We all know the adage “money talks” but at a firm level, it can be a closely guarded secret. As we enter financial year-ends for firms and bonus season for individuals, pfm’s sister title PERE teamed up with global search business Ferguson Partners to deliver details of compensation ranges within private real estate fund management markets in the world’s major regions.
Following a significant reset in industry earnings following the global financial crisis, pay inflation has remained flat, says Serena Althaus, senior managing director at Ferguson Partners. She blames insufficient numbers of post-crisis market entrants.
“It is the market disrupters that typically drive wage inflation. If a new platform comes in, say from another asset class, and starts pinching from existing platforms, that leads to them rehiring, which leads to price increases. Because we haven’t seen many new entrants, we haven’t seen much in the way of disrupting forces.”
By her reckoning, salaries in private real estate have generally kept pace with inflation only, approximately 2-3 percent year on year.
Generally, compensation levels vary relative to domestic or regional regulatory and cultural conditions. For instance, US executives have been more comfortable with lower base pay and higher variable pay than their European and Asian counterparts.
The research does throw up notable nuances. US executives are better paid than their European and Asian counterparts, which Althaus attributes to reasons including greater depth in the marketplace, more independent firms not constrained by parent company rules on compensation, and higher costs of living, taking into account outlays like education fees and medical coverage.
Asia’s executives are better paid than those in Europe when it comes to base and bonuses, but, unlike their European counterparts, they hardly register for promote payments until they reach considerable seniority. Althaus says this is in part due to the relative infancy of the market in Asia.
Investment professionals typically earn greater bonuses than their asset management counterparts, usually a multiple of their base pay versus a fraction of it. While she has seen instances of 300 percent bonuses, Althaus says: “For most private equity roles, it’s somewhere between 50 and 150 percent. Asset management roles are typically circa 15 percent discounted in terms of base salary and bonuses range from 30 to 70 percent.”
Compensation represents at least half the consideration for taking a job in the sector, but younger executives are finding greater motivations in other regards than they were, a factor Eric Adler, chief executive of PGIM Real Estate, says firm is trying to capitalize on.
Adler says prospective hires are showing greater interest in areas such as breadth and variability of experiences, investor dialogue and corporate responsibility than before.
Althaus adds greater scrutiny of a firm’s capital base is another, more contemporary trend, but she also points to the current point in the cycle, following a number of post-crisis recovery years as informing sector executives’ priorities.
Citing Maslow’s hierarchy of needs, Althaus adds: “When things are good, you can get pedantic about what you want. Otherwise, the first thing you’ll look at is whether a job pays well.”