Hawaii’s largest public pension fund, playing catch-up on its $12.44 billion shortfall, started the new fiscal year on a strong note as its investments rose 3.3 percent in the July-September quarter.

Assets increased nearly $700 million to a record $16.32 billion, according to a report presented to Employees’ Retirement System trustees Monday by Portland, Ore.-based Pension Consulting Alliance LLC. The change in the fund’s value includes benefit distributions made last quarter.

“It was a strong performance,” ERS Chief Investment Officer Vijoy Chattergy said in a phone interview. “We invest in a diversified pool of assets across different risk classes. That means returns won’t keep up with a strong bull market, but on a risk-adjusted basis the return was still very strong. We want to watch our risk-adjusted returns over the long term rather than a single quarter.”

PCA Managing Director Neil Rue said the momentum in the portfolio has continued since the end of the quarter and that through October the investment return was up 5 percent with assets just over $17 billion.

“That’s significant because the (assumed rate of return) target is 7 percent,” Rue said by phone. “So in four months, one-third of the year, you’re almost there. But between now and the end of this (fiscal) year, it’s going to be very tough to get to the target. I think the markets are going to flatten out a little bit.”

The ERS portfolio, which provides retirement, disability and survivor benefits to more than 120,000 active, retired, and inactive state and county employees, has increased by $6 billion since losing 11 percent of its value in the September quarter of 2011. Over the last five years dating back to the September quarter of 2012, the ERS fund has compounded at a 9 percent annual rate through last quarter. That performance put the ERS fund in the top one-third of 72 large public pension funds in the Bank of New York Mellon database.

For the last 12 months, the ERS has an investment return of 12.4 percent.

“The turnaround since 2011 is attributable to the trustees’ commitment to hire a professional investment team, the increased use of diversified strategies,” Chattergy said in an email.

The portfolio’s broad growth investments (equities, option-writing strategies, private equity, private real estate and fixed-income corporate bonds) rose 4.2 percent last quarter with the pure equities portion of that category gaining 6 percent. Crisis risk offset, a new category that is designed to appreciate materially when equities experience extended declines, increased 1.2 percent. The principal protection category, which is made up of U.S. government-backed bonds, rose 0.9 percent, and inflation-adjusted investments (inflation-linked bonds) gained 0.3 percent.

The ERS portfolio, which has been in the red for years, was only 54.7 percent funded as of June 30, 2016, meaning the fund had just a little more than half the amount needed to pay all the pensions promised. But that percentage, as well as the $12.44 billion shortfall, are expected to improve because the ERS fund rose 13.7 percent in the just-­concluded fiscal year.

Higher payments into the fund by taxpayers that took effect July 1 also will help cut into the shortfall in future years. The added money from taxpayers will raise an additional $34.6 million in fiscal 2018, $70.7 million in fiscal 2019, $176 million in 2020 and $252 million in 2021. That should help compensate for the ERS’ new annualized investment target of 7 percent, which also took effect July 1 and was lowered to reflect anticipated market conditions.