The state’s largest public pension fund posted a flat return on investments in the April-to-June quarter but ended fiscal 2013 up 12 percent to mark its best performance in two years.
The State of Hawaii Employees’ Retirement System — which provides retirement, disability and survivor benefits to 113,282 active, retired and inactive state and county employees — beat its annual targeted return of 7.75 percent as it grew to a record $12.3 billion.
ERS Administrator Wes Machida said the 12 percent return on investments isn’t likely to reduce the public pension fund’s large unfunded liability.
As of June 30, 2012, the pension fund had an $8.4 billion unfunded liability, which is how much additional money is needed to pay future recipients. The fund was only 59.2 percent funded at that time.
"The unfunded liability should be about the same or a little higher despite the positive performance," Machida said. That’s because of investment losses in the past and changes that could add to the liability, such as more employees, lower employee or employer contributions, and retirees living longer. The unfunded liability for the fiscal year that just ended will not be reported until December, Machida said.
Last quarter the ERS fund eked out a 0.1 percent, or $2.2 million, gain to match the return of 26 public pension funds that have assets greater than $1 billion, according to a Pension Consulting Alliance Inc. report released Monday by the ERS.
"We got slowed down at the end of May and in June with talk of tapering (Federal Reserve Chairman Ben Bernanke’s comments about slowing down bond purchases) and the Chinese economy slowing down," ERS Chief Investment Officer Vijoy "Paul" Chattergy said. "While there may be some increased volatility going forward, as long as the policymakers in Washington are reasonable, the portfolio can benefit from moderate strength in the U.S. economy going forward."
Chattergy said the fund had a strong performance over the 12-month period. The fund’s assets rose more than $1 billion during that time and helped make up for a lackluster fiscal 2012, when the ERS fund lost 0.6 percent.
"The fiscal year ended up really well with the portfolio up 12 percent," said Chattergy, who took over as permanent chief investment officer Nov. 1 after serving as interim from July 6, 2012.
However, the ERS’ 12-month return did trail the median public funds gain of 12.7 percent.
Chattergy attributed that to the more conservative nature of the fund’s assets to guard against possible economic crises.
"We tend to be a little bit underperforming in bull markets compared to our peers, but if the equity markets were to dramatically sell off, they would go down more than we would if they didn’t make any changes," he said.
