<p>WASHINGTON – The original 20 credit unions that aligned to form Trust for Credit Unions nearly 15 years ago faced a marketing conundrum during a time when mutual funds were green to the industry and skepticism lingered. Thanks to some heavy pavement pounding in the early days and “strong yields,” TCU is now the largest mutual fund family for credit unions and has since added twenty more partners that have invested $3.1 billion in its three portfolios, said Chip Filson, president of Callahan & Associates, Inc. “The founders saw an opportunity, not a problem, with the excess liquidity that was accumulating at that time,” Filson said. “They believed credit union-owned investment options were critical. Partnering with the best expertise possible was a key part of the strategy and those factors continue to be the basis for the fund’s success today.” TCU launched in 1988 one year after its administrator, Credit Union Financial Services Limited Partnership (CUFSLP) aligned with Callahan Financial Services, Inc. and Goldman, Sachs & Co. to help credit unions beef up their competitive position by developing alternatives for the auxiliary services they used. Since then, some funds have come and gone, but TCU’s bread and butter for almost a decade has been its money market fund, government securities fund and mortgage securities fund. Each respectively is geared towards overnight or short-term investments, short durations consisting primarily of U.S government agency securities and high current income from mortgage-backed securities. All are “no-load” mutual funds that conform to NCUA guidelines and approved for federal and most state-chartered credit unions. The TCU money market fund launched in May 1988 and has since grown to $1.96 billion in net assets as of last December. Three years later, the government securities portfolio became available and has $660 million in assets and in 1992, the mortgage securities fund launched and has $443 million in net assets. In the late 1980s, mutual funds had yet to impact credit unions in part because many of the smaller credit unions did not have the resources to have a full-time investment advisor, Filson said. By pooling resources the original 20 credit unions formed a cooperative bringing in heavyweight Goldman Sachs and began marketing its money market mutual fund. Goldman Sachs serves as manager and administrator for $273 billion in assets worldwide with its investment management division having $295 billion under management as of last September. One of the original partners, Patelco Credit Union is now the largest investor in the TCU’s funds with $225 million invested. Scott Waite, Patelco’s senior vice president/CFO remembers the marketing blitz he encountered while employed at another credit union with TCU literally going door to door to drum up business. Ed Callahan, president/CEO of Patelco was among the pioneers who helped to launch TCU. Waite said TCU is striving for the $4 billion in asset mark by the end of the year, and the goal may be attainable given the government and mortgage-backed securities are respectively yielding over 4.5%. “Credit unions owe it to themselves to take a close look at the (TCU) funds and make a conscious choice,” Waite emphasized, adding that all are in concordance with NCUA’s regulation 703. Still, some credit unions still find it a challenge to market mutual funds to the industry in part because of “turf grabbing,” said Hank Sigmon, controller of First Technology Credit Union. “Some credit unions have issue with placing funds under jurisdiction with another entity,” Sigmon said. “We’ve found that the percentage change in our regular portfolio has been more volatile than our TCU funds and that ties back to Goldman Sachs having the expertise to pick investment that are less volatile than those a credit union CFO may pick on his own.” First Technology is also among the pioneering credit unions that launched TCU and today has in aggregate $130 million invested in the government securities and the mortgage securities portfolios. While TCU is always open to developing new products, Filson said the traditional lag time the funds have are a major reason credit unions have embraced the existing ones. For instance, because the overnight fed funds rates fell 475 basis points in 2001, the callable bond activity was the largest volume ever, Filson said. For mutual funds like TCU with a duration management objective, this means that investors continue to receive the benefits of a longer-term portfolio. The return is from a portfolio accumulated over time that remains totally invested.” With TCU’s administrator, CUFSLP, celebrating its 15th anniversary, Filson said the need for such an alternative is even more eminent today. “We saw the highest rate of credit union share growth (3.6%) in the third quarter for at least the last five years,” Filson pointed out. “Investable funds continued to grow contrary to all past seasonal trends.” -</p> <p>[email protected]</p>

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