In a follow up post Brendan said;
Which is the key point of this thread - The Credit Union movement needs independent advice on investment issues.
To me, this is an unassailable statement. What follows the OP above is a combination of truth and wishful thinking. In my experience, the following is the truth.
Up until the late 1990s, Davys were the default choice of many credit unions because they were endorsed by the ILCU. The service was poor and the product range was limited. When a number of CUs struck out from this and invested with other agents in products such as With Profit Bonds and in direct equities, there was a great deal of disquiet at ILCU Board level. To some extent Davys got their act together and offered the type of prooducts many CUs wished to purchase. This went hand in hand with a kind of overview service which is still offered by Davys today. Many large credit unions, such as Eircom, are not affiliated to the ILCU.
Most credit union boards do not have anything like the investment expertise to understand products, read policy documents or understand the finer points of markets and equities, interest rate movements/swaps etc. The ILCU recognises this and has tried to get going a kind of Central Treasury Management System, which is slow to develop.
The expertise of credit union managers is widely varied, though some are very experienced.
The Financial Regulator's guideline is an attempt to draw credit union investment practice into line with a policy which is to limit risk and limit the type of investment CUs may invest in. The Regulator does not have any faith in the ability of CUs to manage their own investment practice beyond these limits.
Davy's role is coming increasingly into question. They took something of a battering at Convention in Belfast in 2007 over the perpetual bonds affair. It is fair to say this has damaged their reputation within the movement and their recent management buyout is further cause for concern amongst CUs.
A number of large CUs are exposed to equity market volatility, although it is difficult to quantify and it would not be publicly reported on. Overall, the spilt between investment and loans is about 50/50. There are risks to both which have to be managed. CUs are better at managing the lonas risk than investment risk and this is an area the Regulator has focussed on, although he has sent out guidelines also on lending policy.
Governance in credit unions is an inevitable quagmire, as pointed out by posters above. Some individual credit union Board decisions will be seen as unwise in hindsight, whether to do with investment or loans and will surface in the media from time to time.
ONe of the biggest threats to the credit union movement is its failure to adapt and modernise. Many Boards are dominated by older/original board members and tend towards conservatism, or an antiquated view of lending or investment, or an unshakeable faith in the ILCU, which has failed spectacularly in many respects over the years.
Have to go...
Slim