ERS fund's value rises to $7.8B
By Andrew Gomes
Advertiser Staff Writer
Pension fund managers for the state Employees' Retirement System collectively achieved their best quarterly performance in 4 1/2 years, increasing the fund's value by $700 million to $7.8 billion.
The 11.1 percent return on investments during the three months ended June 30 put the fund at the 28th percentile of public pension funds valued at more than $1 billion, meaning the Hawai'i fund outperformed 72 percent of its peers.
San Francisco-based investment adviser Callan Associates yesterday reviewed the investment results with trustees of the ERS, which controls pension money for 93,000 current and retired state employees and beneficiaries.
Broad-based gains in the stock market bolstered returns for many of the fund's investments, which have undergone major changes in the past four years as fund administrators redirected investing with new portfolio managers and strategies.
"It's quite encouraging the way this market has moved," said Ron Peyton, Callan president and chief executive officer. "It really is kind of nice to see black numbers."
The 11.1 percent return beat the 8 percent goal assumed necessary to cover projected pension distributions and other costs, helping improve the long-term health of the fund, from which lawmakers skimmed more than $300 million to help balance the state budget in the late 1990s.
For the state fiscal year ended June 30, the pension fund broke two years of annual losses with a 2.9 percent gain, which positioned the fund in the bottom third of its peers at the 71st percentile.
Still, the fund over five years remained in the bottom 10 percent of its peers, at the 91st percentile with a 1.5 percent return.
But Peyton said the recent quarterly performance and strong peer ranking should move the pension fund up in future five-year rankings.
Matt Beck, a Callan vice president, noted that for calendar years, the pension fund has improved in percentile rankings from 85th in 2000 to 54th last year. For the first half of this year, the fund moved up to 50th.
During yesterday's investment review, the ERS board voted to remove one of its 23 investment managers, AllianceBernstein, a fund of New York-based Alliance Capital Management that has managed ERS money for 18 years.
The AllianceBernstein fund has $280 million in ERS money, which will be transferred to a Standard & Poor's index fund until a new large cap growth fund manager can be selected.
AllianceBernstein earned an 11 percent return for the quarter but lagged in the 88th percentile among peers. Over five years, AllianceBernstein's peer ranking was 91st.
By comparison, other ERS large cap growth managers — Bank of Hawaii, Bishop Street and Putnam Investments — had quarterly peer rankings between the 25th and 40th percentiles.
Over the past several years the ERS board has terminated almost 10 investment managers, and hired five new ones. The board is in the process of hiring one or two new firms to manage $200 million being reallocated to international equity investments.
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
