Diff between liability relative and liability mimicking port

CFA Level III Portfolio Management
#1

hi Everyone,

Can somebody explain me the difference between liability Mimiking- which is presume is earning the discount rate of liabilities

verses

liability relative port: which is to earn excess return without increasing the risk of port verses the liabilities.

Thanks,

Swetha

#2

Liability mimicking.

Sample which is a most common case:

DB Plan with different risk exposure related to its participants structure.

Thus, in liability mimicking portfolio, you will use each asset class to hedge different liability exposure.

Equities to capture compensation growth for active ones, real bonds to protect against inflation, nominal bonds to hedge cash flow risk etc.