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Preferred return

A threshold return investors receive before the manager participates in profits. Also called a hurdle.

Preferred return — A threshold return investors receive before the manager participates in profits. Also called a hurdle.

The preferred return sets the floor an investor must clear before a manager earns anything beyond fees, which is exactly why it's treated as a core alignment mechanism rather than a mere formality — it ties manager compensation directly to delivering returns above a stated baseline.

Frequently asked questions

Is preferred return the same as hurdle rate?

Yes, the terms are used interchangeably to describe the minimum return investors receive before the manager participates in profit distributions.

What preferred return rate is standard?

Around 8% has historically been a common reference point in private equity, though it varies by strategy, market conditions, and negotiating leverage — some strategies use different conventions or none at all.

Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.

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