The record-setting U.S. stock market helped the state’s largest pension fund earn a 4.7 percent return on investments last quarter, pushing assets above $12 billion for the first time.

A report released Thursday by the Hawaii Employees’ Retirement System shows that it is well on its way to exceeding the fund’s annual targeted return of 7.75 percent for the fiscal year which ends June 30. Through the first nine months of the fiscal year, the fund was up 11.9 percent.

The ERS pension fund provides retirement, disability and survivor benefits to 113,282 active, retired and inactive state and county employees.

Last quarter, the fund’s assets increased by $416.5 million to reach $12.3 billion, according to the report prepared by Portland, Ore.-based Pension Consulting Alliance Inc., which advises the ERS board.

The amount of assets reflects the change in value due to investment results as well as cash flows stemming from contributions and distributions.

The growth from investments will help shore up the fund, which is far from matching what is needed to pay the benefits promised.

The fund had only 59 percent of the amount needed to meet its obligations as of June 30, 2012, according to Dallas-based actuary Gabriel Roeder Smith & Co.

Chief Investment Officer Vijoy "Paul" Chattergy said the gain on investments, as well as other recent law changes implemented by the Legislature, should help cut into the fund’s $8.4 billion shortfall.

"Any positive performance helps the unfunded liability," Chattergy said. "The markets were very strong in the first quarter and have continued to be strong for this second quarter.

"If the performance continues to be healthy, we potentially could see some change in the unfunded liability in a positive way. We have the wind at our back and we’ll just have to see where we end up in June."

During the last two years, the state Legislature made changes that included increasing contributions from employers and new employees, and adopting a rule to reduce pension spiking — the practice of employees working a lot of overtime toward the end of their careers to significantly boost their retirement benefits.

The funded ratio, which measures the percent that the plan is fully funded, is the lowest since the ERS began tracking ratios around 1980.

The ERS’s 4.7 percent return last quarter was below the 5.1 percent median gain on investments for 29 public funds that have assets greater than $1 billion.

Domestic equities were the stars in the ERS portfolio as they jumped 10.3 percent during a quarter when the Standard & Poor’s 500 index increased 10.6 percent. International equities, on the other hand, gained just 2.2 percent. Total fixed income, which includes both domestic and international holdings, edged up 0.6 percent.

In other categories, real estate, which is reported on a one-quarter lag, gained 5.3 percent; covered option calls (equities with downside protection) rose 4.9 percent; inflation-adjusted returns linked to bonds and timber increased 2.1 percent; and private equity went up 0.4 percent.