Investment Expertise At The Executive Level

First Tech FCU created a chief investment officer role to manage the multibillion-dollar institution’s investment portfolio.

 
 

Many credit unions outsource the management of their investment portfolio to external advisors with the necessary expertise to soundly manage investments and handle the growing complexity of regulations and rising rates. However, many of the big kids on the block, those running $250 million to $500 million or more in investable assets, have decided it’s good business to hire an in-house manager to oversee this valuable revenue stream.

First Tech Federal Credit Union ($6.5B, Mountain View, CA) went full monty with this philosophy when it hired Marangal “Marito” Domingo as chief investment officer in early 2013. Domingo previously served as the executive vice president, chief financial officer, and treasurer of First PacTrust Bancorp and PacTrust Bank in Irvine, CA. The executive has more than 20 years of investment and secondary market experience, and although he has consulted for credit unions in the past, this is his first foray into working for a credit union.

CU QUICK FACTS

FIRST TECH FCU
data as of 12.31.13

  • HQ: Mountain View, CA
  • ASSETS: $6.5B
  • MEMBERS: 362,728
  • 12-MO SHARE GROWTH: 6.02%
  • 12-MO LOAN GROWTH: 12.13%
  • ROA: 1.49%

“The board and the leadership of First Tech saw the investment portfolio growing,” Domingo says. “Today we manage $2.1 billion in securities out of a $5 billion balance sheet, so that’s a lot of investment securities and a lot of income to manage. They wanted to bring some focus to that.”

Then And Now

Before First Tech created the CIO position and hired Domingo, it assigned investment responsibilities to the credit union’s chief financial officer. This is still the case at many institutions, where the CFO, treasurer, or an investment officer at the manager or analyst level handles investments. But for First Tech and its billions in investible assets, it made sense to elevate that position to the chief level. Because the investment position is in-house and not removed from the rest of the credit union, it fully functions as a component of the executive team.

“The CFO and I work closely together,” Domingo says. “Although I help manage ALCO (asset-liability committee), he is the CFO, so he really drives that. It’s worked wonderfully. We have two heads rather than one, so when we agree on something, it’s a much stronger conviction.”

Although most of his responsibilities are in investments, Domingo allots half of his time to collaborating with other team members to help manage the balance sheet, set pricing, and discuss product features.

CIO Responsibilities

So what does Domingo do as part of his daily CIO duties? The short answer: deploy shares and earn interest. However, in credit union land, there is an emphasis on safe, sound investing. Depending on whether they have a state or federal charter, credit unions invest in certificates of deposit (CDs), straightforward mortgage-backed securities (MBS), agency notes, government bonds, and municipal bonds. These might be basic products, but they still require a solid investment strategy.

“We don’t have to be very sophisticated to earn a decent return,” Domingo says. “Many of us will use our charter to invest in things we believe we should support within our communities. We feel we can do that through municipal bond investments.”

At First Federal, Domingo oversees five areas with a primary focus on the investment securities portfolio. He also manages alternative investments, meaning loans purchased from other institutions, and net interest income as well as oversees liquidity needs and the secondary market function of the mortgage team, which is one of Domingo’s specialties.

“These jobs are not new to the credit union space, but having it specialized is not typical,” Domingo says. “Given the size of the investment portfolio here at First Tech, there was an opportunity to enhance income by bringing somebody in with a lot more expertise.”

That expertise does not have to come in the form of a CIO, and even credit unions smaller than First Tech with assets more in the $200 million to $300 million range should centralize investment expertise with someone. For all credit unions, it’s important to build and maintain a relationship with regulators, even more so as rates rise and regulations change. The NCUA has rules about maturities and restricts the types of securities credit unions can invest in; still, there are plenty of options for credit unions to build a strong, profitable investment portfolio.

“It’s still a pretty big range [NCUA] allows us to invest in, so you can still provide value to your members,” Domingo says. “When in doubt, I’ve always found that asking regulators has been useful. Especially so when they come in there are no surprises.”

 

 

 

March 10, 2014


Comments

 
 
 
  • Define "Many" a used in the opening sentence of this article, please. 40? 2% Outsourcing of investment portfolios would have to be the FICU's Board Policies, and thus would be read by regulators and auditors. I'd like quantification of "Many" so I can identify these CUs and sell them a branch office of undetermined quality for a price they outsource to me, the provider, to be in the best interest of their CU. Of course I'll include an detailed set of charts and graphs each month, showing them how my product is working out for them. Of course I';d Never, ever show them how an alternative wold have performed. Drew, you keep my brain sharp without having to pay for one of those on-line subscription. Really appreciate you!
    Carolyn M Warden, CCUE