What type of asset allocation is characterized by an emphasis on funding specific liabilities?

The focus on funding specific liabilities defines liability-relative allocation. This approach structures the investment portfolio in relation to future obligations, ensuring that the assets are specifically aligned to meet those liabilities as they come due. This method is particularly relevant for institutions such as pension funds or insurance companies, where precise cash flows are necessary to meet the promised payouts to beneficiaries.

In contrast, asset-only allocation considers the overall characteristics and performance of the assets themselves, without a direct connection to specific liabilities. Goals-based allocation targets broader investment objectives and individual financial goals, while strategic allocation refers to a longer-term investment strategy that generally maintains a fixed asset mix based on an analysis of risk and return over time, without necessarily aligning with specific liability characteristics.

Because of its direct focus on liabilities, liability-relative allocation best serves to manage the timing and nature of obligations, ensuring that the investments are positioned to meet those cash flow requirements effectively.