# Distribution

A **distribution** is a payment from a fund to its LPs, returning some or all of the capital and profits generated by portfolio exits or other fund income. Distributions are how LPs realize returns on their investment.

## Distribution Categories

Every distribution is classified into one or more tiers depending on where it falls in the [waterfall](/waterfall-and-distributions/waterfall.md):

| Category              | Description                                                       | Taxable?                       |
| --------------------- | ----------------------------------------------------------------- | ------------------------------ |
| **Return of capital** | Returning contributed capital — not profit                        | Generally no (basis recovery)  |
| **Preferred return**  | Paying accrued hurdle return on contributed capital               | Yes (interest/dividend income) |
| **Carried interest**  | The GP's profit share (paid to the GP from the distribution pool) | Capital gains (GP)             |
| **Residual profit**   | LP's 80% share of profits above the hurdle                        | Capital gains (LP)             |

The waterfall determines how the gross distribution is split across these categories per LP.

## Distribution Triggers

Distributions occur when the fund receives proceeds from:

* **Portfolio exits** — the most common source: sale of a portfolio company, secondary sale, or partial exit.
* **Dividend recapitalization** — a portfolio company takes on debt and dividends proceeds to the fund.
* **IPO lock-up expiry** — fund sells (or distributes in-kind) post-IPO shares once the lock-up period ends.
* **Recallable distributions** — some distributions are designated recallable; see [Unfunded Commitment](/fund-mechanics/unfunded.md).

## Cash vs In-Kind

Distributions can be:

* **Cash** — wire transfer in the fund's base currency to each LP's registered bank account.
* [**In-kind**](/waterfall-and-distributions/distribution-in-kind.md) — securities (typically listed shares from an IPO) transferred directly to LP brokerage accounts.

A single distribution event can be partly cash and partly in-kind if the fund receives a mix of cash and securities on an exit.

## LP vs GP Distribution

A distribution event generates two payments:

* **LP distribution** — the LP's share of return of capital, preferred return, and residual profit (Tiers 1, 2, and 4).
* **GP carry** — the GP's catch-up and carry share (Tiers 3 and 4), paid from the same gross proceeds.

Gildi records both as separate ledger entries and generates separate notices for the LP and GP.

## Impact on Performance Metrics

When a distribution settles:

* [DPI](/reporting-and-metrics/dpi.md) increases (more cash returned to LPs relative to paid-in capital).
* [RVPI](/reporting-and-metrics/rvpi.md) decreases (the position's [NAV](/reporting-and-metrics/nav.md) drops by the distributed amount).
* [TVPI](/reporting-and-metrics/tvpi.md) is unaffected by the distribution itself — it changes only if the NAV mark changes.

## Two-Artifact Delivery

Every LP-facing distribution in Gildi produces two artifacts:

1. **Distribution notice PDF** — the legally binding document stating the distribution amount, waterfall breakdown, and payment instructions. Stored as a report in the LP's portal.
2. **Email notification** — a short scannable summary linking to the portal and the PDF.

See the [capital call notice](/for-general-partners/send-notice.md) for the equivalent on the call side.


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