Yale earned a 22.9 percent return on its endowment for the 2005-’06 fiscal year, outperforming nearly all its peers and increasing the endowment’s value to $18 billion.

The endowment — valued at $15.2 billion last fall — grew faster than officials anticipated, which will make it easier for them to balance Yale’s budget in the next several years. But the University’s spending policy, a perennial target for criticism in and outside the community, will sharply limit the return’s short-term benefits.

Yale’s endowment — after Harvard’s, the second largest such fund among higher education institutions — currently funds about a third of Yale’s roughly $2-billion operating budget. Since administrators have to find ways to close budget deficits almost annually, the additional funding will serve as a welcome source of fiscal relief down the road.

“Certainly, at the beginning of the year we would not have forecasted such an outstanding result,” Yale President Richard Levin said. “If we look at the budget projections five to 10 years away, we show substantial surpluses based on the actual performances of the last few years.”

Yale appears to have far surpassed nearly all its peers, said Richard Anderson, an endowment consultant for Hammond Associates. Anderson estimated that the average college or university earned a 10.5 percent return during the last fiscal year, which ended June 30. Based on figures he has collected so far, the mean return for leading universities was roughly 15.5 percent — Harvard, for example, posted a 16.7 percent gain.

But Yale’s earnings will not translate into an immediate cash windfall, due to a conservative spending rule that mitigates the effect of the endowment’s growth on next year’s budget. The rule’s stated purpose is to preserve the endowment for future generations, but some critics argue that the University is hoarding money.

“I’m happy that the largest employer in the region is financially healthy, but I believe that they need to take another look at their self-imposed spending rule and apply more money toward their daily operations,” Local 35 President Bob Proto said.

In 2004, Yale loosened its spending rule for the first time in a decade. Some experts see harder economic times on the horizon, though, and urge universities to keep limiting their spending.

“We think that returns are going to get much more difficult to achieve, so all the surplus that the Yale endowment is able to build up in these years will serve it well when earning money becomes more difficult,” Anderson said.

Yale’s performance already exceeded the expectations of some administrators and outside experts who predicted that the endowment’s growth would slacken after it posted a 22.3 percent return in the 2004-’05 fiscal year. Chief Investment Officer David Swensen has earned a nearly legendary status among institutional investors, but experts still say that such drastic growth probably cannot be sustained through the next few years.

Justin Dew, a senior hedge fund specialist at Standard & Poor’s, said many analysts believe there are fewer opportunities in the market to exploit than in the past. Large institutions like Yale can theoretically continue earning 20 percent returns, but only by taking serious risks, he said.

“As long as you have capital needed to live through a drawdown of substantial depth or duration, you can survive and theoretically achieve those high returns,” Dew said. “But the danger is tremendous.”

The spending rule is not the only caveat to the endowment’s impressive performance. Much of the endowment is tied up in restricted funds which are directed to specific purposes according to the wishes of those who donated them. Thus, only about half of the money generated through Yale’s investments can be allocated freely by the administration.

Officials are constantly looking for ways to use restricted funds in a manner that relieves pressure on the general appropriations budget while still respecting the wishes of the donors, Deputy Provost Charles Long said. For example, restricted funds devoted to the Council on East Asian Studies are used to pay for related fellowships that might otherwise require money from discretionary appropriations.

The complicated way in which Yale spends its endowment makes the recent gains more of a budget-balancing tool than a cure-all, Long said. The University must remain cautious to fund a variety of initiatives including faculty diversification, expanded financial aid, and an unprecedented construction campaign.

“It certainly isn’t enough in itself to close the kinds of projected deficits that we see each year,” Long said. “An increase in the endowment like this will make it easier to achieve that, but it doesn’t mean we can achieve it without making some very careful choices.”

Anderson said Yale’s investment returns this year were likely buoyed by its 25 percent allocation to “real assets,” which include valuable resources such as energy.

Yale’s endowment has averaged a 17.2 percent annual return over the past decade, growing by $13.1 billion. The University plans to kick off a capital campaign this week to raise billions more in donations during the next few years.