About this tool
The American and European waterfall differ in when the GP earns carried interest. A European (whole-fund) waterfall pays carry only after the entire fund's capital and preferred return have been returned to LPs. An American (deal-by-deal) waterfall pays carry on each profitable deal as it exits.
Because deal-by-deal carry is taken before losers are netted off, the GP earns more and earlier under the American structure — creating clawback exposure for LPs. This tool runs the same deals through both structures and quantifies that gap.
How to use it
- Set the fund terms — preferred return, hold period and carried-interest percentage.
- Enter each deal's invested capital and exit multiple (MOIC), including any losers.
- Compare GP carry and LP proceeds under American vs European, and read the clawback exposure — the amount the GP over-distributes deal-by-deal.
Frequently asked questions
What is the difference between an American and a European waterfall?
An American (deal-by-deal) waterfall pays the GP carried interest on each profitable deal as it exits. A European (whole-fund) waterfall pays carry only after all of the fund's capital and preferred return have been returned to LPs.
Which waterfall is better for LPs?
The European whole-fund waterfall is more LP-friendly because losing deals offset winners before any carry is paid, so the GP cannot over-earn carry early. The American structure favours the GP.
What is a clawback in a fund waterfall?
A clawback obligation requires the GP to return excess carried interest at the end of the fund if it was paid carry on early winners that was not justified once later losses are included — most relevant under American deal-by-deal waterfalls.
Why do GPs prefer deal-by-deal carry?
Deal-by-deal (American) carry lets the GP receive carried interest sooner, on each winning exit, rather than waiting until the whole fund has returned capital and preferred return — improving the GP's cash-flow timing.