The minimum annualized return LPs must receive before the GP earns carry, conventionally 8% compounded annually on unreturned capital. Most LPAs use compounding (interest-on-interest): capital called at t_0 and distributed at t_4 accrues preferred at 1.08^4 - 1 = 25.97% (vs. 24% simple). Preferred accrues from the date of each capital call on the weighted-average unreturned balance. Once distributions begin, preferred continues to accrue on the remaining unreturned capital. A fund that returns less than 8% annualized pays zero carry; a fund just above 8% pays proportionally less than 20% during the catch-up region.