SEI Investments Co (SEIC) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI second 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 is being recorded today, July 23, 2008. I would now like to turn the conference over to our host, Al West, Chairman and CEO. Please go ahead, sir.

Good afternoon and welcome. All of our segment leaders here are with me on the call, as well as Dennis McGonigle, SEIC's CFO, and Kathy Heilig, SEI's comptroller, and I'll start by recapping the second quarter. I'll then turn it over to Dennis, first to expand on a few financial matter, including our SIV exposure, and to cover LSV and the investment and new business segment. After that each of the business segment leader will comment on the results of their segments and then finally Kathy Heilig will provide you with some important Company-wide statistics. And as usual we will field questions at the end of each report.

So let me start with the second quarter. Second quarter earnings fell 34% from a year ago on a revenue decline of 4%. Diluted earnings per share for the second quarter of $0.24 represents a 29% drop from the $0.34 reported for the second quarter of 2007. Now earnings for the quarter were adversely affected by a second quarter charge to earnings of $27.3 million, or approximately $0.09 per share. This was due to a further drop in the market price of the commercial paper of certain structured investment vehicles held in three of our money funds. This is a SIV situation we addressed in a number of calls earlier this year -- this year and last year, and Dennis will update you on the SIV situation in a few minutes.

Now our 4% drop in revenue from the quarter was a result of the impact of the declining capital markets on our assets under management. Now while we experienced solid gains in new business during the quarter these gains were more than offset by weakness in capital markets, since a good portion of our revenues are tied directly to the asset balances under management and administration.

Our non-cash asset balances fell by $5.1 billion during the quarter. Now this contraction was due to lower equity in debt markets which more than offset cash flows during the quarter. SEI's assets under management fell by $1 billion during the quarter while LSV.s assets under management fell by $4.1 billion. And the global 60/40 folio was down 1.2% during the quarter. Now also during the quarter we repurchased 1.9 million shares of stock at an average price of nearly $23.50 per share. Now that translates to $45 million of stock repurchases during the quarter.

Now the recent turmoil in capital markets as well as the SIV issue made the second quarter a particularly challenging one. Regardless of these issues, however, we continue to make progress in transforming our Company to new strategies and new solutions for our clients. Included in our transformation efforts are three notable investments. First, we're building and implementing new client processes in each of our markets. Second, we're continuing to invest in the Global Wealth Platform and that's a technology that's 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 we continue to be satisfied with the progress we are making in developing the Global Wealth Platform and our next large releases will be delivered in January and it includes new functionality for the investment management function, including the trading function -- improving the trading function among other new functionality. Now during the second quarter this year we capitalized $13.8 million of the Global Wealth Platform development and amortized $3.5 million of previously capitalized development. Now in addition to development expenses and amortization, as additional functionality is rolled out maintenance costs of the platform grow and so do the costs of establishing operations throughout the world.

Now the operation of HSBCs UK Private Bank continues to grow well. During the quarter we also signed a second UK client. Marketing and sales activity in the UK and Europe continue active and Joe Ujobai will speak to this. As we look cross all the Company's businesses we continue to be pleased with the progress we are making in our transformation. We are confident that the investment in Global Wealth Platform bodes well for our 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 segment we have made great strides engaging our existing advisors as well as adding new ones.

Now with the backdrop of troubled equity markets and the disruptions due to the sub-prime 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're firm in our believe 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 us an update on the LSV and the investment and new business segment. After that I'll turn it over to the heads of the other business segments. Dennis?

Thanks, Al. I will provide an update on the capital support agreements that we have discussed at length in our 10-K and 10-Q filings and on our prior two calls and their impact on our earnings. I will then briefly cover the second quarter results for the investments in new business and LSV segments. As you are aware from our first quarter call and 10-K and 10-Q filings SEI entered into capital support agreements with three money market mutual funds back in the fourth quarter of 2007. Among other money market instruments the funds hold senior notes issued by instructed investor vehicles, or SIVs, some of which ceased making payments on their outstanding notes on the scheduled maturity dates. Under these capital support agreements as of June 30, 2008 we are committed to provide up to an aggregate of $165.5 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 would be less than 0.995, or in the case of one fund, 0.9975. We provided detail about this arrangement in our prior filings and we encourage to you review that disclosure for more detail on the SIV issue and the capital support agreements.

Under these capital support agreements SEI is obligated to recognize a non-cash expense for its obligations to the funds for an additional $27.3 million during the second 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 and the first quarter of 2008, total losses recorded as a result of this support as of June 30th are $78.2 million. This total amount is accrued on our balance sheet. During the second quarter of 2008 the credit markets, while showing signs of improvement in April, further deteriorated in May and particularly June. These challenging market conditions further reduced the market values of the collateral underlying the money market funds SIV holdings. The reduction in market value resulted in a direct increase in our obligation under the support agreements.

Currently as of yesterday, July 22nd, the aggregate amount, which would be accrued to date for SEI's contribution obligations under the capital support agreements based on that days market prices is approximately $91 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 third quarter SEI will incur an additional loss of $13 million. As you may be aware through media reports, the Cheney-issued SIV went through an auction of its underlying collateral last week led by Goldman Sachs. The auction process was characterized by one of the major rating agencies as a fire sale. If the money market funds had elected to liquidate their Cheney holdings at the price offered as a result of the auction process SEI would have recognized a loss in the third quarter of approximately $44 million. Given the price offered and our view of current and future value, the fund elected not to cash out. The funds have elected at this time to exchange their Cheney notes for notes in a new pass-through vehicle established by Goldman Sachs. This vehicle will hold the same collateral as the Cheney SIV. We will this gives us the best chance to potentially recover value as market conditions improve.

As a reminder the fair value process that results in pricing changes to the SIV holdings, including Cheney, is determined by the SEI funds fair value committee based upon recommendations of Columbia Asset Management, the sub advisor to our money market funds. Although the funds did not cash out of the Cheney notes it is likely the auction process will lead to a further devaluation of the current value on Cheney as more granular pricing data becomes available in the market. Currently as of July 22nd, our total SIV holdings in our money market funds carry a face value of approximately $427 million, of which Cheney represents $230 million. As a reminder, when this process started in November of 2007 our SIV holdings had a face value of approximately $1.1 billion. We expect to file our 10-Q shortly. I encourage you to review that filing and all past filings for further information.

Future accruals for our obligations under the capital support agreements 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 further information we also 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. I'll 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 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 generate ad loss of $2.3 million. This compares to a loss of $2.9 million for the second quarter of 2007. The efforts in this segment continue to be centered on learning, developing and delivering our Live and Wealth services to the ultra-high net worth segment. The learning we gain and the ,services we develop from this process are then 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 another challenging quarter of financial performance. Earnings contribution to SEI from LSV was approximately $27.8 million in the second quarter of 2008. This compares to a contribution of $35.4 million in the second quarter of 2007. This year-over-year decrease was due primarily to a loss of assets from market depreciation, as well as some cash flow. During the second quarter LSVs net assets shrank approximately $4.1 billion, mostly due to market depreciation. We expect LSV to continue to be challenged by these volatile markets. However, as we have stated in the past their investment process is well tested and our long-term performance record is strong. This should help them recover when the markets settle down. LSV is accepting new assets on a selective basis.

Revenues from LSV for the quarter were approximately $73.6 million. This compares to revenues of $91.7 million in the second quarter of 2007 and $77.3 million in the first quarter of 2008. Revenues were impacted by asset declines as discussed earlier. On SEI's balance sheet, of our reported cash and short-term investments of approximately $320 million, $67 million is attributable to LSV at June 30, 2008. Of our reported receivables of $275 million $90 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 $12.1 million, and long-term debt, approximately $34 million.

I will now take any questions you may have in the investments in new business or LSV segments, as well as the SIV issue.

(OPERATOR INSTRUCTIONS) We have a question from Murali Gopal from KBW Asset Management. Please go ahead.

Hi, Dennis, how are you?

Hi. Good, Murali, how are you?

I'm doing good. A couple of very quick questions. The total capital support agreement, $165.5 million, could you tell us how that breaks out between what's the support towards Cheney versus Stanfield Victoria?

Well, the way we structured the capital support agreements they're structured in aggregate for all SIV holdings. So there's -- we've talked mostly about Cheney and Stanfield Victoria. We have a couple of other smaller SIV holdings mostly less than -- there's a couple less than $20 million in face value, but the support agreements are really structured to encompass all of that.

Okay. And is it possible to say what's the SIV holdings percentage as a percentage of the total fund assets as of June?

It would be. I just gave you the total face value of the SIV holdings --

Right.

-- so if you go and look at that report I talked about that's on our website of portfolios you'll be able to calculate that.

Okay, that's all I have. Thanks.

Okay, thank you.

Thank you. Our next question is from [Jeff Hobsen] with Stifel Nicolaus. Please go ahead.

Hi, Dennis. On the LSV you did say there's outflows -- client outflows, is that material or --?

Not in the context of the overall assets, no.

Okay. And there's no change in -- they're just taking money on a select basis, then?

Correct.

Okay. Okay, thanks.

You're welcome.

Thank you. Our next question is from [John Briton] with Select Equity. Please go ahead.

Hi, Dennis. Just following up on this SIV issue, can you help me understand a little bit then. if you've got $165 million of capital support agreements how does that relate to the $427 million face value now in SIVs?

The support agreement's really there will to cover any realized losses that will be incurred if the SIVs are sold, so $439 million is the par value. But to the extent they're sold at an amount below that par value that results in the NAVs of the funds to drop below that 0.995, the NAV I talked about, that's what the support agreements are there to fill the gap on.

Okay, so I'm trying to get a sense of what the total -- the maximum loss that SEI could sustain and it would be the $165 million?

That's how much we have committed today. You could certainly make the argument that our maximum risk would be the $430 million to the extent all of the SIVs went to zero and we stood there and said, we'll back all of it, so that's kind of the absolute extreme.

Right. Do we know from the fire sale from Cheney assets what the percentage -- what percent of par those were being liquidated at?

Actually what's going to happen today is all those trades will settle and so they'll be better market pricing information on all the underlying collateral that will be available today and we haven't seen that. The price that they offered, again as it was characterized as a fire sale, did pretty much reflect that.

So it's meaningfully less than $0.50 on the dollar?

No, I wouldn't say that and I didn't say that.

Okay. So basically at this point from a more qualitative standpoint do you feel comfortable -- I guess I was under the impression as of the March period that most of the exposure on SIVs was -- had been recorded and if anything either was an opportunity to write some of these things up. That's clearly not the case now. In fact, if we took the value according to the Cheney fire sale value it would be materially less, quite a bitless, $44 million less than it was at June 30, so how do you feel -- how do you make us in the investment community feel comfortable about the ongoing exposure that SEIC is going to be faced with in terms of those support agreements for SIVs?

Right. I think the challenges for us and for anyone else dealing with this is that the underly -- the markets themselves are certainly having a lot to say about the valuation here. And if you looked at the end of March and then you looked on our earnings call in April, April itself there was a pretty solid stabilization within the mortgage market and the fixed income markets and I think we weren't alone in feeling that we were reaching a point of stabilization and then as the second quarter concluded we all felt and saw that that wasn't the case at all and that there was some additional deterioration to occur. I'd like to sit here and say that we've hit the bottom and we're going to improve from here, but I can't say that.

Okay, will there be any further disclosure in your second quarter Q related to the Cheney offer?

I guess there might be some additional disclosure. I don't know how granular it'll going to get. Like I said, all the settlements are going to occur today and that market data will be available. As I also mentioned in my comments, Columbia Asset Management, which is really doing the fair value process, they will take that data and factor into their fair value pricing model and we'll see how they adjust pricing going forward based on that.

Okay. One other --?

Certainly by the time the Q is filed we will provide -- at the point in time that the Q is filed what our third quarter loss would be at that point in time, so you'll have up to date data, if you will.

One other quick one, if there were minor net outflows to LSV can you characterize the pipeline or interest level of people? I know they had been closed and there was some residual interest of in going in there, is there still a pipeline or number of clients who are interested in joining them today?

Yes, in our conversations with LSV we're pretty encouraged by the asset opportunities they have going forward.

Okay. Thank you.

You're welcome.

Thank you. Our next question is from Tom McCrohan with Janney Montgomery Scott. Please go ahead.

Hey, Dennis, another SIV-related question; two of them. The first, when would SEI have to realize -- when would SEI be in a position where they actually have to liquidate one of these SIV securities?

Did you ask when would we have to?

Yes. Obviously you don't want to -- you didn't take the price Goldman offered for obvious reasons, probably pretty darn unattractive so you're going to hold on to the securities. Under what condition would you actually have to sell these things at a loss and potentially trigger the capital support contribution?

Technically it would be if the board of the money market funds themselves made a decision to sell the securities that technically would trigger the support agreements. The second would be if the capital support agreements, which do have a one-year term that we are certainly hoping to renew, but if that one-year term were to expire and were not renewed, that would trigger the funds to sell. Now an additional option we have is that we ourselves could buy the securities from the funds and therefore avoid a market sale. So the if the fund boards were to say we would like to sell Cheney tomorrow, we could step in and buy Cheney at par from the funds and carry that ourselves. So it wouldn't trigger additional losses, it would just transfer the principal value of that asset from the funds books to SEI's books.

Do you have visibility into the -- all the granular securities held by these funds to know if there are other securities outside the SIV exposure, particularly Cheney, that are underwater based on current market valuations?

Within our own money market funds?

Yes, within the SEI daily income trust and --?

Yes, sure, we do the -- we're doing all the bookkeeping and accounting for those funds.

So is it --?

All these market value calculations actually are market value calculations of all the securities within the funds.

And the NAV for those funds are not based on fair value, they're based on something else?

Well, the NAVs of a money market fund are based on an accounting rule called rule 287, which is an amortized cost rule --

Got it.

-- and when you have liquid securities then you move to fair value of that particular illiquid security. So in the case of the SIVs, and in particular Cheney and Stanfield, Victoria and the other smaller ones I mentioned that we had -- that we hold, since they're in default they're illiquid. We use fair value to price just those securities.

Got it. And so the likely scenario that will lead to having to liquidate these assets -- even though it's not your decision and although you have options to step in -- the only scenario that would probably lead to having to sell these things, the funds manager pulling the triggers, is if there's mass redemptions?

Well, again, naturally if there is redemptions of such an extreme that the -- these are pretty big funds so the redemptions would have to be quite large, and in fact the asset balances in these funds have held up pretty well.

So when you study this and try to figure it out what are you concerned about then as far as -- if anything about -- the outcome you don't want to have is having to sell these securities at a loss, right? So what's your confidence level that that will in fact not need to happen?

Well, I'm pretty confident we will not have to -- we're not in a position where we'd ever have to have a fire sale of these securities, number one. Number two, the second -- the only scenario that we did put some work into is renewing the capital support agreements and that -- to extend the life of that. If that's not possible, then the option of us just buying them from the funds, carrying them on our side is probably a likely scenario. And then the question really would speak to the market. How is the market responding, how is pricing in the market responding, and at what point do we just make a decision to move on from this issue, take whatever capital loss we need to take but move beyond it. And it's fair to say that -- I think it's fair to say that 100% recovery is pretty highly unlikely across all of these different types of securities given where the market is, so.

In having Goldman step in -- I think that's what you said -- as the replacement agent, if that's the right term, what's the benefit of now having Goldman running this versus it being in receivership?

I wouldn't say there's any particular benefit to Goldman. They're really just a -- what they did was ran the bidding process and auction process but also set up the structure that now the collateral sits within -- almost as a collateral agent. So going forward there's really not much benefit to Goldman versus anyone else, I don't see.

Okay, thanks.

You're welcome. This is the first one that has restructured, so we'll see on the next one.

(OPERATOR INSTRUCTIONS) At this time there are no questions in the queue.

Thanks, Dennis. Now I'm going to turn it over to Joe Ujobai to discuss our Private Banking segment. Joe?

Thank you, AL. Today I would like to review our financials and give an update on our market activity. As a financial update, revenue of just over $103.6 million grew by 3.5% from the year-ago quarter, but declined by 3.2% from the first quarter of 2008. Revenue growth versus the year-ago quarter was due to an increase in our recurring Wealth Processing revenue, both in the US and in the UK. Revenue decline from the first quarter of 2008 was due to both market depreciation, as well as some end client redemptions in our investor management programs. We also had lower one-time revenues this quarter in our Wealth Processing business. Average assets under management for the quarter were $19.1 billion, a decline of 2.4% from the year-ago quarter, and a decline of approximately $500 million from the first quarter of 2008. The decline in assets represents approximately 60% in market depreciation and 40% in net client redemptions.

Profit decreased from the year-ago quarter by approximately 5.3% to $18.2 million. Profit declined by approximately 12.7% from the first quarter of 2008 due to the decline in investment management revenue and a small increase in expenses. Margin for the quarter was 17.6%. As I mentioned during the June investor conference we expect to see continued pressure on margins as we launch Global Wealth Services in Europe and in the UK -- in the US. Longer term we expect strong margins, as we are making significant investments to grow and scale our Private Banking business.

I'd now like to update you on market activity. On the Global Wealth Processing side of Global Wealth Services we continue to build up the solution as well as the client pipeline, focusing on the UK and the US. Both markets have closely watched our progress with the first clients and we are actively engaged in our business discovery process with key prospects. At our investor conference in June we announced the signing of our second external client, Towry Law., Towry Law's a fast-growing, UK-based nonbanking discretionary wealth manager. In the UK we are seeing increased interest from this nonbank wealth manager segment. These firms typically manage over $1 billion to more than $10 billion in assets by providing discretionary investment management services to [mid] affluent, affluent and high net worth individuals. This business segment is moving towards models based discretionary solutions, so their business model line up nicely with the strategic functionality of the Global Wealth Platform. We have increased our sales efforts and activity in this segment.

In the US we signed another three community banks for our trust 3000 BSP solution that will couldn't vest later this year. That makes a total of six new community bank relationships this year. Increased sales activity in this segment is based on expanded market interest in our long-term Global Wealth Services strategy. 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 are focused on high-growth, wealth management markets and are actively expanding our distribution footprint in these markets. For example, in the Middle East, we are actively supporting the launch of our two previously-announced distribution partners where we will provide a turnkey investment solution for their private clients.

We are also finalizing the arrangements for a third relationship that we expect to fund this quarter. I must reminds you that the market sentiment among private clients remains very cautious. Although market volatility has affected end investor decision making and cash flow we are 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 sentiment.

In summary, SEI's 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 wealth management industry. We are building a comprehensive technology and services solution to take advantage of a worldwide opportunity. Although current market are challenging we are focused on the continued launch of our solution and the long-term growth of our business.

Any questions?

(OPERATOR INSTRUCTIONS) At this time we have a question -- follow-up question, actually, from Tom McCrohan with Janney Montgomery Scott. Please go ahead.

Hey, Joe, I have two questions for you, the first on the margins and then I have a question on the sales pipeline. You talked about in the press release that the margins this quarter were adversely impacted from increased costs associated with putting the Global Wealth Platform into production. Could you quantify what those costs might have been this quarter, either in terms of what have margins would have been if you didn't have to incur those implementation costs?

It's probably a couple million dollars of expense.

And how many more quarters do you expect, Joe, you'll incur these couple million dollars worth of expenses as start-up operations on this new platform?

We'll have additional expense as we ramp up our infrastructure. We talked about Towry Law coming on early next year so I would expect that as we get closer to bringing Towry Law up we'll have to build out additional infrastructure and we'll see some pressure there.

Was there -- you had implementation costs last quarter, as well, in Q1 to get HSBC on and your margins were 19.5%, this quarter they went down about 200 basis points. Was that $2 million incremental? Was there something incremental going on this quarter or is that $2 million kind of run rate every quarter?

It's about every quarter.

About every quarter. So if the implementation costs didn't go up this quarter what led to the margin decline?

Well, some of our revenue went down. It probably went down because of Asset Management decline, so that's helped a lot to fund some of the increasing costs when asset management grew. So some profitability went down because of asset management decline, but we continued to invest in the build out of the infrastructure to support the platform.

Okay. And lastly on the sales pipeline you obviously invested a lot of resources in this new platform and this recent signing of Towry Law was a great sign of this demand amongst UK-based nonbank wealth managers to upgrade their platforms. But outside of (inaudible), the periodic qualitative and anecdotal comments you provide us on the pipeline we really have zero visibility into what the sales pipeline, whereas arguably [a pretty big bet] to kind of bet the Company thing on this investment, so I guess what I'm leading to, are you opposed to giving some sort of backlog metric each quarter for us that pertains solely to this Global Wealth Platform so we all can have improved visibility into the sales pipeline?

I think we're really in early -- we're still in early stages of sales of this new solution and as I mentioned at the investor conference we've been in Europe, put together four teams going against four different market segments; the global banks, (inaudible) larger UK banks and then some of these nonbank wealth managers, and so we're -- as I mentioned we're pretty actively involved with talking to a lot of players in the market. I think we're probably in too early of a stage to be too specific about the pipeline at this point.

Okay, thanks.

Thank you. Our next question is a follow-up question from Jeff Hobsen with Stifel Nicolaus. Please go ahead.

Thanks. Joe, I missed the first sentence or two. Did you say that the pipeline continues to build of potential prospects or exactly what did you say about the pipeline?

Yes, we're actively engaged with a number of firms in the market. As I mentioned we have four sales teams based in the UK actively talking to different segments of the market. We have redeployed some of those efforts towards these nonbank wealth managers because we believe that they may have that ability to make decisions sooner and the functionality of building a platform lines up to -- to date lines up to their needs. And so we're actively engaged with a number of prospects and obviously are hoping to close additional accounts.

And the client outflow activity similar to last quarter just seems to be in response to the market environment as opposed to anything else?

Yee, I think in the first quarter as far as we were down about $2 billion of assets and in the second quarter we were down about $500 million, so we're not -- we obviously saw additional market depreciation and we have -- we saw less net outflows in the second quarter than we saw in the first quarter.

Okay. And in the US things are active on the community bank side but larger banks are still -- for the most part have their own issues to deal with?

Yes, larger banks have their own issues and our strategy was always to launch the new platform in Europe first and then bring that back to the US, so it's obviously important for us, I believe, to get some of our clients in the US converted to the new platform, which we think will then open the opportunity -- the market opportunity up to new banks in the US.

Okay. And not to dwell on this too much, but the signing of Towry Law, has that had any influence on the discussions or potential opportunities? I know it's not very -- it's very soon after but can you describe any effect there on additional prospects?

It certainly helps having a second client purchase the platform and so the marketplace looks at that very, very closely so it absolutely helps to have something of Towry Law's stature in the marketplace make a commitment to us.

Okay, great. Thank you.

Thank you. Our next question is a follow-up question from John Briton from Select Equity. Please go ahead.

Joe, just a couple of quick ones on Towry Law. You mentioned as you scale up your own investment to bring them live that will put some margin pressure on there. Are there implementation revenues that you'll book related to getting Towry Law implemented?

Yes, we'll start to book some implementation revenues this year associated with the conversion of their business to our platform, as well as some of the other transformational work we'll do with them.

Okay. And just so I have a sense of this, when you do sign a client of this scale, I think it's what, 650 advisors, something like that?

Yes.

What is the expected first-year economics of that kind of transaction for SEI? Is this a couple million dollars loss for Private Banking and Trust? Is it break even overall?

We're obviously spending a lot of money to build out the platform, as well as the infrastructure --

Right.

-- and so, but we're not selling this at a loss.

Even in the first year? I guess I understand that eventually it's going to be presumably terrific economics, in part because as I understood it there's not going to be extensive customization beyond what the service scope is you offer HSBC. Is that right?

We obviously have more functionality to build. We talked at the investors conference about three general types of wealth managers out there; those who have an advisory business, those who have discretion over their clients accounts and then sort of a newer model of discretion around models based for strategies. And so the more we can get our clients and ultimately our wealth management clients to get their clients into those strategies the more efficient it is for everybody. So there are clearly lots of infrastructure costs that we will have to cover as we build out the platform, but we believe that we can be profitable on these accounts very quickly.

Okay. And in 2009 what is the revenue opportunity from Towry Law?

We don't disclose individual client revenue opportunities.

Okay. Will you -- is it expected to be a profitable relationship in 2009 or is it still in the investment phase?

No. Yes, absolutely.

Okay. Very good. Thank you.

Thank you. We have a question from Glenn Greene with Oppenheimer. Please go ahead.

Hi, good afternoon, Joe. The first question has to do with just getting deals in your pipeline closed and getting over the goal line and I was wondering if this is more of an issue of continuing to build out the proof of concept or how much the bank environment is playing in here and people just sort of cautious and moving to a new mode of doing business given the current environment? I was wondering if you could give some color around your thinking around that, what you're hearing from your clients in term of the prospects.

I think proof of concept is still pretty important and so we've been through now over a year with HSBC. We have a second client now so the market believes that this is a solution that's oriented for the market, not necessarily oriented towards any one client. These are big decisions because we're asking these clients to essentially outsource all of their infrastructure to us, so it's not -- they're not just buying our software or buying our software in a service bureau. There's a lot of effort around transformation around the client away from a traditional advisory or trading-like business to a more discretionary models orientation and so these are big, strategic decisions for these organizations to make. It doesn't necessarily help that the market conditions aren't great. These clients -- these wealth managers are busy servicing their clients every day and the bank's obviously have a lot of other considerations given the market conditions. And so we are actively engaged with a number of conversations and we will continue to build a pipeline and continue to close clients over the coming months and years.

What's your optimism level of signing meaningful new clients over the next six to 12 months, if there's any way to frame that?

The timing's always the hard part. I feel good about the conversations that we're having. I feel good about the progress on the development of the platform. And the timing is difficult to predict, but obviously we're in this -- we maintain a lot of enthusiasm around our long-term opportunity.

Then just finally, and I know you won't quantify the second client in terms of revenue opportunities, but any way to think about it in terms of asset levels or anything like that?

It's -- their asset levels are publicly disclosed so you can easily find that information by doing a little bit of research. We have agreements with our clients not to disclose things, but you can find that.

If I find those assets you are going to be providing outsourcing for that full range of assets?

That's correct.

Okay, thank you.

(OPERATOR INSTRUCTIONS) At this time there are no questions in the queue.

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

Thanks, Al. Revenues for the second quarter decreased $3.6 million, or 5.5% from the year-ago period, while our average assets under management during the quarter were down $2 billion from the same period. Second quarter net cash flow was a negative $312 million, reflecting disbursements of slightly over $2 billion and receipts of $1.7 billion. The $2 billion in disbursements weighed heavily on our total net flows and were $200 million worse than the first quarter of 2008. Receipts on the other hand, while worse than our quarterly totals in 2007 represented an almost $100 million improvement from the first quarter of 2008. Continued uncertainty in the financial markets was evident in both receipts and disbursements.

Profits for the quarter decreased 12% from the year-ago period. Lower profits, as compared to the second quarter of 2007, were primarily due to a decline in our average assets under management, and increases in expenses associated with the Global Wealth Platform. Sequentially profits improved from the first quarter of 2008, as our average basis points earned on assets improved slightly and expense management allowed us to drop most of this improvement to the bottom line. As was the case in the first quarter, investor uncertainty and declining markets continued to have a negative impact on our AUM and the AUM of our existing advisors. We remain confident, however, in our underlying value proposition and continue to have this confidence reinforced by our pipeline of new advisors. As a point of reference we have signed 108 new advisors in the first half of 2008, which represents over a 15% improvement from the corporation responding period of last year. Our pipeline of new advisors' activity continues to grow and we expect this will be reflected in our bottom line when we see some stability in market conditions.

In summary, declining market valuations and investor uncertainty have had a negative impact on our second quarter financial results but we remain confident in the value of our adviser solutions. I will now take any of your questions.

And we have another follow-up question from Jeff Hobsen with Stifel Nicolaus. Please go ahead.

Thanks. Hey, Wayne, in terms of the new advisors any way you can describe size, quality of these advisors relative to history? And then there's the presumption out in the market that some of the wirehouses are losing advisors at a more rapid pace to the independent channel, sny sense if that is true and any effect on you guys?

Okay. So two different questions. The first question is, if you look at the type of advisor we're recruiting we're being somewhat more selective than we have been and we're targeting bigger and and what we consider better advisors and we're also targeting younger advisors. That's intentional and we've seeing some success. If you look at the 108 I would say they fit the profile of being larger and younger than the star group.

Okay. And what was the percentage increase you said? I didn't hear that.

It's a 15% improvement over the corresponding period of last year.

Okay. Great.

Okay. In terms of the breakaway broker or the wirehouse broker going independent, I would say that's a very sexy thing to talk about in the press. It is clearly a trend that is out there, but in the overall world of wirehouse brokers it's just a ripple in the pond. It's increased but it's still not significant.

Okay.

To us.

Okay, great. Thanks.

(OPERATOR INSTRUCTIONS) We have a follow-up question from Tom McCrohan. Please go ahead.

Hey, Wayne, since you're not getting the 108 -- since you're evidently not getting them from breakaway or wirehouse brokers, where are you winning the business from?

We see the advisor that we target primarily as advisors that are accepting a new business model, sort of taking our turnkey business model as opposed to what I call a more do-it-yourself model. We are being somewhat successful in take away business from people that have perhaps previously accepted the model with a competitor, but most of our new business are people who are moving toward a new model and I think that's consistent with the market environment. With this market environment, while it's challenging with some of our existing advisors as they defend their existing book of business it's also looking to making advisors question what's best for their long-term viability and we're trying to take advantage of that and capitalize on it in signing new advisors in these markets.

Thanks.

And we have a follow-up question from John Briton, please go ahead, sir,

Wayne, I'm sorry, I missed the net flows number, can you repeat that?

Negative $312 million.

Thank you.

Don't ask me again, please. (LAUGHTER)

(OPERATOR INSTRUCTIONS) At this time we have no questions in the queue.

Thank you, Wayne. Our next segment is the Institutional Investors segment and I'm going to turn it over to Ed Loughlin to discuss this segment. Ed?

Thanks, Al. Good afternoon, everyone. As usual I will speak to the financial results for the second quarter of 2008 compared to the year-ago period and I'll also touch on the worldwide institutional sales activity and results. The financial results for the quarter show continued growth compared to the year-ago period. Revenues for the quarter increased 5%, while profits for the quarter approaching $22 million increased 17% compared to the second quarter of 2007. Negative capital markets during the period dampened the impact of new client funding while reduced sales and incentive compensation positively impacted expenses. Margins for the segment of 43% compare favorably to the year-ago period of 38%. The impact of negative capital markets on the revenue base will cause quarterly margins to fluctuate.

Quarter-end asset balances were $48 billion, reflecting a $2.7 billion increase compared to the second quarter of 2007. Continued client funding has helped to offset the impact of negative capital markets during the period. Net new client funding during second quarter was $900 million. The backlog of committed but unfunded sales was $2.7 billion at the end of the quarter. The new large client announced last quarter is scheduled to fund in September. Client signings for the second quarter were $1.4 billion and total $4.7 billion year to date through June. The pipeline continues to grow through new prospective clients accepting appointments; however, client decision making has clearly slowed down. The uncertain market conditions, though, have not altered global plan sponsors desire to manage the viability that pension funding can cause to corporate business results, and SEI's pension solution enables clients to successfully manage their entire pension program. We continue to be optimistic that as the market conditions improve prospective clients will again return to a more normal decision-making process and timeframe.

This pretty much concludes my prepared remarks and I'm happy to entertain any questions you have.

We have a follow-up question from Murali Gopal. Please go ahead..

Hi, good afternoon.

Hi, Murali.

Just a quick question. The institution segment of the -- if I recall right, in the last conference call I guess the new assets that you were expecting to be funded was something like $2.8 billion, and I guess $900 million actually funded in the quarter, is that just a timing difference or am I comparing -- not comparing apples to apples?

The last call I think I announced this new sale that we had insofar as the Netherlands was a fairly significant large sales, $1.6 million. Our backlog at that point I believe was $2.8 billion. We were expecting that to potentially fund sooner than this September. It's just delayed a little bit, so there's a quarter delay, if you will. I guess the good news is we have funded another $900 million during this quarter and we continue to have a backlog of $2.7 billion, $2.8 billion that needs to be funded and much of that -- I guess I don't want to commit now to exactly all of it, but much of that should be committed within this particular quarter.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) You have a follow-up question from Jeff Hobsen. Please go ahead.

Thanks. Any change in the nature of clients or geographic regions, et cetera?

No, it's pretty much diversified on a global type of a basis and also on a market basis. Hospitals, retirement plans and endowed assets continue to be the source of the new business.

Great. thanks.

Thank you, and there are no questions in the queue at this time.

Thank you, Ed. Our final segment today is Investment Manager and I'm going to turn it over to Steve Meyer to discuss the segment. Steve

Thank you, Al. Good afternoon everyone. For the second quarter of 2008 the Investment Manager segment continued to improve both our revenue and profit from the same quarter last year, as well as the first quarter of 2008. Additionally we had a strong new business event quarter. Specifically, for the second quarter of 2008 revenues for the segment totaled $37.3 million, or a 5.7% increase, compared to the same quarter a year ago. This growth was due to net new client fundings and existing client growth. Our quarterly profit of $12.3 million was up 11.9% from the same quarter a year ago and was also up approximately 16.8% from the first quarter of 2008. This increase was primarily attributable to both business growth, as well as the timing of certain expenses, so while our margin expanded in the second quarter I would say that it is higher than usual, I would expect to it normalize in the near term. The best way to gauge margin for our segment is on an analyzed basis and not quarter over quarter, as we will have some fluctuations due to timing of investments and other expenses in the short term.

Our third-party asset balances at the end of the second quarter of 2008 were $228.7 billion, or $3.7 billion higher than at March 31, 2008. Approximately $5.3 billion of this increase is attributable to net client fundings and additional cash flows from existing clients, which was offset by negative $1.6 billion in market depreciation. The segment had another strong new business development quarter, with new business sales events totaling approximately $8.5 million in annualized revenue. This is our second highest quarter to date per event and all of our solutions were represented in these events. Additionally, our largest event for the quarter was from a non US-based investment manager marking our continued focus to globalize our business further. Also we have contracted -- recontracted approximately $5.8 million of revenue from our existing client base by extending several key existing client relationships, as well as expanding our solutions to our existing client base.

From a market environment standpoint, although we had a strong new business event quarter and we maintain an active and healthy pipeline we continue to see some impact from the current turmoil in the financial markets. Specifically we are seeing more and more managers push the launches of new products and the expansion of some agendas. This is especially true in the traditional side of the market where long lonely managers seem to have more difficult environment lately. While I believe we will still have the opportunity to continue our momentum and we have the benefit of a large and diverse client base I do expect the sales cycle to lengthen over the remaining year, especially for some of our larger and more complex agendas. I view this possibility as a temporary condition and one that is somewhat mitigated by our continued focus on expanding our existing client relationships, the diverse nature of our client base, our global opportunity and the breath and depth of our solutions. So as we continue to navigate the current financial market conditions I feel confident for the long-term prospects of our business as we will invest in our strategic direction of total operational outsourcing, focus on and expand our existing client relationships, and expand the global presence of this business.

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

And we have a follow-up question from Tom McCrohan. Please go ahead.

Hi, Steve.

Hi, Tom.

The $5.8 million that you recontracted, was that a quarterly number or was that a full-year number?

It's a -- that's an annualized number that we recontracted in the quarter.

So less than 5% of your run rate revenues you recontracted, is that fair?

Yes.

So is that a significant amount of recontracting in one quarter or are you just calling it out this quarter for other reasons?

No, I think the reason we're pointing that out is I think more significant is that during these recontracts we are, as we discussed I think at the investor conference, one of our focuses for the year was to expand our relationship and if you will, our share of wallet with existing clients and I think that was more prevalent in our recontracts and probably more significant why I brought it up.

Okay, got it. Are there any material recontracting events this year that we should be aware of in the second half?

As I said before we recontract kind of a normal part of the business now, none that will be material to the business this year.

And are any of your clients that represent 10% or more of your business segment revenues?

No, if they did I believe we'd have to disclose them.

Disclose that, yes. All right, thanks, Steve.

(OPERATOR INSTRUCTIONS) At this time we have no questions in the queue.

Thank you, Steve. And I'd now like 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. Second quarter cash flow from operations was $44.4 million, or $0.23 per share. Year-to-date cash flow from operations, $112.7 million, or $0.57 per share. And the second quarter free cash flow was $21.5 million, or $0.11 per share. In the second quarter capital expenditures were $3.4 million. Year-to-date June capital expenditures are 9 million, which that does include some expenditures for our new facility. For the remainder of 2008, excluding capitalized software, capital expenditures will be between $15 million to $20 million, which does include the new facility expansion, which we expect to be completed early in the first quarter next year. The tax rate for the second quarter was the same as the first quarter, 37.1%; however, we expect our tax rate in 2008 to be between 37% and 38%, and it will vary by quarter. Accounts payable balance at June 30th was $11.2 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. Please refer to our periodic SEC filings for a 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.

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 are continuing to make important strides and are very excited about what we're building. So I'm going to give you one last chance to ask any questions and then I'll say good afternoon.

(OPERATOR INSTRUCTIONS) We have a follow-up question from Tom McCrohan. Please go ahead.

Hi, just a general question on cash flow. Is there any reason why your cash flow growth year over year should not keep pace with revenue growth?

No, Tom, there's no particular reason why it shouldn't, no.

Okay, thanks.

(OPERATOR INSTRUCTIONS) And at this time we have no questions in the queue.

Well, thank you very much for joining us and have a good afternoon. Thanks.

Ladies and gentlemen, this conference will be available for replay after 4:00 PM. Eastern standard time today through October 23, 2008, at midnight. You may access the AT&T executive replay system by dialing 1-800-475-6701, and entering access code 953975. International participants may dial 320-365-3844. Those numbers again are 1-800-475-6701 and access code 953975. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconferencing. You may now disconnect.