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Private Equity Real Estate Fund Performance Fees

by Andrew Moylan

  • 16 Jul 2010
  • RE

Private equity real estate fund managers earn performance fees in the form of carried interest. The carried interest charged shows little variation, with 91% of private equity real estate funds in market or with 2009 or 2010 vintage years charging 20% carried interest. Where there may be a shift however is in the hurdle rate (or preferred return) – the threshold after which GPs start earning carried interest.

Comparing the hurdle rates of real estate funds with 2006 – 2010 vintages shows that funds with a 2008 vintage have the lowest average hurdle rate, with a mean of 8.55% and a median of 8%. The median hurdle for funds with 2006 and 2007 vintages was 9% and the median hurdle rate has since moved back up to 9% for vintages 2009 and 2010. The mean hurdle rate for funds with a 2010 vintage is 9.18%. Interestingly, the hurdle rate moved in favour of the GP for funds of 2008 vintage, but has subsequently moved back to similar levels to funds of 2006 vintage. The recent shift in negotiating power towards the LP has resulted in hurdle rates increasing for funds of 2009 and 2010 vintages.

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