NDT's Flexing their Investment Muscles for Greater Diversification

June 14, 2006 (PLANSPONSOR.com) - Managers of nuclear decommissioning trusts (NDTs) are increasingly diversifying their holdings with a 60% to 65% equity position - a far cry from when equities were once considered off limits for NDT managers, a new study asserted.

A study released by The Bank of New York (BoNY), said generally that changes in regulatory restrictions and climbing decommissioning costs have been resulting in greater flexibility and diversification in investment guidelines and asset allocations for NDT managers.

BoNY’s study, entitled “Preparing for Shutdown,” examines attitudes of investment, treasury and financial officers at major public utilities across the  United States, as well as of federal and state regulators.

Among the study’s findings, according to a BoNY news release, were:

  • NDT fund managers are demonstrating a definitive movement away from passive to more active asset management.
  • Alternative investments will make up an increasing percentage of the asset allocation mix. Based on study responses, BoNY forecasts that by 2011 the typical allocation to alternatives will reach 15% of the overall allocation mix, up from less than 5% today.
  • Given the uncertainty of decommissioning costs, underfunding of NDTs remains a concern. Federal and state regulators are more open to diversified investment strategies, BoNY said.

“The picture that emerges from this study is one of greater flexibility in investment guidelines and a growing commitment to broader portfolio diversification, which bodes well for NDT managers who must maximize returns against a backdrop of significant uncertainty,” said Margo Cook, executive vice president and head of Institutional Asset Management at BNY Asset Management, the investment arm of The Bank of New York. “Given the long time horizons of NDTs, it is encouraging to see a strong focus on funding adequacy and an ongoing assessment of future liabilities.”

Copies of the study are available here .