Hurdle rate

The rate of return that must be met before the incentive fee can be paid out. A hurdle rate can be set either as an absolute percentage, or a rate relative to a benchmark, like the LIBOR rate.

A hurdle rate can be either specified as a hard hurdle, or a soft hurdle.

Hard hurdle: incentive fees are earned only on returns in excess of the hurdle

Soft hurdle: incentive fees are paid on all profits, but only if the hurdle rate is met.

« Back to Index