A preferred return is a place in line: investors are paid first, before the manager shares profit. If the fund doesn't earn it, nobody pays it. A hurdle for the manager, not a promise to you.
What the film says
An eight percent preferred return is not a guarantee. Nobody promises you eight percent. It’s a place in line. Put in a hundred million. Over three years, eight percent a year comes to about twenty-six million. Investors get that first, before the manager shares any profit. But if the fund only makes ten million, that’s all there is. Investors take the ten. The manager’s carry is zero. It’s a hurdle for the manager, not a promise to you.
In the glossary: Hurdle rate
A simple example with round numbers, not advice. Terms vary by fund.
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