Key Insights

• Challenger's significant retail investors ownership suggests that the key decisions are influenced by shareholders from the larger public
• 48% of the business is held by the top 25 shareholders
• Insiders have sold recently

Every investor in Challenger Limited (ASX:CGF) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 51% to be precise, is retail investors. Put another way, the group faces the maximum upside potential (or downside risk).

Retail investors gained the most after market cap touched AU$4.3b last week, while institutions who own 38% also benefitted.

In the chart below, we zoom in on the different ownership groups of Challenger.

Check out our latest analysis for Challenger

What Does The Institutional Ownership Tell Us About Challenger?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

Challenger already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Challenger, (below). Of course, keep in mind that there are other factors to consider, too.

Hedge funds don't have many shares in Challenger. The company's largest shareholder is MS&AD Insurance Group Holdings, Inc., Asset Management Arm, with ownership of 15%. In comparison, the second and third largest shareholders hold about 10% and 4.4% of the stock.

Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Challenger

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our information suggests that Challenger Limited insiders own under 1% of the company. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around AU$5.9m worth of shares (at current prices). Arguably, recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

The general public -- including retail investors -- own 51% of Challenger. This level of ownership gives investors from the wider public some power to sway key policy decisions such as board composition, executive compensation, and the dividend payout ratio.

Private Equity Ownership

With an ownership of 10%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Challenger better, we need to consider many other factors. Take risks for example - Challenger has 4 warning signs we think you should be aware of.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.