Answer: deal-by-deal basis and is more advantageous to the general partner than an American waterfall.

## Explanation A European waterfall (also known as deal-by-deal waterfall) distributes performance fees on a **deal-by-deal basis**, meaning that carried interest is paid to the general partner (GP) after each successful investment is realized, rather than waiting until the entire fund is liquidated. **Key points:** 1. **European waterfall = deal-by-deal basis** - This allows the GP to receive carried interest earlier as individual investments are exited. 2. **More advantageous to the general partner** - The GP gets paid sooner and doesn't have to wait until the entire fund is wound up. This provides earlier liquidity to the GP. 3. **American waterfall = whole-fund basis** - Also known as aggregated fund level, where carried interest is only paid after all investors have received their contributed capital back plus a preferred return. **Why option A is correct:** - European waterfalls use deal-by-deal distribution - This structure benefits the GP by providing earlier access to performance fees - Limited partners typically prefer American waterfalls because they ensure LPs get their capital back plus preferred return before the GP receives carried interest **Comparison:** - **European (deal-by-deal):** GP-friendly, earlier distributions - **American (whole-fund):** LP-friendly, ensures fair treatment of all investors

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