Challenger has reported a substantial increase in its profits for FY2024–25 but has also seen a significant drop in its funds under management for its funds management business.
Normalised net profit after tax (NPAT) for the Challenger group increased 9 per cent to $456 million, while statutory NPAT was $192 million, a 48 per cent increase from the previous financial year.
The group’s retirement income brand, Challenger Life, generated strong sales for the year, recording $8.6 billion in total life sales.
Challenger Life’s normalised NPAT increased 6 per cent to $461 million, which it said was driven by an increase in normalised cash operating earnings (COE), at the same time as the business invests for future growth.
Normalised COE margin increased 7 bps to 3.19 per cent and normalised ROE increased 80 bps to 13.5 per cent.
Total life sales included record retail lifetime and Japanese (MS Primary) annuity sales, which supported annuity book growth of 4.9 per cent and total Life book growth of 1.9 per cent.
Retail lifetime annuity sales boomed, up 26 per cent to $1.1 billion, which the firm said “demonstrates the growing demand for guaranteed income as more Australians enter retirement and aged care”.
“This also reflects Challenger’s successful strategy to grow longer tenor, more valuable annuity sales,” it said.
This included record retail lifetime annuity sales and $984 million in Japanese annuity sales over the financial year.
Challenger’s funds management business generated a 41 per cent increase in normalised NPAT, up to $53 million. This was driven by higher net fee income from placement and performance fees and initiatives to structurally change the expense base.
However, net outflows of $11.6 billion, mainly from institutional investors, saw funds under management drop to $112.8 billion for Challenger’s funds management business.
The net outflows included $10.7 billion in institutional net outflows and $0.7 billion in retail net outflows, across predominantly fixed income and equity strategies.
Challenger said its investment performance still remains strong, with 82 per cent of Fidante’s products rated “Recommended” or “Highly Recommended” and 77 per cent per cent of Fidante affiliates outperforming their respective benchmark over the past five years.
Challenger chief executive Nick Hamilton said the firm is looking to drive the next phase of its growth strategy which will focus on direct origination and private market investments.
“Asset origination capability is core to our growth plans, and this past year has seen us materially increase our private credit origination investing to grow origination, which now includes direct or loan origination and servicing, has delivered attractive yield for the balance sheet and clients,” Hamilton said.
Last week, Challenger also announced the launch of a listed unsecured investment structure, Challenger IM LiFTS 1 Notes. Hamilton noted that listed income note was significantly oversubscribed.
“The first of its kind note structure leverages our balance sheet and asset management expertise and reflects our focus on expanding our range of income solutions,” he said.
The listed income note is the first in an ongoing series of products, he said, and provides a solution in a rapidly growing income market.
Challenger experienced strong growth in private credit origination in FY24–25, with private credit origination up 44 per cent at $3.8 billion.
“This demonstrates how the team is well-positioned to meet the growing demand for high-quality income solutions as private credit and lending grows in Australia,” the firm said.
Challenger said its partnership with State Street, established in September 2024, will also support its strategy to drive growth through its core strengths in retirement, investment management, distribution and asset origination.
“Challenger, Fidante and its affiliates will benefit from State Street’s advanced technology, capability and scale that integrates front, middle and back-office functions with custody services,” it said.
“As Challenger focuses on meeting more customer and client needs, State Street’s global administration platform will support a range of new business initiatives. Challenger will also benefit from State Street’s ongoing investment in its administration platform.”
The partnership is expected to deliver operating efficiencies once all investment administration and custody services have fully transitioned to State Street, which is expected to occur by the end of FY26–27.
