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Out of the Wood

As International Paper Co. sells off millions of acres of trees to boost its profits, pension chief Robert Hunkeler is turning to hedge funds to help solidify his company’s underfunded retirement plan.

On March 20, International Paper Co. vice president of investments Robert Hunkeler celebrated his 47th birthday in a style befitting a man who believes in the rewards of teamwork. The four members of his investment team, who help Hunkeler manage International Paper’s $7 billion pension plan, assembled for a festive lunch in his corner office on the 14th floor of the company’s corporate headquarters in downtown Stamford, Connecticut. Outside it was cool and dreary, but Hunkeler’s office was warm and cozy. With the pension chief seated at the small conference table, the group shared stories from their school days, laughing over tales of practical jokes, school shows and stage fright.

Hunkeler, however, had to cut short the celebration. A real estate agent had arrived early to take him and director of investments Carol Tusch to search for a new home for the team. The cake would have to wait.

These days the halls outside Hunkeler’s office echo with the sounds of silence. As part of a major “transformation” announced last summer that would realign, sell or eliminate business units in an attempt to improve profitability, the world’s biggest paper company decided to close its Stamford headquarters. For the 150 employees who worked there, most of whom had jobs in treasury, finance, risk management and trust investments, only two outcomes were on the table — termination or relocation to the company’s operations headquarters in Memphis, Tennessee.

Soon the four floors of International Paper staff began to empty. Hunkeler, however, balked at the move, making the case with senior management that he and his team needed to be where the money and the managers are. When the dust settled, the manager of the company’s pension assets was deemed too important to risk losing. Hunkeler would be the last man standing in Stamford — in a small satellite office he would have to find for himself and his team.

The International Paper of today is a very different place from the company headquartered in Purchase, New York, that Hunkeler joined as pension chief in February 1997. The papermaker was on a growth- and-acquisition tear. Hunkeler was hired from Swiss pharmaceuticals maker Sandoz Corp. to pull the then–$3.5 billion pension fund out of its bottom-quartile performance ditch.

Hunkeler brought the problem-solving orientation of a former research chemist to the task. With the help of Joseph Nankof, co-founder of Rocaton Investment Advisors in nearby Norwalk, Connecticut, he developed a new, more diversified asset allocation plan that includes a healthy dose of small-cap and non-U.S. equities to complement the fund’s more traditional large-cap stock and fixed-income investments.

Then in 2003, Hunkeler introduced International Paper to portable alpha. Working closely with Nankof, he drew his alpha from three sources — a preexisting investment in a fund of hedge funds run by Blackstone Alternative Asset Management, plus new investments in a UBS fund of funds and a multistrategy, single-manager portfolio run by Ramius Capital Group. The alpha was “ported,” linked to the return of a $250 million slice of the pension plan’s then–$1.25 billion large-cap allocation, created using swap contracts on the Standard & Poor’s 500 index.

Today International Paper has $350 million invested in its portable alpha program. Portable alpha has given its now–$1.9 billion large-cap portfolio a nice lift. Its large-cap stocks have had an annualized return (net of fees) of 16 percent from the portable alpha strategy’s June 2003 inception through April 2006, versus a 13.1 percent return for the S&P during the same period.

“I don’t think you can win if your assets are indexed,” says Hunkeler. “The way to win is to port from somewhere else where the pickings are better.”

And win he does. The portable alpha program has helped Hunkeler elevate International Paper’s investment performance into the top decile of large corporate and public pension plans in the State Street Corp. universe of corporate and public master trusts. Last year the company’s pension fund posted an 11 percent return, versus a median return of 7.6 percent for the 89 plans tracked by State Street. In 2004 it was up 14.1 percent, versus a median return of 11.7 percent for the then-100 plans in its peer group.

Hunkeler is well-regarded by his peers. In 2004 he was a finalist in Institutional Investor’s first annual awards for excellence in investment managment. His top-decile performance, however, has not prevented his company’s unfunded pension liability from growing. It jumped $800 million last year, to $2.3 billion — about $5 for each International Paper share, as Wall Street sees it — in large part because, unlike most other companies in similar situations, the papermaker did not make a contribution to its pension plan in 2005. Its funding ratio is about 80 percent.

Hunkeler says the unfunded liability will shrink when International Paper begins making annual contributions to its plan in 2007. But he also has a more immediate solution. With Rocaton’s help, he is getting ready to double his hedge fund allocation to $700 million. In what is clearly a cutting-edge move among corporate plan sponsors, he is going to port the additional alpha to the plan’s fixed-income investments in an effort to boost returns for the overall portfolio.

“We need to continue to evolve and find ways to improve our chances of meeting our objectives over time,” says Hunkeler.

International Paper is but one of many old-line U.S. manufacturing companies that have taken a big hit in the past decade. The steel industry faced its own Waterloo, succumbing to bankruptcies and broken pension promises. The airlines have followed the same path, and the automakers are undergoing major restructurings to try to avoid a similar fate.

International Paper’s pension liabilities have been rising despite the fact that the company closed its defined benefit plan to new employees in July 2004. In so doing International Paper joined the growing ranks of big corporations, including Alcoa, Hewlett-Packard Co., IBM Corp. and Sears Holdings Corp., that have frozen their plans. Marianne Parrs, CFO of International Paper, says the company’s freeze is unrelated to the corporate transformation announced last year, but that the latter should take some pressure off the pension plan.

“Because we’re divesting a series of businesses, we will have fewer employees,” explains Parrs, 61, who joined International Paper in 1974 in Hunkeler’s current role. “That will reduce future service costs associated with the pension plan.”

John Faraci, chairman and CEO of International Paper and the architect behind the asset sales, is trying to improve his company’s returns, solidify its balance sheet and strengthen its dividend by focusing on its two core businesses — uncoated paper and consumer and industrial packaging. International Paper, which was the largest private landowner in the U.S. following its $9.4 billion purchase of Champion International Corp. in 2000, has sold about 6 million acres of timberland this year.

As manager of $7 billion in defined benefit pension assets, as well as an additional $4.4 billion in 401(k) and retirement savings plan assets, Hunkeler is on the front lines, even as the company is moving out from under him. He must find a way to stanch the flow of pension liabilities to International Paper’s bottom line. That will become all the more challenging if a proposed ruling by the Financial Accounting Standards Board requiring companies to account for both their pension assets and their unfunded pension liabilities on their balance sheet — rather than bury them in a footnote as is currently the practice — becomes final, as expected, later this year.

At the same time, Hunkeler is concerned about the new and future International Paper employees who do not qualify for the pension plan. Although new employees now automatically participate in a retirement savings account set up by the company just for them, as well as in the company’s 401(k) plan, Hunkeler is worried that he may not be able to help them build an adequate nest egg.

Both the retirement savings account and 401(k) plan are unitized versions of International Paper’s defined benefit plan. Rather than use products from a mutual fund company like Fidelity Investments or Vanguard Group, International Paper offers its employees funds built around the same managers Hunkeler and his team have picked to run its pension assets. “They represent our very best ideas,” Hunkeler explains.

But while International Paper’s employees are free to choose among a variety of asset classes — including large-cap equities, emerging-markets debt and real estate — they don’t have access to hedge funds. The portable alpha strategy was expressly left out of the 401(k) and savings plans. “We thought it was too new and too untested to subject the 401(k) crowd to,” says Hunkeler.

GROWING UP IN BETHESDA, Maryland, Robert Hunkeler was seduced by science — and by all things Swiss. His parents were born in the canton of Lucerne in Switzerland and immigrated separately to Washington D.C., in the early 1950s to escape financial hardship. His father, a former farm boy, was hired as a chauffeur for the Swiss ambassador; his mother found work as a family caretaker. They met at a Swiss folklore group that Hunkeler père had helped to organize. It was through this group that Hunkeler fils, then 13, took up the alphorn, a 12-foot wooden instrument that sounds like a deep French horn used in the Middle Ages to soothe cranky cows. One of the proudest moments for both son and father was when Hunkeler played the alphorn for then-president Jimmy Carter and his wife, Rosalyn, at the Sidwell Friends School, where first daughter Amy was a student.

Hunkeler majored in chemistry at the University of Maryland, commuting to class from his home in Bethesda. Already fluent in German, he spent his senior year in Fribourg, Switzerland, studying chemistry and French. “The fun part of chemistry is the detective work, the research aspect, having an idea and testing it to see if it will work,” he says.

After graduating in 1981, Hunkeler decided to head back to the land of his forbears to launch his career as a lab technician at pharmaceuticals maker Ciba-Geigy Corp. in Basel. He worked in basic research, where scientists try to understand how different molecules combine. The novice chemist was especially proficient with the high-pressure liquid chromatography used to analyze mixtures of chemical compounds. After two years of bench work, Hunkeler decided he didn’t have the passion to pursue the doctorate required for advancement.

“What does somebody do when they don’t want to pursue the career they spent four years learning?” asks Hunkeler. “They go back to school and get an MBA.” Soon he was living at home in Bethesda, commuting to the University of Maryland, where he got an MBA in 1985.

That same year Hunkeler returned to Ciba-Geigy’s Basel headquarters, this time as manager of planning, information and control in the finance department. In 1987, he was married in the same small chapel in the Alps where his grandparents had tied the knot. “I knew I was going to marry someone from Switzerland,” says Hunkeler, who, like his father, had met his wife, Yvonne, in the Swiss folklore group in Washington. “It was part of my game plan.” Later that year, Hunkeler — having lived in the country more than two years and being the son of a Swiss-born male — was drafted by the Swiss army. He says that only a torn tendon in his shoulder suffered in a football game enabled him to decline the “invitation.”

By 1988, despite his love for Switzerland, Hunkeler was ready to go home. He found a position as manager of trust investments in the pension area in Ciba-Geigy’s Ardsley, New York, offices. The transition was difficult. Hunkeler felt he hadn’t received adequate training or direction and was concerned that the job would be similar to his earlier work as a lab technician — just following orders without any chance to make a real contribution. But after the first year everything changed when, working on a guaranteed investment contract, he was able to save the fund money. “From that point on I’ve only gotten to enjoy this work more and more,” he says with a smile.

In 1991, Hunkeler moved to Sandoz, then Ciba-Geigy’s biggest rival. Where he had been a jack-of-all-trades among 40 other pension staffers at Ciba-Geigy, at Sandoz’s New York offices it was just Hunkeler and “half an assistant” managing the $1.5 billion pension plan. The position enabled him to learn about the 401(k) side of the business, as well as to begin to explore the treasury role. With the increasing responsibility gained during his five-year tenure, including work in cash management and foreign exchange, he set his sights on the job of treasurer.

On the morning of March 7, 1996, Hunkeler was startled awake by news of the merger between longtime rivals Ciba-Geigy and Sandoz. His dreams of becoming Sandoz’s treasurer were dashed, and the role he was offered at the newly combined Novartis was not to his liking. So Hunkeler set after the then-vacant top pension spot at International Paper. He was interviewed by CFO Parrs, who had left a career on Wall Street as a securities analyst to join the company. As Hunkeler toured the trust investment department with Parrs, he was struck by the fact that it was run solely by women. He turned to Parrs and asked, half in jest, “Is this job open to males?” The two hit it off right away.

There was nowhere to go but up when Hunkeler took charge of the pension fund in February 1997. The position had been vacant for a year, and the fund was languishing in the fourth quartile. Among the first tasks that Hunkeler tackled were the development of a new, more diversified asset allocation policy and the adoption of a more streamlined benchmarking process. In his first 18 months on the job, Hunkeler added four new asset classes, including emerging-markets equity and debt, high-yield bonds and midcap stocks, and he increased the size of the real estate portfolio. The overhaul, completed by the end of 1998, resulted in nine manager terminations and 24 new hires.

By the end of his second year, Hunkeler had begun to acquire a reputation as one of the pension management world’s leading thinkers. “Bob reminds me a lot of David Swensen at Yale,” says J. Tomilson Hill, CEO of Blackstone Alternative Asset Management, referring to the Yale University chief investment officer who has put up 16 percent-plus annual returns in his 21 years running the school’s endowment. “He has that kind of really strong academic background and is just incredibly thoughtful about risk and how to structure investments.”

International Paper had been one of the first corporate pension plans to invest in hedge funds. In 1993 the plan made a $25 million investment in the Blackstone Partners strategy — a fund of hedge funds originally set up by the private equity firm to invest its partners’ own money. In fact, International Paper was Blackstone’s first outside client.

Although Hunkeler had wanted to expand International Paper’s small hedge fund allocation early on, there were too many other things that needed to be done first. “In the first five years I was here, we didn’t do a whole lot with the hedge fund,” he explains. “It was just an appendage to the pension plan that was chugging along.”

Even so, Hunkeler had already started to think about portable alpha. He had first learned of the strategy while at Sandoz in the early 1990s, from such pioneers as Marvin Damsma, the longtime trust investment director at BP America (then Amoco) and a popular speaker on the pension fund conference circuit. “Bob had a view that portable alpha was coming, and so from day one he was looking for a low-volatility hedge fund strategy with little correlation to the equity markets, where over time he could then do the S&P overlay,” says Blackstone’s Hill.

At the time, Blackstone Partners, which invested in a mix of relative-value and arbitrage hedge funds, had a beta of 0.2 — one fifth the volatility of the broad equity market. Hunkeler started asking Hill and Halbert Lindquist, Blackstone’s chief investment officer, what it would take to reduce the beta to zero. Those discussions ultimately led Blackstone to launch its Madison Avenue strategy, which has a beta of less than 0.1, making it largely immune to swings in the market. “Bob is the pioneer here,” says Hill. “He is the one who first got us really thinking about portable alpha.”

It was the Pennsylvania State Employees’ Retirement System, however, not International Paper, that was the first investor in Madison Avenue. Since late 2000, Hunkeler had been reviewing possible changes to his plan’s large-cap equity portfolio, including adding portable alpha, but he couldn’t pull the trigger because he was too busy digesting several billion dollars in pension assets and liabilities following International Paper’s acquisitions of Union Camp Corp. in 1999 and Champion International in 2000.

International Paper moved into Champion’s Stamford headquarters following the acquisition. By the following spring Hunkeler had dedicated himself to learning more about hedge funds and turned to Nankof for help. At the time, Nankof was managing director and head of investment consulting at Barra RogersCasey in Darien, Connecticut. Nankof had joined Barra after spending eight years as a consulting actuary at Towers Perrin.

“Bob is someone who is extremely thorough, both intellectually curious and intellectually honest in his approach,” says Nankof, who first worked with him in 1995 during Hunkeler’s Sandoz days.

Hunkeler was an eager pupil. Nankof described the many ways in which hedge funds could help International Paper achieve higher returns. The company would have more strategies at its disposal, could go long and short, and would be free of the constraints long-only managers face. International Paper could take the alpha generated by the hedge funds and transport it into more-efficient asset classes like U.S. large-cap equities and fixed income, where it’s hard for active managers to outperform an index.

By the fall of 2001, Hunkeler had moved some of the pension plan’s money out of Partners into Blackstone’s more aggressive Park Avenue fund of funds strategy. Portable alpha, however, would have to wait as top management instructed Hunkeler to revisit the fund’s asset allocation in response to the pension plan’s new asset–liability mix, the then-18-month-old equity bear market and the September 11 terrorist attacks. With Nankof’s help, Hunkeler, director of investments, Tusch and the rest of the team completed the study in five months. The result was a new asset allocation strategy. Among the changes: the use of derivatives to tailor the fund’s sensitivity to interest rates to match liabilities.

Finally, in late 2002, Hunkeler was ready to build his hedge fund portfolio. Using quantitative models to test potential investment scenarios, Hunkeler decided to put 20 percent of the U.S. large-cap portfolio, or $250 million, into portable alpha. (The rest was allocated 60 percent in enhanced index funds and 20 percent with active traditional equity managers.) For the portable alpha portfolio, Nankof, who by then had left Barra RogersCasey to help found Rocaton, recommended a mixture of largely market-neutral funds of hedge funds and multistrategy single-manager funds. Hunkeler selected the managers from a list compiled by his team and Rocaton. After doing an initial screening, Nankof brought some 15 managers to Stamford to meet with the International Paper team.

Hunkeler decided to divide the portable alpha allocation roughly evenly among three hedge fund firms. He says it was an easy decision to stick with Blackstone, especially because it offered the largely market-neutral Madison Avenue strategy. In June 2003 he took the pension plan’s money from Partners and Park Avenue and rolled it into Madison Avenue.

For his second manager, Hunkeler chose another fund of hedge funds, this one created by the Alternative Investment Solutions group of UBS in Stamford. Like Blackstone, UBS designed its fund to work well with portable alpha programs, and International Paper was one of its first investors. William Brown, CIO of the group, says his firm tries to provide a “more balanced engine” of hedge funds to avoid potential tail risk — events, such as the 1998 Russian debt crisis, that have a low probability of happening but that, when they do, can be devastating to a portfolio. To get there, UBS includes long-short equity managers, as well as event-driven and relative value hedge funds.

On the advice of Nankof, Hunkeler chose a multistrategy single-manager firm, Ramius Capital, as its third manager. Ramius, which has $7.4 billion in assets, was founded by former Shearson Lehman Brothers CEO Peter Cohen in 1994 to appeal to institutional investors. Ramius CIO Morgan Stark says the advantage of multistrategy is flexibility. The firm can change credit exposure, leverage and other factors quickly, reducing or increasing risk in real time as market opportunities change. Nankof says that Stark, a former Marine who managed proprietary trading desks at Chase Manhattan Bank and Chemical Bank during a 30-year banking career, was one of the keys to his decision to recommend Ramius.

Once Hunkeler had his alpha, he needed to couple it with beta — in this case the return from U.S. large-cap stocks. For that he turned to NISA Investment Advisors, a St. Louis–based firm that specializes in using futures and options to create customized investment products for pension funds and other institutions. For International Paper, NISA set up swap contracts, whereby the company pays LIBOR to a bank or other counterparty in exchange for the return of the S&P 500.

International Paper’s portable alpha program was designed by Hunkeler to deliver investment returns 300 to 400 basis points higher than the S&P 500’s. So far its returns have been hugging the bottom of that range. Part of the reason has simply been the markets. For the past two years, returns for the market-neutral equity, relative-value and arbitrage strategies that dominate International Paper’s hedge fund portfolio have underperformed their longer-term averages.

Another reason for the shortfall, says Hunkeler, is that he and Nankof built safety constraints into the portable alpha program by leaving a 25 percent cash cushion to cover the margin on its swap contracts to hedge against market downturns. When the market drops, the value of the swap contracts falls with it, and International Paper has enough cash on hand to cover any settlements or increase in collateral required by its swap counterparties.

“We wanted it to be belt, suspenders and duct tape secure,” quips Hunkeler, defending the conservative approach. “We wanted to make sure this thing got some positive momentum to show it could work before we started taking off some of the belts and suspenders.”

FEW COMPANIES BETTER illustrate the changing fortunes of U.S. manufacturers than International Paper. Founded in 1898 through the merger of 17 pulp and paper mills in the northeastern U.S., the company was a mainstay of the Dow Jones industrial average for nearly 50 years before it was unceremoniously dropped from the benchmark index in 2004. That same year International Paper closed its once-hallowed defined benefit plan to new employees. A combination of economic factors, including a strong dollar and increasing competition in the paper products industry, had forced the company to take extreme measures, such as starting to sell off its 12 million acres of timberland.

“This is a very difficult industry to make a lot of money in,” says CFO Parrs. “Neither we nor most other paper companies have been earning our cost of capital.”

Chip Dillon, an equity analyst covering North American paper and forest products companies for Citigroup Investment Research in New York, traces much of the problem back to the more than $20 billion that International Paper sunk into three major acquisitions between 1996 and 2000. He and other Wall Street analysts applaud the recent asset sales and cost-cutting, which reduced International Paper’s debt-to-equity ratio from 65.4 percent in 2003 to 59.4 percent at the end of 2005.

“This is a great time to sell timberland,” says Dillon. “Retirees don’t want branches in their mailboxes; they want checks.”

As International Paper tries to transform itself into a more streamlined — and profitable — company, management will be counting on Hunkeler to keep the unfunded pension liability as small as possible. To help do that, he is looking to dial up the risk in the portable alpha strategy. Plans are on the table to reduce the 25 percent cash margin used with the company’s swaps. Rocaton’s Nankof says the margin can comfortably be cut in half to improve the alpha delivery significantly as more of the money can be invested in the hedge funds. If the market were to drop, International Paper could use securities from other parts of its portfolio to meet any additional collateral requirements.

This time around, Hunkeler will be porting the hedge fund alpha to International Paper’s fixed-income portfolio, which accounts for 21 percent of the fund, second only to the 27 percent the company has in large-cap U.S. equities. With eight-year annual returns just 30 to 40 basis points above the Lehman Brothers aggregate bond index, the fixed-income investments could get a huge boost from the additional 300 to 400 basis points of alpha Hunkeler is targeting.

For the new allocation, Hunkeler’s team will be looking exclusively at multistrategy hedge funds, which, unlike funds of hedge funds, have only a single layer of fees. Not only will that reduce costs, says Nankof, it will also give International Paper greater ability to customize its portfolio.

The company’s manager selection process is changing too. Rather than have Rocaton bring the managers to them, Hunkeler and Tusch plan to go out and visit managers on their own turf. “If we want to meet the top people at some of these hedge funds, we are going to have to go to them,” says Tusch, who was recruited by Hunkeler in 1999 from the pension group of Stamford-based telephone company GTE Corp., where she had specialized in real estate and private equity. “Luckily for us, it is usually not a long trip.”

Hunkeler believes that face-to-face meetings with hedge fund managers are probably the most important step in the process. “When you finally get a manager and his team in the room, you learn so much about the character of the individuals who are going to manage your money,” says Hunkeler. “Are they passionate about what they’re doing? Is there harmony among the team members? There are a lot of things you can’t pick up from the numbers.”

Hunkeler is considering hiring new managers that take on a little more market risk than the three his fund currently employs. All of the hedge funds would ultimately reside in one alpha-generating entity that would be ported to both the equity and the fixed-income portfolios.

Selecting the best managers for the pension fund does, of course, have a direct impact on the company’s bottom line. With the upcoming FASB rule changes and a bill floating around the U.S. Congress that would require companies to fund 100 percent of their pension liabilities, International Paper is almost assured of having to make a contribution to its pension plan in 2007. The company’s funding ratio — based on projected benefit obligations — has hovered around 80 percent since 2002.

Hunkeler and his team are looking for new solutions to the entire retirement-funding conundrum. Carol Sung, manager of International Paper’s 401(k) plan, is a proponent of adding alpha-generating hedge funds to the retirement savings plans. “I think it’s a great idea to explore,” says Sung, a former consultant with Segal Co., a New York–based firm that has been advising companies about employee benefits for more than 65 years. “From a communications perspective it’s going to be quite a challenge, but it’s another way to offer alpha in a very efficient market in the large-cap world.”

On the other side of the debate is Tusch. She is worried that 401(k) plan participants don’t have the expertise to make the proper asset allocation decisions using the various unitized funds that Hunkeler has already created, let alone new ones that involve hedge funds. “We’re fairly sophisticated investors with regard to our own money and the company’s money,” says Tusch. “Participants don’t necessarily grasp the concept of the unitized structure.”

Another potential problem in offering hedge funds within the 401(k) plan would be maintaining daily liquidity, because most hedge funds have long lockups. Money managers in Australia have gotten around that problem by creating pools of professionally managed balanced funds with hedge funds in them, then offering these assets packaged in lifestyle-type retirement vehicles. “That’s the way our business is going,” says Robert Blackwell, a managing director at Russell Investment Group in Tacoma, Washington. “Otherwise the average Joe in a 401(k) plan will be at a significant disadvantage to participants in corporate defined benefit plans.”

As the debate continues, Hunkeler has asked Rocaton to examine from a legal standpoint the possibility of adding the portable alpha portfolio to the unitized savings plans. He has also spoken to State Street, the fund custodian, about ways in which the portable alpha component could be structured. “Today the challenge would be to convince participants that this is indeed an enhancement to the fund — to see the benefits without seeing just the risk,” says Hunkeler. “The second you try to discuss hedge funds and derivatives with a retail audience, you are going to run into some hurdles.”

Hunkeler’s faith in portable alpha has never been stronger. With an unfunded pension liability that is growing faster than the millions of acres of trees that International Paper has been forced to sell as it fights to improve its profitability, Hunkeler is looking to portable alpha — and the hedge funds behind it — as an important weapon in the battle.

For that battle, it looks like Hunkeler may not have to move that far after all. International Paper, which is keeping the Stamford headquarters building and leasing it out, has found some space for Hunkeler and his team, just one floor down from their previous digs.

“A career at International Paper usually entails quite a few moves,” he says. For Hunkeler, this move could turn out to be among the easier ones.

A League of their own

ow many pension fund executives does it take to invest in a hedge fund? Ask Robert Hunkeler that question and the answer you’ll get is five. That’s because the International Paper Co. vice president of investments believes each of the four professional members of his team is as essential as he is to the success of his company’s $7 billion pension plan and $4.4 billion in 401(k) and savings plans.

Hunkeler looks for harmony and passion in his staff, just as he does among the hedge funds in which he invests. Hand-selected by Hunkeler, the group, including him, has five finance degrees and one MBA in progress and is fluent in six languages.

Hunkeler finds ways to mix in levity with the serious to build trust and rapport. “We’re very informal,” says director of investments Carol Tusch. “Bob gets me into his office by yelling my name out.” Tusch was recruited by Hunkeler in 1999 from the pension group of telephone company GTE Corp., where she had worked for 16 years after graduating from Fairfield University in 1983.

Hunkeler looks to his team to avoid the tunnel vision that he says can set in when one person makes all the decisions. Each team member, no matter how junior, participates in the hedge fund manager selection process. “The advantage of having everyone in the room is that someone might mention something that starts the conversation in a different direction than where we were going,” says Hunkeler.

Each member of the group brings a different background and skill set to the table, and that can come in handy when analyzing myriad hedge fund personalities and strategies. Tusch, for example, specialized in private equity and real estate investing at GTE; Carol Sung, who manages the 401(k) plan, had prior experience in pension consulting and treasury management. Senior financial analyst Julio Ayerbe, a native of Colombia who assists Tusch on investment oversight, began his career as a business analyst at International Paper after graduating from Boston University in 2000. Hunkeler brought him to Stamford as the trust administrator in 2002 and gave him the analyst role in 2005.

University of Texas graduate Matthew McClellan, who last year took over Ayerbe’s role as trust administrator, joined the company in 2002, working on business process redesign at the Memphis operational headquarters. The longest-serving member of the group is administrative assistant Rosa Nelson, an International Paper employee since 1988. Much like the hedge funds in which they invest, Hunkeler and his team are paid based in part on the performance of their investments. Since 2000 the group has consistently received higher bonus payments than International Paper¹s companywide average. ³The way we measure ourselves is much the same way the company measures itself ‹ that is, very heavily weighted toward financial results,² says Hunkeler. ³We designed it to be that way so that everybody feels that they are working toward the same goal.²