Fund Operations
Distribution
Distribution
Cash or securities returned to LPs from a fund's realized investments.
A distribution is cash (or sometimes securities) returned to limited partners when a fund exits an investment. Distributions represent the realized portion of fund returns.
Types of distributions
- Cash distributions: Most common, from sale of portfolio companies
- Stock distributions: Shares in a portfolio company (typically after IPO)
- Recapitalization distributions: From portfolio company refinancing
Distribution waterfall
- Returns are typically distributed according to a waterfall:
- 1. Return of contributed capital to LPs
- 2. Preferred return (often 8%) to LPs
- 3. GP catch-up (to reach carried interest split)
- 4. Profit split (typically 80/20 LP/GP)
Timing
- Distributions typically begin in years 4-5 of a fund's life as investments mature and are sold.
Example
When a fund sells a portfolio company for $200M profit, it distributes cash to LPs after accounting for carried interest and fees.
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