SEI Investments Co (SEIC) 2021 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI Fourth Quarter 2021 Earnings Call.

(Operator Instructions)

And as a reminder, this conference call is being recorded. I would now like to turn the call over to our host, Chairman and CEO, Mr. Al West. Please go ahead.

Welcome, everyone. On our call today, we have some new participants due to a change in leadership in our Banking and Investment Managers segments. Al Chiaradonna will speak for Private Banking and Phil McCabe will speak for the Investment Management segment.

They will be joined by the segment leaders on the call as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. First, let's turn our attention to the financial results of fourth quarter 2021.

Revenues grew 13% during the quarter compared to fourth quarter last year. At the same time, earnings increased 15%, plus the fourth quarter EPS of $1.03 grew 20% from the $0.86 reported in fourth quarter 2020. During the quarter, SEI's asset balances increased by $6.2 billion, while LSV's asset balances grew by $1.4 billion.

During the quarter, we repurchased 1.5 million shares of SEI stock at a price of $62.44 per share. That translates into $95.5 million of stock repurchases. Next, let's turn to revenue production during the fourth quarter. Net sales events in Private Banks and Investment Managers were $31.3 million, of which $22.1 million are expected to be recurring.

In addition, net sales events of $4.5 million incurred in the Asset Management-related units. These events reflect positive asset flows of advisers and institutions. In a few minutes, unit heads will provide more detail on their specific sales results and their new business opportunities. We'll work to build on these results in 2022 and beyond.

Now I'd like to provide you an outline of our situation today. As I remember -- as I mentioned earlier, we have experienced leadership changes in the Private Bank and Investment Managers segments. This leadership involves 4 individuals. Al Chiaradonna, Sandy Ewing, Brett Williams and Phil McCabe.

Together, they have deep expertise, gained collectively over 88 years working for SEI. They are an example of our strong and talented leadership. One of our businesses steadily grows its revenues and profits. That's IMS. Another business, the Advisors' segment has recently been executing a technology-driven strategy. We have strong indicators that the business is returning to preeminence. We are very excited about that.

Another business, Private Banking, is diligently working on a large implementation backlog, a strong sales pipeline and enhanced client satisfaction. Our last large business is the Institutional Investors segment.

While it faces headwinds in the legacy defined benefit OCIO client base, their strategy is to aggressively address fast-growing markets. We are also focused on building growth engines beyond our 4 traditional businesses.

Here, we are finding an opportunity in markets and services adjacent to our 4 main engines. In the past, we have shared a couple of these innovative young businesses. For example, SEI's Sphere leading-edge service of networks and data security is gaining traction.

And the Private Wealth Management business is providing an enterprise platform to alter high net worth families and just completed the positive year of growth.

Finally, we have made 3 acquisitions towards the end of the year that will add additional capabilities for both our IMS and Institutional Investment Business lines. They are Atlas, Finomial and Novus, sorry.

We are well on our way integrating these companies into SEI, and are already in market with the expanded capabilities they give us. We have built positive momentum during 2021. We have a strong backlog of sales and implementations and a number of key prospects late in the sales cycle.

In addition, we have been successful in repositioning our Asset Management-related business segments. And with that, I'll turn it over to Dennis to give you an update of LSV and the investment in new business segments. Dennis?

Thanks, Al. Good afternoon, everyone. I'll cover fourth quarter results for the investments in new business segment and discuss the results of LSV Asset Management.

During the fourth quarter of 2021, the investments in new business segment activities consisted of the operation of our Private Wealth Management group, SEI Sphere, the modularization of assets and data integration of different platforms to deliver on our One SEI strategy and other investments.

During the quarter, the investments in new business segment incurred a loss of $8.8 million, which compared to a loss of $11.4 million during the fourth quarter of 2020. Approximately $5.6 million of expense during the fourth quarter of 2021 is tied to our One SEI effort.

Regarding LSV, our approximate 38.7% ownership contributed $34.2 million in income to SEI for the fourth quarter of 2021. This compares to a contribution of $30.6 million in income for the fourth quarter of 2020.

Assets during the quarter grew approximately $1.4 billion. LSV experienced net negative cash flow during the quarter of approximately $2.6 billion with market appreciation of approximately $4.1 billion.

Revenue was approximately $113.3 million for the quarter with $3.2 million of performance fees. As Al mentioned, in addition to the 2 acquisitions we discussed on the third quarter call, Finomial and Atlas, we closed on an additional acquisition of a company called Novus.

Novus is a global portfolio intelligence platform company designed to expand SEI's capabilities for both the institutional investor and investment management markets. Paul will provide additional commentary on Novus. Our fourth quarter results reflect the assimilation of their respective operational revenue and expense as well as the cost of acquisition.

Our effective tax rate for the quarter was 18.3%. We have also included in our earnings release additional financial information. Please refer to our soon-to-be filed 10-K for more information.

I will now take any questions.

(Operator Instructions)

We'll go to our first question from Owen Lau with Oppenheimer.

So labor and -- salary and labor cost is -- it's is a topic that many people pay attention to. I think it's not just SEI specific, but across different industries. And I saw that SEI expect the stock-based comp to be approximately $46.3 million this year compared to $41.5 million during 2021, which represents a 12% increase.

Could you please talk about how SEI managed comp expands and tackle the rising labor costs this year?

Sure. It was a topic of conversation for most of 2021, particularly in the second half. And if you remember in the -- on the third quarter call, we talked about how not only had we addressed, particularly with our kind of early-stage professionals come to mid-level professionals between compensation adjustments we made in the summer and then an additional compensation adjustment we made at the end of the third quarter, and we did that not only to certainly reward our employees for the great work they do, but also reflective of market conditions, competition for talent and the need for us to remain competitive on that front.

And all of that cost in terms of cash compensation, if you will, is baked into our fourth quarter results. On stock option expense, that's a little bit different story. We had -- stock options are generally issued to employees that we feel and our board feels are going to be significant contributors to the future success of SEI.

Option expense carries its own unique calculation. So how much expense is attributed to each option issued that has multiple factors that go into that calculation. If you look back to 2020, we had a fairly significant grant of options in 2020.

We have our -- generally, we issued options in December of each year. So it's safe to say we had an additional grant that was made in 2021. And the expense you saw in 2021 was reflective of, a, the additional options that were granted in 2020, coupled with the shortened time frame for vesting that we estimated will be in play for some options that we had granted previously.

So we accelerated some expensing into 2021 and pulled it forward, if you will, from really 2022 and maybe a little bit from 2023. So you had a little bit of increased option expense in 2021 that we would have incurred eventually. We just pulled it forward, given our vesting process.

The other thing that did occur in the fourth quarter, and you'll hear this in Phil McCabe's commentary is that we did have some retirement of unvested options in the fourth quarter.

So we got us a little bit of a -- did get an expense benefit against option expense in the quarter. So that offset some of that increase.

Got it. That's helpful. And then on the SG&A side, could you please give us an update of your latest status about people going back to the office versus working remotely in 2022? Broadly speaking, how do you think about SG&A expense this year compared to 2021?

Sure. Thanks. Where we are with bringing people back to our campuses or offices around the globe. In terms of U.S. offices other than New York, New York kind of has its own unique, as you can probably appreciate, attributes to it, given how the city is -- what's going on in the city, particularly. In October, we opened all of our offices up for any employee to come back on a volunteer basis.

So we certainly don't want to force anybody back if they were still not quite comfortable. We are functioning very well as a firm in our current work environment. So we didn't want to really force the issue, but we did open up our offices to anybody who wanted to come back to come back whether it's 1 day a week, 2 days a week, 5 days a week.

That being said, at that time, we had probably 600, 700 people that were coming in the office every day during the week. So we started to see some pickup of people returning, and it was good to see. We see real benefits and people being in our offices, particularly around team-oriented activities, project-oriented work, across different players, different groups across the company.

So we want to continue to foster that. But then as we got into December, particularly mid-December, we're all too familiar with the letter of the Greek alphabet that we pronounce Omicron. So -- for those of us who didn't study ancient history, learning the Greek alphabet this year has been, I guess, one of the silver linings of COVID.

So we started -- yes, so we got a little bit of a step back. But actually, as we've gone into January, we've seen actually more people coming back and the numbers are ticking up. We're currently working on plans that are, I wouldn't want to say, COVID-neutral, if you will, they are really about the long-term work environment.

How do we want to proceed as a company strategically long term relative to how our folks work both in an office, outside an office. We certainly have embraced flexibility in the work environment. But we also know there are real benefits to people being together, working together, the spot that comes with that, the cross-pollination that comes with that. So we're working on those plans now, and we expect, and I certainly expect that over the course of the first half of this year, we'll see additional folks coming back to the office, again, with -- but we will support and continue to sustain us at a certain level of this flexible work environment.

Outside the U.S., it's a little bit different. The U.K., I was having really good success bringing people back. And then the U.K. government prior to the holidays because of Omicron shut things down and really push people back into a work-from-home environment. As we know just recently, they reversed that and have now gone just -- done a 180-degree shift to getting people back to offices.

So I think the U.K. office will get back to more regular presence of most of our workforce, again, with certainly the element of flexibility baked in. Ireland is our other larger office. Similarly, the Irish government announced just this past weekend.

Also a reversal similar to the U.K. of bringing people back to the office, they were more consistently remote, I would say. So we'll see how our Dublin office responds to that, but we will work to get people back. And maybe Phil can comment on that when he gets his turn at the mic here.

So all in all, it's going to play out over, I believe, the first half of this year. Let's hope we don't know the next letter in the Greek alphabet, and we can get back to the kind of new world of flexible, but together kind of work environment.

Our next question comes from Michael Young with Truist Securities.

I wanted to just ask about LSV. I appreciate the update for the fourth quarter. But obviously, since then, in the first kind of month of this year, we've seen significant outperformance by value versus growth. And just curious if you could provide any sort of update on maybe kind of where things stand now vis-a-vis outperformance of value versus kind of just the secular trends in that business?

Sure. I mean 2021, and I would suspect it will continue -- it has continued into this year, but don't have firm numbers yet. It was a really good relative performance here for LSV. And that certainly will help them in the market as -- particularly as firms start to weight more towards value. To the extent that occurs, LSV will be on, I'm sure, the shortlist of a lot of searches for that, for assets.

They still struggle a little bit with the 3-year and 5-year performance number, or did in 2021. So having a strong 2021 will also help their longer-term performance numbers. And that as much as, if not more so, the 1-year number should be beneficial. So I know they're certainly optimistic given the return of value or the, again, the shift seems to be occurring to value and they certainly feel good about their performance last year and feel like they're in a good position to capture assets if the market moves in that value direction.

Yes. I tried to emphasize on prior calls that one thing about LSV is they know what they are, they know what they're really good at, they know what their brand stands for. And they have -- despite the kind of tough environment over the past 5-plus years really, they have stuck to their naming and stuck to their brand. And that will serve them well if we get this value ship.

Okay. Great. And just as my follow-up, kind of on just capital allocation, more generally, you guys have been a little more active in the M&A arena in the fourth quarter, but the stock is also down a little bit kind of with the market. 6%, 7%, 8% here. So how should we think about sort of capital allocation priorities vis-a-vis share buyback versus M&A? Kind of what are you seeing in that pipeline?

Yes. Well, first I would definitely make the point that the 2 are not -- we don't trade one off or the other per se. We are very much in the market relative to M&A and good opportunities that we think are good fits for SEI, either enhancing one of our existing businesses, adding to our capabilities that can help us in multiple parts of the company like some of the recent transactions we've done. Now certainly interested in new business lines potentially that could further diversify SEI and give us new revenue streams and profit opportunity, new geographies that we're -- we have kind of on our landscape strategically, but an acquisition might give us a little bit quicker market entry opportunity.

So that's something that we'll continue to press on this year and into the future, it's hard to predict whether anything attractive will come along, but it won't be for lack of us looking and entertaining ideas relative to stock repurchase, the Board's priorities really haven't changed.

So reinvest in the business, which includes M&A, and return capital to shareholders. And that's a stock buyback, the predominant use of capital. But as you also saw in late December, we were to declare another dividend, which just -- that was higher than last year's dividend and just continues the progression of year-over-year consistent growth in our dividend process.

I don't know if we're in the -- I know we're on these gold lists of dividend-paying companies, but I don't see that changing either.

Our next question comes from Robert Lee with KBW.

So I guess my question, I guess, really a much higher level and frankly probably a little uncomfortable to ask, but it's something I think is on investors' minds. So -- and I think rightly or wrongly, with Steve leaving the firm, I do think -- there were investors who viewed him as, again, rightly or wrongly, as a future potential leader of the company.

So I think his sudden departure was somewhat jarring for investors, at least some that I've had conversations with. So I guess along those lines, is there any plan to kind of update us or maybe start to make more transparent to the outside, what's some of the potential succession or leadership, how leadership could evolve overtime going forward because I think it's something investors would really value.

So. Yes, I think that we're back on track with creating an environment where we're looking for a strong CEO, and we'll share that. as we go through it.

Okay. And then maybe, Dennis, were there -- I know you had a few transactions. I think you kind of touched on some transaction expense. Were there any kind of notable or sizable transaction or onetime related expenses that may have flowed through in the quarter that we should think about going away going forward? I mean maybe the flip side of the onetime termination fee that, I guess, will be in the Private Bank segment, kind of offsetting that?

Yes. So on the -- I mean, in the earnings release, you saw the termination fee that helped revenue in Private Banking, that had some offset. So the net of that, I think you'll hear from -- I know you'll hear from Al Chiaradonna, the net of that was about $4 million benefit to bank profit, really bank revenue and profit. So while we had the 1 transaction, we had some other things that helped, that went the other way that won't repeat.

In terms of the acquisitions, the 2 smaller acquisitions, Atlas and Finomial, they really had less impact to P&L, if you will, in the quarter.

Novus, it was a larger transaction. So the -- and that was only a stub period that we had in the quarter. It wasn't a full quarter. And you'll hear from Paul kind of what the impact was there and what we expect it to be for 2022.

But -- so that had some negative impact. Things that impacted the quarter, I would say, negatively, but they're in the run rate, and so our salary changes or compensation changes that I talked about when Owen asked his question, that's baked into the P&L.

Yes, Paul Klauder will tell you about, we had a $1.3 million profit benefit, net benefit from a performance fee that we earned in his business that won't repeat. So that was beneficial to earnings.

There's always things that go in both directions. As I mentioned, with option expense, in the quarter, we did get the benefit of the retirement of some unvested options. That won't repeat as we move into 2022. But all in all, the quarter is really strong. I mean revenue topline was really strong. Profitability was strong. We continue to manage expenses, but we're doing it smartly and through a strategic lens, which is the best way to do it from our perspective. So it was -- we have more moving parts, I'd say, in the fourth quarter than we normally do, but net-net, it's probably would have brought the earnings down a little bit, but not -- it is still a very strong quarter.

Our next question comes from Chris Donat with Piper Sandler.

Dennis, just wanted to follow up on Rob's question on the acquisitions. I know you just said that the impact looking backwards from Atlas and Finomial was less impactful. But do you expect a meaningful impact to revenue and expenses from those businesses in 2022? And I understand I'll have to wait for Paul's comments on Novus, but just for Atlas and Finomial for 2022, any thoughts?

Yes. I'd say Finomial, probably a little bit more -- the full expense for the year -- we'll have a full year of expense a little bit more there. It's not as material, I'd say, given the size and scope. Atlas comes with revenue and expense, I'll let Paul speak to that as well as Novus. But -- as you know, Atlas is really a purchase of a fund with a couple of people. So it's more of a revenue play than anything else.

It's okay. I'll wait for Paul then.

Yes. I mean, Paul will tell you his impact, if we were to fully bake it into 2022 for Novus, now that's aside from any growth we get out of it, any improvement we get just based on the stub period in the fourth quarter is about $7 million. So that includes all the amortization of tied to the acquisition itself versus operating income.

As you know, we're a GAAP reporting firm, we don't do non-GAAP. So I could back all that amortization stuff out and apparently doesn't count sometimes, but we don't. Got it?

(Operator Instructions)

We go now to Ryan Kenny with Morgan Stanley.

Just a follow-up to some of the questions on expenses that we've had so far trying to put everything together. So your margins have been around 28%, 29% for the last few quarters in a row now. That's higher than you've been running at historically. So as we look forward to 2022, when we factor in the comp adjustments and the acquisitions and some of the investments you're making, do you expect that number to move either up or down at all?

I think -- yes, generally, given we do have a lot of moving parts go in both directions, I would expect it to be relatively stable. It's hard to predict growth. It's hard to predict the markets. If we get neutral, better markets, maybe that will help us because it's much more scalable revenue and profit.

But I think running at that margin level with a growing topline is certainly easy to calculate higher dollar profits and -- which is something we always look to do, sustain a fairly healthy reinvestment rate in new opportunities. Whether we would spend that -- all of that new money, if you will, on new things, it's really dependent upon our optimism and bullishness on the new things.

But it's -- we don't target a margin rate to run at, I would guess it would be in that same range.

And we have no additional questions in queue at this time.

Thank you. Before I turn it over to the other Al, we would like to remind you that during today's presentation and in our responses to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

Please refer to our notices regarding forward-looking statements that appear in today's earnings release and in other filings with the SEC. We do not undertake to update any of our forward-looking statements. Now here's the other Al. Al?

All right. Thanks, Dennis. Good afternoon, everyone. Fourth quarter 2021 revenues totaled $129.3 million, which was up $9.6 million or 8% as compared to the revenues from fourth quarter 2020. Fourth quarter 2021 quarterly profit of $11.5 million for the segment was up $6.9 million from fourth quarter of 2020.

Q4 2021 profits includes approximately $4 million of net positive impact from onetime items. And turning to sales activity during the quarter, we closed approximately $18 million of net investment processing events, $12 million related to recurring revenues and $6 million related to onetimes.

Of the $12 million recurring revenues, $6 million is related to SWP (SEI Wealth Platform), T3K or TRUST 3000, and $6 million is related to cross-sells. Overall, we signed 3 new clients of note. In the U.S., we signed 1 SWP agreement with Fiduciary Trust International, a wholly owned subsidiary of Franklin Templeton.

Under the new agreement, Fiduciary Trust International, which acquired Pennsylvania Trust Company, an existing SWP client, will adopt the SEI Wealth Platform for the combined entity. During the quarter in the U.K., we signed 2 contracts of note. One new contract with Waverton Investment Management, a leading U.K. wealth management brand, expanding our success in the PCIM segment. Another contract of note in the U.K. is HSBC, a client that currently has business on our platforms and business in our current backlog.

While signing this represents an expansion of our relationship to include alternative fund processing services, we are working with this client to address their changing needs with respect to the business contracted in 2020 that is currently part of our backlog.

This demonstrates our ability to help our most complex and large clients respond to ever-changing market environment. The changing environment for our most complex clients creates opportunity and adjustments in our relationships as we try to help them respond to these changes. We're excited to work with all of these firms.

Now turning to implementation activity. In the fourth quarter, we successfully converted 2 clients from competitor platforms to SWP. Cambridge Trust, headquartered in New England, migrated to SWP. In addition to converting their Wealth Management business, they also outsourced their back office to SEI.

Previously, Cambridge managed their operations in-house. UMB, headquartered in Kansas City, also migrated their Private Wealth Management book of business to the SEI Wealth Platform. We believe the momentum is strong and a number of agreements have been signed and new clients implemented throughout the quarter.

We feel this is a good indication that while the pandemic continues, it's not ultimately deterred new firms from partnering with SEI. As an update on our backlog, our total signed, but not installed back -- global backlog is approximately $81.7 million in net new recurring investment processing revenue, including the signings I just mentioned.

We continue to work with our clients with longer tail timelines as their business needs change and new opportunities present themselves. From an asset management standpoint, total assets under management ended the period at $26.3 billion, which was up 3% from the fourth quarter of 2020.

Our cash flow for the fourth quarter of 2021 was essentially flat. As we go into 2022, we remain committed to our strategy of building a global pipeline and associated backlog, matriculating that backlog, gradually improving our operating profits and prudently investing in the business to create sustainable growth.

We have a talented team across SEI that is focused on these goals. We remain excited and optimistic. That concludes my prepared remarks, and I'll turn it over to any questions you may have.

(Operator Instructions)

We do 1 in queue from Ryan Kenny with Morgan Stanley.

Just wondering if you have any update on the pace and the path of pretax margin expansion in the Private Bank segment?

I'm sorry, can you ask that again?

Is there any update on the pace of the pretax margin expansion in the Private Bank segment?

Yes. Thanks, Ryan. I appreciate it. As we think about continued margin -- operating margin improvement, as you can imagine, we don't foreshadow it going forward, but we feel comfortable with what we've achieved, but we're waiting and monitoring the impact of where the capital markets will be in 2022 as well as where M&A will be an opportunity and a risk for us.

But overall, we continue to do the expense management plans we've laid out over the last several quarters, and they're having continued success and progress.

And just 1 follow-up. Is Wells Fargo still in the backlog? And is there any update on if it's still in the backlog when that's expected to come through?

Good question. Yes, Wells Fargo is still in our backlog. And as you know, we don't talk deliberately about the live implementation dates of the backlog. But as I mentioned before, we're constantly in discussions with our clients about how their business is changing, divestitures they make, investments they make and then lining those up to our implementation timeline.

(Operator Instructions)

And we have Robert Lee from KBW.

Great. I had 2 questions. First, could you update us on the size of the backlog given that you had some new business wins, some things funded. So just kind of where it stands in aggregate right now? That's my first question.

Yes. Robert, no problem. Yes. As I mentioned in my prepared comments, the backlog -- the global backlog is at $81.7 million. As you know from previous quarters and then my update today, we continue to make progress matriculating that revenue and installing clients. And I would anticipate over the next 12 months that approximately 50% of the $81.7 million would be installed.

Great. And then maybe as a follow-up, I mean, clearly, from the margin perspective, hard to -- no one can predict what markets do, if they stay here, go back up, go down further. But just trying to kind of level set it. Heading into the year, given what you see with new business conversions whatever expense plans you have, would you have expected margins -- can you give us a sense of in a kind of flat asset return environment, let's call it that, heading into this year, how you would have expected margins to progress or maybe kind of finish the year, given where kind of where you started?

Yes, I think, yes, Robert, I think we're obviously happy with how we progressed throughout the year. I think even given capital market neutrality or moderation, I still would point to the fact that there's a lot of ins and outs in our margins, especially as it relates to onetime and that I can't predict. But from where I sit today, the progress we made around expense management and how we're looking at our investment stream has helped our margin improvement, and I would imagine that would continue as we progress into 2022.

Okay. And as you convert the -- you expect about half the backlog to come on this year, are there any kind of increment -- I mean, I know there's usually some incremental costs maybe around installation certainly around sales. But is there anything -- no, where that we should be thinking about that as that converts, we should expect to see some -- I don't know, some lumpy onetime costs, as big conversions happen? Just trying to kind of get my arms around it.

Yes. No, it's great. Robert, thanks. The cost, as we talked about, our implementations and what's lying ahead, the cost is relatively baked in, inside our P&L. I would not expect us to see exceptional costs related to what we implemented in our backlog. Obviously, we have personnel that will ebb and flow as we install clients, but it wouldn't be material to our expense line item.

Our next question comes from Ryan Bailey with Goldman Sachs.

I was just wondering if you can help us think about the -- and I know this is challenging, but maybe if you can just help us think about the number of potential firms that you're watching in terms of some of those M&A comments and that being a potential headwind. If there's any way you can help us think about what sort of size risk that would be, I think, can be very helpful.

Yes. Ryan, as I'm sure you can imagine, it's impossible for me to really size the risk or the opportunity of M&A because we don't control that pacing. All we know is that the trend pace is moving up, not moving down.

So as a business, we pay attention to that. Now what I will say, Ryan, is, we're actively engaged with our clients. We're intimate with them, and we're going to respond to their needs. And as it relates to our capabilities like conversion, experience, et cetera, we view that as an asset. But at the end of the day, on an M&A deal, as you know, the M&A is the organization's top priority and platform decisions become second tier to that decision.

We're involved in it, but we don't determine it as our final outcome. So it's really hard for me to predict or monetize that for you.

Okay. All right. I appreciate that. And I'm sorry, I tried getting into the initial line of Q&A, but clearly had some technical difficulties. I want to maybe come back to the other Al and Dennis with a quick question. I'm sorry for doing it during the segment discussions. But I'm -- for Rob's first question, and I'm sorry if I misheard you, other Al. Did you say that you're in the process of looking for a future CEO?

We've started the look.

Our next question comes from Michael Young with Truist Securities.

Al, just wanted to ask kind of high level strategically what your priorities are? Maybe if you could kind of stack rank those for the businesses and intentionally leaving that a little bit open ended, especially for a professor in strategic management. So how about it?

Michael, that's funny. Yes. I want to be sure about if I was going to use a lot of humor today, but now that you opened up that can, maybe this call will be 2, 3 hours long.

Michael, great question. I think as it relates to the strategy, we're going to remain relatively consistent to our strategy that we talked about over the last several quarters and probably 1.5 years. And if I were to summarize that, I think our main focus is serving the clients we have. We have really deep relationships with those clients. We value those relationships and we think there could be additional potential in those relationships as we see their businesses change and evolve.

After serving existing clients, we're focused on really building out a pipeline and I would say, a global pipeline. So we've made some moves in personnel to take some people in the U.S. that have some experience with global selling helping them help our U.K. office. So I would expect us to get our pipeline stronger in the U.K. and then continue to build the momentum in that pipeline that we have in the U.S.

And then I'm laser-focused on the matriculation of that revenue, which we would consider the implementations of those clients, and I'm deep on experience with the clients. So I've been around for a while here, but almost all clients that have been installed on SWP I've been involved with. So I know what it takes to matriculate those, so I keep my eye on that.

And then as we've talked about in a number of questions before this, we're going to be -- continue to be focused on expense management. And I say that with respect towards new clients and whatever investments are needed to extend relationships or install them.

But I would say, those 4 from overall business priority would be my strategy priorities. And I think it goes without saying, Michael, but I'd be remiss not to mention it, is -- and we're going to work really hard on making sure our employees feel like they have the health and safety necessary to operate in the environment we find ourselves in today, and that's a huge part of SEI's culture.

Okay, great. And just with the maybe existing wins recently or kind of as you move into this year ahead post-pandemic? I'm just kind of curious about the value proposition and kind of the sales process. Is it really a function of just getting trial kind of with the newer platform with clients, especially internationally? Or what is kind of the key that you feel like is driving success on the sales side?

Yes. Great question, Michael. I mean one thing I'll just say about the sales process, just to start. So I'm sure you know that -- one of the things that's interesting in our business is the sales process can't be timed because the decisions are multifaceted. You may have the CTO involved, the CFO involved, the Head of Risk involved.

So one of the difficult things about our sales pipeline is predicting when things will actually close because the process of selling is complicated. But once you get underneath the process of selling in our market unit, I think I would go to exactly where you pointed. I will start with our value proposition.

And I feel really good about our value proposition. I think the overall macroeconomic trend towards outsourcing, the advent of resiliency as an important strategic priority given COVID, they point in favor of a place like SEI. And when I think about our value proposition and how we position it in the sales cycle, we position ourselves as a differentiated provider, and rightly so.

We have the most updated infrastructure inside our space. We lean into that. We are one of the only homegrown, fully captive outsourcers and we lean into that as a point of differentiation. And then we lean into -- and this is hard, it's a little more intangible. We lean into the professionals we have here with deep domain expertise in our relationships and services architecture to show our clients what it means to be a partner of SEI.

When I think about how that translates to our momentum, I think you're seeing that over the year and the deals we're closing, the type of clients we're winning, and I think we'll continue to see that momentum. My goal in 2022 is to make sure that, that transcends both the U.S. and the U.K., as we continue to pursue active engagement in the market.

(Operator Instructions)

We go now to Owen Lau with Oppenheimer.

Sorry, I may have missed this one, but I want to go back to that $6.8 million early termination fees from an existing investment processing client. Why did this client terminate? And how much revenue impact we should expect in out quarters? And also if there is any offset?

Yes. Owen, thanks. I don't think you missed it. So good question. The termination fee you're referring to is related to M&A activity. It was an SWP client for us. The buyer of that client was a non-SEI client, and they decided to move this business onto their platform, which for competitive points and just so you have this appreciation, the purchaser has a proprietary system. So it wasn't as if we lost this business to another competitor, we actually are losing it because they're going to consolidate it on to that proprietary platform.

And then I think this is -- you would appreciate this, we don't get into the details on a client-by-client basis of our -- of the revenue impact.

We have no additional questions in queue at this time.

All right. So I'm going to send it over to my esteemed colleague, Phil McCabe.

Thanks, Al. Good afternoon, everyone. 2021 marks another strong year of growth and continued momentum for the Investment Managers segment across all of our business lines. Our focus on executing our growth strategy by the positive results, driven by new sales growth, continued expansion with existing clients and improved operational efficiency.

These results remain possible through the significant efforts of our entire IMS team and our seasoned leadership around the world. For the fourth quarter of 2021, revenues totaled $154.5 million, which was 19.2% higher as compared to our revenue in the fourth quarter of 2020.

Profit for the fourth quarter of $53.5 million was 28.4% higher as compared to the fourth quarter of 2020. Profit grew as a result of our revenue growth and also benefited by a onetime $3 million reversal of stock option expense related to the retirement of unvested options.

Third-party asset balances at the end of the fourth quarter of 2021 were $907.4 billion, approximately $45.8 billion higher than the asset balances at the end of the third quarter of 2021. This increase is primarily due to net client fundings of $37.4 billion and market appreciation of $8.4 billion.

In returning to market activity, during the fourth quarter of 2021, we had another strong sales quarter with net new business events totaling $13 million, which are expected to generate net annualized recurring revenues of $10.1 million.

In addition, we recontracted $37.8 million in recurring revenue. Highlights of these events included in our alternative market unit, we closed a number of strategic new names, ranging from startups to large global managers and our cross-sell strategy continues to resonate in robust sales to existing clients.

We won the business of a private equity fund in a competitive sales process, marking the $60 billion firm's initial entry into outsourcing and fund administration. SEI was also selected to provide fund administration for a multibillion-dollar start-up private equity firm as well as another real estate takeaway from a competitor.

In our traditional market unit, we added business in all product lines with new clients and expanded wallet share with many existing clients. In particular, our business expansion in both our collective trust and ETF solutions remains strong. We're also pleased to announce the conversion of a $10 billion multi-fund complex to our Advisors' Inner Circle platform.

In Europe, we added several new UCITS fund and continue to expand our ETF, Private Equity, and Private Debt business. At the end of the fourth quarter, our backlog of sold-but-unfunded-new-business stands at $34.4 million.

As we exit a successful 2021, we plan to build on our momentum and strong position in the market. And then as we progress into 2022, we'll focus on the following: Executing our growth strategy; increasing our client acquisition rate; expanding our wallet share with existing clients; and investing in our platform solutions and workforce.

We are very optimistic and excited about our strong growth prospects and our path forward. That concludes my prepared remarks, and I now will turn it over for any questions you may have.

(Operator Instructions)

And again, we're going to go back to Mr. Robert Lee with KBW.

I'm just curious on the recontracting, I think you mentioned it was about, call it, $38 million roughly. I'm just kind of curious of what your experience has been on recontracting if you're able to kind of -- you have to price -- give concessions, you're able to get kind of any price increases? I mean, I'm sure it's somewhat unique to each one. But kind of in general, what's the pattern you're seeing when contracts come up for -- come up?

Sure. Rob, actually, in the quarter, we've had about a number of different recontracts that are almost evenly split between alternatives and traditional. They are all multiyear extensions, 4-plus years on average.

One of them was our second largest alternatives line, and they extended for 5 years. And in general, we're really seeing these same things, we probably had a few additional services here and there, but we're not seeing any net downs at all with any of these recontracts.

Great. And just as a follow-up, I mean notwithstanding the $3 million reversal. I think in prior calls, it was mentioned that margins had been running higher than, I guess, in a normalized pace and that there was an expectation that they maybe would trend back down towards that kind of high 30s range. Is that still the expectation? Is that something we should expect to play out as 2022 progresses? Again, kind of against the backdrop, let's just call it, the kind of flat market whenever that could be?

Yes. So Rob, I think you're kind of spot on. So the Q4 margins at 41.1% were running a little bit higher than we've seen in the past. They're actually probably the highest we've ever seen. We did have that onetime cost benefit. And if you back that out, you would be in the higher 30s, so right in that range or so.

But as you know, over the last few quarters, our implementations and clients are converting faster than our operational expense of hiring and catching up. So we're still in a position where revenue is matriculating faster than the actual expense of hiring.

But with that being said, in 2022, we're certainly bringing the trend back down towards the mid-30s that we've been talking about for a long time, probably the 36% range or so as those expenses, hiring expenses kind of catch up with the revenue. But we focus, as you know, on managing the business, not managing to a particular number.

But we're also very focused on operational expense and growing our margins. So we're walking a fine line what we're trying to get to client convert as quickly as possible and at the same time, do a nice job of the business.

And maybe as a follow-up to that, this was, I guess, really asked earlier and I mean most -- it seems like most of corporate America is facing this. But as you try to kind of ramp up hiring, staffing, as you mentioned, kind of catch up with business, which is good, are you finding that even with the kind of the wage inflation that's out there that, it's even running above what you would have thought when you did your budgeting and sometime back in December or the fourth quarter? Is it -- or is it kind of meeting your expectations what you have to spend to get the people you want on board?

Yes. And Rob, I think -- we're facing the same challenges as you know, as everyone else is in the industry. In the last call, I know Dennis spoke a lot about investing in our workforce and the additional money that we gave all of our operational employees and that actually has been helping us out a lot. So anything that's out there is baked into our current run rate and P&L.

So we don't anticipate a lot of incremental operating expense on that part of the ledger. So I think we're doing what we can to keep -- to get people at the door and keep them happy. It's one of our top 3 initiatives for 2022, and we're just going to stay at it.

(Operator Instructions)

We do have Mr. Owen Lau back with Oppenheimer.

Just a quick one. I think last quarter, you got the approval on the Luxembourg servicing license. Could you please talk about your recent traction in Europe overall? Are there any other countries that you may want to get into and expand further?

Okay. And so Owen, as you probably know, Luxembourg is the second largest jurisdiction for any alternative fund, and we hit the ground running on November 1. And we converted a ton of existing funds and business and investors that we have already had on our European partner, EFA.

We moved that business into our own Lux office and we're -- the team is really doing a great job over there. So I think we have a lot of traction even a lot of the funds are being launched by all of our alternative clients in the states as well. And I think the office is doing a great job. As far as expansion, we do have some clients that are working with us to try to figure out how to get more of a far eastern presence, and we're just looking at those things as we see.

And again, there are no additional questions in queue.

All right. Thank you. And with that being said, I'm going to transition to Wayne Withrow, who runs the Advisor segment.

Thanks, Phil. For the fourth quarter and all of 2021, the headline is that the Advisor unit is solidly entrenched in the ongoing implementation of our new strategy. It's our ambition to help advisers be better, so they can deliver great futures for their clients, and that mission is fully supported by the pillars of our strategy.

With the execution of that strategy that drove the financial results of the segment, highlighted by what we believe is a key milestone in our growth, achieving over $100 billion in total platform assets.

Numerical comparisons of our financial results for last year are included in the press release. Color explaining some of those comparisons include: fourth quarter revenues rose due to positive capital markets and continued momentum in positive net cash flow.

For the year, we eclipsed $3.2 billion in managed asset net cash flow and nearly $800 million in non-managed platform asset cash flow. Expenses were up, contributing to a decline in our margins. Direct costs, including sub-adviser fees are reflected in this increase. Investments in our technology platform, including the integration of Oranj and investments in our personnel due both to growth and the tight labor market, were other significant items.

During the quarter, we had $1.1 billion in positive net cash flow. Of this total, $1 billion was into our managed asset programs. As I mentioned before, total platform assets exceeded $100 billion at December 31. In Q4, we recruited 58 new advisers and reengaged 43 existing advisory firms, who, over the last few years, had essentially stopped doing new business with us.

For the year, we recruited 257 new advisers and reengaged 126 existing advisory firms. Our pipeline of new and reengaged advisers remains active. I began my comments by noting we are entrenched with the ongoing execution of our new strategy.

The 3 core principles of the strategy are as follows. We lead with a technology-first value proposition built on the unparalleled capabilities of the SEI Wealth Platform, including integrated cloud-based front and middle office services.

Second, offer our technology platform stand-alone or bundled with our Asset Management platform. And third, deconstruct the components of our asset management platform, offering both bundled fee and unbundled fee options and opening our platform to curated third-party providers.

While we are still early in the execution phase of our new strategy, I feel we are making good progress. I now welcome any questions you may have.

(Operator Instructions)

And our first question is from Mr. Robert Lee with KBW.

With that in mind, a real simple question. Can you just give us the breakdown between what's in AuA versus total assets on the platform? And understanding your comments around some of the expense growth and what you're seeing, and just as we think ahead, obviously, it's going to bounce around quarter-to-quarter, but is there anything maybe kind of onetime-ish in the quarter that maybe goes away?

Or should we kind of feel like -- think that this is a pretty good kind of run rate expense base and revenues will do what they do and there's with markets and there's obviously some linkage there, but this is kind of a good kind of level to kind of think about going forward, or building on going forward?

I don't know where to start, but I wouldn't want to say (inaudible). Revenues just do what revenues do. But about 15% of the assets are platform-only assets and not managed. If that was sort of your -- if that was your question? And there's nothing unusual in the quarter.

Okay. Great. And then maybe as a follow-up, the $1 billion of managed cash flows, can you maybe just give us an updated sense of the products or types of products as volume. So I know you have your ETF kind of model portfolios or portfolio that's been pretty very successful. But can you maybe give us a little -- dig a little deeper, is it that? Or what other things you're seeing and where demand has shifted or shifting?

Yes. I mean If I take it at a high level, I would say there's 2 items that are going on. Number one, there appears to be a reference for an unbundled fee as opposed to a bundle fee. And I think that gives advisers more flexibility pricing with their clients would be my assessment. So that's definitely going on. And secondly, there's definitely a preference for on the passive side, ETFs. That will be both unbundled and passive, so has both trusts.

Our next question comes from Owen Lau with Oppenheimer.

I just have a quick one. Could you please give us an update on the direct indexing product? I think there's also an ESG overlay with that? I think you launched this product in February last year? And what have you learned from this rollout?

Yes. I think -- we launched it at the of last year, and we continue to sort of gain some traction in that. That was what I would say is the initial phase of that. And while we're getting a lot of positive results in that, I don't think we could have full stride in either one of those areas yet.

And we have enhanced releases on both of those fronts, both direct indexing and the ESG overlay coming this year, which will further the momentum on those product lines.

Our next question is Ryan Bailey with Goldman Sachs.

I was hoping if you could give us a little bit more color on some of these reengaged advisory firms. So when you say reengaged, is that you're starting to win incremental new business with them? Or was it that they had converted away and have now come back to the platform? And maybe this is probably the most important part. Like what was it that caused them to decide to reengage with you?

Yes. It's a multifaceted question, and I think the way I would come at it is, we've changed our strategy over the last year or so. And we've also completed the rollout of the Wealth Platform, and we're deep into the really robust enhancement of that platform. So that's technology strategy in addition to how we've changed the way we bundle and unbundle investments, some of the things I talked about.

I'd say we've been in this business almost 30 years. And there's a lot of advisers that maybe used to (inaudible) came on us really don't know us anymore. Where they used to know us and they really don't know who we are and what we do now.

So we had a concerted effort and say, you know what, let's reconnect with those people, and maybe they haven't opened a new account in a while. And maybe we're not really getting -- or maybe they opened 1 account over some time. Let's reengage them and see if we can get some steady flow of new business out of them.

And that's how we're defining reengagement -- so these are people that maybe had assets on the platform, weren't sending us a new asset. We said, "Hey, we want to talk to you about what we're doing now." And they're excited about the -- but I don't want to say -- a new SEI.

They're excited about what we're doing, and they're saying, I want to start doing new business again. So that's how we define immediate gains adviser. We have specific metrics that I'm not engaged or talk -- prepared to talk about now, but I would say that these are people that weren't opening new accounts that are now opening, and not just a single account, but multiple accounts for this.

Got it. Okay. It's really interesting. I wonder -- maybe you can speak about it sort of qualitatively rather than quantitatively, but 126 reengaged and existing advisory firms during the year. Is this the vast majority of firms you've already reconnected with and reengage that previously were part of the platform? Or are we still early in the process of contacting those potential reengaged firms? Is there any color you can give us around that?

There's probably 2,000 targeted firms that fit that category.

Our next question is Michael Young with Truist Securities.

And we have no additional questions in queue at this time.

Thank you. Okay. Thank you very much. With that, I will turn it over to Paul.

Thanks, Wayne. Good afternoon/almost-evening, everyone. I'm going to discuss the financial results for the fourth quarter of 2021 as well as the entire year. Fourth quarter revenue of $87.8 million increased 7% compared to the prior year.

Full year revenue of $343.8 million increased 8% compared to 2020. Operating profits for the fourth quarter were $42.5 million, 6% lower than the prior year. 2021 full year profits were $175.7 million and were 5% higher than 2020.

Higher capital markets were positive for revenue and operating profits, and we earned a onetime performance fee in Q4. Lost clients and higher employee and sales compensation expenses impacted full year profits. Novus Partners, an acquired business in Q4, operating loss and onetime deal costs directly impacted Q4 profit by $1.6 million.

Operating margin for the quarter was 48% and for the full year 2021 was 51%, and quarter end asset balances were $98.7 billion. Net OCIO asset events for the fourth quarter were a positive $300 million.

Gross sales were $1.4 billion and client losses totaled $1.1 billion. Total new client signings for 2021 were a healthy $5.7 billion, which represents $13.5 million in revenue.

Fourth quarter new sales were diversified across U.S. endowment and foundations, health care, North American DB and U.K. fiduciary management. Client losses continue to be due to DB terminations, mergers or competitive rebids.

The unfunded OCIO sales backlog at year-end was $2.8 billion, with most of it funding in Q1 of 2022. In the quarter, we completed 2 strategic acquisitions that we feel strengthen our capabilities in 2 very large and growing markets. As previously announced, we believe the Atlas Master Trust acquisition bolsters our competitiveness and capabilities in the large and fast-growing master trust market in the U.K.

The acquisition of Novus Partners significantly enhances our ECIO platform, and our overall capabilities to the large sophisticated global institutional investors. The acquisition brings us institutional investor clients, investment manager clients and family office clients for which we can leverage the One SEI mindset in the company.

While we believe both acquisitions will enhance our strategic position in these markets, and we are optimistic on long-term growth potential the acquisitions bring headwinds to profit and profit margin percentage in 2022.

Thank you very much, and I'm happy to answer any questions that you may have.

(Operator Instructions)

We have Robert Lee from KBW.

Just real quickly, Paul, I'm just kind of curious. The ins and outs, the gross sales versus redemptions, any way of kind of characterizing maybe on a -- if I think of a $300 million of net flows on like a revenue basis, would it have been positive, negative, just given kind of the changing mix or relatively -- kind of relatively even, so to speak?

When we look at the net $300 million, it is definitely positive, probably a little bit over $1 million. And then we did have the incentive fee that I talked about that we recognized in the fourth quarter as well. So that certainly was accretive.

That number, just for your benefit, was $2.6 million of revenue, $1.3 million of expense because we paid the sub-adviser of that specific product, and $1.3 million of profit. It's a 50-50 split.

Right. Okay, great. And -- so I guess the comments around kind of some of the headwinds from some of the acquisitions or at least incremental expense pressures. So if we think about -- I know it's in the release, the -- I guess, it was $800,000 or so. Is that kind of the incremental pressure we should think about going forward? Or was that part of that just kind of deal expenses and it's going to be somewhat less than that?

Yes, let me unpack that for you. So I said $1.6 million, which is the $850,000 that's in the release or $868,000. That's the run rate loss and then there was $750,000 of deal cost. That's how we get to the $1.6 million impact for Q4.

Obviously, the deal costs go away. The largest component of the Novus transaction is the amortization. So the business is actually on a non-GAAP basis, a cash flow basis. Just around kind of breakeven. But some of the amortization will probably be in the tune of about $7 million impact in both 2022 from an accounting perspective, 2022 and 2023, and then it will kind of clip off over time as the schedule kind of diminishes over time.

Great. And just kind of curious, I mean, as you acquire some of these platforms to add capabilities, are you -- do you expect that once you -- in addition to whatever their capabilities are that they require, at least for some period of time, some step-up in investment to maybe bring them to scale or to enhance their capabilities to fit into your network, just -- I mean, post-acquisition?

Yes, absolutely. More so on the Novus side than the Atlas side, but that's all kind of baked into our projections. But equally, in the projections is sizable increases in revenue because of the capabilities we bring them, not the least of which is in addition to their technology, which is state-of-the-art awesome technology is the back office and middle office capabilities that we bring to the table. So really sizing up their clients and being able to upgrade their clients and revenue possibilities because of the additional capabilities that SEI brings to the table, which is why it is such an awesome fit of the 2 organizations.

So I think I messaged before this market, we think, is about $25 trillion and about 4,000 global suspects that were not suspects of OCIO. They are do-it-yourselfers. They're ones that want to have an investment team, which is great.

And now we have a capability that we can squarely go into them. And as part of the acquisition, we get instant credibility because we're bringing over 140 clients to -- they already have. So I'm quite bullish about the opportunity. There might be some financial impact that we're going to deal with in 2022, maybe a little bit residual in 2023, but the growth potential is fairly profound for the business.

We have no additional callers in queue at this time.

Okay. With that, I'd like to turn the call back over to Al West.

So ladies and gentlemen, we are building momentum throughout our businesses. We look with optimism to the future and the capture and the opportunities in there with constantly changing markets. Our new brand reflects our company's strengths, our optimism and our belief that we will help our clients build great futures. Please be safe and remain healthy. Thank you for attending our call.

Ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.