Hawaii’s largest public pension fund ended the fiscal year with its best return since 2011 as assets rose to an all-time high of $14.1 billion.

The state Employees’ Retirement System posted a 4.4 percent investment gain in the April-June period to finish the fiscal year, which ended June 30, with a return of 17.4 percent, according to a report presented to ERS trustees Monday by Portland, Ore.-based Pension Consulting Alliance Inc., which advises the ERS trustees on investments.

The fund, which provides retirement, disability and survivor benefits to 115,350 active, retired and inactive state and county employees, targets an annual 7.75 percent fiscal-year return to help fulfill its pension obligations.

"The strong performance can be attributed to allocation weightings to domestic U.S. equity managers and to individual fund managers’ returns in both U.S. equities and fixed income," ERS Chief Investment Officer Vijoy "Paul" Chattergy said. "Strong portfolio growth over the last 24 months is having a positive effect for the ERS attaining long-term return objectives on its investments."

It was the second fiscal year in a row that the ERS fund achieved a double-digit return after gaining 12 percent in the fiscal year ended June 30, 2013. The portfolio increased by $2.8 billion during the past two fiscal years.

The ERS fund is in the early stages of playing catch-up with its future pension obligations after being only 60 percent funded —a shortfall of $8.49 billion — as of June 30, 2013. The unfunded liability for the fiscal year that just ended will not be released until December, but ERS Administrator Wes Machida said this fiscal year’s strong results should lower the unfunded liability.

Pension reforms — including cutting benefits for new employees and increasing contributions — were implemented in the past three years to bring down the unfunded liability.

If investment returns hit their targets and mortality rates are in line with expectations, the pension is expected to be 100 percent funded by 2041, according to the most recent actuary report issued last December.

Last quarter, the ERS’ 4.4 percent return beat the 3.9 percent return of 67 median public funds with assets greater than $1 billion. The ERS return also exceeded its 3.9 percent benchmark, which comprises indexes invested in a similar way to ERS’ portfolio managers. Over the past 12 months, the ERS fund beat the median public fund — 17.4 percent versus 17.1 percent — and just trailed its benchmark, 17.4 percent versus 17.5 percent.

International equities led the way last quarter with a 5 percent return and finished the fiscal year up 20.8 percent. U.S. equities, which represented 36.2 percent of the total portfolio at the end of the quarter, also were strong as they rose 4.3 percent in the quarter and 26.3 percent for the year.

Total fixed income, which include domestic and international holdings, was up 2.2 percent for the quarter and 6.4 percent for the year.

Chattergy said the ERS trustees continue to invest cautiously due to global unrest, European woes and a likely increase in interest rates.

"While geopolitical tensions have dominated the news, the prospect of the European Community headed into a recession, or worse, a deflationary environment, coupled with aggressive Federal Reserve tightening of interest rates represents one of several potential scenarios for a significant drag on future performance," he said. "The ERS remains cautious in making investments and continues to explore more advanced risk management policies to safeguard assets and generate reasonable returns. We expect markets to be more challenging going forward."