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Distribution waterfall
A CFA term, defined in plain English with the distinction examiners test.
What it means
The agreed order in which a private fund’s proceeds are shared between limited and general partners.
The exam angle
European waterfalls return all capital before any carry is paid; American ones pay deal by deal. The difference is worth a great deal to the GP and is what clawbacks correct.
Where it appears in the syllabus
- Private Markets pathwayCFA Level III · exam weight 30–35% · GP/LP economics, private equity and debt, special situations, real assets.
- Alternative InvestmentsCFA Level I · exam weight 6–9% · Private capital, real estate, natural resources, hedge funds, digital assets.
Related terms
- General partnerThe manager of a private fund, responsible for investment decisions and bearing unlimited liability for the partnership.
- Vintage yearThe year a private fund makes its first investment, and the basis on which its performance is compared with peers.
- Private creditLending to companies outside the public bond and syndicated loan markets, usually at floating rates with bespoke…
- Special situationsInvesting around a specific corporate event — restructuring, distress, spin-off or litigation — where the outcome…
- Capital callThe general partner’s demand that limited partners transfer part of their committed capital.
- Capitalisation rateNet operating income divided by property value — a property’s unlevered income yield.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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