What does asset-liability matching primarily focus on?

Asset-liability matching primarily focuses on aligning the cash flows of assets with liabilities. This approach is crucial for maintaining financial stability, especially for institutions like pension funds, insurance companies, and banks, where the timing and amounts of cash inflows from assets must match the timing and amounts of cash outflows for liabilities. By ensuring that cash flows from investments are scheduled to meet obligations, organizations can minimize the risk of liquidity shortages and other financial complications.

This methodology is particularly important for ensuring that funds are available when liabilities are due, which helps in managing financial risks effectively. The alignment allows for smoother operations and enhances the predictability of financial outcomes. It is less about maximizing investment returns or diversifying portfolios and more focused on meeting specific financial commitments as they arise.