Benchmark individual compensation figures taken from 2011 Preqin Private Equity Real Estate Compensation and Employment Review demonstrate that the favourable operating economics of largest firms channel through to individual remuneration at such firms. For example, the average total remuneration for the CEO at participating firms with less than $2 billion in assets under management stands at just under $800,000, but for a CEO at a firm managing more than $10 billion in assets the average total remuneration is $1.65 million. The downturn in real estate markets has naturally had an effect on the performance of private equity real estate funds – the latest available performance data from Preqin’s Performance Analyst reveals that the median IRRs of real estate funds with vintages 2005-2007 are all in negative territory – and this has had a knock on effect on compensation. While base salaries have remained relatively stable from 2009 to 2010 at many firms, the majority of firms paid out less in annual incentive awards to their employees than in the previous year.
Firm-wide base salary levels remained unchanged at more than one-third of firms, and that at 43% of firms there was a small increase in base salary levels of 0.1-3%. Senior employees at a firm were more likely to have been subject to a base salary freeze than junior employees. It was in annual incentive award payouts where individuals’ remuneration took the hit. Nearly 60% of firms reduced their overall annual incentive awards payouts for performance in 2009 from the previous year’s payouts, and just 15% of participating firms paid out more. Junior professionals were the most likely to receive an increased annual incentive award.
More information on private equity real estate employment and private equity real estate compensation is available in the 2011 Preqin Private Equity Real Estate Compensation and Employment Review.