The Twenty Minute VCHow LPs Allocate to Venture in 2026: What They Want, What They Don’t | Baylor University CIO
At a glance
WHAT IT’S REALLY ABOUT
Baylor CIO on venture: prioritize capital velocity, liquidity, and discipline
- Baylor’s CIO David Morehead frames private markets as purely instrumental—valuable only insofar as they generate excess dollars for university missions amid worsening higher-ed demographics and rising reliance on endowment distributions.
- Baylor builds its portfolio by anchoring private-market exposure first (target ~45% privates) to control liquidity risk and avoid forced selling during denominator-effect drawdowns.
- Morehead challenges venture capital’s increasingly long fund durations, arguing that compounding and reinvestment speed (‘velocity of capital’) can make lower-multiple, shorter-duration strategies superior for endowments.
- Baylor prefers growth equity to venture on a risk-adjusted basis (fewer zeros, attractive annualized returns) while still using venture partly as diversification and upside access (e.g., indirect exposure to Anthropic).
- The discussion extends beyond allocations into market structure and real-economy constraints: public markets are seen as more rational than private marks, AI data centers face a new bottleneck in permitting, and private credit is viewed as overhyped relative to its downside risk.
IDEAS WORTH REMEMBERING
5 ideasVelocity of capital matters more than headline multiples.
Morehead argues that fund multiples without time context are misleading; what matters is how fast capital returns so it can be redeployed. He gives the example that a 15x venture outcome over ~18 years can be inferior to repeating 3x growth equity outcomes over shorter cycles due to compounding.
Set the private allocation first to prevent liquidity-driven mistakes.
Baylor starts portfolio construction by fixing the private-markets allocation because it ‘hog-ties’ liquidity and is hard to change. They target ~45% privates with a range (35–55%) to avoid denominator effects forcing sales in drawdowns.
Illiquidity is only worth it if it buys true excess return potential.
He views privates as existing to generate excess returns, so Baylor is letting lower-returning real assets roll off and concentrating privates into VC, growth equity, and buyout. The underlying premise: if you lock capital up, demand a clear payoff for illiquidity.
Growth equity can be a better endowment fit than venture because of fewer zeros and faster cycles.
Baylor prefers growth equity because it typically has fewer zero outcomes and a more attractive return-to-duration profile. Fewer zeros reduce the burden on winners to ‘carry’ the portfolio, which Morehead sees as better aligned with endowment objectives.
Private valuations are less reliable; conservative marking improves decision-making and governance trust.
Morehead is skeptical of private-market pricing based on a small number of participants resetting valuations; he views public markets as more information-efficient because millions of actors incorporate data continuously. Internally, Baylor pushes for conservative marks to avoid psychological and governance problems caused by overstated valuations.
WORDS WORTH SAVING
5 quotesThe single reason that privates exist is to make money, period, end of story.
— David Morehead
There's a rule in our office that you're not allowed to talk about returns without also talking about time.
— David Morehead
What we're really after is the velocity of capital, not just returns on capital.
— David Morehead
Students can't pay their tuition with returns. They have to pay with dollars.
— David Morehead
I never wanna be all in. Things can always get worse, right?
— David Morehead
High quality AI-generated summary created from speaker-labeled transcript.
