Hey everyone, I was wondering what you think are the Target IRRs for LBOs these days. I was reading about 20%+ some years ago, but a) with risk-free rates being so low and b) with so much dry powder out there in the hands of GPs, I would imagine that the target IRRs have decreased maybe to 12-15%. I am referring to LBOs of relatively mature and stable companies. What do you think? Any input is welcome.
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Firms won't reveal a hard IRR most times (ie no target IRRs in writing) but I would look at average returns across fund vehicles for different firms on websites like CALPERs: https://www.calpers.ca.gov/page/investments/asset-classes/private-equit…
Interesting trends you'll see when digging into committed capital / return across firms by fund
Interesting. Thanks. Since there are Net IRRs I guess I would have to add a couple of percentage points for fees and carried interest paid to arrive at gross IRRs which is what target IRR is very similar to, I guess. Do you agree? Would adding 3-4% to the net IRR give me a very rough approximation of gross IRR?
See where you're going with this, tough to say given how subjective this is. But I'd say that it's not right to just add a few % pts to give the gross IRR. Lots of factors to consider
That's true... According to your experience in PE funds, what would you say are some typical terms these days? For example, mgt fee ~ 2% and carried interest 20% over a 6-8% hurdle? Would that be more or less fair in very general terms?
Again, not a straight answer as it depends on the situation but it's safe to say a base case model for a basic buyout model might have a 20-30% IRR target
Fully agree... it's either that the target has been lowered to 15% OR they keep missing their target by A LOT
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