Cash in the Corporate System

One of the fundamental axioms of investing is diversification. The argument for diversification is simple: portfolios with investments spread across different asset classes and issuers can reduce their risk for a given level of return when compared to non-diversified portfolios. Credit union investment managers know the concepts, but the latest data from Callahans’s First Look shows an increasing concentration in the corporate credit union system for investments. Is it time for credit unions to look at their exposure in the corporate system?

 
 

One of the fundamental axioms of investing is diversification. The argument for diversification is simple: portfolios with investments spread across different asset classes and issuers can reduce their risk for a given level of return when compared to non-diversified portfolios. Credit union investment managers know the concepts, but the latest data from Callahans’s First Look shows an increasing concentration in the corporate credit union system for investments. Is it time for credit unions to look at their exposure in the corporate system?

Credit unions increased their cash position 21.5% in the first quarter of 04 compared to last year. Out of that increase, about 92% ended up in cash on deposit in the corporate system. Total investments increased 5.1% for the first quarter compared to last year, and a majority of that increase – 84% – landed at the corporates. Money market portfolio managers in the capital markets have as their objective one overriding goal: preservation of principal. Their primary tool in meeting this objective is to monitor their exposure in one issuer, often implemented as a 5% limit. Are the same standards being applied by credit unions with respect to the corporates?

Other interesting data from First Look shows that the yield on investments dropped 30 basis points (2.687% to 2.357%); while yield on loans decreased 43 basis points (6.52% to 6.09%). Fortunately, there was help on the funding side of the balance sheet with the average cost of funds reduced from 2.017% to 1.69%. First Look data includes 564 credit unions representing approximately 30% of the industry with $181 billion in assets. The data compares last year’s overall number to the first quarter 04.

 

 

 

May 17, 2004


Comments

 
 
 
  • This really makes sense. I see a lot of CEOs leaving funds at Corporate "until rates rise". I disagree and point to the need for diversification. Our corporate structure is going to get buffetted with huge inflows(now) and outflows (later).
    Anonymous
     
     
     
  • Mike Philbin is not an objective critic. As he is VP of Sales with CU Trust, his comments are at best suspect, at worst unjustified. CU Trust is a concentration of funds, by his definitions, and not diversification. Creating doubt is a lobbyist trick, shame on Mike!! Wylie Dougherty
    Anonymous
     
     
     
  • Mike Philbin is not an objective critic. As he is VP of Sales with CU Trust, his comments are at best suspect, at worst unjustified. CU Trust is a concentration of funds, by his definitions, and not diversification. Creating doubt is a lobbyist trick, shame on Mike!! Wylie Dougherty
    Anonymous
     
     
     
  • With so much uncertainty in the market, I am curious to see how the 2nd quarter will end up. Can corporates keep the positive momentum? Will diversity prevail?
    Anonymous