Episode Summary
Executive Summary: Baylor CIO David Moorhead argues endowment investing should prioritize capital velocity, liquidity discipline, and portfolio fit over headline returns. He explains Baylor’s shift toward VC, growth equity, and buyout, skepticism of long-duration venture funds and private credit, and a strong focus on downside protection, conservative marks, and manager collaboration. He also discusses AI, software, data centers, Europe, biotech, and Baylor’s buildout as the endowment grows.
Main Topics: Baylor’s portfolio philosophy and endowment mission (Priority: 5/5): Moorhead frames investing as serving Baylor’s students: build the largest possible pool of dollars for scholarships and operations, not maximize paper returns. That drives liquidity, downside protection, and mission alignment. Private markets allocation and capital velocity (Priority: 5/5): He says private assets should only be retained if they contribute meaningfully to returns and compounding. Baylor is focusing on VC, expansion/growth equity, and buyout while winding down lower-return real assets. Manager selection, control, and customized exposures (Priority: 5/5): Baylor increasingly bypasses generic commingled funds to create customized sleeves with GPs, enabling better risk-return fit and tighter control over position sizing, valuations, and portfolio construction. VC duration, compounding math, and fund structure critique (Priority: 5/5): Moorhead is critical of longer venture fund lives, arguing that endowment math rewards faster recycling of capital more than patient long-duration holding, even if terminal MOIC looks attractive. AI, software, and public-market thinking (Priority: 4/5): He discusses Baylor’s ability to lean into software during selloffs, the belief that AI will often be delivered through software, and the value of using public managers to learn about adoption cycles and behavior. Data centers, permitting, and infrastructure constraints (Priority: 4/5): Moorhead describes rising value in permitted, powered data center land due to power and permitting bottlenecks, especially in Texas and the UK, and expects continued local pushback. Team building, hiring, and scaling the office (Priority: 3/5): He explains Baylor’s strategy of hiring mostly undergraduates to build long-tenured staff in Waco, while acknowledging the upfront management burden as the team grows from $1B to $5B+ in assets.
Key Arguments: Private markets only matter if they create excess returns that can be distributed to students; lower-return private exposure is being de-emphasized. Capital velocity matters as much as or more than gross returns; a shorter-duration 3x can outperform a longer-duration 15x when compounded and redeployed. Baylor targets a roughly 45% private allocation, with a 35% to 55% range, to avoid forced selling and preserve flexibility. Generic commingled funds are often misaligned with Baylor’s specific risk/return needs, so the office increasingly seeks customized direct relationships with GPs. Conservative marks are essential for sound decision-making and psychological discipline; Baylor prefers manager valuations to be conservative rather than aggressive. VC is useful mainly as a diversification and optionality tool, but Baylor is most attracted to growth equity because of fewer zeros and better timeline-to-return. Public markets are considered more legitimate price discovery than private markets because far more participants incorporate information into price. Baylor leans into manager expertise, but still interjects on asset allocation and position sizing when it has sufficient conviction and data. AI does not change Baylor’s core view on public/private portfolios, but it informs selective purchases in software and infrastructure-adjacent assets. Private credit is viewed skeptically because it offers equity-like downside without equity-like upside.
Data Points: Baylor endowment size: ~$2.6 billion - Stated by the host as Baylor University Office of Investments’ approximate endowment size. Current private allocation: ~45% - Moorhead says Baylor is presently around the mid-40s in private assets. Private allocation range: 35% to 55% - Baylor’s target band for private market exposure, adjusted for public-market denominator changes. Annual endowment distribution: ~5% - Liquidity requirement tied to Baylor’s annual spending for scholarships, professorships, and operations. Baylor stake in Anthropic: About 2.5% of the endowment - He cites Anthropic as a significant private exposure, managed through funds rather than direct decision-making. First quarter 2026 S&P performance: -4% - Used as a comparison point; Moorhead says Baylor was flat in that period, showing downside protection. Cash opportunity cost: 8.5% - 3.5% cash yield plus 5% opportunity cost, used to justify deploying cash only into sufficiently attractive opportunities. Cash balance before pandemic: ~15% to 16% - Baylor held elevated cash when it could not find enough attractive investments. Growth equity annualized return: ~30% - Moorhead says Baylor’s growth equity sleeve is producing strong returns relative to its bogey. Position sizing target per company: $2.5 million to $3 million - Baylor sizes private positions so gains materially impact the overall endowment. Example fund sizing: $30 million for 10 companies - Illustrates Baylor’s preference for enough exposure per company to matter at the fund level. Public/private return comparison: 60% to 90% vs. 30% to 50% - He says Baylor’s manager marks tend to show larger pre-exit gains, suggesting conservative valuations. Baylor return last fiscal year: 9.4% - Host references Baylor’s full-year 2025 return as a point of relative comparison. Expected current year return: 18.5% to 19% - Moorhead says Baylor expects stronger current-year performance absent certain mega-winners. Portfolio move in private commitments: +60% to 70% - Baylor increased private commitments materially in 2020–2021, creating a second J-curve effect. Data center site value increase: ~50% in six months - He says permitted, powered data center sites in Baylor’s book have appreciated sharply. Baylor growth: $1.4B to $2.2B to ~$2.7B - He describes rapid endowment growth over a few years, reinforcing scaling challenges. Endowment tax applicability: Not applicable to Baylor currently - He says Baylor’s per-student endowment is too small to be subject to the tax.
Pivotal Quotes: "The single reason that privates exist is to make money. Period. End of story." — David Moorhead: Explaining Baylor’s shift away from lower-return private asset categories and toward only the most return-rich private strategies. "What we're really after is the velocity of capital, not just returns on capital." — David Moorhead: Describing why Baylor cares about compounding and redeployment speed, especially in venture and growth investing. "I never want to be all in. Things can always get worse." — David Moorhead: On Baylor’s disciplined, staged buying approach during market drawdowns and its aversion to concentrated timing bets.
Implications: Endowments may increasingly favor faster-recycling, higher-conviction private exposures, tighter liquidity management, and customized GP relationships. Baylor’s approach also suggests AI, infrastructure, and biotech will reshape allocator priorities, while conservative pricing and mission alignment remain central.