Hurdle Rates: A Key to Alignment in Private Markets

The Nuanced Art of the Hurdle Rate

We all know the textbook definition: the hurdle rate (or preferred return) is the minimum return LPs must receive before carry kicks in. It’s Alignment 101. But when you’re in a room with sophisticated GPs and your peers are seasoned allocators, the conversation moves beyond “what it is” to “how it’s engineered.” The devil, as always, is in the details, details that directly impact your fund’s net IRR and the true balance of the GP-LP relationship.

Let’s talk about the levers that matter at our level.