The Hawai'i Employees' Retirement System lost on its investments during the October-to-December quarter, but it wasn't nearly enough to erase gains during the rest of 2007 as assets at the state's largest pension plan ended the year at $11.6 billion.

The plan's consultants, Pension Consulting Alliance Inc., yesterday reported the rate of return was negative 0.4 percent during the quarter as stock markets in the U.S. and internationally recorded losses on investor concerns about economic weakness. The downturn was softened by gains in real estate and bonds and other fixed-income investments.

Pension Consulting told the ERS trustees there were bright spots in the three-month period, including doing better than other funds with more than $1 billion in assets, which had a median return of negative 0.7 percent. The same was true when comparing the ERS against the median fund performance on an annual basis and for three- and five-year periods.

"You've outperformed your peers," said Pension Consulting's Jeremy Thiessen. He reported 12 of the plan's 13 domestic equity managers outperformed benchmarks, with local managers at Bank of Hawaii and C.M. Bidwell & Associates topping the group.

"The managers you've selected have had excellent performance."

The ERS provides retirement benefits for state and county workers and tries to earn an 8 percent return on its portfolio each year. Despite the fourth-quarter setback the portfolio had a 10.6 percent return during 2007. That compared to the median fund's return of 8.6 percent.

For the year, assets grew by $906 million from the $10.7 billion at the end of 2006.

Asset growth would have been higher if not for the $37 million decline in assets in the fourth quarter. The loss was the ERS' first since June 2006, according to Pension Consulting.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.