Alignment of Interests

Definition

Alignment of interests is the practical design of incentives and governance so that the GP’s best outcome is tied to LP outcomes. It includes fee structure, carry and waterfall mechanics, clawbacks, GP commitment, conflicts policies, valuation governance, and reporting transparency. Alignment is not a concept statement — it is what the documents and controls actually enforce. Allocator Context Institutional allocators evaluate alignment through terms + behavior, not pitch language. Alignment concerns often show up around fee stacking, weak clawback enforceability, discretionary valuation practices, and conflicts that are “disclosed” but not properly governed. Allocators also look for consistency: managers who describe one set of principles but negotiate exceptions aggressively can trigger trust issues. Decision Authority Alignment is a committee-level theme because it affects downside risk and governance control when conditions shift. Misalignment can block allocations even if performance is strong, because allocators assume misalignment eventually surfaces as drift, overreach, or poor decision-making under stress. Why It Matters for Fundraising Alignment is one of the fastest ways for LPs to say “no” without debating strategy. Managers who make alignment easy to underwrite (clear economics, defensible conflicts, transparent valuation policy) reduce friction and shorten approval cycles. Key Takeaways Alignment is document-driven and enforceable Conflicts, fees, and valuation are common failure points Consistency matters as much as headline terms Strong alignment reduces late-stage diligence delays