The term for a GP's incentive to outperform targets is called what?

The term for a GP's incentive to outperform targets is called what?

• A. Promote
• B. Preference
• C. Hurdle rate
• D. Carried interest

Answer: (A)

Promote describes the GP’s incentive to outperform targets. In a real estate fund, after LPs receive their preferred return (and any required catch‑up), the GP earns an extra share of profits when performance exceeds the targets. This extra payout is the promote, the mechanism that aligns the GP’s interests with achieving higher returns. The other terms refer to different pieces of the structure: preference is the LP’s guaranteed return, the hurdle rate is the minimum return before the GP participates, and carried interest is the broader profit share allocated to the GP, which the promote is a specific form of when targets are met or exceeded.

Promote describes the GP’s incentive to outperform targets. In a real estate fund, after LPs receive their preferred return (and any required catch‑up), the GP earns an extra share of profits when performance exceeds the targets. This extra payout is the promote, the mechanism that aligns the GP’s interests with achieving higher returns.

The other terms refer to different pieces of the structure: preference is the LP’s guaranteed return, the hurdle rate is the minimum return before the GP participates, and carried interest is the broader profit share allocated to the GP, which the promote is a specific form of when targets are met or exceeded.