Distribution Waterfall (American vs European)

The waterfall is the order in which fund cash flows are split between LPs and the GP: usually return of capital first, then the preferred return, then a GP catch-up, then the carry split. In a European (whole-fund) waterfall, the GP earns carry only after LPs recover all capital and preferred return across the entire fund, which favors LPs. In an American (deal-by-deal) waterfall, the GP can earn carry on individual profitable exits sooner, which favors the GP.