27% of managers eye changes to carried interest allocations post-Covid
NAREIM member survey
Carried interest allocations & non-competes/solicitations, July 2021
More than one quarter of real estate investment managers said they were planning changes to their carried interest allocation policies in the light of the current job market and following Covid – with the CEO highlighted as the role expected to take the hit.
During a NAREIM member survey on carried interest allocations and policies surrounding non-competes and non-solicitations, 27% of participants revealed they were considering changes to their carried interest allocations within the next 18 months, citing new employee hires and concerns about labor market conditions as primary reasons for the change.
While 73% of members said changes were not being planned, of those thinking about a shift in allocations – 14% said the CEO allocation was the only role expected to see a decrease in the near future.
Survey participants highlighted 11 functional groups as potentially seeing their share of carried interest increase in the next 18 months within their organizations, including transactions and asset management, finance, HR, legal and data among others.
The survey, conducted between July 15 and July 29, 2021, was initiated by two NAREIM members and provided functional group and seniority breakdowns of carried interest allocations as well as non-compete and non-solicitation clauses and durations.
Key takeaways on carried interest, included:
More than a third of firms surveyed indicated the CEO was allocated 16%- 20% of carried interest, while 13% of firms allocated 36%- 40% of carried interest to the CEO
A third of members allocated 6%-10% of the carried interest pool to transaction teams, while 40% of members allocated portfolio management 11%-15% of the carried interest pool
No allocations were provided for the following functional groups: Securities (REIT, CMBS) Due Diligence/Underwriting Development Leasing Valuations/Appraisals
Members also provided insights into policies surrounding departing employees – with a majority of NAREIM members providing customized compensation packages during non-compete periods.
More than 50% of firms subjected departing CEOs to non-solicitation periods of 12 months or more
Asset Management was the functional group most subject to non-solicitation rules, according to the survey, with typical durations of 9-12 months and 12 months+
Firms were split on non-solicitation rules for finance professionals, with 50% of survey participants deeming the rules not applicable, but 50% typically requiring 9-12 months or 12-months + of non-solicitation
Construction, A&E, development, leasing, property management, valuations/appraisals and administration were the functional areas least subject to non-solicitation rules
NAREIM members often reach out to ask their peers about pressing concerns impacting their business. This member survey is the fifth survey conducted in 2021, following surveys on return to office and data security. A total of 10 member organizations submitted data representing more than $100bn of AUM. All survey answers were provided anonymously - to both fellow members and NAREIM