Hurdle rate

The hurdle rate is the threshold return a fund must exceed before its manager can earn a performance fee. Hurdle structures in NZ retail managed funds fall into three families.

The most common NZ shape is **OCR + a margin** — typically OCR + 3% to OCR + 5%. This is a cash-relative hurdle: easy to clear in a high-return year but moves with monetary policy. A second family is **equity-index hurdles** — the fund must beat an index like the S&P/NZX 50 or MSCI ACWI. This is a market-relative hurdle: harder to clear because the fund must add alpha above the market it operates in. A third (less common) is **absolute hurdles** — a flat % per year, e.g. 10%. These are unrelated to market conditions; the fund must hit the number in any environment.

Hurdle shape matters for investor outcomes. A fund with a cash-rate hurdle will earn performance fees in any strong year for its asset class even if it underperforms peers. A fund with an index hurdle will only earn performance fees when it actually beats its asset-class market. Always read the verbatim hurdle wording in the PDS — the structure tells you more about manager incentives than the percentage on the headline.