In 2 separate carried interest test bank questions involving hurdle rates and catchup provisions, UpperMark claims that the carried interest split (80/20, for example) SWITCHES after the hurdle rate is hit. So the LP gets all profits up to the hurdle rate, then the GP gets 100% after that until they’ve hit the carried interest rate that corresponds to the hurdle rate (lets say 80/20), then all of a sudden the GP gets 80% of profits after that while the LP only collects 20%. That’s totally incorrect, right? Or is that correct, and my understanding has been wrong the whole time? I feel like I’m going insane
First step is to calculate a hurdle rate (invested amount *hurdle rate)
second is to compute hurdle amount/80= Carried interest/20
i believe that u find value of carried interest from previous step.
and then profit -(hurdle + carried), which will be distributed with 20/80 to gp and lp
I understand that, and your answer matches what was in my original post. I’m saying that I’m pretty sure UpperMark gets it wrong multiple times in their testbank.