Liability Matching


DEFINITION of 'Liability Matching'

An increasingly popular investment strategy that attempts to time future assets sales and income streams to match against expected future expenses. The strategy has become widely embraced among pension fund managers, who attempt to minimize a portfolio's liquidation risk by ensuring asset sales, interest and dividend payments correspond with expected payments to pension recipients. This stands in contrast to simpler strategies that attempt to maximize return without regard to withdrawal timing.

BREAKING DOWN 'Liability Matching'

Liability matching is growing in popularity among sophisticated financial advisers and wealthy individual clients, who are using multiple growth and withdrawal scenarios to ensure that adequate cash will be available when needed. The use of the Monte Carlo method of analysis, which uses a computer program to average the results of thousands of possible scenarios, has grown in its popularity as a time saving tool used to simplify a liability matching strategy.

  1. Pension Fund

    A fund established by an employer to facilitate and organize ...
  2. Liability

    A company's legal debts or obligations that arise during the ...
  3. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  4. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  5. Monte Carlo Simulation

    A problem solving technique used to approximate the probability ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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