“Samantha has a unique set of skills that make her a valuable member of our team. She is analytical and intellectually curious, but she is also able to assess people and strategies with a differentiated point of view that helps us make better investment decisions. Samantha adeptly works with the myriad university and external relationships and manages internal operations and risk, which enhances our team and processes.”
—Amy Diamond, CIO, USC Investment Office
Samantha Foster was introduced to investing as a teenager, when her parents helped her set up an account. ”I like numbers,” she said. At the California Institute of Technology (CalTech), where she majored in engineering and applied science, she set out with a scientific career in mind. But then she realized that investing, markets, and people held more appeal to her. She earned a Master of Business Administration from Stanford University.
Her first investment job was as a research analyst at Bailard, working for the firm’s international equity mutual fund. At PAAMCO, she honed her skills at market research. Joining the University of Southern California (USC)’s investment office in 2012, Foster immersed herself in asset allocation, investing, risk, and operations. Nowadays, she focuses investment research across the endowment and the items above. More broadly, she added, “I play devil’s advocate every day.”
CIO: How would you deal with rising inflation and interest rates?
Foster: To generate real returns during rising inflation, we must understand what is causing the inflation, and if those drivers are permanent or transitory.
Today, there are just too many unknowns. Is the recent inflation increase from short- or long-term causes? Supply and demand are shifting; consumer spending on goods and services is surging, but due to the pandemic rebound, there’s not permanently higher demand. Global supply chains are out of whack but, again, unlikely to be permanently. Furthermore, US monetary and fiscal policy is very accommodative, and there is still a global pandemic.
In the current environment, a diversified portfolio with optionality to higher rates is still advisable. Once a clearer picture emerges, portfolio implementation will be more straightforward, via sector bets, specialized commodities, or financial hedges that align with the underlying cause of the inflation.
When it comes to inflation’s impact on a portfolio, one of the most important things to understand is the tenor of a strategy’s assets and liabilities. For example, a quant fund focusing on order books has too short a time horizon for inflation to be concerning. In contrast, inflation will erode real returns and, hence, the intergenerational wealth transfer for a long time horizon endowment.
CIO: What is the best way to bring more diversity to the financial industry?
Foster: I am a huge believer in diversity because it brings direct benefits and puts core values into practice. Benefits include avoiding group think, inspiring creativity and innovation, and increasing productivity. Think of the best investment teams you know. Are they all clones of each other? No, there is a diversity of viewpoint. A diverse team generates different points of view, which help identify risks and sources of higher returns.
What makes each person unique includes gender, race, ethnicity, age, socio-economic background, education, and more—we need diversity across all these dimensions, and more. It matters not just whom we target for hiring, but also how we expand that pipeline, how we mentor those hired, and who sits at the top to the set the tone. The full career lifecycle must be addressed: scholarships, a name blind resume pool, internships, a first job, mentoring, promotions, a directorship, a board seat.
As a first-generation university graduate, I value education. When I started the USC Investment Office internship program eight years ago, the founding principles were to nurture the next generation, give back to the USC community, and bring in fresh eyes. USC has such an amazing diversity of students and academic schools. Each student intern has learned and grown, and we have, too. In fact, one of our first interns was passionate about Bitcoin, which challenged our early thinking.
CIO: What are your favorite alts, and why?
Foster: I’m fascinated with those that blend quantitative and qualitative strategies, deep analyses grounded in data and then overlaid with sound judgment. Most often, these types of strategies and the people who manage them turn up in pockets within public and private markets. When quantitative and qualitative approaches are fused intelligently, the results surpass either one alone.
The balance of the science and the art gets to the heart of the investment matter: What strategic advantage will generate strong returns with reasonable risk?
The value of the fusion of qualitative with quantitative was driven home to me while on a Stanford student trip. We visited a variety of managers and one of them was for a fund that I owned personally. It was the first time that I could question a PM [portfolio manager] that I didn’t work for! He told us about the team’s process, their disagreements, where he had been wrong, where the model failed. It was a crash course on how data was used to support decisions. It was the quantitative and the qualitative. It was like fireworks to me!
CIO: How will ESG change investing going forward?
Foster: ESG [environmental, social, and governance] principles have always been incorporated into due diligence and will continue to be incorporated in the future. ESG will change investing as a catalyst for new asset classes and via enhanced risk mitigation.
New asset classes are opening up because of ESG—new types of investments used to offset environmental impacts, for example, and for investing and hedging. California’s Cap‐and‐Trade program uses market‐based regulations to reduce greenhouse gas emissions. California Carbon Allowances can be bought and sold by primary emitters and financial institutions. Environmental futures trade publicly, meaning positions can be long or short. These new investing opportunities will continue to grow as more regulations and economic data become tied to ESG.
Asset owners are concerned about ESG in two directions: company to ESG and ESG to company. “Company to ESG” issues are company-controlled outcomes; for example how much carbon a hotel produces. This output can be scored, compiled, and peer ranked. ‘ESG to company’ issues are effects on the company that are uncontrollable; for example, how rising sea levels will affect the hotel’s beachfront property. ESG analysis exposes risks that can or cannot be mitigated. Unmitigated risks are a portfolio management concern.
More and better data and data analytics will enable objective measurement of companies’ actions. As ESG measures become more specific and cover a wider range of targets, the impact of ESG on investments will also grow.
CIO: What asset class or investment troubles you most right now—and why?
Foster: Just about everything! When you can earn a similar return on cash by literally sticking it under a mattress rather than in a government bond, there is a problem. There is so much capital out there sloshing around that it’s hard to find bargains!
CIO: What investing decision have you made that you’re most proud of?
Foster: When I was 16, I started investing in mutual funds, which opened my eyes to markets. The initial funds I picked are still in my portfolio.
Naturally, the reasons I chose those funds reflected the worldview of a teenager. A mid-cap fund focused on low-priced stocks: my 16-year-old brain liked a bargain. Likewise, a large-cap value-oriented fund represented most of the big US companies. With the Latin America fund, I figured that there was a lot of growth that could happen—it would just take time.
Each fund has taught me a lesson: timing of cash contributions, the roles of cheap beta and expensive alpha, and the benefit of top-ups during drawdowns.
There is just something magical about investing: the people, the competitiveness, evolving businesses, aligning incentives, being a fiduciary. These first investments launched a career that I am passionate about. (Thanks for encouraging me Mom and Dad!)
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Foster: Melinda French Gates [of the Bill & Melinda Gates Foundation] has resources, drive, and expertise. I would ask about aligning investments with values and what motivates her.
Benjamin Graham was an academic, a practitioner, a teacher, and an entrepreneur. Because his books are part of the investment cannon, I would ask about tangents to his investment philosophy: psychology of investing and behavioral economics.
CIO: What place does blockchain have in tomorrow’s financial scene?
Foster: Blockchain has the potential to have a very large impact on finance. Blockchains are a different way of doing something we can already do today. Technology is always changing; this is evolution.
With CeFi [centralized finance], the centralized party is trusted. With DeFi [decentralized finance], the decentralized application is trusted and there are no financial intermediaries. Some people will still want a trusted party, maybe for art appraisal valuation. Some people will want a DeFi mortgage, maybe because they don’t have long financial history. DeFi has the potential to disrupt CeFi; it will only get larger. That said, DeFi and CeFi will coexist and serve different needs.
CIO: How will the pandemic have changed the economic/financial world?
Foster: Pre-pandemic, maybe we were just a little too comfortable with and reliant on having a well-functioning world. Things like just-in-time delivery and relatively few mechanical failures left little need for buffers. But the lull of low volatility is not the same as low risk. We live in a world of unknowable risks, where a margin of safety is now excruciatingly apparent to all.
