Over the course of the past decade, there has been much press coverage and academic discussion around the traditional “2 and 20” hedge fund compensation model. Although that model has no doubt faced significant pressure from institutional investors, those investors often are more interested in working with private fund managers to create compensation structures that better align interests rather than simply reduce fees. Some of those arrangements represent a resurgence of older practices, while others offer novel and creative solutions. Hurdles, benchmarks, escrows, varying performance periods, clawbacks and management fee offsets are representative of the types of alternative compensation structures and innovative terms that managers are deploying in an effort to attract and retain meaningful capital. In a two-part guest series, Sidley Austin attorneys Janelle Ibeling, Joseph Schwartz and Andrew Krebsbach explore several of these structures and highlight certain challenges and questions of which fund managers and industry practitioners should be aware. This first article analyzes hurdles, benchmarks, high water marks and clawbacks, and the second article will address designated investments, “1 or 30” structures, caps and first loss arrangements. For additional commentary from Ibeling, see “Evolving Hedge Fund Fee Structures, Seed Deal Terms, Single Investor Hedge Funds, Risk Aggregators, Expense Allocations, Co-Investments and Fund Liquidity (Part One of Two)” (Sep. 25, 2014); and “Recent Developments Relating to Fund Structuring and Terms; SEC Examinations and Enforcement Initiatives; Seeding Arrangements; Fund Mergers and Acquisitions; CPO Regulation; JOBS Act Implementation and Compliance; and Derivatives Reforms (Part One of Three)” (Oct. 25, 2013).