Good afternoon, everyone. Welcome to those in person here today and to those online to Challenger's 2023 Investor Day. I'm Mark Chen, Challenger's General Manager of Investor Relations. We're coming here to you today from the Amora Hotel Jamison Sydney. It's great to be here in person again to present today. Before we begin, I'd like to acknowledge the Gadigal people of the Eora Nation, traditional custodians of the land on which we are hosting this event today, and pay my respects to elders past, present, and emerging. Today, you'll hear presentations from a number of the Challenger team with a quick break in between. For those of you online, we'll do our best to keep on schedule. You'll receive a notification when the session when we're about to recommence after the break.
There will also be the ability to ask questions for those online. Please let us know if you're having any technical difficulties, Irene and I are both online, or require assistance throughout the afternoon. For those who are in the room here today, just as a matter of housekeeping, if you can turn your phones onto silent, when you're asking questions, please state your name and, who you're representing. Today's presentations today will be followed by a Q&A session, both in the room and questions coming online. After the Q&A, there will be an opportunity to mix with the management team. There are also a number of Challenger staff here as well over drinks and canapés. I'll now hand over to Nick to get us underway. Thanks, Nick.
Thank you, Mark, good afternoon to everyone. I'm gonna try to do this without my glasses because I'm told they're reflecting a lot in the light, we'll see how we go. Welcome to our 2023 Investor Day. It's a privilege to be here once again with you all to take you through our plans for the business. Presenting at our Investor Day last year, I talked about how optimistic I was about the business and how confident we were in our ability to meet opportunities ahead. My comments included the steps we would take to organize Challenger around our customers, to focus on their needs, and to leverage our core capabilities in more meaningful ways. I also spoke about our focus on reigniting momentum in our core retail annuity business as rates began their path to normalization.
Another focus was the importance of strategic partnerships with MS&AD, Apollo, and SimCorp to enable key elements of value creation. I spoke to expanding our range of products across a broad number of customers and markets, with a focus on our guaranteed income and active management capabilities. 12 months on, I'm incredibly pleased by the progress we have made. Our core retail franchise has strong and sustainable momentum, and our retail is seeing us accelerate longer tenure term and lifetime business in meaningful volume. We have embedded a clearer operating model with our customers' needs front and center. We've made key strategic decisions, firstly, to divest the bank, where we did not possess the scale or competitive advantage to be successful. We've partnered with Elanor to enhance our Australian retail, our real estate capability.
We have successfully partnered with a superannuation fund to deliver lifetime income to their members in a new and groundbreaking way. We have developed a pipeline of opportunities for institutional annuities, and we look forward to delivering on these over the coming year. Our joint venture with SimCorp, Artega Investment Administration, has commenced operations and has secured its first external clients, early validation of that strategy. We've used digital technology to introduce new ways to materially improve the customer experience. There's so much more that we can do. Today, the team will articulate how we'll continue to execute our plans in a considered and disciplined way over the next 12 months to deliver the next phase of growth.
Our purpose of providing Australians with financial security for a better retirement is at the heart of what we do, and today, that purpose feels as relevant as ever, given demographics, policy, industry, and economic shifts of the past year. Our purpose lives with us in the stories and experiences of our customers. Let me share with you the story of Esme. Esme is a wonderful 95 years of age, and sadly, Esme recently lost her husband. Being financially secure is particularly important at this stage of your life. Esme and her husband paid AUD 40,000 for a Challenger annuity to begin the retirement phase of their lives way back in 1990, 33 years ago. For those that recall, 1990 was a year with 7% inflation, high interest rates, and they were tough economic times, which sounds familiar.
Esme recently called our customer service center, believing the AUD 6,000 annual payment she just received was too much. Esme was delighted to learn that it wasn't the mistake she thought it was. Over the years, the payment has kept pace with inflation and more than doubled, will continue to deliver a healthy and increasing income for the remainder of her life, guaranteed. The reason I tell you this story is because it speaks to how important our purpose is. Providing financial securities for older Australians is a vital part of confidence in retirement, as a society, something we should strive for. This decade, the notion of retirement is undergoing an historic shift. Our superannuation system is now reaching a maturity milestone. Decumulation withdrawals are forecast to outpace contributions by 2030.
4 million Australians are in retirement today, and 3 million more will enter retirement over the coming decade. We are living longer, and Australians have one of the highest life expectancies on the planet. You've heard us talk about these trends before, and I well remember hearing about them when I joined Challenger nearly eight years ago. What seemed so far away back then is fast reaching a tipping point. Governments are responding and tuning Australian policy settings for sustainability of our retirement income system. The interplay of the proposed purpose as well, and legislated Retirement Income Covenant requires the funds to focus on lifetime income and longevity risk. Super funds are responding and are starting to design and implement retirement strategies to move people into and through retirement.
The advice sector is also responding, and similarly looking for ways to scale advice and provide their clients with retirement solutions, including longevity protection. The competition to develop market-leading retirement solutions for super members and advisors' clients has commenced, and we can play a key role with our expertise and capabilities. The emergence of a large and growing retirement ecosystem is beginning to take meaningful shape. Looking forward, we have millions more Australians who will retire over the coming years, and what is critical for these Australians is that we deliver a decumulation system commensurate with our world-leading accumulation system. Retirement is fundamentally different.
The benefits in accumulation phase of regular savings, compounding of returns, and a timeframe to see you through the down markets all start to work in reverse in decumulation, or when you stop saving and need to swap income from employment to an income from those savings. We also know from our experience in studies that retiree confidence is a direct function of their sense of financial security. The retiree today faces greater uncertainty as a consequence of cost of living, aged care concerns, combined with market and economic instability. With the positive of increasing life expectancy, these factors heighten the real risk that we outlive our savings, or that fear of this materially impacts retirees' standard of living. Challenger is uniquely positioned to help retirees turn uncertainty to certainty.
We've been in the retirement business for over 40 years and have the knowledge, expertise, and skills that allow us to address the needs of a broad sweep of customers, be that through institutional partnership, working with the financial advice community, and now with our direct term annuity proposition. We've spent a lot of time with super funds and financial advisors this past year. As recently as April, I had the opportunity to spend a week traveling with our infield team to meet over 60 financial advisors up the New South Wales coast to Brisbane, all in key retirement centers of Australia. These engagements gave me a lot of confidence in the real difference we make to retirees. Challenger is widely recognized as a leader in guaranteed retirement income, and the opportunity that will provide us over the coming years is genuinely exciting.
Challenger does not need to reimagine its strategy or the core of its business. Success will come from us leveraging our core capabilities, enabled by our strategy focused on the customer. Today, you will learn what we mean by that. The operating environment is supportive for our business. The normalization of interest rates has allowed us to accelerate our retail sales and drive a remix of the sales composition. As a team in this past year, we're focused on building momentum in our retail book, accelerating flows into the longer maturity term and family of lifetime products. The success of that strategy has been extremely pleasing, with some very notable results. Our three and five-year sales are up well over 100% PCP, and our lifetime sales continue to trend up, and we look forward to sharing these details at the full year.
This success also underscores our ability to pivot our business across different interest rate environments, leveraging our channel reach and our product breadth. Of note is that our success remixing sales also expands the investment opportunity set and will positively impact our maturity rate. Today, we'll provide more details on how we'll partner in the institutional market. We entered 2023 with an institutional book of largely one-year term annuity and Index Plus mandates. The differentiation of our Index Plus strategies has provided us a platform for further product development, with that focus being on longer tenure business. Our focus on partnering with super funds will see us enter FY 2024 with very pleasing momentum in long tenure lifetime business. Success here requires experience and specialist capabilities to help funds manage the complexities of retirement, and Challenger is uniquely positioned.
Super funds are now really turning their attention to retirement from the provision of retirement strategies, which will be important to meet the needs of their members, as well as from a retention of member perspective. Improvements in funding levels have opened up the defined benefit buy-in and successive fund transfer markets. The contestable market in Australia is AUD tens of billions, and Challenger is uniquely positioned. I'm pleased to report that the pipeline is very promising. There is more competition today, though largely focused around the one-year term annuity business. Today, our rates are less differentiated given bank rate competition. We remain very price disciplined, and our team's focus over the past year on longer dated term annuity and lifetime flow has insulated us from material impact. Mandy and Anton will speak to this strategy today.
It's worth remembering that because of the acquisition and disclosure of LifeBooks over the past decade, Challenger is today the leading provider of hard guaranteed lifetime annuities, with our family of nine unique options available across immediate payment and with a deferred range. Whilst the success of inflation-linked options are today the standout, we have a range that can suit all needs. Our funds management business has spent the past year working extremely hard in a cyclical, cyclically difficult environment. From what you will hear today, we are feeling optimistic. The strategy you will hear from Victor will ensure we remain a leading contemporary active manager and affiliate platform, one that can continue to grow its FUM domestically and in our select offshore markets.
In May last year, I laid out a strategy centered on the customer and spoke to you about how we would reorganize our business to meet more of their needs. The immediate priority was to simplify our business and to align our teams around improving the way we deliver products and solutions to our customers. I announced a new operating model and launched programs of work we needed to focus on to improve performance, simplify our operations, and diversify revenue streams. Our executive team are clear on their accountabilities, committed to building on strong foundations of our business, and united in the strategic direction of the organization. We've partnered with SimCorp and Apollo, who bring capabilities that can significantly enhance value for Challenger. Our strategic relationship with an MS&AD group has further expanded to include a fixed income mandate.
We announced the sale of Challenger Bank to Heartland. We are now just awaiting regulatory approvals, which both parties expect to be received now in the first half of next financial year. In April, we entered a strategic partnership in real estate with Elanor, which will see us leverage Elanor's expertise in asset management and origination to the benefit of our investment portfolio. For funds management, we'll bring Elanor onto Fidante's award-winning distribution platform. You'll hear across the presentations today a confidence in the significant opportunity that we have in focusing and leveraging our core capabilities. This is a strategy that sees us evolve, not change the foundations of our business.
Today, the team will talk to you about the next evolution of our strategy to accelerate growth under a plan that will further enhance the experience for our customers, respond to the permanent shifts in how people are retiring, provide solutions to clients that allow them to cut through the complexity of retirement, and make it much easier to do business with us. Our growth plan is aligned to our four strategic pillars. Our ambition is simple, that is to play a leadership role in delivering more Australians financial security in retirement. We've reignited growth across our core life business, as we look out today, we have strong momentum across the retail advisor market. Concurrently, we will deliver institutional business growth that sees a shift from short-term to long-term annuity flow.
We will seek to access a broader market, including via direct customers, by simplifying the process when you apply for a term annuity. We'll play a video shortly that will show how a customer can secure a term annuity in about five minutes online. Previously, customers waded through a 27-page paper-based application, and it took a week or more for the policy to be issued. The opportunity to expand our presence among advisors remains very significant. We must align our capabilities to their needs rather than expect them to align to ours. Today, you will hear about work underway to bring the annuity into the advisor platforms. This is what a truly customer-centric business is all about. We are focused on building a unique retirement solutions capability.
In a world increasingly focused on retirement income, we'll join forces with super funds to develop longevity solutions, integrate these solutions into their strategies, and embed the technology architecture required to efficiently onboard new customers. Super fund clients will benefit by retaining the member. Challenger will benefit with a flow relationship. We'll build on the success of our diversified multi-affiliate platform and our world-class investment capabilities. We see exciting opportunities in alternatives where we've expanded our range. We'll continue to launch new boutiques, active ETFs, and UCITS into the market to drive growth. Finally, we strengthen the resilience of our business with more diversified growth built from our core. This will be enabled by a broader customer reach, combined with a platform that is scalable. We have a leading position in retirement income in a structurally attractive market.
As a team, we've been very clear that our priority has been to align everyone at Challenger to improve the way we deliver retirement products, longevity solutions, and investment capability to our customers and partners. As FY 2023 draws to a close, I'm confident in our direction and focus. We are now building real momentum, while the remaining focus on strong capital and balance sheet remains. We have a team with decades of cumulative experience in liability, balance sheet management, retirement product distribution, investment management, and partnering. That is a core differentiator for Challenger. These capabilities have been built up over 40 years. We deeply understand retirement through the savings and income lens, and there are big opportunities for both of our businesses that feel very tangible today.
As I hand over to Mandy, we'll play a video of the first step in uplifting our digital experience.
Customers told us they were frustrated with our lengthy application form. They would have to print it out, complete it, sign it, and send it back to us. It required certification of multiple identity documents, which could take people weeks to complete, and then we only accepted one way for customers to fund that investment. The whole process felt archaic, making it really hard for us to compete in the fixed term deposit market. Not to mention the time it would take to manually enter data, process, and follow up incomplete applications. We're excited to announce the very first direct-to-customer digital application for Challenger Guaranteed Annuity Fixed Term Direct. Customers can now apply online in under 10 minutes.
Not only have we delivered a great online customer experience, we are now able to process an application immediately after the application is lodged. That has created efficiency from an operational perspective and means customers can get their policy confirmation much faster than they can today.
Showcases what our team has been able to achieve in a very short period of time and addressing a very real customer need. If you don't mind, just before I introduce myself, I'd quite like to take a moment to share the journey to that video. Our term annuity rates have almost always been at a premium above term deposits, and midway through 2022, when inflation returned and interest rates started to normalize, our research indicated that there was demand from clients for guaranteed income. We responded to this, and in September, we launched a targeted marketing campaign to see if we could tap that demand. The campaign attracted a significant amount of interest, but 85% of the people that commenced the application process walked away. They walked away because the client experience was poor.
It was a no-brainer, really, for us to invest in that customer experience, and we did, and that went live last Friday.
I'm Mandy Mannix. I am absolutely delighted to be here today. I've spent the last 30 years in customer-facing roles in Australia and offshore. I'm most privileged to be here today, holding this Chief Executive, or frankly, this customer role for a company that has such a strong and important purpose, and one where the momentum is already strong and the demographics so supportive of the growth potential for us. What we would like to share with you today is how we're repositioning the business around the customer, listening to their needs and responding. You'll hear me say this a few times today, how Challenger is uniquely positioned to take advantage of meeting those needs. Customers are at the center of everything we do, and our customer base is diverse.
While they have unique attributes, they actually share the same goal at their heart, and that is to accumulate wealth and to optimize income in retirement. Challenger is uniquely positioned to support that goal. Our funds management platform delivers exceptional capabilities for accumulation, while our life business leads in delivering guaranteed income. Increasingly, we're bringing these two together to take advantage of opportunities to solve more customer needs. Broadly, we think about our customers in two segments. Mass customers are those with AUD 300,000 or less in retirement savings. These customers, their needs are very well looked after by superannuation funds already. We'll continue to serve them through that channel.
14 super funds control the vast majority of the AUD 3 trillion in superannuation assets in Australia today. We do business with all of them. We play a very meaningful role in that accumulation phase. We will continue to do that. These super funds, as you might imagine, are now increasing their focus to retirement. We've been deeply engaged with them on retirement solutions. Anton's going to bring some of that to life later today. The second segment is affluent and high net worth pre-retirees and retirees. This is a segment of customer that is predominantly served by the financial advisor. That's also where our distribution efforts will remain. Within this segment, however, there is an increasing category of people who want to transact on their own. They want to be self-directed.
60% of the high net worth, for example, consider themselves as validators, seeking validation from advisors but executing directly. It's essential that we make it as easy as possible for them to execute with us. Today, we do business across life and funds management with about 8,000 advisors, and that extends to about two-thirds of licensees. Those advisors hold an average of 2.6 of our products. However, only 13% of them have written products across both funds management and life. It's a huge opportunity for us to extend this coverage, moving advisors from being only fund management customers to being customers across both funds management and our life business, and improving the advisor experience will really help solution. While our strategy remains, as Nick has already pointed out, the industry dynamics for our customers continue to evolve.
This time last year, advisors were repositioning their business to serve a smaller number of higher value customers. Inflation took hold. Advised clients were comfortable with their asset allocation, holding risk on assets as they sought to get their return from the market. Pension funds were focused on merger activity, consolidation, Your Future, Your Super performance tests, and of course, where they sat in those cost and fee heat maps. The Retirement Income had yet to be legislated, was just about to be, As funds prepared their retirement strategies, they really focused on their member retention and member engagement. Direct investors were struggling with an ultra-low rate environment, forcing them up the risk curve in search of yield. What's changed? Advisors are now seeking investment solutions that solve for income, volatility, and inflation protection. That's our wheelhouse.
The rising rate environment and our distribution initiatives have driven demand for guaranteed products. AUD 2.9 billion for us in retirement sales financial year to March, versus AUD 1.6 billion in the prior corresponding period. That's a 77% uplift. The number of advisors writing our retirement products has doubled. To institutional superannuation funds, the government and the regulators are united in their focus on retirement income. We know why. 700 Australians are retiring every day. The wave of retirement is accelerating, with 4 million in retirement today and another 3 million to be added over the next decade. Confidence in retirement and longevity is a key feature, and again, that's our wheelhouse. Challenger has responded to these customer demand shifts. For advisors, our response has been to seek deeper integration of annuities and to expand our alternatives range.
As advisors look to solve for more volatile markets, we've expanded our narrative. When rates were near zero, the technical benefits of annuities really came to the fore. Advisors targeted their Centrelink clients for lifetime annuities. Now, with rates having normalized, those technical benefits still remain. Annuities have the added advantage of being able to act as a defensive building block in a retirement portfolio. That means that that expands the appeal to a broader advisor-client base, such as the affluent and high net worth. In fact, today, we take pitch books and case studies out to converse with advisors that include clients with one and a half million dollars and potentially no need for age benefit, age pensions. Lifetime annuities are positioned as a complement to other fixed income assets, such as bonds and credit, in the retiree portfolio.
We've more than expanded our narrative. Concerns around cost of living pressures are driving demand for CPI-linked annuities, and Challenger is the leading firm offering CPI-linked options. We've introduced new products. For example, we've enhanced our family of lifetime products by adding a new accelerated payment for the retiree who wants to spend more early in retirement. When growth assets come back into favor, we have a market-linked offering. There's also growth in demand from advisors for private market and alternative investments, and we're very well placed here. We're increasing our range of alternatives to meet this growing demand, launching the Cultiv8 AgriFood Fund in October, with more in the pipeline for FY 2024, including product opportunities with Apollo, and Vic is going to talk to more of that later.
Moving to institutional investors, as you've heard from Nick, retirement in Australia is undergoing a historic shift. Structural forces have driven the emergence of a retirement ecosystem. I've already mentioned 14 superannuation funds now manage 80% of those assets, and Challenger has every one of these super funds already as a client and more. Superannuation funds are focusing on retirement income solutions. We're central to that shift, and as I've already mentioned, Anton will share more detail on that later. The direct is a new channel for us, and it's a channel we are leaning into slowly, taking a test-and-learn approach. We know these investors demand income, and we know they want to engage digitally and in their own time.
Packaging our offering to meet the needs of customers who would prefer to invest directly is now something we can deliver digitally across term annuities and with our broader fund management capabilities. I've already shared that to test that demand for the longer tenor in this channel, we ran a marketing campaign for our three-year fixed term annuity last year. The campaign showed healthy demand among affluent and high net worth investors, and it highlighted the opportunity for us to uplift our customer experience. You saw in the video, our customers can now buy a Challenger Guaranteed Annuity with, from our website in under 10 minutes. I mean, I've done it, and so have my colleagues, and we're hitting it in under five comfortably.
It's now a really straightforward and simple process. That allows us to capture targeted growth via that new direct channel. We've already talked quite a lot about customer experience, one of the keys to delivering an exceptional customer experience is first to understand the customer. Retirees face a number of risks, they're heightened simply due to the stage of life they're in. We know from numerous research that on average, investors don't really think about retirement until quite late, that really amplifies several of these risks. Annuities do protect retirees. If you just think about one of these, inflation risk, not surprisingly, retirees' concerns on inflation increased significantly between 2021 and 2022. They raised it, that those concerns in some research raised more than 15 points from a 28% of retirees being concerned to 42% of retirees being concerned.
Not surprising. The impact on inflation, or the impact of inflation, rather, on a retiree's purchasing power can be significant. Rising inflation drives up the costs for everyday items for everybody. For those people who have an income, some of those rising costs are softened because you can often get increased wages, but a retiree doesn't have that option. Unless, of course, they buy a CPI-linked annuity, because that can provide a similar outcome. An annuity can solve for all of these risks, in the past, one of the arguments against was that, "What if I pass away early?" Well, we've solved for that too. Now you can purchase a lifetime annuity that provides return of capital and death benefits. People are living longer, these risks won't go away.
The result without an annuity can often be that a retiree spends less and has a quality of life that isn't commensurate with their potential. An annuity provides confidence to spend. According to a national seniors survey, 48% of seniors said they will outlive their retirement savings. Eighty-five percent are worried they might. Imagine that. These risks will happen regardless, and we can't change that, but annuities do solve for these risks. That's the reason our annuity sales have increased. That's why the demographics support our excitement for the growth potential of Challenger. The previous slide was looking through the customer risk lens. This picture puts the benefits of an annuity into perspective and is a cornerstone to our narrative for advisors.
Our modeling and others shows that a 20%- 25% allocation to an annuity, term or lifetime, can deliver a better outcome for the retiree in almost every scenario. Term annuities, in many ways, are similar to term deposits, in that they provide guaranteed income over a term of your choice. Of course, lifetime annuities provide that regular income for life. These can be used on their own as a retirement solution or as a building block, blended with traditional assets to create that retirement solution. While high rates have made annuities more attractive, the benefits of annuities are so much more than the prevailing interest rates. Allocating annuities to the defensive sleeve of a portfolio is a powerful strategy, providing certainty around income, withdrawal options, estate planning benefits, and the potential for age pension entitlements.
The growth we've seen is a testament to how the product is now being seen by advisors, whether it be a building block for a retirement portfolio or simply as a guaranteed income. Annuities provide certainty and confidence to spend, which is invaluable. Fixed term annuities are also attractive in the current environment because of the certainty they provide. We believe rates have normalized. They may move, but likely to be in a band of where they are now. This chart here highlights how compelling our term annuity offering has historically been for customers. The green line shows Challenger's three-year term annuity rate, which reached just over 5% in March this year, and the blue line is the average bank three-year term deposit rate. You can see that our term annuities are delivering the best proposition for customers in a decade.
Similar to lifetime annuities, term annuities sit as a complement to fixed income in a defensive sleeve of a portfolio, and we position our longer tenure there. Let me show you how that's surfacing for us in sales. In the last couple of slides, we highlighted the range of risks that annuities address and through that, can provide confidence in retirement. The market environment is supportive, and as a result of the number of initiatives we've already shared today, we are seeing demand come through the advisor network, and we're seeing that demand for two-year plus term annuities and for our lifetime product. The chart on the left shows the first half advisor quotation levels since 2019.
Quotes, while not perfect, are typically a good lead indicator of interest, and the advisor quoting levels are up 100% on the prior corresponding period and up across longer tenors. We are seeing the results of our distribution strategies. Advisors are writing longer duration new business with us. Almost 80% of our new business in the last quarter was for those terms of two years or more. Longer tenor sales also benefit our maturity rate, as you can see, so you have greater quotation rates converting into longer tenor sales and the resulting reduction in the maturity rate coming through for FY 2024. We've talked a lot today about the opportunity in retirement and the clear demand for retirement solutions that provide certainty and confidence to spend.
You've heard Challenger is uniquely positioned at the forefront of the industry with a highly diversified business, strong investment capabilities, a compelling product offering, and a proven track record in delivering retirement solutions over more than four decades. Underpinning that success is a clear purpose and a strong brand position. 93% of financial advisors regard Challenger as a leader in retirement income, more than 30 percentage points ahead of our closest peer. Advisors who do business with Challenger see us as trustworthy, secure, and offering good service and support. These are really very strong endorsements, but we're not being complacent. For those who don't do business with us, as you can see, half say that we're not easy to do business with.
We are the market leader, and by making it easier for people to do business with us, we will unlock the growing demand that we know is there. As the leader in retirement incomes, Challenger is uniquely positioned to meet the growing demand for products and solutions that help solve needs in retirement. Looking ahead, our focus is on modernizing the customer experience, making it easier for customers to do business with us. What do we mean by that? Last year, we launched our new registry service for the Fidante business, and meaning now our customers can transact online with over 60 of our funds. These investors have access to a new online portal, which means they can self-serve in their own time if they choose.
This platform also supports the expansion of our suite of active ETFs, and we are seeing a growing trend in the use of listed structures, albeit still broadly passive, but that's having grown from 15% in 2017 to allocations of 25% in 2022. We've refreshed digital branding across funds, management, and life, giving our online presence a more contemporary look and feel, and on the next slide, I'll show you a little of that. We're launching term annuities in-platform. This is another of the ways we are making it easier for advisors to do business with us. Advisors use platforms for business and client efficiency. Adding term annuities into their investment menus will not only make it easier for advisors to transact with us, but it also offers two additional material benefits.
By remaining in the platform ecosystem, advisors will be able to switch to purchase term annuities now within account-based pensions. That opens up super for us in addition to the accumulation business. Critically, advisors' compliance will shift because when they're writing products in-platform, they no longer have to do a statement of advice necessarily. It can be an ROA, a revision of advice, which is much less time-consuming for them. You've already seen in the video this week, we launched our new direct-to-customer online smart application form for simple term products. This gives us a proof of concept that we have the capabilities to put more of our products and processes online and to continue to target that uplifting customer experience. I shared earlier that the number of advisors writing annuities and writing multiple annuities actually has materially increased and continues to, again, we're not complacent.
In terms of making it easy to do business with us, we're currently only capturing 20% of advisors today, actively writing an annuity. There's a significant amount of upside, given the number of advisors that are clients through our funds management business. As a single customer division, by being committed to uplifting that customer experience, we believe we have enormous upside. Before I wrap up, let's take a look at how we've refreshed our brand and content strategy. Last year, we talked about broadening the Challenger brand to represent more of our capabilities, taking ownership of categories such as income, alternatives, and ESG. We're executing on all of those initiatives, having hosted income symposiums and private market symposiums already this year.
Our social presence now reflects the breadth of customers that engage and interact with our content, our thought leadership is extending to reflect more of the themes our customers are interested in, now includes our new Chief Economist, Dr Jonathan Kearns, who is here today. You may have noticed that we've refreshed our Fidante brand and website, next month, we will launch our new marketing campaign, positioning the Challenger brand to income generation. This follows the thematics that our customers care about, we'll continue to have that drive our online presence, importantly, it provides that platform that we can leverage more broadly to capture a wider market opportunity, now adding the direct customer.
What we wanted to share today was insight into how we're repositioning the business around the customer, listening to them and responding to their needs, and how Challenger is uniquely positioned to meet those needs. The demographics are a firm tailwind for Challenger. We've a strong proposition for both wealth accumulation and retirement solutions, with a broad distribution footprint and ample opportunities to broaden and deepen there, and we have one of the strongest retirement brands in the country. When you leave today, I really hope that you leave with the clarity we have on why Challenger is uniquely positioned to serve institutions, advisors, and the customer who wants to transact directly in their needs for financial security for a better retirement. Thank you.
Good afternoon. It's great to be here today. I'm Anton Kapel, Chief Executive of the Life and Solutions division. I joined Challenger in 2018 as CFO and appointed actuary of the Life company. I moved into my current role a year ago. A key focus since taking on the role of chief executive has been to build on the relationships we have with our institutional customers, particularly the super funds, and I'm pleased to report that we're making great progress. Today, I want to take you through our service offering, covering investment, de-risking, and retirement proposition solutions, and how we are building and deepening our relationships with institutions. As you've already heard today, super funds are increasingly focusing their efforts on supporting their members in retirement. This is driven by surging superannuation assets, aging demographics, and policy settings aimed at improving the financial outcomes for Australian retirees.
Many funds lose a significant proportion of members at retirement, and often those are members with the largest balances. Super funds know that in order to continue to grow and remain competitive, they need to retain members moving to and through retirement, and many will also look actively at targeting people hitting retirement age as a source of new members. The Retirement Income Covenant is now in force, APRA is doing its first review of how funds have responded. Funds are realizing that they need a comprehensive retirement offering and are looking to engage trusted partners to deliver components of this offering, rather than attempting to do it all themselves. We already have extensive relationships with super funds. 33 of the top 35 funds in the country are Challenger clients.
This provides a great foundation as these funds seek partners to help them meet the retirement needs of their members. A number of funds have legacy defined benefit pension liabilities, and current funding levels are generally healthy, which provides a window of opportunity for funds to de-risk. As the leading provider of longevity protection in the country with decades of experience, this presents a significant growth opportunity for Challenger. Our offering for institutional customers extends from simple, short-term investment products through to longer duration and more complex products and longevity solutions. While it's not necessarily a linear progression, generally, our institutional relationships have been founded on our core investment offering, and we're now seeing some of these expand into longer duration retirement solutions.
Our core investment offering includes term annuities that funds use as a fixed income substitute, and Index Plus, which clients use as a component of their investment portfolio, providing contractual alpha with zero fees. Index Plus is still a relatively new product, and to date, most investments have been short term, although reinvestment rates are typically high. Pleasingly, as customers become more familiar with the product, we are seeing interest in longer duration exposures and expect the duration of this portfolio to lengthen. Another theme is institutions looking to remove risk and/or enhance returns from their businesses. There are opportunities with insurers' legacy annuity portfolios and super funds defined benefit pension liabilities. There are further opportunities to support insurers' current business through flow reinsurance arrangements. Our partnership with MS Primary in Japan is a great example, and we continue to work to find other similar opportunities.
Domestically, we have acquired a number of existing annuity and pension liability portfolios over time, either via reinsurance, Part 9 transfers, buy-ins, or successor fund transfers. As Nick mentioned earlier, super funds are looking to simplify their businesses, and one area where we are seeing a definite uptick in interest is in the defined benefit de-risking space. Finally, as I mentioned on the last slide, we are well placed to help super funds develop more comprehensive retirement propositions to meet their members' needs by leveraging our core capabilities. Before I say more on the defined benefit and super fund retirement proposition opportunities, I'll just discuss our life risk portfolio. Challenger has been participating in the longevity risk transfer market since 2013, and over the past 10 years has built up significant experience in this area.
Profit from this portfolio has grown materially and now stands at around AUD 45 million per annum. Under the current accounting regime, things will stay broadly the same under AASB 17, and we are holding a provision within our policy liabilities of around AUD 700 million, representing this value. The present value has fallen over the past couple of years, not because profits have fallen, they haven't, but because the discount rate used to value them has increased. It's important to note that this value is not included in our NTA. This is an active market. While we participate in a large number of processes, we are quite disciplined in our pricing and do not chase market share. As a consequence, we do not win deals regularly.
We've been very pleased with the business that we have written to date, which is proving to be quite profitable. Market conditions do look promising for us over the next year or so, with a large volume of business expected to come to market. The defined benefit pension market represents a significant opportunity for Challenger. While proportionally, the DB market is shrinking, it is still growing in dollar terms, and you can see this growth in the blue line on the chart. Within this defined benefit segment, current pensions account for around 45% of the total liabilities. The other 55% is still in accumulation and will move to pension phase over the coming years, meaning there is still future growth in the pension segment.
Drilling into the funds with defined benefit pension liabilities, there is a broad range of sponsors, and a reasonable proportion of these are potentially open to de-risking. One driver of decisions to de-risk is consolidation across the super industry, where funds inherit these liabilities and prefer to offload the risk rather than have to deal with managing that, as they want to focus on their core business. There is activity in this market at present, and we're in discussions with a number of sponsors, ranging from smaller plans to some very large opportunities. There are two key methods for a fund to de-risk its DB pension liabilities, and Challenger can support both.
Firstly, a fund can buy an annuity to match the pension, should the fund wish to retain the member, or they can transfer the member and the liability to Challenger via a successor fund transfer. For Challenger, the economics of this business via either method are very similar to our retail lifetime annuities that we already sell, just with significantly greater scale. Retirement partnerships with super funds is another key growth opportunity. Demographics are in our favor, making retirement propositions critical for funds, and regulatory settings are also pushing funds in the same direction. Today, we're announcing a strategic partnership with TelstraSuper to provide the longevity component of its retirement offering. TelstraSuper is a public offer profit-to-member fund with AUD 24 billion in assets.
This is a great case study of how Challenger can work with a super fund to help it meet its members' needs, and we are very pleased to be able to support TelstraSuper to bring a best-in-class retirement proposition to its members. We expect this offer to go live in the first half of FY 2024. Funds are all working on their retirement propositions, and we are in discussions with many. We are confident that we bring a compelling solution to funds to support their member proposition. Given the relationships we have built with funds over time, we expect that TelstraSuper will be the first of many that we will be able to support. Thank you for your time today. I'll now hand over to Pete and look forward to rejoining later for the Q&A session.
Thanks, Anton. Good afternoon. It's great to be here today. I'm Peter Schlitz. This is my second Challenger Investor Day as Chief Investment Officer of the Life Company. Today, I'm going to provide an update on our investment portfolio, where we are seeing relative value opportunities, and how our investment portfolio is performing in light of the current economic environment. Challenger Life remains a well-capitalized business. Changes in the portfolio made over the past year have positioned us well to navigate current market conditions. Our strong capital position means not only are we well-placed to withstand market volatility, but we can take advantage of investment opportunities as they arise. With regard to asset allocation, we expect a minor increase in fixed income and unlisted equity exposures over the year ahead, driven by relative value considerations as well as continuing to support balance sheet growth.
The macro environment has continued to drive credit spreads wider. This is supportive for new business profitability, with our active approach to portfolio management being key, given the dispersion in credit performance we are seeing in the market. We do expect to see cap rate expansion within the domestic property portfolio and have today provided an indication of the impact on Life's capital position and PCA ratio expected as at 30 June. The key message being, we expect it to have a minor impact and will not change portfolio settings. Now on to market themes. This slide outlines some of these key themes we are seeing, and I will expand on how these are impacting our portfolio and our investment decisions. Financial conditions are tightening. We expect to see persistently high inflation, and rates remain around current levels. We also see pressure coming through on lending margins.
We may see banks pull back from lending activities in certain segments that may create attractive investment opportunities. In this environment, lenders have the ability to dictate credit terms that provide additional protections, and that has been a key focus for us in recent transaction activity. The tightening of financial conditions will likely lead to a slowdown in economic growth. We still see a strong labor market supporting demand, with active management a key to drive ongoing performance in light of these conditions. Importantly, we have added significant diversification to the portfolio to reduce volatility and provide additional flexibility. Challenger Life remains hedged to interest rate and inflation exposures. Any additional widening of credit spreads from here will enhance front book profitability and support further ROE expansion. We have positioned our portfolio over the past 12 months with a view of an elevated volatility environment.
This was a thematic I spoke to at the last Investor Day update. Our continuing capital strength and the increasing diversification within the portfolio puts us in a position to continue to deliver strong returns. I'll now talk to where we are seeing asset risk premiums across our key asset classes. Explaining the chart. The solid blue bar is where we have seen the average risk premiums for our key asset classes since 2000. The dark blue box represents plus or minus one standard deviation of return. The green square is where we saw risk premiums this time last year, and the blue diamond represents where we are currently seeing risk premiums, and the red vertical bars show the historic range of risk premiums since 2000. Importantly, the risk premiums are in addition to the prevailing swap rates.
The chart highlights the credit spreads have continued to move wider, which has supported new business profitability. There has been a contraction in property risk premiums over the period, while equity risk premiums have remained compressed. The compressed equity risk premium was a key driver in our decision to remove the equity collar exposure in first half 2023. We still, however, see value in top-quartile fund managers to deliver strong performance as part of our unlisted equity strategy. With regard to asset allocation, as highlighted, we are not looking to make material changes to the portfolio in the year ahead. The increase in fixed income is driven by a strong relative value outlook and supports projected balance sheet growth.
The reduction in property is largely driven by the impact of forecasted balance sheet growth and associated deployment into non-property assets, as well as the impact of property revaluations I have outlined as part of the 30 June valuation process. Outside of minor increases to unlisted equity exposures, we don't expect any material change in the equity and infrastructure portfolio or the alternatives portfolio over the coming year. Within the debt portfolio, we plan to make a further down weighting of investment-grade corporate credit into investment-grade asset-backed finance opportunities, given the better relative value outlook. Importantly, we will continue to target a minimum of 75% investment grade within the fixed income portfolio. We are looking to introduce a small currency exposure, given the procyclical nature of the Australian dollar. Initially, this will be taken as a long exposure to the US dollar.
This is part of the continued push to increase diversification and reduce portfolio volatility. The strategy has performed extremely well in times of significant market stress, as evidenced by the performance during COVID, the GFC, and the tech wreck, to name a few. The periods where the strategy has underperformed have coincided with strong equity market and credit market performance. The exposure will initially be minor, with key sensitivities disclosed as part of our financial reporting. We are not expecting any material changes in capital intensity across our asset classes for the year ahead. Following our annual review process, there will be no change to existing normalized growth assumptions. The normalized growth assumptions continue to represent our expectation of long, long-term growth for each asset class across our portfolio.
In fixed income, there's been remarkable resilience of both the consumer and corporate sectors, given the significant monetary tightening we've seen over the past 12 months. Challenger Life has a high-quality, diversified portfolio that is well-positioned and is performing strongly. We continue to see strong relative value across asset-backed finance opportunities with a focus on strong, robust protections. On the corporate side, the market has seen an uptick in high yield downgrades and defaults. These remain below historical levels. Challenger Life has positioned its portfolio away from cyclical exposures, with expected dispersion highlighting the importance of active management to continue to drive outperformance. Challenger Life has a demonstrated track record of navigating through different stages of the business cycle, with our strong historical performance reflecting our stringent underwriting processes. Challenger Life has added to the alternatives portfolio over the past few years.
As outlined, this reflects a push to increase diversification within the portfolio and provide additional financial flexibility. The alternatives portfolio is highly liquid in nature and supports Challenger Life's liquid capital requirements. Challenger Life utilizes a range of external managers to manage its absolute return fund portfolio. The portfolio covers exposures across systematic and global macro strategies and market neutral long-short funds. Post Hurricane Ian, Challenger Life took advantage of supply-demand and dynamics and added exposure in the catastrophe bond market, given the compelling returns that were on offer. We've held exposures in the general insurance market for well over a decade, with a recent switch from equity sidecar investments to catastrophe bonds, given the better relative value outlook. As a portion of the overall portfolio, the exposure to general insurance remains low at around 2%. Turning to property.
As flagged and consistent with wider market trends, Challenger Life expects cap rates to widen as part of the 30 June valuation process. This year, we'll be receiving external valuations on our entire direct property portfolio as part of this process. We are at early stages. Preliminary feedback from valuers indicates a downward revaluation of approximately 5% or AUD 100 million post-tax, primarily driven by write-downs in the domestic office portfolio. Whilst we are seeing some cap rate widening in retail, it is important to note that these have already moved wider as a result of the impact of COVID-19. Whilst we are also seeing widening of cap rates in our industrial portfolio, market rental growth has more than offset this impact.
The Japanese portfolio continues to perform very strongly, is almost fully leased, and is not seeing pressure on valuations given the continued low-rate environment in Japan. The valuation process remains subject to finalization, with limited transaction evidence to date for valuers to reset assumptions. As shown on the slide, if the portfolio were to fall by 5%, this would reduce our PCA ratio by 0.03 points, with no impact on normalized earnings, a small increase to margin, and would not have an impact on portfolio settings. Property continues to play an important role in our portfolio, providing diversification, and is a good asset to match our longer-term liabilities. Occupancy remains high at 94% and increased over the half based on positive leasing activity. The portfolio weighted average lease expiry has increased from 5.4- 6.1 years.
Leasing deals executed across FY 2023 in our office and retail portfolios were done at positive leasing spreads and at rents above market rents embedded in our property valuations. We have been active sellers of property over the last 18 months, with more than AUD 500 million of sales executed. We will continue to assess the relative value in this market over the coming year. The transition of the IMA to Elanor is expected to bring new perspectives, open up potential new asset classes and investment strategies. There has been no change to our target PCA ratio range, with the PCA ratio at the end of April standing at 1.58 times. This is after adjusting for the additional Tier 1 capital repaid in May. We have financial flexibility, which can support growth, including expected proceeds return plus the finalization of the bank sale.
CLC has received AUD 50 mil of capital in April as part of the first stage of the bank sale process. We also maintain a lever that can adjust our asset allocation mix to support further growth. Whilst we have continued to operate at this level of PCA for a number of periods, it is important to remember that this is an outworking of internal capital models. The move towards a further diversified portfolio has given us flexibility to operate at a lower PCA ratio than recent history. In closing, there are a few points I'd like to reiterate. Challenger Life remains a strongly capitalized business with a portfolio well positioned for through-the-cycle returns. This ensures we can take advantage of investment opportunities as they arise, as well as withstand market movements. Whilst there has been an increase in market volatility, we remain in a very good position.
The outlook for new business pro-profitability remains extremely positive, which will drive further ROE expansion. Thank you for your time. We'll now take a short break.
Welcome back. My name is Victor Rodriguez. I'm the Chief Executive of the Funds Management business. It's great to be back here again today after last year's affiliate platform and one of the largest active managers in the country. Challenger Funds Management includes the Challenger Investment Management business and our multi-affiliate business, Fidante. The business has consistently outperformed peers over many years, both in terms of investment performance and FUM flows, underpinning our growth. This reflects two core competitive advantages: the ability to consistently identify, attract, and partner with high-performing managers across a wide range of asset classes. Secondly, the award-winning and market-leading distribution platform that ensures we are maximizing the opportunities such investment capability provides, and that customers are seeking.
Against the backdrop of significant structural economic change and resulting market uncertainty, we strongly believe our platform is very well-positioned to continue to grow and deliver for our customers. As the age of cheap money comes to an end, and amidst ongoing volatility and rapidly evolving markets, the benefits of active investing will become clearer and even more pronounced. Indeed, a point best summed up by the CEO of the Future Fund, who recently said, "Just having capital is no longer enough to ensure decent returns." We retain a deeply held belief around the benefits of active investing. Our investment experience and strength in active management is a key point of differentiation in the current market environment. With that as a backdrop, today, I'm going to cover the latest developments in our funds management business and the exciting range of growth initiatives and opportunities we have in front of us.
Our funds management business spans Asia Pacific, Europe, and the UK. The business has grown significantly in recent years, now managing just shy of AUD 100 billion, offering compelling strategies across fixed income, equities, and alternative assets. Starting with fixed income, the combination of managers at Challenger Investment Management and Fidante makes us Australia's largest fixed income investment management platform, spanning all corners of fixed income markets, including absolute return, inflation-linked, and a wide range of liquid and private markets credit strategies. With regards to equities, we boast an outstanding range of Australian equity managers across large and small cap strategies. In fact, all six of our managers in the domestic equity space have received highly recommended ratings from research houses. A truly remarkable outcome when one considers the competitive landscape, and a testament to the quality of the investment offering.
We also continue to focus on enhancing and diversifying our offshore equity offerings. In FY 2023, we have launched two new active ETFs for Alphinity: the Alphinity Global Equity Fund and the Alphinity Global Sustainable Equity Fund. That business continues to grow, go from strength to strength, also reflected in some material institutional flows in recent months. We have also expanded our distribution relationship with leading Japanese investment trust management, Nomura. Recently, Nomura awarded Alphinity a $330 million allocation that will be distributed to Nomura's client base in Japan. We are also working with Nomura to distribute some of their own investment capabilities in the Australian marketplace. Another manager with a focus on offshore markets that we launched in early FY 2022 is emerging markets manager, Ox Capital.
Last year, we launched Ox Capital Dynamic Asia UCITS Fund, with an institutional seed client investing a hundred million USD, and ensuring the further build-out of our wider UCITS range. The Ox Capital business has very good momentum, supported by outstanding investment returns since inception, and another example of how we are continuing to broaden the product mix across our stable of affiliates to meet the needs of our customers. Last, but certainly not least, and as Nick highlighted, the alternatives platform is a strong area of focus for us, diversifying our offering, whilst at the same time introducing higher margin product to our suite of solutions, particularly in that high net worth space. Alternatives are the fastest growing asset class domestically in percentage terms, with over AUD 2 billion in net flows into wholesale unlisted funds for the year ending September 2022.
This trend is growing even faster in the high net worth space. Two-thirds of high net worth clients view alternatives as a key part of the investment strategy, up from just 37% in 2019. As a business, we are responding to the demand with a number of high-quality capabilities within the alternative space. Many of these strategies, importantly, have strong ESG credentials and are well-positioned to benefit from the tailwind of decarbonization. We partnered with Cultiv8 to launch a new Cultiv8 Agriculture and Food Technology Fund that identifies and invests in early-stage agricultural and food tech companies. We are working on solidifying our existing distribution relationship with Proterra Investment Partners Asia to include an economic stake in the business. Proterra are a private equity manager focused on investing in the Asian food sector, with an investment team based in Singapore and Shanghai.
We're looking to bring their fourth food fund in the first quarter of next financial year, with strong demand from investors around the globe. Resonance Asset Management is a U.K.-headquartered business we have been in partnership with since 2015. Resonance is an alternative asset management firm investing in alternative and conventional energy, water and waste treatment, and environmental and agricultural assets. We have recently finalized commercial agreements around an equity stake. Resonance is looking to bring their second water fund to market in the first half of FY 2024. Of course, our new strategic partnership with Elanor will bring a new and compelling real estate proposition for our retail, high net worth, and institutional customer base. I will talk more to that later.
Active management is a real source of value add for our customers, as you can see in the performance of our Fidante affiliates in recent years. Over the last five years, 97% of our affiliates have outperformed their respective benchmark, with 85% outperforming since inception. Our track record of success in building and partnering with investment managers is a genuine source of pride. Identifying quality investment management talent with robust and sustainable investment processes has been critical to our success. The business is widely recognized, of course, not only for the quality of our investment capability, but also the quality of our distribution platform across each of the channels that we operate in. The success in winning Zenith's Distributor of the Year for the past three consecutive years is a good example of the strength and depth of our distribution platform.
The diverse offering of our Fidante platform is a key competitive strength that has allowed the business to outperform over many years, which you can see on the chart on the right. We've outperformed the market in terms of net flows in eight of the last 10 quarters. Looking ahead, we're seeing strong momentum. As you can see in that chart, we've had a great start to the quarter, with over AUD 2 billion in net inflows due to multiple new mandates across a range of managers. Challenger Investment Management forms a key part of our franchise. Following the sale of our Challenger real estate business to Elanor, CIM will now be a dedicated fixed-income manager and has consistently demonstrated superior investment excellence over many years.
The team is one of the largest and most experienced credit managers in the country, with close to two decades managing funds across multiple strategies for a wide range of institutional clients. We are one of the leading managers of private credit investments in the Australian marketplace, having been active investors since 2005. Our strong investment capabilities, together with extensive relationships with borrowers and sponsors built over such a long period, ensure we see the vast majority of opportunities available. Our decline rate remains over 80% and is reflective of our disciplined underwriting process, and the strong investment performance track record is proof of this. Importantly, that deep experience provides customers a great source of comfort during more uncertain economic times.
Being a credit manager that has experienced through various credit cycles can be underestimated during persistent economic benign economic conditions. Really comes into its own during economic downturns. The competitive strength of the business is its strong credit underwriting and asset origination capability, supporting over AUD 6 billion of annual purchases, of which over AUD 1.5 billion has been directly originated. The fund range we have built over the last five years, targeting returns of between 3% and 8% above the cash rate, have all outperformed benchmark since inception. Our clients also benefit from a robust governance framework with significant regulatory oversight including an independent credit risk management team within the Challenger Group, a unique distinguishing feature. The momentum in this business is strong. Nick referenced the new investment over coming months from MS Primary into our multi-sector private lending fund.
We have just signed a new insurance client, which will see us deploying AUD 350 million in domestic corporate lending opportunities and are about to launch our fourth fund. The success of our funds management business has been a real organic growth story. Fidante's diversified affiliate model has, of course, been central to this success, with its multiple brands and broad range of asset classes supporting consistent outperformance over many years. We take a multi-pronged approach as we look to organically grow our offering of active investment capabilities. Historically, we've built new investment capability by identifying talented investment professionals with a compelling edge. Through Fidante, we've taken minority equity stakes, ensuring alignment, providing capital to build their business, and supporting them on their pathway to growth.
We have as well, of course, successfully leveraged some of our own fully owned investment capabilities within the Challenger Investment Management team and successfully brought this expertise to market. Thirdly, we have sought best-in-class, well-established global managers to partner with and distribute their strategies within the domestic marketplace. Across all 3 of these segments, there are a number of organic opportunities in the pipeline near term. The Challenger Investment Management Global Asset Backed Securities Fund will launch in the next few weeks, a 4th fund for our leading fixed income platform and the first to meaningfully target offshore investors. Mortgage loans are a large and significant asset class, both in Australia and the world. The establishment of a new loan servicing business, serving pools of existing mortgages, will enhance our private loan investment capabilities.
This platform will help originate large, scalable pools of whole loans for existing and new institutional investors. In Japan, our experienced and well-established Japanese real estate team are about to launch a new club fund with commitment from two of the leading Japanese institutional clients. This is a very important development for our business in Japan as we build on the client base currently beyond the Life company and MS Primary. I've talked about our UCITS platform, where we continue to seek opportunities to bring new product to market through that offshore channel, targeting institutional and wholesale U.K. and European investors and indeed, potentially clients in the region, in Singapore and Japan. We've also been able to leverage this key capability to form strategic partnerships with global leaders such as Impax, Nomura, Ares, and Apollo.
The Ares Climate Infrastructure Fund, for example, will be the first strategy we will make available on the Fidante Access platform, which gives Australian investors the ability to access institutional, quality, global, private capabilities and solving for the administration of capital calls, tax, and reporting. We also see product and distribution opportunities with Apollo going forward, given the quality of the investment product they have and the importance of the strategic partnership that Nick has already outlined. In terms of inorganic growth opportunities, I've spoken to our enhanced partnerships with Proterra and Resonance. Our new strategic relationship, announced with Elanor last month, is, of course, the most recent example of the types of inorganic opportunities we consider. As a reminder, Elanor Investors Group and Challenger have entered into agreements for Elanor to acquire Challenger Investment Management's Australian Real Estate Funds Management business.
In return, Elanor will become a new Fidante affiliate, with Challenger taking an equity stake in the business of up to 17%. Importantly, the partnership includes an exclusive distribution arrangement with Fidante. We will distribute Elanor's existing funds and new product opportunities, Elanor will become Challenger's commercial real estate partner in Australia and New Zealand, which will also include managing Life's property portfolio, as Pete outlined. Elanor's experience in originating high-quality real estate opportunities will be enhanced by Challenger's real estate platform, when combined with Fidante's market-leading distribution capability, will support new product opportunities across retail, high net worth, and institutional channels. For Challenger, this partnership is reflective of our strategic goals to focus on our core competitive strengths and further diversify our product suite.
We have determined that the existing real estate business is subscale and face significant client concentration risk and therefore was not sustainable in its current form. It will support our plans to simplify our operations while leveraging the scale and expertise of strategic partners to further diversify and grow our business. Thank you. That concludes my presentation, I look forward to talking more about the funds management business later this afternoon. I'll now hand over to Alex Bell, Challenger CFO.
Good afternoon, everybody. To round us out for this afternoon, I've got a couple of slides to provide, I promise, a brief update on the impact of AASB 17 on our business, as well as a view of our FY 2023 outlook. Turn your minds back to 1997. As the Spice Girls were embarking on their first live tour, IFRS 17 began as an International Accounting Standards Board project to undertake a comprehensive review of the accounting for insurance contracts. The objective was to develop a common, high-quality standard that would address recognition, measurement, presentation, and disclosure requirements for insurance contracts. 26 years later, and Challenger is adopting the Australian Accounting Standards version, known as AASB 17. We have a new accounting standard for insurance contracts, and that will be effective for us from the 1st of July of this year.
In our next annual report, which we'll publish in August, we'll provide an audited range for the quantum movement in insurance policy liabilities for the opening balance sheet at 1 July 2022. In our interim report for the 31st of December, 2023, this will be our first report fully under AASB 17, which will include the final transition impact and audited comparatives. Before we get there, I wanted to ensure that investors understand conceptually what to expect from the standard. Firstly, and most critically, the new standard does not change the economics of our underlying business, but it does affect the timing and therefore the variability of our statutory profit recognition. Next, the only contracts that are impacted are our insurance contracts.
Investment contracts, like our term annuities, are out of scope of this standard, and the standard also doesn't affect our funds management business, the bank, or any of our joint ventures. There are no material impacts to capital or to our normalized profit framework, which means that any movements in policy liabilities will continue to be reflected in investment experience just as they are today. This slide steps through a number of our key metrics and the impact that AASB 17 may have on them. The transition impact, which requires recalculating all insurance policies as if AASB 17 had applied to them since their inception, will increase CLC's insurance policy liabilities, which will result in an equivalent reduction in CLC's net assets. This net asset reduction will therefore drive a very slightly higher normalized ROE as a result of that smaller denominator. Normalized profit, though, is unchanged.
As you can see from this slide, the impact on our financials and our reporting approach from AASB 17 is limited. Turning now to the next slide. As we near year-end, we wanted to provide an update on our guidance. We now expect to deliver a normalized net profit before tax, slightly above the midpoint of our guidance range. All other guidance metrics are also reaffirmed, including an expected full-year loss from the Bank of approximately AUD 10 million, noting, as we've said before, that we don't expect the Bank to settle by the 30th of June, there will be a carryover impact into the first half of FY 2024. Despite the higher inflationary environment, we still expect expense growth to be within the 5%-6% target that we set at the start of the year.
Our life COE margin for FY 2023 will be higher than it was in FY 2022. We expect to remain strongly capitalized, and as mentioned a couple of times this afternoon, our target range for CLC's PCA ratio is between 1.3 and 1.7 times. I very much look forward to presenting our full year results in a few months, but I'll now hand back to Nick to wrap us up.
Thank you, Alex. You've heard today about our plans to deliver our next phase of growth, building on the work we have done to simplify our operations, diversify our revenue streams, and build a more customer-centric business. As we head into FY 2024, I'm confident we have the right plan to accelerate growth and deliver more for our customers. With a focus on our core life and funds management businesses, we will leverage our unique capabilities to improve our proposition to customers, deepen our relationships with super fund clients, and strengthen our business through our new strategic partnerships. Challenger is in a really strong position, and I'm confident in our ability to capture these opportunities to build sustainable long-term growth. Our strategy will deliver for all stakeholders. It will deliver for our employees, our industry partners, our shareholders, and our annuitants who receive financial security from Challenger.
Underpinning all of this is our highly capable and talented team, to whom I would like to thank for their dedication. I'd also like to thank Alex, Mandy, Anton, Vic, and Pete for taking you through our plans today. Thank you for your time, and I'll now ask the team to join me on stage for Q&A.
We'll now turn to the Q&A. As I mentioned before, as a reminder, we'll be taking questions from the room first, followed by online. For those who are in the room, we have a roaming mic, Nicole, here in the rear. Please raise your hand, if you want to ask a question, and we will get back, and we'll get to you. If asking a question, can you please state your name and the company you're representing? Also, if you're asking multiple questions, if you can try to group them, as much as possible, that'd be great, rather than ask them all individually. For those of you online, please submit your questions, but we'll take the questions in the room first, and then we'll get to you second. Sid, over here. Thank you.
Thanks, Mark. Siddharth Parameswaran from JP Morgan. A couple of questions, if I can. One is just on the economics of the business in terms of where we are at the moment. I think, Nick, you mentioned maybe six months ago that you thought that the retail annuities basically were offering much better or better ROE outcomes than the wholesale annuities. I'm just wondering where we are at the moment on that, on that transition, and I suppose related to that is just that, you know, that the pathway of getting to that 12%+ cash ROE. Is that, I mean, leaving the bank out of it, could you just give us a, an idea of that pathway to achieve that 12%+ cash ROE?
Sure. Thanks, Sid. Well, let me take the first part of that, and maybe one of my colleagues can also add any other color. The comments I would have made a year ago was rates were rising in the retail side, where we had been in net out in Life. We were able to use the shape of the yield curve, particularly around the shorter dated business relative to institutional. The comments there would be retail investors buy rate at that short end, our institutional customers are buying the spread over swap. That was certainly a trend and where we are today, our one year is around about 60-65 over swap, which is pretty consistent with long term.
As we've noted, you know, our focus within the retail term book has been to push business out, and there we're pricing around about 100 over, which is consistent again, you know, with long term, and actually below, if you went back three, four years, where we were pricing, you know, those annuities. All the pricing is done consistent with achieving our ROE target and cognizant of the investment opportunities, you know, that are available for us. The other thing we confirmed, and I think Alex may have made the comment or someone today made the comment, that, you know, the new business we're writing today is accretive to our margin, and it's consistent with, you know, achieving an ROE in that business.
Overall, for ROE for group, you know, we spoke at the half about the headwinds we have and the differential between the ROE we're achieving on the life company and our group. I think you said, you know, excluding bank, et cetera. You've seen the benefit, you know, significant benefit coming through from the life company, from, you know, the environment we're in, but those headwinds related to, you know, the bank expense, bank capital, lower contribution from funds, you know, still remain. We'll provide, you know, an update on where we are with that at the full year. Do you want to add anything, Alex?
Yeah. It's all good.
Julian?
Thanks. Julian from Goldman Sachs. Just a question on the MS&AD renewal. Can you just comment on how you are assessing the key metrics around the renewal of that contract into next year?
Thanks, Julian. Your comment there around our relationship with MSP for reinsurance across the life company, you know, I think our comments here today, the relationship with MS&AD Group and MSP is very strong. Alex, myself, and the chair were in Japan not six weeks ago, and Anton and some of the life team were in Tokyo probably three weeks ago, spending time with the leadership around the relationship, and also, you know, product design and product development opportunities. That, that existing reinsurance relationship did have a date on it, and that is June, July next year. And we feel very confident in the relationship, and we'll keep the market informed as we've got more information there. Nigel?
Thanks. It's Nigel Pittaway here from Citi. I mean, obviously, you've been talking, Nick, about the new business tenor improving, but I wonder whether you could make some comments on the Backbook tenor. How far off is that from where you'd like it to be? Probably relating to that, you're also forecasting maturities to come down substantially next year. Presumably, you know, with that, with the lower level of short-term sales, you're also going to get lower rollover sales. Can you make some comments about what you expect to turn to the net flows as well?
Yeah, okay. There's a few parts in that, Nigel. I'm going to look at Anton for part of it. He can give a bit more color. I mean, your comments about Backbook tenor, you know, there is a natural cycle our business has been through. You're right, there was significant volumes of lifetime business that was written, for a whole lot of years that does have some opportunities, you know, time-based for them to end. That's a number of years away. You know, what we went through as rates started to come down, as you know, the tenor of all the business we were writing and the volume of long dated started to come down as well.
You know, what I hope you're hearing today is the tenor of that term business is materially longer, which to your question on, or point, sorry, on, you know, rollovers, that actually is going to reduce the rollover pressure on our business. The, you know, my comments around accelerating lifetime sales, you know, the focus of the team as we came out of that low rate environment, we got acceleration in the one-year book, then we really drove acceleration in the longer dated term book at concurrent with that lifetime book. Lifetime sales takes longer to get going. I think Mandy made a comment about the number of advisors that are writing Challenger products having more than doubled, but still only around 20% of potential writers.
You know, the volume there, we feel really good about accelerating. Anton's also spoken about some of the longer-term business opportunities that are, you know, material and near to us within that institutional market now. Anton, is there anything you'd like to add to that?
Just add the, I guess, the obvious dynamic, that increasing the tenor does ultimately improve net flows or all else equal. You know, a two-year business effectively is a one-year business with a 100% reinvestment rate.
Yeah, I mean, obviously, you'll see the maturities come down, but the sales come down as well, because you're not getting the same...
Yeah. There is an operational efficiency in that the sales teams can focus on a new sale rather than having to focus on a reinvestment.
Okay, you're still expecting sales to come down with the maturities coming down to some degree, is that fair?
We're not guiding on sales. I mean, we feel great about where sales are right now and actually the opportunities. You know, Anton made a few comments about Index Plus. If you think about where the bulk sales have been, that AUD 6 billion, of which about AUD 1.7 billion is in that institutional term, the majority is in the Index Plus. That is a highly differentiated product that's adding a lot of value for that customer segment. The ability for us now to take that as a base and to extend the tenor of those client relationships is material and something the team are very focused on, and there's opportunities there. So that in of itself will decelerate, you know, the maturity rate as well.
Okay, thank you.
Anthony?
Thank you. It's Anthony Hoo at CLSA. Just a couple of questions. Firstly, can I follow up that one? On the maturity rate, you know, you indicated 27% next year. I'm just wondering, what are you assuming in terms of the mix of institutional versus retail? You know, obviously, last quarter, there was quite a, you know, significant weakening in institutional. If we use that as a base, what's your assumptions going to next year, in that 27%? A second question, just on your quotation levels, which you showed on the slide, doubled this half, the last half. Can you give us an indication of what the conversion rates are, or the success rates are from quotation to actual sales, and whether that has been stable or improved, et cetera?
Yeah, thanks, Anthony. I'll have a start at that. In terms of maturity rate for next year, you know, what we said at Q3 in our sales result was that we had really of our own volition, because of our discipline around pricing, not renewed some of the institutional term book. That, that leaves, I've just given you the numbers before, in terms of the AUD 6 billion of shorter dated institutional money, that leaves your Index Plus, plus the rump of the institutional term business. You know, we have choices with that institutional term as to where we deploy that capital and that effort. What we have been doing is deploying that to longer dated business because it's of higher value to us. It's also more a commoditized product for our clients.
It's when we're here for them when they need it, but we're certainly not losing sleep if it, you know, it doesn't roll. Our focus on that shorter dated business institutional is the Index Plus book, which, as I said, is highly differentiated. You did see that grow in that Q3. You know, the focus there is longer tenor with a whole lot of product features, insurance, efficiency features that the team have been working on for the business. You know, we'll provide We're not so far away from full year. We'll provide sales updates then, but we don't actually provide more specific sales guidance, given the frequency of the updates. On quotation levels, what we've always seen is that quote levels are a precursor to sales.
You know, it's, I don't, I don't have the number, and I don't think we've given the number in the past, exactly what we should expect, because it's both a number plot, times by value, will get you to the sales result. That the quote levels, the rising quote levels, definitely precede, sales. The momentum we've got in our retail book, which is where that is all obviously related, is really pleasing.
You know, again, as we said a few times through updates with shareholders and yourselves, you know, a number of the sales team that actually left us in the business over a couple of years, because of the opportunity, we've hired them all back into that life sales team because of the exciting growth that we're getting out of that part of the business. It was quite a long question. I'm just going to look around and see if there's, Alex, if there's any more you would add to that.
I don't think so. There's not a lot of that institutional term business left. We'll be disciplined on pricing. We're not going to chase the reinvestment of that business for the sake of it, if it doesn't meet our ROE targets.
Thanks, clear and to you, John. A couple of questions just flying off the back of that. As we get this mixed shift coming into the book and away from this one-year institutional term business, still note the GIR component is still quite hefty at AUD 4 billion. Are there economics on that substantially different to one-year term business? You know, just wondering why keep doing that if the margin and returns are very similar to the one-year term business you're moving away from?
Kieran, it's probably more product features, and how the clients use it. I mean, we will, you know, again, rolling back time a little bit, and my comments I made in my remarks was that we've got the product set to be able to manage our business and sales across different rate environments, and we're able to deftly move as rates went down to build out this institutional business. But with where rates are, the institutional term book, whilst it meets our ROE target, and then that's great, it doesn't use a lot of,
it doesn't not use a lot of R, so there's not a lot of economics there for us, relative to the size of the book, and that's why we've, you know, reaffirmed the guidance, albeit, you know, we did see some of that not roll. The GIR is fundamentally different. You know, the comments around the priorities for super funds in this last five years to meet regulatory changes, not least, Your Future, Your Super, and this is a strategy that can replace part of a passive component of an institutional client's portfolio, but give them a guaranteed alpha, with zero fee. That's a pretty compelling product.
The journey we've got there is we've developed solutions that are efficient from an insurance perspective, plus also flexibility around the asset mix so that we can drive longer tenor business. Fundamentally, the economics are the same as you would expect, commensurate with the term of that business for institutional. Anton, do you want to add any comments?
No, nothing to add.
Just following on from that, if, you know, I guess sort of the optionality within that GIR book is to extend the duration. If we see that, A, interested in sort of the discussions you're having in terms of swapping that for one-year mandates to 3-5 year, you know, are we going to see that near term? As that does happen, you know, presumably we get a commensurate uplift in margin as the investment universe widens.
Yeah, there are two aspects to it. One, I guess the nature of the product means that it is more sticky than the term annuities. Yes, we are actively talking to clients about locking in for longer terms. You know, as you mentioned, the advantage with the longer-term liability is that it opens up the investment universe for us. It gives us flexibility around that investment mix that we use to suppor the business, so we can operate at a higher margin level or at a lower margin level. We have that lever available to us. All else being equal, you know, longer-term business is generally higher margin.
Thanks. Just a final question, Anton, on the successor fund transfer, I think you mentioned a small deal in fourth quarter. You also flagged you're looking at some particularly large opportunities. Just wondering, with the, you know, the capital coverage, where it sits today, you know, particularly on a pro forma basis, close to the property mark, you know, how material a deal could Challenger take on board at the current point?
Yeah. We're comfortable that the capital we have in the business, taking into account the flexibility we have through asset mix and money that we expect to see coming back from the bank sale, that we're comfortably capitalized to support that growth.
Thanks.
Scott-
Hi, Scott Russell from UBS. Just on page 17, I wanted to ask a big picture question about pricing strategy, if I could. Looking back over the last 10 years, pre-COVID, your pricing rate was clearly tied pretty closely to three-year TD rate. Since COVID, that's changed. Why the premium you're offering today? Why do you feel the need to offer 3%, 4.5% to 5%, you know, what is effectively a monopoly? I hear you that banks are competing for short duration deposits, and you can probably get 4% on transaction accounts at the moment. That might be part of the answer, but I'd be interested in understanding, given your ROE is at about 10% post-tax, why you're pricing so attractively?
Scott, thanks. I'll make a start, and maybe Anton can add some comments. As, you've sort of landed the nail on the head in terms of where bank TDs are. They're actually pricing one year above, you know, 2, 3 outwards. We're pricing all of the term annuities off the swap curve, and as I've made the comment earlier, we're pricing at a reasonably consistent margin over the last number of years, which is actually inside what we did have if you went back three, four years ago, in terms of, you know, margin. At that point, I think it was out to even 140 over, so about 100 over swap for that three-year business. It is attractive business for us.
There's a wider investment universe for the investment team to deploy. At that level, it absolutely meets our return targets. I mean, Anton, any other comments you'd make?
Just to reiterate, you know, as Nick said, you know, we price to exceed our ROE targets, and we're comfortable that we can, you know, we're achieving that at those pricing levels, and that supports flow into those, into that product at that tenor.
From your interactions with advisers and clients, how elastic is that demand? You know, for moving prices around 50 basis points, even 10 basis points, do you see pricing levels change?
The retail market is a rate-driven market, and that's for term business, because obviously lifetime care is not, you know, that's a very different story. For term business, there is definitely elasticity around rate, and you're seeing that across the whole term, whether it be deposit or annuity market. We're in market right now with a campaign with 2 year at 5%, which, you know, we expect will attract. Well, we hope it will attract interest, but also flow onto our new online, you know, direct portal.
Okay, thanks. Just a separate question, if I can, on the picking up on the opportunity in bulk deals that, Anton, you presented. The DB market is not a new opportunity, but I agree it makes a lot of sense for corporates to offload that to a specialist. What is it in the active discussions you're having at the moment that would suggest that negotiation position has changed or the intentions of possible clients has changed recently?
I mean, Anton covered it, so I'll let you restate the comments as post-fund mergers.
Yeah, there are a range of drivers. You know, for some, it is the consolidation activity in the industry, where funds just don't want to deal with the complexity. For an individual sponsor, though, it's often just driven by funding levels, that there are moments in time where they feel like they can't de-risk, and then there are moments in time when they feel like they can. You know, the funds that we're talking to are in a position where they can de-risk at the moment.
Brett Le Mesurier?
Thanks. Brett Le Mesurier from Perpetual. Can you give us a sense of the size of the CapEx requirements that you have to take your properties up to the system, the sustainability levels that are required these days?
Brett, that's in, I mean, in relation to ESG on our buildings.
Yes, that's right.
Yeah, okay. well, at hand, we, the team have done a lot of work over a number of years to, you know, improve those properties, so that's not a new... We don't have a significant or specific CapEx target that we need to invest to bring our properties, you know, up to level. In fact, you know, the way some of these markets are working right now, if you take retail assets, there are actually groups that will put the CapEx up to invest into, for example, solar on roof, on your behalf. you know, pleasingly, with our property portfolio, a lot of CapEx that, you know, we.
I look at Pete a bit because he knows this far better than I do, but a lot of the CapEx investment that, you know, was required was done over a whole lot of years, and the forward-looking CapEx requirement is actually quite modest. Pete, did you want to add some comments, or Vic?
No, we did a significant uplift to a lot of our office portfolio in terms of, you know, lobby, lift refurbishment, entry facilities. That's all been done. Yeah, we go through an annual process where we look at CapEx requirements across our property. You know, that is anything from life cycle CapEx, you know, replacement of chillers, et cetera. But there's nothing, you know, out of that process that is out of the ordinary and nothing that we're looking at that, you know, we'd add to that CapEx to bring things up to, you know, a required ESG standard. You know, we've got nothing flagged in that respect.
Any questions from the room before we go to the questions online? Oh, James in the room.
Hi, James Cordukes from Credit Suisse. You've talked about some of the opportunities for longer duration products, like the DBs or super fund partnerships, Japan still growing. At the same time, when we look at the investment assets, you're going to allocate more to fixed income. Properties are going to be held pretty constant in dollar terms. You know, how do you match the cash flow on some of those longer duration sales?
Pete, did you want to pick up some comments there?
Thanks for the question. If you look at our... You know, we do put out a cash flow matching chart every 6 months. We're relatively tightly matched, you know, out to the 5-year period. If you just consider the level of net assets that we're running, you know, those net assets are effectively supporting, you know, longer term liabilities that we could be writing. We still have significant flexibility to, you know, invest in shorter dated assets for longer dated liability business and that is not kind of, you know, walking away from our mantra of ensuring that we're asset and liability matched.
Okay, if there's no questions further in the room, I'll quickly go online. There are a couple of questions received from Lafitani Sotiriou from MSP. I'll ask these separately because some of these are quite long. The first question is in regards to direct annuity products. In particular, some legal entities are not, it's not covered, they're not yet available, in particular SMSFs. Can you confirm, in terms of direct SMSFs, when will this be available, and is 5 years the longest tenor product you have to buy direct?
Mandy, would you like to take that or...?
Sure. Yeah, happy to. Thank you for the question. SMSF and longer tenor is absolutely on our pathway forward. Looking forward to delivering that over time, but no date to deliver here today. What was the other question about?
Is Five Years the largest?
Yeah, five years is the largest at the moment. We said we'd take a test and learn, and slowly lean into this. Let's get the technology available so we can then connect with the market and see what resonates. That's what we're doing. They are on the pathway.
Last, second question is in regards to annuities, putting them in platform. As we mentioned in the presentation, I guess the market had originally assumed they were already on investment platforms. Can you talk about the difference between what we are stating now, in terms of in-platform? Can you also explain how this is now available for Super? Do you want to take this one?
Sure. Yeah, sure. On-platform was a wonderful innovation, as I understand it. I wasn't there at the time, but it gives advisors the opportunity to see consolidated reporting, even though you're investing in something that is beside the platform. Whereas once you go inside, that then allows the advisor, on behalf of their client, to transact within the platform and not leave. If you take money outside of the platform, so if you go back to that on situation, then you might be leaving a super environment and the tax implications of that. It's much better to be remaining inside the platform. That's what we mean by super as well. You don't have to leave the platform environment, which would really not make it ideal for a super super monies.
By being in-platform, we can retain the super monies.
Thanks. Thanks, Mandy.
Okay.
Yes. No, that's it. Third question is in regards to the announced TelstraSuper win. In regards to this, is this just the case of getting new business when it launches, or is there a defined benefit book that's actually being transferred across? This is probably a question for Anton.
I'll take this one.
Yeah.
It is a flow deal, so there's no stock on day one. We're looking to partner with them for their ongoing members moving into retirement.
Last final question is in regards to SimCorp or Artega. Can we get a little bit more color on the first external client win? How much FUM? What is the revenue associated with this?
Okay, thanks. I'll take that one. I mean, we'll give a bit more color at the full year. I think the steps that we've been through in the last 9 months or 12 months since announcing it and incorporating it, transferring our people into the new legal entity with SimCorp, taking their expanded product set, remembering that we had been using their SimCorp Dimension platform for a couple of decades already. Building a cadence around uplifting some of the processes and system aspects, which was one of the, you know, is one of the second or one of the primary benefits as well of working with SimCorp, for the betterment, frankly, of Challenger's processes. In terms of the specific wins, there's been a couple.
You know, I won't call out the size, just that if they were very meaningful in size, we would tell you. They are more modest in size, but they've got quite strong growth potential. You know, they will add, you know, with pricing the business, you know, to be attractive and, you know, attractive new fee income to us that allows us to leverage our scale, and that will be the benefit of them and also for us. You know, we'll think about a bit more detail for the full year once we've bedded that down. Other than that, it's not material, so you're not adding, you know, large line items at this stage.
The next question comes from Shaun Ler, Morningstar. In terms of the retirement partnerships with institutional clients, specifically the TelstraSuper example, can you please talk about the economics, what the economics look like, relative to selling a longer dated lifetime annuity?
Sure. It's consistent. I mean, we're at pains to say that we price all our business to meet our return on equity requirements. There's clearly some benefit when you enter a flow relationship where you're not picking up distribution expense to the extent that we would otherwise. That may be reflected, but it's more or less, you know, you think about it consistent with our long-term or, sorry, our lifetime product pricing. Anton, anything to that?
They were the online questions. If anyone else online wants to ask a question, please type them in now. I'll just quickly go back to the room. I can see Sid's got another question, and then Kieran after that. Thank you.
Just had a follow-up question, just on capital interest. Just I think it was Pete who mentioned, made a comment just around the willingness or the desire to operate a sort of lower end than the historical range that I believe you said before, of being at the top end of the 1.3-1.7 range. Just keen, perhaps, Nick, if you could just, you know, outline the reasons why you're willing to operate at a lower end, and also just whether the current economic environment, you know, where we have very strong asset prices, but higher interest rates, potentially some risks coming on the horizon. I was just wondering whether that has any influence in your thinking on what is a reasonable capital range from a tactical setting now?
Yes. Thanks. I'll make some comments, and then, you know, Peter, Anton might like to add to it. You know, what you've heard today is that we remain committed to the actual range, 1.3 to 1.7. You know, Pete made a number of comments in relation to increasing diversification across the life balance sheet, which has reduced the overall risk of the balance sheet. That is one aspect. The other is that, you know, we have capital coming, you know, back into life, as we complete the sale of the bank. That, you know, what we've been able to achieve in the last, you know, 2, 3 years is continued book growth of a shape that we've been able to support comfortably with our capital.
As we, you know, as we look forward, you know, the existing business we have today, we can continue to, you know, to support, but our ambition is to remain well-capitalized on the balance sheet. Peter or Anton, would you like to add? Comment.
Just a couple of things from my perspective. I think, yeah, Nick mentioned, you know, adding diversification, something I, you know, was very much focused on at the update last year and reiterated today. Some of that diversification doesn't get well treated under the APRA standards. Things like absolute return funds, which are not correlated with broader markets, get treated like listed equity. We did mention that, you know, the PCA ratio that we're targeting is an outworking of our internal models, and our internal models definitely pick up, you know, what we believe is the true economic diversification. It's really as a result of the shift in the portfolio and, you know, the increase in diversification that I mentioned, we had the flexibility to run at a lower PCA ratio. That's not changing our risk appetite at all.
That's really just an outworking of our internal model. Yeah, I think what we're trying to do in terms of, you know, ongoing business cycles, et cetera, is to really set the portfolio up to perform through the cycle. You know, again, this is a deliberate decision for us to add diversification to the portfolio. I mentioned we were looking to add more diversification through, you know, the taking of currency exposure, and that is really designed for us to, you know, remain, you know, relatively fully invested, and to continue to drive returns. Have that resilience in the portfolio to withstand any market movements.
Nick, sorry, just the recent growth that you have been having has been resulting in that PCA falling. The current rate of growth hasn't been supported by the, or, well, the capital that you retained in supporting that growth. I'm just wondering, just to be completely clear, when you say you can support the current level of growth, we've seen a lot of new initiatives here. Are you willing to run that level lower from where we are?
I think Pete's comments are instructive, that, you know, we're trying to build a balance sheet to go through the cycle, not trying to risk on the balance sheet to support growth. To the extent, if you roll forward and there is really material, long-dated book growth that we cannot support with our existing capital, then clearly we'll need to look at other capital options. That is not where we're sitting today. You know, we don't have appetite to run the balance sheet for a high degree of risk. Kieran?
Thanks. Just a follow-up question on the Fixed Term Direct launch. Can you just tell us what you're doing to promote that? Is there sort of an associated advertising campaign and kind of how you think about the growth build?
Yeah, thank you for that. Kieran, the plan is to run a campaign in June. As I mentioned, this is where really, that test and learn comes to the fore, because we're going to do it in a very targeted fashion and make sure we can understand how that's resonating in the channels we use before. If it yields great success, then we'll lean in further and continue to do it. If not, then we'll consistently pivot to try and match those. I can't give you really any anything other than that today, but June's our plan.
Just a second quick question on funds management. The second AUD 2 million, plus the fourth quarter flows you flagged in the, in your presentation. Just wondering if you can give us a little bit of color. Presumably, that's just for the single month of April. Is that correct?
Nick, do you want to pick this one?
Sure. Yeah, that's correct. For the single month of April, a number of institutional clients, but certainly we're seeing momentum across all the channels that we're operating in funds management. There's really positive flows across the board, but clearly for such a big number in one month, you get a sense that that's institutional in nature.
Okay. Sorry, equities, fixed income?
Bit of both.
Wonderful. Thank you.
Brett, front.
Thanks. Brett Mashray from Perpetual. You showed the credit defaults relative to the normalized growth assumption, but you didn't show the performance of any other asset class relative to the normalized growth assumption. What would that look like?
The data we've provided, Brett, specifically for our normalized growth assumption around credit of 35 points, just to give a sense of what our historic track record has been, in credit. You know, with the other asset classes, absolute return funds, we've provided detail of the benchmark where we, you know, say we consistently meet or exceed that.
... with, and I think the only other one would be property. So, you know, the purpose of, you know, the credit number there is to just give you a sense. What we spoke about at the half, and Pete made mention, was that there was two specific names related, you know, that came out of... was more disruption post-COVID than, you know, this environment.
It showed that credit default chart shows the numbers since the 2008 financial year. Do you know what the cumulative investment experience outcome is since the 2008 financial year for the company as a whole?
I do not, Brett.
It's a AUD 2 billion loss, pre-tax.
Any further questions in the room? Okay. Therefore, there's no further questions. If you have any questions online or if we haven't answered any questions today, Irene and I are both available after this presentation, and we can give you a response later. Before I hand back to Nick, I'd just like to say thank you. There are refreshments, canapés after this, where you will have the chance to socialize with the senior management that are here. I'll ask Nick just to say some final words.
Yeah, well, I will just close out by thanking everyone online and everyone in the room for their attendance. As Mark has noted, we're around, very pleased to talk in more detail or answer more questions around what we've presented today. Other than to say, hopefully, you get the sense that the management team feels very confident that we have a strategy that we can execute, and that that strategy leverages our core capabilities at a time when, you know, at a time, you know, for us, where they are very much in demand across the market. Thank you very much for your attendance today.
Thank you.