What is the comparison between the Soft hurdle rate and the Hard hurdle rate in the Threshold Return

This kind of problem is generally analyzed from the two aspects of two words, starting with the definition analysis:

hurdle rate (threshold rate of return.

the incentive fee is only earned after the fund achieves a specified return.

Threshold rate of return:

The minimum rate of return required by managers or investors for a project, in arbitrage, managers can only charge incentive fees on the basis of achieving a threshold rate of return, and riskier projects generally have a higher threshold rate of return;

Application: If the internal rate of return of a project.

If the return rate is greater than the threshold, and there is no particularly high risk, the project is acceptable, with the exception that if the project is regulated or required, then the threshold rate of return is not the main factor considered. Gordon CFA Institute, Teaching and Research Knowledge Sharing Center.

There are two types of threshold returns:

1、hard hurdle rate: the incentive fees are paid only on returns in excess of the benchmark return

Hard Yield Threshold:

The incentive fee is paid based on the excess of the earnings over the underlying earnings.

2、soft hurdle rate: the incentive fees are paid on all return only if return achieves hurdle rate

Moderate Yield Threshold:

As long as the earnings exceed the earnings threshold, the incentive fee is paid based on all revenues.

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CFA to understand.

There are two types of threshold returns:

1. Hard hurdle rate: Hard hurdle rate: the payment base of the incentive fee is the part of the income that exceeds the basic income;

2. Soft Hurdle Rate: As long as the income exceeds the income threshold, the incentive fee is paid based on all income.

hurdle rate (threshold rate of return.

Threshold rate of return: the minimum rate of return required by managers or investors for a project, in arbitrage, managers can only charge incentive fees on the basis of achieving the threshold rate of return, and riskier projects generally have a higher threshold rate of return; Application: If the internal rate of return of a project is greater than the threshold rate of return and there is no particularly high risk, the project is acceptable, with the exception that if the project is regulated or required, then the threshold rate of return is not the main factor considered.