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GOING FORWARD

One complaint regarding the hedge fund industry was that managers needed to provide products that meet investors' needs—consistent returns, lower volatility, and lower correlation to traditional products. Managers need to get to know clients and understand their needs rather than just sell product.

Another suggestion was claw-backs (i.e., having the manager vest in his or her carry over time so that it might take three years to be vested). It was felt this would further align the manager's and the investor's interests.

CASE STUDY INTERVIEW: UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL

The $1.1 billion endowment fund at the University of North Carolina at Chapel Hill was one of the early adopters of alternative investments, including hedge funds. A strong endowment fund board composed of investment professionals helped map out a plan for including alternatives into the traditional core portfolio. With respect to hedge funds, it was Julian Robertson's decision in 1990 to step down from the board so he could manage some of UNC's assets. Robertson, a North Carolina native, a UNC graduate, and a board member, believed that he could add more value to the fund by managing a portion of the assets directly rather than just serving as a member of the board. The university was fortunate that Robertson made this decision, as UNC profited during the next decade by having a portion of the endowment funds invested with Tiger Management, says Mark Yusko, chief investment officer.

Hedge funds continued to play a role at the endowment over time, and other funds were added by the board to complement the Tiger investment. The endowment grew rapidly during the 1990s and the need for the development of a professional investment office, akin to the Yale or Stanford model, to help manage the increasing complexity of the investment program drove the board to search for a chief investment officer in the fall of 1997.

That search led to South Bend where Yusko had helped build the investment program at his alma mater, Notre Dame, since 1993. Yusko arrived at UNC in January 1998 with a set of goals laid out by the endowment board to build a professional investment office and help the