Hurdle Rate

A hurdle rate is a minimum return some funds require LPs to receive before the GP is entitled to carry. Whether a fund has a hurdle, and how it’s calculated, depends on its limited partnership agreement (LPA); hurdles are more common in some private-equity strategies than in early-stage venture.

Example: If $1 is contributed on day one and returned exactly ten years later, an 8% annually compounded hurdle equals about $2.16. Real funds call capital at different times, so the actual calculation differs.