Despite an million loss in 2002 and a negative annual return for the second year in a row, Louis Morrell, vice president for investments and treasurer, anticipates a positive future for the endowment.

The endowment lost 5.5 percent of its net market worth as of June 30, the end of the fiscal year, according to a working document written by Morrell for endowed fund-donors and contacts.

He cited positive trends in the past year as reason to remain confident in the outlook of the endowment, such as the university's placement in the top quartile out of all universities in terms of performance and the endowment's investment losses compared with the losses of major stock market indexes.

The endowment only makes up about 10 percent of the university's operating budget, so Morrell expects the loss won't affect day-to-day operations at all and said that this is hardly an emergency situation.

"This will not cause specific problems for us," Morrell said. "I wouldn't call it a crisis by any means."

The ending market value of the endowment is now placed at ,324,000, down from ,389,000 in 2001. The million dollar loss in 2002 reflects not only market losses but also regular annual commitments and expenditures.

In the period between 1994 and 2000, the endowment grew by 124 percent and peaked at ,618,000 in 2000. Following the downturn in the economy, the endowment took heavy losses at the end of the 2001 fiscal year, losing 13.95 percent of its total net worth.

According to the document for endowment donors, national university endowments lost an average of 9.9 percent of their net worth for the 2002 fiscal year.

"This past year we lost 5.5 percent; the stock market lost 18 percent. We're heading in the opposite direction," Morrell said. "If you can go down 5 percent when the S&P is down 18 percent, relatively speaking, that's as good as you can get."

"We changed our asset mix and rebuilt our portfolio," Morrell said. "The '13.5' did not go unnoticed. We virtually rebuilt our portfolio to make it more defensive."

Morrell said efforts to diversify the university's resources have been in effect since 1995, when the university began to focus on a long term asset mix, concentrating on many other areas, such as timberland, global stocks and real estate.

"This is where all the big endowments in the country are right now," Morrell said.

According to Morrell, the current kind of bad market conditions have only been recorded four times in U.S. history.

He said there is only a matter of time before the figures start creeping back up into the black.

"Right now we're in a secular bear market: a long-term down trend. These things come along. It's very unusual to go three years in a row down," Morrell said. "I think we're well positioned."

According to the document for endowment donors, "it is reasonable to assume that the market will move closer to the longer-term average annual return.

Most experts anticipate mid- to high-single digit returns in the period ahead."

Morrell said the university is confident in its established portfolio and does not plan on any wholesale changes.

The long-term goal for the endowment is an average market return of 11.2 percent per year.

Despite the recent announcement that the successful Campaign for Wake Forest: Honoring the Promise raised its fundraising goal from million to million, the funds allocated to the endowment are spread out over a period of time and therefore have little effect on its yearly ending market value.

Morrell said capital campaign donors are important because the university spends million dollars out of the endowment each year to cover operating costs alone, and any help to alleviate such costs is positive.

James Bullock, assistant vice president and director of the capital campaign, said although the capital campaign has brought recent success, the endowment is still relatively small compared to other institutions.