State pension fund
sees solid gainThe value of the ERS grows
$150 million in a single quarter
The pension fund for state employees -- Hawaii's largest retirement system -- is on track to record its first double-digit percentage gain in the last five fiscal years.
Despite a flat quarter for the overall stock market, the Employees' Retirement System posted a 3 percent increase in investments in the fiscal 2004 third quarter, which ended March 31. The rise extended its investment gain for the first nine months to 15.4 percent.
The last time the fund achieved a double-digit return for a fiscal year was in 1999 when it rose 10.4 percent.
"While the first quarter did not reach the heights of many of the more robust quarters of 2003, it was nonetheless a solid period of growth," said Callan Associates Inc., the San Francisco-based firm that helps ERS manage its investments.
The ERS, which revealed its results at a board meeting yesterday, said its fund's asset value at the end of March stood at $8.7 billion, a gain of approximately $150 million from Dec. 31. The fund is now at its highest level since it reached $8.8 billion at the end of fiscal 2001.
"We saw good performance from the emerging market with a 9.28 percent return last quarter, and we are pleased with the total fund performance of 3.02 percent, which ranked us 11th in our peer group" of large public pension funds, said Kimo Blaisdell, chief investment officer for the ERS.
ERS received a 2.7 percent return from its domestic equity investments, a 2.5 percent gain from domestic fixed income, a 1.9 percent increase in international fixed income, a 2.2 percent gain in real estate and a 5.8 percent rise in alternative investments, such as timber.
The fund's overall performance last quarter exceeded its benchmark of 2.9 percent, and its nine-month performance is just behind the large-public-fund median return of 15.6 percent.
Meanwhile, Bank of Hawaii, a portfolio manager that has been on an ERS watch list since November 2002, was recommended for termination in a letter that Callan sent to board members dated May 3.
Bank of Hawaii, which had $86 million of ERS assets under management in its large-capitalization growth fund at the end of last quarter, lost 0.7 percent in the period to leave it in the 90th percentile in its peer group. A ranking in the first percentile is the best.
For the first nine months of the fiscal year, Bank of Hawaii returned 12.9 percent, placing it in the 80th percentile.
Callan said it recommended the ERS drop the fund because it had concerns with Bank of Hawaii's personnel turnover, as well as the fund's selection process and its underperformance.
However, the board decided yesterday to reduce its allocation in the portfolio by 50 percent and pursue participation in a new venture that Bank of Hawaii is launching with Nuuanu-based C.M. Bidwell & Associates. The new investment product will focus on high-quality, large-cap stocks within the Standard & Poor's 500 index.
Bidwell, which manages $63.2 million for the ERS in the large-cap core sector, was in the first percentile last quarter with a 4.3 percent return and is first through the first nine months of the fiscal year with a gain of 23.2 percent. Bidwell also ranks first for the last three years and five years.
"To address the concerns expressed by the ERS and its consultant, we recently implemented initiatives which we expect to strengthen our position as an investment manager, such as the recently announced alliance with C.M. Bidwell & Associates," Bank of Hawaii said in a statement. "We look forward to continuing to work with the ERS and a stronger performance in the future."
The ERS provides retirement, disability and survivor benefits for 97,000 city, county and state retirees and their beneficiaries.