# How equalization adjustments work Equalization is the mechanism by which a Limited Partner admitted at a subsequent close is brought to the same economic position as the original first-close Limited Partners. Without equalization, late-joining Limited Partners would unfairly benefit from having waited. ## What gets equalized When a new Limited Partner signs into a fund at a subsequent close, three things happen: 1. **Prior-call catch-up.** The new Limited Partner pays their pro-rata share of every capital call that has already occurred. They receive a single equalization invoice covering all historical calls. 2. **Interest accrual.** The new Limited Partner pays interest on each catch-up amount, accruing from each prior call's drawdown due date to the new Limited Partner's admission date. This interest is distributed to the existing Limited Partners pro-rata to their share of the original call. 3. **Ownership dilution disclosure.** Existing Limited Partners receive a notice showing how their ownership percentage changed from pre-close to post-close. Per ILPA Model LPA §5.1.4.2, interest accrues from the **drawdown due date** (when the prior call was due, not when the notice was issued). ## The headline calculations For each historical drawdown event: **Catch-up principal** — The new Limited Partner's catch-up principal equals their commitment divided by the total fund commitments at the time of that drawdown, multiplied by the drawdown amount. **Interest** — The interest on that principal equals the catch-up principal multiplied by the fund's annual interest rate, multiplied by the fraction of the year between the drawdown due date and the new Limited Partner's admission date, calculated using the fund's declared day-count convention. **Total equalization due** — The total amount owed by the new Limited Partner equals the sum of catch-up principal plus interest across all prior drawdowns. ## Day-count conventions The fund's subscription documents declare the day-count convention. Gildi supports three: * **30/360** — every month is 30 days, every year is 360. Common for private equity and private credit. Identical days in February and August. * **Actual/365** — actual calendar days divided by 365. Used in some European fund structures. * **Actual/360** — actual calendar days divided by 360. Money-market convention; rarely seen in private equity but supported for completeness. The convention is set at fund-creation time and cannot be changed mid-fund. All equalization interest for a single fund uses the same convention. ## Worked example A fund's first close on 2026-01-15 admitted three Limited Partners (A, B, C) with a total of €20,000,000 committed. The General Partner issued one capital call for €5,000,000 with a drawdown due date of 2026-03-01. At the subsequent close on 2026-06-01, Limited Partner D joins with a commitment of €5,000,000 (bringing total commitments to €25,000,000). Limited Partner D's catch-up for the 2026-03-01 drawdown: | Field | Value | | --------------------------------------------------- | --------------------------------------------- | | Limited Partner D commitment share at drawdown time | 5,000,000 / 25,000,000 = **20.00 %** | | Drawdown amount | €5,000,000 | | Catch-up principal | 20.00 % × €5,000,000 = **€1,000,000** | | Day-count convention | 30/360 | | Drawdown due date → admission date | 2026-03-01 → 2026-06-01 | | Days (30/360) | 90 | | Year fraction | 90 / 360 = **0.2500** | | Interest rate (per fund agreement) | 8.00 % per annum | | Interest | €1,000,000 × 8.00 % × 0.2500 = **€20,000.00** | | **Limited Partner D pays** | **€1,020,000.00** | The €20,000 interest is distributed to Limited Partners A, B, and C pro-rata to their respective shares of the original €5,000,000 drawdown. ## Per-drawdown itemization (audit transparency) Gildi itemizes equalization per historical drawdown rather than collapsing it into a single interval. The older single-interval approximation over-estimated interest by treating every drawdown as if it happened at the previous closing date — Gildi explicitly does not do this. Each historical drawdown produces its own catch-up line with its own day-count and interest workings, shown on the equalization notice PDF. ## Existing Limited Partner impact At the same time the new Limited Partner's catch-up is computed, every existing Limited Partner's **ownership snapshot** updates: * **Share before close** — their share of total commitments before the subsequent close * **Share after close** — their share of total commitments after the subsequent close * **Dilution** — the percentage-point reduction they absorbed The existing Limited Partners receive a portion of the new Limited Partner's interest payment. Net effect: existing Limited Partners are *better off* than before the subsequent close (they earned interest on their prior contributions), while still seeing dilution in percentage terms. ## What this **does not** cover * The pro-rata math for the underlying capital call — see [the allocation methodology callout](/methodology/_allocation.md). * The legal mechanics of subsequent closes — covered in the fund's Limited Partnership Agreement, not in Gildi's docs. * Side-letter modifications to equalization terms for specific Limited Partners — Gildi stores those restrictions but automated side-letter enforcement is future work. ## Standards cited * **ILPA Model LPA §5.1.4.2** — interest accrues from drawdown due date, not from notice issuance date. ## Audit trail For every equalization event, Gildi persists: * The new Limited Partner's commitment and admission date * For each historical drawdown: capital call identifier, drawdown due date, catch-up principal, day-count fraction, days, rate, interest * The total equalization due * The per-existing-Limited Partner interest distribution * The full ownership snapshot before and after the close Auditors reviewing the fund's books can reconstruct any equalization event from these stored fields without re-running the math. 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