Hawaii's largest pension fund suffered its worst quarterly loss in six years amid the nation's financial meltdown, which has reverberated throughout economies around the world.

The state Employees' Retirement System fund said yesterday it lost 8.5 percent in its fiscal first quarter ended Sept. 30 - its fourth consecutive quarterly loss and largest since the fiscal first quarter of 2002, when it fell 9.4 percent.

The ERS, which provides retirement, disability and survivor benefits to 106,000 people, saw the value of its portfolio plunge to $9.9 billion from $11.7 billion a year earlier. The fund decreased by $973.6 million in the quarter and plummeted by nearly $1.8 billion over the past year.

“;It's historic. The volatility that's in the markets day by day has been at unprecedented levels,”; said Neil Rue, managing director of Portland, Ore.-based Pension Consulting Alliance Inc., which advises the ERS board on investment decisions.

The portfolio trailed its policy benchmark of negative 7.6 percent in the quarter, though it performed better than the 9.4 percent loss in the median fund of its large peers - 50 other public pension funds with assets of more than $1 billion. For the past 12 months, the ERS plunged 14.6 percent, worse than its policy benchmark of minus 13.1 percent but better than its peer median fund, down 15.2 percent.

Virtually all retirement system portfolios produced negative returns during the quarter. About 80 percent of the ERS peers performed worse than Hawaii, placing the state in the top tier and at a better ranking over the long term.

“;They've done a good job weathering the storm of investment markets relative to their peer group,”; Rue said.

However, the ERS underperformed its policy benchmark at minus 7.6 percent primarily due to poor results in its domestic equity portfolio, which has performed substantially better over the past few years than its target.

“;The fact is 11 of 13 domestic equity managers underperformed their benchmarks,”; he said. “;It's the public-equity markets - the equity markets outside the U.S. really got punished during the third quarter (of the calendar year).”;

Four out of six ERS asset classes reported negative returns in the quarter, with the largest loss in international equity, which fell a staggering 22.4 percent, trailing its minus-21.5 percent benchmark.

Domestic equity posted the second-highest loss of negative 10.3 percent, behind the benchmark of minus 7.9 percent. Domestic fixed income declined 1.7 percent, beating its minus-0.8 percent benchmark. Alternative investments were down 1.3 percent.

However, international fixed income was up 2.1 percent, outperforming its policy benchmark of 1.6 percent, while real estate rose 0.5 percent, slightly lagging its 0.6 percent target.

“;It's a challenging hole for a system to dig out of,”; Rue said about the quarterly loss. “;But if you look at prior crises ... with the exception of the Great Depression ... the markets have responded reasonably well coming out of a crisis.”;