ERS' return at 15.47%
By Deborah Adamson
Advertiser Staff Writer
The state pension fund yesterday reported a 15.47 percent total return for fiscal year 2004, its best performance in six years.
Total assets for the Employees' Retirement System rose to $8.6 billion as of June 30, bolstered by a rebound in U.S. and foreign stocks. In fiscal 2003, assets came to $7.8 billion.
"We are very pleased that our 15.47 percent return for the fiscal year far exceeds our target of 8 percent per year," said Kimo Blaisdell, ERS' chief investment officer. "The equity markets, both domestic and international, have continued to perform well over the last year."
ERS invests almost two-thirds of its money in stocks, with the rest diversified into bonds, real estate and other investments. The pension fund covers 93,000 current and former state, city and county employees, retirees and beneficiaries.
The pension fund ended the year on a positive note despite a weak finish — it eked out a 0.1 percent return in the fiscal fourth quarter. During the same period, the S&P 500 index rose 1.72 percent, while a Bloomberg index of U.S. Treasury bonds fell 2.1 percent.
The markets have cooled off lately amid rising interest rates and geopolitical concerns surrounding the U.S. handover of sovereignty to Iraq, according to ERS pension consultant Callan Associates.
But the flat finish was offset by a stock market recovery earlier in the fiscal year.
For the year, the fund's portfolio of U.S. stocks brought in a total return of 21.8 percent, while international equities rose 28 percent. Fixed-income investments didn't do as well, down 1.45 percent for domestic bonds and up 7.87 percent for foreign bonds.
In other action yesterday, the ERS fired Capital International, an emerging-markets money manager that handled $251 million of pension assets.
Capital International had been on ERS' watch list — where underperforming managers land — since May 2003. In the fourth quarter, Capital International's portfolio lost 10.84 percent.
The ERS board terminated Capital against the recommendation of Callan Associates, which advised leaving the firm on the watch list and hiring another money manager specializing in smaller-cap foreign stocks to complement Capital's investments in larger companies.
Three of the board's eight members disagreed with the firing.
Capital will continue to handle the ERS portfolio until a new money manager is hired.
"They are not doing what our actuaries said they should," said Rick Humphreys, chairman of the ERS investment committee. "Our job is to assist the state the best we can."
In fiscal 2005, state and local governments will need to pump an extra $93 million into the pension fund to keep obligations to pensioners on track. Although the state collected $98 million more in taxes in fiscal 2004, expenditures exceeded revenues, resulting in a $150 million deficit.
The pension fund shortfall resulted in part from $346.9 million in ERS investment gains that the state diverted during 2000 to 2002 to cover the budget, which included pay raises for public workers.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
