A hurdle rate (also called the preferred return or 'pref') is the minimum annualised return that a private fund must deliver to its limited partners before the general partner is entitled to receive any carried interest. The most common hurdle rate in private equity is 8% per annum, compounded.
Once the hurdle has been cleared, there is often a 'catch-up' provision allowing the GP to receive 100% of distributions until it has received its full carried interest percentage on all profits (not just those above the hurdle). After the catch-up, distributions revert to the standard split — typically 80% to LPs and 20% to the GP. Hurdle rates ensure that GPs are only rewarded for genuinely superior performance.