SEI Investments Co (SEIC) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI fourth-quarter earnings conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Al West. Please go ahead.

Thank you very much and welcome, everybody. With me today are all of our segment leaders. They are on the call, as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller.

I will start by recapping the fourth quarter of 2006, and then cover 2006 as a whole. I will then turn it over to Dennis to cover LSV, expand on a few financial matters, and bring you up-to-date with the segment reorganization we are making, which will become effective first quarter, 2007. After that, each of the business segment leaders will comment on the results of their segments. Then finally, Kathy Heilig will provide you with some important companywide statistics. As usual, we will field questions at the end of each report.

So, let me start with the fourth quarter. Fourth-quarter earnings grew 24% from a year ago on a revenue growth of 55%. Now, the consolidation of LSV added $80 million of revenue during the quarter. Without the effects of this consolidation, the revenues would have grown by 16%.

Now, diluted earnings per share for the fourth quarter of $0.62 represents growth of 24% over the $0.50 reported for the fourth quarter of 2005. For the year 2006, earnings were up 26% on revenue growth of 52%. The consolidation of LSV added 291 million of revenue to the year. Now, without the effects of this consolidation, the revenues would have grown by approximately 14.5%, and the 2006 EPS of $2.33 was up 27% over the $1.83 reported in 2005.

Now, revenue growth for the quarter, other than the increase in reported revenues from the LSV consolidation, was the result of higher assets under management, particularly in enterprise, and fees from new banking and money manager clients.

Now, our non-cash asset balances grew by 12.4 billion during the quarter, and this growth was due to a market appreciation and new assets. Of the growth, LSV asset growth accounted for 6.2 billion. The global 60/40 portfolio was up a little over 5.5% during the quarter.

Now, the reported results for the fourth quarter also included stock options expense of 9.8 million, and our tax rate for the quarter was approximately 35%. Dennis will elaborate on both of these numbers.

Also during the quarter, we repurchased 487,500 shares of stock at an average price of about $57.75 per share. That translates to 28 million of stock repurchases, which brings our 2006 stock buyback activity to 2,344,500 shares repurchased at an average price of $46.80, spending 109.7 million on the repurchases.

Now, I will walk--as we look at the whole year, we are very satisfied with results of the year as well as the quarter, and we still look at them in light of a larger and longer journey in transforming our company. The transformation is well underway. Each of our segments has a new business model that they are employing. The market acceptance of our new solutions continues to grow and we feel we are effectively executing our transformation strategy. Now, you will hear more about this in each one of our segment reports.

Now, under (indiscernible) the transformation are three interrelated investments we are making. First, we are building new client processes for all of our businesses. These include our life and wealth individual high net worth client process, our total operational outsourcing client process for investment managers, and our PensionConnect 360 defined benefit client process for institutional investors. Second, we are investing in the global wealth platform which will be used to automate all of our client processes. Third, we are building the operational and service infrastructure necessary to handle clients all over the world on the new platform.

Now, these investments make possible our entry into the large European and UK private bank markets and facilitates the transition of the U.S. private bank market to a larger business of providing global wealth services. In addition, the platform and the capacity to provide global wealth services will help our registered investment advisor clients improve their practices and serve their individual clients in new and better ways.

Now, the status of the global wealth platform and the related global wealth services development effort continues to be on track. During the fourth quarter of this year, we capitalized 19.3 million of the global wealth platform development. We expect the quarterly capitalization to trend down slightly in 2007.

During the fourth quarter, we also delivered the platform to our first beta client, HSBC's investment solution with SEI. The conversion of the client's book of business has going very well, and the subsequent 24 hours a day operation throughout the world has demonstrated many of the unique capabilities of our new platform.

At the same time, a number of other efforts are underway. Our development progress continues as we are preparing to convert HSBC's London-based private bank in mid year 2007. Plus, in the U.S., we plan to can begin the conversions of [Syntere], an existing U.S. bank client, as well as our first U.S. advisor by year-end. As I mentioned earlier, to make all of this happen, we have been establishing operating and service capabilities and infrastructure in the UK.

We are pleased with the progress we have made. The early success we have had with our platform bodes well for our UK and European private banking market entry. It gives us further confidence that our investments will help us transform our company, giving us even larger markets to grow within and providing exciting new solutions to deliver to our markets.

Rest assured we will continue to work hard in the short run to control costs and to steadily grow revenues and profits. In the longer run, we are firm in our belief that we're on the right path to more rapidly grow future revenues and profits.

Now, this concludes my remarks for the fourth quarter. I'd like now to turn it over to Dennis and the business segment heads. I will start with Dennis, who will cover LSV and some corporate financial issues, including the segment reorganization. Dennis?

Thank you, Al. Good afternoon, everyone.

As a reminder, we continue to own approximately 43% of LSV Asset Management. LSV had another good quarter of financial performance. You will notice, in our earnings release, we reported contribution to SEI from LSV to equal approximately $31.4 million in the fourth quarter of 2006. This compares to contribution of 21 million in the fourth quarter of 2005. This increase was due to growth in assets from new and existing clients, as well as market appreciation, which drove both revenue and profit growth.

As we have mentioned in the past, a number of LSV's funds are closed to new investors. This growth has come within that framework.

Revenues from LSV for the quarter were approximately $80.4 million. This compares to revenues of 55 million in the fourth quarter of 2005.

On SEI's balance sheet of our reported cash and short-term investments of approximately $287 million, approximately 71 million is attributable to LSV at December 31, 2006. Of our reported receivables of $245 million, approximately 85 million were attributable to LSV.

Liabilities were affected by the debt associated with our guarantee to the SEI--LSV Employee Group. This is reflected in both current liabilities of approximately 9 million and long-term debt of approximately 62.5 million.

In addition to the report on LSV, I want to cover a couple of other items. The fourth quarter reflects option expense of approximately $9.8 million. This compares to option expense of 7.1 million during the third quarter of 2006. This quarter-over-quarter increase is due to the expected vesting of an outstanding tranche of options earlier than previously anticipated. Option expense for the year totaled approximately $24.8 million. We anticipate option expense for 2007 to be in the same range as 2006.

We still anticipate going live out of beta with our global-up platform during the second half of 2007. When we do, we will begin to amortize the capitalized costs associated with its development. We anticipate the useful life of the platform to approximate 12 to 15 years and amortization expense for 2007 to be about 7 to 8 million beginning during the second half of this year. As we work through the useful life assessment with our auditors, this may change.

Finally, I would like to comment on some changes you can expect to our segment reporting during 2007. Last year, you will remember, we consolidated the non-U.S. business activities with our U.S. business in the Enterprise segment. We did this to form and run a true global institutional business. During the first quarter of 2007, we will do the same with our non-U.S. and U.S. banking businesses. It has become clear to us that running this business as one will enable us to better leverage our global resources to achieve the business results we're striving for. As a result, we will consolidate the current Private Banking and Trust segment with the global banking activities within the investments in new business segment, starting with first-quarter results. With our first-quarter results, we will provide financial mapping to assist you in tracking the financial impact of this change. Starting with the first-quarter call, Joe Ujobai, who will be in charge of Global Banking, will report on the Global Banking segment. I will begin to report on the investments in New Business segment.

Thanks for your attention. I will now take any questions you might have.

Thank you. (OPERATOR INSTRUCTIONS). Tom McCrohan, Janney Montgomery Scott.

Good afternoon. I just had two quick questions. Dennis, did you state--I just couldn't keep up writing everything down--the total capitalized amount on the balance sheet related to the investments you made?

I didn't mention that, the total capitalized amount. I mean, this year, we capitalized a total of $73 million. Last year, I believe it was about 67 million in total. Then prior to that, we capitalized some amounts but it's around 170 to 175 million.

Okay. The changes on the segment side, Joe Ujobai running Global Banking, does that mean--well, does that include the U.S. business that Bob Crudup is running today or--?

Yes.

Did you say on the call where Bob Crudup is doing?

Well, Bob is staying; Bob is not going anywhere. In fact, Bob is going to continue to work with Joe on Global Banking. As you can imagine, given they're both being in the same markets although in different parts of the world, they've worked very closely together over the past couple of years in sorting through the opportunities in banking. So Bob is going to continue to work with Joe as well as take on some work in some of the infrastructure areas that support our banking business.

Fair enough. Then the non-global banking stuff that Joe I guess is running today, the stuff that's also included in investment in new business, can you just remind us what those business areas are and who is going to be running that?

Well, I will be reporting on that. The principle piece of business in there is our work that we've done (indiscernible) better understanding and building out solutions for the ultra-high net worth, high net worth investor. So that will be the dominant portion of that segment.

Okay, thank you.

(OPERATOR INSTRUCTIONS). I show no further questions. Please continue.

Thanks Dennis. I'm now going to turn it over to Bob Crudup to discuss results in the U.S. Private Banking and Trust segments. I think Dennis filled you in on Bob, so I won't (technical difficulty).

Thank you, Al. Good afternoon, everyone.

Let's start by reviewing our financial results. Fourth-quarter revenue of 70.8 million improved over last year's 66.4 million by 6.6%. 2006 revenues of 283 million also improved over 2005 by 17 million or 6.4%. The dip in Q4 revenue compared to Q3 was affected by the unusual one-time occurrence of 4.7 million in Q3, which we disclosed last quarter. Q4-on-Q4 profits were flat, while 2006 profits were up slightly. While we attained some revenue growth in 2006, our margins continue to be affected as we make important investment in this business. Our investments consisted of an increase in development cost and the investment in our operations platform to support our global wealth services strategy. In addition to these investments, we had 8.1 million in new stock option expenses.

As for the new business in the quarter, we brought on about 1.3 million in annual recurring processing revenue. This included three new selected outsourcing customers. You will remember that selected outsourcing is where our ASP clients choose to outsource a portion of their back office. Further, we closed our first asset management account under the Global Wealth Services strategy, used so successfully by Joe's global team. It funded with 70 million, and more assets are expected to follow during the balance of the year.

Finally, at the end of the year, we received termination notice from one of our clients. This contract and our associated revenues will continue through the end of 2008. The expected recurring revenue loss occurring in 2009 should be about 2.5 million per quarter.

Let's now turn to a brief strategy update. We are introducing a new set of services to the U.S. private banking market. These services will be powered by the investments in our new global wealth platform.

The year saw progress in the introduction of global services on several fronts. First, as Al said, our development efforts had been successful with system delivery on schedule to support our launch. Second, the sale of our next two clients, one in the U.S. and one in the UK, was completed last year. Third, the on-time, on-budget conversion of our first client was completed last December. Joe will talk more about this installation later. Finally, the 25% growth in revenue of the U.S. BSP business during 2006 confirms our clients' willingness to outsource. These are important and tangible milestones in our launch of Global Wealth Services. We are well into the execution phase of this launch. Initial client reception has been very favorable. The investments we're making will give us a substantial competitive advantage, which I firmly believe will change the landscape of the U.S. private banking marketplace, allowing for our future growth.

Thank you. If you have any questions, I will be happy to answer them.

(OPERATOR INSTRUCTIONS). Robert Lee, KBW.

Thank you. Good afternoon, Bob. A quick question--I know you can't give names of the clients (indiscernible) but I'm just curious, from your perspective, given that, by the end of '08, presumably you'll have the new platform sort of up and running. You know, what was there that you think this client felt like they couldn't wait for, or was it price that you think they moved for? Is there any kind of color you could give around that?

Yes, Rob, what I would say is that it's one of our clients who I think is more committed to insourcing these kinds of activities, and they are looking to consolidate all of their business on an in-house platform.

Okay.

It's one of our clients that has been through several mergers.

Okay, thanks. Maybe just one follow-up--could you just refresh our memory on the--well, you mentioned you closed your first asset-management account with the global platform. Is this similar to what Joe has been doing with HSBC globally for awhile, for I guess about a year or so now? Is it that type of platform?

Yes, it's very similar to that and we've been building some technology infrastructure to support that business. We're just about ready to move forward with it here in the U.S.

Okay. Maybe just one last question--can you talk a little bit about the pricing environment you see? I think the last time that we had spoken you had talked about there, one of the competitors out there seemed like they were getting a little bit aggressive on pricing. Are you still seeing that? Are you seeing that having much effect on how you have to re-sign business?

Yes, I don't think the environment has changed very much since you and I talked about it last time. You know, the business, the trust processing business has continued to commoditized a little bit, and that pricing pressure is something that we have expected. You know, I would add that our new Global Wealth Services platform is going to put us in a new ballgame there--that we're optimistic about our ability to effectively price that solution.

Okay, great. Thank you.

Jeff Hopson, A.G. Edwards.

Bob, the expenses jumped up, as you alluded to, in the quarter. Can you give us any sense of the pattern throughout '07? Will things level off toward the end of the year, or any thoughts on the direction of those expenses?

Well, if you look at the underlying cause of those expenses, it's around stock options. Dennis has said those are going to level out a little bit next year. It's around our buildout of the global wealth processing capability here. Those expenses are going to sort of trend up a little bit as we bring new clients on. Then finally, the last thing is the development expenses. Al has been saying for awhile that we expect those to start leveling out in 2007.

Okay, great. Thanks.

Thank you. There are no further questions at this time. Please continue.

Thank you, Bob. Our second segment is Investment Advisors. Wayne Withrow will cover this segment. Wayne?

Thanks, Al.

I will briefly review the fourth-quarter financial results for the Advisors segment, and then provide some data to give you a sense for the progress we have made on our strategy.

Revenues for the fourth quarter increased 11.9% from the year-ago period. This growth was driven primarily by an increase in average assets under management for the quarter to $37 billion compared with 32.5 billion in the year-ago period.

With respect to cash flow for the quarter, we had gross cash flow of almost $1.7 billion and redemption slightly in excess of $1.3 billion, yielding net cash flow of $351 million. To put this in perspective, this is the best net cash flow quarter for the segment since the first quarter of 2004.

Profits for the quarter were essentially flat from the year-ago period. While revenues increased $6.4 million, our expenses also increased by a similar amount. The chief components of our increased expenses were reinvestments required to support our new strategy, stock-option expense, and increased investment in our investment management area.

As you may recall, last year, I outlined four key elements to our growth strategy. They were--focus on key advisors, reduce redemptions, sign new advisors, and enhance our business platform. I will now update you on our progress.

Our key advisor focus led us to create four separate regional teams to support our largest existing advisors. These teams were created to have a sharp focus on key existing advisors and were in addition to the team formed to support our smaller advisors and the team formed to support our new advisor sales efforts. I measure our success in this area by the $539 million of positive net cash flow for the year. This is the most positive net cash flow for the year we have experienced since 2002.

Our efforts to reduce redemptions were also successful. For the year, we reduced our redemption rate to its lowest level in over five years. Our new service model, targeted at smaller advisors, was a key contributor to this improvement.

Reinvigorating our effort to find new advisors was a key initiative in 2006. The long-term health of this segment requires that we recruit advisors with a desire and the ability to grow in the future. In other words, it is the quality and not the sheer number of new advisors that is important. For this reason, and while we continue to support all of our existing advisors, we now target new advisors who have the potential to generate at least $3 million in annual cash flow. In 2006, we signed about 100 advisors, satisfying this criteria.

Efforts to enhance our platform continued in 2006. From a strategic perspective, we focused on designing and planning for the launch of the Global Wealth platform in the Advisors segment. On a more immediate basis, we improved our end client reporting, enhanced BusinessBuilder, which is our current adviser desktop tool, and began development of a new proposal tool to be used by our clients. This proposal tool is on track for a beta release in a few weeks, and it is our hope that it will contribute to increased cash flow in 2007.

To paraphrase Al, while I'm satisfied with the results of the fourth quarter and all of 2006, I still look at them in light of a longer journey in transforming the segment. This transformation requires continued improvement in our net cash flow and our new advisor recruiting, not to mention the introduction of the global wealth platform which will facilitate a faster and more profound transformation of the business.

I will now entertain questions.

Glenn Greene, ThinkEquity Partners.

First question--I was wondering if you could just give some more color--what have you actually done to sort of improve the redemption rate? I'm a little unclear on that. Regarding the improved net cash flow this quarter, was there anything unusual in the quarter? Is this a turning point? Should we expect more of the same going forward into '07?

Okay. In terms of improving the redemption rate, you know, one of the key areas that contributed to that was the new team we put together to support our small advisors, and a whole new service process around those advisors. So as we reach out to them and touch them more, we saw a pretty significant improvement in their redemption rate. So that was one of the key initiatives there.

In terms of cash flow, was nothing unusual about the year and it's our hope to continue to improve our net cash flow in this segment.

So, we should start seeing consistently quarterly net positive cash flows you would think?

my goal is to continue to improve the net cash flow.

Jeff Hopson, A.G. Edwards.

Wayne, could you give us a sense of these 100 new advisors coming over? You know, where--any sense of where they're coming from, what they are looking for or what they're getting that they didn't have before? Anything happening in the market out there that's relevant I guess?

I don't know if there's any [C] change going on in the market. But with respect to the advisors that are attracted to us, a lot of these are small businesses, and as they grow, many times they hit a wall to their growth and they just can't grow unless they fundamentally change their business. We have a whole new business proposition for them, which is an outsourced investment process, an outsourced operations platform, which allows them to spend more time on recruiting new clients and servicing their existing clients.

If you look at some of the industry data from Moss Adam Adams or some other consultants in the field, they would tell you that advisors maybe spend 2 to 4% of their time actually prospecting for new business, and obviously you can't grow with that statistic. So there you look at us as a solution that allows them to increase the percentage.

Okay, great. Thanks.

There are no further questions. Please continue.

Thank you, Wayne. Our third segment is the Enterprise segment. I'm going to turn it over to Ed Loughlin to discuss this segment. Ed?

Thanks, Al. Good afternoon, everyone.

The Enterprise business segment enjoyed healthy growth in both revenues and profits during the fourth quarter of 2006 and also for the entire year. Revenues, approaching $46 million for the fourth quarter, increased 24% compared to the fourth quarter of 2005. Profits grew 36% versus the year-ago period. Strong client funding and positive capital markets throughout the year fueled both revenue and profit growth for that period.

During the year, margins also improved 3%, ending in the year at 36%.

Asset balances increased by $7.6 billion during the year, totaling $42 billion at year-end. During the fourth quarter, net new client funding was $765 million. Our backlog of committed but unfunded assets at year-end was $322 million.

Strong sales momentum also continued during the fourth quarter. New client sales for the quarter were $1.2 billion, totaling 5.5 billion of new client assets for the entire year.

A key driver for the institutional sales growth is the continued global adoption of SEI's integrated pension and endowment solutions in our seven target markets, including the U.S., Canada, UK, Netherlands, Germany, Hong Kong and South Africa. Changing regulations, complex investment products and an ongoing cost volatility are compelling companies away from fragmented plan-management models in favor of a more integrated and strategic approach to managing pensions.

During 2006, we also successfully completed the integration of the U.S. institutional business with our non U.S. business. We enjoy a healthy and growing pipeline of sales activity and are poised for continued growth in 2007.

Thank you very much. I'm happy to entertain any questions.

Jeff Hopson, A.G. Edwards.

Ed, I may have asked you this last quarter, but I'm curious about any new thoughts on the Pension Protection Act and whether that could cause an acceleration of activity. It seems like things are rolling along very strongly, but any thoughts on that particular issue?

Sure, Jeff. I think the fact that now that's finalized, I think that companies and management are trying to now internalize that and they have a better sense of what the implications might be. I think it has been a catalyst and more from the perspective of to keep them on task. If they are looking and doing due diligence about changing the way they manage this, I think this just keeps them on that particular path if they don't kind of divert their attention to some other type of corporate activity.

The work that we've also done with the PensionConnect in integrating the corporate finance, the liabilities and the pension finance can give them a real good sense of what the impact of pension reform would be. So it's a pretty good way for us to initiate conversations with them.

Tom McCrohan, Janney Montgomery Scott.

A quick question on new client fundings for the quarter--is that number a net number?

It is.

Then you had talked last quarter about a client loss that would impact this quarter. Can you kind of break out for us kind of what the gross was and what the client loss was?

The client loss was fairly significant. You could almost take that client funding number, the net number, and double it. That was what the gross number was.

Okay. Just on just trends in the business, the new client wins of 1.2 billion, you've had a fantastic year if new client wins is a good proxy for kind of directionally where you guys are going in the enterprises. But you had kind of three consecutive quarters of increased new client wins. You had 1.9 billion Q3; 1.6, in Q2; it kind of dropped off a little bit in Q4. What kind of run-rate should we be thinking about in '07 as far as new client wins per quarter?

You know, I wish I could tell you per quarter, but unfortunately--and I think we talked about, maybe not with you but just on this call before. This is not necessarily a quarterly business. I think my comments insofar as we are poised for growth, we're certainly optimistic about the outlook for the entire year, but which quarter the sales are going to happen, you know, it probably will not be 25% evenly divided throughout the year.

Fair enough. Thank you.

Robert Lee, KBW.

Just a quick question to get some color on the complexion of new business since it is now sort of a global segment, if you will. Is this roughly evenly split between U.S. and Europe, or are new business opportunities increasingly being skewed towards the non U.S. markets?

I would say that what we're seeing is that all the markets are really participating, and it's a combination of both retirement and also the endowed assets. Right now, I would say that there is probably stronger momentum, insofar as transactions and activities, still in U.S. because it is the largest market. But I think that that's just a matter of time where the other markets will kind of catch up insofar as that activity level.

I think one other aspect is we have gone upstream (indiscernible) asset size with our endowed assets. So last year, we kind of broke a new threshold insofar as getting over a $300 million client to really outsource. So that's another kind of a significant step, and that's pretty consistent with what we saw on the retirement side, you know, that as we continued along, we were able to capture larger client relationships. I think you'll see that globally.

Glenn Greene, ThinkEquity Partners.

Yes, I think you may have just answered my question, but I wanted to get a sense for your success on the sales side. Is it attributable to targeting larger clients in books of business? Also if you could just give us some sense of the color of the pipeline as it proceeds into '07.

Sure. The success last year I think was pretty broad-based, so there wasn't any kind of large client concentration. We did probably 65 different types of client transactions of all different sizes, so again, I would say that just kind of the acceptance--our ability to get appointments, get second calls, and close business up to over $1 billion and probably approaching 2 billion continues to be--that continues to be kind of the segment that is attractive to us.

Insofar as the pipeline, the pipeline continues to grow and gives us reason to be encouraged about the ability to continue to add new clients. That's really--the name of the game for this particular segment continues to be the same thing, which is continue to bring in new clients. I think, if you were to look at this compared to other institutional businesses, $5.5 billion of new client assets is pretty significant.

I was wondering, what about geographic mix? Any sort of thing we can gleam there, any areas that are either strong or weak relative to the norm? Where are you seeing most of your sales success?

Well, again, we have a larger sales force in the U.S., and we saw larger numbers here in the U.S. But every market participated.

There are no further questions. Please continue.

Thank you, Ed. Our fourth segment today is Money Managers. I'm going to turn it over to Steve Meyer to discuss this segment. Steve?

Thank you, Al. Good afternoon, everyone.

The Money Managers segment continued its growth in both revenue and margins for the fourth quarter. I will briefly review this growth and then review our strategic progress for the year.

For the fourth quarter, revenues totaled $32.8 million, a $5.7 million or 20.9% increase compared to the fourth quarter of 2005. Approximately $1.2 million of this increase was attributable to one-time revenue items, including conversion fees for some of our new business and a one-time buy-out fee of a mutual fund client who was acquired by another firm. The remainder was due to existing client growth and new client fundings.

Our quarterly profit of $9.2 million was up approximately 85% from the same quarter in 2005. Our profit margin percentage for 2006 was 24%, up from 17% from the prior year. Much of this improvement in margin has come from the previous investments we have made in our business and our ability to drive efficiency and scale out of those investments. While I feel there is some opportunity for additional improvement in margin, it will be less dramatic than in 2006 and may be impacted by our investment in future initiatives that will expand our business.

Asset balances at the end of the fourth quarter of 2006 were $170.4 billion, or 9.4 billion higher than at September 30, 2006. Approximately 6.8 billion of this increase is attributable to additional net client findings and 2.6 billion is due to market appreciation. In the fourth quarter of 2006, we continued our strong sales momentum with new business sales events of $6.5 million in annualized revenue. This brings our total new business sales events for the year to an estimated $21 million, which represents a new record for the segment. More importantly, this new business was spread across all of our solutions, including our two newest, SMA and total operational outsourcing.

As you might expect, the majority of the year's events took place in our two most established and mature solutions, hedge and mutual fund processing, which accounted for approximately 80% rendered events for the year. However, as we progress on our strategy and continue to build momentum, we expect to grow our newer solutions and migrate our clients to a broader offering.

In 2006, our focus was on several key strategic agendas. First, we continue to build out and develop our strategic vision of total operational outsourcing. We have two initial clients in beta. We continue to expand a development and look to grow our base of clients here. Second, we focused on continued development and progression of our current solutions, which serve as a strong foundation for our future. We saw strong market acceptance of these solutions, and more importantly, we were able to diversify our business among all of these solutions. Finally, we focused on and improved our own business model, allowing us to reap the benefits of our investments we and improve our margin.

As we enter 2007, we are encouraged. We continue to have an opportunity to attract new clients and grow our business. We continue to see growth in the needs of investment managers as well as the sustained outsourcing momentum in the industry. Our pipeline is healthy, and we are focused on the transformation of our business towards total operational outsourcing.

I will now turn it over for any questions you may have.

Robert Lee, KBW.

A quick question--just a sort of are you seeing any fallout from what--and I'm thinking in the hedge fund business--on what Bisys has been going through? I mean, we understand the mutual fund aspect, but given that potentially maybe the firm is for sale, have you at all noticed that causes disruption in the marketplace as people try to sort of pick off their book of business, or their existing clients start looking more aggressively? Have you seen anything like that?

No, I think, obviously, there's a lot of questions in the market, but I think competition reigns no matter what the situation is. While I do think it might cause some people to look for other options, I don't think we've seen a huge disruption from it.

Okay. Is it possible just to get maybe a little bit of color, particularly in the alternative business? You know, how your business there sort of is breaking down between onshore and offshore? I don't know if you--how much you look at it that way.

Yes, I think we've talked about this before. We really don't break it out that way. I would say the majority still is based with U.S. managers, although we do have a good foundation of non-U.S., primarily European-based managers. That is a focus for us to grow that part of the business.

Jeff Hopson, A.G. Edwards.

I'm curious. You mentioned spending for new initiatives. I'm curious what those are. Is that just adding--ongoing, adding to the existing services and platforms, or are you considering kind of a new segment? Could you give us some thoughts on that?

Sure, I would say a couple-fold. One (technical difficulty) primarily continue to build our total operational outsourcing platform. That will drive most of our investment. But additionally, we are continuing to invest and built-out our current solutions. One of the things we believe is we have to continually innovate to grow this business, not just looking for our future with total operational outsourcing, but in the solutions we offer to the market. We really see an increasing need among our client base and investment managers and we need to be prepared to handle them.

I would say the last piece is, going back to the prior question, we will be investing more to broaden our non-U.S. base of business.

Okay. Then in the SMA space, you've clearly got--picked up some new business, but that whole segment seems to be a fairly gradual process in terms of the whole segment moving to outsourcing. Any thoughts on kind of a tipping point or potentially a tipping point that would move SMA outsourcing to an accelerated rate?

Yes, I think--and we've talked about this before (technical difficulty) I think it's a couple of things. One, there's really two [cells] with SMA, one convincing people, since most of them have outsourced it or insourced it and build their infrastructure around it internally, we have to convince them that outsourcing is a better opportunity and that obviously that SEI is the solution for them.

I think the tipping point we're starting to see. These managers are not able to grow effectively right now and efficiently. For them to grow effectively and efficiently, the really prime opportunity for them is to outsource this infrastructure. So I think we saw a pick-up in 2006. I think there's a lot of market buzz and activity in at the space and I think we will continue to see that.

There are no further questions at this time. Please continue.

Thank you, Steve. Our fifth segment is investment in new business, and I'm going to turn it over to Joe Ujobai to discuss this segment. Joe?

Today, I will update you, for the final time, on the investments in new business segment, which consists primarily of our private banking and asset-management distribution relationships outside of the U.S. and our wealth network activities worldwide.

Revenue of almost $25.7 million grew by 33% and the operating loss increased to approximately 7.3 million from the year-ago quarter. On a year-over-year basis, revenue increased in this segment by 35% to $91.8 million, and the loss improved modestly.

Increased expenses during 2006 were primarily due to costs associated with the buildout of the infrastructure to support the launch of Global Wealth Services, costs associated with the conversion of our beta client and first external client, and increasing sales and marketing expenses as we enter new markets, as well as an increase in stock-option expenses associated with this segment.

During the quarter, average assets under management were over $15 billion, versus 11.8 billion in the year-ago quarter, for a growth of 27%.

As Al mentioned, during the quarter, we converted a beta client to the Global Wealth platform. The beta client represent over 1400 accounts, approximately $5 billion in assets, and three base currencies, including the dollar, euro and Sterling, from 20 booking centers worldwide. Both the client and SEI are already experiencing the operational benefits of the straight-through global processing environment. We continue to work with our first external client, HSBC Private Bank Great Britain, towards a conversion this summer.

The conversion of our beta client and the first external client are key events in the launch of our Global Wealth Services solution. Global Wealth Services, enabled by the Global Wealth platform, will allow us to further grow our asset-management businesses and enter the investment processing business in Europe and eventually Asia. We are speaking to many private banks within the UK and Europe and are pleased with our continued progress in launching this business.

As Dennis mentioned, going forward, we will combine the U.S. private banking and trust business with our non-U.S. baking initiatives. Bob and I have worked closely during the last year to prepare for worldwide banking business that leverages our resources and market knowledge from around the world to better meet our business objectives. I look forward to continuing to work with him.

I will now entertain any questions.

(OPERATOR INSTRUCTIONS). I show no questions at this time. Please continue.

Well, thank you, Joe.

Now, I would like to have Kathy Heilig give you a few companywide statistics. Kathy?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter.

Fourth-quarter cash flow from operations was 94.3 million, or $0.92 per share. Fourth-quarter free cash flow was 60 million or $0.59 per share. Year-to-date cash flow from operations, 346 million. However, that does include some money that will be paid out to the LSV partners, so without that money included, cash flow from operations would have been 308 million.

Fourth-quarter capital expenditures, 10.3 million, which included costs of our new facility. Fourth-quarter depreciation, 4.4 million, and fourth-quarter amortization, 1.1 million.

Capital expenditures for 2007, excluding capitalized software, are expected to be between 30 to 35 million, which does include approximately 10 million towards the finishing up of our facility expansion.

Now, we already mentioned that the tax rate for the fourth quarter was 35%. The tax rate generally for the year 2006 did benefit from a combination of planning as well as some law changes that worked out favorably for our tax rate. We would not expect to see those items repeat next year. So, the projected tax rate for 2007 will be approximately 37%.

We would also like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risk and that the financial information presented in our release and on this call are unaudited. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results.

Now, feel please feel free to ask any other questions that you may have.

Glenn Greene, ThinkEquity Partners.

I guess I could have asked Joe this question but I'll ask either Al or Joe. Just the status of sort of the global pipeline. I mean, you signed HSBC Great Britain over the summer. (indiscernible) working here for a long time, building the pipeline, but really haven't had a lot of deal signings other than obviously with HSBC Great Britain. So how are you feeling about the pipeline? Is it kind of meeting what you thought where you'd be at this time line? Just some color on your thinking on that.

As I've mentioned several times, I think the pipeline is strong. We are talking to a number of banks, particularly in the UK and increasingly more on the continent, especially in Switzerland. So I think we feel pretty confident about the long-term growth opportunity for us with the platform and the Global Wealth Services business.

Any sense when you think signings, the rate of signings might start to pick up? Is it kind of '08, '09 or back half of this year?

Yes, I think that certainly the market is looking for the success of the beta client and the first external client, but again, we expect to have a good 2007 and beyond.

Mr. West, I show no further questions at this time.

Thank you. So, ladies and gentlemen, we continue to be excited about what we are building. We are executing our transformation and look forward to delivering the potential we believe is there.

I'd like to leave you, again, with three things. First, market acceptance of our new solutions continues to encourage us that our investments are on the path, and our progress on our transformation has been steady. While we have a lot yet to accomplish, the delivery of Global Wealth Services to HSBC's SIS is a big step as we continue to execute our larger agenda on schedule.

Third, our new solutions strategy, our recurring revenue model, our strong cash flow and our operational leverage, as well as our portfolio of markets, all serve to support our goal of creating long-term, sustainable growth in revenues and profits. We are in the business solutions business and our client do business with us because we are helping them succeed by making their businesses and their lives better. This is a high value-added proposition. It does differentiate us from competition and we believe it will serve us well in the future.

If there are any other lingering questions, please ask them now or--and then we will adjourn.

There are no questions in queue, sir.

Very good. Thank you all for your attention and attending this afternoon, and thank you very much.

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