Are private debt hurdles rising?

This year we have witnessed a significant rise in interest rates to levels not seen since 2009. This is being perceived as a tailwind for private debt funds as they lend at floating rates and, therefore, benefit from higher interest payments when rates rise. In turn, the appropriateness of current hurdle rates is under question as investors view them as “too achievable”.

The first part of this two-article series will provide the background on hurdles and explore the arguments for and against increasing them. The second edition (to be published late September) will cover potential alternatives that can help align GP and LP interests, such as floating hurdles and catchups.