MADISON, Wis. – It's only been a year, but it looks as if corporate credit unions are finding some investment value in CUNA Mutual Group's corporate credit union investment line, CUNA Mutual Notes. So far 11 corporates have invested $190 million in Notes. When it was first launched last October there wasn't much liquidity in the system, thus hurting interest in the product, said Don Davidson, vice president of corporate CU relations, marketing division, for CUNA Mutual. But with liquidity now at a record high, corporates are testing the waters. "There's been a gestation period of getting corporates used to a new product, getting them familiar so they can take it in front of their examiners, and get their ALCO committees comfortable," said Davidson. CUNA Mutual is a new player in the corporate CU investment realm, so some corporates were slow to move and some may still be evaluating the product, said Davidson. "There was this question of why CUNA Mutual is getting into the investment business. We've actually been in the investment business for years. We wanted to leverage our expertise at MEMBERS Capital Advisors to the benefit of the movement," said Davidson. While CUNA Mutual is new to corporate CU investing, its investment affiliate, MEMBERS Capital Advisors, manages a $5 billion portfolio for CUNA Mutual Insurance Society, and $3 billion in mutual funds. It has a staff of 35. So why did CUNA Mutual enter this arena? It's said all along that it's not here to compete with other corporates, but to go after some of the dollars CUs are investing outside of the network. Estimates vary, but most agree that about $50 billion is being invested outside the network on any given year. "We knew there were a lot of larger credit unions who had their own investment staff and their own investment expertise who were basically bypassing their corporates and going out and buying agencies and asset-backed securities on their own," said Davidson. "If we could provide a better product, better than asset-backeds, better than agencies, than we could get some of those natural person investments." The product is a little different than what corporates are used to. Here's a rundown of it. First, it is approved as a debt obligation for corporates under Part 704. CUNA Mutual Notes are structured as funding agreements, issued by a separate account of CUNA Mutual providing a fixed or floating coupon and return of principal. One interesting aspect is while they are double AA rated, they do have a double-barreled guarantee, said Jeff Pantages, senior VP of fixed income for MEMBERS Capital Advisors. "While this product is guaranteed by CUNA Mutual Life Insurance Company, there's also a collateralized portfolio that secures the Notes. It's just for the Notes. It's really icing on the cake," said Pantages. The collateralized portfolio is kept at least at 102% of the value of Notes outstanding. CUNA Mutual also has a line of credit with First Star Bank for 30% of Notes outstanding. Despite this protection, Pantages said some corporates have policies that prohibit them from investing in anything that isn't triple AAA rated. WesCorp, for example, has such a policy. Most corporates participating are buying in at around the two-year area, and are buying floating rate notes, said Pantages. "We're a little surprised about the emphasis on the floating rate product. We thought there'd be more fixed rate buying," said Pantages. About 80% of notes sold so far have been floating rate. Pantages said the big advantage CUNA Mutual Notes has over other investments is corporates can set the maturity dates and amount of the notes however they want. Minimum investment is $1 million. CUNA Mutual can also buy certain securities that corporates either can't or they tend to stay away from, such as corporate bonds and certain asset-backeds. "Corporates tend not to focus on corporate bonds. We can buy all the way down to high-yield bonds. We maintain that the portfolio will have at least an A rating," said Pantages. Though Davidson did not want to reveal the list of 11 corporates investing in Notes, he did say they range from as small as $300 million, with eight over $1 billion. Davidson said some corporates are creating specific investment products to pass on the value of Notes, while others are simply passing on the yield by increasing yield across the board. [email protected]

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