The contractual sequence allocating fund distributions between LPs and GP. Standard European (whole-fund) waterfall has four tiers: (1) return of contributed capital to LPs; (2) preferred return (8% compounded) to LPs; (3) GP catch-up (100% or 50/50 to GP until GP receives 20% of cumulative profits); (4) 80/20 split of remainder. European waterfalls are LP-favorable (GP bears full fund-level risk, no carry until fund clears 1.0x + preferred); American (deal-by-deal) waterfalls pay carry on each profitable realization in isolation and require larger clawback reserves. U.S. middle-market historically used American; institutional U.S. and European funds now predominantly European.