# 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.

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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:

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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.<br>

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

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