Oooh, child, run.

Seriously, though, I have never managed people and am interested to hear what others have to say. My concern would be that--even if you treat everybody equally--there will be the perception otherwise and I think you have to proactively address this with your friend. Let her/him know that s/he can't expect any deference and in fact you will have to work together to make sure that there isn't even the appearance of favoritism. When it comes to compensation, etc., maybe figure out a way to have it known that an impartial person (your boss or a peer who is familiar with everybody's performance) has reviewed and agreed with how the team is treated. Maybe have a conversation with your supervisor about the dangers of such perception and what needs to be done about it. If s/he says you need to distance a bit for the sake of the team, how do you think that will go?