The state Employees’ Retirement System pension fund began its new fiscal year with a bang as it exploded 8.3 percent last quarter — one of its best returns ever — and boosted its assets to $10.6 billion, its highest level in more than two years.

Strong returns from international investments and the best September in 71 years for the Standard & Poor’s 500 index helped swell the fund by $805.5 million for the three-month period ended Sept. 30.

"This is probably one of the strongest returns ever, and the assets returned to pre-crisis levels and were the highest since they were at $10.8 billion on June 30, 2008," said Neil Rue, managing director of Portland, Ore.-based Pension Consulting Alliance Inc., which advises the ERS trustees on investments. "This is a very nice way to start their fiscal year."

The ERS fund’s international equity holdings jumped 16.1 percent last quarter. Domestic equity, helped by an 8.9 percent total return in September by stocks in the S&P 500, increased 11.3 percent. And total fixed income, which includes both domestic and international holdings, gained 3.5 percent.

"That’s a ridiculous number for fixed income," Rue said. "That’s averaging 14 percent a year."

The ERS fund, which provides retirement, disability and survivor benefits to more than 111,000 active, retired and inactive vested state and county employees, is up 5.1 percent for the first nine months of this calendar year and is ahead 9 percent over the last 12 months.

Last quarter, the fund trailed its benchmark of passively managed asset class portfolios by half a percentage point, but over the past 12 months is half a percentage point ahead of its benchmark.

In relation to its peer group, the ERS fund was behind by half a percentage point last quarter and trailed by 1.6 percentage points over the past 12 months. The median fund encompasses 27 funds that have assets greater than $1 billion.

Rue said the probability is much higher that the economy is going to grow rather than slip into another recession, but he said the visibility remains fairly short "because we’ve got a lame-duck Congress, and the market’s priced in a continuation of the Bush tax cuts."

"Everybody’s stonewalling going into the quarter, and volatility could come back very quickly," he said.