The University of Cambridge, ranked as the world's top university in a closely watched survey, is lagging U.S. rivals when it comes to the performance of its endowment fund.

Cambridge said its fund grew 16.1 percent in its last financial year as global equity markets rallied, behind the 21.9 percent gain in Yale's endowment and Harvard's 21.4 percent growth.

The rise in the year to end-June, which came before markets tumbled over worries about the euro zone debt crisis, helped the Cambridge University Endowment Fund (CUEF) grow to 1.53 billion pounds, Cambridge said on Tuesday.

The fund's return...reflected a strong environment for risk assets, albeit more muted in the last two quarters of the fiscal year, and excess returns above benchmarks in the leading asset classes in which the fund is invested, a spokesman said.

Cambridge and rival University of Oxford, which ranked first and fifth respectively in the QS World University Rankings 2011/2012, have tried to improve how their central endowment funds are run in recent years.

They have hired big-hitters from the private sector to try and emulate the success enjoyed by U.S. rivals, whose big sizes -- Yale manages $19.4 billion (12.1 billion pound) and Harvard $32 billion -- and star managers mean their returns are closely watched.

Cambridge hired Nick Cavalla, one-time student at its own King's College who spent 10 years at Man Investments, part of hedge fund Man Group, as its first CIO in 2007, while Oxford set up an investment office run by Sandra Robertson -- reportedly the best-paid person in UK higher education.

HEDGE FUND ALUMNI

CUEF, overseen by an investment board chaired by Schroders CEO Michael Dobson, is responsible for managing the central assets of Cambridge university.

This is distinct from Cambridge's 31 independent college endowments, which run some two-thirds of the total Cambridge endowment of 4.3 billion pounds, though a small number invest with CUEF.

Oxford's central endowment managed around 630 million pounds in July 2010, while its 38 colleges ran 2.7 billion pounds.

Many individual Oxford and Cambridge colleges have diversified away from historic concentrations in land, some of it owned for hundreds of years, instead buying other asset classes including hedge funds, some run by former students.

Despite moves to modernise how the ancient institutions run their money, experience during recent market turmoil means many of the individual colleges are choosing to keep managing money for themselves.

There has been no great rush to hand over money to the centre. Colleges like doing it themselves, said Karl Sternberg ex-Deutsche Asset Management CIO and now executive director at Oxford Investment Partners (OXIP), a fund manager created by several Oxford colleges in 2006 to run part of their endowments.

They've not done too badly across the recession. (Oxford college) Christ Church, for example, was only down a few percent over the course of the whole of 2007 to 2009 because it's got a lot of farmland. It may have been disappointing in a 500-year view, but a pretty good one in the last 10 years.

OXIP runs around 470 million pounds, with around 20 percent invested in hedge funds including funds managed by Lansdowne Partners, Brevan Howard and Crispin Odey, who attended Christ Church, one of OXIP's founding colleges.

(Editing by Chris Vellacott and Erica Billingham)