Fund Manager Summary
The fund managers believe there are significant opportunities and challenges ahead for Challenger Ltd. In their opinion, the company is experiencing peak earnings, which may lead to a decline in annuity earnings due to falling interest rates. This sentiment is echoed by the recent actions of US private equity firm Apollo, which has halved its stake in Challenger, indicating a cautious outlook. Overall, the consensus suggests that while there may be potential for short-term gains, the long-term prospects appear uncertain, urging investors to proceed with caution.
Source: Trading View
Commentary From The Managers
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Pendal Group
3 Nov 2025
$9.27
Summary
- Pendal Group observes that Challenger (CGF, +5.1%) has seen a rise following APRA's refined capital reforms for annuities.
- The illiquidity premium has moved to the lower end of the prior range, which reduces benefits for CGF.
- Other components of the reforms have become more generous, including the reference basket for investments, the terminal rate for discounting, and the cap on discounting.
- CGF is likely to lower its target capital ratio once the reforms are implemented, due to less volatile capital going forward.
- The overall net outcome for market scenarios regarding capital management remains largely unchanged.
- Further clarity is expected when CGF presents its view on capital in an upcoming briefing.
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Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Managers
Pendal Group
3 Nov 2025
$9.27
- Pendal Group observes that Challenger (CGF, +5.1%) has seen a rise following APRA's refined capital reforms for annuities.
- The illiquidity premium has moved to the lower end of the prior range, which reduces benefits for CGF.
- Other components of the reforms have become more generous, including the reference basket for investments, the terminal rate for discounting, and the cap on discounting.
- CGF is likely to lower its target capital ratio once the reforms are implemented, due to less volatile capital going forward.
- The overall net outcome for market scenarios regarding capital management remains largely unchanged.
- Further clarity is expected when CGF presents its view on capital in an upcoming briefing.
Summary
Wilson Asset Management
12 Sept 2025
$8.58
- Management has improved the quality and repeatability of earnings.
- Concerns around shareholder selldowns have impacted sentiment.
- Regulatory changes to capital standards are expected to unlock billions for shareholders.
Summary
PM Capital
30 June 2025
$8.08
- Challenger performed strongly over the quarter, up 34%.
- APRA released a consultation paper proposing reduced capital requirements for annuity providers, with submissions due by 25 July.
- Further consultation is planned later this year, with implementation likely by mid-next year.
- This regulatory initiative is expected to drive increased profitability and industry growth.
- Apollo continued reducing its position in Challenger, removing a significant overhang.
- TAL Dai-Ichi Life increased its ownership to 19.9%, requiring any further purchases to be accompanied by a takeover offer.
- Challenger rallied 6% in June following APRA’s release of the consultation paper.
- This highlights a commitment to lowering capital obligations, likely boosting profitability and supporting industry growth.
- PM Capital continues to see great value in Challenger, given its clear pathway to increased profitability.
- Focus on lifetime annuities and government support for longer-duration retirement products is expected to enhance earnings quality.
- Challenger is priced around 12 times earnings at quarter-end, indicating potential for higher valuation.
- PM Capital foresees a clear pathway to higher profitability due to upcoming capital changes.
Summary
Ansell Limited (ANN, overweight) – the global protective equipment company outperformed during the period, supported by an upgrade to FY26 earnings guidance. The announcement highlighted recovering global demand, ongoing progress in innovation initiatives and offsetting the impact of US import tariffs and FX benefit. We maintain our positive view with an overweight position, as the stock’s valuation at around 15-times P/E remains well below industrial peers, notwithstanding an attractive growth outlook. We see the potential for both modest earnings improvement and a P/E re-rating to drive further stock outperformance.”
12 June 2025
$7.97
- Challenger has performed strongly
- Further potential for growth
- Clarity expected around Australian Prudential Regulation Authority’s capital settings this month
- Excess capital likely to be returned to shareholders
- Wilson Asset Management continues to hold its position in Challenger
Summary
PM Capital
31 May 2025
$7.66
- Challenger performed strongly over the month.
- APRA’s consultation paper release is imminent, indicating potential reductions in life insurer capital requirements for annuity products.
- If enacted, these changes could materially boost return on equity and reduce profit volatility.
- Challenger is supported by the government’s push for longer duration longevity products in retirement accounts.
- PM Capital increased their position during the March sell-off and took the opportunity to trim it during May.
Summary
PM Capital
31 Mar 2025
$6.03
- PM Capital increased its position in Challenger during March due to a temporary stock price drop following half-year results.
- The market was disappointed by weak underlying investment performance and underwhelming annuity book growth.
- Taking a longer-term view, PM Capital believes in several tailwinds for the business that will become more apparent in the coming years.
- While annuity book growth has been underwhelming, the quality is improving as Challenger shifts from low-margin fixed-term annuities to higher-margin lifetime annuities.
- Challenger is upgrading its technology stack, enhancing both front-end application processes and back-end investment administration systems.
- This upgrade is expected to reduce overall cost base and improve customer experience.
- APRA's potential changes to the annuity capital framework could lead to a step change in profitability if capital requirements align more closely with international standards.
- These tailwinds are not currently reflected in the company’s valuation, with the stock trading at around ten times current-year earnings.
Summary
Wilson Asset Management
31 Mar 2025
$6.03
- Challenger is Australia’s leading annuity provider.
- APRA announced a consultation on proposed changes to capital settings for annuity products.
- Potential implementation of changes expected within months.
- These changes are anticipated to bring an earnings uplift.
- Support a higher valuation for Challenger due to improved earnings risk profile.
- Capital management initiatives expected in FY2025 results.
- These initiatives may further drive shareholder value.
Summary
PM Capital
31 Dec 2024
$6.01
- PM Capital continues to hold Challenger Ltd despite a recent 8% decline in performance over the quarter.
- Challenger’s annuity growth has underperformed market expectations, but the underlying numbers are more complex.
- The company is transitioning from low-margin, short-dated products to higher-margin lifetime annuities.
- Lifetime annuities offer guaranteed income and tax advantages, indicating they are currently underrepresented in the market.
- Long-term retail lifetime annuity sales are projected at approximately AUD $900 million in FY24, compared to an estimated AUD $50 billion in super fund assets reaching retirement annually, highlighting significant growth potential.
- Challenger is attractively priced at 10x earnings and can grow while providing a 5% fully franked dividend with a 50% payout ratio.
Summary
Oracle Advisory Group
30 Sept 2024
$6.50
- Oracle Advisory Group sold their investment in Challenger (CGF) due to expectations of peak earnings.
- Annuity earnings are projected to decline in conjunction with falling interest rates.
- US private equity giant Apollo has also halved their stake in Challenger, supporting Oracle's assessment.
Summary
Oracle Advisory Group
31 Dec 2023
$6.53
- Oracle Advisory Group added Challenger to the portfolio due to its undervaluation.
- The investment is seen as a good portfolio hedge in a rising rates environment.
- Challenger is viewed as a special situation opportunity.
- The annuities business is expected to perform well in high interest rates.
- The Funds Management business is anticipated to recover from trough levels with rising markets.
- US giant Apollo has taken a 20.1% stake and a board seat, enhancing the strategic fit with Challenger.
- Major risk includes a potential drop in interest rates impacting annuities sales.
- Investment returns may become unattractive if credit spreads shrink.
- In the event of falling interest rates, the portfolio is diversified with other stocks to provide attractive returns.
Summary
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
ANALYST INSIGHT
Equity Research Analyst
"It appears that Challenger may be at an earnings apex, as declining rates could weigh on its annuity income. With Apollo cutting its stake, the market sentiment seems to be shifting—investors should tread carefully."
Last Updated: 03 Nov 2025
Query The Data
Frequently Asked Questions
Who is investing in Challenger Ltd (ASX:CGF)?
Fund managers including Oracle Advisory Group, Wilson Asset Management, PM Capital and Pendal Group have invested in Challenger Ltd (ASX:CGF).
Why do fund managers invest in Challenger Ltd?
Fund managers have mixed views on their investment in Challenger Ltd. While some, like Oracle Advisory Group, exited their position due to concerns over peak earnings and declining annuity earnings linked to falling rates, others may see potential in the company's long-term strategy. The recent decision by Apollo to halve its stake indicates cautious sentiment in the market.
What happened to Challenger Ltd (ASX:CGF)?
Fund managers are investing in Challenger Ltd due to favorable adjustments in APRA's capital reforms for annuities, which have improved investment conditions. Key components like the reference basket for investments and the terminal rate for discounting have become more advantageous. Additionally, the anticipated reduction in target capital ratios is expected to stabilize capital volatility, making Challenger a more attractive investment.