Challenger is a diversified investment management firm that manages over $60b in assets. Today Challenger is focused on providing wealth creation solutions for those in the accumulation phase of superannuation and also reliable income streams for retirees. Challenger’s leading market positioning in annuities is setting the company for long term earnings growth as Australia’s superannuation system, already the 5th largest global pension market, continues to grow at rates 2x that of global pension markets (Towers Watson).
The ABS forecast the level of Australians aged over 65 will grow by 75% over the next two decades. While there will $58b moving from the accumulation to retirement phase in 2017 (Deloitte), this is forecast to continue to grow at 13% CAGR over the next ten years, as the number of retirees grows. Given Challenger’s leading position in annuities products, the company estimates it can capture 4% of this transfer every year.
Challenger continues to broaden its annuities distribution network, signing partnerships with AMP (from FY18) and Mistui Sumitomo Primary Life in Japan (in FY17), having already launched with Colonial First State in 2015. This should see further advisor groups and platforms integrate with Challenger over time to remain competitive. Regulatory tailwinds are also positive with the government requiring super fund trustees to recommend Comprehensive Income Product for Retirement (CIPR) from 2018, a product first created by Challenger and VicSuper.
The ability for Challenger to provide attractive rates of organic growth driven by its strong market positions in structurally growing end markets should continue to see it garner a premium rating to other investment management companies. Challenger remains an attractive long-term investment capable of generating strong compounded returns for shareholders.
Contributed by Nick Reddaway, Managing Director and Fund Manager at Paragon Funds: (VIEW LINK)
By adopting a thematic-led, fundamentally-driven high-conviction strategy that can profit from rising and falling share prices, Paragon aims to provide its clients with excellent long term returns regardless of market performance.