The six highest-paid managers of Harvard University's endowment took home a combined $107.5 million in fiscal 2003, in what amounted to a 43 percent raise from 2002, after producing some of the best investment returns of any school in the nation.

The pay report, disclosed yesterday by Harvard Management Co., is likely to reignite debate at Harvard over investment bonuses that some alumni consider lavish, given soaring tuition rates and the difficult economy.

Jack R. Meyer, the investment group's president, said the managers deserved "every penny" of their compensation, having delivered $700 million in gains above the market's return to the $19.3 billion endowment. But even he is growing weary of the yearly lambasting of the group's pay structure.

If the controversy has become too much for Harvard, Meyer suggested, there is a simple -- if earthshaking -- fix: Harvard Management could spin out and become a private firm.

"This has been a good deal for Harvard," Meyer said. "While we're quite convinced that the current economic system makes sense for Harvard, culturally it's a more difficult question. It could be that you just can't employ world-class portfolio managers in a university setting."

Harvard agrees it's a good deal and sent out letters to alumni yesterday saying so. In a detailed, three-page letter, Harvard Treasurer R. Ronald Daniel wrote that paying outside managers would cost the school twice as much.

While the bonus system sometimes produces pay of "extraordinary magnitude," Daniel wrote, "It has allowed us to retain absolutely outstanding portfolio managers in a highly competitive market for talent." He also said the endowment board would take action to slow the growth of investment bonuses.

Bond managers led the pack at the endowment in the year ended June 30, 2003, according to the report. Maurice Samuels, who oversees foreign fixed-income securities, earned $35.1 million for the year, up from $15.9 million in the prior year. Similarly, David R. Mittelman, a US bond investor, received $34.1 million, nearly double his 2002 compensation. Elizabeth A. Randall, a foreign-bond manager, became the first woman to break into Harvard's handsomely paid top six, earning $7.6 million.

The foreign bond team notched a 52.4 percent return last year, trouncing the market's benchmark return of 18 percent for such portfolios. Harvard's US bonds returned 31.1 percent, vs. a 17.3 percent gain for five-year Treasuries.

All told, the endowment posted a 12.5 percent return in the 12-month period, while the median return among large endowments for the year was 4 percent, according to the Trust Universe Comparison Service. The $11 billion Yale University endowment earned an 8.8 percent return in the same period.

Critics say the numbers are not impressive enough to warrant multimillion-dollar paychecks.

"I don't think anybody needs to be paid $35 million to do the best job they can," said David Kaiser, a professor at the Naval War College in Newport, R.I., and one of several members of Harvard's class of 1969 who wrote to Lawrence H. Summers, the university's president, in November to express outrage over the endowment managers' pay.

"We don't even pay shortstops and quarterbacks that kind of money, and they have skills that are even rarer."

Kaiser suggested that retired investment professionals would be willing to work for far less, or that the faculty could develop a program, with students, to manage the funds. In a statement he and fellow alumnus William Strauss released yesterday, they said that while the investment managers have done a good job for the school, "so have many other Harvard employees, from classroom lecturers to research scientists, from deans to counselors, from campus police to health, laundry, and cafeteria workers."

Meyer, who earned $6.9 million last year, said Harvard is getting a large bang for its buck. The investment staff receives big bonuses for beating their targets -- but they also must pay back large portions of their multiyear incentive pay if they fall short.

"Practically everybody here has experienced it at one time or another," he said.

Talented investors have left Harvard Management before to set up their own firms. When Harvard invests with these firms it has to pay higher fees than if it managed the money itself. For example, when Harvard farms out assets to an independent hedge fund, it not only pays fees, but it must leave 20 percent of any gains with the hedge fund manager, as is typical in the industry. Harvard manages half of the endowment in-house, something few other schools do.

Meyer acknowledges the pay figures "are large numbers" to most people.

"There's no doubt that these numbers are going to create a lot of tension at Harvard, among faculty, students, and alumni."

Beth Healy can be reached at bhealy@globe.com.

© Copyright 2006 Globe Newspaper Company.