Lesson 11: What is a Preferred Return?
In this video, I'm gonna explain what a preferred return is. So a preferred return is a threshold return that Limited partners are often offered to counterbalance the risk of investing capital in a deal, so preferred distribution. So your preferred return is distributed to the limited partner before the gp the general partner receives any of their distributions. So think like there's a certain amount that has to be returned first before the GPs get it. So that's kind the preference that you get.
So here's a quick example. A limited partner invests a hundred thousand dollars is a 7% annual preferred return. So that limited partners gonna receive $7,000 as a preferred return prior to the general partner receiving any of their distributions.
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