SEI Investments Co (SEIC) 2008 Q1 法說會逐字稿

Ladies and gentlemen we would like to thank you for standing by and welcome to the SEI first quarter earnings teleconference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, today's conference call will be recorded. I would now like to turn the conference over to your host Chairman and CEO Mr. Al West. Please go ahead, sir.

Good morning, everybody and thank you for joining us this morning. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI CFO and Kathy Heilig, SEI Controller. I'm going to start by recapping the first quarter, then turn it over to Dennis first to expand on a few financial matters, including our SIV exposure, and to cover LSV and the Investment New Business segment. 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 company-wide statistics. As usual, we will field questions at the end of the each report.

So let me start with the first quarter. First quarter earnings fell 23% from a year ago on a revenue growth of 3%. Diluted earnings per share of the first quarter of $0.25 represents a 19% drop from the $0.31 reported for the first quarter of 2007. Now earnings for the quarter were adversely affected by our first quarter charge-to-earnings of $25.8 million or approximately $0.08 per share. This was due to a further 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 a SIV situation we addressed in our third quarter 10-Q and the special investment call we had at that time. And we also addressed the issue in our fourth quarter 2007 earnings call. Now Dennis will further update you on the SIV situation in a few minutes.

Our modest growth in revenues for the quarter is a result of fees from new clients across all of our segments. And now while we experienced a solid new business quarter, these gains were substantially offset by weaknesses in capital markets since a good portion of our revenues are directly tied to asset balances under either management, or administration. Our noncash asset balances fell by $13.5 billion during the quarter. Now this contraction was due to lower equity in the debt markets which more than offset cash flows during the quarter. SEI's assets under management fell by $7.7 billion during the quarter while LSV's assets under management fell by $5.8 billion. And our global 60/40 portfolio was down 5% during the quarter. Also during the quarter we repurchased 1,963,000 shares of stock at an average price of nearly $26 per share. That translates to $51 million of stock repurchases during the quarter..

The recent turmoil in capital markets, as well as the SIV issue, made the first quarter a particularly challenging one. Now, regardless of these issues, we do continue to make progress in transforming our company to new strategies and new solutions for our clients. This transformation is critical to the long-term health of our business, and so we continue to persevere.

Included in our efforts are three notable investments. First we're building and implementing new client processes in each one of our markets. And second, we are continuing to invest in the global wealth platform, the technology that's behind many of our transformation effort. And third, we are building the operationl and and service infrastructure necessary to handle clients all over the world on the new platform.

We continue to be satisfied with the progress we're making in developing the global wealth platform. We've recently delivered some stabilization/scalability functionality, as well as conform to significant changes in the UK tax code. And we're near delivering functionality and scale in the Investment Management function. During the first quarter of this year, we capitalized $12.2 million of the global wealth platform development.

In addition to development expenses and ammortization, as additional functionalities roll out, maintenance costs to the platform grow and so do the cost of establishing operations throughout the world. Now the operation of HSBC's UK private bank continues to go well, and market and sales activity in the UK and Europe continue strong. And Joe Ujobai will speak to these activities.

And as we look across all of the company's businesses, we continue to be pleased with the progress we're making in our transformation. We're confident that the investment in the global wealth platform bodes well for marketing efforts to wealth managers throughout the world. And our segments serving institutional investors and investment managers continue to show significant progress in all aspects of their businesses. And in our Advisor Business we have made great strides in engaging our advisors and strengthening our relationship with them. And with the backdrop of troubled equity markets and the destructions due to their subprime debt markets, the short run will remain challenging. And if these markets continue to fall, we expect extended sales cycles.

But rest assured, during these times we will continue to work hard to transform our business, control costs and do the right things. We are firm in our belief that these efforts are on the right path to build a stronger, faster-growing company.

Now this concludes my remarks. So now, I ask Dennis McGonigle to cover some company financial issues and give you an update on LSV and the Investment New Business segment. After that, I will turn it over to heads of the other new business segments. Dennis?

Thanks Al. Good morning, everyone. I will provide an update on the capital support agreements that we have discussed at length in our 10-K filing and on our prior two calls, and their impact on our earnings. I will then briefly cover the first quarter results for the Investment New Business and LSV segments.

As you are aware from our fourth quarter call and 10-K filing, SEI entered into capital support agreements with three SEI money-market regional funds back in the fourth quarter of 2007. 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 [outstanding] notes on the scheduled maturity dates.

As you will recall from our filings in October 2007 and our recent 10-K filing, 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 [will provide] a credit support having an A1 short-term rating by S&P. Although we were not obligated to provide the credit support, in order to avoid a credit watch by S&P on our funds and to address the need of customers, SEI entered into the capital support agreements. We entered into similar agreements with two other funds.

Under these agreements, as of March 31, 2008, we are committed to provide up to an aggregate of $162.5 million of capital into the funds if a fund realizes a loss on its covered SIV holdings, so that the net asset value per share of the fund will be less than .995, or in the case of one fund, .9975. We provided detail about this arrangement in our annual 10-K 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 in the past. 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 that contributed capital. Second, if the mark-to-market value of the SIV or other security as detailed on our filings is less than its advertised cost, and if the aggregate net asset value of the fund using market values is less than .995 or in the case of one fund, .9975, then even though a loss has not been realized with the sale or other disposition of the security, SEI will be obligated to reflect its obligations under the the support agreements to commit the required amount of capital so that the funds net asset value is at least .995, or in the case of the one fund, .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, SEI is obligated to recognize a noncash expense for its obligations to the funds for an additional $25.8 million during the first quarter of 2008. We recorded this charge-to-earnings in the net gain/loss from investments line of our income statement. When combined with the charge-to-earnings that was previously recorded in the fourth quarter of 2007, total losses recorded as a result of this support as of March 31, 2008 are $50.9 million. This amount is accrued on our balance sheet.

As you are all well aware, during the first quarter of 2008, the credit markets continued to deteriorate. These market conditions reduce the market values of the of the collateral underlying the money market fund holdings. The reduction in market value resulted in a direct increase in our obligation under the support agreements.

Currently, as of yesterday, April 20, 2008, the amount which would be accrued for SEI's contribution obligations under the the capital support agreements based on yesterday's market prices was approximately $61 million, which reflects the current carrying value of all SIVs and other securities, with the greatest impact from [Cheney] and Victoria. Should yesterday's market values and asset levels hold through the second quarter, SEI will incur an additional loss of $10 million. We expect to file our 10-Q shortly. I encourage you to review that filing and all past filings for further information.

Ultimately, we believe that both Cheney and Victoria, among the other SIVs, 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. Future accruals for our obligations under the 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 creditworthiness of the SIV securities and upon the assets under management in the funds.

For further information, we published the month-end holdings of our money market funds after the 15th day of the following month at SEIC.com/holdings home.ASP. 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. I will now take any questions on this topic that you may have.

(OPERATOR INSTRUCTIONS) One moment please for our first question. Our first question comes from the line of Murali Gopal of KBW, PLease go ahead, sir.

Good morning, Dennis. Hi, Murali. Just a quick question on the SIV notes. I know you that had a whole bunch of notes maturing at the end of March. And I am just wondering how much of that matured and how much went into receivership or-- Can you just update us on what's the current total exposure to the SIV notes?

Sure. I mean, we have had a-- We did have some maturities in March. Just to give you I guess a little more historical background. Since this began, you know, we started with holdings of roughly $1.4 of these types of securities back in, let's say, the end of September and October. About $800 million of that has matured. In March and, I guess, in the first quarter, if you will, about $240 million matured of that number. So, we have seen a lot of these securities that we held from the beginning, mature. We currently have about $600 million [of] par value. We still hold about $600 million of par value of these securities, and the bulk of which actually is made up of Cheney and Victoria, the ones that we have already recognized as a problem.

Okay. Thank you.

Our next question in queue comes from the line of Tom Mccrohan of Janney & Montgomery. Please go ahead.

Hi, Dennis.

Hi, Tom.

The Cheney and Victoria SIVs-- Can you remind us what the underlying collateral is for those SIVs? And when these noncash charges that you're taking during the quarter, is it because the collateral is not performing? Is it still kicking off cash, or is there some other reason why the asset value is being impacted?

Yes, generally the information we have been able to get tells us that the underlying collateral is performing, you know, that payments are being made on that collateral. It is really just the overall market conditions that are driving down the market valuations or assessments of market valuations of those underlying collateral instruments. And the big issue is liquidity in the market. That's having probably the biggest impact on pricing. I think if you look at Cheney, for example, the most recent information we had, which is early April, about 82% of the portfolio is AA or better on the underlying collateral. About 89% is A or better. And so the ratings, although, I guess, [on] aggregate have gone down slightly,, they are still fairly highly rated positions. And Victoria-- It is similar. 81% is AA or better, and about 92% is A or better. So the underlying collateral-- It seems to be holding up. It doesn't mean there is not-- In terms of hard line, it is like we really can't get to the absolute underlying single mortgage that Mrs. Roberts has in Toledo, Ohio, that may be one of the assets that is held (inaudible) layers down here, but the information we are getting is still somewhat encouraging.

Any metrics on, like, loan-to-value or [FICA] scores or anything like that in connection with the mortgages supporting both of those SIVs.

Again, when you try to drill down on these types of securities, [you] get all the way down to the actual underlying mortgage.

Uh-huh.

Quite a challenge.

Fair enough. Well, thanks for taking the question, and your comments were very helpful. Thanks.

You're welcome. Thanks.

Our last question in queue on this topic comes from the line of Justin Hughes of Philadelphia Financial. Please go ahead.

Good morning. Most of my questions have been answered but except two follow-up questions. Do you know if they are first lien mortgages or if they are seconds or (inaudible) or subprime?

Again, getting all the way down to that level of detail is somewhat challenging.

Okay. And then second of all, it looks like you have taken about a 10% accrual [rate], well, if you include the mark-to-market [today], $61 million, on your $600 million of exposure. What data point did you use to price those? Is there an open liquid market for these?

When it comes to the securities that have defaulted, mainly, as I have said in the past, Cheney and Victoria being the larger holdings we have, we're using fair value pricing.

How do you determine fair value? Is there --

We work with our subadvisor, Columbia Asset Management, subsidiary of Bank of America, and they have a fair-value model that we rely on.

Okay, so it would be considered a Level 3 if it was in a brokered deal, or are you estimating this value 'cause there is no liquid market for these?

Correct.

Okay. Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS) There are no further questions in queue at this time. Panelists, please continue.

Thank you. I would now like to cover the Investments in New Business segment and the LSV segment. Activities in the Investments in New Business segment are focused on direct marketing to ultra high net-worth investors. During the quarter, the Investments in New Business segment generated a loss of $2.8 million. This compares to a loss of $3.2 million for the first quarter of 2007. The efforts in this segment continue to be centered on learning, developing and delivering our life and wealth services to the ultra high net-worth segment. The learning we gain and the services we develop from this process are leveraged if applicable to other asset distribution units in the company. As you know SEI historically has used the Investments in New Business segments as an incubator for new initiatives. We view the losses in this sergeant as an investment in future market opportunities and/or services. 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 million in the first quarter 2008. This compares to a contribution of $31.3 million in the first quarter of 2007. This year-over-year decrease was due primarily to a loss of assets from market depreciation. During the first quarter, LSV's net assets shrank approximately $5.8 billion. We expect LSV 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 $77.3 million. This compares to revenues of $81.2 million for the first quarter of 2007 and $82.2 million in the fourth quarter of 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 $336 million, $78 million is attributable to LSV at March 31, 2008. Of our reported receivables of $282 million, $87 million were attributable to LSV. Liabilities are affected by the debt associated with our guarantee to the LSV employee group. This is reflected in both current liabilities, approximately $10.9 million, and long-term debt, approximately $39 million. I will now take any questions you may have on the Investments in New Business or LSV sergeants.

(OPERATOR INSTRUCTIONS) Our first question in queue comes from the line of Glenn Greene of Oppenheimer. Please go ahead.

Thanks. Good morning, Dennis.

Hi, Glenn.

Could you just talk about, on the performance of LSV, just sort of the asset flows, sort of just talking about the market performance versus the inflows or outflows?

Yes, there-- yes, asset losses in the first quarter--that was pretty much 100% market depreciation. [Other] client flows were essentially flat. So,,they are taking new client money in. And, as in the past where they have been closed on a lot of their products, I guess, their position now is they are kind of selectively open.

That was my next question. Are they opening any of the funds that previously had been closed.

Yes, selectively.

Okay, thank you.

Yes, they have the capacity.

All right.

Our next question in queue comes from the line of Jeff Hopson of Stifel Nicolaus. Please go ahead.

Okay. Yes, I was going to ask the same thing about the products being open. So, they are open or they are not, I guess?

Well, I said they are selectively open.

Selectively open.

Yes.

Okay, great.

And they will take new client money.

Great. Okay, thanks a lot.

Yes.

All right, our next question in queue comes from the line of Tom Mccrohan of Janney Montgomery. Please go ahead.

Dennis, is there any particular fund that is seeing more underperformance than other funds in LSV? I don't really know all the funds in detail, but the-- If you can elaborate on-- The average market values are down 5% for the quarter, but they clearly were down more than the market depreciation in the quarter? Maybe there are certain funds that are a multiple of the market depreciation for whatever reason. If you could elaborate on that, that would be helpful.

I think there are-- More [of their] large-cap value strategies were more impacted than some of their mid-cap and small-cap products.

Okay. All right. So there was some of that. And you folks, when you consolidated LSV back, I don't know, early '06 because of the guarantee of the loan, is there any level of ownership where this would be deconsolidated? Any talk about that in-- [Okay, say] we could potentially deconsolidate this if ownership drops to a certain percentage. We don't really kind of elaborate on when that percentage is, so--

It is really when our risk of ownership drops below 50%. So, in the end, the rule that triggers the consolidation is more of a risk-based rule.

Okay.

Than a technical ownership--actual ownership rule. And as you remember, that last transaction was about 8%. So we're just over 50% in total risk. So once our risk drops below 50, that's when we would deconsolidate.

This is associated with the outstanding loan you mean?

Yes, and/or any other shift in ownership.

Okay, because, I mean, they are really-- They are paying down that loan pretty quickly, right?

They are paying it down, yes.

So you're getting pretty close to that risk going below 50%?

It is not a pro rata-- If you're thinking about it in terms of a pro rata event?

Yes.

It is not a pro rata event on the loan. It is all or nothing.

Okay is there-- Could you qualify or speak to-- Is there a chance this could be deconsolidated over the next 12 months?

Not-- I wouldn't say that's possible through the loan being repaid.

What, maybe, help us understand what events would then, outside the loan being repaid, would lead to deconsolidation? Bacause you consolidated because of the loan.

If we sold 10% of our holdings, that would reduce our ownership by 4%.

Not that we're planning on doing it.

But not that we're planning to. I am just saying that-- You were asking for-- What are other scenarios that would result in deconsultation.

But before you [couldn't] provide a guarantee for the loan. You owned 43%, and it was deconsolidated. The event that consolidated it was the loan. But now you're saying to deconsolidate, your ownership has to drop 10%.

Hey, Tom, the loan represented 8%. 8 plus 43 is 51. To the extent that the 51 in whatever way, shape or form drops below 50, that would result in our deconsolidation. Do you understand that? So what if the 43 were to drop, or the 8% were to go away?.

Does the 8% go away if they repay the loan?

Well, it will, yes.

So then you would drop below 50%.

Correct. But your question was this year, and my comment was that it is highly unlikely that the loan will be repaid this year.

Got it.

Okay.

Thank you.

Okay.

Our next question comes from the line of Murali Gopal of KBW. Please go ahead.

Hey, Dennis, I know you said the LSV funds are selectively open now. But can you give us an idea-- Is this more of a second quarter event, or is this something that happened the first quarter. Just in terms of timing, when they started-- When did they start opening up the funds selectively?

It is more-- I can't-- I mean I can't really say there is a firm date where they hung out a sign. I think it's just that they actually moved into doing it during the first quarter.

Okay. And, just in terms of looking at the operating margin at LSV, it looks like it has held up pretty well. Is it more just a function of lower accrued compensation?

Yes, plus there was a one-time expense in the fourth quarter that brought the margin down a little bit.

Okay, thanks.

It didn't repeat itself in the first quarter.

Okay. Thanks.

So it was more timing on that than anything.

Our next question comes from the line of Glenn Greene of Oppenheimer. Please go ahead.

Yes, I actually had a very similar question to the previous one. I was just trying to understand the expense flexibility on the LSV side, if there are sort of natural buffers like the core SIV business model has, given that sort of revenue dropped $5 million sequentially but profits barely dropped. So, just trying to get some clarity on that.

Yes, a little bit--less of that. I think it also had to do with expenses in the fourth quarter.

How material were those one-time expenses in the fourth quarter?

Not that material to our earnings, Glenn.

But to LSV's?

Well, again, they weren't material.

Okay. All right. Thank you.

Yup.

There are no further questions in queue at this time. Panelists, please continue.

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

Great. Thank you, Al. Today I would like to review our financials and give you an update on our market activity. The financial update--revenue of just over $107 million, [by] 10% from the year-ago quarter, but declined approximately 4% from the fourth quarter of 2007. Revenue growth versus the year-ago quarter was due to a net increase in assets under management from distribution partners primarily in non-US markets, as an increase in our (inaudible) processing revenue both in the US and the UK. Revenue decline from the fourth quarter of 2007 was due to both market depreciation, as well as some high net-worth client redempions in our asset management business.

I would like to remind you that we also had relatively strong one-time revenues in our US investment processing business in the fourth quarter of 2007. Average assets under management for the quarter were $19.6 billion, an increase of 10% from the year-ago quarter but a decline of $2.2 billion from the fourth quarter of 2007. The decline in average assets equaled approximately 50% in market depreciation and 50% in net client redempions.

Profit increased from the year-ago quarter by approximately 5.8% to $20.9 million. Profit declined by approximately 7.4% from the fourth quarter of 2007 due to the declining revenue and a 3.5% increase in expenses. Increased expenses were primarily due to costs associated with continued sales and marketing [build out], maintenance and operational deployment of the [global wealth] platform. This accounts for the majority of the overall expense of the platform.

Margin for the quarter was 19.5%. As I mentioned during recent calls, margins will bounce around recent levels as we expect to have continued pressure in the segment due to the launch of global wealth services in Europe and the US. Longer term, we expect strong margins as we are making significant investments to go and scale our private banking business.

I now update you on market activity. On the world processing side of global wealth services, we continue to build out the solution, as well as the client pipeline, focusing on the UK and the U.S. Both markets have closely watched our progress with the first client, and we're actively engaged in our business discovery process with key prospects. In the UK, we're seeing increased interests from large non-bank wealth managers -- a fast-growing segment of the market. These firms typically manage over $1 billion to more than $10 billion in assets by providing discretionary investment management services to mass affluent, affluent, and high net worth clients. This business segment is growing, is quickly moving towards models-based discretionary investment solutions, so their business model lines up nicely with the strategic functionality of the global wealth platform. We are increasing our sales focus and activity in this segment.

In the U.S., we signed three community banks for our Trust 3000 BSP solution that will convert to SEI this year. Increased sales sales activity in the U.S. community banking segment is based on expanded market interest and our long-term global wealth strategy. As I mentioned, we continue to deliver additional functionality, and able to release an important platform upgrade to support continued operational efficiency, scalability and UK tax and regulatory changes. We expect an additional efficiency release in May and a significant release later this year, delivering investment management functionality which is key to the valued proposition of global wealth services.

While we are building the wealth processing pipeline, we are making progress with the build-out of our worldwide investment management business which is also supported in part by the global wealth platform. We're focused on high-growth wealth management markets, and are actively expanding our distribution footprint in these markets.

For example, in the Middle East we opened our local office in Dubai and launched our first distribution agreement with the Commercial Bank of Kuwait, CBK. CBK is one of the largest banks in Kuwait with extensive coverage of the institutional and ultra-high net worth market. We will provide a turnkey investment solution for their clients for their newly formed private bank. They recently entered into a second agreement with another one of the region's leading banks to also provide a turnkey solution for private clients.

This month, we signed a distribution partnership with Renaissance Investment Management, RIM. RIM is one of the largest independent investment management companies in Russia and the commonwealth of independent states. Our partnership provides RIM an opportunity to globally diversify their client portfolios by jointly creating a series of proprietary wealth management solutions distributed to their private banking offices primarily in London and Geneva. Earlier this month, we announced our first distribution relationship in Mainland China with the leading local fund manager, Yinhua Fund Management Company. We are working with Yinhua to launch one of China's first manager of manager, QDII Fund, a qualified domestic institutional investment fund.

QDII allows Mainland Chinese investors to diversify their assets into foreign securities markets. Yinhua distributes to local brokerage firms and banks including the Bank of China. China holds great long-term opportunity for us, and we're pleased to be involved in this venture. We are in the early stages of the distribution agreements, and market sentiment amongst private clients remains very cautious. Although market volatility has affected end investor decision-making and cash flow, we're launching important investment management distribution relationships in high-growth markets which I believe will position us to take advantage of the eventual change in investor sentiments.

In summary, our global wealth services solution will provide the strategic infrastructure to help private banks and other wealth managers grow and keep pace with the rapidly changing industry. We're building a comprehensive technology and services solution to take advantage of the worldwide opportunity. Although current markets are challenging, we're focused on the continued launch of our solution and the growth of our business. Are there any questions?

(OPERATOR INSTRUCTIONS) And our first question in queue comes from the line of Jeff Hopson of Stifel Nicolaus. Please go ahead.

Hey, Joe. Couple of questions here. The redempion activity that you saw in the quarter, is this the typical type of short-term behavior from clients as opposed to any permanent changes? How would you judge that? And then, tell us a little bit about the discovery process that you're undertaking with private bank clients and how long typically that would take before potentially the next stage?

Okay. Thanks, Jeff. The answer to your first question -- is this typical? We -- we are relatively new, really. The last three or four years that we have focused on distribution through non-U.S. or global clients, through banks that typically cater to high net worth or ultra-high net worth investors. So, I would say, through ultra-high net worth investors, through private banks outside of the U.S., we don't have a lot of experience with a down market or a more volatile market.

And so I think what we're seeing is that some of our bank clients are -- some of the end investors, particularly one that invested more recently, say, in the 2006-2007 time frame, that only saw sort of fairly significant upside of the markets have gotten a bit nervous and have typically pulled some of their money out of the longer-term markets. And so, we believe that -- that this is closely based on market sentiment and that our solutions are -- are long-term, valid, strong investment solutions, and we would expect to see as market sentiment changes, continued increase in growth of our investment management business through these distributors.

Okay.

As far as the discovery process goes, we are getting increasingly more efficient in the discovery process, particularly as the platform is up and running and the processes are in place. And so the -- the real activity behind business discovery is to go into a prospect, be a private bank or one of these non-bank wealth managers that I mentioned. Better understand their business strategy, better understand how they are currently transacting or running their business, and then identifying how we can take the set of services that we have built that are underpinned by the platform, and line up that business model or move that business model towards the infrastructure that we have built. And so we're getting more efficient at these. I would say that the first couple took six months to a year, and we are actively working to lower that time period and do these things more quickly.

Okay. And in terms of your discussions, any sense of client reaction to the markets, slowdown of interests, pickup of interests, anything you can give us there?

I would say that I know our clients are ultimately investment managers whether they be private banks or the non-bank wealth managers. So, if you look at the banks, obviously, we all know the challenges that banks are facing worldwide. And so that certainly can be a distraction to making more strategic decisions, given what is happening with banks and credit. With the non-bank wealth managers, certainly those organizations are typically seeing a depreciation of their client assets, given the -- what is happening in the capital markets around the world. But I think that, ultimately, volatility will bode fairly well for us in the longer term because it really helps the banks or the non-banks or any of the these wealth managers get focused on the strategy of their business, to gather more clients, to have a closer relationship with their clients. And you really refocus their efforts on a discretionary portfolio for their clients, as well as refocus their efforts on gathering new clients and away from infrastructure, and the type of services that we can provide to them.

Okay. Great, thanks.

Our next question in queue comes from the line of Murali Gopal. Please go ahead.

Good morning, Joe.

Good morning.

Most of my questions have been answered, but just quickly, in terms of building out these service infrastructure for the global wealth platform and the spending related to that, how far along do you think you are in terms of the spending? Do you think the spending related to that is already peaked, or do you expect that to peak sometime in 2008?

Well, we'll continue to spend on the technology of the platform. We mentioned earlier some releases this year, which are around continued operational efficiency, scalability of the platform. So, we, obviously, over time, expect to add significant amount of business to the platform. So, we want to continue out the infrastructure to scale. We talked about a significant release towards the end of the year, around more asset management functionality. We do have to build out more U.S. functionality around taxes and current activity in the U.S. market. And so, we will continue to invest significantly in the platform of this year and certainly of the next year.

Okay. And in terms of your sales focus, when you're talking to your prospective clients especially in Europe, typically, who do you see as the competent, or probably the prospective client is looking at in addition to your global wealth platform?

At the banks, we see typically -- at the large banks, we typically see sort of internal capabilities. So, large global banks would have significant technology and operations resources internally that have often provided these infrastructure services to the private banks. At the -- I would say sort of the focus wealth managers -- the private banks that are primarily focused on wealth management, they typically have, in-house technology platforms that they acquired and are often legacy platforms that are quite old.

And with some of these non-bank wealth managers, there has been an attempt over the last couple years to piece together technology that is available in the market and to try to integrate that to work in this discretionary and moving more and more towards a models-based solution. So, it is typically technology that these organizations are trying to integrate, and many of them haven't been very successful at integrating these in a scalable manner. And so, there are a number of different competitors in-house vs. buying technology, trying to get the custodian to do more for them around individual client management. And now, part of the process is a lot of these organizations obviously are distracted by the market conditions. And so, a competitor is just the other issues facing the business.

Thank you.

There are no further questions in queue at this time. Panelists, please continue.

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

Thank you, Al.

Revenues for the first quarter decreased $1 million or 2% from a year ago period while our average assets under management during the quarter were down $128 million or less than 1/2 of 1% from the first quarter of 2007. The decline in revenue was more pronounced than our decline in average assets under management due to a decrease in the average basis points we earned on our managed assets. I believe much of this decline reflected advisors and investors becoming more defensive in their portfolios as evidenced by a more than $1 billion increase in our money market balances for March 31, 2007 to March 31, 2008.

The good news is we retained these assets even if they are in lower fee products. Cash flow for the first quarter of 2008 was a negative $170 million, disbursements totaled $1.83 billion, and receipts totaled $1.66 billion. Both historical, higher historical disbursements and lower historical receipts contributed to our negative cash flow. Investor uncertainty was evident in both of these totals. Profits for the quarter decreased 9% from the year-ago period. Lower profits were primarily the result of a decline in our revenues and increases in expenses associated with the global wealth platform.

Now while investor uncertainty and declining markets have had a negative impact on our short-term financial results, our underlying business fundamentals remain strong. We continue to sign new advisors and our pipeline of activity continues to grow. In addition, we remain committed to growing our existing advisors with one example being the launch of the SEI million-dollar producer program during the first quarter. Over 60 high potential advisors are participating in this year-long coaching program designed to help them increase new business development. Participants in this program have been generating positive cash flow even in this challenging market environment.

Also keep in mind that while uncertain markets may have short-term financial results challenging, they also allow us to reinforce the value of our outsourcing solution to advisors. Our tax management assistance, proposal generation tools, marketing campaigns designed to calm the worried end investor, and our full array of portfolio strategies, from aggressive to conservative, are just some of the tools advisors can benefit from in these markets. This should leave us well-positioned in the advisor marketplace. In summary, the client market valuations and investor uncertainty have had a negative impact on our first quarter financial results. What we are using these negatives, to strengthen our long-term potential. I will now entertain questions.

And our first question in queue comes from the line of Jeff Hopson of Stifel Nicolaus. Please go ahead.

Hey, Wayne. Can you remained us of what your goals would be in terms of new advisor activity? And then, you know, in this environment, is it harder or easier to add advisors?

Well, your first question, I don't think we've set a specific goal--at least publicly we have internal metrics-- And I usually update everyone on the end of the year as to where we are in new advisors. So, I don't want to give you a specific number for that. I will tell you, in this environment, I think our ability to sign new advisors is not -- is really unaffected by the market or maybe even little bit more positive, because it is their challenge in their business equation. They are looking at different ways to do their business and different ways to grow their business profitably. And challenging markets are sort of a catalyst to have them look at that. You need to remember that outsourcing or outsourcing solution is a different value profits you can put advisors. So, they need to be looking at different ways to do business. So, generally, that is good.

Okay. Great. Thanks a lot.

And we have a question from the line of Murali Gopal. Please go ahead.

Good morning, Wayne.

How are you?

Just very quickly. In a tough revenue environment, which is, you know, the first quarter, you had pretty good improvement of the operating margin, which is kind of a little bit surprising. Can you comment a little bit in terms of what led to the improvement?

Well, I don't know that we really had much improvement in the operating margins. I think, actually, our margins in the first quarter were a little bit lower than our historical standards, which reflects a decline in the asset values, a shift into lower fee products and some increases and some expense lines. Although, we reduced expenses if you look sequentially --

Right.

We took $2 million in expenses out, which is the good news.

Okay.

The bad news is the decline in revenue was more pronounced than the decline in expenses. But we continue, as Al said, to look at our expenses daily.

Okay. Okay. And just also very quickly. I know about a year back you talked a little bit on the distribution focus investment strategies. At that point, you sounded pretty upbeat on the prospects of the strategy.

Could you just forward us a bit on where that stands and what you think about that?

Yes, I think that we're beginning to get traction on the distribution focus strategies, and the market reception of that product line is pretty good. So, if I gave you percentage increases, the numbers would be pretty phenomenal. But in terms of the overall, you know, almost $40 billion in assets, it is still really insignificant as it reflects in our financial results. So the jury is still out. It is continuing to grow, month over month. But we really haven't reached critical mass yet.

Okay, thanks.

Our next question in queue comes from Tom McCrohan. Please go ahead.

Hi, Wayne. Are you seeing any directional changes in April as far as your -- the RA clients getting more defensive?

Well, I mean, if you look sort of try to look over a three-week period, I would say that the market uncertainty we saw in the first quarter has continued in the second quarter. And I think that, it is more of the same for us.

When they get more defensive, assuming that means they're putting stuff in cash, are you guys capturing that through your liquidity fund? Is that a line item in the asset balances?

Could I ask that again, Tom?

When these end clients get more defensive, I guess I assume that means they are selling equities and going into cash. Is SEI capturing that cash investment?

Yes, we are. So if you looked at -- while our total assets were down, if you look at sequentially, our total assets are down, our liquidity assets sequentially are up 18% if you look quarter end to quarter end.

Yup, yup.

We have all that in the earnings release. If you go back in one of these exhibits, we'd show you, but what you're pointing out is we are seeing that.

Great. So, typically, there is not much leakage if an end client of a registered investment advisor sells some, you know, large cap portfolio, goes into cash, since the cash that goes into is like an SEI fund, right?

I think we're seeing a lot of clients move out of longer term investments into cash. Some may be leaving us, but we're also seeing, if you look quarter over quarter, um, you know, Q1 to Q1, you know, it -- it is $1 billion increase. And we are capturing those assets.

Great. Thank you, Wayne.

There are no further questions in queue at this time. Gentlemen of the panel, please continue.

Thank you. Thank you, Wayne. And our next segment is the institutional investor segment. I'm going to turn it over to Edward Loughlin to discuss this segment. Ed?

Thanks, Al. Good morning, everyone. The first quarter was a challenging business environment for the institutional segment. Record sales of $3.4 billion and healthy new client fundings of $1.7 billion were essentially masked by the volatile and negative capital markets. I am going to first speak about the financial results for the first quarter compared to the year ago period. And due to the negative capital markets, I am also going to touch on progress that we have made compared to the fourth quarter of 2007. And then conclude with sales results.

On the financial side, strong new client funding throughout the entire year has helped to dampen the impact of negative capital markets on revenue growth. Revenues approaching $51 million grew 9% compared to the first quarter of 2007. Revenues for the first quarter compared to the fourth quarter of 2007 declined 4% despite strong new client fundings during the quarter. Profits for the first quarter increased 11% to over $20 million, comparing favorably to the year ago period but were essentially flat to the fourth quarter of 2007. Margins of 40.5% represent a slight increase for the quarter, compared to both a year ago period and also the fourth quarter. Worldwide institutional asset balances were also negatively impacted by the capital markets. Assets decreased $1.2 billion, to $48 billion in total, compared to the fourth quarter of 2007, despite the significant new client fundings. The back log of committed but unfunded sales was $2.8 billion at quarter's end. We anticipate the majority of the current back-log assets to fund during the second quarter.

I am pleased to announce a record sales quarter of $3.4 billion in new client assets. A large industry-wide pension plan in the Netherlands, totaling $1.6 billion, was a significant new client this quarter. In addition, we were successful securing relationships with clients in all of our target markets. Changing pension regulations and accounting standards as well as a more complex investment environment continued to be positive catalysts for business growth and enable us to build a healthy pipeline. However, our past experiences tell us that negative, volatile capital markets, coupled with an uncertain business environment, tends to lengthen the sales cycle and slow down institutional decision-making.

We continue executing on our long-term strategy of enhancing and extending the reach of our pension and endowment solution, and also initiating new business discussions with prospective clients. These activities will serve us well in building a long-term growth and value of the business for SEI. Thank you very much. And I am happy to entertain any questions.

The first question in queue comes from the line of Glenn Greene. Please go ahead.

Hey, guys. Good morning.

Hey, Glenn.

So, you know, market factors aside, you actually had a pretty astounding quarter from sales activity, and even if you strip out sort of the one big client, you were certainly above trend. And certainly with the backdrop of a challenging market and probably sales cycles being somewhat extended, is there anything that sort of happened in your market? What sort of explains the sales success? Do you think it is sort of sustainable or is it sort of an anomaly in the quarter?

Okay. I would say that what we -- what we continue to see, I mean, if you were to go back and look at the trend line, what we continue to see is continued market acceptance, okay, for the outsourcing proposition. We have globalized, you know, that activity over the last couple years. So we're starting to see this to be something more than just in the U.S.. I think that is all positive. I think the other thing that I have spoken about is the fact that larger investors are seeing this as a very good alternative. So we're certainly delighted, you know, with an investor of this size. This is not the largest investor that we have, which is probably the good news. It is probably the largest single decision, but we have other investors of this magnitude where we have plans, and you know, in multiple jurisdictions, the U.S., Canada, the UK, multiple locations.

So I think the trends are very positive, you know, for the offering that we have. But I would point out, though, that I think institutions, and we have seen this in the past, they are going to be focused probably on the impact of the environment on their business. And so, I think for them to try to get to a better place for managing these pensions or endowed assets, I think that sometimes you know takes a backseat to more pending business decisions. And so I think we might just see, you know, a slowdown in decisions. But the -- the good side of that trend is that we have not seen a slowdown in the willingness for prospects to take new business meetings. So the ability for us to continue to get meetings and to initiate new calling activity continues. So I think that's a healthy sign.

And what are the prospects for some other larger deals, you know, going on a few quarters, whatnot?

Well, I mean, we have focus on large, we have focus on our core, so, you know, we're trying to do as much as we possibly can to move all of these market segments that we're in forward.

Okay. Thank you.

Our next question comes from the line of Jeff Hopson. Please go ahead.

Hi there, Ed. Just a question for modeling purposes. Typically newer or larger business might have lower fees attached. That is a general rule that we should follow?

Yes, I mean, as you know our fee schedule is such that the more asset that the client gives us, the lower their effective fee would be. So, yes, that's correct.

Okay. And what were the actual fundings in the first quarter? Could you give us that?

$1.7 billion.

$1.7 billion. Okay, great. Thanks a lot.

The last question in queue at this time comes from the line of Murali Gopal. Please go ahead.

Good morning, Ed. Just very quickly. Could you compare the growth trends that you're seeing in the U.S, versus non-U.S. markets? Are you seeing a lot of growth in terms of also the prospects, more interest from non- U.S. prospects?

I guess I would suggest that the way you ought to look at it is the U.S. market continues to be the biggest market opportunity on a worldwide basis. So proportional to the size of the market, I think we're seeing interest in all of these particular markets that we're operating in. So I think that it would probably send you down the wrong path if I were to talk about one being more interesting right now than another. It is pretty much a relationship to the size of the market opportunity. That's how we see it kind of playing out.

Okay, thank you.

Sure.

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

Our final segment today is Investment Managers, and I am going to turn it over to Steve Meyer to discuss this sergeant.

Thank you, Al. Good morning, everyone. The Investment Manager segment financial results for the first quarter of 2008 included growth in revenue and profit from the same quarter a year ago with a slight decline in both revenue and profit from the prior quarter, primarily due to the lost business we discussed last year. However, we see this as a temporary setback after posting increased revenue and profit over the prior eight consecutive quarters. Specifically for the first quarter of 2008, revenues for the segment totaled $36.5 million, a $2.6 million or 7.4% increase compared to the first quarter of 2007. The growth was primarily due to net client fundings and existing client growth.

Revenues, compared to the fourth quarter of 2007, were down approximately 4.7% mainly due to lost business that left at the end of 2007. Our quarterly profit of $10.5 million was up approximately 16% from the same quarter a year ago. However, it was down 8% from the last quarter as we continue to absorb and redeploy the fixed cost of the aforementioned lost business.

Third-party asset balances at the end of the first quarter of 2008 were $225 billion, or $9.9 billion higher than at December 31 of 2007. Approximately $13.4 billion of this increase is attributable to additional net client fundings and additional paid in capital, which was slightly offset by a negative $3.6 billion in market depreciation. In the first quarter of 2008, we had a strong new business development quarter with new business sales events totaling approximately $6.1 million in annualized revenue. These events included deals across all of our solutions and represent a good diversity between alternative investment products and traditional long-only investment products. Additionally, we had a good recontracting quarter with our existing client base by extending several key existing client relationships. From a market and industry standpoint, we have been able to maintain an active and healthy pipeline. While we see strong momentum in outsourcing by investment managers and continue to move key agendas forward, the current volatility and reduced confidence in the capital markets is starting to delay some decisions, and some managers are pushing their fundings in the short term.

While this market turmoil logically pushes many investment managers to rethink their infrastructure and look to set themselves up for the future, our experience indicates that it does cause the sales cycle to lengthen on average. However, as investment managers position themselves for their future, we feel that our strategic direction and value proposition of total operational outsourcing not only allows us to differentiate ourselves but also drives home the strengths and benefits of our solution to investment managers and an important inflection point. This combined with our global opportunity for growth fuels our confident outlook for the future despite the short term pressures of current market conditions. I will now turn it over for any questions you may have.

(OPERATOR INSTRUCTIONS) And we have a question from the line of Jeff Hopson. Please go ahead.

Hi, just a question. Just to make sure that the big jump in clients assets admin. That's distinct from the $6.1 million of new business. Is that fair?

That's fair.

Okay. And any particular reason, I mean, was it in isolated event or two that drove the big jump in client activity and is this at historical fee rates or is it at any change of fee rate?

Um, I would say the jump was, if you remember, we had a pretty good strong third and fourth quarter last year as far as new events. And I would say despite the losses that came out the end of the year, we did have fundings of deals that we sold last year. So I would say it was kind of along the normal cycle. There wasn't any one particular thing that stood out. And it was at, I think, historical fee rates.

Okay, thanks a lot.

Sure.

There are no further questions in queue at this time.

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

Thanks, Al. Good morning, everyone. I have some additional corporate information about this quarter. First quarter cash flow from operations, $55.8 million or 28-cents per share. First quarter free cash flow, $33.3 million or 17-cents per share. First quarter capital expenditures excluding capitalized software, $5.5 million. Capital expenditures for the remainder of 2008, excluding capitalized software are expected to be between $20 and $25 million. In addition to that, we expect to start sometime this year expansion of our -- of additional facility and that, in total, will be about $8.5 million. Tax rate for the first quarter of 2008 was 37.1%. For the fourth quarter of 2007, it was 36.7%. We expect that that our tax rate will be between 37 to 38% but it will vary by quarter. Accounts payable balance at March 31, 2008, was $10.1 million.

Also we would 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 is unaudited. Future revenue 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 description of various risks and uncertainties that could affect our future financial results. Now please feel free to ask any other questions that you may have.

Our first question in queue comes from the line of Murali Gopal. Please go ahead.

This is a question for Dennis. Dennis, when I look at your expense growth, it looks like it has been pretty well-controlled. And I am looking particularly at your compensation expense, which has been more or less flat to slightly down even though revenues have been growing year-over-year. Can you just talk a little bit about how is it all related to incentive accruals or what is going on there?

Well, a big portion of our compensation expenses is driven by incentive compensation versus fixed salary type costs. So, you know, performance of the company against our internal goals for compensation certainly would affect that line item. So given the first quarter and how we came out, you know certainly we're able to reduce costs in that area based on our performance so far.

Right. But if in future quarters the performance is much better than expected, this is going to kind of reverse, I mean, it is going to catch up to the better than expected performance, I guess.

All of our employees hope so.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) Ladies and gentlemen of the panel, there are no further questions in queue. Please continue.

Thank you, Kathy. So, ladies and gentlemen, despite some of the external short-term uncertainties we face, our transformation has been steady, and while we have a lot yet to accomplish, we continue to make important strides. And we remain excited about what we're building. One last thing, you all are invited to our annual investors conference held this year on June 3 and 4. Please save those dates. And a formal invitation will be sent to you in the next couple of weeks. And so if there is any other questions, now would be the time, before we sign off.

We do have a question from the line of Justin Hughes of Philadelphia Financial. Please go ahead.

Thanks for taking my follow-up. I just had one follow-up question on the SIV issue. You said it is not real clear what the underlying collateral is, or what the credit worthiness of the borrowers are. I just wonder what input goes into that Columbia model to estimate the ultimate realizable value of 90% if you don't know what the collateral is or the borrower is?

I guess I would first correct you that your assumption that the underlying value at 90% is the value. I think you're using the aggregate number with the aggregate par position, and determining that. I don't think that is probably in the accurate to begin with, but the model they use looks at the asset classes, the sub-asset classes if you will, of the types of collateral that are held. So whether it is residential mortgages or commercial mortgages or asset-backed securities, it takes into account kind of the aggregate market impact on those classes, underlying sub-class and uses that as one portion of their model. They also look at any pricing available in the market, third-party pricing sources that are putting out prices on specific pieces of collateral. And then, add their judgment on top of that.

Okay, so Columbia does have a breakout of what the underlying assets are?

Yes, by category. My comment was that -- what is very difficult to get to is the actual four layers down underlying Dennis McGonigle mortgage in Pennsylvania. That's what is difficult.

Can you just give us the major buckets and what the breakout is like residential mortgage versus commercial?

Well, as I mentioned I gave you the credit quality, you know, the current credit quality of these underlying securities. And to kind get into more detail, for example, mortgage-backed securities in Cheney are at mid-30s, but to kind of go through that item-by item just isn't, I think, necessary.

Will it be in the 10-Q maybe?

No, I'll be publishing the 10-Q.

Okay.

There are no further questions in queue. Ladies and gentlemen of the panel, please continue.

Well, thank you all for joining us today. We really appreciate you doing that. And have a great day. Thanks a lot.

Have a good day. You may now disconnect.