Immunization Strategy for Pension Fund Liabilities

Johnston Wealth Management is tasked with managing a pension fund with a liability profile heavily influenced by a static stream of retirement payouts that will begin in 15 years. The present value of these liabilities is calculated to be $20 million. The team is concerned about interest rate fluctuations and uncertainty surrounding the timing of the cash flows due to potential changes in both life expectancy and retirement patterns of the plan participants.

In light of these concerns, the firm's portfolio manager decides to adopt an immunization strategy. Describe the key components of the immunization strategy that Johnston Wealth Management would need to consider when constructing their fixed income portfolio. Specifically, address how the manager can match the duration of the investment portfolio to the duration of the liabilities, the role of convexity, and how to maintain the immunization over time given changing market conditions and cash flow requirements. Include potential challenges and strategies to mitigate risks.