Challenger Limited · ASX:CGF
Challenger — Investor Day (June 2016)
49 slides from Challenger's investor day presentation, Jun 2, 2016
Slide 1: Challenger Limited Investor Day
Challenger Limited Investor Day 2 June 2016
Slide 2: Outline
Outline Providing Australians with financial security for retirement Overview and outlook Brian Benari – Managing Director and Chief Executive Officer Funds Management Ian Saines – Chief Executive, Funds Management Life Chris Plater – Principal Executive Officer and Chief Investment Officer, Life Re
Slide 3: Overview and outlook
Overview and outlook Investor Day Brian Benari Managing Director and Chief Executive Officer
Slide 4: Investor proposition
Investor proposition Market leader with competitive advantage PROVIDING AUSTRALIANS WITH FINANCIAL SECURITY FOR RETIREMENT FOCUSED RECOGNISED TALENTED MARKET STRATEGY CAPABILITY PEOPLE LEADER FM – boutique and Recognised consumer Highly engaged staff with FM growing twice speed co-investment
Slide 5: Retirement income market drivers
Retirement income market drivers Market leader well positioned in high growth market Super funds partnering with Life companies Over 700 Australians turning 65 every day Industry moving ahead of regulation Older and 20-year cycle of retiring ‘Baby-Boomers’ Market healthier retirees Natural market gr
Slide 6: Funds Management
Funds Management Investor Day Ian Saines Chief Executive, Funds Management
Slide 7: Key points
Key points Continuing to build competitive advantage 1 Funds Management Track record of growing FUM and adding boutiques 2 Fidante Partners Investing to enhance long term competitive advantage 3 Fidante Partners Europe Dexion acquisition fulfilling strategic rationale 4 Challenger Investment Partner
Slide 8: Track record of growing FUM and adding boutiques
Funds Management Track record of growing FUM and adding boutiques FUM ($bn)1 60 • Funds Management FUM Challenger Investment Partners of $55bn, up from $19bn 50 Fidante Partners 5 years ago1 ‒ annual growth 30% p.a. 40 ‒ market growth 14% p.a.2 30 • Fidante Partners ‒ 15 boutique brands 20 ‒ geograp
Slide 9: Continued growth supported by available capacity and superior net flows
Funds Management Continued growth supported by available capacity and superior net flows Manager capacity ($bn) Rolling 12 month organic net flows vs peers1 ($bn) 25 7 Available capacity Challenger Funds Management FUM 6 Peer average 20 5 15 4 3 10 2 5 1 Equity Fixed Alternatives managers income man
Slide 10: Fidante Partners: investing to enhance long term competitive advantage
Fidante Partners Investing to enhance long term competitive advantage Equity Distribution Partnership Administration Services • Expanding boutique product offering • Expanded institutional and • Recognised, institutional-grade WaveStone – long only product retail distribution teams support infrast
Slide 11: Fidante Partners: replicating a proven model in Europe
Fidante Partners Replicating a successful and proven model in Europe S STRATEGIC Extend global distribution and product footprint PRIORITY ‒ Demand from clients for offshore product increasing ‒ Fidante Partners model highly regarded by asset consultants and investors with proven track record ‒ Attr
Slide 12: Fidante Partners Europe: Dexion acquisition fulfilling strategic rationale
Fidante Partners Europe Dexion acquisition fulfilling strategic rationale Listed Closed-End Investment Companies Multi-boutique platform ‒ Provides liquidity and mark-to-market benefits for ‒ 3 alternative asset boutiques alternative asset investors ‒ Distribution and administration services complem
Slide 13: Challenger Investment Partners: leveraging capability and expanding client base
Challenger Investment Partners Continuing to leverage capability and expand client base Demand Challenger Supply Investment Partners • Negative global interest rates driving • Proven fixed income and property originator foreign investors (e.g. Japanese) to seek • Successful co-investment track recor
Slide 14: Third party client case studies
Challenger Investment Partners Third party client case studies Fixed income – Relative Value Debt Strategy Property – Retail Property mandate • Major Australian superannuation fund mandates • Offshore sovereign wealth fund • FUM of $1.2bn with 48% co-invested with Life • FUM of $0.8bn with 25% co-in
Slide 15: Key points
Key points Continue to build competitive advantages 1 Funds Management Track record of growing FUM and adding boutiques 2 Fidante Partners Investing to enhance long term competitive advantage 3 Fidante Partners Europe Dexion acquisition fulfilling strategic rationale 4 Challenger Investment Partners
Slide 16: Life
Life Investor Day Chris Plater Principal Executive Officer ＆ Chief Investment Officer, Life
Slide 17: Key points
Key points High quality investment portfolio meeting 18% ROE target 1 Investment team and structure Stable and highly experienced teams providing competitive advantage 2 Governance & risk management framework Entrenched risk management culture with Board oversight Credit risk management central to i
Slide 18: Investment team and structure
Investment team and structure Stable and highly experienced teams Chief Investment Officer Chris Plater 22 years experience Life Asset Asset & Liability Investment Investment Group Risk Allocation Management Management teams Credit Senior Portfolio Senior Portfolio Senior Portfolio Head of Credit Se
Slide 19: Governance & risk management framework
Governance & risk management framework Entrenched risk management culture with Board oversight • Risk appetite differentiates between risks that provide an economic return and those that do not • Risk management is entrenched in corporate culture • Board Risk Committee and Audit Committee implement
Slide 20: Credit risk management central to investment process
Governance & risk management framework Credit risk management central to investment process Risk appetite includes Board approved risk limits – country, sector and counterparty Credit risk Equity and infrastructure risk Property risk Life insurance risk Credit risk management • Credit team r
Slide 21: Credit risk benchmarking
Governance & risk management framework Credit risk benchmarking Credit risk benchmarking Higher credit quality than major Australian banks1 • Higher fixed income credit quality than major 100% Australian banks • Challenger selective on credits as not 75% relationship driven 79% 74% • Challenger’s ex
Slide 22: Asset allocation driven by duration and relative value
Asset allocation & portfolio construction Asset allocation driven by duration and relative value • Strict portfolio construction framework employed Life investment asset allocation framework • Investment decisions based on risk-adjusted returns Asset and liability matching • Asset allocation evolves
Slide 23: Assets and liabilities matched and unwanted risks mitigated
Asset allocation & portfolio construction Assets and liabilities matched and unwanted risks mitigated • Assets deliver contracted cash flows to match Assets and liabilities cash flow matched ($m) contracted liabilities • Risk appetite does not tolerate duration mismatch Assets • Asset and liability
Slide 24: Asset allocation driven by duration and relative value
Asset allocation & portfolio construction Asset allocation driven by duration and relative value • Life extracts risk premium with Asset risk premium – fixed income and property1 change in base interest rates 12% reflected in annuity pricing 10% • Despite low return environment all asset classes abo
Slide 25: Key points
Key points High quality investment portfolio meeting 18% ROE target 1 Investment team and structure Stable and highly experienced teams providing competitive advantage 2 Governance & risk management framework Entrenched risk management culture with Board oversight Credit risk management central to i
Slide 26: Retirement income policy update
Retirement income policy update Investor Day Jeremy Cooper Chairman, Retirement Income
Slide 27: Key points
Key points Regulatory reforms underway to enhance retirement phase 1 2016-2017 Federal Budget All positive or no material impact for Challenger 2 Retirement Income Streams review Green light for new lifetime income products, including DLAs Pathway to Comprehensive Income Products for Retirement (CIP
Slide 28: 2016-17 Budget super changes
2016-17 Budget super changes All positive or no material impact for Challenger Topical Budget changes to super Positive retirement income reforms • Objective of super confirmed – retirement income • Green light for new lifetime income products, including Deferred Lifetime Annuities (DLAs) Other supe
Slide 29: Retirement Income Streams review
Retirement Income Streams review Green light for new lifetime income products Treasury’s Retirement Income Streams review Federal Budget 2016-17 Extract from budget papers1 • Final report issued with 2016-17 Federal Budget Key points • Government will remove barriers to innovation in the creation of
Slide 30: Pathway to Comprehensive Income Products (CIPRs)
Retirement Income Streams review Pathway to Comprehensive Income Products (CIPRs) • New retirement income product category to permit new range of lifetime income products, including DLAs • Products meeting existing rules continue • New category will provide “as much flexibility Lifetime Annuity .. o
Slide 31: Regulatory tailwinds
Regulatory tailwinds Regulatory reforms underway to enhance retirement phase FSI CIPRs 1. Superannuation objective to 1. Government supports be enshrined in law CIPRs - to help guide 2. Remove impediments to members at retirement longevity product development 2. Trustees pre-select 3. Implement Comp
Slide 32: Key points
Key points Regulatory reforms underway to enhance retirement phase 1 2016-2017 Federal Budget All positive or no material impact for Challenger 2 Retirement Income Streams review Green light for new lifetime income products, including DLAs Pathway to Comprehensive Income Products for Retirement (CIP
Slide 33: Distribution, Marketing and Research
Distribution, Marketing and Research Investor Day Paul Rogan Chief Executive Distribution, Marketing and Research
Slide 34: Key points
Key points Entrenching our retirement income leadership position 1 Challenger’s retirement brand journey Australia’s leading retirement income brand 2 Annuities on platforms initiative enhances distribution footprint Showcasing our digital innovation partners 3 Entrenching our retirement income lead
Slide 35: Challenger's retirement brand journey
Challenger’s retirement brand journey Brand strengthening with consumers1, leading with advisers2 Brand strength 2011 100% ‘Real Stories’ 80% 60% 40% 2013 20% ‘On Paper’ 2010 2011 2013 2016 2016 Consumers Advisers ‘Lifestyle ‘Prompted ‘Leaders in Expectancy’ brand retirement awareness’ income’ Inves
Slide 36: Lifestyle expectancy campaign
Lifestyle expectancy campaign Responding to the fear of outliving savings • Compares having a comfortable lifestyle vs. one where you run out of savings – 6 out of 10 retirees are worried they may outlive their savings 1 • Continues thematic on key retirement risks: market volatility, longevity and
Slide 37: Challenger No.1 in overall adviser satisfaction
Distribution capability Challenger No.1 in overall adviser satisfaction Wealth Insights Fund Manager Service Wealth Insights Fund Manager Service Level Report 2016 1 Level Report 2016 8.8 8.4 • High profile industry survey 8.0 7.6 – over 850 financial advisers 7.2 6.8 – how clients regard Challenger
Slide 38: Annuities on platforms
Annuities on platforms Driving lifetime annuity sales growth New platform opportunities provide access to Strong growth in lifetime annuity sales 1 1/3 of super industry 250 Care Annuity / CarePlus Liquid Lifetime 200 Launched Technology build August 2015 completed May 2016 150 28% Retail 34% AUSTRA
Slide 39: Panel session: Showcasing our digital innovation partners
Annuities on platforms Panel session: Showcasing our digital innovation partners Peter Chun Michael Dundon General Manager, Product & Investments Chief Executive Officer Colonial First State VicSuper Shannon Goard Paul Rogan – Moderator Head of Product & Northern Client Partnerships Chief Executive
Slide 40: Annuities on platforms - Industry Funds
Annuities on platforms - Industry Funds Distribution enhanced through new platform opportunities launched June 2015 25 VicSuper annuity volumes $2.0 M 20 $1.5 M • Australia’s first “CIPR” - backed by Challenger 15 $1.0 M 10 • VicSuper members retirement concerns: $0.5 M 5 – inflation; having enough
Slide 41: Annuities on platforms - Industry Funds
Annuities on platforms - Industry Funds Distribution enhanced through new platform opportunities Australian superannuation administration providers1 now live (by core administration service expense 2014) Total outsourced administration: 42% 1 • Administers 30% of the ‘profit for member’ Link Group 3
Slide 42: Annuities on platforms - CFS
Annuities on platforms - CFS Distribution enhanced through new platform opportunities launched August 2015 CFS Platform – Challenger annuity volumes ($m) • Improves client and adviser experience 1 • Significant increase in volumes – up ~100% • Attracting new advisers with ~50% of platform Q115 Q116
Slide 43: Annuities on platforms - CFS
Annuities on platforms - CFS Distribution enhanced through new platform opportunities • CFS platforms used by ~50% of advice firms 1 • Annuities initiative awarded for digital innovation • CFS retirement income models – Supported by independent actuarial research 2 – Layering annuities as part of re
Slide 44: Entrenching our leadership position
Entrenching our leadership position Distribution competitive advantages driving growth Australia’s leading retirement income brand Brand Meeting the goals and Innovative Applying world’s best managing the risks of retirement via partial product Research practice to the Australian offering market ann
Slide 45: Key points
Key points Entrenching our retirement income leadership position 1 Challenger’s retirement brand journey Australia’s leading retirement income brand 2 Annuities on platforms initiative enhances distribution footprint Showcasing our digital innovation partners 3 Entrenching our retirement income lead
Slide 46: Wrap up and Q&A session
Wrap up and Q&A session Investor Day Brian Benari Managing Director and Chief Executive Officer
Slide 47: Wrap up
Wrap up Providing Australians with financial security in retirement 1 Funds Management Continue to build competitive advantages 2 Life High quality investment portfolio meeting 18% ROE target 3 Retirement income policy update Regulatory reforms underway to enhance retirement phase 4 Distribution, Ma
Slide 48: Q&A session
Q&A session Investor Day challenger {2
Slide 49: Important note
Important note This presentation was prepared for the purpose of a briefing to equity analysts and certain wholesale investors on 2 June 2016. The material in this presentation is general background information about Challenger Limited activities and is current at the date of this presentation. It i