Hurdle Rate
The hurdle rate is the minimum rate of return that is expected by an investment manager or investor in an investment. This is the minimum rate of return at which investing in the project makes economic sense to the investor. If the hurdle rate cannot be achieved then it may not be wise to make the investment in the first place.
In hedge funds, investors pay management fees of about 2% and 20% of profits to hedge fund managers. As such, most hedge fund managers are expected to beat basic investment returns such as an S & P 500 index before they earn their fees. Thus, investors pay these fees only above this hurdle rate.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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