The process of aligning cash flows of assets to meet liabilities is known as?

The process of aligning cash flows of assets to meet liabilities is referred to as Asset-Liability Matching. This concept is essential in portfolio management and risk management, particularly for institutions like pension funds and insurance companies, which have specific future liabilities they need to meet.

Asset-Liability Matching involves ensuring that the cash flows generated from the assets align with the timing and amounts of the anticipated liabilities. This strategy aims to mitigate the risk that the asset returns will be insufficient to cover future obligations, which is particularly crucial in environments with fluctuating interest rates or changing market conditions. By effectively matching cash inflows from assets with cash outflows expected for liabilities, organizations can fulfill their obligations without taking unnecessary risks or overexposing themselves to market volatility.

In contrast, Cash Flow Analysis, while related, focuses more broadly on assessing all cash flows over a period rather than specifically matching them to liabilities. Risk Assessment is concerned with identifying and managing potential risks in a portfolio, and Portfolio Diversification is a strategy used to mitigate risk by spreading investments across different assets rather than concentrating them in a single area. These concepts contribute to effective portfolio management but do not directly address the alignment of cash flow to meet specific liabilities.