, it can reinvest that money instead of paying it out.

Why it matters

It lets a manager put more capital to work, and delays investors getting cash back.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.

Related terms

Investment periodThe investment period is the first years of a fund, often about five, when the manager can make new investments. Afterward it mostly manages and sells what it holds.
LPAThe limited partnership agreement, or LPA, is a private fund’s main contract. It sets the fees, carry, investment limits and the rights of the manager and the investors.
Capital callA capital call is a notice asking investors to send part of their commitment, usually a week or two before the money is needed. It is also called a drawdown.
CommitmentA commitment is the total amount an investor legally agrees to provide to a fund, which the manager draws down gradually through capital calls.
DPIDPI, distributions to paid-in capital, divides the cash a fund has returned to investors by the cash they paid in. A DPI of 1.0x means they have their money back.

The terms, in the news each morning.

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