PLANO, Texas–Credit union CFOs and managers have had to adjust their asset-management strategies as investment portfolios have changed over the past 10 years in a market of unprecedented low interest rate environment, squeezed net interest margins and changes in liquidity profiles.
"The overall effect has been shrinking cash positions, increased investment portfolio durations and an increase in overall investment allocations, particularly in amortizing structures, such as mortgage-backed securities and collateralized mortgage obligations," said Ben Lemoine, strategic solutions advisor with Catalyst Corporate here during a webinar hosted by the company.
To understand and set objectives for the investment portfolio, Lemoine said an investment manager needs a continuous understanding of the balance sheet composition, cash flow needs and interest rate risk exposure.
"A portfolio with primary objectives of building liquidity and managing interest rate risk will require different investment instruments and duration targets than a portfolio focused more on investment income," he said.
The "Managing Your Investment Portfolio Assets" webinar was designed to help managers determine suitable investments for various portfolio structures, based on cash flow needs driven by credit union loan demand and seasonal outflow of deposits. Lemoine focused specifically on liquidity, earnings and interest rate risk profiles to determine portfolio strategies.
In the webinar, Lemoine discussed ways to reposition an investment portfolio and how to calculate the associated gains and losses, whether it is to manage interest rate risk, increase the liquidity position or increase earnings.
Lemoine also reviewed passive versus active investment strategies and their selection based on credit union resources and needs; the differences and advantages of available-for-sale, held-to-maturity and trading accounting classifications; setting investment parameters in various interest environments; and the relative value of various asset classes.
The recorded webinar can be accessed at www.ccul.org. For additional info: www.catalystcorp.org.