State Street Global Services

London – State Street Corporation (NYSE: STT), one of the world’s leading providers of financial services to institutional investors, announced today the preliminary results of its UK Pension Fund and Charity Fund Universes for 2011.

Initial estimates for the WM UK Defined Benefit Pension Fund Universe and the WM UK Charity Fund Universe suggest the headline industry average returns will be 3 percent for pension funds and negative 3% for charity funds.  Funds that have de-risked and therefore have a large exposure to bonds are likely to show returns ahead of this level but, for the majority of funds, equities dominate the asset allocation, and their trustees will potentially see negative returns.

“This year has been very difficult with the ongoing problems of the euro zone sovereign debt crisis compounding rather gloomy global economic forecasts.  Equity markets continued to be very volatile with daily moves of one percent or more almost the norm; the big sell off in the third quarter resulted in negative twelve month returns from most equity regions.  The flight-from- risk assets drove down yields on ‘safe’ government bonds, particularly the medium-to-long dated issues.  The rapid changes in bond yields gave rise to large swings in funding levels, adding to the difficulties faced by pension fund trustees in particular,” said Jeanette Patrizio, senior vice president of State Street Investment Analytics.  “The financial stresses of the last few years have meant that pension fund trustees are actively looking at their value at risk and seeking to better protect both the member and the plan sponsor.”

UK equities, strategically the largest component of the majority of funds, fell 3% over the year; a rate that was marginally ahead of the FTSE All Share index.  International equities, which represent just under 25 percent of the average fund, had mixed results for the UK investor.  North America held up relatively well with a return of 1 percent,  Japan and the developed Pacific markets fell around 12 percent, while Europe and the emerging markets were down by 14 percent and 17 percent respectively.

Currency had an influence on international returns; Sterling fell against the US Dollar and Yen but appreciated against the Euro.

Highly-rated bonds had safe-haven status so yielded strong returns over the year; UK Government bonds, for example, returned 16 percent, with index-linked returning 23 percent.  Corporate bonds gave lower returns as investors were more concerned about safety than yield.

Returns from alternative strategies were variable, whilst property yields were positive with a return of 8 percent for the year.

Asset Allocation and Cash Flow

The vast majority of defined benefit pension funds and charitable funds are run against strategic asset allocations designed to meet specific long-term investment risk and return criteria.  These strategies defined the individual fund outcomes for 2011.  Pension funds that have a long time horizon, strong employer covenant or are open to new members generally have suffered from high equity content in 2011, as will most charity funds.

The large differential in equity and bond returns in 2011 caused many funds to experience a sharp fall in equity weight and a corresponding increase in bond exposure.  For pension funds, this was compounded by disinvestment from equities and investment in bonds; the equity weight fell by 6 percent to 44 percent, while the bond weight rose from 34 percent to 39 percent.  The fall in equity values also caused the representation of alternatives and property to increase to 9 percent and 7 percent respectively, although here too both asset classes were net recipients of investment.

State Street’s Investment Analytics group offers services through global locations including Boston, Dublin, Edinburgh, Frankfurt, Hong Kong, London, Luxembourg, New York, Paris, Sacramento, Sydney, Toronto and Zurich.  It calculates performance for more than 1,400 customers globally on asset volumes exceeding $10.3 trillion at September 30, 2011.

State Street Corporation (NYSE: STT) is one of the world’s leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading.  With $21.5 trillion in assets under custody and administration and $1.9 trillion* in assets under management at September 30, 2011, State Street operates in 26 countries and more than 100 geographic markets.  For more information, visit State Street’s website at www.statestreet.com.

* This AUM includes the assets of the SPDR Gold Trust (approx. $64 billion as of September 30, 2011), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors, serves as the marketing agent.