American (Deal-by-Deal) Waterfall

A fund-level carry structure in which the general partner receives its carried-interest share of profits on each individual investment as it is realized, rather than waiting until the entire fund's capital has been returned to limited partners, typically subject to a preferred return calculated on that specific deal and sometimes a clawback provision requiring the manager to return excess carry if later investments in the fund underperform. In litigation finance, a deal-by-deal structure can pay the manager meaningful carry on an early, successful case resolution even while other funded matters in the same fund are still pending or ultimately prove unsuccessful, which is why investors negotiating this structure typically insist on a robust clawback mechanism and often an escrow holdback of a portion of distributed carry to secure it.

Because litigation outcomes are binary and a portfolio's true performance often is not clear until many individual cases have resolved, investors negotiating a deal-by-deal structure focus intensely on clawback enforceability and escrow terms, since without a credible mechanism to recover overpaid carry, a manager could be fully compensated on early wins before the fund's ultimate aggregate performance is known. Some investors will only accept a deal-by-deal structure from managers with a long enough track record that the risk of early-case selection bias distorting carry payments is judged to be low.