This is a common term of the private equity partnership agreement. It is intended to protect the general partner against future claims, should the general partner of the limited partnership become the subject of a lawsuit. Under this provision, a fund's limited partners commit to pay for any legal judgment imposed upon the limited partnership or the general partner. Typically, this clause includes limitations in the timing or amount of the judgment, such as that it cannot exceed the limited partners' committed capital to the fund.

This is a way of ensuring that the general partner does not receive carried interest distributions in excess of the ratio ... 80/20 ... which was agreed upon in the contract. Absent the clawback, the GP can enjoy carry profit from an early home run even though the fund has an overall accumulated negative return for the cash investors.