SEI Investments Co (SEIC) 2007 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, and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference may be recorded.

I would now like to turn the conference over to our host, Mr. Al West, Chairman and CEO. Sir, please go ahead.

Thank you, and welcome, everybody. With me are all of our segment leaders, as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller. I will start by recapping the fourth quarter and full year of 2007. Then I am going to turn it over to Dennis, first to expand on a few financial matters, as well as to cover LSV, and the investment and new business segments. After that, each of the business segment leaders will comment on results of their segments. Then finally, Kathy Heilig will provide you with some important company-wide statistics. Now, as usual, we will field questions at the end of each report, so let me start with the fourth quarter and full year of 2007.

Fourth quarter earnings fell 16% from a year ago, on revenue growth of 12%. For the year, earnings grew 9% over 2006 earnings, and revenue grew 16% over 2006 revenues. Diluted earnings per share for the fourth quarter of $0.27 represents a 13% drop, from the $0.31 reported for the fourth quarter of 2006. Earnings per share of $1.28 for the year, grew by 9% over the $1.17 reported in 2006.

Now earnings for the quarter and the year were adversely affected by a fourth quarter charge to earnings of $25 million, or approximately $0.08 per share. This was due to a drop in the market price of the commercial paper of certain Structured Investment Vehicles, or SIVs, held in three of our money funds. This is the SIV situation we spoke of in our third quarter 10-Q, and a special investor call we had at that time. Dennis will speak to the SIV situation in more detail in a few minutes.

Our growth in revenue for the quarter was a result of fees from our clients across all of our segments. And our non-cash asset balances fell by $4.5 billion during the quarter. This contraction was due to lower equity markets, which more than offset relatively strong cash flows during the quarter.

SEI's assets under management fell by $700 million during the quarter, while LSVs assets under management fell by $3.8 billion. Our global 60/40 portfolio was down 0.57% during the quarter. Also during the quarter, we repurchased 706,000 shares of stock at an average price of nearly $30.00 per share. Now that translates to $21 million of stock repurchases, and during all of 2007, we repurchased 7.2 million shares, at an average price of $28.60, which translates to $205 million of stock repurchases.

Except for the SIV issue, we are satisfied with the results of the quarter and the year. We continue to make progress in transforming our Company by providing more innovative and relevant solutions to our clients and building stronger relationships with them. Now undergirding the transformation are a number of interrelated investments, and three notable ones, are first, we are building and implementing new client processes in each of our markets, second, we are continuing to invest in the Global Wealth Platform, the technology behind many of our transformation efforts, and third, we are building the operational and service infrastructure necessary to handle clients all over the world on the new platform.

Now the status of our investment in the Global Wealth Platform continues to be on-track. During the fourth quarter this year, we capitalized 11.1 million of the Global Wealth Platform development. At the same time as additional functionality is rolled out, maintenance costs of the platform grow, and so do the costs of establishing operations throughout the world, as we ready ourselves to bring on more and more clients.

The operation of HSBC's Private Bank continues to go well, and serves as a proof statement to other U.K. and European private banks. The marketing and sales activities in the U.K. and Europe continues strong, and Joe Ujobai will speak to these activities.

Now U.S. functionality will be delivered during the second half of next year, in anticipation of that delivery, we recently signed our second U.S. client, Joe will elaborate on that as well. We continue to be pleased with the progress we are making throughout the Company. We know the early success we have had with our platform bodes well for our U.K. and private European banking marketing efforts, and we are pleased we have started to build our U.S. client base. Our business is serving institutional investors and investment managers, both showed significant progress in all aspects of their businesses, and have very strong fourth quarter and full year 2007 results.

In our Advisor Business segment, we have made great strides in engaging our advisors, and strengthening our relationships with them. This should pay off long term dividends to them and to us. As we enter 2008 with the backdrop of troubled equity markets, and the fallout from subprime debt markets, we will work hard to control costs, as we continue to transform our business. We are firm in our belief that we are on the right path to build a stronger, faster growing Company.

Now this concludes my remarks, so I will now ask Dennis McGonigle to cover some Company financial issues, and give you an update on LSV, and the investment in new business segment. And after that, I will turn it over to the heads of the other business segments. Thank you. Dennis?

Thanks, Al. I will provide an update on the capital support agreements that we discussed when we filed our third quarter 10-Q, and their impact on our earnings. I will then briefly cover the fourth quarter results for the investments in new business and LSV segments.

As you are aware from our third quarter 10-Q, and the conference call we had at the time of it's filing, SEI entered into capital support agreements with three SEI money-market mutual funds. Among other money-market instruments, the funds hold senior notes issued by Structured Investment Vehicles, or SIVs, some of which have either ceased making payments, or potentially may cease making payments on its outstanding notes on the schedule maturity dates.

As you will recall from our third quarter filing in October 2007, S&P advised SEI that it would place any Mutual Fund that had a AAA rating and owned certain SIVs on credit watch with negative implications, unless the fund was provided credit support, having an A1 short-term rating by S&P.

Although we were not obligated to provide the credit support required by SMP, in order to avoid a credit watch by SMP on one of our funds, and to address the needs of customers who require an SMP AAA rating on our fund, SEI entered into the capital support agreement to satisfy SMP's requirement.

We entered into similar agreements with two other funds. To keep the AAA SMP rating on one of our funds, and to support our clients who have invested in these funds, we entered the into the capital support agreements in which we generally commit to provide up to an aggregate of $130.5 million of capital into the funds if the funds realize a loss on their holdings of SIVs, so that the net asset value per share of the fund will be less than 0.995, or in the case of one fund, 0.9975.

We provided details about this arrangement in our third quarter 10-Q filing, and we encourage you to review that disclosure for more detail on the SIV issue, and the capital support agreements. I would like to remind you of a few things we said on our prior call.

First, in the event that SEI is required under the capital support agreements to commit capital to any fund, we will be required to pay the required capital contribution to the fund, and will not receive any consideration from the fund, in the form of shares of the fund, or any other form for the contributed capital.

Second, if the mark-to-market value of a SIV as detailed in our filings is less than its amortized cost, and if the aggregate the net asset value of the fund is less than 0.995, or in the case of one fund 0.9975, then even though the loss has not been realized through the sale other disposition of the security, SEI will be obligated to reflect its obligation under the support agreements, to commit the required amount of capital, so that the funds net asset value is at least 0.995, or in the case of one fund 0.9975. However we are not required to pay the required capital contribution to the funds unless a loss is realized by the funds.

With that as background, as of December 31, 2007, SEI is obligated to recognize a non-cash expense for its obligations to the funds for $25.1 million. We recorded this charge to earnings in the net gain loss from investments line of our Income Statement. At year-end, the principal contributor to the amount accrued for SEI's obligations under the support agreement was holdings of securities issued by Cheyne Finance. However, in early 2008, another SIV holding, Victoria Finance suffered a technical default, triggering ratings downgrades from the principal rating agencies. As a result, the carrying value of these securities in the SEI money-market funds was reduced as well.

In addition, S&P has required the posting of additional capital support for the fund rated AAA by S&P as a result of the Victoria situation. Consequently, SEI intends to increase the funding limit under the capital support agreements to $156 million, from the $130.5 million.

Currently, this is as of yesterday, the amount which would be accrued for SEI's contribution obligations under the capital support agreements based on yesterday's market prices, was approximately $30.4 million, which reflects the current carrying value of all SIVs, with the greatest impact from Cheyne and Victoria. If yesterday's values held through the quarter, SEI would incur an additional loss of $5.3 million in the first quarter of 2008.

In the next few days, we expect to file an 8-K discussing the update to our capital support agreements. I encourage you to review that filing for further information. Ultimately, we believe that both of these securities, Cheyne and Victoria, will be successfully restructured, although we cannot predict the timing of this, and/or the net impact this will have on the ultimately realized value of these holdings.

We also note that excluding Cheyne and Victoria, more than 97% of the remaining SIV holdings of our three supported money-market funds, continue to have a AAA or A1 rating from a major credit rating agency. Future accruals for our obligations under the capital support agreement will depend upon prevailing conditions in the credit markets, as they impact the value of money-market instruments including SIVs, on the credit worthiness of the SIV securities, and upon the assets under management in the funds.

For additional information, we publish the month end holdings of our money market funds after the 15th day of the following month, at www.SEIC.com/holdings_home.asp, and I will be happy to repeat that during the Q&A. I would also like to remind everyone all things being equal that improvement in the value of these securities above their current pricing, would reduce the current recorded loss. I hope this gives you some perspective on our overall exposure, and the potential impact on future earnings.

Before I move on to the segments I would like to reiterate a few points we made on our last call. First, SEI does not the own as principal any Structured Investment Vehicles, unlike others who have reported significant losses from these holdings. Second, although we were not contractually obligated to provide the credit support levels required by S&P, we entered into the support agreements, to insure that the fund maintains a AAA rating by S&P, that a number of our clients investing in those funds require. As you may have seen, others in our industry have taken similar actions.

Third, the amount of the capital support agreement should not in any way be considered to be our estimate of the actual loss that may be incurred on the funds holdings, which are covered by the support agreements. This total amount of the support agreement is primarily the amount necessary to maintain S&P's AAA rating.

Fourth, the impact to earnings in the fourth quarter of 2007 of 25.1 million, the estimated loss position as of yesterday of $30.4 million, an incremental $5.3 million, is subject to increase or decrease as discussed above. I will now break there, and take any questions on this topic that you may have.

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question is from Tom McCrohan with Janney Montgomery Scott. Go ahead, please.

Hi, Dennis, how are you?

Good, Tom, how are you doing?

All right, just to follow-up on the collateral associated with those SIVs, particularly Cheyne, and I guess the other one you mentioned, Victoria.

Yes.

Can you just give us a sense of kind of the current valuations which have declined, are more a function of just lack of liquidity, as opposed to collateral valuations coming down, just kind of talking about the performance of the underlying collateral?

Sure. Generally speaking, the issue is really one of liquidity. That is the primary driver of kind of the market valuations on these SIVs, as far as we can tell. The credit quality and I will speak specifically to Cheyne and Victoria, on Cheyne for example, 96% of the collateral is rated AA or better. This is as of just over a week ago, with 67% of it AAA.

On Victoria, about 76% of the collateral is rated AAA, and about 15% is rated AA, so the credit value, or quality of the underlying collateral still remains strong. Also, the input we have gotten from Columbia Management on the performance of the underlying collateral, certainly suggests that all of the collateral continues to perform.

So we really do believe this is more a function of the liquidity, and it doesn't mean that there aren't potentially some impaired pieces of collateral embedded in these SIVs, that would prevent you from getting all the way back to 100% , but we feel like from what we are hearing, the underlying collateral is still pretty

Okay, and could you update us on I think you disclosed in the past that the funds at SEI held about $250 million of Cheyne paper?

Correct.

And can you update us on what those have been marked down to, and then what is the investment in this other SIV that you are talking about today, Victoria?

Yes. I know on the last call, I think that same kind of question was asked, and we really weren't and aren't in a position to answer that, but I guess I would just comment that the marks we have on these securities we believe again, looking at really taking into account in some respects the liquidity, but also the market in general we are comfortable with.

So when I first read the Press Release and saw the $25 million reserve, I shouldn't read into that and say okay, those securities were marked down from 250, 10%, 25 million, it is really that reserve, is not related to the marks, it is not linear? You can't say well you took a $25 million charge, therefore the Cheyne notes will markdown 10%.

No, you can't look at it that way because of the it really takes into account the pricing of the overall money-market portfolios, but I would just reiterate that we feel we have pricing, kind of given current market conditions, and given our ability to get deeper on these securities, we feel like we are pretty conservatively priced.

Okay. Thanks for taking my questions, Dennis.

You are welcome, Tom.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is from Robert Lee with KBW. Go ahead, please.

Thanks, good afternoon, Dennis.

Hi, Rob.

I am just curious, I mean, since I guess this came to light, and against the back drop of there being kind of record-setting flows within the industry and to money funds, how have your money funds held up, and having to take these actions even though it is meant to support the funds without suffering any losses, but has it had any kind of fallout on the client activity?

Yes, I guess I am pleased to report that across our entire money-market fund complex, flows have been relatively flat throughout this. If you ask me any point in time of day, there is always some activity in the funds, but most of the activity typically is unrelated to this.

Okay, and also just a follow-up and maybe --

I guess I would just comment what is going on in the industry as a whole, we have a different type of client base generally than what the industry statistics would reflect. We don't have a lot of retail customers going to cash, if you will.

Right, okay. Is it possible to get beyond just the two issues, just get some color on the overall exposure within the SIV exposures in the complex, have you seen it I would expect by now it would have declined somewhat overall, even as more paper starts to roll off, and possibly get some to size the overall exposure, and maybe where it is now versus where it was?

Yes, I guess just one over the top comment. Other than Cheyne and Victoria securities, the remaining SIVs sitting in our money-market funds, we have are rated, about 97% of those are rated AAA, or A1, so the credit quality of those is good. One of the big drivers of that is the fact that in many of these SIVs, the organizations that issued these SIVs, or brought on the market has stepped up to back them, and most of that is done through banks.

Okay.

So that was another shift from our last call to this call about how the market has reacted. In addition, you all have those schedules that we attached to our capital support agreements, when we filed the 10-Q and subsequent 8-K back in November, and on those schedules, we have had, I will try to aggregate it for you, somewhere around $250 million of maturities that were paid over that timeframe, and for example, we have one of those maturities actually was Stanfield Victoria that paid, that was due in December, so we have seen better performance, if you will, and we cleared the air on some of that uncertainty if you will during the November-December timeframe, and again, most of the securities we still hold, in terms of getting that 97% being AAA, we feel pretty good about their ability to perform.

All right, great. Thanks a lot, Dennis.

You are welcome.

Thank you. I am showing no further questions at this time, sir. You may proceed.

Great. I would now like to cover the investments and new business segment and the LSV segment. Activities in the new business segment are focused on Direct Marketing to ultra and high net worth investors. During the quarter, investments in the new business segment generated a loss of $3.2 million. This compares to a loss of $3.8 million for the fourth quarter of 2006.

The efforts in this segment continue to be centered on learning, developing, and delivering our life and wealth services to the ultra and high net worth segments. The learning we gain, and the services we develop from this process, will then be leveraged if applicable to other asset distribution units in the Company. As you know, SEI historically has used the investments in new business segment as an incubator for new initiatives. We view the losses in this segment, as an investment in future market opportunities and/or services, and you can expect losses in this segment to continue.

I will now turn to LSV. We continue to own approximately 43% of LSV Asset Management. LSV, given market volatility had a challenging quarter of financial performance. Earnings contribution to SEI from LSV was approximately $30.6 million in the fourth quarter of 2007. This compares to a contribution of $31.4 million in the fourth quarter of 2006.

This year-over-year decrease was due primarily to a loss of assets from market depreciation, offset partially by an increase in assets, from positive cash flow, and an uptick in expense of a one-time nature. During the fourth quarter, LSV's net assets shrank approximately $3.7 billion. We expect LSV, along with other value managers, to continue to be challenged by these volatile markets, however their investment process is well-tested, and their long term performance record is strong. This should help them recover when the markets settle down.

Revenues from LSV for the quarter were approximately $82.2 million. This compares to revenues of $80.4 million in the fourth quarter of 2006, and $90.6 million in the third quarter 2007. Revenues were impacted by asset declines as discussed earlier.

On SEI's Balance Sheet, of our reported cash and short-term investments of approximately $361 million, $82 million is attributable to LSV at December 31, 2007. As I have reported receivables of $275 million, $92 million were attributable to LSV. Liabilities are affected by the debt associated to our guarantee to the LSV Employee Group, the business reflected in both current liabilities of approximately $7.5 million, and long term debt of approximately $44 million.

I will now take any questions you have on these two segments.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from Jeff Hopson from Stifel Nicolaus. Go ahead, please.

Okay, thanks. Dennis, are you aware of any thoughts that LSV would have, in terms of potentially opening up closed funds, and when you talk about the potentially challenging environment for them, are you thinking that they will see outflows in the future, or near future I guess?

Well they are both a little speculative in nature those questions, so I will do my best here, Jeff. I think that just to break it down, LSV had about $850 million of positive cash flow in the quarter, so I think to the extent that the market has given them capacity, they may use that capacity with new assets.

Now they have always been open to new assets from existing clients, and I think that as they continue to expand their product line, or expand into new client markets, they will be open. I can't really comment on whether they open the doors entirely on all of their product lines.

In terms of client losses, I think the positive cash flow number would certainly suggest that they aren't losing clients from a cash flow standpoint, and I wouldn't expect that they would particularly over the short-term. Their long term track record is still very, very strong, and I think clients that have been with them for a while, and even those that have come in the door recently, are certainly going to lean more on the long-term record, than the past couple of quarters.

Okay, thanks.

You are welcome.

Thank you. Our next question is from Tom McCrohan with Janney Montgomery Scott. Go ahead, please.

Yes, hi, Dennis. I was pleasantly surprised at how resilient the margins were in LSV despite the sequential decline in assets, so I am just curious if there's anything unusual going on on the expense side, because it looks like sequentially as well, expenses went down about $4 million in LSV, so if you could just talk to that point a little bit?

Tom, I think actually their expenses were up a little bit, but there is really nothing significantly unusual going on there. Their margins, unless their revenues really were to take a hit, I don't think they will be all that affected.

Okay, thanks.

You are welcome.

Thank you. I am showing no further questions at this time, sir. You may proceed.

Thank you Dennis. I am now going to turn it over to Joe Ujobai, to discuss our Private Banking segment. Joe?

Great, thank you, Al. Today, I would like to review our financials and give you an update on our strategic progress and market activity.

As a financial update, revenue of just over $111.8 million, grew by 86% from the year ago quarter, and by 12.6% for the full year. Revenue growth for both the quarter and the year was due to a net increase in assets under management from distribution partners, primarily in non-U.S. markets, as well as an increase in recurring fees, and in investment processing business both in the U.S. and now in the U.K.

One-time fees for the quarter associated with conversions in our U.S. Investment processing business totaled more than $7 million. This was an unusually high number. Profit increased from the year ago quarter by approximately 13.6% to $22.5 million. For the full year, profit declined by 6.1% to approximately $83 million. Increased expenses were primarily due to, direct costs associated with Asset Management, and costs associated with the continued buildout, maintenance, and operational deployment of the Global Wealth Platform. This segment accounts for the majority of the overall expense of the platform.

Margins for the quarter were 20.2%. As I mentioned during recent calls, we expect to have continued pressure on margins in this segment as we launch Global Wealth Services in Europe and in the U.S. Longer term, we expect strong margins, as we are making significant investments to grow and scale our Private Banking business. Net sales events during the year totaled approximately $33.4 million in annualized revenue, after deducting client losses and Investment Management subadvisory fees.

As a strategic review of 2007, we made significant progress toward the transformation of our Private Banking business, to our new Global Wealth Services solution. As a reminder Global Wealth Services is a business solution, designed to help our clients grow revenue, reduce costs and risks, and redeploy resources. Underpinning Global Wealth Services is our new investment processing platform, and our multi-Manager investment offering.

We also globalized this market segment by combining our U.S. Private Banking and Trust business, with our Private Banking distribution business based outside of the U.S. Globalization allows us to deploy resources to take advantage of our worldwide opportunity. At the end of June, we successfully converted our first external client, HSBC's Private Bank in the U.K. Since the conversion, we continue to enhance the technology platform, and have also brought efficiencies to our operating model. We are pleased with our progress.

Finally, we expanded our worldwide Investment Management distribution business, and as of December, average assets under management total approximately [$218.] billion, a year-over-year increase of 35%. I would now like to update you on our market activity.

On the investment processing side of Global Wealth Services, we continue to build a pipeline focusing on the U.K. and the U.S. Both markets have closely watched our progress with the first client, and we are actively engaged in our discovery process with key prospects. Today, I am very pleased to announce another Global Wealth Platform client. Frost Bank, a long time ASP relationship will transition to our new platform in the second half of 2009.

Earlier this month, we entered into a long term Global Wealth Services contract with Frost. They will adopt our asset based pricing model, which we believe provides a win/win business proposition for our partnership. Frost has also agreed to work with us on the buildout of the case studies, as they recognize the benefits of Global Wealth Services. We look forward to working with Frost as we begin the transformation.

Also in the fourth quarter we signed a new long term agreement with State Street Bank, which includes the merger of IBT, a current TRUST 3000 client. Although State Street will continue to operate on TRUST 3000, renewed commitments from important U.S. clients, are based on SEI's strategic Global Wealth Services business. While we are building the investment processing pipeline, we are making progress with the growth of our worldwide Investment Management business, which is also supported in part by the Global Wealth Platform.

In the Middle East, we are in the process of opening a local office in Dubai to support distribution efforts in this region. We have recently entered into an agreement with one of the regions leading banks to provide a turnkey investment solution for their clients. We have significant activity across the region, which I expect to be an important new market for us in 2008.

In summary SEI's Global Wealth Services solution, will provide the strategic infrastructure to help Private Banks grow, and keep pace with the rapidly changing Wealth Management industry. We have successfully launched our new solution and platforms, and we are focused on growing this business.

At this point I will take any questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Jeff Hopson with Stifel Nicolaus. Go ahead, please.

Okay, thank you. Joe, two questions. Some of your clients or potential clients obviously have had challenging markets here. Have you seen any change in their behavior? Would you expect or be concerned that they will push things back, or on the other side, with problems like the French bank has had, could that potentially motivate them to want to move over I guess, back office and other services with you? What are your overall views on what is happening out there?

Yes, it is still pretty early to tell, because the obvious banks obviously are dealing with a more challenging environment, but I think our initial response is that our solution and the benefits of our solution resonate well both in bull markets, and more challenging markets, and if anything, I think we are seeing increased interest in our ability to help them in a variable expense model, with our asset based business model, and again, I think as I mentioned earlier, activity is strong, and again time will tell, because there are obviously a lot of challenges out there, but overall I think it is generally, we feel very positive about the direction, the solution, and the market is heading in.

Okay, great. Thank you.

Thank you. Our next question is from Robert Lee with KBW. Go ahead, please.

Thanks, good afternoon, Joe.

Hi, Rob.

A couple questions. On the two announcements I guess first on Frost Bank, should we be thinking that at the outset it will be essentially no short run revenue impact, but hopefully over time as Frost Bank's assets grow that is where you'll see the improvement, or is there, is that how we should view it at least in the early stages?

Well, we don't comment on specific client situations, but again, as I mentioned earlier, we are pleased that Frost has adopted this asset-based model, pricing model, so as we are able to help Frost grow their business, we would benefit financially by that, so I think that there is significant upside to this business model, and we are pleased that we continue to prove that out, with this additional client announcement.

Okay, well, similar question with State Street. If I remember correctly, both [IFN] and State Street were clients. Should we be thinking of this as kind of 1+1=2, or 1.5, or 2.5? How should we think of this?

Again, we don't comment on specific relationships with clients --

Got to ask anyway.

I know, but I will give you a little bit of information. We do have a long term relationship with both of those organizations. I think that again, they were, we provided a good level of support to them over the years, and helped them with their business, and there are additional products that one bank may have had some products, the other bank didn't, and I think that what we believe is long term, it is a neutral financial situation for us, by giving additional services and additional products to the combined organization.

Okay, and just sort of a general question. If I think back to, this is focusing on the new platform in the U.S. The first announcement, I guess you announced around the same time you originally announced the HSBC Private Bank in the U.K., I think it was actually June of '06, if memory serves me, and at that point, the expectation had been that I think maybe somewhere around now where you would actually be going through that initial conversion, and obviously now we are talking about kind of the latter part of '09.

What sort of transpired? Is it between when you signed on that first client and the pushback of the implementation? Was it the decision to reallocate resources towards Europe, or additional stumbling blocks in the buildout? Could we possibly have some color on what may have caused that?

I think it was generally a strategic decision to allocate more resources towards our U.K. and European opportunity.

Okay. I was just curious. Thank you very much.

Thanks.

Thank you. (OPERATOR INSTRUCTIONS) I am showing no further questions at this time, sir. You may proceed.

Thank you, Joe. Our next segment is Investment Advisors, and Wayne Withrow will cover this segment. Wayne?

Thanks, Al. I will briefly review the fourth quarter financial results for the Advisor segment, and then provide some data, to give you a sense of the progress we have made on our strategy. Revenues for the fourth quarter increased 11% from the year ago period. This growth was driven primarily by an increase in average assets under management for the quarter, to $41.3 billion, compared with $37.2 billion in the year ago period. Profits increased 7.3%, driven primarily by increased revenue. Our margins dropped slightly due to investments in our Global Wealth Platform, Investment Management area, and Sales and Marketing.

These financial results reflect progress in our efforts to improve net cash flow, recruit new advisors, and to continue the transformation of our business. With respect to cash flow, during the fourth quarter we had gross cash flow of $1.9 billion, and redemptions of $1.6 billion, yielding a net cash flow of about $300 million. For the year, net cash flow was almost $1.4 billion, easily meeting the $540 million we posted last year, and representing our best net cash flow year since 2001. Growth from our existing advisors, aided by cash flow from new advisors resulted in these flows.

Speaking of new advisors, we recruited almost 200 of them in 2007. More importantly, we were selective in the advisors we recruited, and targeted only advisors we felt had future growth potential. One component of the sustainable health of this business, is growth from our installed base of advisors. In addition to making progress with our financial results, we made progress in transforming our business.

One example is the rollout of our distribution-focused strategies. On it's face, this investment product appears to fit perfectly, with the demographic trend of retiring baby boomers, and it does. However in this product, we charge an account level fee, in addition to the fees embedded in the Mutual Fund expense ratios, representing a modification of our existing business model, and a source of additional revenue streams for this segment.

During 2007, we also made progress in transforming and strengthening our ability to help our advisors grow. The rollout of the proposal generation tool is just one example. As a metric, we helped advisors prepare over $5 billion in proposals in 2007. While we are satisfied with the results of the fourth Quarter, and all of 2007, we continue to look at ways to grow our business going forward. New advisors, existing advisors, and transformation of our business model, are all part of the equation.

We will continue to work hard in executing on these agendas. I will now entertain questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from Jeff Hopson with Stifel Nicolaus. Go ahead, please.

Hi, Wayne. Just not to focus too much on the markets around us here, but just wondering if there are any, I guess, challenges and/or opportunities maybe thinking about opportunities that markets like this present to you, and in the very short-term, should we calibrate down our expectations for flows because clients, end clients tend to not do a whole lot, or what would you be your thoughts there?

It is kind of tough to answer that question, given our limited history. What I would say is if you look at the fourth quarter, the gross cash flow I think was our second highest we have had in the past 16 quarters. It is kind of hard to drill down past that metric to say why or why not. But I think the other way to look at it is when you get into these turbulent times, it reinforces to the end investor that you need to get some professional help, and that is certainly a good trend for us.

Very good, thank you.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is from Tom McCrohan with Janney Montgomery Scott. Go ahead, please.

Hi, Wayne. The pick-up in liquidity funds this quarter, is that pretty much a function of the cash coming into, the cash flows you are talking about, and just kind of significant cash, until it gets invested in equities, or is that some reallocation decisions going on amongst the end clients of the registered investment advisors?

Tom, I think it is a little bit of both. I think some new investors are perhaps maybe seeking professional help, or taking a little bit of a defensive position going in.

Yes. What is the impact, can can you give us a sensitivity, Wayne, on your margins, if people this year take a real, the inclines of the RAAs, say individuals, take a much more defensive posture, in just moving stuff into cash and fixed income. How, give us if any sensitivity if you have any on what the impact would be on your margins up or down?

I really don't look at it sort of moving from one product to another. I look at how our product suite responds, or is positioned to the market. We have enhanced cash products. We have defensive strategies that are all part of our margins, and we have investors in them all the time. If you look, if you want to say straight up money-market fund, as opposed to our strategies, it is a lower margin product for us, but we have other, numerous defensive products.

Right.

That is just part of the product mix.

Okay, that makes sense. Thanks, Wayne.

Thank you. There are no further questions at this time, sir.

Thank you, Wayne. Our next segment is Institutional Investors segment, and I will turn it over to Ed Loughlin to discuss this segment. Ed.

Thanks, Al. Good afternoon, everyone. The Institutional Investor business segment enjoyed healthy growth in both revenues and profits, during the Fourth Quarter of 2007 and also for the entire year. Revenues, approaching $53 million for the fourth quarter increased 15%, compared to the fourth quarter of 2006, and profits grew 20% versus the year ago period.

Continued strong, new client funding was the predominant driver of revenue and profit growth for the period. During the year, margins improved, increased 2%, ending the year at 39%. Profits of $78 million for the entire year increased 34%, due to the new client funding and also capital market appreciation.

Asset balances increased by $7 billion during the year, totaling $49 billion at year-end, and during the fourth quarter, net new client funding was $1.9 billion, and our backlog of committed but unfunded assets at the year-end was $1.2 billion. Strong sales momentum continued during 2007. New client sales of $6.9 billion for the entire year, was an increase of 27% compared to 2006 annual sales.

Sales for the fourth quarter were $900 million. A key driver for the institutional sales growth is the continued global adoption of SEI's integrated pension and endowment solution in our six target markets. New clients were globally diversified, by both geography, and it also represented a healthy mix of retirement assets, [inaudible] assets, and healthcare operating pools. Changing regulations, complex investment products, and ongoing cost volatility, are compelling institutional investors away from fragmented plan management models, in favor of a more integrated and strategic approach to managing both pensions and endowments.

During 2007, we continue to experience success with corporations, selecting a single provider for their global pension needs, and also success with larger investment pools. In closing, we enjoy a healthy and growing pipeline, but we will be watching closely the combined impact of market volatility, and the depressed equity markets, on our prospects decision-making process.

Thank you very much, and I am happy to entertain any questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question is from Tom McCrohan from Janney Montgomery Scott. Go ahead, please.

Hi, Ed, how are you?

Good, Tom how about yourself?

Good, thanks. You had great operating leverage this year in your segment. You talked about the nice growth in operating profit this year, and I just was trying to get a sense for what you are thinking about, in regards to growing revenue faster than expenses this year?

Well, again, we don't kind of forecast those types of things, but I think generally we are seeing positive results as an impact of our globalization, so the name of the game for this segment has been for many years, is to continue to grow the top line as fast as we possibly can, so that continues to be the strategy.

Was there anything this year that you think contributed that was unusual, that would allow you to have the expansion you had in margins this year, that will not repeat itself in 08?

No, I mean, I think that the strategy that we have and we executed this year, was really to offer the same solution on a worldwide type of a basis, but customized to the unique needs of the individual markets, and that is going to be the continued strategy next year, or I am sorry, in 2008, this year. So I think we will continue to see progress.

Okay, thanks, Ed.

Sure.

Thank you. (OPERATOR INSTRUCTIONS) I am showing no further questions at this time, sir. You may proceed.

Thank you, Ed. Our final segment today is Investment Managers, so I will turn it over to Steve Meyer to discuss this segment. Steve.

Thank you, Al. Good afternoon everyone. The Investment Managers segment continued to grow in both revenue and profit for the fourth quarter of 2007. Specifically for the fourth quarter, revenues for this segment totaled $38.2 million, a $5.4 million, or 16.5% increase, compared to the fourth quarter of 2006. This growth was due primarily to new, net client fundings, and existing client growth.

Our quarterly profit of $11.5 million, was up approximately 25% from the same quarter a year ago. Additionally in looking at 2007 for the entire year, we had solid improvement in year-over-year margins, while I do think there is an opportunity to increase our margin going forward, it will not be as dramatic as we have seen to-date, especially as we continue to invest in our business and strategic direction.

Also as you might recall from the prior quarter's call, during 2007 we had some legacy client losses which left at year-end. Although we expect to grow through these losses, it could affect our top and bottom line growth in the near term, as we absorb those losses, and redeploy the fixed costs to the new business we are bringing in.

Third party asset balances at the end of the fourth quarter of 2007 were $215.1 billion, or $9.8 billion higher than at September 30 of 2007. This increase is comprised of approximately $11.9 billion in additional net client fundings and paid in capital, offset slightly by a decrease of approximately $2.1 billion in market depreciation.

In the fourth quarter of 2007, we had another strong new business development quarter, with new business sales events totaling approximately $7.2 million in annualized revenue. This brings our total New Business events to $35.1 million for the year, which represents a new record for this segment, surpassing our previous annual record of $21 million, which we reached last year.

We are pleased with this accomplishment, but more important to us is the continued market acceptance of our solutions, and the support for our strategic direction that this represents. We are confident that we are heading in the right direction that serves the broader needs of the investment manager market, and these record events provide validation for us. In 2007, we were focused on several key areas and themes, from a market standpoint, all new business we acquired, we did so with an eye towards our strategy of providing total operational outsourcing, and the ability to transition to that higher value proposition model.

Additionally, we started to push our solutions more globally by signing on several new European based clients. Our growth continues to be driven by our clients emerging needs, and assuring that we execute and deliver on these needs. As the market becomes more complex and investment managers strive to compete and improve their business, they are looking for more integrated solutions. To that end, we feel that we are well-situated, and 2007 marked a year of progress towards this goal.

As we look to 2008, we will continue our progression on what we have started. Our focus and direction remain the same, and we will continue our emphasis on our three broad initiatives, of total operation outsourcing, global expansion, and executing on the demand for our current solutions.

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

Thank you, sir. (OPERATOR INSTRUCTIONS) I am showing no questions at this time, sir. You may proceed.

Thank you, Steve. And I would like now for Kathy Heilig to give you a few company-wide statistics. Kathy?

Thanks, Al. Good afternoon everyone. I have some additional corporate information about this quarter. The fourth quarter cash flow from operations was $95.6 million, or $0.48 per share. The fourth quarter free cash flow was $67.3 million, or $0.34 per share. Year-to-date cash flow from operations was $361.5 million. Fourth quarter capital expenditures excluding capitalized software was $10.6 million. Capital Expenditures for 2008 again excluding capitalized software are expected to be between 25 and $30 million.

The tax rate for the fourth quarter was 36.7%, and the annual rate was 36.6%. This compares with a fourth quarter 2006 tax rate of 35.1%, and an annual 2006 tax rate of 34%. The expected tax rate for 2008 will be somewhere between 37 to 38%, but will vary by quarter. The Accounts Payable balance at 12/31 was $8.7 million.

We also would like to remind you that many of our comments are forward-looking statements, and are based upon assumptions that involve risks, and that the financial information presented in our release and on this call is 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.

Please feel free to ask any other questions that you may have.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from Robert Lee with KBW. Go ahead, please.

Thanks actually I have two questions. First is a quick one for Joe. I forgot to ask. When you talked about the one-time fee, was that 7 million for the quarter, or for the year?

That was 7 million for the quarter.

And just so we can sort of frame that, is it possible to generalize what kind of a normal sort of quarter would look like, sort of 2 to 3 million?

Yes, that is about right, 2 to 3 million.

Okay, and follow-up question is if I think back towards I guess difficult markets back in '01/'02, the Company had a lot of leverage you were able to pull in the expense side, to sort of offset some pressure on revenues at the time.

Who knows if we are or not, but if we were to enter into a tougher revenue environment, with difficult markets, if they stay this way for a while, do you have the same levers to pull? Could you give us a sense of where, or to what extent you think you can do that, and also to what extent is having to continue to invest in building out these new platforms, maybe limit your ability to pull those levers?

That question is for who?

Whoever wants it, Dennis, I guess?

(laughter)

He drew the short straw.

This is Al. There are always some levers, but we don't have a tendency to bankrupt the long run for the short run, so we really are pushing very hard to continue the transformation in our Company, but we do have some quite natural, I wouldn't call them levers, but quite natural things that dampen that, and one is our comp structure, and because it is all based around goals that you make, and if you don't make the goals, the comp goes down, and our incentive comp is a very large portion of our overall comp.

That certainly is one of them, and then we have got a lot of outsourced providers, so we really do everything possible not to have any layoffs, or risks, or whatever you call them, because it kills morale, and it takes years to overcome those. But we do have an enormous number of outsourced providers, and we go there first. So we do have levers but, we hope that this sort of thing doesn't continue for very long.

Great, thank you.

Thank you. Ladies and Gentlemen, (OPERATOR INSTRUCTIONS) I am showing no further questions at this time. You may proceed.

Okay, so thank you all, and despite some of the external uncertainties that we face, we feel our transformation has been steady, and will continue to be steady, and while we have a lot yet to accomplish, we do continue to make really important strides, and our new solutions are making our clients businesses and lives better, and we are encouraged by their interest in these new solutions, and so we remain very excited about what we are building.

We are executing our transformation and we look forward to delivering the potential that we believe is there. So I am going to conclude this now, and open the floor for any other questions you might have come to you before we close off. So take a minute and think about that, and then we will say good afternoon.

Thank you, sir. (OPERATOR INSTRUCTIONS) I am showing no questions, sir.

Well, thank you all for your attendance today, we appreciate that, and have a good afternoon! Thank you.

Ladies and Gentlemen, that does conclude our conference for today. Thank you for your participation, and for using AT&T Executive Teleconference. You may now disconnect.