The Maryland state employees' pension system reported last week that it grew to more than $40 billion during the 12 months that ended June 30 as it posted a 10.6 percent return on its investments.

That performance exceeds both the state's assumption that it would earn 7.75 percent and the 8.6 percent average performance for the types of assets that the fund owns.

Pension fund officials pointed to the showing as vindication of its investment strategies, which have been criticized by a conservative think tank.

The Maryland Public Policy Institute recently released reports criticizing the pension system — which provides benefits for 132,000 retired state employees, teachers and law enforcement officers — for what it called excessive fees paid to money managers.

The institute contended that the state could have earned more money by investing in funds in which investments are pegged to indexes such as the Standard & Poor's 500. Such "passive" funds tend to have lower fees than those in which managers actively choose investments.

Michael Golden, a spokesman for the retirement system, which has 244,000 members who have not yet begun drawing benefits, said the institute's reports are riddled with errors.

Jeff Hooke, chief author of the reports, said any errors were corrected and that the premise is still valid.

Bob Burd, deputy chief investment officer for the Maryland State Retirement and Pension System, said the 10.6 percent return is 2 percentage points higher than what the state would have earned with a passive strategy.

That translates into about $800 million more than the state would have earned, even after $275 million in investment fees are accounted for, according to Burd.

But Burd agreed that the state's returns may not look as impressive when compared with some of the other public pension plans that have reported results. For instance, the California Public Employees' Retirement System reported a 12.5 percent annual return, while the California State Teachers' Retirement System earned 13.8 percent.

Burd said those plans earned higher rates of return by putting more of their investments in stocks in a strong year for that market.

The state's earnings of $3.2 billion last year were largely driven by its stock investments, which earned a 19.1 percent return. But Maryland's system had only 42.3 percent of its investments in stocks — well below the allocation of the two California systems.

Michael Dresser