Hurdle Rate

What the hurdle rate does

A hurdle rate defines a minimum level of performance that must be achieved before any performance-based compensation becomes payable. If performance does not exceed this threshold, the effective performance fee is zero, regardless of the nominal fee rate.

Put differently:

• The hurdle rate does not cap returns

• It does not introduce a separate fee

• It conditions the existence of a performance fee on achieving a minimum level of performance

• The hurdle rate therefore acts as a gatekeeper, not as an additional fee layer.

How does it operate

Conceptually, the mechanism works as follows:

1. Performance is measured over the relevant period (commonly relative to a high-water mark). 2. Performance is compared against the hurdle rate. 3. If performance ≤ hurdle rate → No performance fee is payable. 4. If performance > hurdle rate → A performance fee is calculated on the excess performance according to the defined fee rules.

The hurdle rate is applied within the performance fee calculation itself, not as a post-processing adjustment.

Relationship to performance fees

Key characteristics:

• The hurdle rate is embedded within performance fee logic

• It can reduce the effective performance fee down to zero

• It is not a standalone or composable mechanism

• It cannot be meaningfully layered with additional hurdle constructs