Debate over Pref Return Hurdle
We are debating within our firm as to language and mechanics around the preferred return hurdle for a PE or PC fund.
We recently looked at an LPA that had rather simplistic language basically stating after a return of investor capital there will be a catch up and carry will be paid subject to LPs getting a net 8% IRR based on the XIRR function in excel.
Other LPAs word it as an 8% per annum compounded return.
The former (IRR) is money weighted, where we the later is a CAGR and solely time weighted and doesn't take into account interim cashflows.
The implications are quite massive. What is standard?
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