Saadat Adhmed's reference can be supplemented by the Pepperdine Private Markets Report (redacted.) and a similiar report from Imperial which is not open access. If the data is to be believed, IRR expectation have been decreasing, and are higher in the US. PE firms still reference high returns, investors expect what Saadat mentioned. But while the returns have decreased, as the Economist notes one thing is important to the industry - keeping standards high with fees (Google Economist Zilch Capital Investor Letter).


"Some parts of the lexicon will not see style drift. We are still trying to keep alive “two and twenty”, the industry's shorthand for 2% management fees and 20% performance fees. It is, we're sure you'll agree, important to keep up some traditions. Thank you for your continued partnership."

Thanks for this Mike, enjoyed your insight just wanted to gain a bit more knowledge in this area
1. For funds that invest in RE, are you talking about those that only buy assets for yields? Rather than buy operating businesses?It would make sense you would want a larger return if there is larger upside to be made hence investors want more.2. I am working with a PE fund (£2B Aum) we are looking at giving them 15% IRR for £50m for a 50% equity. A search fund investor looks at 30% IRR, around £5m (on average equity cheque) for 70% equity. 3. This points to asset light businesses, which is what search fund investor criteria points to, with longer hold periods. The search find primer points to the split also at about senior debt 1/3, seller note 1/3 and equity 1/3, which I would argue should result in a lower IRR requirement as per your observations.
I maybe look at it this way if the GP is the fund the searcher is raising, and once the searcher buys a business they will take a salary rather than a management fee. Then the nonperforming assets, management fees etc should be not be factored in and should result in a lower hurdle rate. The general point is for now, the search fund asset class is driven by those who have the capital who quite rightly so wish to continue to get above average returns with their limited source of capital. The part of the dynamic that is often missed is the pool of viable companies (that meet investment criteria) are lower (especially in the UK). Perhaps the criteria is more of a sliding scale based on market. My view is that as more capital enters chasing the strict investment criteria something will give, will it be IRR hurdle, the types of businesses, or the searchers, such as more experienced searchers (the UK prefers specialist generally).