"But to that end & to articulate my earlier point more exactly....

"But to that end & to articulate my earlier point more exactly. A reputational shift could easily erode confidence in CGF, our annuities & allow a competing entrant to establish an alternate brand. I do not subscribe to the 'history so far is good so it will always be' type of logic, in the very long term a controversy/debacle will cloud challenger. "

Sure, but by that logic one would not invest in any company at all, because factors that are of such a magnitude that they could do serious damage to Challenger's brands, are totally unpredictable and indeterminate, just as they are unpredictable for any leading business in any indsutry.


"It is always easier, faster and more efficient to go second. Market demand, business model, regulatory framework etc are all proven, clear & bankable."

I couldn't disagree more.

In my experience, industry leadership tends to induce a virtuous cycle of success, whereby the strong simply keep getting stronger as they use their various advantages (scale, capital, technology, IP, risk management, etc.) to continuously drive a competitive wedge further between them and their lesser competitors.

The fact that market demand exists is no basis for business success. Demand exists in spades for goods and services such as plumbing supplies, paint, hardware, insurance broking, health care, transport fuels, furniture, health insurance, automotive spares.. and yet a great many players in those sectors do not succeed.

And sure , Challenger's business model is proven and clearly observable, but that doesn't mean it is are able to be replicated. I can list a great many companies that have very successful business models, which are are very visible and transparent, but successful entry into the industries in which those companies operate is almost impossible.


"In the case of regulated finance the analogy may be more like 5 ex-company seniors get ambitious, they raise 200M & hang the shingle out to their contacts."

$200m will not even be enough for the regulatory capital they'd need, plus the licence, plus the accounting systems, and the frameworks around compliance, reporting, auditing, risk management, etc., plus the crew of people required to maintain all of those.

Besides, it will take 5 full-time executives to merely administer the business strategy alone, let alone conduct the operations, investment management, marketing, financial controls, compliance, HR, etc.

Have a look at how much capital Challenger chewed through in the first 10 years of its existence, before it finally started to gain its first shards of recognition by asset consultants.

As I said, if it was that simple for a new player to enter this industry in a meaningful way, it would have happened years ago.


Perhaps we can pull a team together to compete. I'm certain I know some senior talent would love the chance to own 20% of a new annuties company hitting 18% ROE, positioned as the 'not challenger' of the industry. People like choice.
Establish a small base book (500m), get them in front of planners & on platforms, let it grow organically while the market naturally expands. Hit 5-10% market share. Let CGF do the lobbying. Wait for challenger to make a mistake, even a small slip then go in hard. Take 20-30% market share. Stabilise & let CGF be the big player. Be ok with being the alternative. You in?

You make it sound as easy as starting up a garden service in your local neighbourhood.

By contrast, this is the long-term financial well-being of a great many citizens that we are talking about here.

The gatekeepers in the financial services industry don't just give the thumbs-up, willy-nilly, to the latest new wannabe wealth management company on the block, with no track record.

In this game, it takes years of proven performance before you can even think about getting the nod of approval from those that matter.

Frankly, if you held a gun to my head forced me to get involved in a start-up venture to take on the industry-leading incumbent, one of the economic fields that would be close to last on my list of preferences would be the distribution and management of annuity products in the Australian market.

Not just because of the sheer complexity of the industry, and the claustrophobic regulatory straight jacket in which it has to operate, but also because the guy I'm up against, i.e., the industry leader gorilla, Challenger, has a massive balance sheet and deep IP which would take 2 decades to replicate, and who looks to me like it is simply getting stronger and stronger each year.

Sure, Challenger might "make a mistake" that is noteworthy at some stage of our remaining lives, but that won't necessarily hand all of Challenger's clients to any unproven newcomer.

Besides, we could very easily spend the rest of our lives waiting for Challenger to stuff up to such an extent that it ends up seriously impairing the value of the business.

So, to answer your question, "You in?":

No, I would certainly not be in on any potential entry into the annuities management field, with a view to taking away some of Challenger's business.

For the very reason that I strongly suspect that - if I was to attempt competing with Challenger in Australian annuities - I am liable to end up getting my derrière served to me on a big silver platter.

Put simply, I'd far sooner put my money behind the industry-leading incumbent - with its demonstrated track record and financial credentials - than in some untried and unproven aspirant newcomer.