How Is Preferred Return Calculated?

Preferred return is simple interest on each investor's capital balance, worked out by the day. Syndelo uses the yearly rate × capital × days held ÷ 365, then rounds to the cent at the end of the period.

The Formula

• Capital is money that has cleared, less capital returned. A pledge that isn't paid earns nothing.
• Days count from Earning Period Starts up to, but not including, Earning Period Ends (This Date Is Not Included). With Disburse, the Period End you pick is included.
• Money that clears during the period counts from the day it posted. A return of capital stops earning from the day it posted.

For example, for the 92 days from July 1 to October 1 at 8%:

• $100,000 held the whole period earns $100,000 × 8% × 92 ÷ 365 = $2,016.44.
• $50,000 that cleared on August 1 is held for 61 days and earns $50,000 × 8% × 61 ÷ 365 = $668.49.

If you set a Record Date (Optional), only positions and capital posted on or before that date count.

Which Rate Applies

An investor's rate comes from the first of these that applies on each day:

1. An investor rate set with Schedule Rate.
2. A rate band. See How Do Rate Bands Work?
3. The class's Annual Preferred Return (%) in the payout rules, under Share-Class Terms if the class has its own.

When a rate changes during a period, the days before and after each use their own rate. If the investment has approved return and fee terms, the class rates come from those terms and can't be changed in a payout.

When the Cash Doesn't Cover It

If the payout budget is too small, each investor gets a share in proportion to what they are owed, and the review shows the shortfall as "preference unpaid". What happens next depends on Unpaid Preferred Return:

• Current Period Only: the shortfall is shown but not owed later. The next payout starts fresh. This is the default.
• Carry Into The Next Period: the shortfall is added to what is owed next time.

Carrying Unpaid Preferred Return

Carrying is available with Preferred Return First and Return Of Capital First. It adds two settings:

• Preference Day Count: Actual / 365, or Actual / Actual (Calendar Year), which divides by 366 for days in a leap year.
• Preference Compounding: Simple Interest, or Daily, Including Unpaid Preference, which also earns on the unpaid amount carried in and on what has built up so far.

Because each period picks up where the last one stopped:

• Each period must start on the day the last approved payout's period ended.
• Payouts must be approved in date order.
• Changing terms or removing a position can't drop an unpaid amount. A transfer or class change with unpaid preferred return stops the calculation until it's reviewed.

Where It Sits in the Payout

Preferred return is paid before profit splits, in the order set by the Payout Rule Format. See How Do I Set Up a Waterfall and Return Terms?. It's shown in the Preference column under Review Allocations, and investors see it as part of their payout. A return of capital isn't preferred return and doesn't count toward it.

Related

• How Do I Run a Distribution?
• How Are IRR, Equity Multiple, and DPI Calculated?