IRR Hurdle
An IRR Hurdle (also known as a hurdle rate) is a minimum return target that private equity firms set for their investments. Think of it like a passing grade on a test - if an investment doesn't meet this minimum return level, it's usually not considered worthwhile. When someone mentions IRR (Internal Rate of Return) Hurdle in their resume, they're typically talking about their experience in evaluating investment opportunities or managing deals that needed to meet specific return requirements. This is a fundamental concept used by investment professionals to decide whether to proceed with an investment opportunity.
Examples in Resumes
Evaluated potential investments against IRR Hurdle rates of 20% to identify attractive opportunities
Successfully closed 5 deals that exceeded IRR Hurdle requirements
Developed financial models to assess investments against IRR Hurdle and Hurdle Rate thresholds
Typical job title: "Private Equity Associates"
Also try searching for:
Where to Find Private Equity Associates
Professional Networks
Industry Resources
Example Interview Questions
Senior Level Questions
Q: How do you determine an appropriate IRR hurdle rate for different types of investments?
Expected Answer: Should discuss factors like risk level, investment strategy, market conditions, and comparable deals. Should mention how hurdle rates vary across different investment stages and sectors.
Q: How do you handle situations where potential deals are slightly below the IRR hurdle?
Expected Answer: Should explain the balance between strict hurdle requirements and other strategic considerations, risk mitigation strategies, and how to present such cases to investment committees.
Mid Level Questions
Q: What's the relationship between IRR hurdle rates and risk assessment?
Expected Answer: Should explain how higher risk investments typically require higher hurdle rates, and how different market factors influence hurdle rate setting.
Q: How do you model different scenarios to test if an investment will meet the IRR hurdle?
Expected Answer: Should discuss basic financial modeling techniques, sensitivity analysis, and how to account for various factors that might impact returns.
Junior Level Questions
Q: What is an IRR hurdle and why is it important?
Expected Answer: Should explain that it's a minimum return threshold for investments and why it's used to screen potential deals.
Q: How do you calculate IRR and compare it to the hurdle rate?
Expected Answer: Should demonstrate basic understanding of IRR calculation and how to compare projected returns against hurdle requirements.
Experience Level Indicators
Junior (0-2 years)
- Basic financial modeling
- Understanding of IRR calculations
- Deal screening using hurdle rates
- Investment memo preparation
Mid (2-5 years)
- Complex financial modeling
- Deal evaluation
- Due diligence coordination
- Investment committee presentation preparation
Senior (5+ years)
- Setting hurdle rate policies
- Investment strategy development
- Deal negotiation
- Portfolio management
Red Flags to Watch For
- Unable to explain basic IRR calculations
- No experience with financial modeling
- Lack of understanding of risk-return relationships
- No knowledge of industry-standard hurdle rates
Related Terms
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