ERS gains record 17% in fiscal year
The state pension fund boosts its assets to $11.6B
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The Employees' Retirement System posted its best fiscal year performance in a decade, boosting total assets to a record $11.6 billion.
The state's largest pension fund saw its fourth consecutive double-digit gain in the fiscal year at a record 17.3 percent -- more than double its mandated 8 percent target return.
The fund has not seen gains as large since the height of the U.S. technology bubble in fiscal 1997, when it recorded an 18.8 percent return, resulting in total assets of $7.9 billion, and in fiscal 1998, when it saw a 16 percent gain, boosting assets to $9.1 billion.
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The Hawaii Employees' Retirement System posted its fourth consecutive double-digit gain in the fiscal year, boosting its total assets to a record $11.6 billion.
The state's largest pension fund chalked up a fourth-quarter gain of 5 percent and a record 17.3 percent annual gain --- the best fiscal year performance in a decade and more than double the 8 percent yearly target return needed to meet its obligations.
The fund has not seen gains as large since the height of the U.S. technology bubble in fiscal 1997, when it recorded an 18.8 percent return, resulting in total assets of $7.9 billion, and in fiscal 1998, when it saw a 16 percent gain, boosting assets to $9.1 billion.
The record gains follow a change in advisers to the Employees' Retirement System after 30 years when Pension Consulting Alliance of Portland, Ore., replaced San Francisco-based Callan Associates Inc. on Jan. 1. The portfolio increased by $644.7 million during the latest quarter and by $1.6 billion over the past year.
PCA kept the portfolio relatively unchanged last quarter but did some modest rebalancing by shifting the strong-performing international equity class to domestic fixed-income assets.
"The fundamental factors driving the overall global economy remain robust," said PCA Managing Director Neil Rue, who presented the results yesterday to the ERS board of trustees.
International equity contributed to the fund's largest asset gain in the fiscal fourth quarter, rising 9 percent and outpacing the 7.7 percent policy benchmark return. For the fiscal year, international equity rose 29.8 percent, up 1 percentage point from the benchmark.
Domestic equity increased 6.8 percent, also beating its fourth-quarter benchmark of 6.1 percent. Domestic equity matched its annual benchmark at 20 percent.
The subprime mortgage market continued to contribute to the U.S. equity's quarterly lag behind international equity markets, which benefited from abundant liquidity, merger/acquisition and share buyback activity, fund advisers told the trustees.
For the fiscal year, international equity continued to provide the strongest returns, though both real estate and U.S. equity generated positive returns.
However, the investment market has become more volatile since the end of the fiscal year because of the uncertainty involving the extent of subprime lending problems, Rue said.
"The volatility in the markets since June 30 has been significant, and everybody will be monitoring the portfolio as we go forward," he said.
Meanwhile, domestic fixed income posted a loss of 0.4 percent, or 1 percentage point better than its benchmark during the quarter, while international fixed income matched the benchmark loss of 1.8 percent.
Domestic fixed income for the fiscal year grew 6.4 percent, outpacing a 6.1 percent benchmark, while international fixed income rose 2 percent, lagging slightly behind the 2.2 percent target.
Real estate, which is reported on a one-quarter lagging basis, increased 4.4 percent in the latest period, up from its 3.6 percent benchmark. The asset class rose 17.7 percent in the fiscal year, up from a 16.6 percent benchmark.
Alternative investments rose 5.3 percent in the quarter and 22.5 percent in the year.
Separately, the ERS recently won legislation to remove the salary ceiling for its chief investment officer position, which has been vacant since Jan. 31. Board trustees decided yesterday to re-advertise the position to attract a wider pool of applicants, said ERS administrator David Shimabukuro.
The ERS provides retirement, disability and survivor benefits for more than 100,000 government workers and their beneficiaries, including more than 63,000 active members.
