What is the main objective of liability-based mandates?

The main objective of liability-based mandates is to ensure that expected liability payments are covered by projected cash flows. This approach is particularly relevant for institutions such as pension funds and insurance companies, where the primary concern is managing future outflows.

In a liability-based investment strategy, the focus is on matching the timing and amount of investments to the expected cash flows required to meet obligations. By aligning investment strategies with liabilities, the entities can manage interest rate risks and other market risks more effectively, ensuring that they have the funds available when needed to meet their financial commitments.

This approach contrasts with strategies that prioritize maximizing returns without regard to liabilities, which may expose the entity to greater risk in volatile markets. The goal here is not just about generating high returns but ensuring stability and predictability in fulfilling liabilities, which is essential for financial planning and operational sustainability.