By Muskan Arora
Scott Taylor’s experience during the early years of
CPP Investments has inspired his approach to building the team and investment
process at the $8bn Andrew W. Mellon Foundation.
Taylor, who joined the foundation from CPP Investment
Board in 2018, benefitted from time in CPP’s private funds and secondaries team,
prior to leading CPP’s hedge fund efforts.
Mellon’s portfolio has a significant exposure to private
equity at 32%.
Taylor benefitted from inheriting a world class
venture portfolio upon joining Mellon.
Mellon rations its liquidity via a tight budget on private commitments.
Given this constraint, Mellon tends to favor higher
multiple of capital strategies, such as venture and buyout for private
commitments.
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“Great VC investments have historically generated higher
multiple of capital than comparable buyout, which have generated higher
multiple of capital than comparable credit” said the CIO in an exclusive
conversation with Markets Group.
To add credit exposure without the contingent
liability of commitment and to avoid common investor risk, Mellon has accessed
credit through single investor vehicles.
Mellon continues to favor supporting existing VC
partners. Secondaries have not been an
area of focus for investment given the firm overallocation to private equity.
Mellon has reduced private commitment levels in the
past few years to drive competition for capital in portfolio and to reduce
steady state private allocation levels.
Taylor indicated that Mellon has also
opportunistically tapped into the secondary market as a seller in recent years.
“When we’re given an opportunity to either roll or
take liquidity through continuation funds, we’ve tended to take liquidity,”
added the CIO.
Most investments made are not sector-focused, the team
will invest with emerging managers if they are convinced of the managers’
ability to generate superior returns relative to other potential options. While
choosing managers, the team looks for “a narrative around how they’re
differentiated or what edge they have that allows them to succeed what gives
them the right to win”.
When asked about conversations with the Investment
Committee, while investing in hedge funds, the CIO cited the importance of a
good dialogue and a high degree of transparency about the risks posed by strategies.
The CIO believes that concentrating capital in the
hands of the Foundation’s best relationships in the hedge fund space is
preferred and allows. A better opportunity to generate returns.
