SEI Investments Co (SEIC) 2009 Q1 法說會逐字稿

Welcome to the SEI first quarter earnings conference call. At this time, all participants are in a listen-only mode 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. As a reminder this conference is being recorded. I would like to turn the call over to your host, Mr. Al West, Chairman and CEO. Please go ahead.

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

So, let me start with the first quarter. First, quarter earnings fell 30% from a year ago on revenue decline of 26%. Diluted earnings per share for the first quarter of $0.18 represents a 28% drop from the $0.25 reported for the first quarter of 2008. Our earnings for the quarter were adversely affected by a first quarter charge to earnings of $14.4 million, or approximately $0.05 per share. This is due to a further drop in the market price of the collateral underlying certain SIVs held in our money funds and on our balance sheets. As you know this is a continuation of the SIV situation we have been addressing since the third quarter 2007. And Dennis will give you an update of the SIV situation in a few minutes. In addition, our first quarter earnings were enhanced by a favorable tax rate and a buyout of a lost client but negatively affected by one time costs associated with a reduction in our work force during the first quarter. Our 26% drop in revenue for the quarter was a result of the impact of rapidly declining capital markets on our assets under management and administration. Now, while the experience gains in new business during the quarter, these gains were more than offset by weaknesses in capital markets since a good portion of our revenues are directly tied to assets under management and administration.

Now, our non-cash asset balances fell by $11.5 billion during the quarter and that's the (inaudible) assets under management fell by approximately $6.1 billion during the quarter, while LSV's assets under management fell by approximately $5.4 billion. And a global 60/40 portfolio was down 5.9% during the quarter. Also, during the first quarter we repurchased 527,000 shares of stock at an average price of approximately $11.20 per share, that translates to $5.9 million of stock repurchases during the quarter. Now this repurchase was lower than normal and reflecting our in creased focus on balance sheet strength. Now the continued turmoil in capital markets make the first quarter a particularly challenging time. We're weathering the storm as best we can and while the capital markets have reduced our revenues and profits significantly, we are still profitable in generating positive cash flow. Now during the first quarter we have reduced expenses and resized our Company to better match the new market realities and we've also made adjustments to our strategy to concentrate our marketing and sales activities where we have short and intermediate term opportunities for revenue growth. Our segment leaders will talk in more specifics about this. We continue to invest in the global wealth platform and it's operational infrastructure because the platform is a critical part of our future.

Now during the fourth quarter of this year, we capitalized $13.6 million of the global wealth platform development and with the back drop of troubled equity markets and this disruption in credit markets the rest of 2009 promises to be challenging. And as I mentioned earlier, during these times, we will continue to work hard to reduce costs and improve productivity. And at the same time, we'll continue to execute our longer term strategies. Now we're firm in our belief we're on the right path to help our clients succeed and to build a strong-growing Company. And when the dust clears on this crisis, we feel we'll be well positioned to prosper because crisis times like these are enhancing the value of our solutions. Now, this concludes my remarks. So, I'll now ask Dennis McGonigle to cover some Company financial statistics and give you an update on LSV and the investment in 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 our money market funds that we've discussed at length in our prior filings and on our past earnings calls. I also have a few comments on our business as a whole and I will briefly cover the first quarter results for the investments and new business segment and LSV segments as well as an additional item related to LSV. During the first quarter 2009, the capital markets continue to be negative. These difficult market conditions impacted the market values of the collateral underlying the money market fund SIV holdings, although less so than in the fourth quarter of 2008. The reduction end market value resulted in a direct increase in our obligations under the support agreements we have in place and increased the losses incurred on those assets we now hold directly. As you are aware from our prior calls of filings, SEI entered into capital support agreements with three SEI money market mutual funds back in the fourth quarter of 2007. During the fourth quarter 2008, we extended two of those agreements, while the third lapsed as a result of SEI's purchase of all of the SIV securities out of that fund at the end of the third quarter 2008.

In regards to our money market funds, I'll walk through the two covered funds and provide an update. The first is the SDIT prime obligation portfolio. SEI has agreed to provide capital support to this fund of up to 100% of losses incurred on SIVs held in this portfolio. This fund held SIV securities with a par value of $64.8 million, on March 31, 2009, down from $258 million at December 31, 2008. During the first quarter, 2009, SEI made the decision to purchase from this fund 187.5 million par value of the Cheney Griffin notes. We did this to begin the process of ultimate disposition of these assets. There is one remaining SIV held in this fund and would refer you to an 8K we filed on March 12, 2009 for further details. During the first quarter 2009, we incurred non-cash pretax losses of $10.4 million related to the FDIT prime obligation portfolio. In aggregate, pretax losses related to the SIV holdings in this portfolio are $157.4 million. This fund continues to maintain a AAA rating by both moodies and S&P.

The second fund is the SLAT prime obligation portfolio. This fund held SIV securities with a par value of $59 million on March 31, 2009, down from $68 million on December 31,2008. During the month of March we purchased from this fund 7.4 million par value of the Cheney Griffin notes. I refer you to that same 8K filing for more details. The obligations under the capital support agreement on behalf of this fund resulted in a non-cash pretax charge in the first quarter of $3.5 million. In aggregate, pretax losses related to the SIV holdings in this fund are $30.5 million. I would like to note, as it pertains to the SLAT prime obligation fund, our capital support agreement requires us to provide capital to maintain an NAV of no less than 0.995. The losses incurred to date, reflect the maintenance of this 0.995 NAV. If SEI purchased the SIV securities from this fund in their entirety at amortized cost value, we would incur an additional non-cash loss of approximately $7.3 million as a result of that transaction. This loss essentially reflects the difference between an NAV of $1 and an NAV of 0.995 If SEI purchased the assets from the funds, we are required to pay amortized cost value, once on our books we would then mark these assets to market, resulting in this additional loss. To fund the purchase of the Cheney Griffin notes, SEI borrowed under its credit facility. This explains the increase in long-term debt on our balance sheet. It is expected that future purchases will also be funded through our credit facility. In addition to the losses discussed earlier, SEI also incurred a loss of $500,000 on previously purchased SIV securities. As a result of our recent actions, in total, we hold 208.7 million of par value SIV securities directly on our balance sheet which carry a mark-to-market value of approximately $70 million on March 31, 2009. To summarize, the aggregate current par value of SIV securities held in the money market funds and on our balance sheet totaled $332 million as of March 31, 2009.

During the first quarter 2009, ween occurred $14.4 million in total pretax losses. The aggregate amount of charges recorded through March 31, 2009 is approximately $198 million. The par value of SIV holdings as of April 21, 2009, is $331 million. Given current market valuations, there will be no charges in the second quarter, excluding the impact from SLAT prime discussed earlier. I encourage you to review our 10Q filing (inaudible) made and all past filings for further information. I would also like to remind you that our capital strength has allowed us to deal affectively with 100% of the SIV issue. Our current immediately available cash on hand exceeds $280 million and our credit facility and our positive cash flow provide us the capital strength to affectively manage this issue while continuing to fund the needs of SEI's business.

I would now like to move to the investments and new business segment and the LSV segment. Activities in the investments and new business segment are focused on direct marketing to ultra high net worth investors. During the fourth quarter the IMB segment generated a loss of $2 million, this compares to a loss of $2.8 million for the first quarter 2008. The efforts in this segment continue to be centered on developing and delivering our life and wealth services to the ultra high net worth segment and leveraging this learning to other parts of the Company. SEI historically has used the investments and 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. You can expect losses in this segment to continue.

I will now turn to LSV. LSV, given continued market volatility, had another challenging quarter of financial performance. Earnings contribution to SEI from LSV was approximately $13.7 million in the first quarter of 2009. This compares to a contribution of $30 million in the first quarter 2008 and approximately $17 million in the fourth quarter of 2008. This year-over-year and quarter-to-quarter decrease, was due to a loss of assets from market depreciation and some negative cash flows. During the first quarter, 2009, LSV's assets under management shrank approximately $5.4 billion. This was all due to market depreciation.

We expect LSV to continue to be challenged by these volatile markets. Revenues from LSV for the quarter were approximately $40.2 million, this compares to revenues of $77 million in the first quarter of 2008, and $47.8 million in the fourth 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 $428 million, $44 million is attributable to LSV at March 31, 2009. Of our reported receivables of $189 million, $47 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 $3.6 million, and long-term debt, approximately $21.3 million.

As I have mentioned in the past, our consolidation of LSV was driven by the aggregate risk exposure SEI had when we guaranteed the debt issued to the LSV employee group in January of 2006. This borrowing is backed by an 8% ownership stake in LSV. That 8%, when combined with our approximate 43% direct ownership stake, places above the magic 50% threshold, resulting in consolidation. And if you all remember, we began that consolidation in January or in the beginning of 2006. In early April 2009, SEI, along with other equity partners of LSV, entered into an equity pool that serves to provide grants of partnership equity over time to key employees. SEI has agreed to contribute up to approximately 3% partnership interest and equity to this plan. As distributions are made from this plan and, if as a result, SEI's overall risk exposure dropped to below 50%, this would trigger a deconsolidation of LSV from our financials resulting in financial presentation similar to pre-2006, where presentation will move back to the -- under the equity method. We will still share in the earnings of LSV represented by our ownership position. SEI will retain full rights, including earnings participation on a 3% position we contribute until that is granted to someone else. Under this plan, there were grants made in April that will result in the deconsolidation of LSV in the second quarter of 2009. SEI's direct ownership stake as of today stands at 41.7%. We will provide additional information on this deconsolidation as part of our second quarter reporting process.

One final comment on the quarter. Among other actions taken during the quarter to reduce expenses, we had a reduction in our work force midway through the quarter. The one-time severance expense incurred as a result with $6.3 million. The full benefit of this expense reduction will not be realized until the second quarter. I would also point out that due to the rapid decline in markets at the end of 2008, I want to remind everyone that expenses during the fourth quarter included the benefit of reduced variable costs, due to lower incentive compensation in that period. In the first quarter of 2009 however we did accrue expenses related to variable compensation for the year, 2009. With that, I will now take any questions you may have on anything I've discussed. Thank you.

(Operator Instructions) Our first question comes from Jeff Hopson from Stifel Nicolaus. Your line is open.

Okay. Dennis, can you describe the process, I guess, for liquidating the SIV exposure based upon market conditions today? How long would you think this might occur? And then the tax rate, the severance and the buyout, can give us a net EPS affect of those?

Sure, let me address the first question first. The -- in terms of the ultimate disposition of the SIV securities or more to the point the underlying collateral that sits underneath those structures, we're going to be relatively patient with that. We're going to -- we are working with an outside advisor that we haven't announced who that is, and they are working along with us to put more of a strategy together around disposition. Unlike maybe some other organizations where they may have been more in a forced position to sell, we don't feel that we're in that position. So, to the extent we feel that market values on some of that underlying collateral provide opportunities for us to liquidate today, we would certainly look to do so. But to the extent that we feel market values today do not reflect what we believe ultimate value could be for us over time, we'll be a little more patient. There is also some potentially -- let's say -- use the word creative, in a positive sense, approaches to this, that we're also -- we're evaluating along with an outside advisory firm.

Okay.

And on the second question. The net is roughly $0.03 to $0.04. So, the tax rate certainly as we have talked about in the past, was -- we had said that this quarter was going to be historically low for positive reasons we had good results in tax audits that closed out. The severance expense, and that's pretty easy to calculate since we give you that -- the dollar value. The other one-time revenue, which we benefited from banking, pretty much was a wash against severance. But it's -- so, its about that $0.03 to $0.04.

Okay. Thank you.

Our next question comes from Glenn Greene from Oppenheimer. Your line is open.

Thanks. Good afternoon, everyone. Dennis, just on the expense saving and the restructuring, which I guess you did sort of halfway through the quarter, and I think when you disclosed it you talked about it being 5% to10% of sort of the 2008 expense base. Just trying to get a sense for how much of that the cost savings were realized during its quarter and how much incremental benefit we may see going forward?

Yes, as such I'd say that we didn't see -- we saw some benefit in the first quarter, more around -- less around personnel costs, because of the severance number. And we did see some expense savings I'm sure flowing through operationally because of some of the things we've done with some of our vendors, and other expense initiatives we under took in the fourth quarter. We'll begin to see the fuller impact of the people decisions we made in the second quarter in addition to that, we certainly would expect to see some additional expense improvement in areas where we reduced our reliance on consultants. They have a little bit longer tail to unwind. We can move pretty quickly on it, but it takes a few weeks or a month or so for them to start to unwind once we notice them -- that we no longer need their services. So, you'll see more of a benefit in the second and third quarter.

Alright. And then just one other question, a little bit unrelated, but just to remind me how your billings work. Is it based on quarterly average assets or end of month assets? Meaning with the market appreciation towards the end of the quarter, should you get a more meaningful benefit going forward. Just remind me how your billings work?

Okay, it depends on the business unit. And generally speaking, the USS (inaudible) business is a monthly average -- or daily average balances throughout the quarter. And in the institutional business, generally it's a month-end or quarter-end balances that we'll bill on. And in LSV's case, it's a -- it that the month end or quarter end as well.

Alright. Thank you.

So, it really depends on business.

Got it.

So, ending -- quarter ending assets being lower at the end of the first quarter than they were at the beginning of the first quarter, just suggest where at a lower base going into the second quarter.

Okay. Thank you.

Yes.

Our next question comes from Murali Gopal from KBW. You're line is open.

Good afternoon, Dennis. Just in terms of the $6.3 million in restructuring expenses, could you just give us a sense of how that falls through to the various segments?

Sure. I mean the bulk of that impacted -- at the bank segment is about a little over a half, flow-through to banking and then the rest was pretty well distributed amongst the other segments. Other than LSV obviously and G&A.

Okay. And you know, I apologize if you mentioned this, but when I look at the LSV assets in the management being lower, did you mention how much was due to market related factors versus flows?

It was all market related.

It was all market related. Okay.

They were actually immaterially positive in terms of cash flow.

Okay.

But they were positive.

Okay. And a very general question. In terms of opportunities, just given the various government programs announced, series of programs and in the last several months, is there any former shape that you think SEI could stand to benefit from one or more of these programs?

Not that we've really been able to identify. I mean it's come up in the context of our (inaudible) and collateral within the SIVs for example.

Right.

And to date we haven't been able to identify where we have the type of collateral that matches up well with the requirements of those programs.

Okay. And lastly, can you just talk a little bit in terms of using the credit line to purchase these SIV securities versus the cash on hand, how you kind of think about your capital structure in the long-term?

Yes, we're really -- what we're really trying to do is we have that credit facility in place, we've had it for a while. We expanded it last year in anticipation of getting to this point. We believe -- certainly the costs of borrowing under that facility is in a fairly -- is fairly low.

Right.

And my view is that that's really what we'll use kind of strategically or tactically against that problem, while we continue to run our cash on our balance sheet for our business. Now, at some point in time obviously we'll have to make up the difference between the sales value of that -- those securities or the capital realized from that versus the borrowing and use balance sheet cash or generated cash to pay down the borrowing over time. But we do it as a kind of a three-year event so it will be spread out. I hope. Also, we're all positively anticipating improved markets at some point here. Which would only have a very positive direct impact on our cash flow. And which will maybe speed that up, the paydown of that up.

Okay. That's all I had. Thank you.

Alright. Thanks Murali.

Our next question comes from Tom McCrohan from Janney Montgomery. Your line is open.

Dennis, the SIV securities that were purchased this quarter, where in the balance sheet are they housed? In marketable securities?

Yes.

And are they reflected at the par value or the market value?

The market value.

And I think you said maybe the cash on hand was about $280 million and I'm just trying to reconcile that to the $428 million shown on the balance sheet. Can you remind us what the difference is?

The $280 number that I referenced -- if you ask me at, I don't know what time it is, 2:30 today, how much cash could I have at 4:00, it would be $280 million.

Okay.

Versus the other -- the Delta is -- in some its cash is tied up in different subsidiary companies that will take a longer of period of time to access, or we may not be able to access it for capital reasons its cash thats sitting somewhere for capital purposes.

Yes.

Or it's somewhere where it just would take more than a 24-hour cycle to get my hands on.

And how much of that 280 is cash at LSV.

None of the 280.

None of the 280.. Okay, alright, good, so that's your short-term liquidity.

Yes, the cash on the balance sheet, the LSV cash component of that is about $44 million. So, the 428 -- I think it is, $44 million is LSV and then you can make the case that 43% of that is ours, so.

Yes. And I apologize if I missed this, did you give guidance on the tax rate. I know it was obviously low this quarter and what it's going to be for the balance of the year.

It will be more normal as we work through the year. So, back into the that 37% to 38% range.

Great. Thanks, Dennis.

Alright, Tom.

(Operator Instructions) There are no further questions at this time. Please continue.

Thank you, Dennis. And I'm now going to turn it over to Joe Ujobai to discuss the earning segments.

Great, thank you, Al. Today I'd like to review our financials and give you an update on our market activity for the private banking segment. As a financial update for the first quarter, revenue of approximately $97 million declined by 10% from the year ago quarter and 1% from the fourth quarter of 2008. During the quarter we saw continued but slowing weaknesses in our asset management business. Average assets in the management for the quarter were $9.8 billion. A decline of 49% from the year-ago quarter and 8.5% from the fourth quarter. Approximately 44% of the decline in assets was attributable to market depreciation and currency valuation and 56% resulted from net client redemptions. During the quarter, our brokerage revenue normalized to approximately $15 million. First quarter revenue also includes one-time buyout fees of $7 million associated with a large regional bank contract in the community bank contract termination. Both due to merger activity. I will provide a further (inaudible) update when I discuss our market active.

Profit decreased from the year ago quarter by approximately 13% to $18.1 million. The profit decrease was due to the decline in asset management and investment processing one time revenue. Our clients continue to spend less, a one time processing services such as custom programming. Expenses decreased in the quarter by $7.4 million or almost 9% from the year-ago quarter. Margin for the quarter was 19%, versus 20% in the year-ago quarter, again primarily due to lower revenue as always mentioned, we expect to see continued volatility around our margin as we launch global services in Europe and the US. Longer term, we expect stronger margins, as we grow in scale our private banking business on the new platform.

As an update on market active, we're actively engaged in the following areas. Firstly the continued rollout of global (inaudible) services in the U , enabled by the global wealth platform. We are still on target to convert our next client, (inaudible), at the end of the second quarter. We continue to sharpen our focus in the UK on the independent wealth advisor or IWA business model. As a reminder we define UK IWAs as large, non-bank, wealth management firms who are moving their business -- businesses away from a transaction based product driven account approach, to the delivery of a fee based discretionary relationship model. This business model would typically mean fewer assets at conversion, but higher asset based fees for SEI and the opportunity for significant growth as we convert the IWA's end clients off of multiple third party platforms. The typical UK IWA has their business custody and administered across more than five platforms such as mutual fund super markets and various insurance vehicles. GWS provides a centralized and scalable investment process and relationship model which would strengthen the advisors claim process and drive increased revenue. Our selling activity in the UK IWA space is strengthening and we have a number of prospects in the discovery phase. Meaning, we have qualified the prospect, they have stong interest in our offering, and we are determining how would would implement global (inaudible) services in the firms.

Next we have a renewed focus on the US opportunity based on current market conditions. As the US banking industry reacts to the uncertainty of the marketplace, we are beginning to experience some lower transaction based revenue from current clients and cost reduction press, both during recontracting and now also outside of the contract process. We're working to minimize the revenue decline by offering additional solutions and lengthening contract extension periods. In spite of the market conditions we are prepared to help our clients succeed on a number of fronts. For example, community banks. Community banks, or local banks, (inaudible) the opportunity to grow their business as larger, regional or national banks and other wealth managers space market challenges. We closed one community bank in the first quarter and see our pipeline strengthening for the year. This solution includes both our possessing and asset management capables. Secondly, efficiencies and focus. Many of our clients are rethinking their current business model, which could lean towards larger outsourcing opportunities for SEI. Currently our largest BSP, or outsourcing clients, have approximately 10,000 accounts under administration. We are scaling the solution for our larger clients, targeting banks with accounts three to five times larger. We have launched a focus sales campaign in this market and are seeing early stage interest.

The next area is mergers and acquisitions. We have a long and successful track record of helping our bank clients acquire and consolidate large books of wealth management business. M&A activity presents both an opportunity and a risk for us. During the first quarter, we received notice that we will lose a regional bank client, most likely in the second quarter of 2010. In the first quarter, there are one time revenues associated with a termination of this client and also a large community bank. On a positive note, SEI has been selected by Wells Fargo to serve as the operating platform for the combined Wells Fargo and legacy Wachovia book of business. This is subject to the execution of a formal agreement.

Finally, we are focusing on our distribution footprint. Although market volatility has significantly reversed cash flow, we continue to support investment management distribution relationships in select markets which I believe will position us to take advantage of the eventual change in investor sentiment. During the quarter we launched a new relationship with Coast Capital Savings in Canada and are seeing increased selling activity as banks, who have traditionally been investment managers, consider focusing more on their distribution capabilities. In conclusion, I expect the foreseeable future will continue to be challenging, given our decline in assets (inaudible) management and the current state of the banking industry. Sales activity is strong, but decision processes are complicated and elongated. We're forecast using on the market opportunities available to us now. We believe that in time our significant investments and the compelling full service value proposition we offer will win out and we will again see positive growth. At this point, I will take any

(Operator Instructions) Our next question comes from Jeff Hopson from Stifel Nicolaus. You're line is open.

Okay, thanks a lot. Two questions. One, would you speculate as to the net affect of Wachovia in versus the loss of the regional client, -- regional bank client? And then were there severance costs that hurt your -- or that hit your expenses I guess in the first quarter.

Well, yes, Jeff. The first question, we are -- at this point, we aren't able to say anything more about the Wells/Wachovia relationship because it is subject to the finalization of our contract so it would be difficult for me to comment on that at this point. And then secondly, I would say that we -- as Dennis mentioned, we did have more than half of the severance cost that was accrued in the first quarter as part of the banking expenses.

Okay. But Wachovia theoretically is a pretty big bank obviously, so it's a solid piece of business, is that fair to say?

We're extremely pleased to retain Wells Fargo and bring Wachovia on board and again at this point its just premature for me to comment on anything more specific than that.

Okay. Great. Thanks a lot.

Our next question comes from the Glenn Greene from Oppenheimer. Your line is open.

Yes, this is really just a follow on to the last question, related to margin trends. I guess I was surprised to see the margins of that much with the benefit of the one-time fee, just mathematically it would have been a -- it looked like a 12% margin next to the one-time fee and I realized you did absorb half of the severance costs but still the pressure was a little surprising and I'm wondering what sort of led to that and if that's a good new base level ex the severance costs?

Well, there's -- there are probably four areas of revenue. We have a lot of different levels of revenue in the banking business. So, there are four areas that are under some pressure. So, one area is our asset management business. We, at the beginning of last year, 2008, probably a third of our revenue was asset based or asset management revenue. It's probably declined to about 15% of our revenue so we've seen some -- some significant pressure there. We've also seen pressure in the brokerage area, so last year we had a very strong transaction quarter in the fourth quarter, particularly the month of December. And that's pretty much normalize, so we haven't seen the as much opportunity in brokerage from a revenue stand point.

As I mentioned earlier, we're seeing some pressure in the one-time processing revenue, so again, as I mentioned, it could be us providing customized development for our clients. So, banks typically aren't spending money on those kinds of things. And then the other area is transaction based, so it's not necessarily the brokerage, but for example, an important solution that we developed a couple of years ago was mutual fund trading or a clearing network service, which is based on asset base so we do mutual fund trading and volumes are down fairly significantly. So, we are working hard to adjust our expense base through the work force reduction and in other areas to try to keep the margin as strong as possible given those expense pressures.

And then it's also probably fair to think that you're going to get the bulk or probably half of the expense savings going forward from the restructuring? Is that reasonable?

That would be correct, yes.

Okay. Thank you.

Our next question is from Murali Gopal from KBW. Your line is open.

Hello, Joe. A couple of questions. The regional bank lines that you talked about that you're losing, just so I understand the mechanics right, the buyout of the contract I guess is related to that loss is that right?

That's correct. There is actually two buyouts in that $7 million number. Mostly the loss of a regional bank and then some associated with the loss of a large community bank but again that was involved in a merger.

Okay, but the related revenue loss, we would see only after the deconversion that's not expected until the second quarter of 2010?

That's correct. And there would also be additional one time revenue associated with the deconversion.

Is that going to be spread over the next three quarters or be more back end loaded?

It would be probably closer to the deconversion.

Okay and also, when you talked about -- I think you said 56% of the decline of assets came from net client redemptions. Could you talk a little bit in terms of what were the drivers behind these redemptions? Were these pricing related or what were the reasons for these redemptions?

These were typically clients that have decided -- again, through our -- these are through our distribution relationships with banks and these are typically clients that have decided that they didn't want to be in the market any more and they redeemed their investments in ARM, mutual fund solutions and most of them are in cash at -- but at the bank. At the bank distribution partners.

Okay. And in terms of (inaudible) I guess the conversion happens in the third quarter of '09. I'm just wondering in terms of building the servicing platform to bring the client on, are the expenses in terms of building the service platform generally, most of them reflected in your numbers or would there be an acceleration closer to the conversion date?

There would be an acceleration closer to the conversion date, particularly around the buildout of operations. But certainly as we have continued to develop the platform, we are building more efficiency to the platform and so it will be -- a handful of people which would -- it would mostly be -- it will mostly be people -- personnel costs associated with operations.

But would there also be one-time related conversion kind of revenues offsetting those costs? Or is that something that doesn't happen?

We've been collecting that conversion revenue over the course of the conversion, which would continue up until the end of second quarter conversion.

Okay. Thanks, Joe.

Thanks.

Our next question comes from Tom McCrohan from Janney Montgomery. Your line is open.

Joe, can you just size up at all the Wachovia business in terms of number of accounts or size relative to Wells Fargo?

We -- unfortunately, we have -- or we're unable to share that information with you based on the agreements we have with Wells Fargo and Wachovia. So, at this point, I really can't comment on it.

Okay. And just conceptually, when you do have a buyout, like the $7 million buyout, just are they typically structured kind of as a present value of the next expected forward-looking one year revenues just kind of present value and that's what you get? Or, just conceptually how are those buyouts?

Yes, it depends on where they are in the lifetime of their current contract and so if their early stages of their contract and they get acquired we'll get paid out generally more than a year. If they're closer towards the end of the contract, it would be less. And so it generally depends on where they are in the contract.

Alright. And can I -- assuming the contract goes well with the Wells and Wachovia situation, the actual conversion process itself, you also rely on outside consultants I would think to kind of make that conversion happen, is that fair?

We rely increasingly less on that. We've built -- we have a lot of those skills in house and so we typically -- we would expect to use mostly SEI employees so we're able to take -- and we have a strong work force with a lot of terrific people that have been in this business for 15-20 years so we usually redeploy client service people or other people to help us implement a new client. So, we rely less on consultants for that type of work.

Alright. Thanks, Joe.

Thanks.

(Operator Instructions) There are no further questions. Please continue.

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

Thanks, Al. The first quarter was a continuation of the challenging environment that started in the second half of last year, with our revenues declining almost $23 million or 38% from the first quarter of 2008. A decline in average assets under management was the primary driver of declining revenues with our average assets during the quarter being $12.4 billion lower than the first quarter of 2008. Weak capital markets were the biggest cause of our reduced assets under management. We also experienced $900 million of net negative cash flow during the quarter. Both declining receipts and a higher than normal redemption rate, contributed to poor net cash flow. Profits for the quarter were $10.4 million, a 64% decrease from the first quarter of last year. Our profits reflected the revenue decrease I previously discussed, partially offset by a $4.3 million decrease in expenses. On the expense side, we saw a reduction in most major categories of expenses with the large reductions coming from reduced direct costs due to lower asset balances and reduced compensation expense. Severance expense slightly offset some of these savings.

During the quarter, we continued to recruit new advisors and signed 43 new advisors. This represents a 16% increase from the 37 new advisors we signed in the first quarter of last year. The enlarged new advisor team we put in place at the beginning of the year is building their pipeline and we expect that large pipeline will bear fruit later this year. We continue to focus on this effort as new advisors are important, not only in the year we recruit them, but also in subsequent years. We also continue to invest in our core offering and later this year we expect to introduce enhanced end client statements and further automation of transactions with our advisors. These enhancements reflect the continued strengthening of our offering and should keep us in a strong competitive position for the eventual economic recovery.

In summary, while we have experienced much financial pain in these turbulent times, the value proposition around outsourcing continues to resinate. We have continued to invest in our offering and are well positioned for the future. I will now entertain any questions.

(Operator Instructions) Our first question comes from the Murali Gopal from KBW. Your line is open.

Good afternoon, Wayne. In terms of the -- you talked about the gain in terms of the new advisors but could you talk a little bit in terms of the turmoil in the financial markets for the last couple of quarters and what it means to -- to -- generally the advisor pool in terms of are you seeing some relatively weaker advisors exiting the market? Can also size the kind of advisors that you may have lost in the last two quarters?

Yes, I guess what I would say is the turmoil in the market, I guess it is putting a lot of stress on the weaker advisors, as you might expect. But it's also putting stress on the mix of their business as perhaps some advisors are moving more towards or greater percentage to sort of commission -- commission-based business as opposed to recurrent fee based business. Simply because they need to replace the dramatic loss of revenue they've experienced over the past six months. So, the mix is shared. While they may have -- (inaudible) made a commitment to go to a more fee based the book of business, they're maybe pausing a little bit now because of their pressure on their revenues.

Okay. Okay. And is there -- could you also comment a little bit in terms of -- we did see the operating margin adjusted for the severance, probably in point -- probably a little bit quarter-over-quarter, but still fairly significant -- significantly lower than where it's been in the past. Could you just comment a little bit on that. Maybe from the perspective of the (inaudible) wave of cause in your segment a little bit?

Yes. I look at the market in three different ways. I'd say, a) the severance had an impact; b) just in terms of scale, just reduced AUM itself reduces the margin and then finally I'd say because of the fear in the market, we've seen a pretty dramatic shift from equity in fixed income into money market and GIT type products and money market and GIT type products we earn lower fees on these products even though the expense associated with maintaining and servicing those accounts does not decrease that significantly so that impacts our margins. It would be our expectation that as more confidence returns to the market, you would see those assets flow back into more longer term equity and fixed income products.

Okay. Okay. And lastly, this is probably -- I'm not sure if this is correct -- correct me if probably -- if this question doesn't really apply that much in your business, but I'm just thinking about, when I look at an advisor and if an advisor has say more than one work station -- advisor work station for his processing needs, is there -- and if the advisor, being under financial stress decides to reduce his discretionary -- not discretionary but his spending and part of what he's doing is probably combining his processing on one single work station. Would that impact you at all or are all of your revenues generally driven by asset levels?

Well, I'll answer it two different ways. The answer to your second question, is yes, all of our revenues are based (inaudible) levels, so it doesn't impact is that way. levels. Where it does impact us is in a positive way and that being for an advisor who has a more do it yourself type of operating structure, those work stations, if you will, are fixed expenses that go into his operating expenses. So, when this market went down, he kept that fixed expense. And it made them much more likely to look at a model like ours where their expense is much more variable based upon our asset level expenses. So, its that factor that helps us on the new advisory recruiting side.

Okay. Great. Thank you.

(Operator Instructions) There are no further questions at this time. Please continue.

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

Yes, thanks, Al. Good afternoon, everyone. The first quarter continued to be a challenging business environment for the institutional segment. The impact of strong new client sales and funding throughout last year was masked by the volatile negative capital markets. I'll first speak to the financial results for the first quarter compared to the year-ago period then touch on the impact of our expense management programs and conclude with discussion of sales results.

On the financial side, significant market depreciation and unfavorable currency movements caused revenues to decline by approximately $11 million compared to the first quarter of 2008. Direct costs associated with the asset balances and managed discretionary expenses declined approximately $6 million for the year-over-year period. Profits for the quarter compared to the year-ago period declined by $5 million to $15.2 million. The unfavorable comparison of first quarter expenses to the fourth quarter expenses results from the significantly lower variable incentive compensation costs in the fourth quarter, compared to the first quarter expenses. Worldwide institutional asset balances were also negatively impacted by the capital markets. Assets decreased $11 billion to $37 billion, compared to the first quarter of 2008. Net new client fundings for the first quarter were $578 million. And the backlog of committed but unfunded sales was $1.1 billion at the end of the quarter.

I'm pleased to announce sales for the quarter of $1.5 billion in new client assets. New clients continue to be well diversified by both type and geography. Declining pension funding status as well as the continued uncertain capital markets are positive catalysts for our prospect clients to accept an initial business meeting and enable us to build a healthy pipeline. However, our past experiences tell us that negative, volatile capital markets coupled with this uncertain business environment, tends to lengthen the sales cycle and slow down institutional decision-making. We continue to execute on our long-term strategy of enhancing and extending the reach of our pension and endowment solution and also initiating new business discussions with perspective new clients. These activities serve us well in building the long-term growth and value of the business for SEI. Thank you very much. And I'm happy to entertain your questions.

(Operator Instructions) Our first question comes from Glenn Greene from Oppenheimer. Your line is open.

Good afternoon, Ed.

Hello, Glenn.

Just the sales environment, I was just looking for some color. It actually seemed like your results were pretty solid. Not that different than previous quarters and I guess what's your sense of what you're seeing from the end client base is -- it seems like there isn't that much of a slow down in decision making and just a little bit more color on the environment and what you're seeing out there?

Yes, I mean, we're certainly happy with the sales results that we see this year. I think where it slowed down somewhat is at the larger end of the market. And typically each year we would have one or two fairly significantly large investors. We didn't have anybody really large this particular quarter. We're getting 150, 200, 225 but we're seeing a little bit of a slow down in that decision making, but at the very larger end. I think the positive side of it is what I talked about in my comments, was that I think that institutional investors don't want to go through this type of an event again where they feel that they lack the expertise or the resources to really guide them through this. So, I think that's why they're taking a lot of our initial business meetings and that again is a healthy sign for the business. So, we're optimistic, but certainly frustrated with the fact that as we put on all of these new assets, I mean the capital markets continue to kind of have them evaporate. So, it's been a little bit of a challenge.

How feeling about your going-forward pipeline and prospects?

We feel good about it. As I had said, I mean, we're doing the right things and we're getting the right types of reaction from prospects so the pipeline continues to be a solid source of new business for us.

Okay. Great. Thanks.

Sure.

Our next question comes from Jeff Hopson from Stifel Nicolaus. Your line is open.

Okay. Thanks. Hello, Ed.

Hello, Jeff.

I'm sorry, I missed that about the larger entities and why there is slow down there.

Well, I just think that there's probably more people that have to get involved in the decision making and I think that they are maybe -- a larger entity is a larger business so they have larger business problems. So, this is not quite as important to them.

Okay. But at the same time, wouldn't you think that some of those entities have potentially a more significant underfunding problems I guess?

Oh, absolutely. Yes, I mean its larger the entity, the larger the pension plan, okay, the larger the impact that would be negative so that they would have a -- a -- certainly probably a larger underfunded problem.

Okay, so, the problem is there. It's as big it's just that the decision time and focus on the issue right now has been extended, I guess.

Well it's maybe not the first strategic item that they're addressing. I mean, I think that the problem is there, it will be addressed, we're confident that we will be having conversations with them, but it will just be more extended.

Right. Okay. Great. Thanks.

Sure.

Next question comes from Murali Gopal from KBW. Your line is open.

Hello, Ed.

Hello, Murali.

One very quick question. In the new mandates that you're bidding for and the mandates that you don't ultimately win. Could you talk a little bit in terms of are there specific common denominators that you are seeing kind of winning these mandates or can you kind of talk about why you may not be winning certain mandates? Does it -- and you talked a little bit about the size of the mandate recently -- kind of, large mandates not coming through, does that have anything to do with -- in the current market turmoil, the larger players kind of looking at much larger service providers? Is there any correlation there at all?

Well maybe -- let me clarify (inaudible) when we talk about mandates, okay. I'm not talking about a mandate that we would win a large cap mandate or a small cap or a global fixed income. We're talking about the overall size of the plan. So, our proposition to a client or to a perspective client, is for them to outsource the entire pool of money to us. So, it's -- it boils down to a couple of things. One, we tend to have a pretty good close ratio where a prospect has decided that they want to outsource this through a provider, similar to SEI. Where we can provide both advice, implementation through our management -- investment management program and then all of the administration through our trust and custody platform. Where we tend to not win would be a client who isn't committed to doing that, who would typically want to stay with either doing it themselves, or a variation of that, doing it with the help of a consultant.

So, those are kind of the dimensions that we would typically see that would be characteristic of us winning or losing. Their appetite -- their willingness to outsource. If they want to outsource, again we have a pretty high probability of winning and a good close ratio. Does that answer your question?

It does. But also who are the competitors that you, kind of, frequently end up competing with?

Okay. Well I think on the one side, certainly consultants would be one competitor, because that would be one decision that a client would have to make, do they want to use a consultant. And then the second, there's firms out there like a Frank Russell, a Northern Trust that are in this particular space.

Okay. Great. Thank you.

(Operator Instructions) There are no further questions at this time, please continue.

Thank you, Ed. And our final segment today is investment managers and I'm going to turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon everyone. I will briefly cover the financials for the segment for the first quarter of 2009 and then focus my remarks on our pipeline, the market and our outlook for the year. For the first quarter of 2009, revenues for the segment totaled $33.3 million, or an 8.6% decrease compared to the first quarter of 2008. Although we had new business fundings during the quarter, these revenues were more than offset by the asset declines and the drop in related revenues due to market. Our quarterly profit for the segment of $10.5 million was essentially flat from the same quarter a year ago. Third party asset balances at the end of the first quarter of 2009 were $221.8 billion, or $12.8 billion lower than at the end of the fourth quarter of 2008. Approximately $7.3 billion of this decline was due to market depreciation, and the remainder was primarily due to negative cash flows.

During the first quarter of 2009, the segment had new business sales events totaling $6 million in annualized revenue. I view this number as strong for the quarter in light of the market conditions and uncertainty in the market. More importantly, despite the challenging markets, our pipeline continues to remain strong and active. We are continuing to see some firms delay decisions and funding dates, which is our biggest challenge. However, we are also seeing some light at the end of the tunnel as some firms push through and finalize their decision process. This is evidenced by our closes during this quarter. Our new business focus for the remainder of the year is to execute on the needs for our solutions and to continue to harvest our pipeline so we will be properly positioned when decision cycles finalist.

While the market conditions continue to affect decisions we still feel strongly there is opportunity for long-term growth. Our main objective is to position ourselves for that growth. From a market standpoint, much is the same as reported during our previous quarters call. While there is increased activity, there is a longer sales cycle to navigate through. Also these decisions are not being taken lightly by investment managers in this environment and more extensive due diligence and processes are being put in place. Ultimately we feel this is a positive trend in the market and feel that this goes hand in hand with increased opportunity for growth. So, in summary, our focus remains the same and we'll stay the course. While the market faces challenges in the near term, we see opportunities for growth. Also we see the needs of investment managers in the marketplace increasing as well as new requirements for them to compete affectively. All of which bode well for our business and the solutions that we have invested in and continue to develop. I will now turn it over for any questions you may have.

(Operator Instructions) Our first question comes from Jeff Hopson from Stifel. Your line is open.

Okay, thanks. It seems like your clients are still holding up pretty well, although you did have some negative cash flows. Any sense on kind of where we are in the cycle for cash flows and talk about your clientele, I guess, in general and how they're holding up here?

Well, Jeff, I think in total, again our clients did hold up fairly well. I think although we did see some outflows and some redemptions, they were probably less than half of what you would see or what 's being reported in the market as market average. So, I think from that standpoint, things are holding up pretty well. Again, I think our biggest challenge as we play through this cycle, many managers especially in the hedge fund space are trying to regain confidence due to the market as well as some of the scandals that have taken place with their investors and they're also looking for ways at the same time to compete more effectively and -- which ultimately means looking to out source some of their functions. The biggest dilemma we face is really the delay of these decisions and the longer timing of these processes.

Okay. Great. Thank you.

Sure.

Our next question comes from Murali Gopal from KBW. Your line is open.

Hello, Steve.

Hello.

Just very quickly, when I look at the assets and the administration particularly for -- from -- I mean the assets and administration for the (inaudible) asset managers, just given everything that we have seen, the turmoil over the last couple of quarters and would you say that the rate of decline or the rate of outflow redemption just from that particular segment of the market, as the rate of decline, do you see that slowing down? Do you see any stabilization there at all or is it still trending significantly above normal levels?

Well I would say that -- I guess it's two-fold. Two parts to that question. One, for us, we -- as I said, we see our clients tend to have a lower redemption or attrition rate than the industry. But overall, from a market standpoint, we are starting to see that slowdown and kind of assets leaving due to redemptions definitely pacing off.

Okay. Okay. Thank you.

Sure.

Our next question comes from Tom McCrohan from Janney Montgomery. Your line is open.

Hey, how are you doing. I have a couple of follow-up questions on hedge fund space. You've kind of talked in the past about your views on how the industry is going to consolidate through this turmoil. Has anything -- is it playing out as you thought it would play out as far as the number of firms and how much the industry you think will contract?

Well I think -- I don't think there's been any real big moves as far as consolidation. But looking at how it's playing out, I think it is playing out as we had thought. I think as more and more firms are looking to outsource as well as maybe enhance the outsourcing they already have, I think that is playing along the same lines we thought. I think there is more opportunity and I think people right now are looking for strong players with the breadth and depth of capabilities. So, I think it's right in our wheel house and I'd say that although there's not been any big news on consolidations, I think it's kind of playing to where we thought it would.

And just from the competitive landscape, both state street and the bank in New York with -- the two custody banks were kind of pointing to some of the same trends you're talking about, hedge funds needing to, I guess, spend some money on their back office and more receptivity to outsourcing the back office. So, are you bumping up more against some of the larger custody banks or maybe you can just give us a lay of the landscape on the competitive side.

Well, I think we've always bumped up against some of the larger banks. I mean, they are competitors of ours. What I'd say is I think -- and again, I think we've talked about our focus on, kind of, the middle segment of the market. I think the one thing that's changed is larger asset managers that might have outsourced before and gone with a more larger banking provider and looking for less capability, more volume, cheaper price, I think are rethinking those decisions and looking for more capability, and more tools and solutions to affectively compete, which -- what that means is I think they are looking at everybody, so I think that is increasing the pipelines of firms like ours.

And can you just remind us again, assuming kind of the larger hedge funds are going to survive this crisis and just get bigger and spend some money in the back office, what would be the decision point for them to kind of, outsource versus just doing it in house?

Well I think that's a loaded question. I think there's a couple of things now in today's new market realities. First of all, even the larger players that currently do it in house, and I think this is largely due to some of the scandals in the market, they're being pushed by their investors to outsource. And I think there is a strong demand from the investing marketplace saying that they want them focused on their core competency and want an independent verification of processing of their back office so I think that's driving a large part of the large in sources. I think before they would look at certain asset levels or certain dollar amounts of capital. But right now I think many managers across the spectrum, from small, middle to large are looking to make these back office, middle office processing expenses more of a variable costs in these market times versus a fixed cost.

Okay, thanks, Steve.

Sure.

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

Thank you, Steve. And now I'd like to turn it over to Kathy Heilig to give you a few Company-wide statistics.

Thanks, Al. Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. First quarter cash flow from operations was $48.5 million or $0.25 per share. First quarter free cash flow was $28.1 million or $0.15 per share. First quarter capital expenditures were $3 million. Capital expenditures for the remainder of 2009, leading capitalized software are expected to be between $8 million and $10 million. As you said before, our new facility is on hold for now.

The tax rate for the first quarter was 21%, which was a result of acceptance of tax positions in federal and state income tax audits that were closed during the first quarter. That compares with a fourth quarter tax rate of 50%, and for the remaining quarters, as we said earlier, we would expect our tax rate to be in our more normal range of 37% to38%, which should give us an expected annual rate of 34% to 35%. Our accounts payable balance at March 31 was $9 million. We would also 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 (inaudible) could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results. And now please feel free to ask any other questions that you may have.

(Operator Instructions) Our first question comes from Glenn Greene from Oppenheimer. Your line is open.

Kathy, what was the capitalized software in the quarter what is it expected to go forward?

It was $13.6 million and thats about -- we would expect it to be around there going forward.

Okay. Thanks.

(Operator Instructions) There are no further questions. Please proceed.

So, ladies and gentlemen, despite some of the external uncertainties we face and it's impact on our results, the strength of our Company is allowing us to stay the course of our transformation. Now, while we have a lot yet to accomplish, we are making important strides and definitely feel our efforts will be -- eventually be rewarded. And as I mentioned before, crisis times like these enhance the value of our business propositions. So, before we part, I want to invite you to our annual investor conference. And now this year it will be held on the evening of June 2 and the morning of June 3. So please save those dates. And invitations will be sent out very shortly. So, thank you very much for joining us. And have a good afternoon.

Ladies and gentlemen, this conference will be available for replay after April 23, 2009, through July 23, 2009, 11:59 p.m. You may access AT&T's teleconference replay system at any time by dialing 1-800-475-6701 and entering access code 996579. International participants dial 320-365-3844. Those numbers are again 1-800-475-6701, and 320-365-3844. Access code 996579. That does conclude our conference for today. Thank you for participating and using AT&T (inaudible) teleconference. You may now disconnect.