Where Do Private Funds Draw the Line on Recycling?

Private fund managers “recycle” capital — i.e., reinvest capital that would otherwise be returned to investors or to recall distributions already made — to maximize their investment capacity. This mechanism helps managers maintain consistent investment activity without seeking external funding (such as co-investments, loans, secondaries, or preferred equity) while also offsetting the impact of management fees and expenses on investable capital.

Fund documents typically include two types of recycling limits: caps on the total amount that can be recycled and parameters within which proceeds can be recycled. In this article, we consider overall caps, drawing on data from Goodwin’s Terms Database for Private Investment Funds (for all geographies). In our next article in this series, we will consider what types of proceeds can be recycled.

Caps on Overall Amounts Available for Recycling

In total, our analysis shows that 37% of funds operate without a cap on recycling. The remaining 63% employ various capped thresholds, with the maximum amount permitted to be invested ranging from 100% to more than 130% of total fund commitments over the life cycle of a fund. Among funds with caps, the most common limit (used by 30% of all funds) allows recycling of up to 120% of total commitments.

However, practices vary significantly by asset type. When looking purely at overall limits, debt and real estate funds show the strongest preference for flexibility, with 78% and 60%, respectively, operating without caps. This aligns with their investment characteristics. Regular interest payments generated by debt funds and early repayment of loans allow for efficient redeployment, while real estate funds benefit from reinvesting rental income and property sale proceeds. However, this may be combined with restrictions on the types of distributions that can be recycled, such as proceeds from income alone or only capital proceeds received within 12 to 18 months following the initial investment.

Venture capital funds, by contrast, are the most likely to set caps: Only 15% have no caps, and 47% set caps at 120% of commitments but may have greater flexibility in terms of the proceeds that can be recycled, such as all proceeds received during the investment period or even beyond. This is because venture capital funds may want to use recycling to boost their exposure to high-growth opportunities and will want to have a bigger reserve from which to finance follow-on investments. Private equity and infrastructure funds take a middle-ground approach, with about 40% to 45% operating without caps.

In our next article, we examine limits on the types of proceeds that managers can recycle, which need to be considered alongside overall caps. We also consider how these limits have evolved over time, based on analysis of our Terms Database.

For other data-backed insights from Goodwin’s Terms Database for Private Investment Funds, see our Funds Terms Intelligence hub.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.