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The gospel according to Mark Yusko

Mark Yusko radically overhauled -- and improved -- the University of North Carolina?s investment portfolio. So why did he leave?

It's a sultry early May morning, and Memphis, Tennessee, is wilting under white skies as a buoyant, freshly pressed Mark Yusko strides onto the ballroom stage of the Civil War­era Peabody Hotel. He fairly radiates energy. In six years as investment chief, he overhauled the portfolio of the University of North Carolina at Chapel Hill and transformed himself into a prophet of alternative asset management, traveling the country preaching the virtue, the joy, the sheer necessity of absolute-return strategies to institutional money managers and rich individuals, some 300 of whom are gathered here today to listen to the investment gospel according to Mark.

It is not, he declares, simply about chasing alpha or diversifying portfolios or even avoiding correlations. No. Savvy investing is about courage. It's about conviction. It's about faith. To illustrate, he begins his talk with an inspirational message from pop psychology author Gail Sheehy, displayed courtesy of PowerPoint in foot-high letters on a drop-down screen:

Growth demands a temporary surrender of security.

Yusko ought to know. Just four weeks earlier, he quit his job as president and CEO of UNC Management Co. after a drawn-out series of clashes with his board of directors that centered on his ambitious long-term vision -- which was to turn a university-born organization into a not-for-profit asset management powerhouse. Yusko yearned to extend UNC Management's services to unaffiliated endowments, foundations and even high-net-worth families -- creating an organization capable of rivaling its for-profit peers in handling both public and private money. Capital equals clout, and Yusko wanted both.

"I believed we could build the equivalent of Blackstone Alternative Asset Management in Chapel Hill," says Yusko, "and do it ourselves, with the university."

UNC Management's chairman, Timothy Burnett, a real estate developer and university trustee, begged to differ, as did several other board members, including the chancellor of the university, James Moeser, who began having second thoughts about Yusko's pursuit of outside assets.

"We just didn't feel that it was appropriate for a university-held company to move into the space of basically managing private portfolios," Moeser says. "We felt there were potential conflicts for us to go in that direction."

The board had another beef with the ambitious Seattle native. As part of his original contract with the University, Yusko, like any UNC professor or full-time professional staff member, was permitted to do a little consulting on the side. Yusko embraced this sideline with increasing gusto, advising a couple of money management ventures, and taking a share of the profits in both. Last fall, as they challenged his strategy for the investment company, UNC Management's directors began to question whether he was spending too much time as a consultant. Yusko hadn't done anything wrong, but his far-reaching ambitions unsettled some.

"There was a growing concern that there might be, if not a conflict of interest, then certainly a conflict of commitment," says chancellor Moeser. "We weren't sure we had his full attention."

In April, Burnett called an unscheduled board meeting and laid it on the line. The board, he said, was uncomfortable with Yusko's agenda and wanted him to refocus his energies on the endowment. Yusko declined.

"Growth, in any endeavor, requires moving outside of your comfort zone," says the boyish-looking 41-year-old, his blue eyes narrowing with intensity, "and that's a very hard thing to do."

Stubborn, charming and bossy by turns, Yusko has earned a reputation, at UNC and in the broader endowment community, as a highly successful, outspoken and charismatic investor. Upon arriving in 1998 to take the job as UNC's first dedicated chief investment officer, he immediately caused a ruckus, drastically altering the university's investment process, diversifying its asset allocation, shockproofing its holdings against the bear market that followed the bursting of the technology stock bubble -- and discomfiting some of UNC's more conservative trustees.

When Yusko came to Chapel Hill, the school's $707 million pooled endowment and foundation fund was managed by committee, with a couple of in-house fixed-income managers in the finance and accounting department overseeing the bulk of the assets. Yusko assembled a crack 16-member investment and operations team that put UNC firmly in the avant garde of the nation's preeminent not-for-profit endowment companies.

In six short years he radically revamped UNC's allocation model, earning a reputation as one of the country's most aggressive hedge fund investors. Today approximately 55 percent of the portfolio is invested in hedge funds (or "marketable alternatives" as Yusko prefers to call them), up from 7 percent when he arrived. The portfolio's 29 percent allocation to private equity, real estate and energy and natural resources represents almost as dramatic an increase -- it's up from 3 percent in 1998. Overall, the $1.19 billion investment fund, which includes the UNC­Chapel Hill endowment and affiliated university and foundation funds, now has an 84 percent allocation to alternatives, up from 10 percent in 1998.

Yusko's whirlwind changes came in the nick of time: Post­Internet bubble, as one of the worst economic slumps of the past century rocked the markets, the newly diversified UNC investment fund outperformed many of its peers. During the five fiscal years ended June 30, 2003, the fund returned an annualized 9.7 percent -- handily beating the median five-year annualized return of just 3 percent for large funds ($1 billion or more) as measured by Wilshire Associates' Trust Universe Comparison Service. While Yusko didn't outdo his hero, Jack Meyer, president and CEO of Harvard Management Co. -- whose $19.3 billion endowment posted a five-year annualized return of 10.1 percent -- he scorched past the Standard & Poor 500 index's miserable ­1.6 percent.

Grateful Carolina officials are quick to credit Yusko's talent and judgment. "Mark is one of the most outstanding and successful people in this particular space of investment," says chancellor Moeser, "and our fund has done very well under his leadership."

Buoyed by success, Yusko kept pushing his aggressive business plan. Last year he launched a program to extend UNC Management's ser-vices to other schools within the 16-campus University of North Carolina system. On his own time he also began collaborating with two separate high-net-worth asset management companies, helping them design multistrategy funds modeled on endowment-style diversified asset allocations. Yusko has always had the right to do consulting work beyond the university; tensions grew when he began practicing what he preached: Yusko partnered with the principals of each firm to create new investment funds and took stakes in those projects.

UNC Management's board of directors, which asked him for a detailed disclosure statement of his separate business dealings last fall, was not pleased. This came as Yusko kept pushing to increase the range of UNC Management's activities to include high-net-worth individuals.

"We wanted to draw a tighter fence around what I'll call permissible activities," says UNC Management's Burnett. "And it became clear that Mark wanted to expand that fence, not contract it. We just reached a point where we said, 'Well, we see what the difference is -- what are you going to do?' "

Yusko decided to go it alone. On July 1 he launched his own independent asset management company, Morgan Creek Capital, named for the creek that runs near his home in Chapel Hill. His decision made waves in the endowment community -- and brought a sharp, stunning end to one of the most unusual experiments in endowment management in recent memory. "Let's face it, I'm crossing over to the dark side," he says.

He's not the only one. The attractions of the private sector are steadily draining talent from the ranks of the endowment community. Since mid-2003 two other high-profile investment chiefs -- Alice Handy of the University of Virginia in Charlottesville and Jay Yoder of Smith College in Northampton, Massachusetts -- have also left their respective universities to launch their own consulting businesses. Although their departures hardly constitute an exodus, they do mark a subtle shift in the endowment community, where demand for investment chiefs with experience in alternatives is reaching an all-time high. Currently, there are an estimated 12 to 14 chief investment officer jobs open nationwide, from the University of Chicago to the University of Washington -- and now UNC­Chapel Hill. While the wealthiest schools among them will likely attract talented CIOs, smaller colleges face an uphill battle: Not only do they have fewer assets under management, making diversification more difficult, they often lack the funds to offer the competitive compensation packages necessary to lure the best help. But they all want to diversify their portfolios, as did Harvard University and Yale University, which were among the very first to adopt alternatives.

"University endowments are growing up; they're getting much more sophisticated and broadening their asset classes to include such things as alternatives," says Amy de Rham, a senior client partner at Korn/Ferry International who specializes in recruiting investment officers for universities and foundations. "That's one phenomenon, but there is another happening: the elevation of the importance of a CIO's role. Universities need these strong investment returns to generate funds for their budgets, so the position of CIO has become much more significant."

With the surge in demand for their services, investment chiefs are being bombarded with requests for help and advice. Yusko says three large state universities outside North Carolina approached him last spring as soon as UNC Management opened its doors to other colleges within the statewide system and asked whether they, too, could invest with the management company.

"We turned away half a billion dollars of potential business," he says, frustrated. And that doesn't include the requests he also received from individual high-net-worth families and alums. Yusko thought his grand vision could not only provide an innovative solution to other schools but generate additional operating revenue for UNC­Chapel Hill through the collection of asset management fees. And he wasn't shy about talking it up to potential investors.

"There is no question that Mark rubbed some people the wrong way," says Max Chapman Jr., the former CEO of Kidder, Peabody & Co. and Nomura Securities International who is now chairman of Gardner Capital Management Corp. and of the UNC­Chapel Hill Foundation Investment Fund board. "He'd go out to the conferences, and say, 'This is where the university is going, and this is what the university should be doing.' Well, I don't know whether it's a Southern thing or specific to the university environment, but there are certain people who think that an investment chief -- like a child -- should be seen but not heard."

MARK YUSKO WASTED NO TIME IN MAKING HIMself seen and heard when he set foot on the lush, green campus in Chapel Hill six years ago. There was no dedicated, independent investment office, much less a structured portfolio model. UNC's combined assets were overseen by the UNC­Chapel Hill Foundation Investment Fund, whose board includes such powerful alums as Chapman; William Armfield IV, founder of Macfield Texturing, a local yarn manufacturer; Thomas Kearns, the point guard for Carolina's 1957 National Collegiate Athletic Association championship basketball team and a Wall Street veteran; and Michael Hooker, who was then chancellor of UNC­Chapel Hill. Under their leadership the endowment had done well on an absolute basis, posting a healthy 18.2 percent return in the fiscal year ended June 30, 1998, and an 18.6 percent return the following fiscal year. But Hooker was unhappy with its long-term underperformance relative to its bigger peers, such as Harvard and Yale.

Hooker and his colleagues wanted to emulate the Ivy League universities' alternative-heavy allocation models more closely and had already taken an initial step toward making that possible: Two years earlier, in 1996, they had formed the UNC­Chapel Hill Foundation Investment Fund to allow the university to commingle its endowment with those of affiliated UNC­Chapel Hill foundations. Like most public universities, Chapel Hill had an endowment proper, as well as a foundation separate from that statutory pool, which included gifts to the university. Each of its affiliated schools had its own foundation as well. The 22 entities all invested independently of one another. Hooker and company structured the investment fund as a unitized pool; each participating foundation could buy units, or shares, of the portfolio and receive a distribution, or payout, every year based on its net asset value. Once that structure was in place and 95 percent of the assets were successfully commingled, Hooker proposed that the university hire a new dedicated chief investment officer.

Yusko was an unusual choice. He wasn't a Chapel Hill alumnus, and he had no connection to the university. In fact, he wasn't a Southerner at all: Born and raised in Seattle, he'd attended the University of Notre Dame in South Bend, Indiana, returning to Seattle after graduation to work as a health care consultant for Arthur Andersen. A partner in the office convinced him to apply to business school, and Yusko attended the University of Chicago, where he earned his MBA.

Yusko's first experience managing money came at a small medical-malpractice insurance company in Chicago called MMI Cos., where he was a fixed-income portfolio manager. He later moved to Disciplined Investment Advisors, a value equity management firm in Evanston, Illinois. But, like many grads, he felt a strong emotional link to Notre Dame, and when he heard that its investment office was recruiting in 1993, he lobbied hard for a job and was initially hired as an assistant investment manager. "I finally knew what I wanted to be when I grew up," he says. "An endowment guy."

Notre Dame then had $801 million under management (its investment pool has since grown to $3.5 billion). Yusko became second in command to Scott Malpass, the chief investment officer, and was primarily responsible for public investments, helping to build the hedge fund portfolio, which he took from 5 percent of assets to 10 percent by the time he left. He was also responsible for helping to develop a real estate portfolio, which also doubled to 10 percent of the portfolio during his five years at Notre Dame. Yusko assisted Malpass on private equity, which they took from 4 percent of assets to the mid-teens.

While working at Notre Dame, Yusko met Harvard's Meyer at an annual meeting of endowment and foundation consul-tants Cambridge Associates. Meyer encouraged him to take on more responsibility and eventually helped broker the introduction to UNC­Chapel Hill.

At first Yusko wasn't particularly interested when he got the recruiting call; he was happily ensconced at his beloved alma mater with his wife, Stacey (his college sweetheart), and their two children. He changed his mind after he met then-chancellor Hooker, whose boundless enthusiasm matched his own. Hooker spoke about building a fully independent investment office whose team could be freed of the university's bureaucratic system to respond more quickly to investment opportunities. Yusko says it was originally Hooker's idea to consider managing assets for other schools, foundations and perhaps even families.

"In his mind, the business of managing assets was very scalable," Yusko says. "He thought we ought to build an investment team, form a consortium or asset management company, and take advantage of economies of scale to gain more clout in the marketplace. He saw it as a way to match the kind of performance these larger universities were getting."

In January 1998, Yusko was hired.

He had to start from scratch -- he had no team to speak of. His first hire that year was Charles Merritt, from the Charlotte, North Carolina, office of NationsBank Corp. Capital Investors, to fill the newly created role of private equity investment director and spearhead the increase in private equity. Next he recruited Michael Hennessy, a veteran investment manager from archrival Duke University who had known Yusko for five years. Hennessy had had experience investing across virtually every asset class and was then managing all publicly marketable securities for Duke. Although he had some trepidation about making the shift to a public university -- and getting caught up in an environment where state and local politics played an even greater part than at a private college -- Hennessy was inspired by the idea of developing a new asset allocation model, and he felt confident that Yusko could make it happen.

"Mark took a real risk in coming here, because UNC­Chapel Hill had a history of head fakes and false starts creating an investment office," he says. "But he came, and later that year the board approved an investment allocation that was heavy in alternatives and very similar to those of our top peers. That told me they were serious." Hennessy started talking to Yusko in 1998 and joined the new UNC­Chapel Hill investment office in 1999. Merritt left in 2000; Mel Wil-liams, an entrepreneur and former head of business development for Net32, a supply-chain software company for the health care industry, took his place in early 2001.

The transformation of UNC­Chapel Hill's asset allocation model was as much philosophical as it was practical. When Yusko arrived the portfolio was invested with 33 managers and had a traditional emphasis on stocks and bonds: with 55 percent invested (40 percent domestic, 15 percent international) with long-only equity managers and 29 percent invested in domestic fixed-income securities. Approximately 7 percent of the portfolio was invested in hedge funds; 6 percent was in what Yusko terms "enhanced fixed-income" strategies, such as high-yield debt; about 3 percent was spread across real estate, private equity, energy and natural resources.

Yusko wanted to get alternatives up to levels rivaling those at Harvard and Yale. (The latter's endowment in 1998 was 70 percent invested in foreign equity, private equity, absolute-return strategies and real estate.)

He has revolutionized the look of the portfolio, which now encompasses nine distinct asset classes. Publicly traded equities still account for 46 percent of the total portfolio, but a majority of those assets are being handled by hedge fund managers. For example, of the 20 percent now invested in U.S. equities, three quarters is in hedge funds and the remainder with long-only managers; all of the 10 percent in global, or opportunistic, equities (diversified multistrategy funds with foreign equities, commodities and currency trades in play) is with hedge fund managers. Of the 16 percent in international equity, two fifths is with hedge fund managers.

Just 5 percent of the portfolio is invested in domestic fixed-income securities. Enhanced fixed-income strategies, which encompass everything from distressed debt to high-yield bonds and mezzanine debt, account for 11 percent. Event-driven arbitrage and relative value strategies account for 7 percent. Private equity investments make up 16 percent of the portfolio, energy and natural resources account for nearly 7 percent, and real estate adds up to 6 percent. The remainder, 2 percent, is held in cash. In total, 84 percent of the investment fund, or $1 billon, is invested in alternatives across the board; traditional asset managers account for just 14 percent of the portfolio.

Yusko, who tends to diversify with some abandon, has certainly put his own stamp on the process at UNC­Chapel Hill; UNC Management currently invests with more than 200 managers. "If he had the authority," Hennessy jests, "Mark might have a thousand managers, with a million each."

Thanks in part to the school's reputation among the hedge fund elite -- the legendary founder of Tiger Management Corp., Julian Robertson, is a UNC alum -- many of its hedge fund managers are so-called Tiger cubs, including Lee Ainslie III of Maverick Capital, John Griffin of Blue Ridge Capital and Dwight Anderson of Ospraie Management.

The revamp led to smooth and consistent returns -- an increasingly popular return pattern in the endowment community. Well-diversified portfolios may not always outperform the S&P 500 index in a bull market, but they tend to be insulated against losses in bear markets. During the past ten years, the investment fund has returned an annualized 11.1 percent (benefiting from the portfolio's long-only bias during the stock market run-up); during the same period, the S&P 500 index's annualized return was 10 percent. While UNC didn't outpace Harvard Management's ten-year annualized return of 14.7 percent, it did best the median ten-year annualized return for large funds as measured by TUCS, which was just 8.3 percent.

Perhaps the best measure of Yusko's success was the fund's performance during the horrific years after the bubble burst. In the fiscal year ended June 30, 2001, the average endowment in the National Association of College and University Business Officers universe lost 3.6 percent, as did Yusko, tracking his peers. A year later, though, when the brunt of the pain of the economy was felt by many, the average endowment lost 6 percent as the S&P 500 index plunged 18 percent; by contrast, the UNC­Chapel Hill investment fund posted a slight gain of 0.2 percent.

Thanks to its performance, UNC Management distributed a record $55 million to the campus in fiscal year 2003, contributing 3.6 percent of the university's $1.5 billion budget. Through the first three quarters of fiscal year 2004, from last July through the end of this March, the investment fund has returned 16 percent; the S&P 500 during the same period has returned 17.1 percent.

"Mark's performance was gaining notoriety," says Burnett. "There was a lot of enthusiasm and celebration about how the portfolio was being managed, and with that came additional opportunities for Mark, as some of our good friends -- who had been big supporters of the university -- came to him, and said, 'Gosh, you're doing so well, would you mind advising us on managing our family assets?'"

Yusko's success also emboldened him to press ahead with his expanded vision for an investment company. Beginning in 2002 he and the Foundation Investment Board Fund made good on their plan to reorganize the investment office and set up the independent not-for-profit organization, UNC Management, with an eye to offering services to other schools within the North Carolina network. Yusko and his team were already working with multiple foundations within UNC­Chapel Hill; scaling up their services didn't present an enormous challenge. UNC Management opened its doors to other UNC-related entities in January 2003, and five organizations have since joined the consortium, contributing $90 million to the pool. UNC Management now invests the endowments of UNC­Wilmington, UNC­Charlotte and three other system-related entities, including the university press and the office of the president.

Yusko was still keen to extend services to other clients, particularly schools and foundations outside North Carolina, and possibly high-net-worth families, but he'd lost his primary champion: Chancellor Hooker died of cancer in July 1999. His replacement, James Moeser, took the job in August 2000 and was slow to warm to the idea of managing outside assets. "I supported the extension of services of the company to other universities within the UNC system," Moeser says. "I thought it made sense, in terms of the fees coming into the company that might revert back to the university. But I didn't favor moving into the space of managing individual portfolios for persons of high net worth -- that's a very different marketplace."

Yusko pushed into that marketplace on his own, through a private company, MWY Consulting, he had set up in 1998. As his reputation grew he began fielding requests for information and advice about alternative investments, managers and funds. The board members of UNC Management knew Yusko had the right to advise outside clients, even if they didn't always like it. "The only agreement he had was that he would set up this company [UNC Management Co.], manage the money in a different way and be allowed to do outside consulting work -- much along the same lines as a law or business school professor," says Burnett. "We were willing for there to be these sorts of additional incomes generated, but it just seemed to us that the opportunities were too many, too varied and didn't track what Mark's main job was, which was running the university's endowment."

According to Internal Revenue Service filings and university records, Yusko's base salary of $170,000 plus bonus totaled $341,444 in 2002, which was more than chancellor Moeser's $255,625, and that figure didn't include any of Yusko's consulting income or the profits from his ventures.

Yusko's board became more concerned when it realized that he wasn't just advising clients -- he was helping them launch new businesses. The always enthusiastic Yusko was making a name for himself -- in effect, creating his own brand -- on the back of the UNC endowment, a perception that did not sit well with some directors who would have preferred a more self-effacing approach, and who worried about Yusko's commitment to the school.

In late 2001, Yusko began working with David Perkins and Fielding Miller, who at the time were principals of high-net-worth investment consultant CapTrust Financial Advisors in Raleigh, North Carolina. (Today the CapTrust network encompasses 11 independent contractors who offer brokerage, advisory and other investment services in affiliation with Wachovia Securities Financial Network.) Initially, Yusko served on their advisory board and helped the team diversify clients' portfolios. Then, about a year ago, Perkins decided to spin out a new alternative-asset money management firm -- Raleigh-based Hatteras Partners -- with the aim of providing clients with a single solution for portfolio diversification. The firm's inaugural fund, Hatteras Diversified Strategies, launched this past January and by the end of June was managing nearly $100 million for institutions, endowments and high-net-worth individuals. The fund had 70 percent of its portfolio in up to 27 hedge funds and an additional 30 percent in real estate, private equity, energy and natural resources. Yusko became a partner in Hatteras Diversified Strategies as well as an investor in the fund; he gets paid a percentage of the management fee and profits. "I think it's important to eat my own cooking," he says.

In 2001, Yusko also began working with fellow Notre Dame alum Andrew Linbeck, one of the four founders of Salient Partners, a Houston-based high-net-worth asset management company with a staff of 30 and $1.5 billion under management. Salient's partners wanted to create a way for high-net-worth individuals to invest more easily in an endowment-style fund with broad diversification across multiple asset classes. "We started to think about why it was that no one was taking the construct and discipline that you see at the large universities and applying it to those who need it most: the folks who didn't have the amount of capital necessary to garner this kind of asset allocation," Linbeck says.

Yusko and the Salient founders subsequently created a separate business venture, the Endowment Fund, a multistrategy asset management program that invests in over 50 money managers across nine distinct asset classes, in early 2003. The Endowment Fund is designed to replicate the investment processes of a large university endowment and has multiple feeder funds that "invest" in the master fund and are each tailored to suit investors' tax needs. This January a new feeder fund -- the Endowment Registered Fund -- was created, and in March it registered with the Securities and Exchange Commission to lower the investment minimum from $1 million to $100,000. The adviser to the new fund, Endowment Advisers, is a new partnership established and owned in equal measure by Salient Endowment Enterprises (created by Salient's partners), Yusko's MWY Consulting and Sanders Morris Harris Group, a Houston-based financial services holding company that owns 50 percent of owner Salient.

The SEC registration process, undertaken for both the master Endowment Fund and its low-minimum feeder, required the creation of a board with a majority of independent directors. This January, Yusko and his partners attracted a who's who of endowment investment talent to help oversee the new venture, including Robert Boldt, investment chief of the University of Texas Management Co. (who is awaiting approval from his board to participate); Scott Wise, treasurer and vice president of investments at Rice University; and Scott Schwinger, CFO and treasurer of the Robert McNair family office in Houston. All agreed to serve on the board of independent advisers and help oversee its investing strategy. The master fund (in combination with its feeders) now has $230 million under management, about 90 percent of which has come from Salient's current investors, as of July 1.

While busying himself with all this extracurricular activity, Yusko agitated to extend UNC Management's services beyond the state university system. Some of UNC Management's board members worried that the broad vision Yusko was promoting might run afoul of North Carolina law, which prohibits state entities from competing with private enterprise. Even though UNC Management is organized as an independent 501-C-3 organization, the board felt that Yusko was on the verge of venturing boldly into uncertain territory.

"There was a small group that didn't want us to do it," Yusko says. "So the board brokered a deal and said, 'Well, we won't go all the way with Mike Hooker and Mark's vision. We'll just do this inside-the-system profile and offer to manage money for other schools. But we won't do foundations, and we won't do individuals.'"

UNC Foundation Investment Fund board chair Chapman disputes this, taking pains to point out that the fully expanded mission would have raised real issues for the university's development office. "How far do you go?" he says. "If we said, 'Yes, we will manage money for any institution, educational or otherwise, in North Carolina,' wouldn't we run headlong into the banks, who are also competing for that money? As well as other money management firms? After all, these are people who support the university and provide money for the endowment."

Discussions about Yusko's outside activities became more heated last July when Burnett took over as chairman of UNC Management from Hugh McColl, former chairman of Bank of America Corp.

The pivotal moment came this March, when news broke of Salient's registration of its new, lower-minimum endowment fund aimed at high-net-worth individuals -- and it became clear that the partners had attracted an all-star lineup to serve on its independent advisory board. The publicity caused a local sensation, and finally, Burnett had had enough. "At some point," he says, "the press for these kinds of outside opportunities just began to exceed what we considered an appropriate amount of time devoted to them."

Yusko dismisses the notion that he'd compromised his time by taking on multiple projects -- or that his agenda was profit driven. "Yes, the real world pays better than the public world, and yes, that's nice. But it's like getting bonus fries with your biggie-size cheeseburger -- that's not really what I care about."

Burnett called an unscheduled board meeting in April, at which the trustees of UNC Management asked Yusko if he would be willing to live within their stated parameters: He could extend services beyond the state boundaries to other schools and possibly even foundations but not to individuals. And he needed to back away from his consulting activities. Yusko refused. He says he told them he'd prefer to manage the transition to another CIO instead.

UNC­Chapel Hill is now searching for Yusko's replacement. UNC Management board members are optimistic that the university will be able to attract talent. To date, says Chapman, about 50 potential candidates have raised their hands for consideration. The board has not yet decided one very pressing question: whether it wants another investment chief like Yusko -- young, aggressive and willing to push the envelope -- or a more senior person, possibly even an alum, who has already had a career on Wall Street and wants to come back to Chapel Hill. "I have my bias; other people have theirs," Chapman says. "And not surprisingly, Mark himself has some opinions about who ought to get the job, which he's always happy to share."

Despite the fracas he's caused in the past few months, Yusko still considers himself a UNC­Chapel Hill loyalist, which doesn't seem to contradict his sworn allegiance to Notre Dame. "I'll always bleed blue and gold," he admits, "but my blue is noticeably lighter than it was."

Perhaps it's more a middle-range blue that matches Morgan Creek, which runs past Yusko's house: Plans for his new consulting company are shaping up nicely, after all. Although he says he was approached with offers of venture capital, Yusko decided against taking them. Instead, he's found a couple of like-minded anchor tenants -- three wealthy families -- who, he says, have provided him with enough capital to begin hiring staff and developing a portfolio of investments.

Morgan Creek will have two primary businesses: The family asset management business will be one core element, and Yusko will also continue working with Hatteras Diversified Strategies and the Endowment Fund as an adviser and joint venture partner. Even before Morgan Creek opened its doors (Yusko's last day at UNC Management was June 30), he was already anticipating overseeing the management and allocation of nearly $600 million in assets -- half that from high-net-worth families, half in a purely advisory capacity for Hatteras and Salient. And he's considering the possibility of advising other endowments as well, as an independent chief investment officer, much like former University of Virginia CIO Handy, now at Charlottesville, Virginia­based Investure.

The greatest challenge Yusko will face is likely to not be gathering assets but making sure that the asset management fees he gets paid (which are variable and based on assets under management) don't dull his edge. Yusko has been familiar with what he calls the "red Ferrari syndrome" in UNC Management's hedge fund managers for years; now he'll have to worry about keeping his own edge sharp as he builds out his business. His hero, Harvard Management's Meyer, has total confidence in him. "Mark is smart, no-nonsense and very entrepreneurial," Meyer says. "I think he'll do very well in his new venture."

Just at the moment, Yusko is not feeling particularly complacent; if anything, he feels as though he's just taken a big step out of his comfort zone by wading out into Morgan Creek. This is the gospel according to Yusko: Growth is imminent. Growth is inevitable. Recently he's bounced Gail Sheehy from the PowerPoint presentation and replaced her with a variation on the famous words of Saint Augustine: "Lord, make me prudent -- just not yet."