The state’s largest public pension fund bounced back last quarter but ended the calendar year with a 1.3 percent investment loss that dragged down the asset value in its portfolio by nearly a half-billion dollars.

Hawaii’s Employees’ Retirement System reported Monday its portfolio gained 5.5 percent in the October-December period to match the median return of 26 public funds with assets of $1 billion or more. In the July-September quarter, the portfolio slumped 11.2 percent

Assets rose to $10.7 billion from $10.2 billion at the end of the previous quarter. For the full year, assets decreased by $453.9 million from $11.2 billion on Dec. 31, 2010.

The ERS fund provides retirement, disability and survivor benefits to more than 111,000 active, retired and inactive vested state and county employees.

"Throughout the year, long-term investors were plagued by the markets’ continuously alternating appetite between ‘risk-on’ and ‘risk-off,’" the report said. "Although the second and third quarters of 2011 saw some of the largest historical short-term declines and subsequent recoveries, the fourth quarter endured with less volatility and mostly positive returns."

The report said that improved economic news and statistics continued to slowly trickle in and provide support for the markets.

However, the report noted, "European and U.S. fiscal problems, along with a still-struggling housing sector, remain as considerable headwinds on the road to a global economic recovery."

The ERS fund received a big boost last quarter by the 11.9 percent return of its domestic equity holdings. International equity was up 4.4 percent.

In other areas, real estate, which is reported on a one-quarter lag, gained 2.5 percent; inflation-adjusted returns linked to oil and other commodities rose 2.3 percent; total fixed income edged up 0.9 percent; and private equity inched up 0.3 percent.