STT State Street Corporation

State Street Corporation (NYSE: STT), the world's leading provider of financial services to institutional investors, released today its second institutional investor hedge fund study. State Street conducted the study late last year in conjunction with the 2005 Global Absolute Return Congress (Global ARC). Survey respondents included global corporate pensions (18 percent), public and government pensions (42 percent) and endowments and foundations (40 percent) with investable assets totaling more than U.S. $1 trillion. According to State Street's study, most investment boards and trustees of institutions (81 percent) have become more comfortable with investing in hedge funds in the past year, and the majority (52 percent) of these governing bodies spend 15 percent or more of their time discussing alternative investments. The survey also found that most institutions intend to add new hedge fund and private equity managers to their current manager line-up in the coming year. "All signs indicate that what began as a niche category catering mainly to high-net worth individuals and U.S. endowments and foundations has become a permanent fixture within a broader set of institutional portfolios," said Gary Enos, executive vice president and head of State Street's alternative investment servicing business. "Satisfied customers go a long way towards explaining the industry's proliferation. Our study reveals hedge funds are meeting institutional investors' expectations with an astounding 100 percent satisfaction rate in achieving portfolio diversification as well as high marks for lowering portfolio volatility and increasing absolute return." Institutions Continue to Increase Hedge Fund and Private Equity Allocations According to the State Street study, nearly half (48 percent) of respondents have 5 percent or more of their portfolios invested in hedge funds today. Of this figure, most (44 percent) have 10 percent or more invested in hedge funds. This represents an increase over 2004, when only 35 percent of institutions said they had 10 percent or more invested in hedge funds. For the first time, State Street also surveyed respondents about the role of private equity in their portfolios. Ninety percent of respondents allocate to private equity. Nearly half (47 percent) allocated 5 percent or more to this strategy. Nineteen percent said they allocate 10 percent or more. Adding Alternative Investment Managers Institutional investors who participated in State Street's study also indicated that they have plans to hire new alternative investment managers in the coming year. Eighty-six percent of respondents said they plan to add new hedge fund managers to their current line-up, while 67 percent said their hiring plans included new private equity managers. Separating "Alpha" and "Beta" Returns The results of State Street's study also illustrate institutional investors' growing appetite for separating asset class returns, or beta, and absolute returns, or alpha. By disaggregating risk into "alpha" and "beta" strategies, institutions can better tailor portfolios to fit their specific investment objectives. Eighty-one percent of survey respondents said they engaged new managers for both alpha and beta returns, and a majority (59 percent) said they were able to differentiate between a given manager's "alpha" and "beta" results. Among those who said they could not differentiate (41 percent), an overwhelming majority (82 percent) attributed this inability to a lack of tools and/or resources. "As investors become more aware of the benefits of separating alpha and beta, asset managers who can provide a wide range of beta exposures and interchangeable alpha sources are uniquely positioned," said Jane Tisdale, managing director of hedge fund strategies for State Street Global Advisors, the investment management arm of State Street Corporation. "Access to customizable resources such as alpha porting techniques offer increased transparency in measuring and rewarding performance and allow the flexibility to increase portfolio diversification with a low tracking error." For a copy of the study's key findings, please contact publicrelations@statestreet.com. State Street Corporation (NYSE:STT) is the world's leading specialist in providing institutional investors with investment servicing, investment management and investment research and trading services. With $10.1 trillion in assets under custody and $1.4 trillion in assets under management (as of 31 December 2005), State Street operates in 26 countries and more than 100 geographic markets worldwide. For more information, visit State Street's website at www.statestreet.com. This news release may contain forward-looking statements, as defined by federal securities laws, including statements about the financial outlook and business environment. Any such statements are based on current expectations and involve a number of risks and uncertainties. Important factors, including those mentioned in this news release, that could cause actual results to differ materially are set forth in the company's 2005 annual report and subsequent SEC filings. They include risks and uncertainties relating to the pace at which State Street adds new clients or at which existing clients use additional services, the value of global and regional financial markets, and the dynamics of the markets State Street serves. State Street encourages investors to review its annual report and SEC filings in conjunction with this announcement and prior to making any investment decision. The forward-looking statements contained in this news release speak only as of the date of release, March 29, 2006, and the company does not undertake to revise those forward-looking statements to reflect events after the date of this release.