There are significant economies of scale to be enjoyed by the larger private equity real estate firms, and such firms typically have fewer staff per $1 billion in assets under management than their smaller counterparts. Firms with less than $250 million in assets under management employ, on average, the equivalent of 154 members of staff per $1 billion in assets, i.e. $6.5 million managed per employee. For firms with $10 billion or more in total assets, this falls to just 16.6 employees per $1 billion, or one employee for every $60.2 million managed.
Since the management fees that private equity real estate firms collect are usually calculated as a percentage of total investor commitments to a firm’s funds, one would expect that the percentage rates charged by firms managing the largest funds would be less than those charged by firms managing smaller funds. This is generally the case, but the slightly lower fees only partially reflect the economies scale that the larger firms benefit from. As a result, the operating economics of the largest funds are very favourable and the management fees earned by these vehicles have become a significant source of profit for their managers.
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.