The state Employees’ Retirement System pension fund, which pays benefits to retired state and county employees and their families, lost $761.5 million, or 6.2 percent, in the April-June quarter.

Despite that decline, the fund rose 11.7 percent in the year ended June 30 to record its first fiscal-year gain since 2007, when it rose 17.7 percent. The asset value of the portfolio increased by $934 million over the 12-month period to bring its value at the end of the fiscal year to $9.8 billion.

"It was a very challenging time in the market, especially for public equities, but we continue to remain very strategic in how we build the portfolio," said ERS Chief Investment Officer Rod June. He acknowledged it was a tough quarter but was happy with the one-year return.

Until the April-June decline, the fund was up 19.1 percent through nine months. That marked its best nine-month return since 1986, when it was up 20 percent over a similar stretch.

In fiscal 2009, which ended June 30, 2009, the fund had its worst-ever loss of 18.7 percent.

"We continue to remain strategic and will stick with our plan, realizing the economy is going to continue to be challenging and investing will continue to experience a great deal of volatility," June said.

In January the ERS trustees decided to increase its allocation in international equities to 26 percent from 17 percent, but as of June 30 was at only 15.8 percent.

"The target increased, but we haven’t yet moved toward those targets," June said. "That will occur later in 2010 and possibly into 2011."

Stung by big drops in its domestic and international equity holdings, the overall portfolio’s 6.2 percent decline last quarter trailed a median of similar pension funds, which declined 5.7 percent in the April-June quarter. The median fund encompasses 29 funds that have assets greater than $1 billion.

By comparison, the total return of the Standard & Poor’s 500 index last quarter was minus 11.4 percent, while the Dow Jones industrial average fell by 9.4 percent and the Nasdaq composite index decreased 11.8 percent.

Within the ERS portfolio, domestic equities fell 11.6 percent last quarter while international equities dropped 11.7 percent. Total fixed income edged up 1.9 percent. Real estate investments, which are reported on a one-quarter lag, lost 0.8 percent.

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