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Sustainable Philanthropy Case Study - Mellon

Sustainable Philanthropy Case Study

Name: Andrew W. Mellon Foundation

Type: Private Foundation

Size: $6.5 bn

Year of Establishment: 1969

Description:

The Andrew W. Mellon Foundation is a private foundation with five core areas of interest, spanning from higher education to environmental conservation. The foundation was formed in 1969 as the product of the merger between the Avalon Foundation and the Old Dominion Foundation, which were separately set up by the children of Andrew Mellon. An American business in the 1900s, Andrew Mellon was one of the wealthiest people in the United States at the time. The foundation is located in New York City.

Elizabeth Alexander, former director of Creativity and Free Expression at the Ford Foundation, is currently the foundation's president. The investment team is led by CIO Scott Taylor. Prior to joining the Foundation in 2018, Mr. Taylor was a managing director at Canada Pension Plan Investment Board (CPPIB) where he oversaw the investment process and monitored the organization's public market external manager program.

Andrew W. Mellon, 2nd from left


History:

The foundation was created in 1969 with $273 million in assets following the consolidation of the Avalon Foundation and the Old Dominion Foundation. The Avalon Foundation was founded by Andrew Mellon’s daughter, Ailsa Mellon Bruce, and the Old Dominion Foundation by Andrew Mellon’s son, Paul Mellon. After Ailsa Mellon Bruce’s death in 1969, Paul Mellon consolidated the two foundations and named the new entity after their father. The foundation immediately hired a president – retired lawyer Charles S. Hamilton – to manage its affairs.

Since 1969, the foundation has paid out almost $6 billion in grants, with recent annual grants hovering around $300 million. Its endowment totaled approximately $6.2 billion at the end of 2016.[1] Today, the foundation is fully institutionalized and employs 119 staff members.

Family Involvement:

As of today, there are no board members of the foundation related to Andrew Mellon. However, Paul Mellon served as a founding board member for many years since 1969, although he resisted taking the role of chair. During his tenure as board, he imposed no explicit constraints on his foundation but influenced fellow trustees through his moral authority and passion.[2]

Mission:

The foundation endeavors to strengthen and promote five core areas of interests:

· Higher Education and Scholarship in the Humanities

· Arts and Cultural Heritage

· Diversity

· Scholarly Communications

· International Higher Education and Strategic Projects

The ultimate mission of the foundation is to contribute to human well-being and assist in the development of diverse and democratic societies.

Investment Program:

Investment Philosophy

The goal in managing the portfolio is to preserve and increase its purchasing power, enabling the foundation to provide grants in perpetuity. To achieve this goal, the foundation partners with more than 100 managers to maintain a well-diversified portfolio. The foundation also pays close attention to the liquidity levels to fund the grantmaking activities and ongoing expenses.

In a 2015 interview, former CIO John Hull noted that he is a very long-term investor. He takes advantage of the fact that the Mellon Foundation can withstand a degree of volatility and illiquidity and therefore maintains a portfolio that is focused on the long-term.[3]

Over the last 13 years, the foundation saw a significant increase of asset externally managed. We believe that this shift was initiated after Hull joined the foundation. Currently, almost 90% of the assets is managed by external managers and most of them employ alternative investment strategy.


Performance

Since 2006, Mellon’s investment portfolio generated 7.66% annualized return. However, the general performance is lower than Yale. The foundation has performed well when excluding the 2008 downturn, when it almost lost almost half of its investment. Shortly after the 2008 crisis, the foundation decided to allocate more toward the private equity space and further diversify its endowment.


Asset Allocation

As seen below, Mellon substantially increased its allocation to private equityfrom 36.3% in 2009 to 46.3% in 2018. According to the interviews mentioned above, Hull also noted that geographic exposure has been shifting to have less concentration in the United States over the past 14 years.


In the long-term, the foundation aims to have similar exposures to private equity, public equity and diversified strategies , as indicated by the long-term allocation plan below:


Long Term Allocation Plan[4]

Manager Selection

The 2017 interview with former CIO John Hull outlines the multi-step process the foundation goes through before selecting managers to work with. First, the foundation judges the quality of the organization and the track record they have exhibited. It reviews manager reports and letters, and performs qualitative and quantitative analyses on the portfolio companies.

Next, the foundation aims to meet with the prospective managers to better understand their due diligence process. As a whole, the foundation looks for several things: the integrity of the firm, the consistency of the strategy. and the strength and depth of the team. The foundation also looks to the investor base and sees if there are other limited partners that look and feel like the Mellon Foundation with similar long-term investment horizons.[5]

In terms of manager assessment, Hull noted in a 2017 interview that the Mellon Foundation recently shifted its assessment strategy:

“We have shifted our strategy over the last several years from global emerging market managers – say a manager based in London or Boston that invest in emerging markets – to a strategy where we pay more attention to finding either regional managers or country-specific managers. Rather than relying on firms that are thousands of miles away, we have decided that a better approach is to find firms that are based locally, staffed by nationals from that country and are good at selecting stocks in smaller companies.”[6]


[1] https://mellon.org/about/history/ [2] The Foundation: A Great American Secret; How Private Wealth is Changing the World pg. 290 [3] https://www.thetrustedinsight.com/investment-news/john-e-hull-cio-at-andrew-w-mellon-foundation-exclusive-qa-20151215094/ [4] https://mellon.org/about/investment-overview/ [5] https://www.thetrustedinsight.com/investment-news/mellon-foundation-cio-john-hull-optimistic-after-a-surprising-2016-exclusive-qa-20170612265/ [6] https://www.thetrustedinsight.com/investment-news/mellon-foundation-cio-john-hull-optimistic-after-a-surprising-2016-exclusive-qa-20170612265/

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