In a year of extraordinary market turbulence, Harvard University's $36.9-billion endowment earned 8.6 per cent on its investments in the latest fiscal year while stock markets around the world were losing money, Harvard Management Co., the university's investment arm that manages the endowment, said yesterday.

The Ivy League school, the wealthiest in the US is famous for relying on hedge funds to bring top returns, performed far better than Standard & Poor's 500 index that lost 13.1 per cent during fiscal 2008, which ended on June 30.

The 8.6 per cent return brings the biggest endowment in higher education to $36.9 billion from $34.9 billion last year. The cause for the endowment increasing by only 5.7 per cent was due to the highest spending from the endowment in Harvard history.

Harvard Management said its endowment, which grew $2 billion during the fiscal year, distributed $1.6 billion to the university to support teaching, research and student aid.

The Harvard Magazine reported in its online edition, "In seven investment classes, HMC results exceeded those for the appropriate market benchmarks: domestic, emerging-market, and private equities; real assets (including all three subcategories of commodities, timber and agricultural land, and real estate); and domestic, foreign, and inflation-indexed bonds. In three classes, HMC performance fell short of market benchmarks: foreign equities, absolute-return funds, and high-yield assets."

For the first time this year students whose parents earn less than $60,000 a year could attend Harvard free. It also reduced tuition fees to households earning $180,000 a year. They now pay a maximum of 10 per cent of their income on room and board.

Over the past 10 fiscal years, Harvard has an annualised return of 13.8 per cent compared with the median fund return of 6.1 per cent.

Harvard invests a substantial amount of its endowment in hedge funds, private equity funds, commodities and real estate. Most of those other investments earned substantial profits in the last fiscal year.

Harvard's "real assets" portfolio, which includes easily tradable commodities, timbre, agricultural land and real estate, earned 35.8 per cent. Harvard put 8 per cent of its assets in commodities last fiscal year, and despite the recent sell-off in most commodity prices, it is maintaining that 8 per cent allocation. Private equity investments returned 9.6 per cent and hedge funds broke even.

Jane L. Mendillo, who worked at Harvard for 15 years before managing Wellesley College's investments, returned this year to head Harvard Management Company. 

Interestingly Harvard University is also headed by a woman, president Drew Faust.

Mohamed A. El-Erian, who was heading Harvard Management Company resigned last September to join Pacific Investment Management Company, in a high-ranking executive position and Robert S. Kaplan, a former vice chairman at Goldman Sachs and a professor at Harvard Business School, served as interim CEO after El-Erian stepped down.

Harvard Management Company, Inc. (HMC) is charged with responsibility for managing Harvard University's endowment, pension assets, working capital, and non-cash gifts. HMC is a wholly-owned support organization of the President and Fellows of Harvard College.

Harvard Management Company operates as a fully integrated investment management company, with over 200 people in its downtown Boston offices. It is responsible for managing over $40 billion of capital.