EQUITY GUIDE
How Preferred Return Accrues
Preferred return is a priority claim that accrues on defined investor capital before residual profit is shared.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Determine whether the preference is simple or compounded and whether it accrues on contributed, unreturned or average capital.
Calculation framework
Track each contribution and distribution date in a detailed waterfall. Annual shortcuts can misstate a project with irregular capital calls.
Underwriting review
Distinguish preferred return paid, accrued unpaid preference and capital returned. A distribution may satisfy these categories in a specified order.
How to use the result
Use partner IRR to verify hurdle achievement, but follow the legal agreement for compounding, catch-up and lookback mechanics.