Capital Recycling
Private Equity glossary · PEF
Definition
An LPA provision allowing the GP to redeploy realized capital from early exits back into new investments rather than distributing it to LPs — effectively reusing committed capital and increasing the fund's gross deployment relative to commitments. Typically capped (e.g., recycling permitted for exits within the first 18-24 months post-close, up to 20-25% of committed capital). Increases effective deployment and gross returns but extends LP capital lock-up and creates IRR drag. Visible in funded-vs.-called numbers: a 'fully called' fund may show paid-in capital at 95-100% of commitment with recycling, vs. >100% without it.
Capital Recycling in plain English
When investors commit money to a private equity fund, the fund invests it, and when a company is later sold at a profit, that cash normally flows straight back to the investors. "Capital recycling" is a rule that lets the fund instead take some of that returned cash and re-invest it into a new deal — reusing the same dollars a second time. Picture a food-truck owner who, instead of pocketing the first day's sales, buys more ingredients and sells again, so a $100,000 starting stake ends up buying more than $100,000 of goods over the season. This puts more money to work and can boost total profits, but it also means investors wait longer to get their cash back. You can spot it in the numbers: a fully-invested fund that recycled might show it "called" only 95-100% of what investors pledged, instead of more than 100%.
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