Operations and vendors

In-kind distribution

Also called stock distribution, distribution in specie.

Definition

An in-kind distribution is a distribution by a fund to its partners of securities, usually freely tradeable public shares of a portfolio company after its IPO lock-up expires, instead of cash from a sale. It is valued for waterfall and carried interest purposes at a price set by the LPA, commonly an average of recent closing prices.

Updated October 9, 2026Checked against our editorial standards

Example

A fund holds 2,000,000 shares of a company that listed six months ago; the lock-up has ended. The LPA values in-kind distributions at the average closing price over the ten trading days before the distribution date, which comes to $18.00, so the distribution is booked at $36M and runs through the waterfall at that figure. An LP with 5% of commitments receives 100,000 shares, recorded as a $1.8M distribution in its capital account. The LP's custodian sells the shares a week later at $16.50, realising $1.65M. The fund's DPI reflects $1.8M; the LP's own return reflects $1.65M. That $1.50 a share is where most arguments start.

Confused with

Cash distribution. The fund sells and wires proceeds. Simpler for LPs, but it puts the sale, its timing and its price on the GP.

Liquidation in kind. At wind-down a fund may distribute illiquid holdings, including private shares, because there is no buyer. Most LPAs confine in-kind distributions during the fund's life to marketable securities.

In practice

Some LPs cannot hold individual stocks and ask for a cash election, under which the GP or a distribution agent sells on their behalf. Carried interest is calculated on the LPA price, so a GP distributing before a fall in the share price has been paid on value LPs never saw; a clawback covers this at the end of the fund, not in the interim. LPs ask for in-kind distributions to be reported separately from cash so they can compare the LPA price with what they realised.

Related terms

Distribution waterfallA distribution waterfall is the sequence in which a fund's proceeds are allocated between limited partners and the general partner, typically return of contributed capital first, then a preferred return to LPs, then a catch-up to the GP, then the remaining profit split at the carried interest rate.
DPI (distributions to paid-in capital)DPI, distributions to paid-in capital, is the total cash and stock distributed to limited partners divided by the total capital they have contributed.
Carried interestCarried interest is the general partner's share of a fund's profits, typically 20%, paid through the distribution waterfall only after limited partners have received their contributed capital and, usually, a preferred return.
Valuation policyA valuation policy is the written document, adopted by the general partner and usually referenced in the LPA, that sets out how a fund determines the fair value of each investment at each reporting date: the methods used, the inputs and their hierarchy, who prepares and approves the marks, how often they are reviewed and how conflicts of interest are handled.