20VC with Harry StebbingsHow LPs Allocate to Venture in 2026: What They Want, What They Don’t | Baylor University CIO
20VC with Harry Stebbings
Introducing Baylor's Chief Investment Officer 0:00
David Moorehead is the Chief Investment Officer of Baylor University, overseeing an endowment of around 2.6 billion dollars. He is widely respected among his peers, and the conversation is framed as a rare chance to hear directly from a CIO who allocates to venture funds, rather than from the venture investors themselves. Moorehead notes early on that his office holds roughly 2.5 percent of the endowment in Anthropic, and that he never wants to be all in on anything, because things can always get worse.
Enrollment Pressures Shape Endowment Strategy 1:32
Baylor manages its portfolio against a backdrop of declining domestic high school enrollment following the great financial crisis, plus reduced numbers of international full-pay students due to visa difficulties. Many schools missed their targets for the incoming class of 2030, which means tuition revenue is under pressure and distributions from the endowment will matter more over the next 10 to 15 years. Baylor's office has historically been strong on the downside, staying flat in the first quarter of 2026 while the S&P fell 4 percent, and showing similar resilience in past downturns like late 2018, early 2016, and 2012. Over the last five years, anticipating the enrollment problem, the office has restructured to also perform better on the upside, running a value-centric, high-quality equity book while adding convexity, or asymmetric upside exposure, without paying a steady premium for it, referred to as a theta bill.
Customizing Portfolios Beyond Commingled Funds 5:31
Rather than accepting the average risk and return profile that a commingled fund offers to all its limited partners, Baylor has pushed managers to run separate, customized versions of their strategy just for Baylor, with visibility into individual holdings. Moorehead gives the example of Nvidia: if Baylor already holds enough exposure, it can tell a manager not to add more, or conversely ask a manager to triple a position if the portfolio is underweight. This approach has worked well over the past two to three years.
Building the Private and Public Split 8:01
Baylor currently sits near 45 to 47 percent private and 53 to 55 percent public. Moorehead argues that when building a portfolio from scratch, the private allocation must be locked in first, since private assets constrain liquidity and are hard to adjust later. Baylor's target range is 35 to 55 percent private, designed so that during a denominator effect, when public markets fall and shrink the overall base, the private side can rise toward 55 percent without forcing a sale. The two things to avoid above all are fraud and forced selling, and even during the 2022 tech slide the private allocation only reached about 51 to 52 percent, never threatening a forced sale.
Shifting Purely Toward Return-Maximizing Privates 11:01
Since the pandemic, Baylor's guiding principle for its private book has been that privates exist for one reason: to make money for future distributions. As a result, real asset strategies are being wound down, and the focus has narrowed to venture capital, growth equity, and buyout. On accessing brand-name venture firms like Sequoia or Benchmark, Moorehead admits Baylor came to the space later than schools like Stanford and often could not get access, so it has leaned on newer, upstart managers instead, while growth equity has delivered exceptional results.
Fund Length and the Velocity of Capital 14:02
Moorehead is skeptical that general partner incentives align with what endowments need, particularly as venture fund lifespans have stretched from 10 to 12 years toward 15 to 18 years. He illustrates with a math example: a fund up 15x over 18 years sounds impressive, but three sequential six-year growth equity funds each returning 3x would compound to 27x over the same period, nearly double. Because students pay tuition with dollars, not returns, Baylor is focused on the velocity of capital, meaning redeploying money once a fund's return trajectory flattens out, rather than holding winners longer purely because it looks better for a manager's marketing or next fundraise.
Venture as Diversification, Not a Learning Tool 17:00
Asked bluntly why Baylor bothers with venture capital at all given the velocity argument, Moorehead concedes it is largely a diversification play for Baylor, tied to time horizons: some managers deliver returns in one to three years, others in six to ten. He insists on a strict office rule that returns are never discussed without also discussing time, since a 5x return over 30 years is poor while the same return in five months, as with SpaceX, is exceptional. He also clarifies that unlike some LPs who treat venture portfolios as a window into AI adoption trends, he personally learns more from public-side managers, and he pushed money into software stocks in early 2026 during a selloff after calling business owners directly and confirming they had no intention of ripping out trusted software systems for unproven AI alternatives.
Growth Equity As The Core Bet 31:30
The CIO explains that Baylor's largest private allocation sits in growth equity, and he likes it because the return timeline is shorter and there are fewer companies that go to zero. Fewer failures mean the winners do not have to work as hard to cover for losers, and he notes the growth equity book has been annualizing around 30 percent, comfortably clearing the endowment's roughly 8 percent target return.
Bad Vintages Come With The Territory 32:32
Asked about weak 2021 and 2022 vintages in venture and private equity, tied to names like Medallia's take-private situation, he treats this as an expected cost of doing business. Baylor sets a target allocation to private equity, expansion capital, and venture by sector, then lets the team build the portfolio against an overall return hurdle. If the portfolio clears that hurdle, occasional bad individual outcomes are acceptable.
Liquidity Needs And The Cost Of Cash 33:31
Baylor must distribute about 5 percent annually to fund scholarships and professorships, a fixed obligation. Beyond that, the team asks how likely it is they will find something capable of returning 20 to 30 percent within four years, and treats cash's true cost as that opportunity plus the distribution rate, roughly 8.5 percent when cash itself earns 3.5 percent. When they cannot find opportunities, as in 2017 through 2019, cash balances build, reaching 15 to 16 percent entering the pandemic; when opportunities appear, as now, cash stays low.
Buying Into Declines Methodically 37:00
He describes a rule of never going all in, since markets can always fall further. Declines of 0 to 10 percent are treated as normal and ignored, but from there the team allocates in mechanical 10 percentage point increments, for example 20 percent in at a 20 percent decline, another 20 percent in at 30 percent down, and so on. This removes emotion and prevents the trap of loving a falling asset so much that no further buying feels possible, even though it means never being fully invested before a rebound.
Working Managers Through Drawdowns 40:30
Rather than trading individual names himself, he spends time managing manager psychology, describing daily calls with one manager during this year's software selloff, comparing notes on market signals and pushing for concentration into the strongest names. He is not worried that downturns naturally push portfolios toward more concentration, since an endowment already owns an enormous spread of businesses, from consumer goods to software to real estate, far more diverse than something like the S&P 500.
Hiring Almost Entirely From Undergraduates 43:00
Baylor, sitting in Waco between Dallas and Austin, struggles to relocate mid-career professionals for a decade-long commitment, so the team hires almost exclusively from its own undergraduate ranks, screening for people already rooted in the area. The tradeoff is years spent developing junior staff while carrying more of the workload himself, versus the alternative risk other endowments take with plug-and-play mid-career hires who bring turnover risk instead.
Mission Over Money, And Worries About AI 46:31
He rejects the idea that endowment incentive structures are broken, arguing the work requires being mission-driven, motivated by sending students to Baylor rather than by compensation. He also voices concern about AI's effect on human thinking, citing studies suggesting heavy AI use correlates with reduced brain function, comparing it to muscle atrophy from inactivity, and framing it as a discipline problem education can still address.
Endowment Tax, Comparisons, And A Bigger Engine 49:30
Baylor's endowment is too small per student to face the new endowment tax hitting larger schools, and he says he would gladly accept the tax if it meant a much bigger endowment. On performance, Baylor returned 9.4 percent for fiscal 2025 against Dartmouth's 10.8 percent, a gap he attributes to absorbing a J-curve after sharply increasing private allocations starting in 2020 and 2021; this year, without help from names like SpaceX, he expects returns near 18.5 to 19 percent.
Sizing Bets To Actually Matter 53:01
Position sizing on the private side starts from a target dollar amount per underlying company, around 2.5 to 3 million dollars, rather than a percentage of a fund, so that a strong outcome like a 5x return actually moves the needle for the endowment rather than producing a check too small to matter.
Managers Should Stay In Their Lane 55:32
Using a baseball analogy, he insists managers should do what they were hired to do; if a manager suddenly drifts into a different strategy, such as a stock picker starting to hold cash tactically, or a product-market-fit investor shifting to pre-seed bets, that is grounds for not re-upping, regardless of returns, since it introduces an unproven approach without a track record.
When Endowments Get Too Big 1:02:30
David talks about a size where scale starts working against you. He points to Notre Dame at 20 billion and larger players like Harvard or UTMCO, suggesting there is a point where a fund can no longer invest the same way it did when smaller. A 20 million dollar check that returns 50x would hand back a billion dollars, which sounds amazing, but for a 40 or 50 billion dollar endowment that is only about 2 percent of the portfolio. This is part of what draws big allocators toward platforms like a16z, where writing a single 300 million dollar check matters more than chasing outsized multiples on small positions, since at large scale it simply gets harder to generate a return that compensates for the risk taken.
Data Centers and Power Politics 1:05:01
The conversation turns to the pushback against AI infrastructure at the data center level, especially outside Silicon Valley. David explains that the most valuable asset used to be land, then powered land, and now permitted powered land, because local communities are increasingly resistant. In his own portfolio, data center sites with power and permits have risen 50 percent in value in six months, and power companies are now approaching permit holders offering faster access than expected. The real bottleneck has become permitting itself, driven by citizens pressuring local boards, a dynamic that does not exist in China and is, he says, even worse in the UK than in the US. Despite liking Europe less overall due to defense, energy, and AI competitiveness concerns, he still allocates to European long short managers and uses European indices for macro hedges.
Quickfire Views and Priorities 1:10:02
Asked what he has changed his mind on, David says he leaned harder into software and pulled back energy exposure after crude passed 100 following the US Iran conflict, while adding to private equity sponsors in March and April. He calls private credit overhyped, arguing it carries equity-like downside risk without equity-like upside. He most admires Brown's endowment and Jane's team for their courage and strong long-term returns, and says Benchmark is the fund he most wishes he were invested in. Looking ahead, he is most excited about biotech's next decade of impact and about steering his own office through the demanding growth phase between one and five billion dollars in assets.
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