How to Track Preferred Return (Hurdle) as an LP

How to track preferred return is a remaining-hurdle ledger after you already own the fund, not a waterfall explainer. Raziel's preferred return and waterfall page is how the waterfall works: type, tiers, and each notice mapped. This page is the running gap: hurdle rate from the LPA, accrual method, preferred accrued, preferred paid, remaining to hurdle, and catch-up status.

This is not legal, tax, or investment advice. Raziel does not provide it. Copy the signed LPA. Do not invent a market hurdle or remaining-to-hurdle dollars.

What preferred return is (and is not)

ILPA's Private Equity Glossary: Preferred Return (also called Hurdle Rate) is the minimum return to investors to be achieved before a carry is permitted. The glossary's 10 percent example is an illustration of the definition, not a market survey. Hurdle also means a return the GP has to at least equal before any carry is calculated or payable. ILPA notes a hurdle is commonly found in buyout and development capital funds, and rarely in venture funds. Hurdle Rate in the same glossary is the IRR a fund must achieve before GPs or managers may receive an increased interest in the proceeds. ILPA Principles 3.0 (June 2019) repeats that IRR test.

Carried interest, per the glossary, becomes payable once investors have achieved repayment of their original investment, plus a defined hurdle rate, if applicable. It varies according to each unique Limited Partnership Agreement. Catch-up: once the general partner provides limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed profit-split is reached. Principles 3.0 would ideally use a hard hurdle: GP carry based only on profits that exceed the LPs' preferred return. Copy the LPA. Do not invent the split.

Copy the LPA clock, not a market rate

ILPA published two Delaware-law Model LPAs: whole of fund (fall 2019 / October, revised July 2020) and deal by deal (July 2020). The Whole-of-Fund Model LPA defines Preferred Return, as of any date of determination, as an annual rate of return of a bracketed percent, compounded annually and calculated daily on Capital Contributions, from the date the Fund receives each contribution until distribution or deemed distribution. That bracketed percent (the template prints 8 percent in brackets) is a fill-in. The July 2020 term sheet uses a bullet percent for the same clock. Your rate is the LPA you signed.

The July 2020 Model LPA Overview (Alignment of Interest, Preferred Return, Section 1.1) clarifies that preferred return continues to accrue until all contributed capital is returned, and unpaid preferred return is paid, to the Limited Partners. Principles 3.0: calculate from the date capital is called from LPs to the point of distribution. If a bridging or other short-term facility collateralized by uncalled commitments is used, calculate from the date the facility is drawn. ILPA's June 2017 subscription-line paper says the same. For a Subsequent Closing Partner, the Model LPA calculates Preferred Return as if admitted at the Initial Closing Date. Store the start date the LPA actually uses. Accrual methodology should be fully transparent and consistent over the life of the fund. The four waterfall steps live on the waterfall tracking page. Do not rebuild them here.

Columns on the remaining-hurdle ledger

Open one row per fund after close. Do not collapse two vehicles that share a GP brand. Fee cash and Dist: Carry already taken sit on Raziel's management fee and carry page. Remaining hurdle is a different row.

• Hurdle rate from the LPA. Copy the percent in the agreement you signed. The Model LPA's bracketed fill-in is not a market default. If silent, store "not stated" and the as-of date.

• Accrual method. Simple or compounding, if the LPA says. The Model LPA is compounded annually and calculated daily. Write the method and day-count the LPA prints.

• Preferred accrued. Copy the accrued figure as of the GP's date of determination, or keep the last printed cumulative. Do not invent dollars from the glossary.

• Preferred paid. Cumulative amount already applied to the preferred-return step. That is not Dist: Carry.

• Remaining to hurdle. The gap the notice already printed, or accrued minus paid if both are on the pack. If silent, store "not disclosed" and the as-of date.

• Catch-up status. None, not started, in catch-up, or complete. The Model LPA has a catch-up after the preferred-return step. Principles 3.0 would ideally use a hard hurdle. Copy the LPA. Optional Model LPA escrow can hold a share of amounts that would otherwise go to the GP as Carried Interest until the LP has received Commitment plus Preferred Return. Escrow is collateral, not remaining hurdle.

Status is a field. Leave the formula on the LPA

A workbook holds this if each fund row holds the LPA rate, accrual method, preferred accrued, preferred paid, remaining to hurdle copied from the pack, and catch-up status. It fails when you drop in a market percent, treat last quarter's net IRR as remaining to hurdle, or skip the row because no carry has posted yet. Raziel's IRR calculator is dated cash-flow math. Remaining to hurdle is not that IRR.

Raziel's alternative-asset dashboard is the investment record those fields should sit on: cash dates, documents, IRR and MOIC, AI ingest of the notice PDF, capital calls, wallets and bank linking. Raziel does not run the preferred-return calculation and does not give legal or tax advice. When the next pack prints preferred accrued or says the hurdle is exceeded, open the row. Leave the LPA math on the notice.