The Biggest Pile of Money

David Morehead is the chief investment officer of Baylor University, where he oversees an endowment of about $2.7 billion, up from $2.2 billion 14 months ago and $1.4 billion a couple of years before that. Before joining Baylor in 2011, he was a senior portfolio manager at several Chicago hedge funds, investing across corporate securities, distressed debt and energy. He runs the office out of Waco, Texas, hires almost exclusively from undergraduate ranks, and judges every allocation by what it adds to distributions for students. One of his managers says Morehead thinks more like Charlie Munger than anyone he has met, and Morehead says his edge is reading human behavior. These signals are from David Morehead's interview with Harry Stebbings on 20VC.

1. Velocity of Capital. Venture funds that once ran 10 to 12 years now run 15 to 18, and Morehead says the math hurts endowments. A fund that returns 15x over 18 years loses to three back-to-back growth equity funds that each return 3x over 6 years, which compound to 27x. "Students can't pay their tuition with returns. They have to pay with dollars," he says, so he wants out once a position's compounding rate starts to flatten. He accepts that GPs hold winners longer because 6x looks better than 3x when raising the next fund, but he is optimizing for the biggest pile of money for students.
2. Returns Need a Clock. Baylor's investment office has a rule: nobody may talk about returns without also talking about time. A 5x over 30 years is horrible, and 5x in 5 months is amazing. Morehead ladders the portfolio by when returns arrive: venture in 6 to 10 years, growth equity in 3 to 5, and his own tactical moves in 1 to 3.
3. Privates Exist to Make Money. About 5 or 6 years ago, seeing falling high school graduate numbers and fewer full-pay international students ahead, Baylor decided "the single reason that privates exist is to make money. Period." Real assets are winding down, and new private money goes only to venture, growth equity and buyout. Growth equity is the largest private allocation, annualizing around 30% against an 8% to 9% target, partly because it has fewer zeros to cover. Venture is mainly diversification, though managers have put about 2.5% of the endowment in Anthropic. Morehead avoids private credit, which he says behaves like equity on the downside without equity's upside.
4. Box the Private Book First. Baylor holds about 45% to 47% in privates, and Morehead says anyone starting from scratch should settle the private side first, because it consumes liquidity and can't be moved. The allowed range is 35% to 55%, with the 55% ceiling set so a public market crash can't trigger the denominator effect hard enough to force sales. "The number one thing to avoid is fraud and the number two thing to avoid is forced selling." In the 2022 tech slide, privates hit only 51% to 52%.
5. Funds of One. In a commingled fund, every LP gets the average risk profile the GP offers to keep a hundred or a thousand LPs happy. Baylor instead asks GPs to run the same strategy in a separate account where Baylor can see the holdings across all its managers. If a manager wants to add Nvidia and Baylor already owns plenty, Baylor can say no; if Baylor owns none, it can ask for three times the position. Morehead says the setup has worked exceedingly well for 2 to 3 years, and the office still protects the downside: in the first quarter of 2026 the S&P fell 4% while Baylor was flat.
6. Dollars per Company. A GP once told Baylor a portfolio company sold for 7x, which meant about $400,000 back to the endowment. "Who cares?" Morehead asked. Baylor now sizes commitments backward from how much it wants in each underlying company, about $2.5 million to $3 million. If a manager will own 10 companies, Baylor commits $30 million, so a 5x outcome returns $15 million, which is enough to matter.
7. Buying the Software Crash. In early 2026, software stocks were down 50% to 60% from October 2025 on the theory that AI would let anyone build replacements. Morehead called friends who run 300- to 500-person family businesses, including the only vertically integrated potpourri maker he knows of, and asked whether they would rip out their CRM for something vibe-coded; they said "not in a million years." AI might be 93% right, and software has to be 100% right for books to reconcile, so he expects trusted vertical software vendors to become the way AI reaches customers. He gave a software manager more money with instructions to own the names least likely to be disrupted by AI, then spent four weeks on the phone with him every day, pushing him to concentrate.
8. Mechanical Buying. "I never want to be all in. Things can always get worse." Baylor ignores declines of 0% to 10% and keeps liquidity ready to buy in 10-point steps, adding about 20% of the intended position at down 20%, down 30% and down 40%. Markets usually rebound before Baylor is fully invested, which leaves money on the table but avoids loving a falling asset with nothing left to buy it with. Morehead values cash at about 8.5% a year (3.5% interest plus a 5% opportunity premium), so cash piled up to 15% to 16% before the pandemic and stays low now because 20% to 30% opportunities keep appearing.
9. Public Prices, Private Guesses. Public prices reflect tens of millions of people trading every day. A private price gets set when three people in a room agree on a number and someone offers $50 million at it, and Morehead has been in those rooms. Coming from trading desks where everything was priced daily, he wants conservative marks, because an asset marked at $30 million that is worth $10 million makes you refuse a $20 million offer. Baylor's private positions gain about 60% to 90% in the 6 to 9 months before an exit, versus 30% to 50% across the market, which he reads as evidence its managers mark conservatively.
10. Stay in Your Position. Morehead sees his job as a baseball general manager hiring players for specific positions. If he walks onto the field and finds two second basemen and no third baseman, the third baseman is fired, "I don't care what your returns are." A public equity manager who has always been fully invested and suddenly holds 10% cash gets fired, because Baylor won't be the guinea pig for a new skill. In venture, moving from Series B to late Series A is fine; switching from companies with product-market fit to "two guys in a garage" means Baylor won't re-up.
11. Hiring Undergrads. Waco sits about 100 miles from both Dallas and Austin, and Morehead found it nearly impossible to lure mid-career professionals from New York or Los Angeles for a decade. So Baylor hires from undergraduate ranks, screening for people who chose the school and the region. The cost is 5 or 6 years of carrying the team while they learn. The benefit is stability: one colleague has worked with him almost 16 years and the next hire 11, and "longevity begets returns."
12. Permits Are the Asset. Five or six years ago the scarce input for a data center was land, then powered land, and now it is permitted powered land, because locals post yard signs and permitting boards want to be reelected. Baylor's data center sites are up about 50% in 6 months, and power companies are offering permitted sites power sooner than promised because so many other projects have stalled. Its permitted UK site is valuable simply because it has a permit. Morehead is not bullish on Europe, citing permitting, defense and its lag in AI, and some of Baylor's bigger macro hedges sit on European indices.

Watch the full video at https://www.youtube.com/watch?v=U_ManIWISzw.