How LPs Allocate to Venture in 2026: What They Want, What They Don’t | Baylor University CIO

The single reason that privates exist is to make money, period. 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. 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 who invest in the venture funds that we run. Today, I sit down with one of the best in that business, David Moorhead. He's the CIO of Baylor University, and he's one of the most respected CIOs in the business.

Baylor's endowment is around $2.6 billion, 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. 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 2.5% of the endowment in Anthropic. I never want to be all in. Things can always get worse. Ready to go? 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. Sure. Happy to be here. Now, I would love to just start with a little bit of an overview of Baylor and how you think about investing today from Baylor as an institution. Right. It's a pretty important job, particularly in the place that we are with higher ed. 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 is that the last couple of years has been more difficult for international students to come over to the states, get appropriate visas, stay, et cetera. All of those things. Those are full pay students. And so that compresses higher ed financial books a different way. And so what that means is that collectively there's a lot of competition for domestic students these days. And if you look at the last incoming class, the class of 2030, there are a lot of schools across the country that did not meet their targets for 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, distributions coming off of endowment funds are going to be increasingly important. And so we manage with that in mind. Now, we've always been good at the downside. So historically, our office, first quarter of 2026, I think the S&P was down 4%. We were flat. If you go back over time and 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 gone back and looked at is how could we get better at the upside?

We started this about five years ago, 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 on the right side of the distribution. Is it possible to do both? Well, I've had finance faculty actually laugh at me right. So when I say what we're trying to do and I'll let you be the judge of that, effectively what we're doing is we run a value centric high quality book, particularly on the equity side, because it's really hard to control the equity beta. So you could buy puts. That's a money losing effort over long periods of time.

And so we try to do it thematically through factor allocations. But that then means that to the upside, when you're in a momentum driven market, a growth led market, you're going to trail. And so the issue is the market's up 70 percent of the time. If you're going to trail to the upside, that's going to be problematic. And what we've tried to do over the last 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 a normalized basis. I have to ask, increasingly solve that with convexity before we move to theta. What do you mean by that?

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 we, by nature, have 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 100 or 1,000 LPs who are receiving the returns on that money. The issue with commingled funds is that 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.

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 go directly to the GP and say, hey, this commingled thing isn't totally working for us. We need to optimize our risk return profile better. If we give you a bunch of money, 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. And then the next marginal manager wants to add NVIDIA to his or her portfolio. But we can look at the portfolio and be like, look, we've got plenty of NVIDIA.

We actually say, no, we don't need more NVIDIA. Or conversely, 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 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 back into a more appropriate, more optimized risk return profile for our portfolio. And it's actually worked exceedingly well over the last two, three years. 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 look like?

Public, privates, credit, debt, venture? 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 pretty unique in the space. Presently, we're around 47% private, 53% public. And I think it's really important that 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. Because the private side is going to suck your liquidity and sort of hogtie your ability to allocate between managers or between strategies.

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

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. When equities have gone down and the public side is smaller than it usually is because of this particular difficulty in the market, the private side isn't going to kick up so much that we're going to be forced into selling. 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 target 45%. If public races ahead, then it puts some downward pressure on that. And if we get into a financial crisis, something like that, it would put upward pressure.

to move a private book around. What would your answer be for what sort of liquidity profile you thought you needed when you were considering this?

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? The number one thing to avoid is fraud. And the number two thing to avoid is forced selling, right? That's a disaster. And so we target 45%. If public race ahead, then it puts some downward pressure on that. And if we get into a financial crisis, something like that, it would put upward pressure on that. But for example, the last bit in 2022 when tech slid a bunch, or you could go back a couple of years prior to the pandemic, I think that our private side got to 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.

Totally get that. That's super helpful. Can I ask, when you think about the 45%, say that we have as the ideal, how do you think about how to split that up between venture, PE, and every other private that we can do?

Right. 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 every school. Demographics can be a slow-moving train wreck, right? 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, shortly after the pandemic. And we basically said the single reason that privates exist is to make money, period. End of story. And so anything in the private book that isn't going to lend itself to excess returns, 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 moved on from that. And so a lot of the real asset stuff in our book is 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 it, right? So if we're going to lock up money, we want the highest returns.

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 big brands versus trying to find the young upstart, the little boutique provider that could do a 10X?

I will say that 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 VC brand names that you're talking about. And so it hasn't been for lack of trying. It's just when you knock on the door, they don't answer, right? So we've had 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 the expansion growth equity category. So we've actually had some questions about whether we should just allocate more dollars to that sector at the margin we have. But I would say we still do VC. It's still in probably newer upstarting names.

David, do you like VC? I do. I'm a little perplexed by the length of some of these funds. And I've got to be honest, I'm not sure. It's not clear to me that the GP incentives are aligned with the math that runs endowments. And so what does that mean?

Let's do it for example, right? You know, historically they were 10, 12 year funds. Now they're 15, 18 year funds, right? So much to the chagrin of all LPs, right? But the issue that you run into is that you get your money back in 15 or 18 years. And let's say it was phenomenal experience and you're up 15X. You're thinking that's fantastic. But the issue is that it happened over 15 to 18 years. And what simple math would suggest is that if you were in a growth equity fund that was six years 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 you did it again, that over the course of 18 years, you'd be up 27X, which is better than 15X by a factor of two. So I understand why people want to hang on to their winners, but the compounding of capital—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 simple compounding math. And so what we're really after is the velocity of capital, not just returns on capital. Whenever the velocity of capital is going to start to asymptotically approach wherever it's going to be, then we want to be out and move on to the next thing. In other words, it's really, really hard to do 3X in six years, right?

Optimizing for the best business for the GP, I'm trying to optimize for the biggest pile of money for our students. I get that there's a little bit of a disconnect there, but the math issue does drive me nuts. Can I ask you a blunt question then? I love this interview because it's completely not in my interest as a venture investor and as someone who interviews venture investors. 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 are the best firms. Yeah, I will. And that is a question that gets batted around a lot in our office. And so there is something to be said about laddering returns, right? So it's okay to allocate money to some manager and say, those returns are going to show up 6, 7, 10 years from now. These other returns are going to show up 3 to 5 years from now. And then on my side, those returns are going to show up 1 to 3 years from now. So we do think about it that way. But I would say 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, right? If you're up 5X over 30 years, that's horrible, right? And if you're up 5X in five months, that's amazing, right? I guess that's SpaceX.

Is venture then just a pure diversification play for you, which is what 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 percent of the endowment in Anthropic. We have no exposure to SpaceX. We've had no exposure to OpenAI, but about 2.5 percent of the endowment is in

very common on the private side to just say everything like, well, you're up two x, three x, five x, whatever. But that tells you nothing, right? If you're up five x over 30 years, that's horrible, right? And if you're up five x in five months, that's amazing, right? I guess that's SpaceX. Is venture then just a pure diversification play for you, which is like, it is for us. Yeah, it is. It's a state, you know, 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 two and a half percent of the endowment in Anthropic. We have no exposure to SpaceX. We've had no exposure to OpenAI, but about two and a half percent of the endowment is in Anthropic. Well done. I mean, that's not us, right? Like that's managers. David, for goodness sake, will you please learn from your managers? Okay. Lesson number one of venture capital. Okay. Even if it was not you, you take credit and say, thank you so much. I remember that one. Yes. That's not really how we roll at Baylor, but. Well, you know, you could learn. 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. 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. Right? So we've sold shares before. We've also held shares before. We've also let shares run before. So it depends to us what we're expecting, what the profile of the portfolio looks like and the position and the risk associated with it. I was talking to Sean before this show, who you mentioned we should chat to. He's brilliant, Sean Barris. And he said that you think more like Charlie Munger than anyone he's ever met. That was that I had it written down. Because we're in the middle of the country, I think. 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 sure. I would say that we're pretty good on human behavior. And so a lot of these things, 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's pretty easy in this case of, you know, software is dead. It's all going to zero. Somebody is going to vibe code this and whatever. And I have friends that run, you know, three, five hundred person, you know, private family businesses. And I can see it's easy enough to pick up the phone and call them. We're like, hey, say your son in law vibe code something and you're going to tear out your CRM. And they're like not in a million years, right. It's not their job, right. I have a good friend who runs a vertically integrated potpourri business, right. 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 the CEO of Salesforce, I don't know, six or eight months ago said that the best that AI was going to be is 93 percent, right. Which is phenomenal. And that might be better than a lot of people. But the issue is software is 100 percent, right. So if you need your books to match up and whatever, that's not going to happen. So I actually think. As we've thought about it more, I actually think that in some of these vertical industries, software is actually going to be the delivery mechanism for AI that, in other words, for my friend who's in a niche business, very good at what they do, 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 a bits, you know, for me on the back of this software? And of course, the SaaS companies aren't stupid. It's not like they're sitting there and, hey, we're worth, you know, 20 or 50 billion dollars. We should let this go to zero. What's interesting for me is you analyze this situation and then you decide to act on it. Like this is very rare for an institution to do. Like Sean and others have told me that, but I don't actually understand, right. Because if it's on sale, right. Software at that point is on sale to the tune of 50, 60 percent from October of 2025. And if the thesis is going away, software is going away, it's down 50, 60 percent. You call businesses and they say that's not true. You're like, I'll own that. 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 respect, I live in technology. And that's why we have managers like Sean, right. So he's the expert. So 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 own those. So I'm making a decision based on human behavior and 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 on what's going on on the ground. 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. I think that's our job, right. I mean, we are in an allocator seat. My job is to allocate to go back to the Buffett or Charlie example, right. Like they also are allocators, right. 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, right. And depending on what the outlook is, what the CapEx requirements are, they get budgets submitted to them and they may or may not allocate more of their cash pile to those companies. 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? Not for me. I would say it goes the other way. I actually learn a lot from the public side managers, right. And what I find is that there's a lot of this spun up, oh, we're going to have autonomous cars in three years, in 2016, right. Right. Like all the regulatory stuff that you have to go through so that you don't kill somebody. We're ten years on. And what do we have, 5000 cars on the road? Right. So I get the mental imagination that you can go, oh, we could put something on the moon and we could mine the moon and whatever. Yeah. Okay. So you know, you can go to the moon and say, hey, I think the value is X.

I actually learn a lot from the public side managers. Right. And 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, like in 2016. Right. Yeah. Right. 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 5000 cars on the road? Like, please. Right. Right. So I get the mental imagination that you can go like, oh yeah, we could put something on the moon and we could mine the moon and whatever. Yeah. Okay. So you can go to the moon and say, hey, I think the value is X.

People voting in this buying decision means that it's a more legitimate price than private side. Correct. I don't think there's any question about that. I literally have been in these conversations where three guys get together and are like, hey, I think it should be this. On what? They're like, well, I'll give you $50 million at that price. Okay, fine. On the fact that I tried the product and I liked it, David, why are you asking me such intellectual questions? Do you trust the prices coming back from your managers? We all have our books, our portfolios for people listening, and we mark them in different ways.

We do. That's one thing that the ladies have done an extremely good job of. Recall, again, that I'm coming from the public side. When you run trading books, everything has to be priced every day. Ostensibly, it's so you make better decisions. Because if you have things mismarked, then psychology works against you. 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. And so one of the things that we really try to do is to make sure that our managers are not pushing valuations, right? We want valuations to be conservative rather than aggressive. And you can see that in our return data and the six months, nine months prior to something being taken out. Our 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 I feel I sit on top of this thing and I have to vouch for the valuations that we have 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.

As venture eats more and more of the world with your open AIs, 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? No, I feel pretty comfortable with where we stand. I would say, 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. Why do you like growth equity? Because the returns timeline profile? The return timeline, there's also fewer zeros, right? And so that goes to the value bit.

Of course, if there, 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. Right, which is what helps get you to like, I think their book is annualizing like 30%, right on 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. How do you think about 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 very bad vintages. We all just went crazy. It was COVID. Sorry, mea culpa. And you've got now Toma Bravo. Obviously you had Medallia, which is quite a well-known return, the key situation.

I think that just comes with the territory, right? I mean, if what you're doing—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 in 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 has the portfolio overall has 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.

Can I ask you, what are the annual liquidity requirements? So 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? It's on a couple fronts. So 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, on a dollar amount that keeps going up, which we want it to, right? That is the thing that pays for scholarships and professorships, et cetera. On the subjective side. So let's call that the objective side of the liquidity equation. On the subjective side of the liquidity equation, it's 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 say, what do you think the odds are that we find something to be up 20% sometime in the next four years, 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% opportunity cost, 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, 17, 18, 19, where we're not finding things to do in that ballpark, then we let cash get larger. So we came into the pandemic with 15, 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 indicative of what we're seeing to do to make money. Very difficult to keep your head when everyone else is losing. That is a brilliant Rudyard Kipling poem.

But it's very difficult to do when momentum and excitement kicks in. Mm-hmm. It takes one disciplined mind. Now, interestingly, in this period, so in the 17, 18, 19 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 20, 30% annualized things to do.

with 15, 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 indicative of what we're seeing to do to make money. Very difficult to keep your head when everyone else is losing. That is a brilliant Rudyard Kipling poem. But it's very difficult to do when momentum and excitement kicks in. Mm-hmm. It takes one disciplined mind.

Now, interestingly, in this period, in the 17, 18, 19 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 20, 30% annualized things to do. So it's just our cash balances end up being a function of what the environment is. 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?

Well, I can't come up with a specific example right off the top of my head, but I will say this: 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 is everyone goes through it. Everyone walks into the seat and thinks like, that's not going to happen to me. This seems pretty easy. 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. Things can always get worse. Right? So when we're allocating to software in Feb, March of this year, we're not drawing a line in the sand. We're like every available dollar is going into software, right? It's down 50, 60%. Like who's to say it's not going to be down 70, 80%. Right? And so we've set it up so that we're methodically and mechanically allocating into difficult markets. And the reason we do that is to try to take the emotion, the psychology out of it. Can I ask, how do you literally do that methodically allocated into market?

Yeah. So I'll give you a perspective on the overall markets, right? So we basically say if the market's down zero to 10%, we don't care. Right. We're an infinite life portfolio, zero to 10% is 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, 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. Right. And so we think about declines in the market in 10% increments, and we have a liquidity set up in such a way that we could allocate every 10 percentage points down. We don't really worry about zero to 10%. That's normal. 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.

And that's why we do it methodically and mechanistically, because we were never drawing a line in the sand and saying like down 20, oh, I'm all in. Right. We're like, down 20, maybe I'm 20% in. Down 30, I'm another 20% in. Down 40, I'm another 20% in. Right. So we're doing it in that way. And the reality is, we actually never get all the way invested before it rebounds. And so you could say that we leave money on the table. That's true. But the benefit is 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. Right. So that's the scenario that we're trying to avoid. And that just comes from perspective, history and experience of 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. Right. It's a terrible place to be. It is when you're holding a stock and it's 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 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?

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, 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, first part of this year, I was probably on the phone with Sean every day for four weeks. Right. 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 news stories at all hours of the day, et cetera. And I constantly ask him, OK, you have this name, but if it goes down another 20%, what are you going to do? Right. Or you have this name and you have another name and 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 to your point, that's what ends up happening in most cases in real life downrafts is that portfolios end up getting more concentrated.

Does that make you nervous?

No, we own everything under the sun. So does every endowment portfolio. Right. So we own everything from sunscreen to helium to tech to, I don't know what, right? 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. We own real estate development projects. We don't own everything. Right. So when people compare an endowment portfolio to the S&P 500 or something like that, you're like, we're infinitely more diverse than the S&P 500. It's not even close. If we get a little bit more concentrated at the margin, that doesn't remotely change anything for us.

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

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. Right. So we're about 2.7 billion. Fourteen months ago, we were 2.2 billion. A couple of years before that we were 1.4. Right. So in that one to three to 3 billion range. And I've sort of figured out why a lot of people don't do it. So it was something that I missed, but the bit is, if you hire undergrads and based on where we are, our office is located in Waco. We're about a hundred miles from Dallas or a hundred 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

one, three to three billion range. And I've figured out why a lot of people don't do it. So it was something that I missed, but the bit is, if you hire undergrads and based on where we are, our office is located in Waco. We're about a hundred miles from Dallas or a hundred 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, I need you to be here for ten 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 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 level up. And during that period of time, while they're leveling up, it's all still on your shoulders. So I now totally forgot that part. Like I totally got the, we'll have a stable investment team and these people won't go anywhere, but I forgot the bit of, yeah, and for the next five or six years, you're going to be wearing all sorts of hats during that time.

Do you think your colleagues are nuts then for not hiring internally? And do you think the musical jazz? I think nuts is not the word that I would use. I would say that they are accepting alternative risks, right? And so the alternative risks are on the upside to me is that I have a stable team, right? So I have worked with Renee for almost sixteen years. The next person that we hired, Jen, she's been here eleven years, right? And you can go 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 time I have to carry the team. On the flip side, if you hire mid-career professionals, you don't have that upfront cost of having to carry the team, right? Because they're more plug and play. But you wear this risk of turnover and potentially lower returns. 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 founder funds, if I crush it for my founder 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. Are we actually accepting a wrong incentive mechanism?

I don't think it's a wrong incentive mechanism. I think that it requires people in the space to be very missional, right? So I wake up every morning motivated by sending some sophomore in high school to Baylor that hasn't even thought about college yet. Right. Or some seventh or eighth grader who doesn't know if they're going to go to college and they're thinking about baseball scores from the prior night, right? Me getting out of bed in the morning, going to work and wanting to crush it is entirely due to that. Right. 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 that is not the motivating factor for either myself or the people on my team. Do you worry about the impact of AI on education?

I worry about the impact of AI on human thinking. So 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 if you just sit in a chair all day, right? Your muscle atrophies. And so I do have concern about the effect of AI on actual human logic thinking. That's 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. 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. For a lot of my friends, CIOs of other endowments, sometimes larger, they've been hit with the endowment fund tax, which is really hitting larger organizations. How do you think about that? How do you advise them? I would love to be in their position. 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, 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.

Do you play a game of comparison? What is it? Comparison is the thief of joy. And you said earlier that in down times you're obviously 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?

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 a relative basis, but there were two bits that were going on. One was that we had increased the allocation to privates by in annual commitment amount by about sixty, seventy percent in 2020, 2021 and following. And so returns from the private side have been dealing with a second J curve, if you will. And then the fund of one and then there's another asset class that we had allocated to those have been 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 the fund of one category and this other category. And so we feel very, very good about our newest analyst was like, so basically you guys tried to change the engine while the car was moving. And yeah, that's exactly 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 and we did it. We had a lag last year. I think we'll be eighteen and a half, nineteen percent this year, without any SpaceX or Cerebras or anything like that. So structurally I think the next couple of years look pretty good from a tailwind perspective. 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 the positions that you do decide to engage with?

Yeah. So this is an interesting one and you're talking specifically on the private side. So we spent a lot of time on this and because of what I had talked about earlier that we own everything under the sun. And one of the things that we had figured out is that, 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 a tailwind perspective. 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 the positions that you do decide to engage with?

Yeah. So this is an interesting one and you're talking specifically on the private side. So we spent a lot of time on this because of what I had talked about earlier that we own everything under the sun. And one of the things that we had figured out is that we have this relationship with GP and they send us a note. So and so company got sold. It was like a seven X 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? It means nothing to the overall endowment. And so one of the things that we've changed in sizing is we start with how much money do we want to have in each underlying company, right? So in other words, if the company is going to be up five X, we want that five X to matter to the overall fund. So what we're doing in expansion, buyout, ventures is a little bit of a different thing because it's 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.

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, is it's a $200 million fund and you commit $20 million to it with the theory that if they say we are 10%, 10% ownership in every company. Great. If we're 10% of their fund, our exposure is 1% per company.

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

Do you want your manager 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 our do.

We always want managers to do what they said they were going to do. So my example is always this. I view my job as the general manager on a baseball team, right? So I'm going to hire a third baseman, a shortstop, a second baseman, first baseman, et cetera, for various reasons, 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, right? And it's probably the third baseman who switched to playing second. Because I have people set up on the field to play particular roles for particular reasons. So if you think you're a third baseman and 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 and no third baseman, the third baseman is getting fired. 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 more than we do on individual managers.

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- If it doesn't fit what we're trying to accomplish, we won't re-up. Fascinating. So you would rather I stayed on second base, do worse financially than move to third base where you've already got someone else? I would like you to have a conversation with me before you change your stripes. Yes. What would you say in that conversation? Genuinely, it's really interesting for me.

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? The early stage. Let's move out of VC and let's do something on public equity that's easier. Sure.

There are managers who are like, we don't know how to time allocations into and out of cash. We're just going to be fully invested because we don't know if the market's going to go up, down or sideways. We're good at picking stocks. So we're going to 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 zero to 15 percent depending on what we see. Both of those track records are subject to comparison to benchmarks, right.

Like we don't change the benchmark depending on if somebody holds cash or doesn't, right. And so if somebody is like, we're fully invested all the time and then I wake up some morning and they have 10 percent in cash. Yeah, they're getting fired because I don't want to be the guinea pig. I don't want to be the person that, 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. You kind of get that. Given that example, I think venture is more nuanced. It's close.

It always is, right. I'm not talking about lines in the sand around artificially generated category limitations. I'm talking about we're going to do this and we're going to invest in managers who are investing in companies where product market fit has already been determined, right. And then that manager is like, yeah, that doesn't work anymore. We're just going to invest in, you know, two guys in the garage and we don't know if they'll come up with something or not, right. Those are two very different approaches, right. Yeah, that's a no, right. If you want to go from B to late A, who cares? That's the same thing. So we're actually aligned completely, actually.

It's interesting. I thought we were misaligned. I 100 percent agree. I think your example there is 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, right. And you should bet on them for being great at that, right. Or you're Jerry Maguire. Show me the money, which is the post data. And some people are great at that. 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 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 bullshit coming from a more macro perspective where you see different asset classes? I don't know. I think we've kind of done that, you know. The issue with one fund, even two funds is like you almost don't have enough data to make a decision, right. So yeah, that kind of makes sense because you don't have data. # TRANSCRIPT

At that. Right. 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 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 bullshit coming from a more macro perspective where you see different asset classes? I don't know. I think we've done that. The issue with one fund, even two funds is you almost don't have enough data to make a decision. Right. And so that 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 when you guys have a vision. I got a dog. Give us some money. That's really hard for us. So people are good at different things. If I would say you had unlimited money today, unlimited constraints and you had the Harvard balance sheet, what would you do differently? 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 I have hats off to Narv and what his team is trying to do. That's really hard. And I've actually talked to other CIOs about this, right? Because I want to be prepared for 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 work on, think through, struggle with. How do you answer that?

Yeah. I've talked to the Notre Dame folks and they're at 20 billion and they're kind of like, we've never thought that we would run into this at 10 billion and 15 billion. We actually haven't. But I wonder if there's a place between where Notre Dame is at and where Harvard or UTEMCO is at, where you actually do have to change how you invest or you can't invest in the same manner, right? Because at some point, at some point, and I think that some of the Ivy leagues are running into this, at some point, it 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 a real lot, it doesn't move the needle as much as it used to.

Right. 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 and you do a 50X, say it's another eBay fund, which would be amazing. That would return a billion dollars. And so to your point of materiality to a fund, yeah, if you're a $40, $50 billion endowment, it's 2%. Well, are you going to send me a Christmas card thanking me? Come on, give me. I mean, a billion dollars is great, but you see the point, right? And so yeah, I think that that's a little bit of what the A16Z thing is tapping into, right?

Yeah, the platforms win. Don't do those checks. Just give me $300 million. Right. Exactly. Right. And so yeah, I mean, that's what I mean. It's like at certain sizes, maybe you have to play the game a little bit differently. Right. 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. I think it just gets harder, right? 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. So I think it's just harder, right? I get how they do it. I get why they do it. But I think it is a lot of large numbers, right? It's just harder.

I've loved this conversation. It's very unusual. Maybe it's because we're in Central Texas. I don't know. No, normally everyone in this is just the most idealistic AI-pilled venture investor who's just like, everything's just like, we're not going to have jobs in a year. Yeah, that's clearly not true. Right. I mean, you're already seeing, you are seeing the pushback on AI at the data center level, right? Because where the data centers are being built is in my neck of the woods, not in Silicon Valley. And you don't want it.

I do because we're invested in it, right? But you're seeing this, 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 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 fed up with it. And it's not in my backyard. Right. And so you are getting this pushback on AI. I'm sorry, I don't understand this. Why? They're utilizing land, they're bringing jobs, they're bringing construction. You know what, if you don't want it—

Yeah. And water prices, particularly in arid regions like Texas or Arizona, that's a big issue.

Yeah. So 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, right? 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. So 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. What happens with data centers? Yeah. Do we see a continued protestation pushback from—

Yeah. 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 we have this situation in our book where our data center sites are up 50% from where they were six months ago. 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.

Yeah. I am not an expert in this in terms of 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 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. And just so I understand, the bottleneck on those that aren't is permitting. It's pushback from locals. What's the one thing? Yeah, it's permitting. Right? Permitting. Yeah, it is now. And that's something that didn't exist six months ago.

And just so I understand again, I'm dumb as rocks. Why is it so difficult to get permits for these? Because the permitting boards are governed by the citizenry. And the citizenry is putting signs up in everybody's front lawn saying, we don't want this. Right? So if those people want to get reelected, they've got to say no. Do you not worry that this doesn't happen in China? It's just a free for all. 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. Right?

That's my point. And so you're going to see it's a bigger issue. Honestly, it's a huge, massive issue in the UK. It's by far a much bigger issue in the UK than it is in the US on the permitting front. What are you talking about? We're not allowed to go outside or move a bin, let alone build a data center. 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. Are you bullish on Europe given what you just said there? No. No. Because of the permitting?

Because of? Yeah. Because of all of it. Because the defense structure of it, because of Russia, because of behind on AI, because, because, because. Would that prevent you allocating towards European

build it where they need it. Right? That's my point. And so you're going to see it's a bigger issue. Honestly, it's a huge, massive issue in the UK. It's by far a much bigger issue in the UK than it is in the US on the permitting front. What are you talking about? We're not allowed to go outside or move a bin, let alone build a data center. 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.

Are you bullish on Europe given what you just said there? No. No. Because of the permitting? Because of all of it. Because the defense structure of it, because of Russia, because of behind on AI, because. Would that prevent you allocating towards European managers? No, we have allocated to long, short managers in Europe precisely because I think there are going to be some people, 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.

David, I could talk to you all day. I'd love to do a quickfire round. So I say a short statement. You give me your immediate thoughts. Number one. This could be highly dangerous for me. Oh, don't worry. We've gone to Chinese permits. So trust me, the quickfire will be a piece of cake. What have you changed your mind on in the last 12 months?

Software was one, right? So software we kind of leaned into pretty hard. We also took energy off at around the same time, with the advent of the US Iran war, the straiter hormones bit. When crude kind of went north of 100, we took a lot of our energy length off. I think those are probably the most actionable things we did. We did add to private equity sponsors in sort of March, April-ish. 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. What asset class do you think is overhyped today? I think there are probably a number. Private credit, because it's easy.

Why do you not like private credit? I'm not in it. I don't understand. Yeah, I'm not in it and I don't understand either. But is it just returns? I remember I had a girlfriend who did private credit and she told me it was returns. And I listened and I was yeah, you're right. It is returns. 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. What other endowment fund do you most respect and admire because of that build out? And why them?

Brown without question. I just have 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 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 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 placing, but they've done an extraordinary job. And not that I know Jane, we talk and chat and whatever. I just have utmost respect for that team. Which fund are you not in that you would most like to be in? We mentioned some of the big names. Probably Benchmark. It'd be the same for me.

Yeah. Ton of respect there. Final one for you. What are you most excited for in the next few years? 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 a lot of biotech exposure. But we're wondering if we should have more even. It's seemingly less correlated with certainly the science is less correlated with markets, but what scientists are doing these days and actually solving diseases as opposed to simply treating symptoms is extraordinary. So biotech certainly is something that's high on the list and that we're spending a bunch of time on. Aside from that, from a personal perspective, I'm really excited to see our team, our office build out over the next three years. I, as I've done this, I think that there is really a major inflection point that happens when you are $1 billion going to $5 billion. And we're kind of right in the middle of that. And so we're dealing with all of the issues around how do you grow a team? What systems do you set up so that when you're at five or $10 billion, you can actually keep track of everything? How do you systematize things so that this is a self-perpetuating office, 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 one and $5 billion. And I didn't really appreciate that until being in the middle of it over these last couple of years. We're sort of 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 off and running. So that, at a personal level, that'd be tops for me.

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. Yeah, no worries. We're down here in central Texas, trying to do a good job. So thanks for having us. I would have to catch up to eight years now. I would have to catch up to eight years now. I would have to catch up to eight years now. I would have to catch up to eight years now. I would have to catch up to eight years now. I would have to catch up to eight years now. I would have catch up to eight years now. I would have catch up to eight years now.

optimizing for the best business for the GP, I'm trying to optimize for the biggest pile of money for our students. I get that there's a little bit of a disconnect there, but the math issue does drive me nuts. Can I ask you a blunt question then? 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 is the best firms. Yeah, I will. And that is a question that gets batted around a lot in our office. And so there is something to be said about sort of laddering returns, right? So it's okay to go have allocate money to some manager and say, 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 time actually, 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 two x, three x, five x, whatever. But that that tells you nothing, right? If you're up five x over 30 years, that's horrible. Right? And if you're up five x in five months, that's, you know, that's amazing. Right? I guess that's SpaceX. Is venture then just a pure diversification play for you, which is like, it is for us. Yeah, it is. It's a state, you know, 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 two and a half percent of the endowment in Anthropic. We have no exposure to SpaceX. We've had no exposure to open AI, but about two and a half percent of the endowment is in Anthropic. Well done. I mean, that's not us, right? Like that's managers. David, for goodness sake, will you please learn from your managers? Okay. Lesson number one of venture capital. Okay. Even if it was not you, you take credit and say, thank you so much. I remember that one. Yes. That's not really how we roll at Baylor, but. Well, you know, you could learn. 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. 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. Right? 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. I was talking to Sean before this show, who you mentioned we should chat to. He's brilliant, Sean Barris. And he said that you think more like Charlie Munger than anyone he's ever met. That was that I had it written down. Because we're in the middle of the country, I think.

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 sure. 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. No, 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's it's pretty easy in this case of, you know, like software is dead. It's all going to zero.

Somebody is going to vibe code this and, you know, whatever. And like I have friends that run, you know, three, five hundred person, you know, private family businesses. And I can see it's easy enough to pick up the phone and call them. 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. Right. It's not their job. Right. Like I have a good friend who runs like a vertically integrated like potpourri business. Right. Like he knows everything that there is to know about that, but he is not going to tear out key important parts of,

you know, what makes his business run behind the scenes on some unproven thing that, you know, I think I think it was the CEO of Salesforce, like, I don't know, six or eight months ago said that, like the best that I was going to be is like 93 percent. Right. Which is like phenomenal. And that might be like better than like a lot of people. But the issue of software is 100 percent. Right. Right. So so if you need your books to like match up and whatever, like, yeah, that's not going to happen. 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 like my friend who's in like a niche business, very, very, very good at what they do, I think I think they're the only vertically integrated potpourri maker in the 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 a bits, you know, for me on the back of this software? And of course, like, you know, 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 dollars. We should let this go to zero.

What's interesting for me is you analyze this situation and then you decide to act on it. Like this is very rare for an institution to do. Like Sean and others have like told me that, but like that I don't actually understand. Right. Because like if it's on sale. Right. So software at that point is like on sale to the tune of like 50, 60 percent from like October of 25. And if you're if the thesis is going away, software is going away, it's down 50, 60 percent. You call businesses and they say that's not true. You're like, I'll own that. 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 respect, I live in technology. 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 A.I. And then like own those. So I'm 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.

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. I kind of think that that's our job. Right. I mean, like we are 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. Like they also are allocators. Right. And they're deciding who gets the incremental dollars. Do they send it to Burlington Northern or do they send it to, you know, their energy company?

Right. 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. 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? Not for me. I would say it goes the other way. I actually learn a lot from the public side managers.

Right. And what I find is that there's a lot of this like, you know, spun up like, oh, my gosh, we're going to have autonomous cars in like three years, like in 2016. Right. Yeah. Right. 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 5000 cars on the road? Like, please. Right. Right. So like I get sort of like the mental imagination that, you know, you can go like, oh, yeah, we could put, you know, we could put something on the moon and we could mine the moon and whatever.

Yeah. Okay.

So you know, you know, you can go to the moon and say, hey, I think the value is X.

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people voting in this buying decision means that it's a more legitimate price than private side. Correct. I don't think there's any question about that. I literally have been in these conversations where three guys get together and are like, hey, I think it should be this. On what? They're like, well, I'll give you $50 million at that price. Okay, fine. On the fact that I tried the product and I liked it, David, why are you asking me such intellectual questions? Do you trust the prices coming back from your managers? We all have our books, our portfolios for people listening, and we mark them in different ways.

We do. That's one thing that the ladies have done an extremely good job of. Recall, again, that I'm coming from the public side. When you run trading books, everything has to be priced every day. Ostensibly, it's so you make better decisions. Because if you have things mismarked, then psychology works against you. 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. And so one of the things that we really try to do is to make sure that our managers are not pushing valuations, right? 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. Our, 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 I feel, you know, like I kind of sit on top of this thing and I kind of have to vouch for,

you know, the valuations that we have as it relates to, you know, talking to the regents or administration. And I feel pretty comfortable that on the private side, our marks are actually more sane than, than the, than on average. As venture eats more and more of the world with your open AIs, 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? No, I, I feel pretty comfortable with where we stand. I would say, 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. Why do you like growth equity? Because the returns timeline profile? The, the return timeline, there's also fewer zeros, right? And so that kind of goes to the value bit. Of course, if there, 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. Right. Which w which is what helps get you to like, I think that, I think that their book is like annualizing it like 30%, right on sort of like

the growth equity side. So, um, that obviously meets our like eight, nine percent bogey. So I don't even actually know that I've ever had that question before. How do you think about like Mulligan vintages, uh, 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, mayor Culpa. And you've got now Toma Bravo. Obviously you had medallia, which is obviously quite a well-known return, the key situation.

I think that just kind of comes with the territory, right? I mean, like if, if what you're doing, 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 in 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 has, the portfolio overall has sort of like 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. Can I ask you, what are the annual liquidity requirements? So 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? It's on a couple fronts. So 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, you know, on a dollar amount that keeps going up, which we want it to, right? Like that is the thing that, you know, 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, it's sort of like, what capital do you need to have around to allocate to the next thing that's going to go up, you know, 20, 30%. So we talked to our newer analysts about this. And we, we say like, what do you think the odds are that we find something to, you know, 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% 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, in that ballpark, then we let cash get larger. So we, we kind of came into the pandemic with sort of 15, 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, you know, what we're seeing to do to make money. Very difficult to keep your head of when everyone else is losing. That is a brilliant Rudyard Kipling poem. But it's very difficult to do when momentum and excitement kicks in.

Mm-hmm. It takes one disciplined mind. Now, interestingly, in this period, this, so in the 17, 18, 19, you know, 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. So it's just, and so our cash balances just end up being a function of like, you know, what the environment is. 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?

Well, I can't, 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, 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 know, 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 things can always get worse. Right? 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, every available dollar is going into software, right? It's down 50, 60%. Like who's to say it's not going to be down 70, 80%. Right? And so we sort, we've 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. Can I ask, how do you, how do you literally do that methodically allocated into market? Yeah. So I'll give you a perspective on

like the overall markets, right? So we basically say if the, if the market's down zero to 10%, we don't care. Right. We're an infinite live portfolio, you know, zero 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. Right. And so we think about declines in the market in sort of 10% increments, and we have a 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, you know, zero to 10%. That's, that's normal. 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. And that's why we do it methodically and mechanistically, because we were never like drawing a line in the sand and saying like down 20, oh, I'm all in. Right. We're like, down 20,

maybe I'm 20% in. Down 30, I'm another 20% in. Down 40, I'm another 20% in. Right. 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. Right. So that's the, that's the scenario that we're trying to avoid. And that just comes from like perspective, history and experience of like, you know, having

trading scars all over your body from you, 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. Right. It's a terrible place to be. 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? Yeah. A lot of that is in the hands of the managers, of course. Right. Because we're not,

we're not like 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. Right. 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 like articles or quotes or, you know, news stories at all hours of the day,

et cetera. And I like constantly ask him, OK, you have this name, but if it goes down like another 20%, what are you going to do? Right. Or you have this name and you have another name and 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 down drafts is that portfolios end up getting more concentrated. Does that make you nervous? No, we own everything under

the sun. So does every like, so does every ENF portfolio. Right. So like we own everything from like sunscreen to helium to like tech to, you know, 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, you know, software or tech companies that I've never even heard of before. Right. Like we're, we own like real estate development project. We don't like own everything. Right. So like, it's always funny to me when people like compare, uh, an endowment portfolio to the S&P 500 or something

like that. You're like, we're like infinitely more diverse than the S&P 500. It's not even close. If we get a little bit more concentrated on at the margin, like that's, that doesn't remotely change anything for us. What do you see your endowment CIO cohort do that you think is nuts or wild? 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. Right. So we're about 2.7 billion. Um, you know, 14 months ago, we were 2.2 billion. Um, a couple of years before that we were 1.4. Right. So in that sort of like

one, three to 3 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 a, 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. Uh, we're about a hundred miles from Dallas or a hundred miles from Austin. We're right in the middle between the two. Um, it's pretty difficult for us to hire a mid-career professional and, 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, 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. Uh, when we're hiring people, um, 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 look kind of like level up. Um, and during that period of time, while they're leveling up, it's like all still on your shoulders. So I, now I totally, I kind of like forgot that part. Like I totally got the, you know,

we'll have, you know, 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, you're going to be wearing like all sorts of hats during that time. Do you think your colleagues are nuts then for not hiring internally? And do you think the musical jazz? I think that nuts is not the word that I would use. I would say that they are accepting alternative risks, right? And so the alternative risks are on the, the upside to me is that I have a stable, uh, team, right? So I have worked with Renee for almost 16 years. The next person,

uh, that we hired Jen, she's been here 11 years, right? And, and you can like kind of go on down, down the line that actually accrues is pretty evident across the, uh, 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, you know, bearing of all of that, um, you know, time I have to, I, there's a period of time where I have to like carry, carry the, carry the team on the flip side. If you hire mid career professionals, uh, you don't have sort of like that upfront cost of like having to carry the team, right? Cause they're more plug and play.

Um, but you sort of wear this risk of turnover and, you know, potentially or returns. 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 funder funds, if I crush it for my funder funds, they obviously have carry and they will do very well from that with traditional endowment fund investing. You know, if I do really well for you, it doesn't necessarily translate to a huge paycheck. Are we, are we actually, do we have a wrong incentive mechanism? I don't think it's a wrong incentive mechanism. I think that it requires people in the space to be

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

either myself or the people on my team. Do you worry about the impact of AI on education? I worry about the impact of AI on human thinking. Um, so, you know, there, there are a number of studies out. Uh, I think that, I don't know about their veracity, but like 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, right? That your muscle atrophies. And so I do have concern

about, um, um, the effect of AI on actual human logic thinking. Um, you know, that that's sort of like an innately human trait. Animals don't think right. Humans think, but if you abdicate your responsibility for thinking, it's not clear that humans do that either. So I have concerns about that. I think education can figure it out and, you know, use it beneficially. I think, um, I think it's more of a human discipline problem. 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? I would love to be in their position. We are not, uh, 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, I've actually had this conversation with Linda. If I go, 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, yeah, I don't, I would love to have to pay the endowment tax because the endowment was bigger.

Do you play a game of comparison? What is it? Comparison is the thief of joy. And, you know, I think you said earlier, you know, in down times, you know, you obviously are brilliant and in up times, you know, 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? We, we do both, which I think is the right way to do it. Um, I, you know, every school has a different set of priorities, needs, et cetera. Baylor's is currently to get the endowment higher on a, on a per student basis. And so, for example, what you're referring to in terms of last

year, uh, that was disappointing on a, 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 on from the private side have been dealing with sort of like a second J curve, if you will. And then the funds of one, and then there's like another asset class that we had 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, you know, J curve impact on the private side. And in 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 a hundred percent 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 and we did it. Uh, we had like a little bit of a lag last year. Um, I think we'll be 18 and a half, 19% this year, uh, without any SpaceX or

cerebras or anything like that. So, um, structurally I think the next couple of years look pretty good from sort of a tailwind perspective. 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 the positions that you do decide to engage with? Yeah. So this is an interesting one and you're, you're talking specifically on the private side. So we, yeah, so we, we spent a lot of time on this and because it's 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're, they send us a little note. So, and so company got sold. It was like a seven X 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, it means nothing to the overall endowment. And so one of the things that we've changed and sort of sizing is we start with how much money do we want to have in each underlying company, right? So in other words, if, if the company is going to be up five X, we want that five X to matter to the overall fund.

So basically what we're doing in sort of like expansion, uh, buyout, uh, ventures, like a little bit of a different thing because it's like a bigger, there's 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. 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, um, is, uh, it's a $200 million fund and you commit $20 million to it with the theory that if they say we are 10%, 10% ownership in every company.

Great. If we're 10% of their fund, our exposure is 1% per company. Yeah. We don't, we don't, we think about it in terms of dollars, right? So we say, we say, how many companies are you going to have eight, 10, 12, and then we want two and a half to $3 million in each company. I like, uh, 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, from a dollar's perspective. So if you have 10 companies, we want $3 million in each company. So if it was up, you know, five X, we'd get $15 million back. That matters, right? That's a, that's enough to matter.

Do you want your manager 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 our do. We always want managers to say, to do what they said that they were going to do. So like my, my example is always this. I sort of view my job as like the general manager on a baseball team, right? So I'm going to 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, right? And it's probably the third baseman who 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 think if you're a third baseman and 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 baseman and no third baseman, the third baseman is getting fired, like full stop,

right? Like that. I don't like, I don't care what your returns are. So like, again, we started off by talking about this. We spend much more time on asset allocation and why things are where they are more than we do on individual managers. 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- If it doesn't fit what we're trying to accomplish, we won't re-up. Fascinating. And so 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? I would like you to have a conversation with me before you change your stripes. Yes. What would you say in that conversation? Genuinely, it's really interesting for me. 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? The early stage. Let's move out of VC and let's, because that's not my space. Let me do something on public equity that's easier. Sure. There are managers who are like, we don't know how to time allocations into and out of cash.

Right. We're just going to be fully invested because we don't know if the market's going to go up, down or sideways. Right. We're good at picking stocks. Right. So we're going to 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 zero to 15 percent depending on what we see to do, whatever. Both of those track records are subject to comparison to benchmarks. Right. Like we don't change the benchmark depending on like if somebody holds cash or doesn't. Right. And so if somebody is like, we're fully invested all the time and then I wake up some morning and

they have 10 percent in cash. Yeah, they're getting fired because like I don't want to be the guinea pig. Right. Like I don't want to be the person that 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. You kind of get that given that example. I think venture is more nuanced. It's kind of close. It always is. Right. I'm not talking about like lines in the sand around like artificially generated category limitations. Right. Like like that's just an artifact that people made up. I'm talking about like

a we're going to do like and we're going to invest in managers or we're going to invest with a manager who is investing companies where product market fit has already been determined. Right. And then that manager is like, yeah, that doesn't work anymore. We're just going to like invest in, you know, two guys in the garage and we don't know if they'll come up with something or not. Right. Those are two very different approaches. Right. So, yeah, the switch between those. Yeah, that's a no. Right. If you want to go if you want to go from, you know, B to late, A, like who cares? Right. That's the same thing. So we're actually aligned completely, actually.

It's interesting. I thought we were misaligned. I 100 percent agree. I think your example there is kind 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. Right. And you should bet on them for being great at that. Right. 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? I don't know. I think we've kind of done that. You know, the issue the issue with, you know, like one fund, even two funds is like you almost don't have enough data to make a decision. Right. 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. You guys have a vision. I got a dog. Like, give us some money like that. That's really

hard for us. So people are good at different things. If I would say you had unlimited money today, unlimited constraints and you had the Harvard balance sheet, what would you do differently? 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 like I have, you know, hats off to Narv and like what his team is trying to do. That's like really, really hard. And I've actually talked to other CIOs about this, right? Because I want to be prepared for like down the road. At what point do you have to change how you invest? That's, you know,

very top of mind for us. And that's something that a lot of allocators, you know, work on, think through, struggle with. How do you answer that? Yeah. I mean, like I've talked to the Notre Dame folks and they're at 20 billion and they're kind of like, you know, we've never, we, we actually thought that we would run into this at 10 billion and 15 billion. We actually haven't. But I wonder if there's a place between where Notre Dame is at and where Harvard or UTEMCO is at, where you actually do have to change how you invest or you can't invest in, in the same manner, right? Because at some point, at some point, and I think that some

of the Ivy leagues are running into this, at some point, 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, it doesn't move the needle as much as it used to. Right. 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 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 materiality to a fund,

yeah, if you're a $40, $50 billion endowment. It's 2%. Well, are you going to send me a Christmas card thanking me? Come on, give me. I mean, a billion dollars is great, but you see the point, right? And so, yeah, I think that that's a little bit of what the A16Z kind of thing is tapping into, right? Yeah, the platforms win. Don't do those checks. Just give me $300 million. Right. Exactly. Right. And so, yeah, I mean, that's what I mean. It's like at certain sizes, maybe you have to play the game a little bit differently. Right. 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.

I think it just gets harder, right? 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. So I think it's just harder, right? I get how they do it. I get why they do it. But I think it is a lot of large numbers, right? It's just harder. I've loved this conversation. It's very unusual.

Maybe it's because we're in Central Texas. I don't know. No, like normally everyone in this is like, just like the most like idealistic AI-pilled venture investor who's just like, everything's just like, we're not going to have jobs in a year. Yeah, that's clearly not true. Right. I mean, like you're already seeing, I mean, like you are seeing the pushback on AI at the data center level, right? Because where the data centers are being built is in my neck of the woods, not in Silicon Valley. And you don't want it. I do because we're invested in it, right? But like, you're seeing this, 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 like, not in my backyard. Right. And so you are getting sort of this pushback on AI. I'm sorry, I don't understand this. Like, why? Like, they're utilizing land, they're bringing jobs, they're bringing construction. You know what, if you don't want it- Yeah. And water prices, particularly in arid regions like Texas or Arizona, that's a big issue.

Yeah. So yeah. If the hyperscalers solve the water thing, that would go a long way towards, you know, the average person being more accepting of it. But then the power thing still exists, right? And so we know that we know that power dispatch is still, you know, supply constrained. And so people's power prices are going to go up until that gets solved over the next five, six, seven years. So- 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. What happens with data centers? Yeah. Like, do we see a continued protestation pushback from-

Yeah. 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. 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. Yeah. I am 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 be, you know,

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. And just so I understand, the bottleneck on those that aren't is permitting. It's pushback from locals. What's the one thing? Yeah, it's permitting. Right? Permitting. Yeah, it is now. And that's something that didn't exist six months ago. And just so I understand again, I'm dumb as rocks. Why is it so difficult to get permits for these? Because the permitting boards are governed by the citizenry. And the citizenry is putting signs up

in everybody's front lawn saying, we don't want this. Right? So if those people want to get reelected, then they've got to say no. Do you not worry that this doesn't happen in China? It's just a free for all. 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. Right? That's my point. And so you're going to see like 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. What are you talking about? We're not allowed to go outside or move a bin,

let alone build a data center. 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. Are you bullish on Europe given what you just said there? No. No. Because of the permitting? Because of? Yeah. Because of all of it. Because the defense structure of it, because of Russia, because of behind on AI, because, because, because. Would that prevent you allocating towards European managers? No, we have allocated to long, short managers in Europe precisely because I think there are going to be some people, 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. David, I could talk to you all day. I'd love to do a quickfire round. So I say a short statement. You give me your immediate thoughts. Number one. This could be like highly dangerous for me. Oh, don't worry. We've got, we've gone to Chinese permits. So trust me, the quickfire will be like a piece of cake. What have you changed your mind on in the last 12 months? Software was one, right? 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 straighter hormones bit.

When crude kind of went north of 100, we took a lot of our energy length off. I think those are, those are probably the most actionable thing. We did, we did add to private equity sponsors in sort of like March, April-ish. So we don't really like private credit, but we do like the private equity sponsors. And so we've, we've, we've, we've allocated more in that direction. What asset class do you think is overhyped today? I think there are probably a number, private credit, because it's easy. Why do you not like private credit? I'm not in it. I don't understand. So yeah, I'm not in it and I don't understand either.

Um, but is it just shit, 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. Well, I think that, I think there's, I think, 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. What other endowment fund do you most respect and admire because of that build out? And why them?

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. Um, at least over, you know, the last 10 years, I think, I think our returns might be better than theirs over the last five years. Um, but we've got a lot of wood to chop to, you know, kind of catch up to, to where they're at. They are, are, they are what I would describe as real investors. Um, they'll, they'll do things that, um, take a lot of courage. Um, 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, we talk and chat and whatever. I just utmost respect for that team. Which fund are you not in that you would most like to be in? We mentioned some of the big names. Probably benchmark. It'd be the same for me. Yeah. Yeah. Yeah. Ton of respect there. Final one for you. What are you most excited for in the next few years? I do think that, uh, 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, um, we're spending more time on that. In fact, uh, later this week, I'm, 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. Um, we certainly have like a lot of biotech exposure. Um, but we're wondering if we should have more even, um, it's, it's seemingly is less correlated with, um, certainly the science is less correlated with markets, but what scientists are doing, uh, these days and actually like solving diseases as opposed to simply treating symptoms is, is extraordinary. Um, so biotech certainly is something that's like kind of high on the list 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. I, as I've done this, I think that there is really a major inflection point that happens when you are $1 billion going to $5 billion. And we're kind of like right in the middle of that. Um, 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 five 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, but retain the creativity to continue to do this, the new, 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 one 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, 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. Um, so that, that at a personal level, that's, that'd be tops for me. David, I've so enjoyed this. I 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. Yeah, no worries. We're down here in central Texas, trying to do a good job. So thanks for having us.