Challenger Financial Services Group Limited is a listed financial services company with three core business lines – Challenger Life, Challenger Wholesale Finance and Challenger Wealth Management – servicing the needs of financial intermediaries and their clients. The company administered assets and loans worth A$29.1 billion for more than 100,000 Australians at the end of March 2005.
Challenger aims to provide outstanding service with a low cost of operations through the use of a common technology platform and a common distribution base. This focus enables Challenger to generate significant scale benefits, achieving high growth on a technology platform that requires low capital intensity. In order to achieve this Challenger needed efficient administration and service processes, based on excellent technology.
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In a first step towards achieving this goal, Challenger decided to bring critical financial systems, including its investment management system, back in-house after years of outsourcing.
Challenger chose SimCorp Dimension as its investment management system because of its ability to scale for growth, and because its modern and flexible architecture would allow Challenger to configure the system precisely to meet its requirements.
Challenger first went live with SimCorp Dimension in July 2004 after a six-month deployment period. The company completed the roll-out of the technology platform for all its securities processing activities in December 2004.
Challenger uses SimCorp Dimension across its life and wealth management businesses as well as its treasury unit. The platform supports 50 funds and calculates 60 daily unit prices. Its functions include investment decision-making, modelling and trading activities. The platform handles asset administration, performance measurement, compliance, reconciliations, settlements, securities pricing and data integrity functions, and processes all underlying securities transactions.
Moving to straight-through processing has enabled Challenger to move to T+0 unit pricing for equity products, in a market where competitors are still pricing at T+1 or slower, giving Challenger a lead in customer service, and accuracy.
Additionally, Challenger implemented SimCorp Dimension alongside a dedicated unit registry solution, OneVue. More efficient unit pricing has translated into major benefits for Challenger customers and the financial advisers who sell its products.
In a market where an advantage against rivals is often measured in a few extra basis points on the returns of financial products, real-time information about investment fund cash positions and securities holdings gives Challenger a significant edge.
Productivity gains and scalability
Challenger has reported significant productivity benefits and estimates that automated unit pricing will save around 4,000 hours annually.
The system has also proved highly scalable. In March 2005, Challenger acquired HSBC Asset Management (Australia) Limited, which managed over A$3 billion in funds in 44 portfolios with 78 active unit prices. Migrating these products onto the SimCorp Dimension investment management system took just five weeks, enabling Challenger to realise a significant acquisition synergy.
Challenger's open architecture meant the HSBC funds migration required minimal involvement from technical staff in the Information Technology department. It also meant Challenger staff could modify the platform to reflect regulatory changes, without assistance from the vendor.
Beating operational risk
By automating workflows, reducing manual intervention and eliminating repetitive tasks, Challenger has been able to mitigate operational risks and transform the company's approach to investment administration.
About Challenger Limited
- Challenger Limited (Challenger) is an investment management company founded in 1985 and listed on the Australian Securities Exchange (ASX:CGF) in 1987.
- Challenger is the leading issuer of retail annuities in Australia and the only company to provide guaranteed, certain-return income stream products to institutional and retail clients.
- Challenger Life manages some AU$8 billion (€6.25 billion)in assets to secure income for 60,000 clients.
- Challenger also operates a fund management business across various asset classes, managing some AU$20 billion (€15.64 billion) and servicing 50,000 retail and 75 institutional clients.
- Challenger deploys amulti-boutique strategy partnering with boutique investment management firms offering administration and distribution capability.
Business Objectives
Challenger was looking to realize its growth ambitions through increased efficiency, more flexibility, higher scalability and a shorter time to market. Key factors in the solution sought for were:
- A single consolidated system to support all investment management functions.
- Capability to support a broad range of security types/asset classes – to be able to value any financial instrument and capture its corresponding cash flows.
- High flexibility to allow the company to adapt to changes in the industry, regulations as well as its own business model and strategies over the long term.
Challenges
- Challenger was managing much of its back-office processes on a DST system that could neither support the company’s growth ambitions nor meet future expectations for operational efficiencies.
- Managing regulatory compliance was also a concern as the company grew due to lack of data synchronization between the front and back office.
- Front office, cash management and performance operations required use of spreadsheets and manual processes, all relying on a back-office valuation system and a series of manually updated in-house solutions.
- The system was unable to support the broad range of standard and custombuilt instruments required to fulfill Challenger’s growth ambitions.
- The inability to attain growth objectives and maintain compliance with regulations made Challenger realize it had to reassess its investment management system (IMS) infrastructure solution.
Selection Process
- Challenger started with thinking about choosing between outsourcing operations or to continue insourcing with a new/updated software solution.
- An external consulting firm helped Challenger map its objectives to the best available solution options.
- After an analysis of the match between objectives and available options, Challenger decided that continuing with an insourced model would be the best option.
- Challenger’s reassessment process included an evaluation of a recent upgrade of its existing system, DST HiPortfolio, aswell as two other solutions.
- Challenger undertook a global(US and European) search for software solutions offered and ran a comprehensive RFP process, including a due diligence process to evaluate the vendor companies, including business model, culture, implementation record, R&D investment, and product and market focus.
- Once SimCorp was selected as the preferred solution, a detailed functional and technical pilot was performed, followed by several client reference visits.
Solution
- Challenger replaced its legacy DST system and associated in-house solutions with a full SimCorp front-to-back solution, including fund accounting and implementation services.
- The state-of-the-art solution allowed Challenger to manage all assets in a single system, eliminating the operational risk and cost of integrating to sub-systems or use of spreadsheets.
- Challenger gained a solution with a much higher degree of automation, scalability and speed than previously accomplished.
Strategic Outcome
- The SimCorp solution is used by Challenger as the primary source of truth for asset valuations.
- Assets can be valued in multiple ways for varying parts of the business due to the flexibility of the SimCorp solution.
- Improved reporting and compliance operations have been facilitated with all data now stored in a central repository.
- Challenger has significantly reduced error rates, achieved a cost-to-income ratio of about 37%, and accomplished a compound annual growth rate (CAGR) of around 20% for the past five years.
Growing with a State-of-the-Art Solution
- Challenger is constantly evolving its business model, and the way the company looks today is very different to how it looked in 2003. There are now two distinct parts of the business, a life annuities business, and a boutique funds management business where they invest in and support multiple diversified boutique managers.
- SimCorp continues to enable Challenger to adapt and evolve, and hence to grow. The company regularly reviews its operating model to ensure it supports business strategies in the best possible way. Based on these reviews, Challenger continues to conclude that SimCorp is the solution to best support its goals.
- Challenger believes the company can remain agile, sustain cost-competitiveness and retain good profit margins – even in the most difficult market conditions.