SEI Investments Co (SEIC) 2009 Q2 法說會逐字稿

Welcome to the SEI second quarter earnings conference call. At this time all participants are in 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 Wednesday, July 22nd of 2009.

I will now turn the conference to our host, Mr. Al West. Please go ahead, sir.

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

So let me start with the second quarter. Second quarter earnings fell 10% from a year ago on revenue decline of 24%. Diluted earnings per share for the first quarter of $0.22 represents an 8% drop from the $0.24 reported for second quarter 2008. Earnings for the quarter were adversely affected by first quarter charge to earnings of $2.3 million, or approximately $0.01 per share. This was due to our purchase of certain SIVs held in our money funds. This relatively small charge to earnings is a reflection of the market price of SIVs beginning to stabilize. Dennis will give you a more detailed update of the SIV situation in a few minutes.

Please note that during the second quarter, our tax rate returns to more normal levels. Also, second quarter earnings included the full quarter effect of the cost reductions we initiated in the first quarter. Our 24% drop in revenue compare to the second quarter of 2008 is a result of the impact of declining capital markets during the last year, an effect that that had on our assets under management and administration. Since a good portion of our revenues are directly tied to assets under management and administration. For the first time since 2007, our noncash asset balances under management grew during the quarter. Our assets under management grew by $16.3 billion during the second quarter, and SEI's assets under management grew by approximately $8.4 billion during the quarter, while LSV's assets under management grew by approximately $7.9 billion. In a global 60/40 portfolio was up 13.5% during the quarter.

Also during the second quarter, we repurchased 452,575 shares of stock at an average price of approximately $17 per share. Now that translates to $7.7 million of stock repurchases during the quarter. Now, while the capital markets over the last two years have reduced our revenues and profits significantly, we're still profitable and generating positive cash flow. And during the first quarter, we reduced expenses and resized our Company to better match the new market realities. The effects of these moves are reflected in lower expenses during the second quarter, as the full quarter effect of cost reductions took effect. Now, the second thing we did to react to the new market realities was to make adjustments in our strategy to concentrate our marketing and sales activities where we have short and intermediate term opportunities for revenue growth. We believe we have made significant progress on this and our segment leaders will talk in more specifics about these shifts in focus.

And we continue to invest in the global wealth platform and its operational infrastructure because the platform is a critical part of our future. Now, during the second quarter this year, we capitalized approximately $11 million of the global wealth platform development, and amortized approximately $12.8 million of previously capitalized development. Even with improvements in capital markets, we believe the rest of 2009 promises to be challenging. Buying decisions in all our businesses remain slow even though there is significant activity in every market we now address. During these times, we will continue to work hard to reduce costs and improve productivity. At the same time, we will continue to execute our longer term strategy. We affirm in our belief we are on the right path to help our clients succeed and to build a strong growing Company. When the dust clears on this crisis we feel we'll be well positioned to prosper because crisis times like these are enhancing our value proposition.

This concludes my remarks so I'll now ask Dennis to cover some Company financial issues and give you an update LSV and the investment in new business segment. After that I'll turn it over to the other heads of the business segments.

I'll provide a brief update on money market funds that we have discussed at length in our prior filings and on our past earnings calls. I will also cover the second quarter results for the investment in new business and LSV segment, and I have a comment on a future accounting item. During second quarter 2009 the capital market showed signs of improvement. These improving market conditions brought some stability to the market values of the collateral underlying the SIV holdings in our money market funds and on our balance sheet. Stabilization and market values combined with the purchase of all of the SIV securities from our SLAT prime obligation money market fund resulted, as Al mentioned, in a net loss across all SIV components of approximately $2.3 million during the quarter.

As you are aware from our prior calls and filings, SEI entered into capital support agreements with three SEI money market mutual funds back in the fourth quarter of 2007. As of today, we have one remaining capital support agreement in place for the SEI prime obligation fund. This fund held a single SIV security with a par value of $61 million on June 30th, 2009, down from $64.8 million at March 31st, 2009. During the second quarter 2009, we generated a noncash pretax gain of $2.4 million related to the SDIT prime obligation portfolio. This fund continues to maintain its AAA rating by both Moody's and S & P.

During the second quarter, SEI purchased all remaining SIV securities from the SLAT prime obligation portfolio. As a result of this action, SEI recorded a pretax charge of $5.3 million in the second quarter, and the capital support agreement in place for this fund was cancelled. To fund the purchase of these notes, SEI borrowed under its credit facility. This explains the increase in long-term debt on our balance sheet. In addition to the gains and losses discussed earlier, SEI also incurred a gain of approximately $600,000 on previously purchased SIV securities. As a result of our recent purchase actions in total, we hold 262 million of par value SIV securities directly on our balance sheet, which carry a mark to market value of $92 million as of June 30th, 2009.

To summarize, the aggregate par value of SIV securities held in our money market funds and on our balance sheet total approximately $322 million as of June 30th. During the second quarter 2009, we incurred approximately $2.3 million in total pretax losses, the aggregate amount of charges recorded through June 30th, 2009 is approximately $200 million. I encourage you to review our 10-Q filing when made and all past filings for further information. I'd also remind you our capital strength has allowed us to deal effectively with 100% of the SIV issue, our credit facility and positive cash flow provide us the capital strength to effectively manage this issue, while continuing to fund the needs of SEI's businesses.

I would now like to cover the investments in new business segment and the LSV segment. I will focus on 2009 quarter to quarter performance. I refer you to the earnings release for year-over-year comparisons. Activities in the investments in new business segment are focused on direct marketing, ultra high net worth investors. During the quarter, the investments in new business segment generated a loss of $1.2 million. This compares to a loss of $2 million for the first quarter 2009. 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, leveraging this learning to other parts of the company. SEI historically has used this segment as an incubator for new initiatives. We view the losses is 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. Earnings contribution to SEI from LSV was approximately $17.4 million in the second quarter 2009. This compares to a contribution of $13.7 million in first quarter 2009. Revenues from LSV for the quarter were approximately $49.1 million. This compares to revenues of $40.2 million in the first quarter 2009.

Quarterly improvement was due primarily to market appreciation of assets under management. During the second quarter, LSV's assets under management grew approximately $8 billion. This was mainly due to market appreciation. On SEI's balance sheet of our reported cash and short term investments of approximately $493 million, $38 million is attributable to LSV at June 30th. Of our reported receivables of $208 million, $55 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 $6.4 million, and long-term debt, approximately $18 million.

As I have mentioned in prior calls, our consolidation of LSV was driven by the debt guarantee provided to the employee group in January 2006. This borrowing is backed by an 8% ownership stake in LSV. On our earnings call in April I communicated that we may de-consolidate LSV in the quarter. Upon analysis of the relevant accounting rules governing this area, it was concluded that de-consolidation at this time was not required, based upon the application of new accounting rules recently put in place it is likely we will de-consolidate beginning next year. I will keep you updated if this changes.

One final comment. As we look forward, the next significant release of the global wealth platform release 6.0, is scheduled for the fourth quarter of this year. This release will enable SEI to run multiple clients in a single production environment, or said differently, on a single instance of the platform. This will enable a more cost efficient production environment and greater operational leverage as we grow. Among the system functionality in this release is new code that will effectively replace some of the original components of the platform that we carry on our books. When this new code is released into production, again expected in the fourth quarter of this year, we will take a noncash impairment charge of approximately $15 million. This noncash charge reflects a write-down of the capitalized asset by the remaining book value of the component being replaced.

I will now take any questions you may have.

(Operator Instructions). Our first question comes from the line of Glenn Greene of Oppenheimer.

Hi, good afternoon. First question -- two questions, actually, related to LSV. One is, the asset improvement. Was any part of it due to fund in flows? What were the net flows in the quarter?

Almost all due to to market appreciation, really no material in flows or out flows.

Secondarily, the yield per assets look like it improved, not only sequentially, but at the highest level it's ever been for LSV. Was there anything unusual in terms of the revenue, or is this a sustainable sort of basis point yield level?

There was nothing unusual. Their product mix may be enhancing some of their earnings flows, but nothing unusual there.

And then finally, I mean, Al articulated that you had a full quarter impact from the expense cuts that you implemented at the end of the first quarter, is the $162 million sort of aggregate expense level a reasonable run rate from here going forward and did you accrue a full sort of compensation or incentive accrual during the quarter?

I guess I will start backwards. We do have, based on our current expectations around compensation, we are fully accrued for the first two quarters, not for the year. That's certainly something that can and could be affected by what goes on the market and what goes on with business performance over next two quarters. The expense run rate that you are seeing in this quarter, one comment I would make about quarter in general is that it's a pretty clean quarter in terms of expense recognition. There's really not a lot of -- very little one-time kind of expense events in the number. That's pretty much true, not only for the Company as a whole, but for the business segments as well, so not that I'm saying that the expense run rate is something that it won't fluctuate given decisions will make over the next couple of quarters, but it's a pretty clean quarter that way.

That's great, thank you.

Sure.

Our next question comes from the line of Jeff Hopson with Stifel Nicolaus.

Thanks. Dennis, on LSV again, it seems like the market value increase was more than what was indicated by the performance of the public mutual fund. So I guess the question is, did we miscalculate, or did the private funds outperform the mutual funds? And then, my second question is it seems like clients have been patient with LSV. So I guess I'm wondering, is there a bigger kind of inflow sales number versus outflows, or is it just very little in flow or out flow?

I guess across their entire asset base, its pretty little of both. We're not seeing big swings one way or the other. With the two netting. They have a pretty diverse product line across multiple not only US market caps, but also non US markets believe it or not, products that aren't public -- and so they had a pretty good quarter of performance. They've had a pretty good year, as a matter of fact. So I don't know what number you're looking at, but I would say that if there are numbers out there, a couple of public funds, their overall performance has been pretty solid.

Great, thanks.

Thank you. (Operator Instructions). Our next question comes from the line of Leonardo [Depostel] with Janney Montgomery Scott.

Good afternoon, Dennis.

Hi, Leonardo.

I had a question with regard to the SIV. So, if I understand correctly there are $92 million left mark to market, of which $30 million from the press release is the remaining obligation. That the relationship there?

Yes, the $30 million, referenced in the press release, is the obligation under the last remaining capital support agreement with the SDIT prime obligation fund. But also note that the -- to the extent which there are unrealized losses, if you will, that will be incurred if we had to buy that SIV security out of that fund, those already been recognized, already been recorded.

Okay. That's it. Thank you.

Is you're welcome. Thanks.

(Operator Instructions). Showing no further questions at this time, I will turn it back to management for closing remarks.

Thank you, Dennis, and I'm going to now turn it over to Joe Ujobai to discuss our private banking segment. Joe.

Thank you, Al. Today we'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 second quarter, revenue of approximately $87 million declined by 16% from the year-ago quarter and 10% for the first quarter of 2009. The decline revenue versus the year-ago quarter generally reflects a 45% decrease in asset management fees and and 35% decrease in investment processing one-time fees. Recurring revenue from our investment processing business has remained relatively stable. The decline in revenue versus the first quarter 2009 generally reflects a fall-off in one-time fees in the second quarter, particularly the fact we had no buyout or deconversion fees versus $7 million in Q1.

The quarter was also affected by a 27% decrease in brokerage revenue resulting from reduced trading levels as the capital market began to stabilize. Ending assets in the quarter were $10.7 billion versus $9.5 billion in Q 1. This reflects $1.6 billion in market appreciation, and $400 million in net client redemptions, a slight reduction from Q1. Margin for the quarter was 18.3% versus 17.6% in the year-ago quarter and 18.7 in the first quarter. Relative margin stability is due to continued expense control. We will continue to focus on expenses, but are committed to making the investment necessary to launch global wealth services.

As an update on market activity, we are actively engaged in growing our business in the following areas. First, the continued rollout of global wealth services in the UK. As planned, we successfully converted our second external client (inaudible) Law at the end of the quarter. We are working to convert our next client (inaudible) Financial Services in fourth quarter. We remain focused in the UK on the independent wealth advisor or IWA business model. IWAs are larger wealth management firms looking to transform their business by delivering advice, not just investment products, in a highly scalable business model with a consistent end client experience. This business model would typically mean fewer assets for conversion with the opportunity for significant growth as we convert the IWA's end clients off of multiple third-party platforms. Our selling activity is brisk. We have a number of additional IWA prospects in the pipeline.

Next, a renewed focus on the US opportunity based on current market conditions. The uncertain market conditions have created several potential near to intermediate term opportunities. For new business, we are focused on local or community banks. We recently closed two new local bank clients, for a total of three this year. Once converted, these clients represent approximately $2.3 million in investment processing, liquidity and brokage revenue, which we would expect to significantly enhance with additional asset revenue over time.

With our current US clients we are focused on three areas. First, cross-selling existing clients. We are beginning to see some pickup in one-time fee events for professional service project. Regarding recurring fees, we are focused on opportunities related to the key macro issues of the industry, and since the heightened regulatory environment, we are actively selling our new compliance service solutions there. Secondly, we are engaged in significant recontract activity. We are trying to help our clients manage their expenses during these difficult times. We do this by helping reduce their overall operating spend while extending the term of our contracts. So far, overall recontracting rates are similar or slightly better than in previous years. During the second quarter, we recontracted six clients with a total of approximately $9.3 million in run rate with an average term of four years. This represents a small net down over current revenue.

Certainly we are working to extend our outsourcing reach. We see more banks considering outsourcing is although the decision process is slower than we'd like. We continue to focus on flipping some of our larger technology only outsource clients or ASP clients to full investment processing outsourcing or BSP. We're promoting selective outsourcing such as mutual fund processing and employee benefit reporting. By outsourcing to SEI, we believe that we can provide substantial savings to our clients and increased revenue to SEI. Finally, we continue to support our asset management distribution footprint. Although market volatility has 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.

In conclusion, I expect the foreseeable future to be challenging, given our decline in assets under management and the current state of the banking industry. Market activity is strong, but decision processes are complicated and elongated. We are focused on the market opportunities available to us now, and we believe that in time our significant investments led by the continued rollout of the global wealth platform and the compelling full service value proposition we offer will win out and we will again see positive growth. Any questions?

At this time I'm show no audio questions. Pardon me, we do after follow-up question from the line of Jeff Hopson with Stifel Nicolaus.

Hey there, Joe. I guess my question on the cash flows, seems like Europe, while certainly the US and Europe, have kind of seen a reversal and now seen inflows, so I'm curious why you're still seeing outflows. What would be the reason for the difference?

We distribute primarily to high net worth and affluent individuals through either banks or large distributors. So in many cases we're not the only investment solution that is available to the end client, and what we're finding is that there still seems to be movement towards other products within the banks, and that the long sort of mutual fund models that we have for our clients aren't seeing the same amount of inflows.

So would those be -- I guess bank deposits is what you're saying?

Yes, and there's still some opportunity, the clients, some of these banks are creating other products with more of an absolute return focus, and so we're just not seeing the movement back into our discretionary portfolio yet.

Thank you.

Our next question is a follow-up question from the line of Glenn Greene with Oppenheimer.

Just quickly, the brokerage revenue, the decline, what proportion, roughly is the brokerage revenue of your business, and why -- I'm a little confused as to why it declined that order of magnitude, given the pickup of activity we have seen in the market overall.

We've -- brokerage was, and we've published this, was about $10 million or $11million in revenue in the second quarter, versus $15 million in the first quarter, versus $19 million in the fourth quarter of 2008. And I think that some of the activity -- some of the increasing activity in the fourth quarter was due to the fact that a number of the brokers in the market, where people were unsure about some of the larger brokers and what was the ultimate longevity of some of those brokers. As the market has sort of stabilized, I think some of those firms are now being utilized by our clients, and it just depends. Really wasn't any changing in pricing or other influences some quarters just aren't as predictable as our recurring revenue business.

So you're essentially saying that trading activity was reallocated to essentially other providers away from you?

Okay, well, we've seen some significant activity, I think given some of the uncertainty about marketplace, or the other providers, and things seem to be back to us somewhat more reasonable, or expected flow.

Okay. Thanks.

Thank you. And I'm show nothing further audio questions at this time. Please continue.

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

Thank you, Al. And good afternoon to everybody on the telephone. While our second quarter financial results fell well short of last year, we did experience improvement in our revenues, profits, and the operating environment in general, when compared to the first quarter of this year. Given the turmoil in the financial marks we experienced in the first half of 2000 -- last half of 2008, excuse me, I will direct my comments to what has changed since first quarter. For comparison to last year's second quarter, I would ask that you review the press release.

Revenues in the quarter increased over $2 million or 5.5% from the first quarter of 2009. Assets under management also increased from $25 billion at the end of the first quarter to $26.8 billion at the end of the second quarter. This increase was driven by market appreciation. While we did experience $555 million in net negative cash flow, this was an improvement from the negative $905 million we experienced in the first quarter of this year. Profits for the quarter were $13.6 million. Even though this was a significant drop from our profits in the second quarter of last year, they are a 31% increase when compared to the first quarter of 2009. These profits reflected our revenue increase, the impact of expense controls we put in place during the first quarter, and improvement in our margins. As I have mentioned before, the profits in this segment are highly leveraged to changes in revenue due to market valuations. As valuations increase, or as they have in the past few quarters, decreased, a large portion of the revenue changes go directly to the bottom line. Since markets are now rising, we are seeing the reversal of the margin pressure we experienced during the recent market declines.

While the recent financial markets have made our financial results challenging, they have also put stress on our advisers and their businesses. In response, we're working hard to help our advisers stabilize their existing business and to help them look for new business to replace lost revenues. Our goal is not only to grow SEI revenue, but perhaps more importantly, to reinforce the value of doing business with SEI. So for example, we have recently introduced a service where our best advisors can videotape a message to their clients, then broadcast it to clients over the internet. SEI helps write the message, produces and records and edits the video, then broadcasts the video on behalf of our advisers. This service has been very well received and helps our advisers secure their relationship with their clients while in turn helping us secure our relationship with the advisor.

On the growth front, we have developed turn-keep growth campaigns that our advisors can private label and execute on behalf of their practices. These campaigns are soup to nuts programs that start with canned prospecting letters and first call presentations, all the way through to the content of the closing meeting and the process to convert assets. We have developed campaigns to take advantage of targeted growth areas such as IRA rollovers, take-away business from wire house brokers, and the current opportunities in municipal bonds. Again, we are trying to secure our clients, help them grow, and reinforce the value of our outsourcing solution.

On the new business front, we recruited 48 new advisers during the quarter. This brings our total for the year to 91 new advisers, which compares favorably to the 61 we recruited during first half 2008. The enlarged new advisor sales team we put in place at the beginning of the year is building their pipeline, and we expect this enlarged pipeline to continue to bear fruit. Keep in mind that new advisers are important not only in the year we recruit them, but also in subsequent years as we try to help them grow.

Standing at the midpoint of 2009, I would say that we are having success in recruiting new advisers while using the market disruption to strengthen our relationship with existing clients and are making progress in reversing the large negative cash flow we experienced during the market correction. Improved markets in general are also helping our margins. While the segment is not yet performing at the level I expect, progress is being made with both existing and new advisers and improving investor confidence and improving markets in general should put a little wind to our backs. I will now entertain questions.

Thank you. (Operator Instructions). And I'm showing no audio questions at this time. Please continue.

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

Thanks, Al. Good afternoon, everyone. Since the capital markets have delivered positive returns in the second quarter for the first time during the last year, I'm going to focus the majority of my remarks on the financial results and the progress we've made during the second quarter, compared to the first quarter of 2009. Second quarter revenues of $42 million increased 7%. Positive capital markets had the most significant impact on the revenue growth. Operating profits approaching $19 million increased 24% for the quarter. Reduced personnel expenses, both in the institutional unit, as well as in the other units supporting our business, provided a positive contribution to quarterly profitability. Margins increased to 45% for the quarter. This compares favorably to the first quarter margins. I would note, though that revenue volatility does cause margins to fluctuate.

Quarter end asset balances were $41 billion, reflecting a $4 billion increase compared to the first quarter. Net new client funding during the quarter was $104 million. The backlog of committed but unfunded sales was $1.4 billion at the end of the quarter. We are experiencing a little bit longer asset transition time frames, especially with our hospital clients that need to be sensitive to recognizing operating fund losses on their financial statements. So some of the investments that they're in today, currently they are in a loss position, and there's a little bit more of a delay to get those transitioned to our program.

Client signings for the second quarter were $822 million, and totaled $2.4 billion year to date through June. The pipeline continues to grow through new prospective clients accepting appointments. However, client decision making continues to be delayed. The uncertain market conditions have not altered global plan sponsor's desire to manage the volatility that pension funding can cause to corporate business results. An SEI solution enables clients to successfully manage their entire pension program. However, many plan sponsors are more focused on the recessionary impact to their core business than making changes to their pension program.

We are optimistic that as market conditions improve, prospective clients will again return to a more normal decision making process and time frame and sales momentum will increase. This concludes my prepared remarks, and I'm happy to entertain any questions you may have.

Thank you. And our next question is a follow-up question from the line of Glenn Greene with Oppenheimer.

Good afternoon, Ed.

Hey, Glen.

Two quick questions. The $1.4 billion backlog, it normally gets funded in the next quarter. Is there any delay in funding that, if I heard you right, and how long due think it will fund that backlog?

We typically were funding that pretty much the next quarter. I think that there's, again, the sensitivity on the part of some of our hospital clients, operating funds, so that may take a little bit longer if it's some of those assets. There's also some sensitivity with even some of the pension clients so I think it's going to delay a little bit but it's maybe another quarter max.

And then you sort of talked about the sales activity which we can see clearly slowed from the first quarter. Do you have decision cycles being longer and people can't get over the goal line?

Well, I think that the observation I would have is I don't think that they have set necessarily a goal line to get over. I think that they're interested -- we're seeing that RFPs that we're answering, that number is higher. We're seeing the number of first appointments for calls to entertain a new change, so for prospective clients, that's higher. So those are healthy signs. But what I don't see is that someone says, well, I want to make this by the end of June, or the end of September. So they haven't necessarily put a committed time frame around it. Because of the fact that they're focusing on their business. So it tends to then just kind of get prolonged.

Okay. Thanks.

Sure.

Thank you. Our next question comes from the line of Robert Lee with KBW. Please go ahead.

Good afternoon, Ed. How you been?

Good, Robert. How about yourself?

Pretty good, thanks. Two quick questions. First, we got a little bit of color geographically how the activity in the US may compare to the UK or the Netherlands I guess is where else you do some business, and then to what extent is kind of the decision making process being prolonged by the -- to the extent that seems like almost every institutional investor is going back and rethinking their asset Al lo occasions and maybe you're rethinking how you approach different clients. That contributing to kind of the longer decision making processes to a great degree?

Sure. Okay, let me answer the first question, which would be kind of the diversity, I guess, of our clients. The way that the client sales typically end up is kind of the proportional, almost to where the assets are in the world. So the largest number continues to come from the US. After that, we do see action in the UK. This past quarter, we didn't really see any new client signings in the Netherlands, but things aren't always quarter to quarter. We also saw some activity in South Africa as well. And there was a pretty good diversity insofar as corporate plans, union plans, and some hospital accounts as well. I think insofar as the decision making and the asset allocations clearly we're doing a lot of work with our clients, giving them advice about strategies that could help to better achieve their goals. And most of those relate to changing their asset allocation to some degree. I suspect, okay, that you could say that plan sponsors are certainly thinking about these would be prospects that would be thinking about make changes to their asset allocations, but I think general physical you were to look out there, I think that the number of searches the consultants did during the first six months of the years I think it's down pretty dramatically. So I think that's another indication that maybe there's some planning work being done, but there isn't any implementation, per se, that's kind of going on.

Okay, thank you.

Sure.

Thank you. Our next question is a follow-up question from the line of Jeff Hopson. Please go ahead.

One of the larger assess managers commented they're seeing a greater desire by pension funds for fiduciary services, which I think would kind of be consistent with what you're trying to offer. So I guess my question is, is there any change in that regard, or is it just that they're recognizing what you have been recognizing?

Well, I guess I would like to say that we're glad that the world is finally seeing what we saw in our vision, so that gives us a lot of comfort. So thanks for bringing that up.

But no change in that desire from your standpoint?

No. The change I would say is what your observation is. I think this is kind of catching on. Certainly it was here in the US. We started this 13, 14 years ago. It grew to Canada. We've seen it in the Netherlands. We're now seeing it in the UK it's become very popular. So I think this whole idea of trying to improve the health of the plan and having a fiduciary to help to you do that I think is a pretty attractive proposition.

Okay, great, thank you.

Sure.

Thank you. At this time I'm not showing any further audio questions. Please continue.

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

Good afternoon. I will briefly cover the financials of the segment for the second quarter, then cover our new business, and then finally brief update on the market. For the financials I will compare second quarter results to that of this year's first quarter. As my colleagues have mentioned this is a better gauge due to the market conditions that have transpired over the past year.

For the second quarter of 2009, revenues for the segment took $33.4 million, which was on par with our revenues for first quarter 2009. Our quarterly profit for the segment of $11.1 million was up approximately 6.3% over our Q1 2009 profit. This quarter over quarter increase in profit was due primarily to expense reductions and personnel follow-ups and other expenses. Our third-party asset balances were $213.9 billion, or $7.8 billion lower than at the end of the first quarter of 2009. The main driver of as of the asset reduction was due to negative cash flows of approximately $13.5 billion. This decline was offset by net new client fundings $2.7 billion and market appreciation of $2.9 billion. The overall 3.5% decrease in assets quarter over quarter was concentrated in our traditional manager products, mainly lower fee stable asset and liquidity fund.

During the second quarter the segment had new business sales events totaling $5.1 million in annualized revenue consisting of $3.1 million in events with alternative markets, and $2 million in events from traditional managers. We feel this number is solid for the quarter and continues to point to managers want to outsource even in these difficult markets, however it also reflects continued slowing of decisions and longer sales cycle which we have discussed in previous calls.

As we look to the second half of 2009, I continue to feel well positioned and cautiously optimistic. This market continues to drive managers to reassess their areas of focus. It continues to drive realization that they need more capabilities and the way to address the new market realities of scalability, transparency, regulatory oversight, and a solid operational infrastructure. This bodes well for us. As the industry continues to navigate the market and managers play out what this means to them and their firms, we hopefully will see an uptick in the decision process and deal flow. So as we continue to navigate through 2009 our focus will be grounded in patience, staying the course, and building for long-term growth. I will now turn it over for any questions you have.

Thank you, sir. Our next question is a follow-up from the line of Glenn Greene.

Could you just give a little bit more color on the $13.5 billion in negative cash outflows? You talked about traditional managers. Was it one or two large clients that you lost, or was it kind of -- just trying to get a better gauge for the order of magnitude of what we lost here, because that's a surprisingly big number.

Yes, Glen, it wasn't lost clients on our part what. I would say is it was on our traditional managers, lower fee to us stable and liquidity products, and basically some concentrated in a handful of clients, them having a reduction in assets in those products. So outflows of those products.

Do you think it's stable from here, or do you think we'll see more of the same going forward?

Well, gee, that's the million dollar question, but I think from what we see here, I think this was anomaly at least with these managers, traditional side. I think as you look across the market, including with hedge, which has been one of the areas where people have lacked at for the redemption cycle, we have started to see that certainly solidify up and slow down, but what I'd say is, it depends on the market. I think in these cases, while I can it not point to the exact reason why these monies left the funds, I think it was due to investor needs and moves on the investors of these clients.

But there were no client losses to SEI from your end, negative cash flow from tend users?

Exactly.

Have you seen any pickup? You talked about the June analyst event of the increased need for independent verification from some of the money managers and their hedge funds on the back of some of the fraud scandals we've obviously heard about in the last nine months. Have you seen any incremental pickup in activity levels related to that?

Yes, I think across the board the industry as a whole is seeing a pickup in that, and that need kind of really swelling to the top of the needs list from the investment manager standpoint.

Okay. Thanks.

Thank you. (Operator Instructions). I'm show nothing further audio questions at this time. Please continue.

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

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. The second quarter cash flow from operations was $85.2 million for $0.44 per share. Year to date cash flow from operations is $134 million. The second quarter free cash flow was $67.6 million or -- year to date free cash flow is $95 million. Second quarter capital expenditures were $3.6 million. Year to date capital expenditures are $6.6 million. Those numbers exclude capitalized software that Al had mentioned earlier. We expect capital expenditures for the remainder of this year, excluding capitalized software, to be about $7 million.

The second quarter tax rate was around 37%, which compares to a first quarter tax rate of 21%. The first quarter did include a benefit for closure of some tax audits. Because the first quarter tax rate was lower, the annual tax rate will be between 34% and 35%. The accounts payable balance at June 30th was $13.1 million.

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

Thank you. We have a follow-up question from the line of Jeff Hopson. Please go ahead.

Okay, thanks. I actually had a question on the investment managers segment. I couldn't get in for some reason. The question is, the revenues did not seem to be affected by those outflows, so the question is was it because of the fee rate or because those outflows occurred later in the quarter and will see an effect in the third quarter?

I would say it's a little of both, but mostly it's a result of it being the lower fee products on our side, stable value and liquidity products.

Okay, great, thank you.

Sure.

Thank you. (Operator Instructions). And there are no audio questions at this time. Please continue.

Thank you, Kathy. So, ladies and gentlemen, despite some of the external uncertainties we face and its impact on our results, the strength of our Company is allowing us to stay the course on our transformation. While we have a lot yet to accomplish, we are making important strides, and definitely feel our efforts will eventually be rewarded. And as I mentioned before, crisis times like these are experiencing -- and what we're experiencing enhances the value of our business propositions. Now I would like to open the floor for any last moment questions that you might have.

(Operator Instructions). Management, I'm show no audio questions at this time.

Well, thank you very much for your attendance today, and have a good afternoon.

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