Hawaii’s largest public pension fund has started off its new fiscal year on a positive note amid the ongoing U.S.-Chinese trade war and global uncertainty.

The state Employees’ Retirement System fund posted a 1.7% return during the July-September quarter to boost its assets to a record high of $17.4 billion, according to a report presented to ERS trustees Tuesday by its investment adviser, Meketa Investment Group.

The fiscal first-quarter investment gain puts the fund on pace for an annualized 6.8% return, which is near the 7% annualized long-term return target needed for the fund to meet its financial obligations. The ERS provides retirement, disability and survivor benefits to 124,089 active, inactive and retired state, city and county employees.

The ERS has been under pressure in recent years to make up what was a $13.41 billion unfunded liability at the end of the 2018 fiscal year. As of June 30, 2018, it was only 55.2% funded, meaning it had just over half of what it needed to meet future pension obligations. The new actuary report for fiscal 2019 from Gabriel Roeder Smith is due out in January.

“It’s continued progress,” ERS Executive Director Thom Williams said in a phone interview. “Obviously, we would close the gap more quickly the higher the investment return, but we’re very pleased with the positive trend of reducing our unfunded liability over time. The unfunded liability would be increasing at a faster rate over the near term but for the employer contribution increases and positive investment returns.”

Lawmakers passed legislation in 2017 to close funding shortfalls that were created partly due to existing unfunded liabilities, retirees living longer and lower projected investment returns. Public employee pensions are supported by government contributions, namely tax dollars, that are based on a percentage of an employee’s pay. For the ERS pension fund to become whole, state and county employers began increasing the contribution percentage starting July 1, 2017, with the increases being phased in over four years for general workers and police and fire employees.

Dallas-based Gabriel Roeder Smith said in its last actuary report that it will take the ERS fund until June 30, 2043, before the pension is 100% funded. The unfunded liability is expected to increase until 2023, at which point it will top out at $14.19 billion and gradually decline to where after 2043 it should be at zero.

Last quarter the ERS fund outperformed its policy benchmark, 1.7% to 1.3%. The policy benchmark is a composite of various market-sector returns that are meant to emulate the investments in the ERS portfolio. Broad growth investments, which comprise 68% of the fund, rose 0.7%. An investment class called “crisis risk offset,” meant to reduce risk, jumped 6.8%.

“We are … experiencing strong excess return over our policy benchmark — a phenomenon that has been occurring since we implemented our new risk aware portfolio structure a few years ago but picked up significantly over the past year,” ERS Chief Investment Officer Elizabeth Burton said in an email. “On a risk basis, we have continued to de-risk the portfolio as evidenced by our lower portfolio beta to the global equity markets and our improved performance during adverse market shock scenario analysis.”

Williams said it is difficult to measure how much the U.S.-Chinese trade war or other negative factors affected the fund in the fiscal first quarter.

“Certainly, uncertainty is always bad for the markets,” he said. “So to the extent (the trade war) has affected us, it would be negative. Exactly how much is almost impossible to segregate from other market factors such as fears of a global recession. It’s hard to take one of these things and isolate how the tariff war affected us.”