Recycling is a fund’s right to reinvest proceeds from realised investments instead of distributing them to LPs. Without it, a $50M fund never actually invests $50M: management fees over the fund’s life — often 15–20% of commitments — plus expenses mean only roughly $40–42M reaches companies. Recycling lets the GP take early exit proceeds (an acquihire in year three, a quick secondary) and put that capital back to work, so that invested capital can reach or exceed 100% of commitments.
The LPA sets the boundaries, and they are negotiated: an aggregate cap (commonly 100–125% of committed capital may be invested in total); time limits (recycling only during the investment period); source limits (only proceeds realised within, say, 24 months of the original investment, or only up to the cost basis of the exited position — gains must be distributed); and sometimes sector or single-asset concentration tests unaffected by recycling. For LPs the math is usually favourable — more invested capital per dollar of fee — but it delays DPI, which is why LPs in liquidity-constrained cycles scrutinise recycling provisions harder.
Where it matters in practice
Founders see recycling indirectly: a fund inside its investment period with recycling headroom can be a buyer in your bridge or secondary even when “fully deployed” on paper. Turkish GP teams structuring funds — whether SPK-regulated GSYFs or offshore vehicles — should treat the recycling clause as core economics, not boilerplate: it determines real deployable capital, interacts with the management-fee offset, and is among the first terms institutional LPs test when underwriting an emerging manager’s fund model.
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