Shrewd investing, the Internet economy and a strong commodities market combined to create the record $4.8 billion surge in Harvard's accounts that the University announced on Friday.

The 32.2 percent increase made for the "best year ever" for Harvard's finances, according to Jack R. Meyer, the University's top money manager and was especially stunning because it far outpaced the 7.3 percent rise of the benchmark Standards & Poor 500 index.

Harvard administrators have yet to decide what percentage of the $19.2 billion endowment they will spend this year--it's typically 5 percent--but, regardless, Harvard is much richer than ever before.

The most dramatic gains this year came in private equities. The value of Harvard's holdings in this category increased by 155 percent, riding on a 413 percent explosion in its venture capital investments--most of which are in technology and Internet companies.

The increase exceeded by more than 100 percent the gains made by the index the University selects as a benchmark for its performance.

Meyer said venture capital constitutes more than half of the private equities category, which makes up 15 percent of the University's holdings, but would not give a precise figure.

The 185 employees at the Harvard Management Company (HMC) manage about 65 percent of Harvard's money directly. The rest, including all of the venture capital money, is managed by outside firms.

Harvard works with about 40 venture capital firms across the nation, but a great deal of this year's gains come from only a handful, financial officials say.

The University would put more money into these firms if it could, but venture capital concerns are limited in the amount of money they can accept, a problem for institutional investors with very large endowments--like Harvard.

"Suppose there's a very first-rate venture capital firm that has more investors willing to put in money than it has room to accommodate," explains Jay O. Light, director of the Harvard Management Company. "It looks at Harvard and Yale and says I'll take $10 million from each. The problem is that $10 million is a much larger percentage of the Yale endowment."

Meyer said that even if the Internet economy goes bust, Harvard has already made back much of its initial venture capital investments from dividend-like payments it gets from venture capital funds.

"There are lots of things I worry about and [losses in the Internet sector] would be one of them," he said. "I would expect that future years are going to be nothing like the last two in venture capital. On the other hand we've already received significant distributions. It's already been a success."

The University's holdings in commodities rose 49.9 percent, largely as the result of rising oil and gas prices over the summer. Performance exceeded the benchmark by 14 percent.

Harvard invests in commodities as a way to buffer its portfolio against losses in other investment categories, so the strong performance in this area came along with smaller gains in stocks this year.

"The reason we [have] commodities is that they are a very diversified asset," Meyer explained. "If commodities do well, other assets will do poorly."

The only area where Harvard failed to meet its benchmark was emerging markets, the accounting category including equities from developing countries.

According to Meyer, the modest shortfall of 1.2 percent can be attributed to misjudgments HMC made when purchasing shares in closed end funds, which are similar to mutual funds but sell at a discounted price.

"Discounts at the beginning were 22 percent, which we thought was attractive, but they increased to 34 percent and we didn't expect that, which really penalized our performance," he said.

Harvard matched but did not exceed its benchmark in the category of inflation-indexed bonds--bonds issued by the government that guarantee a rate of return above inflation. Meyer said that while HMC actively trades in the other accounting categories in an attempt to exceed their benchmark, it does not do so in this area.

In the report to University officials and alumni, Meyer wrote that over the long term, the University would like to exceed its overall benchmark by 1.5 percentage points per year, much less than the 13.6 percent it accumulated this year. Over the last five years, the University has exceeded its benchmarks by an average of 3.8 percent of the margin.