Dedication Strategy

DEFINITION of Dedication Strategy

Dedication strategy is an asset management method by which the anticipated returns on an investment portfolio are matched with estimated future liabilities. A dedication strategy is as often as possible utilized in pension funds and insurance company portfolios to guarantee that future liabilities can be met. Dedication strategy is likewise called portfolio dedication, cash flow matching and structured portfolio strategy.

BREAKING DOWN Dedication Strategy

A dedication strategy includes cash flow matching with the goal that investment earnings will give funds to anticipated future capital outlays. Pension funds and insurance companies can reasonably precisely forecast future liabilities, which will quite often be substantial. Their portfolios ordinarily incorporate generally safe, fixed income securities, for example, investment grade corporate bonds, government bonds and mortgage-backed securities, that take into consideration unsurprising income streams to match projected future obligations.

Pension funds and insurance companies must be conservative with their investments since they need the certainty (to the degree conceivable inside their control) of generating sufficient income to meet its obligations to pension beneficiaries and policy holders. At the individual level, too, an investment plan to "commit" a portion of assets to deliver income to pay for particular known expenses — college tuition, wedding costs, retirement, as specific illustrations — is part of a savvy money management strategy.

An Example of Dedication Strategy Language

The California Public Employees' Retirement System (CalPERS) is explicit in its utilization of "dedicated" to depict the purpose of one of its trust funds: "The California Employers' Benefit Trust (CERBT) Fund is a Section 115 trust fund dedicated to prefunding employer contributions to defined benefit pension systems for all eligible California public agencies...By joining this trust fund, California public agencies can assist with supporting future costs by and large from investment earnings given by CalPERS." "Dedicated" suggests that CalPERS is investing assets so they will deliver income exclusively to fund OPEB.