One Challenger

• Expanding Challenger brand to include Bank and CIP Asset Management
• Building a more diversified business, broadening product offering and distribution channels to bring the best of Challenger to more customers

Building strong strategic partnerships

• Progress in Apollo joint venture opportunity to build a lending platform
• Non-binding MoU with SimCorp to establish joint venture providing leading investment operations platform

On track to meet full year guidance

• FY22 earnings expected to be towards the upper end of guidance range

Challenger Limited (ASX:CGF) today provided an update on its strategy as it focuses on building a more diversified business that meets a wider range of customer needs.

Challenger CEO and Managing Director Nick Hamilton stated that the business will build on its strong foundations as a leader in retirement incomes, and is well positioned for growth:

“We have an exciting opportunity to bring the best of Challenger to more customers than we do today. To achieve this, we will expand our brand and deliver more products across a greater number of channels. We will also focus on our investment capability and operating platform to deliver more of what our customers need.

“As we progress our ‘one Challenger’ priority, we will capitalise on the expertise across our talented team to play a more meaningful role in our customers’ lives and enhance shareholder outcomes.

“I am delighted that we have made progress in developing strategic partnerships with Apollo and SimCorp, which are strongly aligned to our approach of working with global partners to diversify and grow our business.

“The joint venture opportunity with Apollo reflects the continued success of our relationship, which we have been developing over a number of months. This opportunity would also address an underserved market, leverage the capabilities of the group and provide business diversification.

“Our joint venture with SimCorp will leverage Challenger’s existing investment operations capability and deliver Australia’s first end-to-end investment administration platform. We see an untapped opportunity to deliver these critical services to leading financial services organisations and asset owners.

“We have a strong business and core platform, but we can be even more. Through executing our strategy, we will take a broader stance in retirement and seize the exciting opportunities ahead.”

‘One Challenger’ priority

Under the ‘one Challenger’ priority, Challenger intends to bring the best of the business to even more Australians. This includes expanding the Challenger brand from a leader in retirement incomes, to a brand synonymous with high-quality income generating products and a wider retirement offering.

As part of this strategy, CIP Asset Management will move to the Challenger brand, as Challenger Investment Management over the next six months. Work is also well progressed to transition the Bank and its products to the Challenger brand by the end of this financial year, leveraging Challenger’s position as the leader in retirement incomes.

Challenger and Apollo continue to progress strategic partnership

Challenger continues to progress its strategic partnership with Apollo (NYSE:APO).

Challenger and Apollo share a common purpose, strong complementary skills and capabilities.

Both parties are working together on a range of opportunities to help customers achieve financial security in retirement and deliver meaningful value for their shareholders.

Initiatives under discussion include investment and life risk opportunities, product and distribution opportunities and investigating joint venture opportunities, as previously announced.

The joint venture opportunity aims to build a lending platform and the teams are working diligently to ensure the foundations of the joint venture are strong, including structural, tax and regulatory considerations.

The proposed initiative would also leverage the capabilities of both Challenger and Apollo to drive opportunities for growth for both firms. It would bring together Challenger’s operating platform and relationships across Australian lending markets with Apollo’s extensive global scale, whilst also providing important business diversification.

Challenger announces non-binding Memorandum of Understanding with SimCorp

Challenger has also entered into a non-binding Memorandum of Understanding with SimCorp (CSE:SIM) – a global leader in investment administration services – with the intention to establish a joint venture to provide a market-leading investment operations platform, servicing customers across Australia, and APAC.

The proposed joint venture will leverage the capabilities of both Challenger and SimCorp to provide Australia’s first fully technology-led, integrated front-to-back cloud-based investment operations platform. The initiative will provide investment administration as a service to Challenger, Fidante and third-party clients.

The proposed joint venture builds on a long standing 17-year business relationship between Challenger and SimCorp and is expected to be operational in the first half of FY23. The platform will be powered by SimCorp’s investment management solution, Dimension, and operated by Challenger’s experienced investment operations team.

Challenger will be a majority owner of the joint venture.

David Mackaway, Challenger’s Group Chief Operating Officer, will be appointed as Chief Executive Officer of the joint venture and lead the business. David has significant industry experience, an intrinsic understanding of Challenger’s operational requirements and is ideally positioned to realise the significant opportunity ahead.

Bank integration update

The Bank forms a key component of Challenger’s growth strategy by broadening its customer reach and providing access to the significant term deposit market.

Since the completion of the acquisition, Challenger has focused on building out the Bank’s lending capability and distribution strategy, integrating systems and expanding the team.

To date, Challenger has taken a very disciplined approach to deposit and asset growth until the Bank’s lending program was established. Challenger recently received approval from APRA to commence certain types of non-retail lending, including SME, commercial real estate and corporate lending. This is a significant milestone, providing the opportunity to expand Challenger’s guaranteed income offering and leverage the business’ superior yield origination platform.

FY22 outlook

Challenger reaffirms its FY22 normalised net profit before tax guidance and expects to be towards the upper end of the $430 million to $480 million guidance range.

Underpinning Challenger’s growing, successful franchise, is a strong balance sheet and sustainable capital settings. The business is strongly capitalised with a Life PCA ratio¹ of 1.61 times, as at April 2022, which is towards the upper end of its target range.

ENDS

This release has been authorised by Challenger’s Continuous Disclosure Committee.

¹ PCA ratio represents total Challenger Life Company Limited (CLC) Tier 1 and Tier 2 regulatory capital base divided by the Prescribed Capital Amount (PCA) and is as at 30 April 2022.