The state Employees' Retirement System, the state's largest pension fund, kicked off its new fiscal year with good news, earning a 3.63 percent return on its investments during the three months ended Sept. 30.

The fund benefiting state and county workers increased its assets by $261.8 million, to $10.2 billion in the quarter.

With the solid quarter, the ERS made progress toward its goal of an 8 percent annual return when the year closes next June. The ERS has surpassed the target return for three consecutive years.

"Bottom line, the news is good," Janet Becker-Wold of consultant Callan Associates told the ERS board of trustees at a meeting yesterday.

While the overall results were respectable, Becker-Wold said the increase could have been better if not for underperformance by its large-capitalization stock managers and low returns on overseas fixed-income investments. As such the fund didn't reach its benchmark for the quarter of 3.8 percent.

But she said market trends are now swinging to growth stocks held by some of its large-cap managers and that international fixed income, while performing poorly during the quarter, had done well for the pension fund in the past.

Callan, which provides the ERS with advice on operating the fund, recommended leaving Bishop Street Fixed-Income on its "watch list" for performance and organizational reasons. The First Hawaiian Bank unit manages almost $160 million for the pension fund.

The ERS gets most of its income from investments that are spread over a range of vehicles, including those in stocks, bonds and real estate. The remainder of its funding comes from the state and counties, which employ two-thirds of ERS members. The remainder of its members are government retirees receiving benefits.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.