All eyes on Challenger for next big block trade after AUB deal

Investors question whether Apollo may part company all together with investment management company Challenger. Picture: iStock

A further $450m-odd selldown by Apollo Global Management out of Challenger could be the next major block trade to hit the market after Odyssey Investment Partners offloaded its 7.7 per cent interest in AUB in a highly anticipated trade.

DataRoom reported on September 16 the market was bracing for the move, which finally happened on Wednesday night, with $277m worth of shares sold through Barrenjoey at $30.70 each, a 1 per cent discount to the final closing price.

Odyssey inherited the holding in 2022 when AUB purchased its insurance brokerage business Tyers and paid for the deal partly in scrip.

There was a two-year escrow on the stock, which expired this month.

But, after Apollo reduced its stake in Challenger last month to 9.9 per cent from 20.1 per cent, making Japan’s MS&AD once again its largest shareholder with about 15 per cent, some suspect there could be a further selldown to come.

Challenger’s share price has traded lower since, with concerns the market could be flooded with stock by the selldown.

Citi analyst Nigel Pittaway points out the concerns in his research note, saying: “Investors remain understandably concerned that the sale of Apollo’s 10 per cent remaining stake may be imminent (post the December 3 escrow) and this remains an overhang for the Challenger stock”.

He goes on to describe how, overall, based on its update for the first quarter of the 2025 financial year, results were “a little soft”, although a key cause of its Life book contraction appeared to be the front-ending of maturities rather than anything more structural.

It arguably continued to make good progress in rebuilding the tenor of its underlying book, he said, with good growth in the longer term life time and Japanese sales.

The boutique of its funds management business Fidante, Ardea, was likely behind much of Funds Management’s $2.7bn in fixed income outflows, with its equity managers performing well.

“Given this and the failure of its Artega joint venture, we trim our Funds Management estimates.”

The $720m investment in 2021 was understood to be a decision made by global annuities provider Athene, which Apollo was buying at the time, and some say the holding opens up conflicts when it comes to debt transactions, determining whether they were carried out through Apollo, Challenger or Athene.

Apollo also may not be a huge fan of the Australian annuities market, say sources.

Challenger announced last month Apollo had reduced its shareholding from 20.1 per cent to 9.9 per cent.

Shares were sold at $6.51 in a block trade executed by Goldman Sachs and Jarden.

In the last two trading days after the selldown, the stock fell to $6.23 from $7, down 11 per cent.

Shares on Thursday early afternoon trade were more than 2 per cent lower to $6.37.