Fees & Economics
What is Hurdle Rate (Preferred Return)?
A hurdle rate (or preferred return) is the minimum annual return a fund must deliver to limited partners before the general partner can collect carried interest — commonly around 8%.
The hurdle rate, also called the preferred return or "pref," protects LPs by ensuring the GP only shares in profits after investors earn a baseline return. A typical hurdle is 8% per year.
Once the hurdle is met, many funds include a "catch-up" that lets the GP collect carry on earlier profits too, before the standard profit split resumes.
Also known as: preferred return, pref