What Is a Good IRR?

Private equity sponsors generally underwrite deals to a gross IRR of around 20–25%+, which after fees and carry translates to a net IRR to LPs in the high teens to low 20s. A deal that returns ~3x money over five years pencils to roughly a 25% IRR — a common rule-of-thumb 'good' outcome. Venture capital targets higher headline IRRs (30%+) on a power-law basis because most bets fail; private credit and infrastructure target lower IRRs (high single digits to mid-teens) with lower risk. Context matters: a 'good' IRR is relative to the asset class and the fund's cost of capital.

IRR is time-weighted, so the same MOIC produces wildly different IRRs depending on how long you hold. A 2x return in 1 year is a 100% IRR; the same 2x over 5 years is only ~15%. This is why IRR can flatter quick flips: a sponsor who sells fast can post a sky-high IRR on a modest dollar gain. Conversely, a great absolute outcome held a long time can show a mediocre IRR. Always ask 'over what period?' before judging an IRR — and remember the rough rule that doubling your money in ~3.6 years is a ~20% IRR (the 'Rule of 72' inverted).

IRR measures the speed/efficiency of returns; MOIC (multiple on invested capital) measures the absolute magnitude. They can disagree: a deal returning 1.5x in 6 months has a huge IRR but barely grows the fund; a deal returning 4x over 8 years has a modest IRR but creates enormous value. LPs care about both — IRR for fund-level performance and pacing, MOIC for total dollars returned. The sharpest interview answer is: 'A good IRR is ~20–25% in PE, but I'd want the MOIC and hold period before calling any IRR good, because IRR rewards speed and can be gamed.'

Beyond hold period, IRR has technical flaws: it implicitly assumes interim cash flows are reinvested at the IRR itself (often unrealistic), it can be distorted by early dividend recaps or quick partial exits that front-load cash, and a single cash-flow stream can have multiple IRRs if signs flip. PE firms sometimes flatter IRR with subscription-line (capital-call) facilities that delay drawing LP capital. Flagging these shows maturity — interviewers reward candidates who treat IRR as one lens, not the whole picture. The cleaner companion metric for absolute value is MOIC, and for risk-adjusted comparison, the fund's hurdle rate (often ~8%) defines the floor above which carried interest is earned.