Challenger (ASX:CGF) shares fell by more than 13% on Thursday after its largest shareholder, American investor Apollo Global Management, more than halved its stake in the Sydney-based investment group.

The decline erased over half a billion dollars from the value of Challenger's shares, as investors worried about the future of the relationship between Challenger and Apollo.

Apollo sold its stake for around $460 million, reducing its ownership from 20.1% to 9.9%. The transaction was executed at $6.51 per share. Challenger's shares hit a day's low of $6 in early trading but later recovered to around $6.26 by mid-afternoon.

In July 2021, Apollo increased its equity stake in Challenger to 20% as the two companies built a strategic partnership focusing on annuities and related financial packages.

A statement yesterday revealed that the two companies now seem to have differing perspectives. While Challenger and Apollo state that they remain committed to pursuing a range of initiatives as part of their ongoing commercial partnership—including an asset origination and distribution partnership—Apollo has decided to offload part of its holding to support the redeployment of capital to other growth opportunities.

The companies emphasized that their strategic initiatives will continue and are not dependent on Apollo's shareholding in Challenger. This includes Challenger Life having access to Apollo's high-quality direct asset origination capabilities, which support both customer annuity rates and returns for Challenger shareholders. Challenger will also continue to exclusively distribute Apollo's Aligned Alternatives (AAA) strategy to Australian retail and wholesale clients.

However, this move suggests that Apollo no longer sees a 20% stake in Challenger as necessary or as attractive a growth opportunity. Some investors speculate that the sale of Apollo's remaining stake may follow soon.

It is also curious that this development comes just 10 months after the two companies "expanded their relationship" in November 2023. At that time, Challenger and Apollo announced the formation of an origination partnership, with a representative from Apollo appointed to the Challenger Limited Board.

Apollo's Head of Asia-Pacific, Matthew Michelini, joined the Challenger Limited Board as a Non-Executive Director effective November 9, 2023.

The recent statement indicates that Apollo's financial support or shareholding is no longer required. Apollo's board seat was subject to conditions, including a minimum shareholding requirement of 15% of issued capital, with restrictions on acquiring further shares subject to certain exceptions.

As a result, Michelini will have to step down instead of standing for election at the Challenger AGM in October. This change raises questions about the timing of the shift in the relationship, as there was no mention of this board position in Thursday's announcement.