Hurdle (Pref) rates in current interest rate environment
Hey there,
Curious as to what people are seeing for the hurdle rates (preferred returns) for funds and similarly structured JVs (i know there is a lot more to this...but talking directionally).
Historically, 8% to 10% for the pref has been common but that was when interest rates where minimal. Now that rates have significantly popped, are you seeing this pref hold steady or is this creeping up with interest rates?
For avoidance of doubt, i'm referring to the hurdle rates that the LP equity earns on invested capital before the GP starts earning any promote.
thx
This topic has come up a lot, but in most cases I have seen it stay around 8%. I know of some conversations around setting it to a spread with a cap, but I don’t have any data points on this concept actually being implemented. This item is theoretically always up for negotiation, but in practice, the industry seeks fine with 8% over a 10-year horizon. I think rates would need to go higher to see more movement.
Laboriosam quas consequatur possimus. Consequatur doloribus accusantium temporibus. Accusamus expedita iste vitae sed similique quis. Maiores ducimus fugiat laudantium porro et nostrum. Excepturi est beatae ipsum est itaque accusamus enim cumque.
Quia voluptas vero ipsa tempore rerum corrupti ut. Dolorem illum nobis sint totam sed illo impedit. Quo laboriosam numquam aut eos.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...