The state’s largest public pension fund moved back into positive territory for the fiscal year as it soared 8.3 percent last quarter to boost its total assets to a near-record $11.5 billion.
Hawaii’s Employees’ Retirement System’s portfolio increased $814.4 million during the January-March period. Through the first nine months of the 2012 fiscal year, which ends June 30, the fund has earned a 1.4 percent return, according to a report issued Tuesday by Portland, Ore.-based Pension Consulting Alliance Inc., which advises the ERS board of trustees.
The ERS fund provides retirement, disability and survivor benefits to 111,648 active, retired and inactive state and county employees.
"This is one of the strongest quarters we’ve had recently, and the trustees were very pleased with this kind of performance and hope it continues," ERS Chief Investment Officer Rod June said.
"The (individual) managers’ portfolios were structured in a way that they were able to outperform. This is a quarter where the managers who took risks were rewarded for that risk."
Equity markets turned in the strongest quarter since the initial rebound from the credit crisis in mid-2009, the report said.
"Investors once again embraced risky assets, as evidence of a sustainable economic expansion continued to mount," the report said. "Uncertainty regarding European banks and sovereign debt issues began to slowly subside due largely to the (European Central Bank’s) efforts to ease funding and refinancing pressures."
The ERS performance beat the median 7.7 percent return of 26 public funds with assets of $1 billion or more. The ERS return also exceeded its policy benchmark —consisting of various index funds — of 7.5 percent.
It was the second straight positive quarter and the 10th gain in the past 12 quarters for the ERS fund. The peak level for assets was $11.7 billion on Sept. 30, 2007.
Still, Pension Consulting cautioned in its report that while economic data from the U.S. continue to improve, "rising oil prices and tax uncertainty could produce potential headwinds as politicians have yet to address pending tax hikes and spending cuts, both scheduled to take effect next year."
June also said he’s concerned that problems in Europe, in particular Greece and Spain, could weigh heavily on the markets.
"I don’t think that the trustees believe that the kind of quarter that we had in the first quarter is necessarily a trendsetter," June said. "We continue to manage the portfolio with caution and prudence."
Domestic stocks were the best performers in the ERS portfolio as they jumped 13.3 percent in the quarter. All of ERS’ 10 domestic equity portfolio managers posted positive results, and seven matched or outperformed their respective benchmarks. International stocks rose 12.8 percent as all six of ERS’ international equity portfolio managers beat their benchmarks. Total fixed income, which includes both domestic and international holdings, gained 2.5 percent.
In other areas, covered calls, an options strategy where an investor holds a long position in an asset and sells call options on that same asset, rose 5.1 percent; real estate, which is reported on a one-quarter lag, increased 4 percent; inflation-adjusted returns linked to oil and other commodities gained 2.3 percent; and private equity edged up 1.2 percent.
