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CU System
Trend for CUs is toward customized investments
PLANO, Texas (7/11/08)--Credit unions increasingly are looking for customized investment instruments with higher yields to meet their needs in today's investments market, according to Southwest Corporate. With the economic slump, credit unions are shying away from off-the-shelf, one-size-fits-all investment opportunities. "Certainly, structured certificates have a place in the portfolios of many credit unions," said Zane Wilson, vice president of Southwest Corporate Investment Services. "However, more and more find they need flexibility and specific terms to meet their individual needs." More than half the structured certificate investments the corporate has created for its member credit unions in 2008 were customized certificates, specially designed investments known as "reverse inquiries." Southwest Corporate helped credit unions place more than $415 million in investments by creating 38 structured certificates during the first half of the year. Twenty of those were customized. The corporate noted that the growth in the customized certificates began four years ago. Investment information provided by the corporate has increased credit unions' awareness and understanding of customization, the corporate said. When investing, "credit unions should be aware that the highest rate is not always the best alternative," Wilson said. "While rates are certainly important, other factors such as option risk and cash flow play a role in shaping strategic investing." For example, credit unions currently can find five-year investment opportunities but short-term vehicles are more elusive, he noted. "Southwest Corporate is tending to short-term as well as the long-term investments," Wilson said. "With a struggling economy, credit unions should not hesitate to invest in 12- to 24-month durations. "However, with the steeper yield, if credit unions find their loan/asset ratio declining, they may have more capacity to consider longer-term certificates," he added. Cynthia Shi, vice president of portfolio management for Southwest Corporate, noted it creates and offers certificates "based on expectations and trends of where rates are going and what is in the best interest of credit unions." "From an investment standpoint, the first half of 2008 was tough," Wilson said. "Rates went down, then up, then down. Looking forward, (we believe) the housing slump and inflationary expectations will cast a strong shadow on an already sluggish economy. "The Fed will likely be 'on hold' for some time in regards to overnight rates, and credit unions can expect higher term rates over the long term, given the prevailing inflation expectations," he added. "With these conditions, credit unions can venture out in that one-two year range vs. staying in overnight cash."
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