The Dallas, Texas-based ALM First, a financial advisory firm founded in 1995, has launched a first-of-its-kind loan fund that allows credit unions to purchase loans from other credit unions. The fund is part of an investment pilot program approved by the NCUA.
The fund pools capital from participating credit unions, enabling them to purchase loans directly from other credit unions. ALM First said loan purchases between credit unions have typically been limited to participation agreements.
"There has never been a fund structure for credit unions that lets them buy loans from other credit unions," Travis Goodman, principal at ALM First, said. "Purchases by one credit union from another have only been allowed in participation form."
Goodman said similar funds are available to other types of investors but have not previously been an option for credit unions. He said the fund is intended to help credit unions augment returns by providing more diversified exposure to higher-yielding loan pools and reducing concentration risk. The pooled approach allows participating credit unions to share underwriting and operating costs, access more favorable loan pricing by purchasing at a wholesale level and create additional investment opportunities, including introductions to portfolio companies and more scalable originations.
The pilot program is limited to 30 federally insured credit unions and state-chartered credit unions with federal parity. The fund invests in consumer loans with maturities of less than 10 years, along with overnight investments, and includes a 50% net worth investment cap for participating institutions.
Pennsylvania State Employees Credit Union was one of the first credit unions to invest in the fund.
"At Pennsylvania State Employees Credit Union, we're always looking for new opportunities to enhance our balance sheet and, ultimately, create more value for our members," Gina Seibert, CFO for PSECU, said. "We're excited to be among the first credit unions to invest in the ALM First loan fund."
ALM First said the fund is designed to benefit both buyers and sellers.
"In our role as a trusted adviser to credit unions across the country, we're among the first to pinpoint emerging trends and industry needs," Goodman said. "Innovative solutions such as this loan fund can help clients prudently solve today's challenges while positioning themselves for future growth and stability."
ALM First manages approximately $77 billion in investments for depository institutions.
Joyce Moed can be reached at joyce.moed@arc-network.com.
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