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Pleased with Results.

UNC's objectives for the inclusion of alternatives, and in particular marketable alternatives, are return enhancement and diversification benefits for the overall portfolio.

Yusko says UNC has been pleased with the results. For the long/short strategies, UNC uses the Russell 3000 index as a benchmark for U.S. stocks and MSCI EAFE (Morgan Stanley Capital International Europe, Australasia Far East index) for international stocks. For opportunistic equity managers, UNC uses a global benchmark, the MSCI World Index. For absolute return strategies, UNC uses a 8 percent real return (i.e., inflation plus 8 percent).

Yusko happily pointed to performance in 2000. "For the first six months of 2000, it has been a difficult period for traditional investments. We are pleased with how the marketable alternative strategies have done—especially absolute return managers. They are up about 14 percent for the first half of the year."

Relationships, Relationships, Relationships

UNC backs managers early in their careers. "We look for those firms which don't have $1 billion of assets under management and/or a five-year track record. . . . It is all a relationship game." Yusko says that the best and brightest managers also refer to him the names of others they think highly of. "Whereas in real estate, you hear location, location, location. Here, it is relationships, relationships, relationships."

Funnel Theory of Management

Yusko has developed what he calls a funnel theory of management. It is the law of natural selection—he wants to fish at the end of the funnel for the best and brightest managers. He wants to know which managers are coming out of the Soros organization or Citadel, for example. Strong firms produce strong managers, and talented people eventually want a shot at running their own shop. History shows that emerging managers from strong organizations produce stellar results for those intrepid investors who back the firms early on in their life cycle.

The theory is that managers will start at a big institution after