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

Summary

David Morehead frames Baylor’s endowment approach around a simple rule: private assets only matter if they return capital fast enough to compound within endowment math. He says Baylor keeps its private allocation flexible, currently around 45% private / 55% public with a 35%–55% target band, and has shifted the private book toward VC expansion, growth equity, and buyout while winding down lower-return real assets. Morehead is skeptical of longer VC fund lives, arguing that 15–18 year funds weaken compounding versus shorter-cycle strategies that recycle capital. He also argues public markets do better price discovery than private markets, prefers conservative marks, and treats cash as an opportunity-cost decision with a high hurdle. Beyond portfolio construction, he discusses AI’s impact on software, data-center permitting and power bottlenecks, Europe’s structural challenges, the unattractiveness of private credit, and why biotech is one of Baylor’s most interesting forward areas.

Notes

• Privates are justified only by money-making and capital recycling speed.
• Baylor measures private-market results against time, not just IRR or MOIC.
• Baylor’s endowment is about $2.6 billion.
• Enrollment pressure makes distributions more important over the next decade.
• Baylor wants its private sleeve to absorb denominator effects without forced selling.
• The private target range is 35% to 55%.
• Current mix is roughly 45% private and 55% public.
• Baylor increasingly favors VC expansion, growth equity, and buyout in privates.
• Lower-return real assets are being wound down rather than renewed.
• If capital is locked up, Baylor wants the highest-return sleeves.
• He says VC fund lives have stretched from 10–12 years to 15–18 years.
• Longer VC duration can destroy compounding even when the gross multiple looks great.
• A 15x outcome over 15–18 years may be inferior to repeated shorter-cycle compounding.
• He thinks Anthropic is a meaningful but bounded exposure.
• Baylor has no exposure to SpaceX or OpenAI.
• He argues software may become the delivery layer for AI in vertical industries.
• Public markets have better price discovery because millions of participants trade on information.
• Private market marks can be overly managerial; Baylor prefers conservatism.
• Baylor wants managers to avoid pushing valuations aggressively.
• Growth equity is Baylor’s biggest private allocation.
• He likes growth equity because there are fewer zeros.
• The growth equity book annualizes around 30% and clears Baylor’s 8%–9% bogey.
• Cash is an opportunity-cost decision, not a passive leftover.
• Baylor’s annual distribution need is about 5%.
• Cash earning 3.5% plus a 5% opportunity cost implies an 8.5% hurdle.
• Baylor entered the pandemic with 15%–16% cash.
• The office allocates into drawdowns in 10% market-decline increments.
• Baylor does not try to catch every small down move.
• He thinks the market is up about 70% of the time.
• Baylor keeps liquidity ready because things can always get worse.
• Baylor’s portfolio is highly diversified across consumer goods, software, and real estate development.
• Marginal concentration changes do not move the endowment risk profile much.
• Baylor recruits almost exclusively from undergraduate ranks.
• Waco’s location makes it hard to recruit and retain mid-career investment talent.
• The first five or six years of undergrad hiring require heavy training and carrying load at the top.
• Mission, not money, drives the team’s behavior.
• Personal lifestyle gains are not the main motivator.
• He worries AI could reduce human logic and thinking ability.
• Baylor is below the endowment-tax threshold.
• He would welcome an endowment tax if the endowment were much larger.
• 2020–2021 private commitments created a second J-curve drag.
• New fund-of-one and other asset-class exposures had just started to inflect.
• Baylor was trying to change the engine while the car was moving.
• Private sizing is based on company-level exposure, not fund labels.
• A 10-company platform at $3 million each implies a $30 million check.
• A 5x on $3 million per company would return $15 million.
• He wants managers to stay in their lane unless the mandate changes openly.
• If a manager changes strategy and no longer fits the mandate, Baylor will not re-up.
• Managers should discuss any strategy change before changing their stripes.
• Unexpectedly adding cash to a fully invested mandate can get a manager fired.
• Shifting from late-stage investing to garage-stage venture is a hard no.
• One or two funds often do not provide enough data to judge a manager.
• Baylor is better when it can analyze data than when it has to buy pure vision.
• Large endowments may eventually need a different investment process.
• At $40B–$60B, a $20M check may no longer move the needle.
• A 50x on a $20M check would return $1 billion, which is only about 2% at very large scale.
• He sees law-of-large-numbers pressure on giant venture platforms.
• Baylor thinks the data-center bottleneck has moved to permitted powered land.
• Permitting has become a real bottleneck only recently.
• Local citizen backlash is now shaping data-center approvals.
• Baylor sees the UK as a bigger permitting problem than the US.
• A permitted UK data-center site can be valuable on permit scarcity alone.
• Europe looks unattractive because of defense, Russia, AI lag, and permitting.
• Despite that, Baylor still allocates to European long/short managers and hedges European indices.
• Baylor leaned into software when the environment became more attractive.
• Baylor reduced energy exposure when crude moved above $100.
• He added to private-equity sponsors in March/April.
• Private credit is overhyped because it is easy.
• He sees private credit as equity-like on the downside without equity-like upside.
• Brown is the endowment team he most respects.
• He describes Brown as a team of real investors making courageous, risk-aware bets.
• Biotech is a priority because the science is increasingly transformative.
• He wants more biotech exposure because it is less correlated with markets.
• Baylor is in a $1B to $5B scaling phase and is building systems to keep creativity while growing.