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Super funds drain Challenger assets in cash grab

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Challenger recorded an 8 per cent drop in assets under management during the March quarter, with the group’s chief citing a volatile market and ramped up redemptions from super funds.

The group ended the third quarter of the financial year on $79 billion in total assets under management (AUM), with its funds management business copping $2.3 billion in net outflows during the period. 

Funds under management (FUM) was $74.8 billion, down by $8.1 billion (10 per cent) during the quarter.  

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Managing director and chief executive Richard Howes said Challenger’s performance during the quarter reflected the impact the coronavirus pandemic was having on both investment markets and consumer activity. 

“The drop in AUM includes the effect of major market movements in the period as well as some redemptions in funds management as superannuation funds seek liquidity to fund members switching to cash and withdrawing funds,” Mr Howes said. 

“Our funds management business also benefited from strong equity flows as large superannuation funds and other investors rebalanced their portfolios, with Fidante Partners’ FUM [funds under management] down 11 per cent, which compares favourably with industry averages during this period.”

Challenger’s investment manager Fidante Partners saw its FUM decline by $6.7 billion to $56 billion. Fidante had seen $700 million in net outflows, with $500 million being returned to clients following the wind-up of its boutique partnership with Latigo Partners. 

Challenger reported “strong equity inflows” of $600 million for Fidante during the quarter as super funds and other investors rebalanced their portfolios, partly offset by lower margin fixed income outflows of $400 million.

On the other hand, Challenger Investment Partners’ FUM was down 7 per cent ($1.4 billion) to $18.8 billion, with the brand copping net outflows of $1.6 billion. 

Meanwhile total life sales had increased by 9 per cent from the prior corresponding period (pcp) to $949 million, despite total annuity sales falling by 10 per cent from the year before to $593 million. 

Australian sales largely dragged the annuities revenue, with sales down $223 million (37 per cent) from the pcp, to $383 million. MS Primary sales in Japan were up by $154 million, representing 35 per cent of total annuity sales during the quarter.

Other life sales, representing the Guaranteed Index Return and Challenger Index Plus products, largely offset the annuity downfall, increasing by 71 per cent on the pcp to $356 million.

Life’s investment assets at 31 March were $19 billion, down 4 per cent for the quarter. It cited the March market sell-off for lower carrying values across its fixed income, property, equities and infrastructure investments.

Mr Howes reported disruption in the financial advice industry in the mix with the pandemic had dampened annuity sales. 

“Considering the extreme disruption, Challenger’s sales were relatively resilient, largely due to the diversification built through the partnership with MS&AD Group in Japan and institutional relationships,” Mr Howes said.

“There’s no doubt that the challenges financial advisers were already facing following the royal commission have been further exacerbated by the pandemic which has impacted their ability to onboard new clients and engage effectively with their existing customers.

“Understandably, many are focused on responding to immediate client needs at this time as rules around superannuation are changed to address the current situation.”

He added Challenger had started to see positive signs in lifetime sales earlier in the quarter, as movement across the independent financial advice market stabilised and more advisers became familiar with new means testing rules that came into effect from July last year. 

“It is encouraging to note that this support for lifetime annuities has continued with sales down only 9 per cent on the previous quarter despite this typically being a quieter period over the summer holiday period and being impacted by the pandemic,” Mr Howes said. 

But while the current environment highlights the value of annuities in providing secure income in retirement, he commented, the confluence of disruptive events is expected to continue to impact sales in the near-term – with the revenue in the fourth quarter remaining uncertain. 

The group however has maintained its guidance for a full-year net profit before tax in the range of $500 million to $550 million, which it has said reflects the impact of changes to the life segment’s investment portfolio and lower funds management earnings following the equity market sell-off.

Looking ahead, Challenger has chosen to chase a range of initiatives to build its institutional relationships, enable direct reinvestments and support customers and advisers through the crisis.

 

Super funds drain Challenger assets in cash grab
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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