# In-Kind Distribution

An **in-kind distribution** (also called a **distribution in specie**) occurs when a fund distributes portfolio value as securities rather than cash. The most common scenario is a portfolio company IPO: the fund receives publicly-listed shares and passes them directly to LPs rather than selling the shares and distributing cash proceeds.

## Why In-Kind Instead of Cash

GPs choose in-kind distribution for several reasons:

* **Lock-up obligations** — after an IPO, the fund is typically subject to a 6–12 month lock-up that prevents selling. When the lock-up expires, the GP can distribute shares in-kind rather than selling into a potentially thin market.
* **LP tax preferences** — some LPs (particularly endowments or tax-exempt entities) prefer to receive shares and sell on their own schedule for tax reasons.
* **Speed** — distributing shares avoids the timing risk of executing a large block sale.

## Valuation and Waterfall

In-kind distributions are valued at the **closing price of the distributed security on the distribution date**. This [fair value](/reporting-and-metrics/fair-value.md) is used to:

1. Compute the waterfall allocation (how much of the value goes to which tier).
2. Update [DPI](/reporting-and-metrics/dpi.md) and [TVPI](/reporting-and-metrics/tvpi.md) metrics.
3. Determine the GP's [carry](/waterfall-and-distributions/carry.md) entitlement on this distribution.

The LP receives actual shares — not the cash equivalent. From the distribution date onward, the LP bears full market risk on the position. If the stock falls after distribution, the LP's realized return is lower than the distribution-date valuation implies.

## LP Requirements

To receive an in-kind distribution, an LP must:

1. Have a brokerage or custodian account capable of receiving the specific security (country of listing, ISIN, ADR vs ordinary shares).
2. Provide Gildi with the account's DTC participant number (US) or equivalent clearing system identifier.
3. Complete any required regulatory paperwork (e.g., investor accreditation in the company's domicile jurisdiction).

LPs who cannot receive a specific security (due to regulatory restrictions or account limitations) typically receive cash proceeds from the GP selling on their behalf at the distribution-date price.

## How Gildi Records In-Kind Distributions

For every in-kind distribution, Gildi records:

* Security identifier (ISIN / CUSIP / ticker)
* Number of shares per LP
* Distribution-date closing price used for valuation
* Total fair value (shares × price) per LP
* Waterfall tier breakdown at that fair value
* Delivery account details per LP

The distribution notice PDF includes all of the above. Gildi does not execute securities transfers directly — delivery instructions are sent to the fund administrator, who coordinates with the relevant DTC/Euroclear participant.


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