Harvard’s endowment climbed to its highest level in history last year, according to annual figures released yesterday.

After declining for two consecutive years, the endowment reached $19.3 billion during Fiscal Year 2003 (FY03).

The endowment rose from last year’s $17.5 billion, with investments bringing in $2.1 billion, or 12.5 percent returns, according to Jack E. Meyer, president of the Harvard Management Company (HMC), the group responsible for investing Harvard’s endowment.

“We don’t know of a single large fund that did better than 12.5 percent returns,” Meyer said yesterday. “In fact, we don’t know of another fund in the country that was even in double digits.”

Higher education institutions with endowments greater than $1 billion averaged returns of 2.3 percent—more than 10 percent less than Harvard’s—according to preliminary data from the Commonfund Benchmarks Study published in Monday’s Chronicle of Higher Education.

Despite the $1.8-billion growth this past year, when adjusted for higher education price inflation, the endowment is still 11 percent below its FY00 close and previous record of $19.1 billion, Meyer said.

Harvard’s FY03 figure factors in a loss of $800 million in spending and a gain of $500 million in gifts and the present value of pledges, in addition to the $2.1 billion in investment returns.

According to Meyer, performance of bond portfolios provided the key to this year’s success—HMC investments in foreign and domestic bonds outperformed benchmarks by 12.6 and 34.4 percent, respectively.

Real estate underperformed its benchmark for the third consecutive year, a fact which Meyer attributed to “opportunity” investments in undervalued buildings at a time when “the plain vanilla core real estate” has seen the best performance.

Meyer said HMC’s real estate performance should improve in the long-term with little change in investment strategy.

In FY02, the endowment fell from $18.3 billion to $17.5 billion, hurt by a 0.5 percent decline in returns and an increase in the endowment payouts.

The Harvard Corporation is expected to freeze the endowment payout for FY05, the budget period that begins July 1, 2004.

The rare move would come after low payout increases of 2 percent in both FY03 and FY04.

A spokesperson for the University said yesterday that the successful endowment performance is unlikely to change the Corporation’s predicted recommendation.

“They still have general concerns about the economy and spending rate and the payout,” said Al Powell, a University spokesperson. “At this point the Corporation has not changed its payout advice of a zero percent increase.”

Yale’s endowment also hit a record high, growing from $10.5 billion $11 billion in FY03, according to preliminary data published last week in the Yale Daily News.

—Staff writer Jenifer L. Steinhardt can be reached at steinhar@fas.harvard.edu.