A method by which the anticipated returns on an investment portfolio are matched with estimated future liabilities. A dedication strategy is frequently used in pension funds and insurance company portfolio to ensure that future liabilities can be met. An institution, such as an insurance company, can estimate future liabilities and try to minimize its outlay to satisfy future liabilities through its anticipated investment earnings.
Also called portfolio dedication, cash flow matching and structured portfolio strategy.
A dedication strategy involves cash flow matching so that investment earnings will provide funds for anticipated future capital outlays. Pension funds and insurance companies can fairly accurately predict future liabilities, which tend to be large. Their portfolios typically include low-risk, investment-grade securities, such as medium- or high-rated bonds, that allow for fairly predictable earnings to match to projected future capital outlays.
Investment dictionary. Academic. 2012.
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