Which type of fund requires meeting minimum performance standards before managers can receive their incentive fees?

Hurdle rate funds are designed with a specific threshold, known as a hurdle rate, which the fund must achieve before fund managers can earn their incentive fees. This structure is intended to align the interests of the fund managers with those of the investors. By requiring managers to meet or exceed a particular performance benchmark, hurdle rate funds ensure that managers are incentivized to generate returns that are satisfactory to investors. This framework helps to mitigate the risk of managers taking undue risks simply to generate higher fees without regard for the investors' interests.

In contrast, commodity funds, closed-end funds, and managed futures do not have the same built-in performance threshold for incentive fees. While various funds can have unique fee structures, the characteristic feature of hurdle rate funds is specifically the requirement of surpassing a minimum performance level to trigger incentive compensation for managers. This mechanism is central to how hurdle rate funds operate within the broader investment fund landscape.