State's pension fund loses $780M

By John Duchemin
Advertiser Staff Writer

The state employees' pension fund suffered through three months of heavy losses in the third quarter of 2002, but still managed to outperform many of its counterparts as the overall market plunged.

The State of Hawai'i Employees' Retirement System lost 9.8 percent, or $780 million, of its value between June 30 and Sept. 30, shrinking to $7.1 billion.

Compared to a year ago, the retirement fund's value was down 13.14 percent at the end of the third quarter.

The fund, which pays for the pensions of 93,000 current and retired state employees and beneficiaries, was hammered both by the stock market's worst quarter since 1987 and by the withdrawal of hundreds of millions of dollars in benefit payments.

The pension fund has lost nearly $3 billion from its peak. The fund had $9.9 billion in assets as of June 2000, but since then it has languished as the stock market has plummeted, the state Legislature has cut contributions and benefit payouts have grown slightly.

Ronald Peyton, president of ERS investment adviser Callan Associates, said yesterday that the latest losses are troubling, given the fund's recent struggles.

But he added that ERS should still be encouraged by recent strong performances from its fund managers.

"This is as bad as the crash of 1987, but it's even worse because it's on top of everything else," Peyton told ERS trustees at their monthly board meeting. "But even though you've had a very tough time, the fund is actually performing well on a relative basis."

ERS' year-to-year loss outperformed 51 percent of its peers, Peyton said. ERS recently lagged behind many of its counterparts because of an emphasis on international markets, but the fund's three-year and five-year performance is now above average, Peyton said.