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than 20 percent of the portfolio. Net exposure is rarely more than 10 percent to any one sector. For example, when discussing technology, Ainslie said the exposure was currently 5.9 percent (September 2000). Ainslie observed that a long bias existed in every sector and in every region.

Throughout the interview, Ainslie referred often to the gap between the long positions and the short positions as driving their performance. "The gap drives profitability. Our [long/short] gap has averaged about 28.1 percent on an annualized basis."

While Maverick has averaged a 48 percent net long bias, it does not have a significant correlation to the S&P. The correlation to the stock market, referred to as R2, has been 29 percent; anything under 40 percent is typically considered not correlated. Therefore it is more difficult to outperform in an up-bias market. Maverick's daily volatility has been roughly half the volatility of the S&P over the past four years, and monthly volatility has been about 80 percent of the S&P volatility.

Maverick maintains low net exposure to each region and industry in which it invests. It is typically 25 percent to 75 percent net long. It is net long for the entire portfolio and also within each region and industry sector in which it invests. Net exposure has averaged 48 percent, and gross exposure has averaged 211 percent.

Unlike some of the other great hedge fund managers, Ainslie acknowledges that his expertise is in picking stocks, not in market timing. Portfolio optimization begins by screening industries. It is a position-by-position process where the risk/return profile of each position is critical. The process could be described as suggested judgment.

How liquid are the markets traded? Ainslie says the median market capitalization is now $7.7 billion. Maverick invests primarily in medium-cap and large-cap U.S. equities.

Ainslie's role is as the overseer and coordinator. His focus is on asset allocation, risk control, and as a sounding board. His input drives the size of the positions. "I play devil's advocate and make sure the level of analysis has been complete and thorough and that all the relevant resources have been brought to bear."

Ainslie approaches most issues from an analytical standpoint, including business issues (e.g., determining the impact of assets on performance or how to improve returns to investors).

Ainslie spent considerable time discussing the issue of capacity—the amount of assets Maverick can comfortably manage without im-