The Hawai'i Employees' Retirement System, the state's largest pension fund, beat its investment goal during the first three months of 2006, rebounding from a sub-par performance at the close of last year.

The pension system earned 4.79 percent during the January-through-March period, helped by investments in overseas stocks and gains in the U.S. stock markets. The gain put it on track to surpass its investment goals for the fiscal year that ends June 30.

"It was a very strong quarter," said T. Kimo Blaisdell, chief investment officer for the ERS. "We are on pace to outperform the 8 percent target we have each year."

The performance topped a 4.54 percent benchmark set for the quarter. It also marked a bounceback for the ERS, the state's largest pension system, after it didn't meet a benchmark during the prior three months. It had an about 1.8 percent return during the October-through-December quarter.

The most recent three months produced a $307 million gain and raised the market value of ERS investments to $9.9 billion at the end of March.

Callan Associates Inc., an ERS adviser, said the recent quarter's return ranked the Hawai'i plan in the top six of public pension funds with at least $1 billion in assets. While the ERS suffered some losses in bond markets because of higher interest rates and inflation concerns, international stocks produced a 10.5 percent gain, while domestic equities were up 5.63 percent.

The ERS has produced an 11 percent investment return over the past 9 months, Callan said. That put the ERS in good position to beat its investment target when it ends its year in June. It would be the third consecutive year the plan has beaten its goals.

"You're well on track," Janet Becker-Wold of Callan told a meeting of ERS trustees yesterday.

The ERS also added a new investment firm this month to help manage a little more than $1 billion it has invested in large companies that are considered "value" stocks. Blaisdell said C.S. McKee, a Pittsburgh-based investment adviser, joins two other firms managing the ERS' large-cap value portfolio.

Blaisdell said the move was made to diversify management and that McKee received about $250 million to oversee. The ERS employs more than two dozen investment firms to invest and manage its assets.

The pension fund 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.