Volatile investment markets have pushed Challenger’s full year profit down 43 per cent but the financial services group is confident it can improve earnings in fiscal 2013.

Challenger’s net profit fell to $149 million in the year to June 30, from $261 million in the previous year, as shaky investment markets took their toll.

However, on a normalised basis, excluding investment gains and losses, net profit rose to $297 million.

Challenger’s funds under management rose by nearly a third to $31 billion, partly aided by the acquisition of Asian emerging markets specialist MIR Investment Management.

Chief executive Brian Benari said ongoing volatility affected Challenger’s statutory profit because life insurance accounting standards required the statutory net profit result include movements in the value of assets and liabilities.

“This includes changes in the trading prices of fixed income assets which are being held to maturity by Challenger, like Australian government and investment-grade corporate bonds,” he said in a statement on Monday.

“In volatile periods like we’ve experienced over the last five years, statutory profit may be significantly more than or less than normalised profit.”

Despite this, Mr Benari said the outlook for Challenger remained positive.

Challenger was targeting cash earnings of between $440 million and $450 million in 2012/13 as well as 15 per cent growth in retail annuity sales growth.

“We’re uniquely placed to benefit from the structural changes occurring in the retirement savings market, while at the same time retaining a large exposure to any sustained recovery in equity and credit markets,” Mr Benari said.

Challenger declared an unfranked final dividend of 10.5 cents a share, up one cent on the previous year.

Its shares closed nine cents lower at $3.76.