Capital Allocators – Inside the Institutional Investment Industry David Morehead – Top Down Allocation at Baylor (EP.381)
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Apr 22, 2024 
David Morehead, the CIO at Baylor University, oversees a $2.2 billion endowment. He discusses his innovative thematic top-down approach to investment, emphasizing risk management and portfolio construction. Morehead shares insights on the significance of small-cap investments and the evolution from over-diversification to a more concentrated strategy. He also reflects on his diverse investment background and the role of AI in enhancing capital allocation. Besides finance, he opens up about his hobbies and the importance of kindness in professional relationships.
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Cost of Capital Trade-offs
- Establish a hurdle rate based on the opportunity cost of potential high-return investments.
- Hold cash if current opportunities don't meet your hurdle rate, even if it means earning zero interest.
Private Allocation Sizing
- Private market allocations must be balanced, especially for institutions with significant liquidity needs, due to the time-delayed nature of investment returns.
- A 50-50 public-private split can be beneficial, allowing endowments to capitalize on public market rebounds while private market valuations catch up.
Manager Selection Process
- Focus on liquid strategies and stock your "pantry" with managers who specialize in those areas.
- Allocate capital flexibly, ranging from small amounts to larger sums, depending on the opportunity set and market conditions.