“I have known Sam Fehrman since early in his collegiate career at Purdue and even then he was making a noticeable positive impact. He had a successful internship at the Indiana Public Retirement System (INPRS) while I was CIO. When I became CIO at the Purdue Research Foundation, I engaged Sam to assist in the creation of Purdue’s income share agreement [ISA] program, Back a Boiler, where he successfully served as the student representative. After graduation and years of successful contributions at INPRS, we are fortunate to have Sam at the Purdue Research Foundation working on the endowment and other initiatives, including the Back a Boiler ISA program. It is rare for one to pass all three CFA exams successively. It is rarer still to have done it so early in one’s career. Sam has the exceptional combination of intelligence, intellectual curiosity, balanced perspective of strategy and implementation, and a strong work ethic. He is a consummate teammate and utility player who will happily accept any challenge to further the mission of the Purdue Research Foundation. I have been fortunate to work with some extremely talented professionals in my career. Sam is among the most talented and is definitely deserving to be recognized as a recipient of the NextGen2021 award.”
—David C. Cooper, CIO, Purdue Research Foundation
Sam Fehrman has wasted no time since starting in the industry. In 2017, after completing two successful internships at the Indiana Public Retirement System (INPRS), he started working there full time on the fixed income portfolio.
He’s since gained exposure across asset classes, eventually transitioning to public equities, and then moving on to cover asset allocation broadly. He assisted the INPRS CIO with a five-year asset liability study, helping redesign the target-date fund (TDF) lineup for defined contribution (DC) participants. And he did it all while completing all three CFA exams.
The investor has consistently impressed his peers, who admire his intelligence and work ethic. Now, Fehrman has returned to his alma mater at Purdue University. Since March, the allocator’s been working at the Purdue Research Foundation, where he’s digging deep into the multi-asset class portfolio. He’s looking forward to gaining greater exposure to alternative assets, while figuring out how to maintain diversification and exceed target returns in a low yield environment.
“It’s been a great experience and I’m certainly enjoying the challenge,” he said.
CIO: How would you deal with rising inflation and interest rates?
Fehrman: Rising inflation and interest rates are just two of countless scenarios that could impact unprepared portfolios. As with any economic scenario, it is important to maintain diversification so that target returns are achieved over the long term, regardless of which economic environments occur. With that said, investors face challenges with diversification given the low level of nominal interest rates and low expected returns for fixed income securities, historically used as ballasts in portfolio construction. Targeted exposures to alternative assets that can provide stable cash flows, diversify equity risk, and protect against inflation will be imperative in the new paradigm.
CIO: What are your favorite alts, and why?
Fehrman: I would not say that I have a favorite alternative asset class. I enjoy studying all alternatives, and my recent move to Purdue Research Foundation has provided me with opportunities to gain exposure to different alternative asset classes. Differentiation across alternative asset classes and between alternatives (as a group) and traditional asset classes is interesting, and understanding how these asset classes respond to different economic environments and interact with other asset classes can help investors build more robust portfolios. The adoption of alternative asset classes has sped up following the global financial crisis, and I believe the COVID-19 pandemic has only furthered that trend. With traditional monetary policy at or near its limits and valuations stretched across many traditional asset classes, alternatives could be used to help investors meet return targets while maintaining diversification.
CIO: Is cryptocurrency a flash in the pan, or an asset of lasting value?
Fehrman: It is an area that I am currently looking at. At over $1.5 trillion in market cap, I think it deserves thoughtful consideration; however, I have many miles to go in my understanding and evaluation of cryptocurrency and digital assets as an asset class.
CIO: How will the pandemic have changed the economic/financial world?
Fehrman: I do not think the pandemic has fundamentally changed things as much as it has sped up trends that were already in place. It was amazing to me how quickly consumers and economies adopted technologies that were established pre-pandemic but were (anecdotally) little used. Consumers were forced to change the way they eat, shop, work, communicate, entertain, among countless other things. While I expect some ‘normalization’ in the coming months as economies reopen, I do think delivery mechanisms of some services (shopping, streaming, meeting) have staying power.
As it relates to monetary and fiscal policy, we have been in a secular decline of interest rate policy since the 1980s. Traditional monetary policy levers do not have as much runway as they once did, and I expect fiscal policy coordination with monetary, as was the case globally during the pandemic, to continue for the foreseeable future given absolute levels of interest rates.
CIO: Where do you see the most exciting areas to specialize further over the coming years?
Fehrman: Asset allocation. Building robust portfolios that achieve return targets while managing risk is as challenging now as it has ever been. Asset allocation forces investors to understand not only the fundamental factors impacting numerous asset classes and investments, but how these asset classes and investments interact with one another to put the portfolio in the best place for long-term success.
CIO: What asset class or investment troubles you most right now—and why?
Fehrman: Traditional fixed income, given low levels of yields in the United States and abroad. Traditional fixed income has historically provided diversification benefits and stable returns during challenging times for growth-oriented asset classes. It is no secret that a majority of traditional fixed income’s return is driven by yields, but perhaps more troubling than future return prospects is the lack of diversification that the asset class could provide going forward.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Fehrman:Warren Buffett [of Berkshire Hathaway]. I would be extremely interested in his perspectives and anecdotes on maintaining discipline while responding to paradigm shifts. Responding to these changes while staying disciplined in your investment strategy is challenging and I look up to him in this regard.
