The Challenger Ltd (ASX: CGF) share price rose by 4% today to $11.43 after giving a presentation at the Macquarie Group Ltd (ASX: MQG) conference.
Challenger is an investment management firm, it has $79 billion of assets under management (AUM), its main focus is providing customers with financial security for retirement.
It is the market-leader of providing annuities in Australia. It offers term annuities, life annuities, CarePlus for people moving into aged care, an institutional Challenger Index Plus Fund and a partnership with Japanese MS Primary.
The company mentioned at length how important secure and stable income products are for retirees (and the government) so that they don't rely solely on the pension. According to an annual survey by National Seniors Australia of people over 50, 84% of respondents said a regular and constant income was very important and 77% said that it was very important that their money lasts as long as they do.
A significant part of Challenger's business relies on the growth of the superannuation system. Challenger pointed to the mandatory contributions as being on one of the main reasons why the total superannuation pool has reached $2.6 trillion today, making it the fourth largest pension market in the world. It has grown at a compound annual growth rate of 8% over the past decade and the total could reach more than $5 trillion in the next 10 years.
According to APRA, the large APRA-regulated funds now have 1.6 million retired members with an average balance of more than $250,000 and those members are receiving an average benefit of just under $21,000 per year.
New Challenger products and new government rules could see demand for one of Challenger's products rise.
Foolish takeaway
Although no new figures were given, it was refreshing to read about Challenger's progress and how it fits in with the Australian retirement system changes as a whole. Challenger is likely to be negatively affected by interest rate changes more than most in the short-term, but it could be a decent long-term investment at the current price, it's trading at 17x FY18's estimated earnings.
