Challenger hurt by markets

Challenger Financial Services Group has released its results for the 2007-08 financial year, reporting damage in its funds management business while its asset management and mortgage books remain strong.

The group reported normalised net profit after tax (NPAT) of $218 million for the year ended June 30, 2008, a 20 per cent increase on the previous financial year. Statutory reported NPAT, however, was negative $44 million, reflecting negative investment experience and significant items, the group said.

The group’s funds management business suffered a 19 per cent loss on the previous corresponding period, with funds under management (FUM) down $14.9 billion.

But stronger cash spread earnings and higher fee income in the group’s asset management business, as well as higher fee income from the group’s mortgage management businesses, drove a 12 per cent increase in net income.

In relation to the funds management business, the group said that while net flows remained positive over the past 12 months, adverse market conditions in the second half of 2008 “strongly impacted market linked products leading to a reduction in funds under management, combined with net outflow”.

Net income for the funds management business was down $100 million or 7 per cent on the previous corresponding period, driven down by lower management fees on reduced funds under management and “minimal performance fees generated versus 2007”, the group said.

The group said while its long-term investment performance remains “solid”, its short-term performance was “mixed” across its offerings.

Meanwhile, the group’s asset management business saw a boost provided by the transfer of MetLife’s annuity book, as well as “strong organic sales of annuity and allocated pension flows of $766 million and a wholesale fixed income mandate for specialised funds”.

While normalised net income was up 23 per cent on the previous corresponding period, driven by higher cash spread earnings, the group reported that all asset classes underperformed normalised capital growth rates in 2008.