Summary of 20VC: How LPs Allocate to Venture in 2026: What They Want, What They Do Not Want | Why Fund Multiple Does Not Matter Without a Timeline | Why Velocity of Cashback is the Most Important Thing with David Morehead, CIO @ Baylor

Overview of 20VC: How LPs Allocate to Venture in 2026 with David Morehead, CIO @ Baylor

Harry Stebbings interviews David Morehead, CIO of Baylor University’s investment office, about how a large endowment thinks about venture, private markets, liquidity, and manager selection heading into 2026. Morehead is unusually direct: he argues that private markets exist to make money, but for an endowment the real goal is the velocity of capital — not just headline returns. He explains why Baylor is leaning into high-return private strategies, why fund duration matters as much as multiple, why he dislikes private credit, and how he thinks about AI, software, data centers, and valuation discipline.

Key Themes and Takeaways

1) Endowment investing is about cash generation, not just paper returns

• Baylor’s mission is to maximize dollars available for students, scholarships, and operations.
• Morehead repeatedly stresses that returns must be judged alongside time.
• His central idea: capital velocity matters more than multiples alone.
  • A 3x in 6 years can be far better than a 15x in 18 years if capital can be redeployed.

2) Liquidity and forced selling are the biggest risks

• Baylor targets a private/public mix around 45% private / 55% public, with a working range of 35% to 55% private.
• He wants enough private exposure to generate returns, but not so much that the endowment is forced to sell in a downturn.
• His two biggest risks:
  1. Fraud
  2. Forced selling
• He treats private allocation as something that must be deliberately “boxed” because it is hard to change quickly.

3) Baylor is pruning lower-return private exposures

• Morehead says private markets should be concentrated in the areas with the best upside:
  • Venture capital
  • Growth equity
  • Buyout
• He is de-emphasizing and letting roll off less attractive categories, especially real assets that do not fit the return objective.
• His blunt framework: if a private investment does not help maximize endowment dollars, it is not worth locking up capital.

4) Fund duration is a major LP/GP alignment issue

• He is skeptical of venture funds stretching from 10–12 years to 15–18 years.
• His view: LPs need capital back sooner to compound it into the next opportunity.
• He believes many GPs optimize for their own business model and fundraising optics, while endowments need to optimize for compounding and redeployment.

5) Baylor uses managers, but on its own terms

• Baylor does not passively accept every manager’s exposure.
• Morehead describes an approach where the office effectively says:
  • “We already have enough of that exposure.”
  • Or: “Take the same strategy, but size it differently for our portfolio.”
• He wants managers to remain true to their mandate, but he also wants the portfolio optimized at the endowment level.

Venture Capital View

What Baylor likes

• Baylor still invests in venture, but mainly in newer/upstart names rather than the hardest-to-access top-tier franchises.
• He respects venture as a source of diversification and upside, but not as the dominant engine of the portfolio.

Why he is cautious on venture

• He likes the asset class but is “perplexed” by long fund lives.
• Venture is often too slow for an endowment focused on recurring distributions and compounding.

Size and selection matter

• Baylor thinks about dollars per company, not just fund ownership percentage.
• For venture and growth strategies, the office wants enough underlying exposure that a win actually moves the portfolio.
• His rough framework: aim for $2.5M–$3M per underlying company.

Why Baylor Prefers Growth Equity Over Venture

Growth equity is more efficient for endowment math

• Morehead says Baylor’s biggest private allocation is in growth equity.
• Reasons:
  • Faster return timeline
  • Fewer zeros
  • Better fit with the endowment’s compounding needs
• He suggests growth equity often gives them the return profile they want without the same degree of waiting or failure risk as early venture.

AI, Software, and Human Behavior

Baylor leaned into software when others panicked

• In early 2026, Baylor added to software when it was heavily repriced.
• Morehead’s edge is not engineering knowledge; it is understanding human behavior and business adoption.
• He argued that “software is dead” was too simplistic:
  • Real businesses need reliable systems.
  • AI may be the delivery layer inside software, not a replacement for software itself.

He trusts public markets more than private markets on pricing

• Morehead is skeptical of private valuation marks because they can be set by a few people in a room.
• Public markets, while emotional and irrational, incorporate information at much larger scale.
• He views public pricing as more legitimate because it reflects millions of decisions, not three investors agreeing on a number.

Baylor is conservative on marks

• He believes Baylor’s private marks are typically conservative.
• They prefer valuations that are realistic rather than inflated, especially for governance and internal decision-making.

AI, Data Centers, and Infrastructure

Data centers are becoming more valuable — but permitting is the bottleneck

• Baylor owns data center-related assets and has seen them appreciate meaningfully.
• Morehead says the market has shifted from:
  • land
  • to powered land
  • to permitted, powered land
• The biggest constraint now is local permitting pushback, not just power availability.
• He expects continued resistance because communities are increasingly wary of:
  • power price increases
  • water use
  • local land-use impacts

His view on AI infrastructure

• He expects the data center buildout to continue, but with friction.
• He is more bullish on assets that already have:
  • permits
  • power
  • favorable infrastructure positions

Portfolio Construction and Risk Management

Baylor is highly disciplined about cash

• Cash is not “dead money” to him; it is an option on future opportunities.
• He estimates cash has a meaningful opportunity cost, and he is willing to hold more when attractive investments are scarce.
• He cited periods where Baylor held around 15–16% cash when opportunities were unattractive.
• Today, cash is lower because the office is finding more things to buy.

Baylor allocates mechanically in drawdowns

• He likes to size into falling markets in increments, rather than making an emotional all-in bet.
• Example framework:
  • 0–10% down: no action
  • larger drawdowns: more capital allocated in steps
• The goal is to avoid catching a falling knife and to remove emotion from decisions.

Concentration is acceptable if it fits the mandate

• He does not fear more concentration if the overall portfolio is already highly diversified.
• He views an endowment as far more diversified than the S&P 500.

Team Building and Operating Model

Baylor hires largely from undergraduate ranks

• For Baylor’s size and location, Morehead prefers hiring younger people and training them in-house.
• Benefits:
  • stability
  • cultural fit
  • long tenure
• Tradeoff:
  • the CIO shoulders more of the workload early on
  • team development takes time

Longevity matters

• He believes investment team continuity compounds over time.
• This is one reason Baylor has maintained a stable bench for years.

What Baylor Thinks About Private Credit

• Morehead is bluntly unimpressed by private credit.
• His view:
  • downside behaves too much like equity
  • upside does not compensate for the risk
• He would rather own equity-like exposure with actual upside than credit exposure that can still suffer equity-like losses.

Market Views and Outlook

Europe

• He is not bullish on Europe overall.
• Reasons include:
  • geopolitical concerns
  • slower AI adoption
  • weaker permitting environment
  • structural competitiveness issues
• That said, Baylor still allocates to:
  • European long/short managers
  • macro hedges on European indices

Biotech

• One of his most positive forward-looking views is on biotech.
• He believes biotech could have an even bigger impact in the next 10 years than in the prior 10–20.
• He is actively spending more time on it and attending biotech conferences.

Reflections on LP/GP Incentives

Traditional endowment incentives are mission-driven

• He does not believe the incentive structure is “broken,” but it requires mission alignment.
• His motivation is explicitly student-centered, not compensation-driven.
• He views Baylor’s investment mission as serving the broader university, not personal wealth accumulation.

Endowment scale changes the game

• He notes that as endowments get much larger, standard fund allocations can become less material.
• At very large scale, LPs may need different ways to access venture or private markets because small checks stop moving the needle.

Notable Lines of Thinking

On venture

• “The single reason that privates exist is to make money.”
• “What we’re really after is the velocity of capital, not just returns on capital.”

On risk

• “I never want to be all in.”
• “Things can always get worse.”

On fund duration

• He sees long venture fund lives as a major mismatch with endowment compounding needs.

Bottom Line

David Morehead’s philosophy is unusually crisp: private investing must serve the endowment’s compounding machine. That means prioritizing fast, high-quality capital deployment, avoiding forced selling, and demanding that venture and private managers justify not just their returns, but their timelines and portfolio fit. Baylor wants exposure to the best private opportunities — especially growth equity, selective venture, and certain AI-adjacent themes — but always through the lens of liquidity, velocity, and student outcomes.