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

What It Covers

David Morehead, CIO of Baylor University's $2.7B endowment, explains how institutional LPs evaluate venture managers in 2026, why fund duration undermines LP math, how velocity of capital return outweighs raw multiples, and why growth equity currently dominates Baylor's private allocation over traditional venture.

Key Questions Answered

• •Velocity Over Multiples: A 15x return over 18 years underperforms three consecutive 3x growth equity funds over the same period, which compounds to 27x. Baylor enforces an office rule prohibiting return discussions without specifying the time period. LPs optimizing for endowment distributions need dollars, not IRR narratives, making fund duration a critical and often misaligned variable between GPs and institutional investors.
• •Private Allocation Framework: Baylor targets 45% private, 55% public, with a hard ceiling of 55% private to prevent forced selling during public market downturns. The private book focuses exclusively on venture, expansion capital, and buyout — all real assets are being wound down. Any private allocation that cannot credibly outperform the highest available return is being eliminated from the portfolio entirely.
• •Position Sizing by Company Exposure: Baylor sizes fund commitments by targeting $2.5–3M in each underlying portfolio company, not by fund percentage. If a manager holds 10 companies, Baylor commits $30M so a 5x exit returns $15M — a threshold that materially moves the endowment. Commitments producing $400K exits on 7x returns are considered irrelevant to portfolio outcomes regardless of the multiple achieved.
• •Mechanical Drawdown Deployment: Baylor deploys capital into declining markets in structured 10% increments rather than making lump-sum conviction bets. At each 10-percentage-point decline threshold, a pre-set tranche is allocated. This removes emotional decision-making and prevents full deployment before a bottom. The approach consistently leaves some upside unrealized but eliminates the catastrophic scenario of being fully invested before further deterioration.
• •Manager Drift as Termination Trigger: Baylor terminates managers who change strategy without prior conversation, regardless of subsequent returns. The framework treats each manager as filling a specific portfolio role — shifting from post-product-market-fit growth investing to pre-revenue seed without discussion results in immediate removal. Minor drift like moving from late-B to early-A rounds is acceptable; fundamental strategy changes without LP consultation are not.
• •Growth Equity Preference Over Venture: Baylor's growth equity book annualizes at approximately 30%, clearing the 9% distribution bogey with fewer zeros requiring coverage. Venture remains a diversification allocation, not a return driver, with Baylor's ~2.5% anthropic exposure coming through managers rather than direct selection. The endowment views venture's 15–18 year fund structures as fundamentally misaligned with the compounding math required to fund university operations.