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.
| +69 | Sr Asso / VP Unemployment Check-in | 45 | 34m | |
| +27 | What did you do after signing? | 6 | 3m | |
| +26 | VP Level - when to follow up after final round | 10 | 3d | |
| +23 | Resume Gap after 2.5 Years in PE | 5 | 4h | |
| +21 | Public company LBO | 7 | 11h | |
| +20 | Vista Lateral Associate | 12 | 1d | |
| +18 | VP HF Lateral to PE | 1 | 14h | |
| +16 | IB/PE Lifers, Was It Worth It? | 5 | 2d | |
| +16 | Banner Ridge | 27 | 1d | |
| +15 | Anyone here work at 777? | 15 | 1d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
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
I've asked a few PE guys this question over the years as the topic of underfunded pensions and limited expected returns has become more of a thing.
They generally bristle at the suggestion that they might take down their IRR targets, because it lightly starts to maybe imply that they're lowering the bar to get more deals done and exposing LPs to a level of risk that isn't warranted by the return. They of course say no, that they've always had a high bar and will stay committed to that
But do I believe them? Hell no. I think 15% is the new 25% and the old model of needing returns that justify risks is out the window because its been replaced by the desperate chase for yield. If you're the GP and your biggest pension client calls saying please take more of my money because (i) our fixed income yields nothing and (ii) our public equity has been great but doesn't feel safe anymore so we're modeling that future return at 4% . . you're gonna say no to that client because you can only find deals yielding 15%? I don't believe that. I think you launch another find or sidecar, you take the money, you upgrade the summer home and everyone wins. At least in the short term
Fully agree... it's either that the target has been lowered to 15% OR they keep missing their target by A LOT
This question is pretty different depending on fund. New first time funds are going to need to still target the 20%+ returns so they have something to market for future raises, whereas MFs can get away with dipping into the ~15% range because it’s more about consistency / not losing money for LPs
Quae at aut perspiciatis quia et. Ut aperiam numquam aut quam porro. Assumenda itaque tempore ea a sequi possimus. Enim et sed unde autem. Rerum quis tempore sit sunt a. Aut aut qui nesciunt molestiae harum ipsam qui facilis.
Veritatis quae ducimus tenetur ut et quasi delectus deleniti. Dolorem voluptatum et sit quis sit temporibus iste. Aperiam inventore totam sit provident. Voluptas est dolor nam quasi eos quis praesentium. Officia qui sit sint reprehenderit possimus aliquid quasi. Pariatur et deserunt in iste et eveniet. Molestiae et modi aspernatur omnis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...