The Hawai'i Employees' Retirement System, the biggest pension fund in the state, earned a 2.3 percent return on its investments in the first three months of the year, missing out on a better performance because of lower-than-hoped for returns on U.S. and international stocks.

The portfolio's assets still managed to increase by $206.6 million during the quarter, growing to $10.9 billion at the end of March, according to a report by Pension Consulting Alliance Inc., the new investment consultant for the Employees' Retirement System, or ERS.

The 2.3 percent return didn't meet the pension fund's target performance of 2.6 percent for the quarter, primarily because investment managers concentrated on large U.S. companies and international stocks that performed below expectations. The ERS, which pays pension benefits to most of Hawai'i's state and county workers, relies on more than a dozen professional money managers to invest its holdings in stocks, bonds, real estate and other investments.

"The total portfolio had somewhat mixed results versus the policy benchmark," said Jeremy Thiessen, Pension Consulting vice president, during an ERS Trustees investment committee meeting. He disclosed the portfolio has increased by 11.5 percent during the year ended March 31, growing the amount of assets by $916.3 million.

But he said it was a difficult three months for the ERS' actively managed large-cap and international equity managers. That raised questions from Trustee Darwin Hamamoto about the expense of using investment managers who actively manage portfolios versus passive managers who have indexlike funds.

Thiessen said the issue may be studied further as Pension Consulting further examines the ERS portfolio. Pension Consulting took over as the fund's consultant this year from Callan Associates, which had advised the ERS for several years. He said his firm may recommend shifting some of the $2.15 billion invested in international stocks to more bonds and other fixed-income investments.

The investment committee was also told the portfolio had grown to about $11.1 billion as of yesterday.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.