A hedge fund manager that decides to implement cash hurdles for incentive fees undertakes a far-reaching change with significant consequences for both investors and the manager itself. It is a decisive departure from the familiar “2/20” compensation structure that hedge funds have traditionally used. Although, in theory, the implementation of cash hurdles goes far toward addressing a perceived misalignment of investor and manager interests, along the lines set forth in the “Open Letter to the Hedge Fund Industry” from 29 of the world’s largest institutional investors and pension funds, the practical reality is far more complex. This is especially true for an existing manager that already has governing documents in place and will have to make changes to them, as opposed to a startup drafting its documents from scratch. This second article in our two-part series delves into the operational logistics of what needs to happen when a fund manager decides to adopt cash hurdles and offers key takeaways. The first article explained what cash hurdles are and summarized the advantages and challenges posed by their implementation. See “Established Hedge Fund Manager Study Examines Strategies, Fees, Liquidity and Structures” (Nov. 21, 2024).