Hawaii’s public-employee pension fund was hard-hit over the past three months by the volatile U.S. stock market and the global financial crisis.

The Hawaii Employees’ Retirement System — which pays out retirement benefits for state and county workers — lost $1.4 billion for the quarter ended September 30. Its total portfolio generated a negative 11.2 percent return for the quarter, according to a report by Pension Consulting Alliance. (The 60-page report is not available online.)

Nationally, public retirement funds with at least $1 billion in assets posted a median loss of 9 percent for the quarter.

The losses follow a 21 percent gain for the year ended June 30.

The ERS portfolio was valued at $10.2 billion as of Sept. 30, down 12 percent from its value of $11.6 billion just three months earlier. The fund’s value is down 3.3 percent since last September.

The report attributed the losses to the portfolio’s domestic and international equity holdings, citing “poor performance from the public equity markets.” The ERS’s domestic equity holdings decreased 10.3 percent for the quarter.

The report noted that the fund previously had posted positive returns in three of the last five years ended Sept. 30. However, the fund is built on the assumption that it will earn 7.75 percent on its investments annually. That figure was 8 percent until this year’s legislative session. The fund has averaged a 3 percent return over the past decade.

Hawaii’s pension fund has about 111,000 members in state and county governments, including 39,400 retirees and beneficiaries.

The ERS had approximately $9 billion in unfunded liabilities as of June 30, 2010. It’s unclear what impact the recent activity has had on the liability since the unfunded liability only has to be calculated every two years.

Here are some excerpts from the September 30 report.

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