Funding Agreement

A funding agreement is a type of investment institutional investors may utilize for its low-risk, fixed-income characteristics. Generally it refers to an agreement between two parties, offering the investor a return for a lump sum investment paid to the issuer.

A funding agreement product requires a lump sum investment paid to the seller who then provides the buyer with a fixed rate of return over a specified time period, often with the return based on LIBOR, the most popular benchmark in the world for short-term interest rates. Funding agreement products are similar to capital guarantee funds or guaranteed investment contracts. Mutual funds and pension plans often buy funding agreements due to the safety and predictability that they offer.

Guarantee funds can typically be invested in without risk of loss and are generally considered to be risk free. However, these types of investments often have liquidity limitations. Therefore, they are often targeted for high net worth and institutional investors with substantial capital for making long-term investments.

Funding agreement products can be offered globally. They typically don't require registration and often have a higher rate of return than money market funds. Some products may be tied to put options allowing an investor to terminate the contract after a specified period of time. As one might expect, funding agreements are most popular with those wishing to use the products for capital preservation in a portfolio rather than growth.

Mutual of Omaha provides one platform for funding agreement products available to institutional investors. Mutual of Omaha funding agreement products are marketed as a conservative, fixed or variable interest paying product with steady income payouts. Products are offered for a fixed term with fixed or variable interest. Mutual of Omaha funding agreement products allow for termination and redemption for any reason by either the issuer or the investor. Contract terms require that 30 to 90 days notice be given prior to the last day of the interest rate period by either the issuer or the investor. Mutual of Omaha funding agreement products can be useful for institutional portfolios making scheduled payouts or annuity payments over time. These funds offer a risk-free base of capital for which payments can be made from.

Generally, two parties may enter into a legally binding funding agreement providing a lump sum to an issuer in return for a guaranteed investment return. Lump sum investments may be made to various types of issuers for capital investment. Terms of the funding agreement will typically outline the scheduled use of capital and the expected return over time for the investor.