REAL ESTATE COMPENSATION AND INCENTIVES How executives, investors and investment managers negotiate and secure the best terms Edited by Bard Consulting Published in December 2012 by PEI Second Floor Sycamore House Sycamore Street London EC1Y 0SG United Kingdom Telephone: +44 (0)20 7566 5444 www.peimedia.com © 2012 PEI ISBN 978-1-908783-15-8 eISBN 978-1-908783-49-3 This publication is not included in the CLA Licence so you must not copy any portion of it without the permission of the publisher All rights reserved No parts of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means including electronic, mechanical, photocopy, recording or otherwise, without written permission of the publisher Disclaimer: This publication contains general information only and the contributors are not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser Neither the contributors, their firms, its affiliates, nor related entities shall be responsible for any loss sustained by any person who relies on this publication The views and opinions expressed in the book are solely those of the authors and need not reflect those of their employing institutions Although every reasonable effort has been made to ensure the accuracy of this publication, the publisher accepts no responsibility for any errors or omissions within this publication or for any expense or other loss alleged to have arisen in any way in connection with a reader’s use of this publication PEI editors: Anthony O’Connor and Wanching Leong Production editor: Julie Foster Printed in the UK by: Hobbs the Printers (www.hobbs.uk.com) Contents Figures and tables About the editors Editor’s introduction SECTION I: EXPERT CHAPTERS History of compensation and incentives: Pension fund investment in private real estate By Blake Eagle, National Council of Real Estate Investment Fiduciaries and Laura Huntington, Institutional Property Consultants, LLC Introduction 1900s–1950s: Preservation of capital 1960s: Modern portfolio theory 1970s: The entrance of real estate 1980s: Appraisal concerns 1990s: The beginning of the era of performance-based fees 2000s: Imbalance between fees and performance Conclusion A review of general compensation trends in real estate By James Wright, CEL Compensation Advisors, LLC Introduction Compensation philosophy: The emergence of a broader and integrated perspective Base salary: Competition and financial skills drive an upward trend Annual incentive plans Long-term incentives: Aligning with risk Future trends How to attract and retain talent By Sally Carlson, Equinox Search Introduction A candidate’s perspective Strategies for attracting talent How and when to ‘grow your own’ talent Impact of the financial crisis on recruiting and retention tactics Changes in compensation structure Challenges of retention Counsel on attracting and retaining great talent Crafting carried interest provisions: Legal issues related to current market trends in compensation By John H Kuhl and Amy H Wells, Cox, Castle and Nicholson LLP Introduction Distribution of the promote Distribution percentages Asset-based versus portfolio-based calculations Clawback versus holdback Conclusion: The human element A new approach to interim incentive fee payments By Dean Altshuler and Roy Schneiderman, Bard Consulting Introduction The pros and cons of interim incentive fee payments Interim incentive fee payment from the investor perspective Introducing a protocol for interim promote payments (PIPP) PIPP: An integrated example PIPP: Additional elements A review of good-leaver/bad-leaver provisions and joiners issues By Kate Simpson and Nigel van Zyl, Proskauer Rose LLP Introduction Investor focus Carried interest Co-investment Clawback and escrow Settlement arrangement with leavers Conclusion How will the AIFMD guidelines restrict real estate fund manager remuneration? By Melville Rodrigues, CMS Cameron McKenna and Jeff Rupp, INREV Introduction Model based on banking sector guidelines Sound and effective risk management General remuneration requirements Carried interest Identified staff Proportionality principle Remuneration governance procedures Disclosure Review and comment on the proposed guidelines What can be done now? SECTION II: PRACTITIONER Q&As Q&A with a general partner As a fresh-brand private equity real estate manager with top-tier seasoned experience, Sonny Kalsi of GreenOak Real Estate Advisors explains how his firm works with limited partners in the quest for a fund structure with appealing and sustainable incentive and compensation terms Q&A: An adviser’s take on how fees and incentives have evolved Ted Leary of Crosswater Realty Advisors talks to PERE’s Wanching Leong about how managers and investors have to be more thoughtful about tailoring the fee structure to match the relevant investment strategy if they want to achieve sustainable results 10 Q&A: A large pension asset manager’s views on maximising fund returns Steven Hason of APG Asset Management US Inc in New York explains how his firm sets the bar suitably high when it comes to negotiating compensation and incentive terms and choosing the best-performing and skilled investment managers 11 Q&A with a placement agent Maxwell Rothaus of Credit Suisse Private Fund Group in New York provides a placement agent’s expert view on how and why GPs and LPs have introduced gamechanging incentive and compensation terms as the asset class adjusts after the Global Finance Crisis 12 Q&A with an executive search firm The way private equity real estate in every region hires, retains and compensates its talent has changed materially since the market peak of 2007 Ghada Sousou of Sousou Partners explains what is driving demand for talent in the near term and how and why some institutions are diversifying their human capital to meet their new investment strategies 13 Q&A: A public pension’s view of compensation and incentives Michael DiRè discusses how CalSTRS incorporates the many nuances of compensation and incentives found in the private equity real estate asset class into his public pension plan’s real estate investment programme SECTION III: SURVEY Survey findings PERE and Bard Consulting LLC conducted two dedicated surveys in late 2012, one of limited partners and one of general partners active in the private equity real estate asset class, the results of which are published exclusively in this publication Introduction GP–LP: The balance of influence Focus of fee negotiations Which fees GPs charge Benchmarking and performance evaluation Limited partners’ recent investment approaches Limited partners’ views on fees for indirect strategies About PEI Figures and tables Figures Figure 2.1: Value-added compensation philosophy Figure 2.2: Base salary spread – average of public (REIT) ($) and private company ($) Figure 2.3: Annual performance bonus realisation (%) Figure 2.4: Average bonus as a % of base salary – public/private Figure 2.5: Growth in private senior officer total cash compensation Figure 2.6: Total cash compensation spread – average public vs private Figure 2.7: Growth in public REIT senior officer annual LTIP value Figure 2.8: Public company total return vs % change in total cash compensation Figure 6.1: Diagram illustrating where, in a typical fund structure, executives may receive compensation and incentives Figure 7.1: Timeline – Alternative Investment Fund Managers Directive Survey figures Figure 1: Balance of power Figure 2: How much influence did limited partners have in compensation and incentive terms? Figure 3: Perception of limited partners’ primary desire in fee negotiation Figure 4: Limited partners’ chosen investment vehicles (12 months to October 2012) Figure 5: The range of promote/incentive fee rates that limited partners are paying for funds, according to investment strategy Tables Table 2.1: Base salary growth rates for key private real estate executives Table 2.2: Merit increases (2007–2012) Table 2.3: Total cash compensation growth rates for key private real estate executives Table 2.4: Selected REIT/REOC financial and operating trends Table 2.5: Summary of long-term compensation structures and characteristics Table 2.6: Annual LTIP value-to-base-salary ratio Example 1: Sponsor distributions comparing return on capital and promote vs return is in addition to return on capital Example 2: A multi-tiered waterfall distribution Example 3: A distribution where investor capital and return on capital receive priority Example 4: A distribution waterfall for cash flow from operations separate from capital proceeds Example 5: Comparison of an asset-by-asset distribution scheme with a portfoliobased distribution scheme Example 6: A running calculation of the promote based on realised assets Example 7: A distribution scheme with a holdback Example 8: A distribution scheme with a clawback Table 5.1: Rolling realised portfolio illustration (all $ values in millions) Table 5.2: Example of first approach (all $ values in millions) Table 5.3: Example of third approach (all $ values in millions) Table 5.4: First-asset sale computations (all $ values in millions) Table 5.5: Second-asset cash flows (all $ values in millions) Table 5.6: Second-asset sale analysis (all $ values in millions) Table 5.7: Third-asset cash flows (all $ values in millions) Table 5.8: Third-asset sale analysis (all $ values in millions) Table 5.9: Summary of result in Tables 5.4 to 5.8 (all $ values in millions) About the editors Roy Schneiderman, CRE, FRICS is a principal with Bard Consulting LLC Bard Consulting is a boutique consulting firm based in San Francisco, California that provides strategic real estate consulting services to institutional investors including the California State Teachers Retirement System, the York State Common Retirement Fund, the California Public Employees Retirement System and a major Middle Eastern sovereign wealth fund Prior to founding Bard Consulting in 2001, Roy’s career included stops at Deloitte & Touche and Sedway Group/CBRE Consulting Roy has a BA in Philosophy from Beloit College, an MA in Philosophy from Yale University and an MBA from the University of California at Berkeley He is a member of both the National Council of Real Estate Investment Fiduciaries and the Pension Real Estate Association Dean Altshuler, PhD, CFA, has provided real estate consulting services as an independent consultant since 1994 Clients have included investment managers, REIT analysis firms, investment bankers, pension funds, developers and universities Prior to starting his own practice, Dean was the director of real estate research with TCW Realty Advisors Dean has been affiliated with Bard Consulting LLC since 2006, and leads Bard Consulting’s quantitative analysis practice Dean has developed a niche area of reporting, including the development of due diligence and optimising portfolios NCREIF Academy as an instructor Reporting module specialisation in performance measurement and sophisticated financial models for both asset-level He has served as a member of the faculty of the for the Performance Measurement and Client Dean has published in several Institutional Real Estate Inc publications, where he was formerly a technical adviser, as well as in the Journal of Real Estate Portfolio Management, and has guest lectured at the MIT Center for Real Estate may not be motivated to give a ‘first-moving’ LP too much of a sweetheart deal because other LPs will ask for most-favoured-nation treatment with the right to see and match the terms granted to later investors Recently we have had more success in negotiating terms, but we not see that trend lasting because the market will eventually normalise Now we see a lot of GPs looking overseas for capital because there is a significant amount of capital supply from sovereign wealth funds and other foreign investors Some of these groups are just beginning their investments in real estate and they may not have similar interest in changing the current fund terms PERE: In your opinion, should the incentive/promote fee be the only profit-making centre? Do other types of fees have a place in generating profits for managers? MD: Well if someone is a good core manager and they don’t charge an incentive fee, then by definition they have to be making a profit from the asset management fee And we are OK with that for low-risk strategies But when you move out to a non-core strategy, the on-going asset management fee shouldn’t be an incentive to hold assets This just makes no sense from our perspective The asset management fee should just cover the cost of running the business and provide for a fair or small profit If the market turns and cap rates or valuations have moved and the GP isn’t going to make the hurdle, the GP shouldn’t have an incentive to hold assets because it’s the source of profit margins for the company But if profit is zero or if the GP is losing money, there is an issue of whether a manager can keep their best people to manage their assets You don’t want to be in a position where you’re squeezing the asset management fee so tight that the GP doesn’t have an ability to pay its people fairly Keeping an asset occupied at market rents is absolutely the most important role for asset managers, therefore, the LPs have to be careful not to punish the GPs with the fee structure PERE: How transparent are GPs with you with respect to the breakdown of their fees? Do you request to see a fund manager’s existing or previous fund’s P&L? MD: We have mixed results with requests of this nature Financial statements that detail the use of fee income are not easily obtained Even when GPs provide some of this information, most LPs are not trained to evaluate operating business costs This is where the consulting industry could play a part Consultants should be able to compare and contrast managers’ fee structures, personnel levels and overall cost relative to industry norms Note that just getting the information may be difficult for public pension plans as GPs may worry that anything they give to us might one day be made public through the Freedom of Information Act That’s something GPs would be concerned with and that’s understandable PERE: Do you think smaller LPs expect larger ones such as CalSTRS to be doing the primary due diligence and negotiation and then just follow along? MD: I generally believe that smaller LPs and their consultants all their homework prior to making investments However, it is reasonable for them to look to larger LPs to show some leadership at advisory committee meetings or in negotiations with GPs It goes back to the LP community needing to work together to say that these are the most important principles to us to make sure there’s alignment of interest and transparency between LPs and GPs I think it’s gone a long way but there’s always room for improvement PERE: How much have ILPA’s Private Equity Principles contributed towards that effort? MD: I think they’ve helped a lot because they’ve laid out a framework of goals that LPs can agree on They may not agree on the priority of those goals, but they’ve certainly laid out common goals You weigh what’s important to you – whether control or fee structures People can rally around these things and say these are the major points and let’s focus on these things It creates a nice framework to discuss these terms and conditions PERE: What is your view on the approaches North American, European and Asian real estate investment managers take when it comes to compensation in the fund terms they offer? MD: We don’t make a significant amount of international investments on a relative basis The issue of how to invest outside the US is something we are continually challenged by We have a long-term goal of having 20–30 percent of our holdings outside the US We currently are at roughly half that number Given our limited history in this area, we not have strong opinions on the differences between the continents when it comes to fees and terms PERE: What challenges are you facing in making international investments? How much is a benchmark, or lack thereof, an impediment? MD: There are two issues here The first is whether or not there is a good international real estate benchmark The good thing about the stock market is there are many international benchmarks that investors can use to compare their performance with market performance But in real estate, this is not the case We are working to try to get more of a global benchmark in real estate through PREA It’s going to take a long time to get there A second issue is our own portfolio benchmark, which is the ODCE benchmark This is a group of open-ended core funds in the US that has about 25-30 percent leverage If we invest internationally, those international investments will be judged against the US market and the ODCE benchmark simply because that’s the benchmark that we have That creates a problem What happens in London, Paris, Beijing or Rio de Janeiro doesn’t have a lot to with the ODCE benchmark International investments help from a diversification standpoint but justifying investments overseas to exceed the ODCE benchmark when the risks are so wildly different is challenging There is also a perception that there are significantly more risks in real estate investing overseas The consulting industry regularly informs staff just how risky this is There is currency risk and you need to hedge for it There is rule-of-law risk – what are the issues of foreclosure with foreign ownership, what about tax treatment? You have other risks of distance management There is market risk When consultants add all these risks up they come to you and say you need to get an opportunistic return to invest overseas because you have all these risks Therefore, if you invest in core overseas, you run the substantial risk of not beating your benchmark As an example, it is perceived that one of the best core markets to invest in the world is office market in central London For a stabilised asset, that is likely a low-yielding investment It may be safe but it is likely to have returns below ODCE In addition, if currency rates swing, the volatility changes the dynamics of what should have been a core investment That’s just one of the problems we face when considering of investing overseas Bottom line is that it is quite challenging to match the projected returns with the perceived risks PERE: Do you use the ODCE benchmark to assess manager compensation? MD: We have from time to time during my time at CalSTRS and my time at CalPERS attached a dual threshold: you have to get over a certain hurdle and you have to beat the NCREIF NPI index We’ve just switched to the ODCE index now so we haven’t yet put that ODCE hurdle into our contracts We certainly have considered that – if we give a manager a strategy that is the similar to the strategies of the funds that comprise the ODCE index, we could certainly tie compensation for that PERE: Can you give us a hypothetical example of how you would tie a benchmark to manager compensation? MD: We would say to a core investment partner that we would want you to beat the ODCE index, we would give you an asset management fee that covers cost, tied to net asset value or gross asset value We’ll also give you an incentive fee that would be 10 percent of the profits above some hurdle, but only if you also beat the ODCE index The reason we would want to beat the ODCE index as well is if the market goes crazy and has five years of 15 percent returns but this partner only got 12 percent, they don’t deserve an incentive fee PERE: Do the GPs react adversely when you try to introduce a benchmark? MD: There is some pushback but it is inherently fair The pushback also comes if we have control to leverage and we have complete control over the purchase and sale of the assets That’s where some of the pushback is for the separate accounts PERE: What kind of attributes would you consider for investing in first-time funds? MD: We want the team to have worked together If it’s a first-time fund we would also want the team to be open to offering an innovative fee structure as opposed to the triedand-true 1.5-and-20 with catch-up We would want them to be open to greater alignment of interest Given that they’re new and we’re taking a chance on them, we would want the LPs to have majority vote or two-thirds vote so we remove them and we can gain control if they aren’t performing PERE: Would you say that off-market terms a deal-breaker? MD: Terms that are different from the market standard are not a deal-breaker; we like to hear creative solutions to align interests However, above-market terms are Fee structures that result in an unfairly high promote will be a deal-breaker for a first-time fund Or if they demand incentive fees on individual assets and not over a pooled basis, that would also be a deal-breaker for us PERE: Do you generally find that consultants are positive and additive to the allocation equation since the global financial crisis? Do you feel they have learned lessons? MD: The consulting community has been quite helpful in encouraging LPs to work together and to compare and contrast managers, strategies and deal terms I also believe the consultants have a broader and deeper access to market information than the people who sit in chair like mine because they have multiple clients and significantly more fund managers to oversee Like all of us, I believe the consultants are striving to apply lessons learned PERE: In light of placement agent scandals in the past couple of years, will you still work with them? MD: Placement agents for CalSTRS need to register with the state of California as lobbyists This is because the reaction to the placement agent scandal in California was rolled in with lobbyist issues So we don’t see a lot of placement agents anymore Like any other portion of the industry, there are good and bad placement agents I think they have a role Let’s say you’re investing in the emerging markets A good placement agent can sort through the opportunities that are available in Brazil and recommend a player with a compelling strategy They can serve that purpose They can compare and contrast They are a great source of education for managers who want to raise money but are not familiar with the characteristics of institutional capital By the time investors see the deal structure, a good placement agent has made it edible It may not be what we want to eat, but at least it should be edible Michael DiRè is the Director of Real Estate Investments at the California State Teachers’ Retirement System (CalSTRS) Michael leads a staff of 19 and a portfolio of over $20 billion, including both discretionary and non-discretionary investments He joined CalSTRS in July 2000 and has expanded the CalSTRS Real Estate programme into joint ventures, international investments, and real estate debt He holds a bachelor’s degree in Real Estate and Finance from California State University The California State Teachers’ Retirement System, with a total investment portfolio valued at over $152 billion, is the largest teacher pension fund and second largest public pension fund in the US Section III Survey Survey findings PERE and Bard Consulting LLC conducted two dedicated surveys in late 2012, one of limited partners and one of general partners active in the private equity real estate asset class, the results of which are published exclusively in this publication Introduction The objective of the surveys was to understand the way limited partners and general partners work with each other with respect to compensation and incentive issues The following analysis draws on the findings of both surveys and considers the differences in perspectives and attitudes between limited partners and general partners GP–LP: The balance of influence It is a natural starting point to consider the degree general partners and limited partners think they each influence compensation and incentives terms Not surprisingly, a majority of each group considers the balance of power to fall squarely with the other The stronger reaction to this question came from the general partners, 64 percent of whom said limited partners have the greater influence over compensation and incentives terms, with another 13 percent saying there is equal influence Only 23 percent of the general partners believe that they have the upper hand From the limited partner perspective, just over two-thirds of respondents said that general partners are more influential or the balance of power is equal, with only 29 percent thinking that limited partners held the stronger hand Looking forward, we asked general partners and limited partners to predict how much the balance of influence would change over the next two or three years On this question there was more agreement between the parties The single largest response in both surveys is that there is likely to be no overall change, with nearly 49 percent of general partners taking this view and nearly 45 percent of limited partners answering this way Interestingly, of those who expect a change in the balance of power, limited partners feel that the pendulum would be swinging to their benefit, while the general partners believe the future would bring more clout to general partners Perhaps this juxtaposition simply represents the inherent optimism of the human condition Both sides think ‘the other guy’ is in the better position today, but each looks for the future to be brighter for their side Using slightly different questions, we asked both groups of respondents to indicate how much influence limited partners had in determining compensation and incentives terms for funds formed in the last 12 months The results of this question are shown in Figure Again, there is a substantial difference in perspective between general partners and limited partners Figure 1: Balance of power Source: PERE/Bard Consulting LLC As the balance of influence has seemingly moved in favour of limited partners in private equity real estate in recent years, we were keen to understand how much of this influence is due in part to investors actually communicating with each other More than 81 percent of limited partner respondents say they communicate with other limited partners when they are negotiating an investment in a fund – nearly 30 percent saying they communicate ‘often’, whereas almost 52 percent say they communicate ‘sometimes’ Focus of fee negotiations With specific reference to a general partner’s latest fund, we asked all respondents to indicate where investors focused most in terms of fee negotiations Although the questions were worded slightly differently with respect to this issue, general partners’ perception of limited partners’ desires generally was consistent with the limited partners’ selfassessment The results are summarised in Figure About half of the limited partners whose focus was on lowering management fees were willing to consider increasing incentive fees in return for having their way on the management fee issue Interestingly, that willingness to horse-trade was not necessarily effectively communicated to the general partner community as only about 20 percent of the general partner respondents who noted that limited partners were primarily concerned with lowering management fees responded that they sensed a willingness of limited partners to trade off lower management fees for a higher incentive structure Figure 2: How much influence did limited partners have in compensation and incentive terms? Source: PERE/Bard Consulting LLC While on the topic of management fees, the survey asked the general partner community a question that is near and dear to the limited partner community’s heart: are management fees a profit centre? Just over 56 percent of the general partner respondents responded ‘the management fee just covers our costs’ Another 28 percent indicate ‘the management fee covers costs and provides some profit’, but it is unclear how much profit they make because this specific information was not requested as part of the survey At the other end of the spectrum, just over 15 percent of general partners claim that the management fee does not cover their costs although, similarly, we not know whether the shortfall was very significant Figure 3: Perception of limited partners’ primary desire in fee negotiation Source: PERE/Bard Consulting LLC Which fees GPs charge Other than the two obvious areas of ‘management fee’ and ‘incentive fee’ general partners were asked to indicate which specific types of other fees they charge their limited partners By far the most commonly charged other type of fee is the property management fee, which 72 percent of respondents say they charge their limited partners In descending order, the other fees general partners cite are: construction management fee (60 percent); development fee (56 percent); leasing fee (52 percent); disposition fee (44 percent); acquisition fee (40 percent); and financing/refinancing fee (20 percent) These responses indicate that we likely had a higher representation of asset managers in our respondent pool as compared with opportunity fund managers The experiences recounted in the survey of limited partners, regarding the other fees charged by general partners, more or less reflect those of the general partner survey Benchmarking and performance evaluation We asked the limited partners whether they use one or more established industry benchmarks to evaluate their own performance More than 55 percent of limited partners indicate that they use the NCREIF Property Indices, followed by 52 percent using the NCREIF Fund Index – Open End Diversified Core Equity (ODCE), followed by the IPD Indices which are used by 30 percent of those responding A few respondents mention other indices Interestingly nearly 15 percent of limited partners say they not use a performance benchmark at all The next question is whether the benchmarks that the limited partners measure themselves against are the same as what the general partners use for performancebased fees in their funds However, 81 percent of general partner respondents indicate that their funds not have any market-based performance benchmark at all Of the very small sample of general partners that did respond, the divergence from the limited partner-favoured benchmarks was striking Such differences duly noted, it is our experience that there is a current increase in incorporating market-based performance benchmarks into incentive fee structures Only time will tell whether this is a temporary phenomenon or a more long-term trend Regarding what drives fund performance goals, it is noteworthy that the vast majority, nearly 95 percent, of general partners say they compare their own fund terms and conditions with those of other private equity real estate funds with comparable strategies to arrive at industry-acceptable compensation and incentives terms Figure 4: Limited partners’ chosen investment vehicles (12 months to October 2012) Source: PERE/Bard Consulting LLC Limited partners’ recent investment approaches Limited partners were asked to describe the approaches that they have utilised in the previous 12 months (to October 2012) to deploy real estate capital The results are summarised in Figure Note that many limited partners utilised more than one approach and so the figures total well in excess of 100 percent With regard to the type(s) of product desired, and taking a mix of the experience of the last one year together with the expectations of the next one year, more than 71 percent of limited partners said they are, or would be, investing in ‘core/core-plus’ investment strategies, 68 percent in ‘value-added’, 61 percent in ‘opportunistic’ and 50 percent in ‘debt’ So, to a high degree, these responses suggest that many LP respondents are interested in multiple product types Limited partners’ views on fees for indirect strategies For those investors that invest using the funds route, we were keen to find out what level of management fees limited partners are paying in relation to invested capital/net asset value In the core/core-plus range 70 percent of investors say they pay a management fee of percent or less For funds with a value-added investment strategy, 83 percent of limited partners indicated a management fee range between and percent with twothirds in the lower half of that range The higher management fee rates that limited partners are reporting they are paying to general partners correlates with the increased risk of the investment strategy Accordingly, only about 33 percent of those limited partners that invested in the opportunistic fund category say they pay a fee in the lower to 1.49 percent range, while 44 percent indicate a range of 1.5 percent to 1.99 percent For investors in both the value-added and opportunistic investment strategies combined, just over 10 percent of respondents indicate they pay a fee in excess of percent, which is, coincidentally, almost a perfect counterbalance to a similar amount of survey respondents who say they are paying less than percent for the two investment strategies For real estate debt funds, most limited partners (60 percent) indicate they are paying in the range of percent to 1.49 percent, percent are paying 1.5 percent to 1.99 percent We also asked limited partners to tell us generally what levels of promote/incentive fee they are paying to their general partners.Figure shows that there is general link between the degree of investment risk and the level of incentive fee paid to a general partner For example, 41 percent of the limited partners that have allocated to core/core-plus strategies pay no incentive fee at all At the other end of the spectrum, 12 percent of limited partners that allocate to opportunistic funds say they are paying their general partners more than a 25 percent promote rate Figure 5: The range of promote/incentive fee rates that limited partners are paying for funds, according to investment strategy Source: PERE/Bard Consulting LLC About PEI PEI is the leading financial information group dedicated to the alternative asset classes of private equity, real estate and infrastructure globally It is an independent company with over 70 staff based in three regional offices – London, New York and Hong Kong – and is wholly owned by its management and employees We started in London in November 2001 when a team of managers at financial media group Euromoney Institutional Investor PLC, with the backing of US-based investors, bought out a group of assets that centred on the website PrivateEquityInternational.com At the time the new company was called InvestorAccess, and the aim was to grow a specialist media business that focused on alternative assets – and private equity in particular In December 2001 we launched our first magazine: Private Equity International A year after, we had run our first conference in London and published our first book A year later, we had opened our New York office and launched two more magazines: PE Manager and PERE Next came the launch of our fourth magazine PE Asia in 2006 In 2007 we released our first online database and the year after we added specialist training to the portfolio as well as an awards business In 2009 we launched our fifth magazine, Infrastructure Investor In May 2007 the same managers completed a secondary MBO that enabled us to own all of the business we had built and give our original co-investors a great exit too Renamed PEI, the company remains one of the few independent financial media groups active worldwide Today we publish five magazines, host five news websites, manage a very extensive set of databases dedicated to alternative assets, run in excess of 25 annual conferences globally, publish a library of more than 30 books and directories and have a fast-growing training business We have grown into a well-known and highly regarded media business that delivers detailed coverage of the main alternative asset classes of private equity, real estate and infrastructure We have worked hard to build a reputation for top-quality journalism that is written by our own staff and is delivered via accomplished print and digital channels The same principles of accuracy, genuine market knowledge and excellence of delivery also inform our data, events and specialist publication activities In April 2009, PEI won The Queen’s Award for Enterprise 2009 The award was made in the international trade category as we have more than doubled overseas earnings in just three years and we now conduct business in over 80 countries As well as looking at our commercial performance, the judging process also examines the company’s corporate social responsibility, the company’s environmental impact and our relations with customers, employees and suppliers ... EXPERT CHAPTERS History of compensation and incentives: Pension fund investment in private real estate By Blake Eagle, National Council of Real Estate Investment Fiduciaries and Laura Huntington,... of compensation and incentives found in the private equity real estate asset class into his public pension plan’s real estate investment programme SECTION III: SURVEY Survey findings PERE and. .. of compensation and incentives: Pension fund investment in private real estate, Blake and his co-author, Laura Huntington of Institutional Property Consultants, LLC, trace the history of real estate