Mutual Fund Will Seek To Package, Sell Biz Loans

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MADISON, Wis.-A team of professionals from the credit union and finance communities has created a mutual fund that aims to make it easier for CUs to package and sell member business loans.

But a full launch won't be possible until the fund gets NCUA approval.

The fund-known as the Unity Fund-will be run by Unity Fund Advisors, a CUSO established specifically for this initiative. David Dunn will serve as CEO, having established a similar fund in 2006 that was later sold and then dissolved for reasons unrelated to performance. Dunn's partners at Unity Fund Advisors will be Tom Campbell and Mario Pelosi, managing directors of Glasgow Partners. To launch the new fund, Unity Fund Advisors will partner with investor CUs in a CUSO that is a registered investment advisor.

NCUA currently does not permit federal credit unions to purchase shares in the proposed fund, based upon the organization's interpretation of investment regs, but Dunn said he and his partners have met with NCUA officials about including language that would make such a fund permissible. "We as an industry need to be able to do member business lending," said Dunn. "It's a tremendous growth opportunity. It's estimated that the amount of (business) loans on the books at credit unions will double over the next five years to $80 billion. We need standards of good quality so that we're not putting substandard loans on the books, and we need a way to offer cap relief to those lenders who are prolific originators and are underwriting to very high standards."

A team of more than 20 "certified" credit unions that will review and approve any loan that non-certified CUs want to sell to the fund. Dunn said that the CUSO's board and management team have established a self-assessment checklist for those CUs wishing to become certified and said that they will begin appointing those CUs as soon as NCUA gives the green light. "We feel very strongly that credit unions on the whole make very good member business loans and that many, many loans out there today will meet these standards," said Dunn. "Over time, we feel we'll raise the credit quality of the industry."

BNY Mellon will offer the fund through its Fund Vantage Trust and the Unity Fund Advisors team suggested that once NCUA gives its OK, it should take about 120 days to complete the regulatory process and get the fund up and running by Q4.

"The only obstacle to overcome at this point, in terms of launching, is NCUA approval," said Dunn. "There's nothing about the fund itself that is still in theory. We don't need any SEC law changes, there's no fancy technology that has to be invented; it's not pie-in-the-sky. This is a real opportunity that we can proceed with as soon as we have NCUA approval.

"We have an opportunity to bring some outside dollars in and move some loan risk outside the industry, and today we don't have an efficient means to do either of those," he continued. "By getting non-credit unions to invest in the mutual fund, it's sort of sharing the risk."

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