What does a liability-driven investment strategy focus on?

A liability-driven investment strategy primarily focuses on aligning investments with the cash flow needs of liabilities. This approach is designed to ensure that an investor's portfolio is structured in a way that matches the timing and magnitude of future cash outflows required to meet obligations, such as pension payments, insurance claims, or other liabilities.

By focusing on these cash flow needs, investors can mitigate risks associated with interest rate fluctuations and other financial variables that could affect the ability to meet those obligations. This strategy is particularly relevant for entities such as pension funds and insurance companies, where managing cash flows effectively is crucial for financial health and solvency.

While maximizing short-term gains, investing in high-risk stocks, and diversifying across multiple asset classes can be elements of various investment strategies, they do not specifically pertain to the core goal of a liability-driven investment strategy, which is to ensure that assets are sufficient to cover future liabilities as they come due.