American Waterfall
Private Credit glossary · Fund Structures, Returns & Economics
Definition
Deal-by-deal carry calculation where the GP can earn carry on each profitable investment (subject to a clawback if later losses occur).
American Waterfall in plain English
When a private-equity fund makes money, the managers (the "GP," or general partner) keep a slice of the profit called "carry" as their reward. In an American waterfall, they collect that reward deal-by-deal — every time a single investment pays off, they take their cut right away, rather than waiting until the whole fund is finished. The trade-off is a "clawback": if later deals lose money and it turns out the managers were overpaid early on, they have to give some back. It's like a salesperson taking commission on each sale as it happens, with a promise to refund it if the year ends badly overall.
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