European Waterfall
Private Credit glossary · Fund Structures, Returns & Economics
Definition
Whole-fund carry calculation where the GP earns carry only after LPs receive their preferred return on aggregate fund capital.
European Waterfall in plain English
A "waterfall" is just the rulebook for who gets paid first when a fund makes money, with cash flowing down the steps in order. In a European waterfall, the fund manager (the GP) collects its performance bonus ("carry") only after the outside investors (the LPs) have gotten back all their money plus a promised minimum return across the entire fund. It's the investor-friendly version: the manager gets paid last, once everyone else is made whole. Compare that to deal-by-deal setups where a manager can grab a bonus from an early winner before later losers are settled — the European style makes them wait for the whole picture.
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