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

David Morehead is one of the most respected CIOs in the endowment fund world as Chief Investment Officer at Baylor University, overseeing its $2.6BN endowment. Before joining Baylor in 2011, he was a senior portfolio manager at several Chicago hedge funds, investing across corporate securities, distressed debt and public and private energy. AGENDA: 04:00 The Portfolio Construction of a $2.6 Billion University Endowment? 09:00 Why We Spend More Time on Porfolio Construction Than Manager Selection? 14:00 Should LPs Back VC's Biggest Names or Find the Next Breakout Manager? 21:00 How Baylor Made Millions in the SaaSpocalypse? 26:00 Are Public Markets a Casino or Are Private Valuations the Real Fiction? 34:00 How Do You Buy a Market Crash Without Catching a Falling Knife? 49:00 Would You Fire a Fund Manager Who's Making You Money? 57:00 Could the Backlash Against Data Centres Derail the AI Boom? 01:02:00 Which Asset Class Is Overhyped—and Where Is the Next Big Opportunity?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  The single reason that privates exist is to make money, period. End of story. I'm a little perplexed by the length of some of these funds. It's not clear to me that the GP incentives are aligned with the math that runs endowments. What we're really after is the velocity of capital, not just returns on capital. There's a rule in our office that you're not allowed to talk about returns without also talking about time. We happen to have about two and a half percent of the endowment in Anthropic. I never want to be all in. Things can always get worse. You are seeing the pushback on AI at the data center level.

• 0:44Harry Stebbings?

  This is 20 VC with me, Harry Stebbings. Now, I'm a venture investor for a living and something that's frustrated me for a long time is that we don't get to hear from the greatest CIOs, chief investment officers, who invest in the venture funds that we run. We don't know how they think, what they like to invest in, what worries them when they're invested in a manager and they see them doing, how they think about the market today and allocating to managers. Today, I sit down with one of the best in that business, David Morehead. He's the CIO of Baylor University Office of Investments, and he's one of the most respected CIOs in the business. Baylor's endowment is around $2.6 billion. David is quite outspoken, which makes this conversation one of the most refreshing,

• 1:26Harry Stebbings?

  but also articulated and clear for managers thinking about raising, looking to raise, and for managers now wondering how they should operate with their LP base. David was incredible, and I'm really proud of this show because it shines a light on a part of the industry that I feel needs a lot more transparency. But before we dive into the show today, founders face a different set of challenges at every stage of growth. For Sid Shait, co-founder and CEO of Dematrix, JP Morgan delivered the guidance and expertise to help navigate what came next. He credits JP Morgan's high-touch approach with supporting Dematrix as it grew and expanded internationally. Whether you're in the early days or expanding into new markets,

• 2:09Harry Stebbings?

  JP Morgan helps startups navigate complexity with real confidence, offering personalized guidance and deep sector expertise. Find out how JP Morgan helps founders at jpmorgan.com/growwithoutlimits. JP Morgan is the bank of the innovation economy. While JP Morgan supports growth, Corgi protects it. My word, what an arresting first line. Get your ass covered with Corgi Insurance, and I'll tell you why. If you're running a business right now, you already know this pain all too well. Getting insurance, it's really slow, it's confusing, and my word, it's full of paperwork. Well, that's exactly why Corgi is here to change the game. Corgi is the first and only insurance carrier designed specifically for tech companies,

• 2:54Harry Stebbings?

  allowing you to get covered in minutes instead of days. Corgi provides essential coverages for all growth stages, such as DNO, EDO liability, cyber, commercial, general liability, and more. Get your ass covered. I love the way we say ass with Corgi Insurance alongside thousands of other startups at corgi.com/20vc today. That's corgi.com/20vc. You won't regret it. While Corgi covers risk, Flex gives you room to move. Business owners run their whole financial life on Flex. One platform from business revenue to their personal spend. Float every purchase for 60 days.

• 3:34Harry Stebbings?

  Tap capital that grows with your revenue and pay vendors in 170 countries across 32 currencies. Plus, the whole back office, bills, expenses, accounting, all in one place. So you spend less time reconciling and more time growing. That's why thousands of owners use Flex, named one of Fast Company's most innovative companies of 2026. Visit flex.on, that's F-L-E-X dot O-N-E, and use the code 20VC. You have now arrived at your destination. David, I am so excited for this. I have done so much stalking over the last 24 hours, it's untrue. So thank you so much for joining me today. This will be a lot of fun.

• 4:19Speaker 00

  Sure, happy to be here.

• 4:20Harry Stebbings?

  Now, I would love to just start with a little bit of like an overview of Baylor and how you think about investing today from Baylor as an institution.

• 4:30Speaker 00

  Right, it's, it's a pretty important job, right? Particularly in the place that we are with higher ed. You know, we obviously have fewer high school students in the US coming out of the great financial crisis. And so as a number of high school students decline, that's obviously fewer tuition dollars. The other thing that we have going on, obviously, is that the last couple of years, it's been more difficult for international students to come over to the States. Appropriate visas, stay, et cetera, all of those things. Those are full-paid students, obviously. And so that kind of compresses higher ed, you know, financial books a different way. And so what that means is that collectively, there's a lot, a lot of competition for domestic students these days.

• 5:14Speaker 00

  And if you just look at the last, like this incoming class, I guess it would be the class of 2030, there are a lot of schools across the country that did not meet their targets for, you know, incoming student class. And what that means, of course, is that the revenue has to come from somewhere else. And so in this time and space, and I think realistically for the next 10 or 15 years, the distributions that are coming off of endowment funds are going to be increasingly important. And so we manage sort of like with that in mind. Now, we've always been good at the downside. Historically, our office, like first quarter of 2026,

• 5:59Speaker 00

  I think the S and P was down 4%, we were flat. If you go back over time and you look at the fourth quarter of 2018, the first quarter of 2016, 2012, if you look at a lot of these different times, our office in general tends to outperform to the downside. And what we've kind of gone back and looked at is how could we get better at the upside? We started this about five years ago, kind of knowing that this high school student issue was going to be a problem. And so we've reorganized things over the last five years to make sure that we're doing better to the, on the right side of the distribution.

• 6:36Harry Stebbings?

  Is it possible to do both?

• 6:38Speaker 00

  Well, I've had finance faculty actually laugh at me, right? So when I, when I say like what we're trying to do, and I'll let you be a little bit the judge of that. I mean, effectively, what we're doing is we run sort of like a value-centric, high-quality book, particularly on the equity side, because it's really, really hard to control sort of like the equity beta. So you could buy puts, that's kind of like a money-losing effort, like over long periods of time. And so we try to do it thematically through factor allocations. But that then means, of course, that to the upside, when you're in a momentum-driven market, a growth-led market, that you're going to trail. And so the issue is, you know, the market's up 70% of the time. If you're going to trail to the upside, that's going to be problematic.

• 7:23Speaker 00

  And what we've tried to do over the last really three to five years is we've tried to increasingly solve that with convexity. And we've tried to do that in a manner such that we're actually not paying a theta bill on sort of like a normalized basis.

• 7:41Harry Stebbings?

  I have to ask, increasingly solve that with convexity before we move to theta, what do you mean by that?

• 7:47Speaker 00

  Yeah, so basically what we've done is typically higher ed outsources the investment of the endowment to a whole set of different managers. And so by nature, we have a bunch of investments in a number of commingled funds. And commingled funds, by definition, means that there's one GP who's managing the money, and then there's like 100 or 1,000 LPs who are receiving the returns on that money. The issue with commingled funds is, of course, at any given point in time, you're receiving the average risk-return profile that that manager is providing in order to keep all of those LPs satisfied.

• 8:27Speaker 00

  And at any given point in time, Baylor's risk-return need might vary from what the average LP in that fund would desire. And so what we've tried to do is kind of go directly to the GP and say, hey, this commingled thing isn't like totally working for us. We need to like optimize our risk-return profile better. If we give you a bunch of money, would you, would you run the same strategy but do it just for us? And then we have a look or a call into what's going into the portfolio. So let me give an example. Say we have Nvidia in the portfolio, right? And then the next marginal manager wants to add Nvidia to his or her portfolio.

• 9:12Speaker 00

  But we can look at the portfolio, like the GP doesn't know that. We can look at our portfolio and be like, look, we've got plenty of Nvidia. We actually say, no, we don't need more Nvidia. Or conversely, let's say that we're value, high-quality, the next marginal manager wants to add Nvidia, and we're like, we actually don't have any of that. So we'd take the Nvidia that you're offering, but why don't you make it three times as big? Because that's what we need to like back into a more appropriate, more optimized risk-return profile for our portfolio. And it's actually worked like exceedingly well over the last two, three years.

• 9:50Harry Stebbings?

  Can I ask, just taking a step up, when you think about portfolio construction today, you have a blank canvas, how do you at Baylor think about portfolio construction today? What does that blend with, like, publics, privates, credit, debt, venture P?

• 10:03Speaker 00

  Right, it's interesting. We actually spend a lot of time talking about this. And in fact, I think we probably spend more time talking about this than we actually do manager selection, which is kind of unique in the space. Presently, we're around 45% private, 47% private, 53, 55% public. I think it's really important for, if you're starting with a blank sheet and you're going to do privates, you really need to nail down the private side first, right? Because the private side is going to suck your liquidity and sort of hogtie your ability to allocate between managers or between strategies.

• 10:42Speaker 00

  And so you really need to figure out what sort of liquidity environment can I live with on the private side? And sort of determine what that allocation is going to be. And then I think you just need to sort of like box it and set it aside and be like, this is what's going to be operating here. The reason you have to do that is because this can't change, right? I mean, you can do secondaries, you can tweak it at the margin, but it's really, really hard to move a private book around.

• 11:13Harry Stebbings?

  What would your answer be for what sort of liquidity profile you thought you needed when you were considering this?

• 11:18Speaker 00

  Right, so our allocation range around privates is 35 to 55, which means that we want 55 to be the case when we have a denominator issue, right? When equities have gone down and the public side is smaller than it usually is because of this particular difficulty in the market, that the private side isn't going to kick up so much that we're going to be forced into selling, right? Like, the number one thing to avoid is fraud, and the number two thing to avoid is forced selling. That's a disaster. And so we kind of target 45%. If publics race ahead, then it puts some downward pressure on that. And if we get into, you know, a financial crisis, something like that, it would put

• 12:03Speaker 00

  upward pressure on that. But for example, the last bit in 2022, when tech, you know, kind of slid a bunch, or you could go back a couple of years prior to the pandemic, I think that our private side got to like 51, 52, but it wasn't so much that it either constrained our ability to allocate, and it certainly wasn't enough that we got into a forced selling situation.

• 12:28Harry Stebbings?

  When you think about then the 45% say that we have as the ideal, drilling one layer blower, how do you think about how to split that up between venture, PE, and every other private that we can do?

• 12:40Speaker 00

  We've had a different perspective on this over the last five or six years that really came out of what I was talking about before, when we knew that the school was going to have issues as it related to enrollment, right? And it's not just a Baylor thing, but like every school. Demographics can kind of be a slow-moving train wreck, but the benefit of the slow movement is that we can sit back and look five years out and know what's going to happen. And so we started this five or six years ago, like shortly after the pandemic, and we basically said, the single reason that privates exist is to make money, period, end of story.

• 13:18Speaker 00

  And so anything in the private book that isn't going to lend itself to excess returns, again, we need to create money to create more distributions for the school that's going to have enrollment concerns. And so if you're not going to keep up with the highest returns that we can generate out of the private book, we've kind of moved on from that. And so a lot of the real asset stuff in our book is sort of like winding down, not being renewed. And so we're really focusing, to get back to your question, today, we're focusing on VC expansion, growth equity capital, and buyout. That's kind of it, right?

• 13:59Speaker 00

  So if we're going to lock up money, we want the highest returns.

• 14:04Harry Stebbings?

  How do you think about trying then, if you want VC, you want growth equity, how do you think about trying to get into the big names, the sequoias, the benchmarks, the founders' funds, the, you name those big brands, versus trying to find the young upstart, the little boutique provider that could do a 10x?

• 14:22Speaker 00

  I will say that, you know, we're coming along a little bit later to the party than some of the Ivy Leagues or Stanford or what have you, as it relates to the sort of like VC brand names that you're talking about. And so it hasn't been for lack of trying, it's just like when you knock on the door, they kind of like don't answer, right? So we've kind of had to go, we've kind of had to like try to figure that out differently. What I will say, though, is that the ladies in our office have had exceptional, absolutely exceptional returns out of like the expansion, growth, equity category. So we've actually had, you know, some questions of like, should we just allocate more dollars

• 15:04Speaker 00

  to that sector of the market at the margin we have? But I would say we still do VC, it's still in probably newer, upstarty names.

• 15:14Harry Stebbings?

  David, do you like VC?

• 15:16Speaker 00

  I do.

• 15:19Speaker 00

  I'm a little perplexed by the length of some of these funds. I've got to be honest, it's not clear to me that the GP incentives are aligned with the math that runs endowments.

• 15:34Harry Stebbings?

  What does that mean?

• 15:36Speaker 00

  Let's just do it for example, right? You know, historically, they were like 10, 12-year funds, now they're like 15, 18-year funds, right? So much to the chagrin of like all LPs. But the issue that you run into is that, okay, so you get your money back in 15 or 18 years, and let's just say it was like phenomenal experience and you're up like 15x, you're like, that's fantastic. But the issue is that it happened over 15 to 18 years. And what, you know, simple math would suggest is that like if you were in a like growth equity fund that was six years in weighted average life, and you were up 3x, and then you redeployed into another growth equity fund that was up 3x in six years, and then

• 16:18Speaker 00

  you did it again, that over the course of 18 years, you'd be up 27x, which is better than 15x by like a factor of two. So I understand why people want to hang on to their winners, but the compounding of capital, and I'm trying to create the largest pile of money for students, students can't pay their tuition with returns, they have to pay with dollars. So I'm expressly interested in creating the largest pile of money, and the largest pile of money is governed by like simple compounding math. And so what we're really after is the velocity of capital, not just returns on capital.

• 16:59Speaker 00

  Whenever the velocity of capital is going to start to asymptotically approach, like wherever it's going to be, then we want to be out and move on to the next thing. In other words, like, it's really, really hard to do like 3x in six years, right? It's easier, you have winners now, the company's going okay, it actually looks better on your marketing if you're up 6x instead of 3x. So like if people held on to it for another five years and got like a double, then they'd be up 6x instead of 3x, that suggests that the next fund will be raised, et cetera, et cetera. But I actually don't care about any of that. Like, that's a business decision, that's related to the business, and I'm not optimizing

• 17:41Speaker 00

  for the best business for the GP, I'm trying to optimize for the biggest pile of money for our students. And so I get that there's a little bit of a disconnect there, but the math issue does kind of drive me nuts.

• 17:53Harry Stebbings?

  Can I ask you a blunt question then? And I love this interview because it's completely not in my interest as a venture investor, and as someone who interviews venture investors. No, no, this is why I love it, I have the best job in the world. But given the requirements on velocity of cash and the value of compounding, which I very clearly see, do you not have a question internally of, well, why do VC at all? If we can do growth equity or mid-market and get the 3x in six years? I get you, David, I'm not doing that for you, and neither's the best firms.

• 18:24Speaker 00

  Yeah, and that is a question that gets batted around a lot in our office. And so, you know, there is something to be said about sort of laddering returns, right? So it's okay to go allocate money to some manager and say like, those returns are going to show up like six, seven, 10 years from now, these other returns are going to show up three to five years from now, and then like kind of on my side, those returns are going to show up one to three years from now. So we do think about it that way, but I would say that there's a rule in our office that you're not allowed to talk about returns without also talking about time, because it's very common on the private side to just say everything like, well, you're up 2x, 3x, 5x, whatever. But that tells you nothing. If you're up 5x over 30 years, that's horrible.

• 19:07Speaker 00

  And if you're up 5x in five months, that's amazing. I guess that's SpaceX.

• 19:11Harry Stebbings?

  Is venture then just a pure diversification play for you, which is like?

• 19:15Speaker 00

  It is for us, yeah, it is. It could be the case that somebody allocates to something that really takes off and goes quite well. Like, for example, we happen to have about 2.5% of the endowment in Anthropic. We have no exposure to SpaceX, we've had no exposure to OpenAI, but about 2.5% of the endowment is in Anthropic.

• 19:38Harry Stebbings?

  Well done.

• 19:39Speaker 00

  I mean, that's not us, right? Like, that's managers.

• 19:42Harry Stebbings?

  David, for goodness sake, will you please learn from your managers, okay? Lesson number one of venture capital, even if it was not you, you take credit and say thank you so much. I remember that one, yes.

• 19:54Speaker 00

  That's not really how we roll at Baylor, but understood.

• 19:57Harry Stebbings?

  Can I ask you, it's a really different, and I'm not saying with Anthropic here, but I'm saying with positions that go public, Anthropic obviously will be one, but with positions that go public in the past, how do you think about the, I'm going to actively manage it as now the holder, versus a common one that I hear, which is, that's not our job, we just liquidate the minute that we get it because we don't know about this asset? How do you think about it?

• 20:21Speaker 00

  It'll depend on what we think about the name, and it'll also depend about the size of the position once it is public. So we've sold, you know, shares before, we've also had shares before, we've also let shares run before. So it kind of depends to us what we're expecting, what the profile of the portfolio looks like, and the position and the risk associated with it.

• 20:47Harry Stebbings?

  I was talking to Sean before this show, who you mentioned we should chat to, who's brilliant, Sean Barrett, and he said that you think more like Charlie Munger than anyone he's ever met. Now, was that, like, had it written down?

• 20:58Speaker 00

  Only because we're in the middle of the country, I think.

• 21:02Harry Stebbings?

  And he said that when software was getting killed early in 2026, you went deep on the situation, wanted to understand every bit of research and then piled in. Can you talk to me about that, your process there, what you saw that others didn't and how you thought about that? I'm just fascinated, given that.

• 21:20Speaker 00

  I would say like, if we had an edge, I would say that we're pretty good on human behavior. And so a lot of these things, you know, I don't dispute at all. Like, I'm not an engineer. Much of the stuff that comes out of Silicon Valley is over my head. But I do know how people think and I do know how people make decisions. And so it was pretty easy in this case of, you know, like, software is dead. It's all going to zero. Somebody's going to vibe code this and whatever. And like, I have friends that run three, 500 person private family businesses. And I, it's easy enough to pick up the phone, call them and we're like, hey, say your son-in-law vibe code something and you're going to like, tear out your CRM. And they're like, not in a million years. It's not their job.

• 22:04Speaker 00

  Like, I have a good friend who runs like a vertically integrated like potpourri business. He knows everything that there is to know about that, but he is not going to tear out key important parts of what makes his business run behind the scenes on some unproven thing that I think it was the CEO of Salesforce, like, I don't know, six or eight months ago, said that like, the best that AI was going to be is like 93% right, which is like phenomenal. And that might be like better than like a lot of people. But the issue is software is 100% right. So if you need your books to like match up and whatever, like, yeah, that's not going to happen.

• 22:44Speaker 00

  So I actually think, as we've kind of like thought about it more, I actually think that in some of these vertical industries, that software is actually going to be the delivery mechanism for AI. That, in other words, for my friend who's in like a niche business, very, very good at what they do. I think, I think they're the only vertically integrated potpourri maker in the world. I think that what's going to happen is that the trust that's been built up with the software providers is going to translate into, hey, could you add AI bits for me on the back of this software? And of course, like, the SaaS companies aren't stupid. It's not like they're sitting there and like, hey, we're worth, you know, 20 or $50 billion. We should let this go to zero.

• 23:30Harry Stebbings?

  What's interesting for me is you analyze the situation and then you decide to act on it. Like, this is very rare for an institution to do.

• 23:39Speaker 00

  Sean and others have like told me that, but like that I don't actually understand, right? Because like, software at that point is like on sale to the tune of like 50, 60% from like October of 25. And if the thesis is software is going away, it's down 50, 60%, you call businesses and they say, that's not true. You're like, I'll own that.

• 24:00Harry Stebbings?

  I get you, but it's throwing the baby out with the bathwater. The trouble is, I'm not sure what's the baby and I'm not sure what's the bathwater. And with the greatest of respects, I live in technology.

• 24:11Speaker 00

  And that's why we have managers like Sean, right? So he's the expert. So I'm like, I'm going to give you more money, but I want you to go through your list with me and tell me all the things that are least likely to be interdicted by AI and then like own those. So I'm making a decision based on human behavior and what, how I know people make decisions, right? And I'm allocating based on that. But I'm relying on the manager to be expert in their individual field and give me the correct perspective and what's going on, on the ground.

• 24:43Harry Stebbings?

  But what's so interesting is most just delegate to managers and go, you're the experts. You delegate to them great. And then you go, I'm also going to operate where I have decisions myself and I'm going to interject in those markets. It's different.

• 24:57Speaker 00

  I kind of think that that's our job, right? I mean, like, my seat is like an allocator seat. My job is to allocate. To go back to the like, the Buffett or Charlie example, right? They also are allocators and they're deciding who gets the incremental dollars. Do they send it to Burlington Northern or do they send it to their energy company? And depending on what the outlook is, what the capex requirements are, et cetera. You know, they get budgets submitted to them and they may or may not allocate more of their cash pile to those companies.

• 25:29Harry Stebbings?

  Quite a lot of LPs that I speak to say, I get the liquidity challenge of venture and I get the time lags of venture being difficult, but I learn a lot from what happens in my venture portfolios in terms of AI penetration, new technologies, adoption cycles. Is your venture portfolio a learning academy for you or not?

• 25:50Speaker 00

  Not for me. I would say it goes the other way. I actually learn a lot from the public side managers. What I find is that there's a lot of this spun up like, oh my gosh, we're going to have autonomous cars in like three years, in 2016. Yeah, right. Like, all the regulatory stuff that you have to go through so that you don't kill somebody. Yeah, we're 10 years on and what do we have, like 5,000 cars on the road? Like, please. So like, I get sort of like the mental imagination that, you know, you can go like, we could put something on the moon and we could mine the moon and whatever. Yeah, okay, like get back to me in 30 years.

• 26:28Harry Stebbings?

  Okay, but are you not worried then about the casinoization of public markets?

• 26:32Speaker 00

  No, the public markets are the big leagues. There's millions of people making decisions on dollars every single day for every single company. You know how things get valued on the private side? Of course you do. Three people get in a room and say, hey, I think the value is X. And they're like, I'll fund it at that. Great. And that resets the whole price.

• 26:50Harry Stebbings?

  But I think public markets in many respects are as irrational as private markets are today. And you saw that, dude, you saw that, you saw that with the state.

• 26:59Speaker 00

  They can be irrational because they are governed by people. The difference is that there are tens of millions of people trading on that information. Whereas on the private side, there's like three.

• 27:12Harry Stebbings?

  And they decided, those tens of millions of people, that Elon Musk is a premium in himself, that SpaceX should be a $1.8 trillion business.

• 27:23Speaker 00

  Yeah, that doesn't mean that they're right. It just means that it incorporates all available information, which does not happen on the private side.

• 27:30Harry Stebbings?

  And so what you're saying is that the sheer scale of people voting in this buying decision means that it's a more legitimate price than private side, just so I understand.

• 27:39Speaker 00

  Correct. I don't think there's any question about that. I literally have been in these conversations, right? Where like three guys get together and are like, hey, I think it should be this. Like, on what, right? And they're like, oh, I'll give you $50 million at that price. Okay, fine.

• 27:55Harry Stebbings?

  On the fact that I tried the product and I liked it, David, why are you asking me such intellectual questions?

• 28:03Harry Stebbings?

  Do you trust, and I don't mean that badly, but like, do you trust the prices coming back from your managers? You know, we, we all have our books, our portfolios for people listening, and we mark them in different ways.

• 28:14Speaker 00

  We do. So that's one thing that the ladies have done extremely good job of recall, again, that I'm coming from the public side. So when you run trading books, everything has to be priced every day, right? So ostensibly it's so you make better decisions. Because if you have things mis-marked, then psychology works against you. Like, if you say that this is worth $30 million and it should be worth $10 million and somebody offers you 20, then because you would ostensibly take a loss from 30 to 20, you're liable not to hit that, even though it's a premium to the actual value. And so pricing is just a way to make sure that you are psychologically aligned to the reality of the market.

• 28:59Speaker 00

  And so one of the things that we really try to do is to make sure that our managers are not pushing valuations. We want valuations to be conservative rather than aggressive. And you can see that in sort of our return data and sort of like the six months, nine months prior to something being taken out. I think average gain on that is sort of like 60 to 90%. And I think from a market perspective, it's more like 30 to 50%, which would suggest that our marks, our managers' marks tend to be more conservative than others. So, you know, like, I kind of sit on top of this thing and I kind of have to vouch for the valuations that we have

• 29:42Speaker 00

  as it relates to talking to the regents or administration. And I feel pretty comfortable that on the private side, our marks are actually more sane than on average.

• 29:51Harry Stebbings?

  As venture eats more and more of the world with your OpenAI's, your Anthropics, your SpaceX, your biggest companies in the world all being venture-backed companies. Do you maybe feel that you need more in venture, more in tech? Does it change how you view the world? Does the mindset change?

• 30:07Speaker 00

  No, I feel pretty comfortable with where we stand. I think our biggest allocation is in growth equity on the private side. And we feel pretty comfortable with our capability and the manager set that we have there.

• 30:19Harry Stebbings?

  Why do you like growth equity? Because of the return to timeline profile?

• 30:23Speaker 00

  The return timeline, there's also fewer zeros. And so that kind of goes to the value bit. I mean, it's just simple math. If there are fewer zeros, then everything else doesn't have to cover for the things that don't work, which is what helps get you to like, I think that their book is like annualizing it like 30% on sort of like the growth equity side. So that obviously meets our eight, nine percent bogey. So I don't even actually know that I've ever had that question before.

• 30:51Harry Stebbings?

  How do you think about like Mulligan vintages across venture and PE? Mulligan being like not very good vintages. You know, a lot of people are talking about kind of 21, 22 for venture and PE being just like very bad vintages. We all, we all just kind of went crazy. It was COVID. Sorry, mea culpa. And you've got now Toma Bravo. Obviously you had Medallia, which is obviously quite a well-known return, the keys situation.

• 31:14Speaker 00

  I think that just kind of comes with the territory, right? I mean, like, basically, what we do is we say, this is the amount that's going to be in privates. And then we say, we're going to allocate to PE, expansion capital and VC, and we're going to do it in these sectors. And then I let the ladies have at it. And they come up with a portfolio and it had, the portfolio overall has sort of an expected return hurdle that they need to clear. If they're not clearing it, then that's a problem. If they are clearing it, then that works great.

• 31:44Harry Stebbings?

  What are the annual liquidity requirements that like, obviously as an endowment, you mentioned some of the paying for tuition, really important. What are the annual requirements in terms of liquidity for you?

• 31:54Speaker 00

  Well, it's on a couple fronts. Like, obviously, on the distribution side, that's something that we can't get around, right? And that's about 5% on an annual basis. And so that dollar amount that keeps going up, which we wanted to, right? Like, that is the thing that pays for scholarships and professorships, et cetera. On the sort of like subjective side, so let's call that like the objective side of the liquidity equation. On the subjective side of the liquidity equation is sort of like, what capital do you need to have around to allocate to the next thing that's going to go up 20, 30%? So we talked to our newer analysts about this and we, we say,

• 32:37Speaker 00

  like, what do you think the odds are that we find something to be up 20% sometime in the next four years? Like anything, anywhere. And they're like, wow, really high. And we're like, great. So then cash is worth 5% a year, apart from what you're going to earn on cash. So if cash is earning three and a half percent plus 5% sort of opportunity cost, you know, cash is worth eight and a half percent. So if we find things to do that are north of that, then we do them. And if there's a period in the market, sort of like 17, 18, 19, where we're not finding things to do in that ballpark, then we let cash get larger. So we kind of came into the pandemic with sort of 15,

• 33:17Speaker 00

  16% in cash, because we were looking around and we're like, I don't see something to do. And so our cash balance is sort of indicative of what we're seeing to do to make money.

• 33:29Harry Stebbings?

  Very difficult to keep your head of when everyone else is losing theirs. It's a brilliant Rudyard Kipling poem, but it's very difficult to do when momentum and excitement kicks in. Takes one discipline.

• 33:39Speaker 00

  Interestingly, in this period, this, so in the 17, 18, 19 kind of cycle, we weren't finding other things to do. This time, we actually are finding stuff to do. And so we've actually kept our cash balances pretty low because we keep finding, you know, 20, 30% annualized things to do. And so our cash balances just end up being a function of like, you know, what the environment is.

• 34:02Harry Stebbings?

  I think one learns a lot from their mistakes if you are reflective. When you look at allocation decisions, what's an allocation mistake that comes to mind first? And how do you reflect on it and learn from it?

• 34:14Speaker 00

  I can't come up with a specific example right off the top of my head, but I will say this, is that whenever you're trading, you for sure are going to lose money. And sometimes you're going to lose a lot of money. And sometimes you're going to lose a lot of money for a long period of time. And the takeaway from that, basically, everyone goes through it. Everyone, you know, walks into the seat and thinks like, that's not going to happen to me. This seems pretty easy. Sort of invariably, you get kicked in the shins and then hit over the head by a two by four. And the takeaway from that is, I never want to be all in. So things can always get worse. So when we're allocating to software in, you know, Feb, March of this year, we're not like drawing a line in the sand. We're like, every available dollar is going into software,

• 34:59Speaker 00

  right? It's down 50, 60%. Like, who's to say it's not going to be down 70, 80%? And so we set it up so that we're methodically and sort of mechanically allocating into difficult markets. And the reason we do that is to try to take the emotion, the psychology out of it.

• 35:18Harry Stebbings?

  How do you literally do that? Methodically allocate into market?

• 35:22Speaker 00

  Yeah. So I'll give you a perspective on the overall markets, right? So we basically say, if the market's down 0 to 10%, we don't care. We're an infinite live portfolio. 0 to 10% is like normal stuff. The way that I approach it with young analysts, I'm like, if something's on sale for 10%, do you rush out to the store to buy it? And they're like, well, not, no, not really. I'm like, what about 20%? And they're like, eh, I'd think about it. Maybe 30%? Yeah, probably. 40% for sure. And so we think about declines in the market in sort of 10% increments. And we have liquidity set up in such a way that we could allocate sort of like every 10 percentage points down. We don't really worry about 0 to 10%.

• 36:07Harry Stebbings?

  How do you think about catching a falling knife? Let's make this real. I've done that before. I've looked at your Wix or your monday.com, which were down impressively large amounts. I love the founders. And dude, I just determined that I couldn't determine baby from bathwater and did nothing. But dude, they had another 10, 20, 30% to drop.

• 36:25Speaker 00

  And that's why we do it methodically and mechanistically, because we're never like drawing a line in the sand and saying like, down 20? Oh, I'm all in. We're like, down 20, maybe I'm 20% in. Down 30, I'm another 20% in. Down 40, I'm another 20% in. So we're doing it in that way. And the reality is, is that we actually never get all the way invested before it rebounds. And so you could say that, you know, we leave money on the table. That's true. But the benefit is, is that we're never in the situation where we're like, oh my gosh, I love this so much and it's down and I just can't have any more of it. So that's the scenario that we're trying to avoid. And that just comes from like perspective, history and experience of, you know,

• 37:10Speaker 00

  having trading scars all over your body from, you thought that you were right. You thought that you knew where it was going to go. You put a whole bunch of money to work and then it went lower. It's a terrible place to be.

• 37:21Harry Stebbings?

  It is. When you're holding a stock and it's just down and you're not in a good place, how do you determine between the balance of it's going to come back and I was right and I'm going to stick to my beliefs versus fuck it, I just need to sell? Because the utility value of cash, again, even if it's a loss, it can be recycled again. How do you think about that?

• 37:44Speaker 00

  Yeah, a lot of that is in the hands of the managers, of course, right? Because we're not trading individual stocks. But what I do find is we spend a lot of time working with managers, sort of making sure that their psychology and their emotions are in the correct place. So for example, interacting with Sean, you brought it up, software space, you know, first part of this year, I was probably on the phone with Sean every day for four weeks. And we're talking through individual names. I'm relaying what I'm hearing in the market. He's relaying what he's hearing in the market. We were sending each other articles or quotes or,

• 38:25Speaker 00

  you know, news stories at all hours of the day, et cetera. And I constantly ask him, okay, you have this name, but if it goes down like another 20%, what are you going to do? Or you have this name and you have another name versus each other. Which one do you feel better about or has better risk adjusted opportunity set here? And then I'd push him to be more concentrated. And that's actually what the portfolio ends up doing. And I think kind of to your point, that's what ends up happening in most cases in sort of real life downdrafts is that portfolios end up getting more concentrated.

• 39:01Harry Stebbings?

  Does that make you nervous?

• 39:03Speaker 00

  No, we own everything under the sun. So does every ENF portfolio, right? So like, we own everything from like sunscreen to helium to like tech, like, I don't know what, right? Like, we own all sorts of consumer product goods that you would see in the mall. We own all sorts of business-to-business software or tech companies that I've never even heard of before, right? Like, we own real estate development project. We don't like own everything, right? So like, it's always funny to me when people like compare an endowment portfolio to the S and P 500 or something like that. You're like, we're infinitely more diverse than the S and P 500. It's not even close. So no, if we get a little bit more concentrated on at the margin, like that's, that doesn't remotely change anything for us.

• 39:48Harry Stebbings?

  What do you see your endowment CIO cohort do that you think is nuts or wild?

• 39:54Speaker 00

  There's something that we do that not a lot of schools at our size do. And that is, we almost hire exclusively from undergraduate ranks. Now, to be clear, the caveat there is schools or endowments our size. So we're about 2.7 billion. 14 months ago, we were 2.2 billion. Couple of years before that, we were 1.4, right? So in that sort of like one, three to three billion kind of range. And I, I've sort of figured out why a lot of people don't do it. So it was a little bit of something that I missed. But the bit is, is like, if you hire undergrads, and based on where we are, our office is located in Waco.

• 40:37Speaker 00

  We're about 100 miles from Dallas. We're 100 miles from Austin. We're right in the middle between the two. It's pretty difficult for us to hire a mid-career professional and get them to stay for a long period of time. It'd be really difficult to pull somebody from LA or New York to Waco and say, like, I need you to be here for 10 years. And so what we've done to try to solve that is hire from undergrad ranks. They clearly have chosen the school by definition. They've chosen the area, et cetera. They've been around. We actually screen pretty hard for that when we're hiring people. The issue is, is that when you do that for the next five or six years, you're spending a lot of time pouring into that person and helping them kind of like level up.

• 41:18Speaker 00

  And during that period of time, while they're leveling up, it's like all still on your shoulders. So I totally kind of like forgot that part. Like, I totally got the, you know, we'll have a stable investment team. And, you know, these people won't go anywhere or whatever, but I kind of forgot the bit of like, yeah, and for the next five or six years, you're going to be wearing like all sorts of hats during that time.

• 41:39Harry Stebbings?

  So do you think your colleagues are nuts then for not hiring internally?

• 41:43Speaker 00

  I think that nuts is not the word that I would use. I would say that they are accepting alternative risks. And so the alternative risks are, on the, the upside to me is that I have a stable team. So I have worked with Renee for almost 16 years. The next person that we hired, Jen, she's been here 11 years. And you can like, kind of go on down the line. That actually accrues is pretty evident across the industry. It's like longevity begets returns. So I'm benefited on the stability front. The negative for me is that the upfront bearing of all of that, you know, time, there's a period of time where I have to like carry the team.

• 42:26Speaker 00

  On the flip side, if you hire mid-career professionals, you don't have sort of like that upfront cost of like having to carry the team, right? Because they're more plug and play. But you sort of wear this risk of turnover and potentially or returns.

• 42:43Harry Stebbings?

  David, do you think the incentive structure for LPs is broken? And let's be specific on LPs or endowment fund investors. If you look at fund of funds, if I crush it for my fund of funds, they obviously have carry and they will do very well from that. With traditional endowment fund investing, if I do really well for you, it doesn't necessarily translate to a huge paycheck. Do we have a wrong incentive mechanism?

• 43:05Speaker 00

  I don't think it's a wrong incentive mechanism. I think that it requires people in the space to be very missional. So like, I wake up every morning motivated by sending some, you know, sophomore in high school to Baylor that hasn't even thought about college yet, or some like seventh or eighth grader who doesn't know if they're going to go to college and they're thinking about baseball scores from prior night, right? Like, me getting out of bed in the morning, going to work and wanting to crush it is entirely due to that. So everyone likes to be able to get their wife something nice or to redo the kitchen in their house or go on trips. But like, that is not the motivating factor for either myself or the people on my team.

• 43:48Harry Stebbings?

  Do you worry about the impact of AI on education?

• 43:51Speaker 00

  I worry about the impact of AI on human thinking. There are a number of studies out, I don't know about their veracity, but they're coming out of MIT and austere places like that. This suggests that students who are using AI for everything that they do actually show less brain function, right? And this isn't really a surprise. You see the same thing, like if you just sit in a chair all day, that your muscle atrophies. And so I do have concern about the effect of AI on actual human logic, thinking. That's sort of like an innately human trait. Animals don't think, humans think. But if you abdicate your responsibility for thinking, it's not clear that humans do that either.

• 44:34Speaker 00

  So I have concerns about that. I think education can figure it out and use it beneficially. I think it's more of a human discipline problem.

• 44:43Harry Stebbings?

  For a lot of my friends, CIOs of other endowments, sometimes larger, they've been hit with obviously the endowment fund tax, which is really hitting larger organizations. How do you think about that? How do you advise them?

• 44:55Speaker 00

  I would love to be in their position.

• 44:58Speaker 00

  We are not because our endowment per student is too small to be subject to that. But I promise you, if I went to the president of Baylor, I've actually had this conversation with Linda. If I go to Linda and say like, there's good news and there's bad news. The bad news is that we're going to have to pay an endowment tax. The good news is that our endowment is three times bigger than when I last talked to you. She'd be like, yeah, and? So I would love to have to pay the endowment tax because the endowment was bigger.

• 45:28Harry Stebbings?

  Do you play a game of comparison? What is it? Comparison is the thief of joy. And, you know, I think you said earlier, in down times, you obviously are brilliant. And in up times, more challenging. I think you play a defensive game. Full year 2025 Baylor return 9.4%, Dartmouth lowest 10.8. Do you do the comparative side by side or do you row your own race?

• 45:49Speaker 00

  We do both, which I think is the right way to do it. Every school has a different set of priorities, needs, et cetera. Baylor's is currently to get the endowment higher on a per student basis. And so, for example, what you're referring to in terms of last year, that was disappointing on sort of like a relative basis. But there were two bits that were going on. One was that we had increased the allocation to privates by, in sort of like annual commitment amount by about 60, 70% in 2020, 2021 and following. And so returns from the private side have been dealing with sort of like a second J curve, if you will.

• 46:34Speaker 00

  And then the funds of one, and then there's like another asset class that we'd allocated to. Those have been like flat and starting to inflect up. And so this fiscal year was the first year that we weren't dealing with the J curve impact on the private side. And the first year that we got returns from both, you know, the fund of one category and this other category. And so we feel very, very good about sort of like, you know, our newest analyst was like, so basically you guys tried to change the engine while the car was moving. And yeah, that's 100% what we were trying to do. We were trying to put a new, bigger engine in the car while it was still going down the highway.

• 47:17Speaker 00

  And we did it. We had like a little bit of a lag last year. I think we'll be 18 and a half, 19% this year without any SpaceX or Cerebras or anything like that. So structurally, I think the next couple of years look pretty good from sort of a tailwind perspective.

• 47:35Harry Stebbings?

  Can I ask you, we chatted before about a friend of mine who you're going to be working with. How do you think about position sizing in positions that you do decide to engage with?

• 47:46Speaker 00

  Yeah, so this is an interesting one and you're, you're talking specifically on the private side. So we, we've spent a lot of time on this, sort of because of what I had talked about earlier, that like, we own everything under the sun. And one of the things that we had figured out is that, yeah, you know, we have this relationship with GP and we have this, you know, they send us a little note, so and so company got sold. It was like a 7X return. And I'm like, okay, great. What does that mean to us? And they're like, well, we'll get back like $400,000. And I'm like, what? Who cares? Right? Like, it means nothing to the overall endowment. And so one of the things that we've changed in sort of sizing is we start with how much money do we want to have in each underlying company?

• 48:31Speaker 00

  So in other words, if the company is going to be up 5X, we want that 5X to matter to the overall fund. So basically what we're doing in sort of like expansion, buyout, venture is like a little bit of a different thing because it is a bigger company set. But basically what we're saying is we want $3 million to be in each underlying company. And so if they have 10 companies on their platform, that means we'll allocate $30 million.

• 48:57Harry Stebbings?

  I get you totally. Or another way that I think about it, and you can tell me if I'm wrong, which very possibly could be the case, I'm a low IQ individual after all. Is it's a $200 million fund and you commit $20 million to it with the theory that if they say we are 10% ownership in every company, great. If we're 10% of their fund, our exposure is 1% per company.

• 49:20Speaker 00

  Yeah, we think about it in terms of dollars. So we say, how many companies are you going to have? Eight, 10, 12? And then we want two and a half to three million dollars in each company. Obviously, it's up to the manager, you know, et cetera. We're not dictating that. But we're just doing the math from a dollars perspective. So if you have 10 companies, we want $3 million in each company. So if it was up 5X, we'd get $15 million back. That matters. That's enough to matter.

• 49:46Harry Stebbings?

  Do you want your managers to do what they said they'd do? Or to play the game on the field? Ventures change more in a year than I've seen in a decade. And actually, playing the game on the field, as Bill Gurley says, is the job of a venture investor. That may be different from what I said to you at I'll Do.

• 50:03Speaker 00

  We always want managers to do what they said that they were gonna do. So like, my example is always this. I sort of view my job as like the general manager on a baseball team. Right? So I'm gonna hire a third baseman, a shortstop, a second baseman, first baseman, et cetera. For various reasons, like depending on your fielding percentage, your batting average, et cetera. But if I walk out on the field and I have two people on second base, someone's getting fired. And it's probably the third baseman who's switched to playing second. Because like, I have people set up on the field to play particular roles for particular reasons. So like, if you're a third baseman, you think you can play second base better than my second baseman, then you should come talk to me. But if I ever walk out on the field and I have two second basemen

• 50:46Speaker 00

  and no third baseman, the third baseman's getting fired, like full stop, right? Like that, I don't like, I don't care what your returns are. So again, we started off by talking about this. We spend much more time on asset allocation and why things are where they are than we do on individual managers.

• 51:04Harry Stebbings?

  Okay, this is so interesting for me. So the markets have changed in the time that I've raised from you. I've moved with those markets and I've done that well, and I'm showing you great numbers. I'm making you money. But my position-

• 51:18Speaker 00

  If it doesn't fit what we're trying to accomplish, we won't re-up.

• 51:22Harry Stebbings?

  That's so interesting. So you would rather I stayed on second base, do worse financially, than move to third base where you've already got someone else?

• 51:30Speaker 00

  I would like you to have a conversation with me before you change your stripes.

• 51:35Harry Stebbings?

  What would you say in that conversation?

• 51:37Speaker 00

  I'd be like, why do you think that you should be able to do this when we have no data to suggest that you're good at this? Let's move out of VC. Let me do something on public equity that's easier. There are managers who are like, we don't know how to time allocations into and out of cash. We're just gonna be fully invested because we don't know, like, if the market's gonna go up, down, or sideways. Like, we're good at picking stocks. So we're gonna keep basically zero cash. That's what we do. And then there are other managers who are like, we actually use cash as an allocation methodology. And cash will be from 0 to 15%, depending on what we see to do, whatever. Both of those track records are subject to comparison to benchmarks.

• 52:21Speaker 00

  Like, we don't change the benchmark depending on, like, if somebody holds cash or doesn't. And so if somebody is like, we're fully invested all the time, and then I wake up some morning and they have 10% in cash, yeah, they're getting fired. Because like, I don't wanna be the guinea pig. Like, I don't wanna be the person that are like, hey, you have a new idea now, and now you're more of a global macro equity manager? And you think that you can time the markets when you have no prior experience or data to suggest that you can? Yeah, no, you're fired.

• 52:51Harry Stebbings?

  Kind of get that, given that example. I think venture's more nuanced. It's kind of closer.

• 52:55Speaker 00

  It always is, right? I'm not talking about like, lines in the sand around artificially generated category limitations, right? Like, that's just an artifact that people made up. I'm talking about like, hey, we're gonna invest with a manager who is investing in companies where product market fit has already been determined. And then that manager is like, yeah, that doesn't work anymore. We're just gonna like, invest in two guys in a garage, and we don't know if they'll come up with something or not. Right? Those are two very different approaches. So yeah, the switch between those, yeah, that's a no. If you wanna go from B to late A, like, who cares, right? That's the same thing.

• 53:33Harry Stebbings?

  So we're actually aligned completely, actually. It's interesting. I thought we were misaligned. I 100% agree. I think your example there, it's kind of like, I always say pre and post data, which is like, you either have nothing, and we're selling Walt Disney, tell me a story. Some people are great at that, and you should bet on them for being great at that.

• 53:51Speaker 00

  Right.

• 53:51Harry Stebbings?

  Or you're Jerry Maguire, show me the money, which is the post data. And some people are great at that. And so I totally get that, and I think you're absolutely aligned there. Can I ask you a tough one, which is in venture? It's kind of assumed, and it's the unwritten rule, that you commit for three funds. And you should do, because that's the duration required to determine quality in a manager. Do you think that's kind of bullshit, coming from a more macro perspective, where you see different asset classes?

• 54:16Speaker 00

  I don't know. I think we've kind of done that. The issue with one fund, even two funds, is like, you almost don't have enough data to make a decision, right?

• 54:24Harry Stebbings?

  You don't.

• 54:24Speaker 00

  And so, yeah, that kind of makes sense, because you don't have data to prove it otherwise. We tend to be very good when there is data to be analyzed. And we tend to be less good at, you guys have a vision, you got a dog, like, give us some money. Like, that's really hard for us. So, you know, people are good at different things.

• 54:44Harry Stebbings?

  If I would say you had unlimited money today, unlimited constraints, and you had the Harvard balance sheet, what would you do differently?

• 54:52Speaker 00

  I don't know that I would do anything differently. I think it gets a lot harder, for sure, at that size and scope. So, you know, hats off to Narv and like, what his team is trying to do. And that's like, really, really hard. And I've actually talked to other CIOs about this, because I wanna be prepared for like, down the road. At what point do you have to change how you invest? That's very top of mind for us, and that's something that a lot of allocators, you know, work on, think through, struggle with.

• 55:18Harry Stebbings?

  How do you want?

• 55:20Speaker 00

  Yeah, I mean, like, I've talked to the Notre Dame folks, and they're at 20 billion, and they're kind of like, we actually thought that we would run into this at 10 billion, at 15 billion. We actually haven't. I wonder if there's a place between where Notre Dame is at and where Harvard or UTIMCO is at, where you actually do have to change how you invest, or you can't invest in the same manner. Because at some point, and I think that some of the Ivy Leagues are running into this, it kind of doesn't matter how good benchmarks' returns are. When you have $40 billion or $60 billion, and you can allocate $20 million to a fund, even if you're up like, a real lot, doesn't move the needle as much as it used to.

• 56:04Harry Stebbings?

  I mean, when you put that into perspective, if you have a $20 million check in a fund, and I'm sure a benchmark, because we can use that with a multiple here, 20 million bucks, and you do a 50X, say it's another eBay fund, which would be amazing. I mean, Jesus, amazing, 50X a fund, that would return a billion dollars. And so to your point of like, materiality to a fund, yeah, if you're a 40, 50 billion dollar endowment.

• 56:26Speaker 00

  It's 2%.

• 56:27Harry Stebbings?

  Well, are you gonna send me a Christmas card thanking me? Like, come on, give me-

• 56:32Speaker 00

  I mean, like, a billion dollars is great, but like, you see the point. Yeah, I think, I think that that's a little bit of what like, the A16Z kind of thing is like tapping into, right?

• 56:43Harry Stebbings?

  Yeah, the platforms win. Like, just don't do those checks. Just give me 300 million bucks.

• 56:48Speaker 00

  Exactly. And so, that's what I mean, is like, at certain sizes, maybe you have to play the game a little bit differently.

• 56:54Harry Stebbings?

  Do you like the large venture platforms? Or are you like, nah, I don't like the post a billion dollar funds? We like small?

• 57:00Speaker 00

  I think it just gets harder. I think it gets harder to have a return figure over the requisite period of time that actually pays you for the risks that you're taking. I get how they do it. I get why they do it. But I think it is the law of large numbers, right? It's just harder.

• 57:17Harry Stebbings?

  I've loved this conversation. Very unusual.

• 57:22Speaker 00

  Maybe it's, maybe it's because we're in central Texas. I don't know.

• 57:25Harry Stebbings?

  No, like, normally, everyone in my, and this is like, just like, the most like, idealistic AI-pilled venture investor, who's just like, everything's just like, we're not gonna have jobs in a year.

• 57:35Speaker 00

  Yeah, that's clearly not true. I mean, like, you are seeing the pushback on AI at the data center level. Because where the data centers are being built is in my neck of the woods, not in Silicon Valley.

• 57:49Harry Stebbings?

  And you don't want it.

• 57:50Speaker 00

  I do because we're invested in it, right? But like you're seeing this sort of nationally, you're seeing it actually internationally is that the most valuable thing for a data center used to be power. If we go back like five, six years, it used to just be land. And then it was powered land. And now it's actually permitted powered land. And the reason is because people are like kind of fed up with it and it's just like not in my backyard. And so you are getting sort of this pushback on.

• 58:22Harry Stebbings?

  I'm sorry, I don't understand this. Like why, like they're utilizing land, they're bringing jobs, they're bringing construction.

• 58:29Speaker 00

  And power prices go up and water prices, particularly in arid regions like Texas or Arizona. That's a big issue. So yeah, if the hyperscalers solve the water thing, that would go a long way towards the average person being more accepting of it. But then the power thing still exists. And so we know that power dispatch is still supply constrained. And so people's power prices are going to go up until that gets solved over the next five, six, seven years.

• 58:59Harry Stebbings?

  David, what do you think happens here? As you said, you're an investor and it's a fascinating perspective you have. What happens here? I'm very naive.

• 59:05Speaker 00

  What happens with data centers?

• 59:07Harry Stebbings?

  Yeah, like, do we see a continued protestation, pushback from?

• 59:12Speaker 00

  Yeah, I think we do. I mean, we're seeing it in real time in our book. The data centers that have power and that have permits are becoming more valuable. So like literally, we have this situation in our book where our data center sites are up 50% from where they were like six months ago.

• 59:31Harry Stebbings?

  Can I ask, what percent of data centers do you think will fail to get up and running despite having been built? And this could be permitting, it could be power, it could be whatever.

• 59:41Speaker 00

  Yeah, I, I'm not an expert in this in terms of like total number that have power, total number that have permits, et cetera. So I'm not going to be able to give you an answer that is going to sort of satisfy the question. But I will say that enough are not happening, that the power companies are coming to those who do have permits and saying, we can get you power sooner than we thought. That's literally happening.

• 1:00:07Harry Stebbings?

  And just so I understand, the bottleneck on those that aren't is permitting? It pushed back from locals? What's the one thing?

• 1:00:15Speaker 00

  Yeah, it's permitting.

• 1:00:16Harry Stebbings?

  Permitting.

• 1:00:17Speaker 00

  Yeah, it is now. And that's something that didn't exist six months ago.

• 1:00:20Harry Stebbings?

  And just so I understand again, I'm dumb as rocks. Why is it so difficult to get permits for these?

• 1:00:25Speaker 00

  Because the permitting boards are governed by the citizenry. And the citizenry is putting signs up in everybody's front lawn and saying, we don't want this. Right? So if those people want to get reelected, then they've got to say no.

• 1:00:39Harry Stebbings?

  Do you not worry that this doesn't happen in China? It's just a free for all.

• 1:00:42Speaker 00

  Well, I don't think that it does happen in China because they don't particularly care. They just build it where they need it. But I mean, it's a bigger issue. Honestly, it's a huge, massive issue in the UK. It's like by far a much bigger issue in the UK than it is in the US on the permitting front.

• 1:01:01Harry Stebbings?

  What are you talking about? We're not allowed to go outside or move a bin, let alone build a data center.

• 1:01:06Speaker 00

  That's my point. That's my point. So we have a permitted data center site in the UK and it's worth a lot of money simply because we have a permit.

• 1:01:16Harry Stebbings?

  Are you bullish on Europe, given what you just said there?

• 1:01:19Speaker 00

  No.

• 1:01:20Harry Stebbings?

  Because of the permitting, because of?

• 1:01:22Speaker 00

  Yeah, because of all of it, because the defense structure of it, because of Russia, because of behind on AI, because, because, because, yeah.

• 1:01:32Harry Stebbings?

  Would that prevent you allocating towards European managers?

• 1:01:34Speaker 00

  No, we have allocated to long, short managers in Europe precisely because I think there are going to be some companies that win and some companies that lose. But I will also say that some of our bigger macro hedges are on European indices, so.

• 1:01:49Harry Stebbings?

  David, I could talk to you all day. I'd love to do a quick fire answer. I say a short statement, you give me your immediate thoughts.

• 1:01:55Speaker 00

  This could be like highly dangerous for me.

• 1:01:57Harry Stebbings?

  I don't why. We've got, we've gone to Chinese permits, so trust me, the quick fire will be like a piece of cake. What have you changed your mind on in the last 12 months?

• 1:02:06Speaker 00

  Software was one. So software, we kind of leaned into pretty hard. We also took energy off at around the same time, sort of with the advent of the US Iran war, the Strait Hormuz bit, when crude kind of went north of 100. We took a lot of our energy lengths off. We did add to private equity sponsors in sort of like March, Aprilish. So we don't really like private credit, but we do like the private equity sponsors. And so we've allocated more in that direction.

• 1:02:39Harry Stebbings?

  What asset class do you think is overhyped today?

• 1:02:42Speaker 00

  Private credit because it's easy.

• 1:02:45Harry Stebbings?

  Why do you not like private credit? I'm not in it. I don't understand.

• 1:02:48Speaker 00

  Yeah, I'm not in it and I don't understand either.

• 1:02:50Harry Stebbings?

  But is it just shit returns? I remember I had a girlfriend who did private credit and she told me it was like crap returns. And I listened and I was like, yeah, you're right, it is crap returns.

• 1:02:57Speaker 00

  Well, I think effectively what is happening is that you have credit exposure in companies that looks and acts a lot like equity to the downside, but you don't have upside equity returns. And so I think the risk reward profile is kind of off, right? So we prefer equity to that.

• 1:03:16Harry Stebbings?

  What other endowment fund do you most respect and admire because of that build out? And why them?

• 1:03:23Speaker 00

  Brown, without question. I just have like a ton of respect for Jane and the team that they have built there. I mean, it's also the case that their returns are better than ours, at least over, you know, the last 10 years. I think our returns might be better than theirs over the last five years, but we've got a lot of wood to chop to, you know, kind of catch up to where they're at. They are what I would describe as real investors. They'll do things that take a lot of courage. I'm not saying that they're riskier, but they're thinking through the risk return profile of things and like placing, but they've just done an extraordinary, extraordinary job. And not like, I know Jane, we talk and chat and whatever. I just utmost respect for that team.

• 1:04:04Harry Stebbings?

  Which fund are you not in that you would most like to be in? We mentioned some of the big names.

• 1:04:08Speaker 00

  Probably Benchmark.

• 1:04:10Harry Stebbings?

  Be the same for me.

• 1:04:12Harry Stebbings?

  Yeah.

• 1:04:13Speaker 00

  Ton of respect there.

• 1:04:14Harry Stebbings?

  Final one for you. What are you most excited for in the next few years?

• 1:04:18Speaker 00

  I do think that biotech is going to be even more impactful over the next 10 years than it has been over the last 10 or 20 years. So we're spending more time on that. In fact, later this week, I'm headed to a biotech conference and then again in October. So biotech is something that we're actually spending a lot of time on. We certainly have like a lot of biotech exposure, but we're wondering if we should have more even. It seemingly is less correlated with, certainly the science is less correlated with markets. But what scientists are doing these days and actually like solving diseases as opposed to simply treating symptoms is extraordinary. So biotech certainly is something that's like kind of high on the list

• 1:05:03Speaker 00

  and that we're spending a bunch of time on. Aside from that, like from a personal perspective, I'm really excited to see, you know, our team, our office build out over the next three years. As I've done this, I think that there is really a major inflection point that happens when you're $1 billion going to $5 billion. And we're kind of like right in the middle of that. And so we're dealing with all of the issues around, you know, how do you grow a team? What systems do you set up so that when you're at $5 or $10 billion, like you can actually keep track of everything? How do you systematize things so that this is a self perpetuating office, et cetera?

• 1:05:46Speaker 00

  But retain the creativity to continue to do the new things that you've done in the past to get here. But there's a lot of decision making that has to go on between $1 and $5 billion. And I didn't really appreciate that until kind of being in the middle of it over these last couple of years. We're sort of like halfway through it, but I kind of think in the next two to three years, we'll kind of get out to the other side and then be like off and running. So that at a personal level, that'd be tops for me.

• 1:06:14Harry Stebbings?

  David, I've so enjoyed this. I'm very grateful to you for putting up with my varying questions, naivety in certain cases, but I've loved it. And so thank you so much for joining me.

• 1:06:24Speaker 00

  Yeah, no worries. We're down here in central Texas trying to do a good job. So thanks for having us.