The practice of matching
returns on a
portfolio to future
capital outlays. That is, cash flow matching involves
investing in certain
securities with a certain
expected return so that the
investor will be able to pay for future liabilities.
Pension funds and
annuities perform the most cash flow matching, as they have future liabilities that are both large and relatively easy to estimate. Portfolios that perform cash flow matching usually invest in low-
risk,
investment-grade securities. The practice is also called portfolio dedication, matching, or the structured portfolio strategy.