🛠️ Investment Fund Key Terms, Part 21

LP Giveback

Author

Michael Huseby
February 27, 2026

🎉 Happy Friday, funds family!

Today, we have Part 21 in our many-part series walking through each term in an investment fund term sheet in detail.

Here’s the index of each article in this series (so far):

This week focuses on LP Giveback.

But first..

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Thanks for reading. Now, let’s jump into the article 😃

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An LP giveback ↩️ is an obligation of limited partners (and, to be fair, the GP) to return prior distributions to the fund.

➡️ Why would an LP need to return distributions?

The LP giveback comes into play when the fund needs to pay something…but the fund doesn’t have sufficient reserves, and each LP is fully funded (their uncalled commitment is $0).

These payments might include the following:

  • Fund-level indemnification obligations

  • Litigation judgments or settlements

  • Unpaid fund expenses or liabilities

  • Liabilities in connection with the sale of investments (such as breaches of reps or warranties)

➡️ What are the limits on LP giveback obligations?

Most LP giveback provisions are limited. Market-standard protections include:

  • Cap by commitment (often 20–30% of total commitment)

  • Cap by distributions received (i.e., you can’t be forced to return more than you’ve actually received)

  • Sunset period (commonly 2–3 years after distribution or 2-3 years after the fund’s term ends)

In some cases, these limits are waived for funds investing in other funds, if the liability arises from the underlying fund investment’s own LP giveback requirement.

Here’s what an actual provision might look like:

“Each Limited Partner shall, upon written notice from the General Partner, return to the Fund such portion of any distributions previously received by such Limited Partner as is reasonably necessary to satisfy the Fund’s indemnification obligations or other liabilities. Notwithstanding the foregoing, the aggregate amount that any Limited Partner may be required to return pursuant to this provision shall not exceed the lesser of (i) twenty-five percent (25%) of such Limited Partner’s Commitment and (ii) the aggregate amount of distributions previously received by such Limited Partner from the Fund. No Limited Partner shall be obligated to return any distribution made to such Limited Partner after the third (3rd) anniversary of the date on which such distribution was made.”

⏩ Next up in Part 21 – Management Fees.

Thanks for reading, everyone.

Have a great weekend! 🙌 

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