TALLAHASSEE, Fla. -- When the number of credit unions asking for extensive portfolio management began to increase over the past two years, Southeast Corporate Federal Credit Union started planting the seeds to
produce an entity that would meet their needs across a range of services.
After cultivation and putting in place "substantial" infrastructure, on Oct. 23, the $3.58 billion Southeast Corporate launched Accolade Investment Advisory, LLC, a new CUSO that will provide a range of services including portfolio management, asset liability management, bond accounting and investment reporting services. Accolade will serve as a fee-based, non-discretionary investment advisory service.
The CUSO will be led by Gregory Wirthmann as president/CEO and Peter Gibson as director of Investment Advisory Services. Wirthmann is also senior vice president and chief investment officer of Southeast Corporate. Gibson will be responsible for managing the client credit union investment portfolios on a day-to-day basis.
Wirthmann said the idea to launch the CUSO came about two years ago when credit union demand for extensive portfolio management services started to grow.
"They recognized [the corporate's] level of expertise and quite frankly, didn't have the time to devote [to forming an in-house program]," Wirthmann explained, adding even for some larger credit unions, "it would have been cost prohibitive" to create an portfolio management program giving the financial investment needed. Wirthmann would not provide an exact figure on how much it cost to launch Accolade but did say the systems alone are in the six-digit range.
Prior to Accolade, Southeast Corporate had a pared down lineup of portfolio management services with three financial strategists working with credit unions to determine their investment needs. Gibson said with Accolade, the approach will shift to total management including engaging in non-maturity deposit analysis in order to determine benchmarks. The CUSO will continue to offer the same asset liability management products as part of a suite of new services and also as a standalone product.
"We're hoping to take [some of portfolio services] off the desks of CFOs and CEOs so that they can concentrate on other things," Wirthmann said.
While Gibson will be the point person for the new CUSO, some of the work will be leveraged off to Southeast Corporate staff, many of whom have areas of specialty. Keeping the staff structure tight was an intentional move to remain efficient.
"We weren't interested in building an expensive and large team of folks. We don't want to impose those costs on members," Gibson said. "Once we reach critical mass, we may add more staff."
Accolade's services will be available to credit unions regardless of their size and even if they are not one of Southeast Corporate's 432 clients. Gibson said the decision to add investment advisory services to the lineup will ultimately depend on whether a credit union deems there's enough "critical mass" in their portfolio and if the economics can support such a program.
"We can deliver the excess return and if it is worth it to [credit unions], and depending on the role investments play in their priorities, we have something to offer," Gibson said.
As for what makes Accolade stand apart from other CUSOs and third-party advisors doing the same thing, Wirthmann provided a model enacted by one of its competitors. Their stated aim is to put asset yield consistently in the top quartile, a move that makes Wirthmann suspicious. Gibson said the CUSO will use a "total rate of return methodology" model as opposed to the maximization of yield to maturity approach by others.
"We don't think increasing yield on a portfolio in the short term is the best way to deliver long term-value to members," Gibson said, adding this strategy could "end up costing the credit union in the long term."
Meanwhile, Gibson and Wirthmann are in the midst of introducing Accolade to credit unions during a series of ALM seminars. So far, the feedback has been positive, with clients seeking out additional information. A recent presentation to a $220 million credit union is looking promising and more individual talks with senior executives and boards are already lined up.
Accolade is also in the final approval stages with the Securities and Exchange Commission. Gibson said it can accept up to five paying clients through the CUSO before having to register with the SEC.
"We recognize that for most natural credit unions their concentration is in attracting deposits and serving members and not in portfolio management," Gibson said. "That's where our expertise lies and the ability to leverage core strengths. It's really a win-win."