Preferred Return Calculator

About this calculator

In a private equity or venture capital fund, the preferred return (or “pref”) is a minimum hurdle rate — commonly 8% — that limited partners (LPs) must receive on their invested capital before the general partner (GP) is entitled to any carried interest. Distributions typically follow this order: LP capital is returned first, then the accrued preferred return on that capital, then a GP “catch-up” tranche, and finally any residual profit is split according to the carry ratio (often 80/20 in the LPs’ favor).

Fund managers, limited partners and CFOs of PE/VC firms model this waterfall to see exactly how much of a fund’s distributions goes to LPs as pure preferred return versus how much becomes shared profit subject to the GP’s carried interest — it’s the mechanism that aligns GP compensation with actually clearing a minimum return bar for investors, rather than paying carry on mediocre performance.

This calculator takes the LP equity, preferred return rate, holding period and total distributions, and returns the accrued preferred return, the residual profit split, and the GP’s carried interest, so you can see exactly how a distribution waterfall plays out.