Challenger Limited · ASX:CGF
Challenger — Investor Day (May 2022)
67 slides from Challenger's investor day presentation, May 24, 2022
Slide 1: Challenger Investor Day
Challenger Limited 24 May 2022 CHALLENGER INVESTOR DAY BUILDING A MORE DIVERSIFIED BUSINESS, MEETING MORE CUSTOMER NEEDS One Challenger • Expanding Challenger brand to include Bank and CIP Asset Management • Building a more diversified business, broadening product offering and distribution channels
Slide 2: 'One Challenger' priority
Challenger Limited 24 May 2022 “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 int
Slide 3: Bank integration update and FY22 outlook
Challenger Limited 24 May 2022 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 ap
Slide 4: About Challenger and About Apollo
Challenger Limited 24 May 2022 About Challenger Challenger Limited (Challenger) is an investment management firm focused on providing customers with financial security for a better retirement. Challenger operates three core investment businesses – a fiduciary Funds Management division, an APRA-regul
Slide 5: Investor Day
Challenger Limited Investor Day Building a more diversified business Meeting more customer needs 24 May 2022
Slide 6: Agenda
Agenda Building a more diversified business to meet more customer needs Overview and strategy 9:00 – 9:25 Nick Hamilton – Managing Director and Chief Executive Officer Customer and distribution 9:25 – 9:50 Catherine van der Veen – General Manager, Strategy and Growth Lucy Foster – General Manager, S
Slide 7: Overview and strategy
Overview and strategy Nick Hamilton Managing Director & Chief Executive Officer
Slide 8: Key points
Key points Building a diversified business to meet more customer needs Strong business with significant competitive advantages Broaden products and distribution to meet more customer needs Expand Challenger brand Accelerate growth through leveraging strategic partnerships Enhance shareholder outcome
Slide 9: Purpose and strategy
Purpose and strategy Building a more diversified business to meet more customer needs Our purpose is to provide customers with financial security for a better retirement Expand range of Broaden customer Leverage the combined Strengthen resilience financial products and access across capabilities of
Slide 10: Strong core business
Strong core business Complementary businesses positioned for growth Our purpose is to provide customers with financial security for a better retirement SPREAD BASED INCOME FEE BASED INCOME Life Bank Funds Management #1 Australian retirement Digital banking platform providing One of Australia’s faste
Slide 11: Highly capable and engaged team
Highly capable and engaged team Focused on driving engagement, innovation and collaboration High employee engagement1 81% Sustainable engagement 89% Diversity & inclusion 90% Collaboration Driving innovation through Imaginate22 Submissions focused on growth, 80 simplification and One Challenger Supp
Slide 12: Business well positioned
Business well positioned Competitive advantages and tailwinds supporting growth Challenger competitive advantages Leading origination Exceptional Investment Highly Strong and investment distribution operations capable and brands capability footprint excellence engaged team Supportive long-term tailw
Slide 13: One Challenger
One Challenger Building a more diversified business to meet more customer needs Saving for Spending for retirement retirement Starting Working Paying Accumulating Starting Travelling Downsizing Aged care out off debt wealth retirement YIELD SOLUTIONS PARTNERSHIPS ALPHA Annuities Index Plus MS&AD Equ
Slide 14: Alpha capability
Alpha capability Diversified offering generating strong returns for clients 17 brands across multiple strategies and asset classes Australian equities Strong performance Global, regional & EM equities 97% FUM outperforming benchmark over 3 years 1 Fixed income Sustainable 6 New affiliates added sinc
Slide 15: Challenger growth strategy
Challenger growth strategy Building a more diversified business and meeting more customer needs Where we are today Where we are headed Multi-brand Annuity and niche bank brand Brand One Challenger Advised Retail Multi-channel, Adviser, Institutional Institutional Customer Broker, HNW, Direct Guarant
Slide 16: Significant opportunities for growth
Significant opportunities for growth Clear plan to capture opportunities Opportunity Our response Why we will be successful Strategy Meeting more • Expand brand across capabilities • Leading annuity provider & active manager One customer and Challenger • Broaden products and distribution • Exception
Slide 17: Customer and distribution
Customer and distribution Catherine van der Veen General Manager, Strategy and Growth Lucy Foster General Manager, Strategy and Growth
Slide 18: Significant opportunities for growth
Significant opportunities for growth Clear plan to capture opportunities Opportunity Our response Why we will be successful Strategy Meeting more • Expand brand across capabilities • Leading annuity provider & active manager One customer and Challenger • Broaden products and distribution • Exception
Slide 19: Leading capability
Leading capability Provides strong foundation for future growth Leading investment Leading retirement brand Leading distribution products and solutions Leader in retirement #1 Australian Top 50 Australian super >90% income1 annuity provider >90% funds are Challenger clients Strong brand One of Austr
Slide 20: Leveraging brand strength
Leveraging brand strength Broaden Challenger brand to represent more of our capability Life Bank Funds Management Where we are today Where we are headed 2022 Investor Day – Customer and distribution 16
Slide 21: Customer focus
Customer focus One Challenger mindset key to further growth Bank (Solutions) Everything starts with the customer Customer need, both now and in the future Direct Advised Needs FM Create solutions that are available in (Yield) Channel preferred customer channels Wants Open up the best of One Challeng
Slide 22: One Challenger solution capability
One Challenger solution capability Innovating to meet more customer needs Customer trends One Challenger YIELD SOLUTIONS 64% 58% Investors would accept People expect to generate moderate or high variability retirement income from Annuities Index Plus Term deposits Bespoke solutions with the potentia
Slide 23: Leveraging retail distribution capability
Leveraging retail distribution capability Broader offer and stronger presence in high net worth channels Take a broader offer to market Maintain strength and momentum Income Specialist Tailored products retirement solutions Depth and breadth in retail advice – products Life + Funds Management Build
Slide 24: Institutional partnerships – solving client needs
Institutional partnerships – solving client needs Market-leading capabilities One Challenger Capabilities Portfolio Solutions Bank Fixed Strong brand Actuarial product Interest capability Funds Management Life Administration Bank Property Structuring company Life platform structure Boutique Balance
Slide 25: Target customer segments and channels
Target customer segments and channels Understanding each customer segment need will inform solution design Customer Challenger solution Age Affluence Channel Scenario Offer Solution Mass Direct / Broker Solutions TD Pre-retiree 68 y/o retiree (45-65) ~$600k - $1.2m Affluent investable assets Interme
Slide 26: Product pipeline
Product pipeline Driving innovation to meet more customer needs In Market In Market Concept Concept Pre-2019 2019 to 2021 2022 2023+ Term Lifetime RBA Cash YIELD Annuity Annuity Linked Guaranteed Challenger Listed managed investments Index Return Index Plus Private Lending Challenger income series O
Slide 27: Key points
Key points Meeting more customer needs Broaden the Challenger brand across more of our capability Innovate to meet more customer needs Build on existing strength in retail distribution and investment solutions Meet demand for solutions-based approaches in HNW and self-directed segments Support super
Slide 28: Yield platform
Yield platform Victor Rodriguez Head of Fixed Income Mark Ellis Chief Executive, Bank
Slide 29: Significant opportunities for growth
Significant opportunities for growth Clear plan to capture opportunities Opportunity Our response Why we will be successful Strategy Meeting more • Expand brand across capabilities • Leading annuity provider & active manager One customer and Challenger • Broaden products and distribution • Exception
Slide 30: Challenger Investment Management
Challenger Investment Management Alternative investment manager Long track record of excellence in credit markets Challenger Investment Fixed Income Management Funds Under Management ~$16bn FUM1 Bespoke Credit Multi-Sector Private Lending Separately Income Private Opportunities Managed Fund Lending
Slide 31: One of Australia's largest fixed income managers
One of Australia’s largest fixed income managers Wide breadth of credit investments and expertise 1 Fixed income portfolio by sector Wide range of both public and private Real Estate Corporate credit sector capabilities globally 3% Credit 10% ABS 6% Real $3bn invested in domestic private lending Pri
Slide 32: Challenger IM competitive advantages
Challenger IM competitive advantages Exceptional access to corporate, securitised and real estate market Challenger Investment Management competitive advantages Strong track Significant Strong Highly Market place record scale governance experienced longevity team 2022 Investor Day – Yield platform 2
Slide 33: Market themes
Market themes Supportive structural tailwinds present very substantial opportunity Increased market Banks withdrawing from Demand for debt finance volatility certain types of lending from private companies High inflation and Tighter regulatory and Debt funding required tighter monetary policy capita
Slide 34: Challenger income solutions
Challenger income solutions Providing clients with range of income options Equity Alternatives / Equity income Private Lending Opportunities Fund High income Multi-sector Private Lending Fund Return Defensive income Credit Income Fund Conservative income Lifetime Annuity Institutional investors Reta
Slide 35: Challenger Investment Management strategic journey
Challenger Investment Management strategic journey Expanding yield product suite and improving customer access Where we are today Where we are headed CIP Asset Management Brand Challenger Investment Management Building Retail, HNW and Predominantly domestic institutional Customer international Broad
Slide 36: Key points
Key points High ROE business with strong business momentum Long standing proven investment management business with excellent track record Structural tailwinds provide opportunities to deliver attractive higher yielding risk/return outcomes Strong foundations to provide ongoing growth Expand product
Slide 37: Bank
Bank Mark Ellis Chief Executive, Bank
Slide 38: Supporting Challenger strategy
Supporting Challenger strategy Extend product and customer reach Challenger Bank Strategic rationale Digital savings and loans bank Access to term $780bn term deposit market2 deposit market Term deposits familiar product $182m Savings and term deposits1 Attract new customers Broadens Expand new dist
Slide 39: Bank today
Bank today Digital banking platform providing access to term deposit market Integration well progressed Winner of Mozo Expanding distribution channels Experts Choice Awards2 TDs available via comparator sites1 Preparing for retail broker channel launch Broadening lending capabilities Commencing cert
Slide 40: Expanding distribution channels
Expanding distribution channels Term deposit strategy well progressed FY22 Early momentum & scale • Direct to customer channels supported by comparator sites Direct Intermediated Institutional and • Intermediated channel via retail broker Australian Money Market to launch in high net wealth June 202
Slide 41: Key points
Key points Bank a key component of Challenger’s growth strategy One Challenger approach allows Bank to widen distribution platform and provide wider set of income solutions to customers Continue to develop customer offering Leverage Challenger Group asset management capability 2022 Investor Day – Ba
Slide 42: Strategic partnerships
Strategic partnerships Chris Plater Deputy Chief Executive Officer Stuart Kingham Chief Commercial Officer
Slide 43: Significant opportunities for growth
Significant opportunities for growth Clear plan to capture opportunities Opportunity Our response Why we will be successful Strategy Meeting more • Expand brand across capabilities • Leading annuity provider & active manager One customer and Challenger • Broaden products and distribution • Exception
Slide 44: Leveraging strategic partnerships
Leveraging strategic partnerships Supporting growth and diversification strategy Long-term Japanese annuity JV to build lending JV to build technology-led relationship with MS Primary1 platform in Australia and NZ Investment Administration As a Service platform Developing asset Product and partnersh
Slide 45: MS&AD strategic partnership
MS&AD strategic partnership Long-term relationship Diversifying and providing access to Japanese market Japan (MS Primary) annuity liabilities ($bn) Challenger and MS&AD announces an expansion to 2.3 its strategic relationship1 Challenger 2.1 commences annuity MS&AD increases its Challenger appoints
Slide 46: Apollo partnership
Apollo partnership Opportunity to support customers achieve financial security for retirement Opportunities to work together Investment opportunities • Aligned purpose – Apollo: generate Similar Life Risk operations investment income and retirement savings for their clients Product opportunities • N
Slide 47: Apollo joint venture opportunity
Apollo joint venture opportunity Complementary core capabilities Domestic capability Global capability #1 Fixed income manager Global scale and network Deep understanding and relationships in lending markets Private & public capability Proven origination track record Experience with similar JVs Mark
Slide 48: SimCorp Joint Venture: Investment Administration As a Service
SimCorp Joint Venture Investment Administration As a Service Stuart Kingham Chief Commercial Officer
Slide 49: Investment Administration As a Service
Investment Administration As a Service Building a leading investment operations platform Macro and industry trends present Investment Administration Opportunity As a Service opportunity Investment administration core Challenger capability and Capability competitive advantage Executing strategic join
Slide 50: Investment Administration As a Service
Investment Administration As a Service Macro and industry dynamics providing opportunity Macro and industry dynamics Industry response Opportunity Macro Investment Administration As a Service • Regulation increasing • Focusing on core investment • Growth in alternatives management to generate alpha
Slide 51: SimCorp joint venture
SimCorp joint venture Complementary core capabilities Investment admin. capability Technology capability 1 2 Supported growth to >$100bn across 18 clients Market leading cloud-based solutions Exceptional efficiency – market leading admin. bps cost Front to back leadership with 40+ years experience S
Slide 52: SimCorp joint venture
SimCorp joint venture Delivering leading investment operations platform Investment Administration As a Service 80% 20% Australian first and Australian operated Technology led investment administration platform Joint Venture Independently branded and majority owned Investment Administration As
Slide 53: Supports growth strategy
Supports growth strategy Fit for future growth and diversifying income streams Investment Administration Business As a Service platform Our purpose is to provide customers with financial security for a better retirement Expand range of Broaden customer Leverage the combined Strengthen resilience fin
Slide 54: Leveraging strategic partnerships
Leveraging strategic partnerships Supporting growth and diversification strategy Leverages Partner with Provides Capture scale Opportunity to Alpha Creates new capabilities of global leader business to support capture origination for fee generating Challenger diversification growth underserved clien
Slide 55: Life investment portfolio
Life investment portfolio Peter Schliebs Chief Investment Officer
Slide 56: Strongly capitalised
Strongly capitalised No change to current settings Strongly capitalised Expectations Challenger Life Company PCA ratio1,2 • Preferred operating level ~1.6x 1.61x • Increase in liquid capital to improve financial flexibility Within PCA ratio range 1.30x to 1.70x3 2022 Investor Day – Life investment p
Slide 57: Market themes
Market themes Challenger well positioned to adjust to changing market conditions Market themes Increasing inflation Heightened Increased competition in and bond yields volatility domestic private lending High inflation in the near-term Elevated geopolitical risk Super funds expected to become more S
Slide 58: Asset risk premium update
Asset risk premium update Back towards long-term averages 1 Asset risk premiums 14% Key observations 12% 10% • Risk premia back to long- 8% term averages (ex. equities) 6% • Credit spreads have moved 4% wider and are supportive for 2% new business profitability 0% • Property and equity risk -2% prem
Slide 59: Asset allocation
Asset allocation FY23 allocation expected to remain broadly stable Key Opportunities Asset Allocation • Further reduction in IG corporate credit, with better opportunities in asset backed 80% and private debt, continuing to target >75% investment grade 70% • Reallocation of some equity collar into t
Slide 60: Implications for ROE and margins
Implications for ROE and margins Overall positive with Challenger Life well capitalised Market themes Increasing inflation Asset Overall and bond yields returns ROE ROE to increase, however Widening of credit spreads Conditions positive for ROE takes time to season through positive for ROE, potentia
Slide 61: Key points
Key points Strongly capitalised and taking advantage of investment opportunities Challenger Life remains strongly capitalised Volatility expected to remain elevated in near term Widening credit spreads supportive for new business profitability FY23 asset allocation expected to remain broadly stable
Slide 62: Outlook and wrap up
Outlook and wrap up Nick Hamilton Managing Director & Chief Executive Officer
Slide 63: Enhancing shareholder outcomes
Enhancing shareholder outcomes Building a more diversified business and meeting more customer needs Enhancing shareholder outcomes Building a more Accelerate FUM growth diversified business Capture scale benefits Increase fee-based income Meeting the needs of Diversify earnings more customers Mainta
Slide 64: Enhancing shareholder outcomes
Enhancing shareholder outcomes Building a more diversified business and meeting more customer needs Accelerate Capture Increase Opportunity Strategy Diversify FUM scale fee-based earnings growth benefits income Meeting more One customer and Challenger client needs Clients seeking Breadth of income y
Slide 65: Guidance
Strong FY22 business performance FY22 guidance and targets Strong capital position Normalised net profit before tax expected to be towards upper end of GUIDANCE FY22 guidance range Challenger Life Company $430m $480m PCA ratio3,4 1.61x Normalised pre-tax Return on Equity (ROE) • Disciplined approach
Slide 66: Key points
Key points Building a diversified business to meet more customer needs Strong business with significant competitive advantages Broaden products and distribution to meet more customer needs Expand Challenger brand Accelerate growth through leveraging strategic partnerships Enhance shareholder outcome
Slide 67: Important note
Important note This presentation was prepared for the purpose of a briefing to equity analysts and certain wholesale investors on Zenith Rating Disclaimer 24 May 2022. The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (CIPAM Credit The material in this present