medium · Private Equity pe-core
An LP is evaluating two funds. Fund A uses an 'American' waterfall and Fund B uses a 'European' waterfall. Both funds have a 20% carry and an 8% hurdle.
If Fund A has one early 'home run' exit and one later 'total loss' exit, while Fund B has the same, which of the following is true?
- Both waterfalls will produce identical timing of GP carry payouts overall
- The GP of Fund A will likely receive carry earlier, potentially subject to clawback.
- Fund B is more GP-friendly since it accelerates the carry catch-up tranche payout
- The GP of Fund B will receive carry immediately after each individual successful deal exit
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