The value of the investment portfolio that funds state and county workers' pensions tumbled by $1.19 billion in the last three months of 2008 as a late-year meltdown in financial markets exacted a devastating toll.

The loss capped a horrible 12-months for the state Employees' Retirement System. The value of the ERS portfolio in 2008 fell $2.95 billion, going from $11.63 billion at the beginning of the year, to $8.68 billion.

"There was really no place to hide," said Jeremy Thiessen, senior vice president for Pension Consulting Alliance, the ERS' consultant, saying that the only safe places during the last quarter of the year were U.S. Treasury bonds and cash.

The ERS pays out benefits to more than 35,000 retirees, survivors and beneficiaries. In addition there are about 66,000 workers who have not yet retired but will eventually be drawing an ERS pension.

Thiessen said the ERS portfolio's recent declines reflect "historic, nearly unprecedented losses across all major asset classes" during the quarter.

ERS' investment portfolio was among those large and small that shriveled during Wall Street's dramatic slide as a slowing economy, combined with capital market problems, sliced into stocks and other investments. The California Public Employees Retirement System, the largest U.S. public pension fund, has lost $65 billion since June.

Not all the news was bad for the ERS though.

Thiessen said the portfolio outperformed other public pension plans with more than $1 billion of assets.

While the ERS' portfolio fell 11.8 percent in the fourth quarter, the median fund was off 13.7 percent.

For the year, the Hawai'i fund was off 24.4 percent.

That was 2.6 percentage points less than the loss for the median public fund.

"The portfolio held up relatively well during a drastic period," Thiessen said.

Still, ERS trustees know their work is cut out for them rebuilding the portfolio's value. ERS Chief Investment Officer Rod June has looked at taking some of the money invested in bonds and other fixed-income investments and investing it in stocks in the expectation that they will rebound.

In recent months the trustees' investment committee also has talked about increasing the amount devoted to private equity investments, which typically return more than stock investments.

ERS administrator David Shimabukuro said the ERS continues to have more than enough for payments to current beneficiaries.

The pension plan uses a combination of funding from the state and counties along with investment gains to pay for current and future retirees' benefits. The ERS seeks an 8 percent annual return on investments.

The ERS has not sought increased funding from the Legislature this year, but may need to do so in 2010 to help make up some of the funding required to pay for benefits in the future.