MUSKEGO, Wis.–Corporate Central Credit Union has released a new white paper titled, “Performance Optimization for Credit Unions: How to Build Useful, Effective Benchmarks.
Authored by Kevin Chiapetta, SVP-Investment Services with Corporate Central subsidiary QuantyPhi Balance Sheet Optimization, the paper suggests that “All too often, credit union investment managers view the investment portfolio as an entity that operates independently of other balance sheet components. In addition, the standard practice is to manage portfolios to net the lowest possible risk. But, those practices often close doors to opportunity.”
Chiapetta states that if the portfolio is adding to total balance sheet risk and there is no method to extract just how much risk that is, decisions based on entire balance sheet performance may be compromised.
“If risk is the only basis for investment decisions, sound investments with the potential to yield greater rewards may be overlooked,” he said. “Success potential can be further hindered by measuring a portfolio manager’s effectiveness using comparison of yield to a peer group, another competitor, or a local group of managers as a performance gauge without regard to the amount of risk taken to obtain that yield, or without consideration of other factors that are relevant to the portfolio’s return.”
The solution, writes Chiapetta, lies in a well-constructed performance benchmark. In the paper he provides additional information on the characteristics of an effective benchmark, including what a benchmark is not. He also outlines how to measure success.
“Credit unions will enjoy greater success by setting effective portfolio benchmarks, a crucial element in optimizing the entire balance sheet for peak performance,” he writes.
For info: www.corpcu.com/QuantyPhi