Investment returns on the University's $8.6 billion endowment last year were the highest ever, according to the sixth annual letter from Harvard Management Company (HMC).

"It was a terrific year in absolute terms," said HMC President Jack R. Meyer.

Returns on the University's endowment soared to 26 percent in fiscal year 1996, up 9.4 percent from fiscal year 1995--8.4 percent above the median large fund performance reported by the Trust Universe Comparison Service.

Meyer said that the stellar rate of return did not come from one particular "bet," but from consistent "outperformance" by many parts of the University's diversified portfolio.

Especially profitable in fiscal year 1996, which ended June 1, were the domestic equities, emerging markets, real estate, domestic bonds, and foreign bonds portfolios, which each outperformed their asset classes by at least 6.9 percent, according to the letter released last week.

Meyer said that by outperforming the strong overall investment market, which grew at an average rate of 13.7 percent over the last five years, HMC earned for the University an additional 1.4 billion dollars over that time.

"The schools have more than $60 million per year to spend because of this outperformance, which is substantial," Meyer said.

'A Good Deal for Harvard'

Meyer said that the strong performance HMC has achieved makes the private management company--which is nearly unique among universities--a good deal for Harvard.

"The cost to Harvard of achieving that five year performance record was roughly half what it would have cost for equivalently good performance from external managers," Meyer said.

Meyer also defended the high pay for the company's money managers, at least five of whom received more than $1 million in salary and bonuses for fiscal year 1995.

"Harvard Management Company is an investment firm. We are not an academic institution. The people that we hire come from Wall Street firms, and when they leave they go back to investment firms," he said.

After several national publications spotlighted HMC's payroll over the summer, President Neil L. Rudenstine last month defended the company, which he called "very cost-effective."

The management company's compensation plan rewards its money managers for consistent performance above benchmarks--usually the industry average for each asset class