Challenger's foot in both camps

Can the company take advantage of the equity market volatility?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 20, 2012 3:37 pm AEST

Diversified financial services firm, Challenger Limited (ASX: CGF) has today reported a normalised profit of $297m, up 36% over last year. Earnings per share jumped 55% to 57.5 cents per share, while a 10.5 cents per share final dividend took the year's total to 18 cents, unfranked. The company operates two core businesses, funds management and a life insurance & annuity business.

Unlike other fund managers, Platinum Asset Management (ASX: PTM) and Perpetual Limited (ASX: PPT), Challenger's funds management division has reported a strong year of inflows with funds under management (FUM) rising 31% to $31 billion. The company now ranks 10^th in the top 10 Australian fund managers, ranked by that measure.

Like competitor Treasury Group (ASX: TRG) that owns several boutique fund managers, Challenger's Fidante Partners division owns eleven boutique fund managers, and nine of those saw positive net inflows during the 2012 financial year.

Strong retail sales of annuities contributed to the performance as well – Challenger's Life business offers fixed rate retirement and superannuation products, designed for investors seeking a low risk investment for a period of time and who want to protect their capital. It's Australia's largest provider of annuities.

With equity markets being so volatile, many investors appear to have taken their funds out of the market and invested in cash and fixed rate securities, in an effort to preserve their nest egg. Challenger appears well placed to take advantage of any further equity market volatility, which could see more funds flow into its annuities products.

The company also operates and manages many listed and unlisted infrastructure and property funds, including Challenger Diversified Property Group (ASX: CDI) and Challenger Infrastructure Fund (ASX: CIF), although CIF is in the process of being wound up, following the sale of the fund's primary assets.

The Foolish bottom line

Challenger expects a growing awareness of financial risks in retirement to grow its retirement income business, while its funds management model provides opportunities for it to grow through the existing boutiques and new strategies. The company expects growth of between 10 and 15% for its life business in the 2013 financial year.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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