SEI Investments Co (SEIC) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the SEI fourth-quarter 2009 earnings conference call. Currently, all lines are in a listen-only mode. During today's conference, there will be an opportunities to ask questions. Those instructions will be given at that time. (Operator Instructions). And as a reminder, today's conference is being recorded.

I'd like to turn the conference over to Chairman and CEO, Al West. Please go ahead, sir.

Thank you, and welcome. All of our segment leaders are here on the call with me, as well as Dennis McGonigle, SEI CFO and Kathy Heilig, SEI's Controller. I will start by recapping the fourth quarter and year 2009, and then I will turn it over to Dennis first to explain a few financial matters and cover LSV and the investment new business segment. After that, each of the business segment leaders will comment on their results of their segments. Then finally, Kathy Heilig will provide you with some important Company-wide statistics.

Now as usual, we will field questions at the end of each report. So let me start with the fourth-quarter and full-year 2009.

Fourth-quarter earnings grew by 375% from a year ago on a revenue increase of 6%. Now, diluted earnings per share for the fourth quarter of $0.24 represents a 380% increase from the $0.05 reported for the fourth quarter of 2008.

Now for the year, our earnings grew by 25% on a revenue decrease of 15%. Diluted earnings per share for the full year of $0.91 is a 28% increase over the $0.71 reported in 2008.

Now our earnings for the quarter were affected by a series of special items, which netted to a decrease to earnings of approximately $12 million or $0.04 per share. Now, this adjusted earnings of $0.28 for the quarter is a reflection of improved capital markets and our expense management efforts. Now Dennis will give you a more detailed update of the fourth-quarter special items in a few minutes.

Our 6% increase in revenue compared to the fourth quarter of 2008 and more importantly, a 3% increase in revenue compared to the third quarter of 2009, are both the result of higher capital markets. Since a good portion of our revenues are directly tied to assets under management and administration, higher capital markets increased our revenues.

The reverse is true for the full-year comparison 2009 to 2008. Because capital markets were, on average, higher in the first half of 2008 than all of 2009, we suffered a 15% loss of revenues from 2008 to 2009.

Also, during the fourth quarter, our non-cash asset balances under management grew by $4.7 billion. Of that, SEI's assets under management grew by approximately $1.6 billion during the quarter while LSV's assets under management grew by approximately $3.1 billion.

In addition, during the fourth quarter, we repurchased 1,243,000 shares of stock at an average price of just under $18 per share. That translates to $22 million of stock repurchases during the quarter. For the entire year, the numbers are 3,198,000 shares purchased at an average price just under $17 a share, representing $54 million of repurchases.

While the capital markets have rebounded over the last few quarters, we continue to feel the effects of a less than robust economic environment. Sales remain slow, particularly in banking and advisor segments, although activity has picked up. Our increase in assets under management during the quarter was fueled by rising capital markets.

Net cash flows for LSV and SEI investment funds was zero. All during 2009, we have kept intensive pressure on cost control and our efforts during this time have resulted in a 10% reduction in our run rate operating expenses.

Now, fortunately, our strong financial condition has enabled us to continue to invest in the Global Wealth Platform and its operational infrastructure. This is critically important because the platform will support a large part of our future growth.

During the fourth quarter, we successfully released version 6.0 of the Global Wealth Platform. This is a very large release, first setting us up for dramatically increased scale; and second, taking a very big step towards getting us ready to enter the US market.

During last quarter, we capitalized approximately $9 million of the Global Wealth Platform development and amortized approximately $20.5 million of previously capitalized development. Included in the $20.5 million is a $7.7 million depreciation expense, which was part of a write-down of replaced software, and which Dennis explained in our last quarterly report and will touch on in a few minutes.

Now we're working hard to retain clients and grow new revenues. We know how critical it is now to sell and capture new business. At the same time, we will also continue our efforts to control costs and improve productivity. In addition, we will continue to invest in areas that promise to provide longer-term growth. Now we are firm in our belief that we are on the right path to help our clients succeed and also to build a strong growing company.

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

Thanks, Al. I will cover the one-time items that have affected our results and the fourth-quarter results for the Investments in New Business and LSV segments.

During the fourth quarter 2009, we incurred a marked-to-market loss on our SIV securities of approximately $4 million. This compares to a gain of approximately $13.4 million during the third quarter of 2009. Although we have seen general improvement in pricing and market activity, the restructuring of the Stanfield note resulted in downward repricing during the quarter. In total, we hold approximately $310 million of par value SIV securities directly on our balance sheet, which carry a marked-to-market value of $121 million on December 31, 2009. If you would like additional information on this topic, I encourage you to review our 10-K filing, when made, and all past filings.

As I had mentioned during the third-quarter earnings call, we plan to place into production release 6.0 of the Global Wealth Platform. This release enabled SEI to run multiple clients in a single production environment, or said differently, on a single instance of the platform. This enables, over time, a more cost efficient production environment and greater operational leverage. Among the system functionality in this release is new code that effectively replaced some of the original components of the platform that we carry on our books. If you will recall, we took an impairment charge of approximately $7.7 million in the third quarter of 2009, and we took an additional $7.7 million charge in the fourth quarter of 2009.

This fourth-quarter charge is spread primarily against the Banking segment of $5 million, the Investment Advisors segment of $1.9 million, and the Investments in New Business segment of $800,000.

This non-cash charge reflects a write-down of the capitalized assets by the remaining book value of the component being replaced. The total of the SIV and GWP items is approximately $11.7 million or, as Al mentioned, $0.04 per share.

I would now like to cover the Investments in New Business segment and the LSV segment. I will focus my comments 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 to ultra high net worth investors. During the quarter, the INB segment generated a loss of $1.8 million. This compares to a loss of $2.1 million for the third quarter of 2009. This loss includes the $800,000 charge related to the write-down that I just spoke about.

The efforts in this segment are centered on our life and wealth services to the ultra high net worth segment and leveraging this capability to other parts of the Company. We view the losses in this segment as an investment in future 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 $23 million in the fourth quarter of 2009. This compares to a contribution of $21.2 million in the third quarter of 2009. Revenues from LSV for the quarter were approximately $62.5 million. This compares to revenues of $60.2 million in the third quarter. The quarterly improvement was due to growth in assets under management from positive cash flow and market appreciation. During the third quarter, LSV's assets under management grew approximately $3 billion.

On SEI's balance sheet of our reported cash and short-term investments of approximately $591 million, $57 million is attributable to LSV at December 31, 2009. Of our reported receivables of $212 million, $66 million were attributable to LSV.

Liabilities are affected by the debt associated with our guarantee to the LSV employee group. This is reflected in current liabilities of the approximately $14.8 million related to LSV, $6.4 million is debt. Long-term debt related to LSV is approximately $16 million.

One closing comment. It is my expectation that we will begin to report LSV under the equity method starting with first quarter of 2010 results. Although this will have no impact on our earnings attribute to LSV, it will result in a deconsolidation of certain income statement and balance sheet items. We plan to provide pro forma financials ahead of our first quarter call, either in our 10-K or separately.

That concludes my remarks. I will now take any questions you might have.

(Operator Instructions). Tom McCrohan, Janney.

Hey, Dennis, can you remind us again what drove the deconsolidation of LSV?

There's actually some addition -- new accounting rules that came into play last year. And as the debt has gotten paid down pretty significantly that we are guaranteeing, essentially, it triggers our requirement to de-consolidate. Even without the rule change, eventually we would have de-consolidated them anyway once the debt was paid off.

Okay. How much outstanding debt are you guaranteeing right now?

It's about $22 million.

And initially it was like what -- $80-something million or something like that?

Correct. Yes. Roughly $85 million.

Okay. And how should we think about the long-term debt that was taken out to finance the purchase of the SIV securities? Is the paydown of that debt going to be a function of recovery in the markets, so as those securities get sold, you'll pay down the debt? Or should I not think of it that way? Just trying to get a sense for how that long-term debt is going to be paid down.

Yes, it will be paid out of -- not to be simplistic, but paid out of our positive cash flow. And if we generate cash flow off of the SIV structures themselves, which we are -- we certainly could use that cash to pay down the debt also. If we liquidate or sell some of those structures or all those structures, we would use the proceeds to pay down as well as our operating cash.

Okay. Thank you.

Robert Lee, KBW.

Thanks. Good afternoon, Dennis. Just two quick questions. On LSV, I don't think you mentioned it, but what were their net flows in the quarter?

Yes, of the $3 billion approximately they grew, it was about 50-50. Half from cash flow, half from market.

Okay, great. And, I'm just curious, back to the runoff of the SIVs on the balance sheet, do you have any, where you sit now, any kind of sense of looking out over 2010, any kind of events or scheduled paydowns that you think will happen? So maybe get a feel for looking out, how much we may expect that to kind of runoff? Or is it really just kind of episodic and you can't really tell at this point?

I mean I like your word episodic. That's -- I haven't used that word before on an earnings call.

Feel free to use it. It's okay.

But I mean it's hard to predict the cash flows. You can get a feel when we've done some analysis on some of the structures and how the cash flows are either front-end loaded or normalized over the life of the underlying collateral, or in some cases, the cash flows come later. But it's hard to predict specifically how those pieces of underlying collateral are actually going to produce cash. We did have a decent cash flow off of the structures in the fourth quarter. We had good cash flow in the third quarter. It's just not something that's very predictable.

Okay, fair enough. That was it. Thank you.

Glenn Greene, Oppenheimer.

Just a quick question on the mix of assets at LSV. Was there any meaningful change? And where I'm going with this is it looks like the basis point yield was somewhat lower this quarter than last quarter?

I don't think there was any major change of mix. during the quarter, and their product lines are all (multiple speakers)

Anything that explains the lower yield on sort of an average asset basis?

I don't have the detail in front of me. All I would speculate is it might be the actual size of the client, the client size.

Okay.

Break points. That's just a guess.

Okay. Thanks.

At this time there are no further questions in queue.

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

Thank you, Al. Today, I would like to review our financials and give you an update on our market activity for the Private Banking segment. As a financial update, I will focus my comments on a comparison of the third quarter of last year.

For the quarter, revenue of $89.1 million was relatively flat to the prior-quarter revenues of $88.6 million.

In the Private Banking segment, we have three main drivers of revenue. Number one, wealth processing. Revenue from our wealth processing business has grown slightly by 4.5%, mainly due to an increase in our professional service fees in the US.

I would like to remind you that in 2010, we will recognize the loss of two previously announced large US bank clients. Both losses were a result of M&A activity. We expect to see an approximate quarterly revenue loss of $2.2 million starting in the first quarter and additional quarterly revenue loss of approximately $2 million in the second quarter.

Number two, asset management. Ending assets in our wealth management or longer-term programs primarily from global distributors was relatively flat to our prior balances. Our ending assets were at $12.7 billion versus $12.5 billion in Q3. In the US, we continue to experience a decline in our cash management assets as our US banking clients move away from money market funds.

The third area of revenue is brokerage and transaction services. Our revenue in this solution decreased modestly by 4.5%. Expenses for the quarter were generally flat to quarter three. As a reminder, we incurred a $5 million GWP impairment charge as we did in Q3.

Margin for the quarter was 10%, similar to the third quarter. Margin, excluding the one-time GWP impairment would have been approximately 16%.

By way of a market activity update, we are focused on the following growth areas. First, the continued rollout of Global Wealth Services enabled by the Global Wealth Platform. We continue to focus our expansion of Global Wealth Services in the UK to firms seeking to transform their business model from transaction-led to advice and fee-based solutions.

During the fourth quarter, we implemented Tennant Financial Services, a large accountancy-based independent wealth advisor or IWA, on the new multi-firm version of the platform, release 6.0. During the first quarter, we will convert our other three clients to the single instance of the platform. Release 6.0 will help us drive further scale on GWP.

As I've mentioned in the past, most of our IWA prospects are making a substantial change to their business model and will convert their clients over time to the Global Wealth Platform rather than all at once. Our day one revenue is typically very small but will grow over the coming years as our clients transform their businesses and change the nature of their relationships with their clients. This means that SEI's revenue will take time to realize, but our opportunity with these growing businesses is substantial.

We're working closely with Tennant on asset transition strategies to move clients more quickly to discretionary relationships. These efforts will drive increased recurring fees for our clients, the IWAs, as well as additional assets and revenue on the Global Wealth Platform.

Tennant has also adopted our goals-based asset management program, which will increase our overall revenue through additional asset management fees with this relationship.

We are in heavy sales execution mode in the UK. Business development efforts continue to focus on this IWA segment with a concurrent expansion of our efforts to qualify prospects such as banks and other large discretionary wealth management firms as they begin to refocus on strategic growth following the difficult years of 2008 and 2009. We have over 20 active agendas, and feel positive in our ability to provide comprehensive services to IWAs and to other firms across the wealth management market will manifest itself in increased deal flow in 2010.

In the US, we are preparing for the availability of GWP, and we are focused on growing our revenue and retaining clients. Areas of new business growth include selling Community Banks, our Global Wealth Services solution, at this point enabled by Trust 3000, that will generate both asset management and wealth processing revenues.

In 2009, we increased our sales and marketing resources with this opportunity and are now experiencing increased calling activity. Our late 2009 marketing campaign has resulted in over 25 first calls with new Community Bank prospects. We have momentum going into 2010.

We're also beginning to target regional and national bank competitive opportunities as market conditions improve and we move closer to the launch of Global Wealth Services in the US. We have active agendas in this area.

With our current US clients, we are focused on the following areas. Cross-selling existing clients with a sales focus on the regional and national bank clients.

Regarding recurring fees, we are focused on opportunities related to the key macro issues of the industry, such as the heightened regulatory environment, and increased communication via web-based services. Over the past few years, we have built solutions in these areas and are using these services to add additional client revenue and more importantly, enhance the re-contracting process. We continue to see some increased client discretionary or onetime spend for professional service projects.

With our current clients, we are engaged in significant re-contracting activity. We're trying to help our clients manage their expenses during 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 to previous years despite serious pricing pressure from the competition.

During the fourth quarter, we recontracted 11 clients for over $11 million with an average re-contract term of 4.5 years. In all of 2009, we recontracted 23 clients with annualized revenue of $45.6 million with an average term of 4.6 years.

Finally, we continue to support our global asset management distribution footprint. In the fourth quarter, we continued to see evidence of improvement in individual investor sentiment, although regional differences still remain. This business has stabilized, and we're beginning to see net growth with some current distributors.

We are engaged with formal relaunch programs at all of our large distribution partners and are actively seeking to sign new distribution relationships in 2010. Our pipeline of new large distribution relationships is encouraging.

In conclusion, I expect the foreseeable future to be challenging as clients and prospects regroup and rethink their way forward post the past two challenging years. We will grow this business in the short term by focusing on the opportunities for change in the marketplace while we continue to invest in our longer-term future and the broader rollout of Global Wealth Services. In 2010, we will manage expenses as we continue to transition our solution.

Our strategy is compelling and our activity is generating increased new business growth agendas. Are there any questions today?

(Operator Instructions). Tom McCrohan.

Hey, Joe. Good afternoon. Has your outlook, which you phrased as challenging, has that shifted at all recently? Is there anything in the market that has changed recently that gives you some cautious optimism for 2010? Was kind of that outlook consistent with what you've had in the last few quarters?

I would say that banks are less worried about survival than they were in late 2008 and 2009. So we are beginning to see some senior executives starting to figure out what's the way forward and how are they going to grow their businesses? What will their business mix look like?

I think that some of the increased spending on onetime or professional services could be an indication that things are starting to open up a bit. They are less worried about client retention as things have stabilized. And so they're beginning to think more about the future. I would say it's early days. They are beginning to engage consulting firms. But, we are pretty active, and I think firms are pleased by the fact that we continue to invest substantially in the buildout of our solution and we stayed the course. And so I think all those things are leading to more active agendas. But I would suspect that sales times will stay relatively long.

Okay. And in connection with your opening comments about the clients rolling off, are there any offsetting new clients? Like wasn't Wachovia kind of a new win for you guys, and that's going to offset some of those losses?

We've obviously sold some Community Bank clients over the last couple of years. We've sold our initial GWP clients. And we've seen a little bit of positive momentum and activity on the M&A side. But, the two that we lost were pretty significant revenues for us. So we are sort of netting out to somewhat down at this point.

Okay, thanks.

(Operator Instructions). Glenn Greene, Oppenheimer.

Not to parse words too much, but could you help us a little bit with what 20 active agendas really mean? How far along that is and what's the nature of the discussion? Just a little bit more color on it.

So these would be qualified prospects. So these would be situations where we have gone in and understood the requirements of the firm and that they would match up to the capabilities that we have broadly or generally built in the solution. In most cases, we are engaged at a fairly senior executive level around a strategic change in their business, typically away from a transaction-based to a fee-based.

Some of them are further along in the pipeline where we are in contract negotiation. Others, we would be in discovery, again, better understanding than how we would actually apply our services to their business model or help them evolve their business model towards a more efficient. So they are sort of across the pipeline, but they are generally qualified. And we're in active conversations with the most senior executives in those firms about our solution.

Is there any way to qualitatively discuss how does that compare to where it might have been let's say six months or so ago when the world was different and people were still just getting out of the panic?

I think it's a result of our work during when things were in a panic of just being consistently out there in the market, telling -- sharing with the clients the experience that our -- or sharing with the prospects the experience that our early adopter clients had with us. And so I think what's happening is these firms are now feeling like their businesses have stabilized, and they are now free. They have more time to start thinking about the future.

And we also have more critical mass of capabilities as we have continued to build the platform. I think that again, we've got good references from our early adopter clients. And so there's -- I've always said that momentum is really important. And I always felt that we need six to eight clients to really have momentum. You know, we've got three or four now in the platform, and we've got some good prospects. So I think that momentum is helping us.

So I would say that we're in better shape than we were six months ago. Part of that is because the market is better, and part of that is because we just continue to gain momentum given our success to date.

Okay. And then I just want to follow up on one of the prior questions on some of the new business that may be coming on. Did something happen different with the Wells Fargo/Wachovia relationship? Because I was under the same impression that that would be sort of a meaningful boost to revenue that might offset the loss in that [city]?

It's a -- was a significant retention for us. Wells had been a long-term client. And -- but Wachovia had a fairly -- a solution that the bank considered fairly seriously. And so there isn't a huge uplift in short-term revenue gain, although we believe that the bank's commitment to us will, over time, drive additional revenue for us, particularly as we continue to launch additional services. And there's also some good onetime or professional service fees that we will be getting this year through next year, that will help bounce up our revenue there.

Okay. And then just finally, on Towry Law, I understand they bought or merged and got a big book of business, I think, call it November. Does that sort of slowly come onto your platform? Or how does that work?

Both with Towry Law -- we're pretty excited about some of our early adopter clients because we've tried to find firms that really want to grow their businesses in the coming years as the regulation -- there's some fairly big regulatory change occurring in the UK as investors come back into the market. And two of our first clients, Towry Law and Tennant, have both made significant acquisitions since we've begun to work with them.

We have a pretty comprehensive plan with Towry Law to bring those assets on board over the next year or so. And so we are working actively with them.

The book of business they bought with Edward Jones isn't a discretionary book of business. Towry Law has been really a leader in the market for converting people from a fee-based, or sorry, a transaction-based to a fee-based into a discretionary book of business. So there's some exciting things they've done over the last two or three years to move the client -- to change the client relationships. And they are certainly a leader in that.

The Edward Jones book of business was very transaction-based. And so we will help them convert as much of that to their discretionary solution as quickly as possible. And then we will help them over time convert those that don't convert right away. So we see upside there. And we are still working with Towry Law to determine the exact time frame for that transition.

But, it won't all happen at once. They will have to go client by client and convince those clients to move from a transaction type of relationship to a fee-based relationship. But we are doing that together. And we suspect that Towry Law will continue to grow for us as they've been very public about their growth. We just spent a great amount of time with the CEO of Towry Law. And very publicly stated growth plans. And they believe that we are a terrific partner for them to substantially grow their business. And when we met them and started talking about working together, this was the plan and now we're executing on it.

Terrific. Very helpful, and lots of luck on the sales execution this year.

Thank you.

We have no further questions at this time. Please continue.

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

Thank you, Al. During the quarter, progress continued in recovering from the recent market meltdown. This progress was evidenced by improved revenues, profits, margins, cash flow, and new advisor signings.

Revenues in the quarter increased by $2 million or 4.8% from the third quarter. This increase was driven by new advisor signings and market appreciation. While we did experience net negative cash flow, we continue to trend back to positive growth. Net negative cash flow for the quarter was $179 million, which was an improvement from the negative $225 million in the third quarter and the negative $555 million we experienced in the second quarter.

Assets under management during the quarter increased slightly from $29.5 billion to $29.7 billion.

Profits for the quarter were $17.2 million. This is an 11% increase from the $15.5 million we earned in the third quarter. These profits reflect our revenue increase and tight expense management. We remain focused on managing expenses in a way that allows a large portion of our revenue increases to drop to the bottom line. This is evidenced in the improvement in our margins from 35.6% in the third quarter to 37.7% in the fourth quarter, our third straight quarter of improved margins.

As Dennis mentioned, we wrote off a portion of the Global Wealth Platform, and $1.9 million of this write-off is reflected in the Advisor results for the third and the fourth quarters. Absent this write-off, our margins in the fourth quarter would have been just shy of 42%.

Aside from our improved numbers, we have also moved the business forward on many other fronts. In terms of new business development, we recruited 250 new advisors for the year, a significant improvement from the 175 we recruited in 2008. This translated into $200 million in net positive cash flow from Advisers that have been clients for 12 months or less. I continue to expect progress in this business metric as our pipeline remains strong and our sales force focused.

In terms of continuing to improve our product offering, we released an industry-leading statement format this year, which was ranked by Dalbar as one of the top mutual fund statements available, behind only BlackRock and Federated, and ahead of many household names such as Vanguard, American Funds, Putnam, and T. Rowe Price.

As I'm sure you are aware, we emphasize the importance of goals-based investing with our advisors and are most proud of Dalbar's observation that our new statement, "may be the best documentation of goals and progress Dalbar has seen on a mutual fund statement."

Finally, we continue to look for strategic partnerships where we can partner with other leaders in the industry for our mutual benefit. One significant example is that during the fourth quarter, we agreed to a strategic partnership with Cambridge Investment Research, a top independent broker-dealer. They have a network of over 1600 independent advisers, some of whom already work with us, but many who do not.

Through our alliance, we expect to help them and their advisors in areas such as practice management and the conversion of advisory practices from commission-based to fee-based.

Eric Schwartz, the Founder and CEO of Cambridge, announced this partnership to his firm last month by saying, leaders working with leaders is always a great idea, which is why we are committed to our alliance with SEI.

While we have not yet fully recovered from the second half of 2008, we continue to make progress and have many exciting opportunities in 2010 that should keep us moving forward. I welcome any questions you may have.

(Operator Instructions). Jeff Hopson, Stifel Nicolaus.

Okay, thank you. Thanks, Wayne. In regard to the net -- the still outflows, modest but still negative, do you get the sense that some of that is still clients moving say money market over to bank deposits, things of that sort? And how would you describe the mentality of the typical financial advisor out there? Are they kind of moving forward at this point or still cautious?

I think the financial advisors out there are sort of turned from nervous to a much more positive outlook right now, as far as that question.

We continue to see the rotation out of money market funds into fixed income and equity products. So if you look at sort of our point to point asset balances, why they only went up $200 million, our fixed income and equity products went up $555 million. So we saw rotation out of liquidity into equity and fixed income products, which is I think a positive sign of optimism on the part of advisors and their clients.

And finally, what I would say is the fourth quarter, when you look at cash flow, the fourth quarter is typically a challenging quarter for us.

Okay. And, would you say that financial advisors are feeling good about their prospects of picking up new business at the expense of the wire houses? I know that's been an ongoing trend, but is that something that is real for these guys?

Yes, it is. They target those accounts. And that's why market turmoil sets the stage for them to make their pitch for advising the clients as opposed to sort of a commission-based wire house model.

Great. Thanks a lot.

Robert Lee, KBW.

Two quick questions. First, on the competitive landscape, are you seeing any kind of new initiatives or competitors out there? I mean Schwab, for example, I saw the other day they announced some new service; I forget exactly what it was. But are you starting to see more people kind of try to take -- do something similar to what you do and try to deliver it into the same market that may be were not there as much two, three years ago?

What I would say is if you look at the Schwabs and the Fidelity's of the world, they're selling an open custody platform. So this is a component of the solution. We are selling a complete business solution. So when looking -- we look at a segment of the advisors that want to do business differently than they would do business with Schwab and Fidelity. So they're really not in our space directly. They are definitely in that space, but we're selling a different philosophy of how you do business.

Okay. And maybe just a follow-up to one of Jeff's questions. I know it's really early in the quarter and three, four weeks doesn't necessarily make any kind of trend. But, any sense, as you approach this year, that you're starting to see more -- you are starting to see a more noticeable pickup in activity from more your advisors, retail investors -- more of a willingness to not just do fixed income, but kind of go at the risk curve a little bit more?

Yes.

Okay. That's helpful. Thank you.

(Operator Instructions). And, you may continue.

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

Thanks, Al. Good afternoon, everyone. I'm also going to focus my remarks on progress achieved during the fourth quarter of 2009 compared to the third quarter. Revenues, profits, and margins continued their quarterly improvement during the fourth quarter. Revenues approaching $49 million for the fourth quarter increased 3% compared to the third quarter of 2009. Capital Market appreciation was the major contributor to revenue growth during the quarter. Quarterly profits of $23.6 million increased 17% versus the third quarter.

Lower compensation and operational expenses both contributed positively to profit and margin improvements for the quarter. Margins, however, will continue to be very sensitive to market volatility.

Asset balances increased by $7.8 billion during the year, totaling at year end, $48.3 billion. Asset balances declined slightly quarter to quarter, primarily due to lower money market assets.

On the client funding side, we had a rare occurrence where client redemptions were unusually large and overwhelmed the new client funding. Net new client assets were negative $823 million.

Our backlog of committed but unfunded assets at year end were at $324 million. Sales activity during the fourth quarter was $575 million new client sales for the quarter, and at that, totaled $3.5 billion for the entire year.

Economic and market uncertainty contributed to a decreased volume of new sales opportunities, especially in the larger end of the market. New client asset sales were respectable, though, based on the number of institutional decisions that were made throughout 2009.

A key driver for the institutional sales growth is the continued global adoption of SEI's integrated pension and endowment solutions in our target markets.

During the past year, there's been considerable press coverage and thought leadership in the UK and the Netherlands endorsing fiduciary management and outsourcing. We view this as a positive trend and our decade-long history acting as a fiduciary manager in the US positions SEI well in both of these markets.

Institutional decision-making has slowed down due to the economic environment, but the value of our business proposition, integrating pension finance, corporate finance and advice with our goals-based investing, will be more evident to institutional decision makers as the business environment improves.

Our focus for 2010 is in three areas. First, we continue to build the pipeline to win new client relationships. Second, we continue to provide clients with value-added advice in client service. And number three, we continue to differentiate our solutions with investment strategies that are sensitive to goal attainment and near-term market conditions and opportunities.

Thanks very much, and I'm happy to entertain any questions you may have.

(Operator Instructions). Jeff Hopson.

Thanks. Ed, in regard to the outflows, I guess are they one-offs? Can you kind of explain what those were all about? And then looking at that, any concerns that that would continue at some point into the future?

As I said, I think it certainly has been a rare occurrence over the last really 14 years since we started the segment, to see that. Typically, what we would see is a couple of different things.

One would be if there are some changes to the committee, this tends to be in a not-for-profit structure. Sometimes the new leaders have a different view of how they're going to manage plans and they don't really want to outsource it, but they may want to take more of an active role themselves with a committee.

We had a couple plans that were taken over by PBGC, because of the Company's financial position. And there certainly is a lot of information in the press about passive investing being attractive. And so we did see some plans that decided to lower their costs by going passive.

Okay, great. Thanks.

Glenn Greene.

Good afternoon, Ed. Just a similar question on the redemptions -- do you think were behind us, or is this going to be a recurring theme as we go throughout 2010?

Well I don't think the recurring theme will be redemptions at this particular level. There's redemptions every quarter. But they are always netted out against the funding. But they are always relatively modest. This was, again, just a very unusual situation.

Okay. But you think it's just the one quarter type phenomenon. There's nothing more systemic here?

I don't think they would be at this level. Again, I want to just make sure you know, we typically have redemptions. But they're not normally at this level.

I understand. I understand.

Okay.

And then just on the sales outlook, I know it's probably not up to your expectations or at least in the back half it wasn't. Do you have any sense or what's your outlook and pipeline looking like going forward as we enter '10?

Sure. Our pipelines continue to be growing and to be strong. And I would say the outlook is positive because one, we're able to continue to get new appointments. So, prospective clients are entertaining change types of decisions.

Number two, I don't see the salespeople in the offices much so that means that they are out traveling, trying to work with the clients and move the agendas along. And that's positive. So those are good signs. I think just generally, I think that the market turmoil is kind of somewhat behind a lot of these plans. And I think that they are now starting to regroup and say, what do I want to do to move forward? And I think that's a good opportunity for us.

Do you think decision cycles will shorten?

I don't know the answer to that. I'm optimistic that they will. But I don't know for sure.

Okay, thank you.

We have no further questions at this time.

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

Good afternoon, everyone. I will briefly cover the financials of the segment for the fourth quarter and then cover our new sales and a brief look at the year ahead of us.

For the fourth quarter of 2009, revenues for the segment totaled $37.1 million, which was about a $1.9 million increase or 5.4% higher than our revenues for the third quarter of 2009. Our quarterly profit for this segment of $12.2 million was essentially flat from the third quarter. Our quarter-over-quarter increase in revenue was offset by a $1.9 million increase in expense due to higher incentive and sales compensation, as well as our continued investment spending.

Our third-party asset balances at the end of the fourth quarter of 2009 were $221.7 billion or $5.5 billion higher than at the end of the third quarter 2009. The main driver of the asset increase was market appreciation of approximately $5.1 billion.

During the fourth quarter of 2009, the segment had new business sales events totaling $8.6 billion in annualized revenue.

In addition, we had re-contracts for seven existing clients totaling $7.4 million. We continue to see strengthening in the market and a building confidence among investment managers. However, I still believe that the market is still exhibiting a slower decision process and the new norm will be for longer sales cycles. As we set our sights on 2010, I continue to feel well-positioned and cautiously optimistic. We continue to see increasing needs from the marketplace that match our solutions. We continue to invest in our business and see opportunity for growth.

Our growth focus for 2010 will continue to be in several key areas. First, we will continue to expand globally and to grow our business overseas, which we feel presents a tremendous growth opportunity for us.

Second, we will continue to further our leadership position in the alternative market and grow our business with strong solutions we have built in this space.

Third, we will continue to expand our solutions to capture the emerging market needs of investment managers and their evolving businesses and to ultimately provide them with a total operational infrastructure.

Finally, we will continue to expand and grow our relationships with our existing clients.

So as we look towards 2010, we will continue to execute on our strategy, continue to navigate the market turbulence, and continue to focus on the growth of our business. I will now turn it over for any questions you have.

(Operator Instructions). Robert Lee.

Good afternoon. I have a quick question. On the competitive landscape in the alternative space, given the events of the past year or so of Madoff and whatnot, I guess you've seen a lot of hedge funds and others move to outsource their admin services and in particular, higher independent custodians for a lot of their assets. Is that at all -- how does that impact you competitively, the fact that you are not a custodian per se as compared to some of the bigger players out there? Do you see more kind of mid and large hedge funds want to put everything with one player or is that really just kind of you know here or there, kind of depends on --?

Yes, I think that's more here or there. What I would say is we are certainly see an uptick, and I think some of the market scandals has helped this, of clients wanting to bring in a third-party processor for their business. I believe that one, people realize that that's not where their core focus should be. Investment managers realize that's not where their core focus should be.

And two, I think these scandals have proven that it's better left to an independent party. I don't think there's a push towards a custodian provider over an independent outsourcer. When they look at this, they just don't look at their custody function. And a lot of these firms, especially on the hedge funds side, have their assets held at prime brokerage or brokerage firms. And what they really look for is an independent person to do the processing and accounting of that business.

Okay, great. Thank you.

Tom McCrohan.

Good afternoon. Before the crisis began, I think you were predicting like a 20% contraction in the hedge fund space; others were predicting a little bit higher. How did it all shake out at the end of the day? What did you actually see as far as contraction in the hedge fund space?

Well, you can measure contraction in a number of ways. I think what we saw was clearly a number of firms were eliminated -- hedge fund firms were eliminated -- during the whole market downturn. I think the barriers to entry have increased.

I think certainly as you see from the market, assets were down; they were down significantly. But, we started to see in the third quarter of 2009 and it continued through the fourth quarter, assets, inflows, and market values started to increase. I think you are seeing direct strategy funds take on most of those increased flows, while fund of funds are still even or actually a little bit down as far as the industry.

But, a lot of people were predicting this would be the end of the hedge fund or alternative business. And clearly I think in the beginning of the year I echoed this. We do not see that. Certainly now, I think there is a stronger sentiment in the market. And I think that the market and the industry will come out of this on the alternative side much better having gone through this. I think there will be a lot more controls in place and I think a greater focus on infrastructure and making sure that things are handled appropriately.

So, did the contraction at the end of the day come in below your expectations or in line?

I would say in line.

In line? Okay.

And you've talked as far as 2010 growth objectives and what you're focused on, you've talked in the past about increasing wallet share amongst existing clients. You talked about focus on alternatives. I don't remember you talking so much about focusing on overseas growth. Is that a change or maybe I've missed you talking about that in the past.

No, I think we've certainly made mention of that in 2009 I think on the last call as well. It has been an ongoing focus, but I think it's had renewed focus for us. And I think we're much more geared up for it and looking at that to be hopefully a key driver for us in the future.

Any particular geographies or segments when you talk about overseas?

I think right now our main focus is on Europe and the Middle East.

Thanks, Steve.

Jeff Hopson.

Thank you. I may have missed this, but the last couple quarters you had some outflows at the client level on the money market side or the cash side. Did that continue? And then, did you give us new business revenues? I may have missed that as well.

Yes, so I'll start with your second part of your question. So the new business sales events for the quarter were $8.6 million in annualized revenue. The outflows on the traditional side were really limited to a couple of clients that happened in the second and third quarter of 2009; that did not continue in Q4. So, we saw an outflow from our lower fee stable and liquidity products. And like I said, it was concentrated among two clients, I believe.

Okay. And the new business, can you kind of give us any further description of the type of new business that you are seeing right now as far as type of client, I guess?

Well, the good news is, there was kind of a representation from all the segments in our business. The majority was this quarter from our direct strategy business. But it did have some traditional business as well. And it's typically the back office as well as middle office outsourcing.

Thank you.

We have no further questions at this time.

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

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. Fourth-quarter cash flow from operations was $109.8 million or $0.57 per share.

Year-to-date cash flow from operations was $345.5 million or $1.81 per share. Fourth-quarter free cash flow was $67.2 million and year-to-date free cash flow was $247 million.

The fourth-quarter capital expenditures were $10.3 million, and they included about $7 million of capital expenditures for our data center. Year-to-date capital expenditures were $19.3 million.

For 2010, capital expenditures excluding capitalized software are expected to be about $22 million. And a fair portion of those expenditures will be in the first quarter, again, for our data center.

The tax rate for the fourth quarter was slightly lower than the tax rate for the third quarter. For the fourth quarter, it was 35.7% which compared to 37% in the third quarter. And that fourth-quarter rate reflected some true-ups of our state tax rate for 2008 when we actually filed our 2008 state tax returns in the fourth quarter.

For next year, we would expect that our tax rate will be about 38%. This assumes that the R&D tax credit would not be reinstated. If it is reinstated, then the tax rate would be a little bit lower.

The accounts payable balance at 12/31 was $2.9 million. And 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 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.

And now, please feel free to ask any other questions that you may have.

(Operator Instructions). Currently, there are no questions in queue.

Thank you, Kathy.

So, ladies and gentlemen, despite some of the external conditions we face and its impact on our results, the strength of our Company is allowing us to stay the course on building new sources of growth. We have made important strides and definitely feel our efforts will eventually be rewarded. And times like these do enhance the value of our business proposition.

Now, before we say good afternoon, our annual Investor Day will be held on June 16 this year with a dinner the night before on the 15th. So please save the date, and invitations will be sent out in advance.

And if anybody has any other questions, now would be a great time to ask them.

(Operator Instructions). There are no questions in queue.

Good afternoon, and thank you very much for your attendance.

Ladies and gentlemen, that does conclude our conference. Thank you very much for your participation. You may now disconnect.