The desire to better align investor and manager interests has resulted in the increased use of various kinds of alternative compensation structures. For example, a recent report from the Alternative Investment Management Association found that 92% of hedge fund managers surveyed employ a high water mark (HWM) when calculating performance fees and 37% use a hurdle rate, while only 16% provide for deferred compensation or investor clawbacks of fees in years with negative performance. See “AIMA Survey Examines Evolution in the Ways That Managers Align With Investors” (Nov. 7, 2019). In a two-part guest series, Sidley Austin attorneys Janelle Ibeling, Joseph Schwartz and Andrew Krebsbach explore several alternative compensation structures and highlight certain challenges and questions of which fund managers and industry practitioners should be aware. This article reviews designated investments, “1 or 30” structures, caps and first loss arrangements. The first article analyzed hurdles, benchmarks, HWMs and clawbacks. For additional commentary from Schwartz, see “CFTC Proposes Rule to Clarify Registration Obligations of Foreign CPOs and CTAs” (Sep. 1, 2016).