Convergence And Flexibility: LP Clawback Provisions In Private Funds

A majority of private fund managers set the clawback limit at 25%, but they calculate the clawback differently depending on fund type.

Limited partner (LP) clawback provisions enable fund managers to call back previously distributed amounts from investors to cover fund liabilities. These provisions become critical when other funding sources — undrawn commitments and partnership-level cash — are exhausted, typically toward the end of a fund's life when investors are fully drawn and few assets remain.

LP clawback provisions serve distinct purposes from recycling rights, which allow managers to recall distributions for reinvestment. Clawback provisions specifically address scenarios in which the fund faces liabilities, such as claims against the fund, general partner (GP), or manager that trigger partnership indemnity obligations.