Hurdles come in two forms. A hard hurdle pays the manager only on returns above the threshold; a soft hurdle pays on the entire gain once the threshold is cleared. With an 8% hurdle and a 12% return, a hard hurdle charges on 4 points while a soft hurdle charges on all 12.
The reference can be fixed, such as 6%, or floating, such as a short-term rate plus a spread. Floating hurdles became a live issue when cash rates rose, because a manager delivering 5% while bills paid 5% had added nothing and a fixed hurdle of 4% would still have paid them.
In private markets the equivalent is the preferred return, usually around 8%, which sits ahead of carried-interest in the distribution waterfall.
Related: performance-fee, high-water-mark, carried-interest, two-and-twenty, private-equity, hedge-fund