David Morehead – Top Down Allocation at Baylor (EP.381)

Character Focus

David Morehead emphasizes the importance of character in selecting investment managers at Baylor University. He believes that understanding a manager's personal qualities is crucial for long-term partnerships, as numbers alone cannot predict future success or stability. David shares that they often delve into personal aspects of a manager's life, such as talking to neighbors or old college roommates, to gauge their character 1.

I want to know if there's cat sacrifices going on, then we're like, pencils down. We don't need that in our book.

--- David Morehead

He also highlights the importance of humility, as it allows managers to admit mistakes and adapt to changing markets, which is vital for avoiding potential blow-ups 2.

   

Transparency

Baylor's approach to partnering with managers is rooted in transparency and alignment with long-term goals. David Morehead explains that they begin manager meetings by sharing Baylor's objectives and values, ensuring mutual understanding and compatibility 3. This transparency is rare in the industry and sets the tone for a genuine partnership.

If you're in our office, there's already been this sorting process to get there.

--- David Morehead

David's recent activity on Twitter/X reflects his commitment to transparency, as he shares insights and practices that differ from industry norms, aiming to contribute positively to the investment community 4.

   

Strategic Fit

David Morehead's selection criteria for managers at Baylor focus on liquidity and strategic fit within their investment philosophy. He stresses the importance of participating in liquid markets to ensure flexibility in reallocating capital 5. This approach allows Baylor to adapt to changing market conditions and optimize returns.

If a market or a strategy is not liquid or deep enough to get out of it when we want to get out of it, then we simply decide not to play.

--- David Morehead

David also discusses the turnover of managers, which is driven by structural changes rather than individual performance, as they continually seek ways to enhance returns and align with their evolving strategy 6.