Several years ago when the University opted to establish an internal financial management corporation, Harvard Management Company, there were doubts that the move would prove feasible. State Street Research and Management, critics said, is the best in Boston. Why change?

That was back in 1973 when the endowment would begin a plunge caused by the overall national recession. The move seemed to be nothing short of a facelift.

But the news this week that the endowment has risen by more than 11 per cent for the second consecutive year, and that the University will report a surplus for the first time since fiscal year 72-73 prove the success of the shift to the wholly owned financial management subsidiary.

Harvard management has pushed for tighter financial management, investment of 40 percent of the endowment in the fixed income securities bond market, and a long-term approach to the University's fiscal problems. All these moves add up to Harvard's surplus.

The University's budgetary problems have been a thorn in the side of Harvard financial planners for years. Rising inflation and energy costs, which hit the Faculty of Arts and Sciences particularly hard, hurt all 42 separate budgets in the University and prevented many from bre king even. But through the luck of a warm winter which kept down energy costs, and steps taken to tighten up financial management of the budget the Faculty halved its projected deficit of $500,000 and stands a good chance of breaking even in the current fiscal year.

University Treasurer George Putnam '49 said most other budgets within the University performed as well as the FAS. More than two-thirds, Putnam said, will show surpluses and small deficits will be recorded by one-third.

The performance of the University's endowment is largely because of the recovery of the national stock market. Over the past two years the portfolio has increased by nearly 25 per cent, upping its value by almost $300,000 million.

Putnam said that Harvard has out-performed every major institutional account in the country, including Princeton and the Ford Foundation, by investing in the bond market.

Princeton and the Ford Foundation, which have traditionally performed very well, invest only 20 per cent in bonds, Putnam said. Harvard, by investing 40 per cent, took advantage of both the good bond market this past fiscal year and the security that the safer fixed income securities offer.