Hawaii’s largest public pension fund, chipping away at a $12 billion shortfall, nearly doubled the investment return targeted by its trustees and posted its best fiscal year performance since 2014.

The state Employees’ Retirement System portfolio increased 13.4 percent in the 2017 fiscal year, which ended June 30, according to a report presented to ERS trustees Monday by Portland, Ore.-based Pension Consulting Alliance LLC. It was the best return since the portfolio gained 17.4 percent three years ago and easily surpassed the ERS trustees’ investment target of 7.55 percent. Assets rose nearly $1.6 billion to a record $15.6 billion over the year.

“The portfolio has performed extremely well over the past year, but I would also point to the five-year return number, which is a strong (annualized) 9.2 percent,” ERS Chief Investment Officer Vijoy Chattergy said. “We’re beating our assumed rate of return (investment target), we’re outperforming our policy benchmark (a combination of different indexes that correspond with ERS investments) and we’re outperforming the majority of pension funds in our (peer) universe.”

The strong 12-month return, capped off by a 2.8 percent gain in the fiscal fourth quarter, should help the ERS put a small dent in the $12.44 billion shortfall it had at the end of the 2016 fiscal year. The shortfall in the pension plan is calculated once a year and is typically announced in either December or January by independent actuary Gabriel Roeder Smith &Co.

“This performance absolutely shortens the number of years it will take us to be fully funded,” said Chattergy, referring to the current projection of less than 30 years. “This is a one-year number, but the focus should be on longer-term performance. A five-year return compounding at 9.2 percent is very difficult to do in this low-interest-rate, low-inflation environment.”

The ERS portfolio, which provides retirement, disability and survivor benefits to more than 120,000 active, retired and inactive state and county employees, was only 54.7 percent funded as of June 30, 2016, meaning the fund had just a little more than half the amount needed to pay all the pensions promised.

Higher payments into the fund by taxpayers that took effect July 1 will help cut into the shortfall in future years. The added money from taxpayers will raise an additional $34.6 million in fiscal 2018, $70.7 million in fiscal 2019, $176 million in 2020 and $252 million in 2021. That should help compensate for the ERS’ new annualized investment target of 7 percent, which also took effect July 1 and was lowered to reflect anticipated market conditions.

ERS trustees began repositioning the assets in the portfolio nearly two years ago to better manage the fund’s risk. The move seems to be paying off as the ERS portfolio has beaten its peer funds with more than $1 billion in assets over the last one-, three- and five-year periods and matched the group over the last 10-year period.

“What these strategies have done is they have allowed us to perform very well but, at the same time, decrease the overall risk of our portfolio,” Chattergy said. “A year ago we were around 83 percent in equity risk, but as we’ve restructured with new managers and strategies, we’ve brought down that rate by 7 percentage points to 76 percent overall. We have lowered the risk but at the same time are performing better than the majority of our peers. It’s a very efficient portfolio.”

The portfolio’s broad growth investments (equities, option-writing strategies, private equity, private real estate and fixed-income corporate bonds) jumped 17.1 percent during the fiscal year. The inflation-adjusted investments (inflation-linked bonds) rose 2.3 percent. And the principal protection category, which is made up of U.S. government-backed bonds, rose 1.9 percent.