Challenger subsidiary Fidante has lost $3.9 billion in funds under management at the expense of superannuation funds increasingly internalising their investment strategies.
In releasing its June financial year results this morning, Challenger flagged the loss of one major superannuation fund client it did not name, other than stating it was a "significant redemption" of equities by a profit-for-member fund.
Managing director and chief executive Richard Howes said Fidante's remaining super fund clients have little known exposure to pursuing internalisation strategies.
Another super fund client, with a global equities portfolio, has no intention of moving this capability in-house, he said.
Fidante recorded net outflows of $3.6 billion, dragged by the loss of one major client. The funds management business' total FUM for the period dropped 1.2% to $58.9 billion.
Challenger Investment Partners, which originates and manages fixed income and property assets for institutional investors and Challenger Life, saw FUM increase by 9.3% to $20.1 billion.
Howes flagged that the funds management business is expanding in Japan, opening a Tokyo office to support the MS&AD Insurance Group Holdings relationship and to develop distribution opportunities in the region.
A Japanese real estate funds management licence and an investment advisory licence has been granted, which will facilitate distribution of investment products in Japan, he said.
As for its life business, sales stood at $4.6 billion, down 18% on the year prior.
Despite domestic annuity sales dipping by 4% year on year to $3.3 billion, this business remains resilient as sales by independent financial advisers jumped 26%, Howes said.
The overseas life business dragged annuity sales thanks to MS Primary sales in Japan, which were down 54% due to the higher US interest rates relative to Australia.
Looking ahead, Howes commented: "In 2020, our investment of up to $15 million in new distribution, product and marketing initiatives builds on the strong foundations of our business to drive the next phase of growth. These initiatives support our goal to make annuities a mainstream option in retirement by promoting bottom-up customer demand for our products, and better supporting advisers to write annuities."
The group reported statutory net profit after tax $308 million, down 5% year on year. Its full-year, fully franked dividend was stable at 35.5 cents per share compared to FY18.
Challenger shares rose to $6.98 at publication time, up from yesterday's closing price of $6.86.