The preferred return is what the limited partner (LP, or investor) earns from the moment that the cash is wired to us.
- Even though you’ll likely be funding well before the fund’s close date, the preferred clock starts immediately.
- After the start date, the IRR (internal rate of return) clock starts. That runs separately for each investment that we make.
- For NDF5 and NDF6, the plan of record is that the IRR will be 17% and 19%, respectively. Of course, actual results will vary, and this is only guidance.
- Currently, we’re targeting 14-20% for NDF7; we’ll be able to refine this number as we identify more investments. We’ve found four as of this writing. We’ll likely have 8-12.
- You earn a preferred return during the investment period. Around 5% (if you get depreciation shares) or 8% (if you don’t) of your total return is the preferred return. The balance is your share of the excess profits. For example, for the first 20% per year of return, 16% goes to the investor and 4% goes to the general partners running the fund. Most of the costs to run the fund come out of the 4%.