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