Hurdle Rate (Preferred Return)
The minimum annualised return that LPs must receive before the GP is entitled to carried interest, commonly set at 8% per year on invested capital.
Hurdle Rate (Preferred Return) explained
The hurdle, or preferred return, is the return investors receive before the manager participates in profits. It is usually expressed as an annual rate on contributed capital. Whether it compounds, whether it is calculated on drawn or committed capital, and whether a catch up follows all change the economics considerably.
How it works in practice
- The hurdle definition is encoded with the waterfall it feeds.
- Accruals are calculated from actual cash flow dates.
- Worked examples are retained so calculations can be checked later.
Common mistake
Describing the hurdle by its headline rate alone. The compounding and catch up terms often matter more.
Why it matters in private capital
Hurdle Rate (Preferred Return) sits inside a chain of decisions that runs from sourcing through diligence, investment committee, portfolio monitoring and LP reporting. When each stage lives in a different tool, the evidence behind the decision is rebuilt at every handover. Keeping the concept on one record is what makes the fund able to explain, not just report, what it did.
How Reuben AI handles Hurdle Rate (Preferred Return)
Reuben AI is one platform for the full private capital workflow. Deal intake and screening at /deal-flow-management, diligence and IC memos at /ic-memo-software, portfolio monitoring and LP reporting at /lp-reporting-software all read from the same record, so Hurdle Rate (Preferred Return) does not need to be re-entered per tool. Pricing is at /pricing.
Frequently asked questions
What is Hurdle Rate (Preferred Return)?
The minimum annualised return that LPs must receive before the GP is entitled to carried interest, commonly set at 8% per year on invested capital.
How does Hurdle Rate (Preferred Return) work in practice?
The hurdle, or preferred return, is the return investors receive before the manager participates in profits. It is usually expressed as an annual rate on contributed capital. Whether it compounds, whether it is calculated on drawn or committed capital, and whether a catch up follows all change the economics considerably.
What is the most common mistake with Hurdle Rate (Preferred Return)?
Describing the hurdle by its headline rate alone. The compounding and catch up terms often matter more.
How does Reuben AI handle Hurdle Rate (Preferred Return)?
Reuben AI keeps Hurdle Rate (Preferred Return) on the same record as sourcing, diligence, investment committee, portfolio monitoring and LP reporting, so the underlying evidence does not have to be rebuilt for each workflow.
Related terms
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