An institutional investor is tasked with managing a pension fund with a specific set of liabilities that will be paid out over the next 15 years. The pension fund has estimated the present value of its liabilities to be $10 million, which will be paid out in equal annual installments at the end of each year. The current yield curve shows an upward-sloping curve, with short-term rates at 2% and long-term rates at 4%.

The fund has a bond portfolio valued at $10 million, composed of various fixed income securities. The portfolio’s duration is currently measured at 6 years. Given these circumstances, discuss how the pension fund could employ a liability-driven investment strategy using duration matching to align the bond portfolio with the timings and amounts of the future liabilities. Be sure to address the potential advantages and limitations of this approach in your discussion.