Purchase of Challenger Group Limited (ASX: CGF)

23rd May 2024

Across the Australian Equity component of investor portfolios (Blend Tilt), we have bought Challenger Group Limited (ASX: CGF).

Challenger Group has 2 main divisions – Challenger Life and Funds Management.

Challenger life provides a variety of annuity products to retail and institutional investors. These include term and lifetime annuities, guaranteed.
The funds management division operates under 2 main brands – Fidante and Challenger Investment Management (CIM). Fidante is a multi-manager boutique with active investment strategies across all asset classes. CIM is a specialist active fixed income manager that invests in both public and private credit.

We are attracted to Challenger for the following reasons:

Dominant market position in the Australian retail annuity channel.
Abundant growth opportunities and fiscal tailwinds forming for annuities.
Strong funds management business.

Challenger has three key levers for value creation that we would like to highlight:

Due to a recovery from close to zero percent interest rates, the rate of return offered on Challenger’s annuities has improved significantly. This is leading to shifts in their business mix towards higher margin products and channels. This will drive strong earnings growth, over the medium term.
Ongoing growth in the funds management business and expansion of the solutions offered will drive earnings growth and generate capital to grow the annuities business further. The recently announced partnership with Apollo will help drive growth in the emerging private credit segment.
The Australian government is pushing for increased use of annuities as Australians transition into retirement. This should drive increased demand for Challenger’s annuities and earnings growth in time.

We have funded the purchase of Challenger via the de-weighting of Endeavour Group (ASX: EDV), The Lottery Corporation (ASX: TLC), Telstra Corporation (ASX: TLS) and Woodside Energy (ASX: WDS).

As always, thank you for your ongoing support, it is very much appreciated. If you have any questions or would like more information, please contact your adviser.

Warnings and disclosures

This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.