Baylor University is targeting stocks that benefit from supply-demand bottlenecks like shopping malls, data centers, and marinas to generate short-term gains.
The supply-demand investment thesis has been something Dave Morehead, Baylor’s investment chief, and his team have been developing for the past three years as part of a larger plan to grow the endowment's portfolio. “It’s too small. It needs to be triple the size,” Morehead said of the endowment’s size relative to the school and what it needs. “We need more dollars, and we can’t do that by taking on more risk” overall.
So Baylor is being opportunistic with its stock portfolio.
The university is still targeting long-term growth by investing in sectors like consumer, healthcare, and technology through its private assets. But the Texas-based university’s nearly $2.3 billion endowment is using its public assets to seek opportunities expected to perform well over the next 18 months to four years.
“The public side is more short-term oriented,” Morehead told Institutional Investor.
Morehead, an Allocators’ Choice Award finalist, asked Baylor’s active equity managers to provide them with “the stuff that has a good shot of turning $10 million to $100 million.” About 10 percent to 15 percent of the entire endowment is in this convex investment strategy.
Currently, the endowment owns roughly six gigawatts of energy from its data centers. Morehead believes that the power, not the land the centers are on, is where demand is at. “Turns out, there’s a lot of land and not a lot of power,” he said. So that’s where the bottleneck is.
The team also sees a potential distressed opportunity in U.S. shopping malls. After considering roughly 90 prospects, the endowment currently owns fewer than half a dozen malls, including one in the constrained (and shrinking) market of Jacksonville. Morehead’s thinking is that contrary to popular opinion, “consumers still go to stores.”
“They go to less stores than they used to. But they still go to stores,” he added.
Another constrained market Baylor has targeted is high-end marinas, which are benefiting from wealth growth. While this wealth growth means more millionaires and billionaires buying boats, it also means a growing demand for marina slips, which are in limited supply (beachfront property is finite — and therefore very expensive).
Regionally, Morehead and his public markets team are “bullish on Texas” due to expected massive growth (the state’s population is expected to double by 2050). This means more investing in community banks, hospitals, schools, and infrastructure costs.
Morehead also thinks Puerto Rico “could be to the U.S. what Monaco is for Europeans as a tax haven.” So, the team is betting on high-end real estate in the region.
The portfolio is also positioned in small caps as a contrarian value play. While small caps have yet to outperform, Morehead noted that, should the economy actually react well to Trump’s tariffs, tax cuts, and expected rate cuts, they could play into a value thesis for the endowment.
