Preferred Return

Preferred return is a priority return (often in the 5-10% range) that is paid to investors prior to any profit sharing or promote to the sponsor. Preferred returns are common in limited partnership structures in order to entice limited partners to invest. Since the general partner typically has the ability to earn a disproportionate share of the investment return (see Promoted Equity) it reasons that the limited partners should receive a priority return on their investment.

For example, the limited partners may receive a 7.0% preferred return on their investment prior to the general partner receiving any cash flow or profits, even if the general partner has also contributed equity to the partnership.

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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.

Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.

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Preferred Return

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