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UPDATED: Sept. 27, 2019, at 10:27 a.m.

Harvard Management Company returned 6.5 percent on its investments for fiscal year 2019, bringing the value of the University’s endowment to $40.9 billion.

The returns were announced in a note from HMC CEO N.P. “Narv” Narvekar to University affiliates Friday morning, and represent the lowest return rate in two years — 2018 saw a 10.1 percent return, while 2017 yielded 8.1 percent. Despite the low rate, the endowment exceeded $40 billion for the first time in its history.

Harvard has lagged behind its Ivy League peers in recent years and fell short of Dartmouth’s 7.5 percent return this year. Dartmouth and the University of Pennsylvania are the only Ivy League institutions that have reported their fiscal year 2019 returns so far. All three endowments trail the S&P 500’s return of 8.22 percent for the period matching Harvard’s fiscal year, ending June 30, 2019.

Narvekar, who came to Harvard from Columbia University in December 2016, wrote in his message Friday that he is “encouraged” by the progress HMC has made, but that much work remains.

“We are mindful that there is much left to accomplish in the years ahead to resolve legacy issues and position the endowment for long-term success,” he wrote.

Narvekar also noted that this year marks the half-way point in the University’s five-year plan to restructure its endowment management and shift its portfolio.

This is also the first year that the endowment will see a tax on its yields, the result of a Republican-led tax overhaul passed in late 2017. Harvard has lobbied extensively against the tax over the past several years, thus far to no avail. Still, experts say the tax rate — 1.4 percent — is low enough that most people probably wouldn’t notice any difference.

“It’s just that small tax and it’s not on all assets. It’s on certain parts of the income. I don’t think most people would notice the small difference,” said Robert Kelchen, a professor of higher education at Seton Hall University.

Kelchen said that various exemptions, including exemptions for assets not directly used to carry out an institution’s tax-exempt purpose, will likely make the effective tax lower than the official rate.

“The largest drop would be 1.4 percent lower returns, but because of all these exemptions, it might knock off a couple hundredths of a percentage point off the endowment returns,” Kelchen said.

Narvekar did not address the effects of the endowment tax but wrote in his note that further details about the returns and HMC’s progress would be released in the University’s annual financial report next month.

Harvard’s endowment — the largest of its kind in the world — funds many of the school’s operating costs. Roughly one-third of the University’s operating budget is drawn from the endowment each year, though its schools depend on the investment fund to varying degrees.

The University’s endowment has come under increased scrutiny in recent years as student activists target various investments including those tied to the fossil fuel industry, private prison companies, and Puerto Rican debt. Fossil fuel divestment activists have been particularly fervent in their calls for Harvard to withdraw its endowment from a stake in that industry.

—Staff writer Cindy H. Zhang can be reached at cindy.zhang@thecrimson.com.​​​​