Navigating New Accounting Rules: How Credit Unions Can Reduce Volatility in Investment Accounts

Title: New Accounting Rules for Credit Unions Bring Stress Relief with Non-Market Correlated Investments

Credit unions are facing a new challenge with the implementation of accounting rules that require them to record losses in their investment accounts on their Profit and Loss statements monthly. This can be particularly stressful for credit union boards with investments heavily correlated with the volatile stock market.

The recent surge of retail investors and the ease of investing through apps have made the public markets even more unpredictable. With the second-by-second news reporting, any random event can cause significant fluctuations in stock prices.

In the past two years, the S&P 500 had multiple down months, leading credit unions to report losses on their P&L statements. However, alternative asset classes like private equity and private credit, with minimal correlation to the stock market, can help reduce portfolio volatility and mitigate losses.

Private equity and private credit investments have shown positive performance in the last 24 months, offering a hedge against market fluctuations. These investments have as low as a 0.06% correlation to the public stock market, providing stability to credit union portfolios.

Interval Funds offer a unique opportunity for credit unions to access these alternative investments without large investment commitments or long lock-up periods. With quarterly liquidity and easy reporting, credit unions can diversify their portfolios and manage risk effectively.

The favorable performance of private equity and private credit investments can help credit unions achieve their financial goals, attract talent, and support growth initiatives. By reallocating quarterly distributions, credit unions can further enhance their investment strategies and support their long-term objectives.

Credit unions that have embraced non-market correlated asset classes have reported lower stress levels in complying with the new accounting rules. By diversifying their portfolios and incorporating alternative investments, credit unions can navigate market volatility and ensure financial stability in the long run.