Alignment of interest — you could say it is the Loch Ness Monster of institutional investing. Some claim to have seen it, many are sure they know what it looks like, but its existence remains in doubt. Institutional investors continue to demand alignment, and managers continue to design structures to provide it, but the monster remains elusive.

Since the 2008 financial crisis, the relationship between general partners and their limited partners has been affected by the growth of so-called mega-funds — multibillion-dollar pools of opportunistic, discretionary capital. As funds have supersized, questions have arisen about the seemingly disproportionate rewards to the GP from the typical fees applied to committed capital, asset management, transactions and performance.

Over the years, many attempts have been made to strengthen the GP/LP alignment. Fee structures with performance features are one. Co-investment — when GPs invest alongside their LPs to create alignmen