The Challenger Ltd (ASX: CGF) share price is in focus after it was announced Apollo is selling down its stake.
Challenger is Australia’s market leader in annuities, helping retirees turn their lump sum into guaranteed income. Apollo is a global asset management business listed in New York.
Apollo sells Challenger shares
Challenger announced to the ASX that Apollo had reduced its shareholding of Challenger from 20.1% to 9.9%.
Apollo had increased its stake to 20% of Challenger between July 2021 to this sale, with the two businesses building a strategic partnership.
The ASX share said Challenger and Apollo “remain committed to pursuing a range of initiatives as part of their ongoing commercial partnership, including an asset origination and distribution partnership.”
Apollo explained that its decision to reduce its ownership of Challenger shares was to support the redeployment of capital to other growth opportunities.
What services are being used?
Challenger and Apollo formed an asset origination partnership in November 2023, enabling Challenger Life to access Apollo’s direct asset origination capabilities, which helps support both customer annuity rates and returns for Challenger shareholders.
Through this partnership, Challenger has invested in Apollo’s private markets and private equity strategies. Since September 2023, Challenger has exclusively distributed Apollo’s ‘aligned alternatives’ strategy to Australian retail and wholesale clients, which “continues to gain strong interest”.
Challenger noted these strategic initiatives “will continue and are not subject to Apollo’s shareholding in Challenger.”
Management comments
The Challenger Managing Director and CEO Nick Hamilton said:
Challenger and Apollo have developed a collaborative partnership that supports our broader growth strategy.
We look forward to continuing this relationship and pursuing a range of initiatives to deliver value for Challenger shareholders, including through asset origination and distribution of Apollo’s high-quality products in Australia.
Apollo’s re evaluation of its investment in our business will also significantly increase Challenger’s free float and improve trading liquidity.
Final thoughts on the Challenger share price
I don’t think this sale will improve investor confidence in Challenger, and now another 10% of the company needs to find a home, which may lead to a lower Challenger share price.
Challenger shares can be a cyclical opportunity – it goes through significant ups and downs sometimes. But, I don’t think it’d be a strong buy-and-hold performer, particularly once (somewhat imminent) interest rate cuts have finished. The company has sold a lot of annuities at a somewhat high rate of return, and I think it will need to deliver good investment returns to pay for those guaranteed returns.
There are other ASX dividend shares I’d rather buy.
