SEI Investments Co (SEIC) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI first quarter earnings call. For the conference all the participants are in a listen-only mode. However, there will be an opportunity for your questions, and instructions will be given at that time. (Operator Instructions) As a reminder, today's call is being recorded. With that being said, I'll turn the conference now to Mr. Al West, Chairman and CEO. Please go ahead, sir.

Thank you, and welcome, everybody, and good afternoon. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI CFO and Kathy Heilig, SEI's Controller. Now, I'm going to start by recapping the first quarter of 2010, and then turn it over to Dennis first to expand on a few financial matters and to cover LSV and the investment and new business efforts. After that, each of the business segment leaders will comment on the results of their segments, then, finally, Kathy Heilig will provide you with important company wide statistics. And as usual, we'll field questions at the end of each report.

Let me start with the first quarter of 2010. First quarter earnings grew by 74% from a year ago, while we reported a decrease of 11% in our revenues. Diluted earnings per share for the first quarter of $0.31 represents a 72% increase from the $0.18 recorded for the first quarter of 2009. Now, our 11% decrease in reported revenue was due to the deconsolidation of LSV as we returned to the equity accounting method in 2010. First quarter 2010 reported revenues did not include LSV revenue, while first quarter 2009 included $40 million in LSV revenue. Now, excluding the LSV revenue in 2009, first quarter 2010 revenues grew by 6% over first quarter 2009 revenues. And this growth in revenues is the result of higher capital markets. Now, our earnings for the quarter were unaffected by the change in accounting treatment of LSV, but were affected by an increase in the value of the SIV's on our balance sheet, which netted to an increase in earnings of approximately $17.3 million or approximately $0.05 per share. Now over $10 million of the $17 million gained was from an increase in cash flows from the SIV's.

Also during the first quarter, our noncash asset balance under management grew by $4 billion. Of that, SEI's assets under management grew by approximately $2.4 billion during the quarter while LSV's assets under management grew by approximately $1.7 billion. In addition, during the first quarter, we repurchased just over a million shares of stock at an average price of just over $0.19 -- $19 per share. Sorry to scare you. That translates to just over $19 million of stock repurchased during the quarter.

While the capital markets have rebounded over the last few quarters, we still feel the effects of a less-than-robust economic environment. However, some things are showing signs of thawing. Sales, while still slower than usual, have picked up in all units. This includes sales of GWP-related services in the UK. For the entire company, we recorded $18 million worth of new sales events in the first quarter, plus we are still experiencing new sales activity that remained high.

In addition, we have kept intensive pressure on cost control while continuing our investment in the global wealth platform and its operational infrastructure so critical to our future. Now, during the first quarter we successfully converted all but one of our existing clients and one new client to release 6.0 of the Global Wealth Platform. Now, as you'll recall, 6.0 was a very large release, first setting us up for dramatically increased scale and, second, taking a very big step toward getting us ready to enter the US market. Now the move of all clients at 6.0 puts us on one image of the platform, increases reliability of the system, and helps speed up delivery of new functionality.

During the first quarter, we capitalized approximately $8.4 million of the Global Wealth Platform development, and amortized approximately $5.9 million of previously capitalized development. And, as always, we will work hard to find ways to retain clients and grow new revenues and will also continue our efforts to control costs and improve productivity. In addition, we will continue to invest in areas that promise to provide long-term growth. And we're firm in our belief that we're helping our client succeed while building a strong, growing company. Now this concludes my remarks. So, I'll now ask Dennis McGonigle to cover some company financial issues and give you an update on LSV and the investment and new business segment. After that I'll turn it over to the heads of the other business segments. Dennis?

Thanks, Al. Good afternoon, everyone. I will cover the first quarter results for the investments and new business segment and make a few brief comments on LSV asset management and corporate items. During the first quarter 2010, the investments and new business segment continued its focus on direct marketing activities to the ultra-high networth investor market and the further development of our blank and wealth services offering. During the quarter, the investment's new business segment incurred a loss of $1.7 million. This compares to a loss of $1.8 million during the fourth quarter of 2009. You can expect losses in this segment to continue.

As expected, starting with the first quarter of 2010, we have begun, or should I say returned to, reporting LSV under the equity method of accounting. Although this had no impact on earnings or net cash flow, it did have some line item impact on our balance sheet and income statement. In March, we filed an 8-K reflecting a pro forma view of this accounting treatment going back three years. In our earnings release, we did the same for first-quarter 2009, so comparatives are easier for you. We continue to own a approximately 42% of LSV, the same as fourth quarter 2009. As you can see on the income statement, LSV contributed approximately $24 million in income to SEI during the quarter. This compares to approximately $23 million in the fourth quarter of 2009. This growth is due primarily to increased revenues at LSV from higher asset balances.

As Al mentioned, asset balances grew approximately $1.7 billion during the quarter, primarily from market appreciation. Also during the quarter, we generated gains totaling $17.3 million from the SIV securities we hold on our balance sheet. $10.7 million of these gains were the result of cash distribution we received during the quarter. As of today, we currently hold SIV securities with a market value of approximately $105 million. We recently sold our holding in the SIV Wickersham. This SIV had a market value of approximately $11.4 million at March 31, 2010. We were able to sell this SIV at a slight gain.

Finally, due to a change in vesting assumptions, our option expense for the quarter increased approximately $2 million during the quarter versus fourth quarter 2009. The bulk of this cost is spread across our operating segments. I direct you to our 10-Q which we will file early next week, for more information on our option expense estimates for 2010. I will now answer any questions you may have.

(Operator Instructions) And first to the line of Glenn Greene with Oppenheimer. Please go ahead.

Thanks, good afternoon, Dennis.

Hi, Glenn.

Just a quick question. I was going to ask you about the stock option expense. It looked like it did pick up a bit. I know in your K you had suggested it might be about $18 million for the year. Is that still a good ballpark number to be thinking about?

No. It will be up -- as you know our options vests on us hitting certain earnings targets, EPS targets?

Yes.

And we changed our assumptions this quarter on where we think we're going to come out in terms of some of those -- in our forecasting, which led to us accelerating the amortization of some of that expense earlier than we had expected in the K, really by a year, on a couple tranches of options.

Does that mean the $6.5 million, $6.7 million that we saw this quarter is a good run rate quarterly?

Yes.

Okay, thank you.

We'll go to the line of Tom McCrohan with Janney Capital Mortgage.

Thanks for taking the call. The $18 million of new sales activity corporate-wide, I don't remember you disclosing that metric before. How does that track relative to prior quarters?

We decided to just kind of aggregate just because we talked in the market that this year sales events are, you know, very important. And generally the unit -- unit leaders will cover their sales activity unit by unit, so, we just thought we'd aggregate it. We have done it in the past, we just haven't done it in an aggregated fashion like this. And, comparatives I guess it's -- one of the reasons why we did highlight it today is because of its -- the focus on it this year for us to generate new business and really, because we're starting -- we think we're starting to turn the corner a little bit.

Okay, great. And just a followup. Just on the balance sheet -- this is just a clarification. Due to the deconsolidation of LSV, there was a $60 million asset which I assume is the LSV asset. But is that a book value number for your investment in that, and do you have a market value number for LSV?

No. What that is, is basically our 42% interest in the assets on the balance sheet of LSV. So the cash assets and the receivables and --

Oh, okay.

So we reflect that. Our interest in that, we reflect on our balance sheet.

And the evaporation, $60 million of intangibles and goodwill from period end, does that have to do with the LSV deconsolidation?

Yes.

Okay, thanks.

You're welcome.

We'll go to Robert Lee with KBW. Please go ahead.

Thanks, good afternoon.

Hi, Rob.

Hey. Quick question with having gone through the conversion to, I guess, finished in the last quarter, was there any kind of expenses related to that, that we could possibly fall off in the coming quarters just as you completed that process?

I wouldn't say in the coming quarters because as we ramp up some of that -- some of that cost, it would go away essentially. It would either be in the production area generally, but what we're doing is redeploying some of those assets to our development area as we really ramp up the activity on US development, so we can move that along as quickly as possible. And also what it does is it gives us more skill and leverage as we add new clients. We can add them right into that existing production environment that 6.0 is running on. So, it actually -- what it helps us do is to not add cost as we add clients, or certainly as much cost. Once the development and heavy lifting, if you will, is done on the development side, then we would start to unwind some of those production environments and it will pick up then.

Okay. And maybe a quick question just on LSV. You mentioned, you were up mainly due to market appreciation. To get additional granularity, were flows kind of modestly negative, positive, basically flat? I mean --

Yes, they're -- their flows were negative. They added -- had net -- a net pick-up in new clients. But they also had, in the first quarter, existing clients did a lot of rebalancing of portfolios. They lost some cash or some assets as a result of rebalancing. They didn't lose their clients per se, they lost -- what they did lose was assets. Has to do with, essentially ,the run-up in their -- their asset or their -- their component of client portfolios over the past nine months has been pretty significant. So, it's kind of bad news/good news or good news/bad news, however you want to look at it.

So generally their sales volumes have remained pretty good but they pick-up in redemptions due to rebalance?

Right.

Okay. Thank you.

A much clearer way to say it.

A rare thing for me.

At this point, no further questions in the queue.

Thank you, Dennis. And now I'll turn it over to Joe Ujobai, Private Banking.

Thanks, Al. Today I'd like to give you an update on our sales activity and a quick review of the financials for the private banking segment. Successes here will be defined by sales results which will drive our future growth. In line with this, we are off to a good start, as we have solid sales activity in all strategic areas of our business.

First, sales and growth for our Global Wealth Services Solution, enabled by the Global Wealth Platform. We are aggressively selling the Global Wealth Platform in the UK. We have sold three new clients this year. In February, we announced the Capital Group. Today, I'm announcing two additional new clients, both signed in April. UK Wealth Management and the PFP group. All three new clients are fast-growing, independent wealth advisors, or IWAs, with more than $1 billion to $2.5 billion in assets under management. We will issue press releases on our two latest clients over the next few days.

IWA's provide four potential sources of growth for us. First, conversion of their discretionary business. In most of the IWA clients and prospects, this is 10% to 20% of their total assets under management. Although a few IWA firms, for example Towry Law, have already converted much of their business to the discretionary model. Towry did this before their conversion to SEI.

Second, organic growth due to ongoing advisor sales efforts. Once we convert the discretionary assets, the firm is now open for business, meaning they begin to sell investment solutions enabled by the Global Wealth Platform. The third area of growth is what we call business transformation. This is when we work closely with the IWA over a period of time to convert the remaining advisory or execution business to the platform. Our goal is to convert at least half of the advisory assets in two to three years, with the rest converted by years four or five. In general, the business transformation process means that SEI's total revenue potential will take longer to realize than a traditional US Trust 3000 conversion.

The fourth area of growth is mergers and acquisitions. As well as the managers consolidate in the UK, we partner with them to provide a scalable infrastructure solution and an efficient conversion program utilizing our professional services capabilities. Our overall growth opportunities with IWAs is substantial. For example, we converted most of Towry Laws' original business in 2009. Since then, our relationship with Towry has grown rapidly. In the second quarter, we expect to convert Towery's conversion of Edward Jones to the platform. During 2010, we anticipate that Towry Law relationship will double in revenue since the conversion last year. By 2011, I expect that Towry will be one of our largest clients worldwide.

I expect that realized revenue from our six currently announced GWP clients will reach at least $20 million in 2011. This number is based on current conversion and business transformation plans as well as modest organic growth. After the Edward Jones conversion, we will have over 100,000 accounts live on a single instance GWP, release 6.0. Active business development efforts in the UK continue to focus on the IWA market, with renewed calling in other market segments, such as larger discretionary wealth management firms and banks. We are adding new names to the UK pipeline, given strong client references and our comprehensive solution offering.

In the US, as we prepare for the availability of GWP, we are focused on growing our revenue and retaining current clients. Areas of revenue growth include selling community banks and trust companies, our global wealth solution, at this point enabled by Trust 3000. In the first quarter we sold three new clients. These deals have estimated total revenue of almost $2 million, and will convert later this year. Our sales pipeline continues to grow in the community bank segment. We are also increasing our sales and marketing efforts in the regional and national bank segments as we move closer to the launch of the Global Wealth Platform in the US. With our current US clients we are cross selling.

To grow revenue -- to grow recurring revenue we are focused on opportunities such as our compliance services solution and enabling web-based services. We also continue to see increased client discretionary, or one-time spend, professional service projects. As usual, we are also involved in significant recontracting activity. So far this year, overall recontracting rates are slightly improved compared to recent years, despite pricing pressure from the competition.

During the first quarter, we recontracted eight clients for approximately $14 million, with an average recontract term of four years. Since January, we have sold net wealth processing events of over $12 million. This number includes our UK and US businesses, and is calculated by determining expected fees or contract minimums. This number is net of any newly contracted netdowns. Approximately 70% of this revenue is recurring. Finally, we continue to support and grow our global asset management distribution footprint. In the first quarter, we saw more evidence of improvement in an individual investor sentiment, although regional differences in our asset flows remain. We have stabilized this business and are experiencing net asset growth with some of our distributors. We also rationalized some of our current distribution partners, and in the first quarter we closed down a few unprofitable, low-growth relationships.

Today we announced a strategic distribution relationship with Cofunds, the UK's largest independent mutual fund platform, or fund supermarket, for our newly launched goals-based investment solution. As a strategic partner to Cofunds, we will get premium positioning in this organization. Our pipeline of new distribution relationships is encouraging, and we expect to grow this business through a combination of current and new partners.

As a financial update, I will focus my comments on a comparison to the fourth quarter of 2009. For the quarter, revenue of $87.1 million was down slightly to the prior quarter's revenue of $89.1 million. In the private banking segment, we have three main sources of revenue. Number one, wealth processing. Recurring revenue from our wealth processing business is down by approximately $2.5 million as we begin to experience lost revenue from two previously announced large US bank clients and other net downs or lost clients that occurred in previous quarters. Overall, wealth processing revenue remains flat at $58 million, due to an increase in professional services or one-time projects.

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 $12.6 billion versus $12.5 billion in 2004. In the US, we continue to experience a decrease in our cash management, or shorter term assets, as our US banking clients move away from our money market mutual funds primarily for yield reasons.

Number three, brokerage services. Our revenue in this solution decreased by approximately 16%, due to a reduction in our clients' trading volumes and a lost client. Total expenses for the quarter were down $2.6 million compared to Q4. During the quarter we realized a one-time severance expense of approximately $1.8 million due to an additional work force reduction in the private banking segment. This work force reduction was implemented to contribute to our continued expense management program, and is a part of a strategic evolution of the work force as we implement Global Wealth Services. Work force reductions will improve the current expense run rate by over $1 million per quarter.

Financial results aside, I am very encouraged by our solid sales activity. We have growing pipelines in all of our strategic businesses and are beginning to realize the benefit of our investments and to experience momentum in our markets. We will grow this business by actively selling, 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. Our strategy is compelling, and our sales activity is generating growth opportunities. At this time, I'd be happy to entertain any questions.

(Operator instructions) And we'll go back to Tom McCrohan. Please go ahead.

Hi, Joe. Wow, that was a real expanded disclosure this quarter. That was helpful.

I hope it wasn't too long.

The $20 million of revenue from GWP. Just want to clarify that. So you expect total revenues from this new platform to total $20 million as you exit 2011? Is that the way to think about it?

No, during the year of 2011, based on the six clients we've either converted or announced, we would expect them to generate at least $20 million of revenue. That's everything from our first client, HSBC, up to these two new that we announced today. Again, we would expect to sell more clients hopefully and -- and generate more revenue than that. But, I think we're trying to give you all some more insight to the revenue opportunity, and based on what we have committed today, we would expect $20 million of revenue for GWP next year.

Okay. That's helpful. And, then, on the recontracting activity that you've been talking about, it seemed like -- we were modeling a little bit higher sequential growth in assets and the management based on the strong new sales activity. And I realize there is a little bit of lag between when you announce sales activity and seeing the numbers. But, the stuff that you recontracted this quarter, and I think you said $14 million annualized revenue, how does that compare to what the revenue was pre-recontracting?

Well, historically, every year we would lose about 15% or so in a re-contract. And, again, that was generally -- over the last four, five years, that's what the numbers have looked like. And for the first quarter, we were -- the impact was about a 7% reduction.

Okay, thank you.

And we'll go to the line of Jeff Hopson with Stifel Nicolaus. Please go ahead.

Okay, thanks. Hi, Joe. So, the Cofunds, is that similar to like a Schwab platform and supermarket platform in the US?

Cofunds is really a mutual fund supermarket.

Okay.

So, historically the insurance companies provided mutual funds as a trading -- a trade platform for mutual funds. About 10 years ago, Cofunds was created, Fidelity is also another supermarket. But it's primarily mutual funds.

Mutual funds, okay. And whatever assets they have, I mean, that's indicative of its size. But you just have to get your share of the flows going forward, is that fair to say?

That's correct. They have about $30 billion of assets that they currently administer on their platform. And we have been able to secure a premium position on the platform. So, if an ISA wants to be a sort of do-it-yourselfer, they have access to pretty much whole of market. But if they want an outsource investment portfolio, we would be one of two options, and they've built some technology around that to give us that premiere positioning, as well as we support them by wholesaling to their sales force and with their sales force as they call on ISA's. It's pretty similar to our relationship with Standard Life that we announced about a year or so ago.

Okay. And then, Ed Jones, I think the last time you had suggested that you were -- would not capture the revenues because of the different models. So can you update us as to what -- so you're going to convert the business, and then as that changes the nature, you'll pick it up in terms of revenue, or -- can you explain that?

Well, Edward Jones -- our Towry Law relationship is more like a traditional Trust 3000 conversion. So, in July, because they had converted a lot of their book of business already from advisory to discretionary , we did a traditional conversion with them in July of 2009. They have continued to grow that business organically since then. And, then, they acquired late last year the UK business of Edward Jones. That will also be a traditional conversion. So, we will move the assets off of the Edward Jones platform in the coming weeks to the SEI Global Wealth Platform. We will act as the custodian of those assets. Some of those accounts over time will convert to -- sorry, a discretionary relationship. But if they stay as an advisory or the executionary relationship we will get revenue for those assets. So we will start to see revenue once we -- once we convert those assets in the next few

I see. Okay. Great. Thank you.

We'll go to Glenn Greene. Please go ahead.

Hi, Joe. I guess, just a little more color on the pipeline. I know exiting the fourth quarter you talked about, I think to quote you, 20 active engagements. And I know you signed a few this quarter. I'm sure there's pipeline ebbs and flows. Any way to give some color on replenishment of the pipeline? Has it grown relative to where you were in the fourth quarter?

The pipeline is strong, it continues to grow, but it's always difficult to predict timing on these things. And so we -- we see good momentum in the markets. But it would be hard for me to predict -- give you really too much indication on timing. We stay very actively engaged, yes, we are replacing some of these closed with new opportunities, but they're all in different stages of -- of the sales cycles. But, you know, we're encouraged by our momentum.

And any way to think about -- you talked about the $20 million revenue based from the six clients today. Is there any way to think about the assets that we should be thinking about, whether assets under management or under service or -- is there a way for us to triangulate that?

I was going to use the investor conference in June to give a little bit more information on that. Really we have two types of clients. We have, again, the traditional up-front conversion like we'd experienced with Towry Law. Obviously they have grown to their acquisition with HSBC. Then we have the more asset-gathering clients that we've got to work with on a business transformation. So I thought I would use the investor conference in June to give you a little bit more detail about how that would work.

We have evolved the business model a bit. So initial clients were mostly asset-based fees. We have evolved that to have now really more of a mix of asset-based fees, basis points of assets under management, as well as some transaction fees. Things like account open, account closed trading fees. And I could get -- I'm planning to take it a little bit from -- I really can't tell about any specific client, but a little bit more of the direction we're headed when we meet in June.

Is there any -- any thought on -- does the business model change or evolution change the longer term ultimate market opportunity?

I think we thought for a long time this was a great opportunity. We're now starting to see the very early days of realizing that opportunity. You know, there are some things happening in the market around regulation. This thing called the retail distribution review. We think our solution lines up well with that.

The FSA is also looking at what they call platforms which, again, typically mean the insurance-based platforms or the supermarkets and the way fees are paid. So we generally feel positive about the direct of the market. And as I said all along, we've needed to get six or eight clients on the platform which I think has market momentum. I think we're getting there. And so we're -- we're encouraged by, finally by -- by some of this momentum.

And it's just finally on the work force reduction, just to clarify, you said a $1 million expense savings going forward entering sort of 2Q from the 1Q run rate?

That's correct.

Okay, great.

We did some in the middle, so it's not exact, but we have about $1.8 million in severance. And we would expect when all this would have normalized, it would be about $1 million-plus the quarterly run rate. Now we're obviously going to continue to hire some people. We want to hire some more salespeople as we gain momentum and we increase our efforts around the US launch of this. But we really use it as an opportunity to continue to manage expenses and to sort of strategically continue to evolve the work force.

Okay, great. Thanks, Joe.

We'll go to Robert Lee. Please go ahead.

Thanks. Good afternoon, Joe. Real quickly. Going back to the GDP platform. I know it had always been the intention to try to price that business on kind of basis points of assets and what not. My sense is that, that's evolved, I guess, since the original intention. With these -- with the new wins you've had and, our -- have you been able to get basis points on asset-type pricing, or is it really much more of a mixed model? Do you have a good sense for how the pricing dynamics are shaking out?

Yeah. It-- again, I will tell a little more in June. But it is still primarily basis points driven. So as these businesses grow, we believe it's a win-win business model. But there are certain activities, particularly as we had our first set of clients around trading, around rebalancing, around account opens, account closing, that don't necessarily correlate to assets under management. And so we have really come up with more of a hybrid model that would cover some of those costs and allow us to make profit in some of those other activities. But it's still primarily a basis point-driven business -- business model.

Okay. And just as a point of comparison, how -- the $20 million revenue from GWP clients from next year is great. But, as a way of thinking about the change, what's the number you're thinking of for 2010? Is it half that? 1/3? 40%? I mean, just trying to get a sense of the magnitude of the increase.

You know, it depends on how fast we convert these clients. As I mentioned earlier, these two new relationships have -- have small conversion books, discretionary assets. So, and with 6.0 we think we can convert people much more quickly. You look back, it took us a couple of years to convert HSPC, PBG, a year to convert Towry Law. We're converting the Edward Jones business in a much shorter timeframe. Part of this is how fast do we convert these clients. How fast do the current clients continue to grow. Do they make any other acquisitions that we can convert quickly. So it's pretty difficult to pin that number down. And again, the $20 million for 2011 is an estimate because, again, we have a number of variables in the pricing model that we think will ultimately benefit us given the way we structured it. So, it's not quite as easy to predict right now. So, I would sort of be a little concerned to give you a number for this year.

Okay. Thank you.

We're going to try to get as much revenue as we can.

Sure. Thanks a lot.

No further questions in queue.

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

Thanks, Al. Like the economy in general, we continue on the road to recovery during the first quarter. After management during -- assets on management during the quarter increased to $30.2 billion. This increase was driven by market appreciation and new advisor fundings. While with did experience $151 million in net negative tax flow, we continue to see improvement, with January being the source of $128 million of this net outflow. Revenues for the quarter were essentially flat from last quarter. While our average assets under management increased slightly, our revenue from liquidity products decreased almost $500,000 due to continued pressure on short-term interest rates.

The first quarter also contained two less days in the fourth quarter, and because the segment accrues revenue on a daily basis, that translated into a sequential decrease in revenue of about $1 million. Profits for the quarter were $17.9 million, an increase of 4% from the $17.2 million earned in the fourth quarter. These profits reflect the expense control measures we implemented last year. We remain focused on managing expenses, and that focus allowed us to improve our margins in the first quarter to 39.3%, a 160 basis points improvement from the fourth quarter, and a fourth straight quarterly improvement in margins.

In terms of new business development, we recruited 81 new advisors during the quarter. This compares to 92 new advisors in the fourth quarter of 2009, and our quarterly average of 62 new advisors during all of 2009. We have increased the resources working on recruiting new advisors, and our pipeline remains strong. Recruiters also supported by our efforts to develop strategic partnerships with independent broker dealers, an item I mentioned to you during the fourth-quarter call. While we are only a few months into this broker-dealer strategy, the early returns are positive.

In summary, we have seen a continued improvement in the asset-gathering business of our advisors. Stabilization in the markets is evidenced by moderation of disbursements, and the move of end investors into riskier, long-term asset classes from money market products. This should bode well for the advisor segment. I now welcome any questions you may have.

We'll go to Jeff Hopson. Please go ahead.

Hi, Wayne. So could you tell us again what -- how much movement out of money market? And then how much of that are you seeing on the equity or fixed income side?

What I would say is if you look at sort of the trends, in Q3 last year, we lost about $200 million in liquidity products. In Q4 of last year, liquidity products went down an additional $300 million. And in Q1 of this year, liquidity products went down another $200 million. So when you look at total assets which are going up, the shift -- the percentage occupied by equity and fixed income is much higher as that shift occurs.

Okay. And so -- so you are getting better flows in the longer term products, would you say?

That is correct.

Okay, great, thank you.

We'll go to Tom McCrohan. Please go ahead.

Hey, Wayne. I'm sorry, I didn't capture your initial comment about net cash flows. Can you just reiterate that for the quarter.

Yes. Net cash flow for the quarter was a negative $151 million, of which January was $128 net outflow.

Okay. So it showed a sequential improvement, right, 4Q is, what, negative $179 million if I remember?

Right. And Q1 was a negative $151 million with January being a negative $128 million included in that total.

Excellent. That's helpful. And any update, Wayne, on your new relationship with Cambridge Investment Research that you could share with us?

As I mentioned, it's a little bit early in the relationship to give you concrete numbers. But, we recently had 19 of their home office employees out here working with us, understanding our products. We've been -- they've been hosting some webinars for us with their advisor base. So, we're starting to see a pickup in the activity with their registered investment advisors, but we're only a couple months into it. But it's looking very promising.

Thank you.

And we go to Glenn Greene. Please go ahead.

Hey, Wayne. So, the two less days, is it fair to think that most of that $1 million would have gone right to the bottom line for the most part?

Yes.

Okay. And does that also explain, at least by my math, that the basis point yield on the assets looked like it fell a little bit sequentially. I think would probably be explained partly by the $500,000 item you talked about, plus not having the $1 million revenue from the asset levels at the end of the quarter.

Yeah, I think the decline in basis point overall reflects a pretty significant decline in what we earn on liquidity balances, due to pressure on interest rates. I think also we've made a small shift from the allocation we had to quantitative managers to more fundamental managers, given the current economic environment. And they're a little more expensive and you see that in the basis points yield.

Okay. And not to put you too much on the spot here, but where do you think we are in terms of turning the corner to positive flows?

The way I look at it right now is flows were driven -- net flows, net negative flows were driven by a lack of receipts and unusually high disbursements. I think we have seen investors' stock running for the hills, and we've seen stabilization in disbursement rate. So, once we get a pickup in receipts we'll have positive flows.

Okay. Thank you.

No further questions.

Thank you, Wayne. Our next segment is institutional investor 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 first quarter 2010 compared to the fourth quarter. Revenues and profits continued their quarterly improvement during the first quarter. Revenues approaching $51 million for the first quarter increased 3% compared to the fourth quarter of 2009. Capital market appreciation was the major contributor to revenue growth during the quarter. Quarterly profits of $24 million increased slightly versus the fourth quarter. Margins of 47% were comparable to last quarter, and will continue to be very sensitive to market volatility.

Asset balances increased by $1.4 billion during the quarter, totaling $49.7 billion on March 31. New client assets, net new client assets funded during the quarter were $725 million. Our backlog of committed but unfunded assets at quarter end were $314 million. Sales activity increased during the first quarter with $1.3 billion in new client sales for the quarter, and new clients continued to be globally diversified across our target market segments. Institutional prospects are now more willing to initiate first call conversations on the benefits of our outsourcing model, and as a result the pipeline continues to grow. A key driver for institutional sales growth is the continued global adoption of SEI's integrated pension and endowment solutions in our six target markets.

There continues to be considerable press coverage and thought leadership in the UK and the Netherlands endorsing fiduciary management and outsourcing. This positive trend and our decade-long history acting as a fiduciary manager in the US positions SEI well in the UK and European markets. The pace of institutional decision-making, and the value of our business proposition, integrating pension finance and corporate finance, with goals-based investing, is more evidence to institutional decision-makers as the business environment improves. This concludes my remarks. Thank you very much, and I'm happy to entertain any questions.

(Operator Instructions) We'll go to Tom McCrohan. Please go ahead.

Hi, Ed. Any opportunity to win business from municipalities, given what's going on, I think in the state of Massachusetts and other states?

Yes, we continue to have an active program there. So the -- this quarter we didn't see any closures, but we are active in that marketplace. So we're optimistic.

Thank you.

No further questions -- excuse me. We have Glenn Greene. Please go ahead.

Hi, Ed. I was wondering if you could give some I guess broad commentary on the activity levels. The $1.3 billion in new signings is kind of the best level in over a year. You know, is the pipeline continuing to replenish, are decision cycles shortening? Just a sense for the overall environment, what you're seeing, and is there any unusual deal wins in the quarter or you think we're back to more of a normal sales activity run rate?

I guess a couple of things. Some early signals momentum would be just, again, the ability for us to be able to get first call conversations. And we've had a fair mount of success in getting appointments, so starting that conversation. So that's a healthy signal. I would say that the closes during the fourth quarter or ,I'm sorry, during the first quarter, we're happy with that. But, I wouldn't say that the decision-making is back to what it was back in 2007 and early parts of 2008. The other segment that seems to be slow to kind of come back will be the larger plans. So we're actively pursuing different strategies to what we can do to try and increase the pace of activity in that particular segment. Because that's really what's going to make a -- the difference between kind of a good year and a great year.

You had a lot of small plan wins in the quarter.

Well, I -- I hesitate to characterize them as small plans. They're over $100 million. But they're not close to $700 million or $1 billion.

Okay.

So it's all relative to -- to --

I'm with you. Thank you.

Sure.

We have no further questions.

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

Thanks, Al. Good afternoon, everyone. I will briefly cover the financials for the segment, for the first quarter of 2010, and then cover our new sales and a brief update on the business. For the financials, I will compare our first quarter results to fourth quarter of 2009.

For the first quarter of 2010, revenues for the segment totaled $37.6 million, which was $0.5 million or 1.4% higher than our revenues for fourth quarter of 2009. Our quarterly profit for the segment of $13.1 million was $900,000 higher than our profit for the fourth quarter of 2009. The quarter-over-quarter increase in profit was mainly attributable to the increase in revenue and a slight reduction in expenses for the quarter. Our third-party asset balances at the end of the first quarter of 2010 were $220.8 billion or just under $1 billion lower than at the end of the fourth quarter of 2009. While our asset balances increased due to market appreciation of $1.4 billion, this was offset by net negative cash flows for possibly $2.3 billion. During the first quarter of 2010, the segment had new business sales events totaling $3.8 million in annualized revenue. While this quarter's sales events are less than previous quarters', this reflects a more of a timing of events versus a reduction in sales activities.

As I look at the results of the first quarter and look to the remainder of 2010, a couple of points are worth mentioning. First, while our asset balances were down slightly quarter-over-quarter, they remained approximately the same level of a year ago, yet our revenue has increased approximately 13% for the same time period. I believe this points to the fact that the majority of our asset balance outflows over the last year were centralized in our lower fee and low margin products such as stable value and liquidity funds, for example, while the new asset flows we funded were in our higher margin products. We expect this trend to continue over the next several quarters. Second, although expenses were down in the first quarter, I would view this as a timing issue. Expenses will vary with new sales activity levels as well as the ongoing investments we continue to make to fuel our growth and to stay at the forefront of solutions for investment managers.

In summary, I remain very optimistic and encouraged at our long term growth strategy. The market continues to demonstrate demand for our solutions, we see growth prospects with our current clients, and we maintain a very strong pipeline for new business. I will now turn it over for any questions you have.

(Operator Instructions) And we'll go to Tom McCrohan. Please go ahead.

Steve, any update on the PFPC Bank of Europe-Mellon opportunity. Are you seeing anything there?

No, I think, we talked about this a little bit before. I think we're still seeing some reservation in the market, a wait-and-see approach. But I certainly, I think, when -- typically when transactions like this happen, as I said before, there's typically some opportunity for us in that, and we're certainly pursuing it.

And we have no further questions in queue.

Thank you, Steve. And now I'd like to ask Kathy Heilig to give you a few company-wide statistics.

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. First quarter cash flows from assets was $18.1 million or $0.09 per share. And free cash flow was a negative $28 million, which really reflects a debt repayment that we did in the first quarter. Capital expenditures for the first quarter were $4.5 million, which excludes capitalized software. Capital expenditures for the remainder of 2010 ,excluding capitalized software are expected to be about $22 million, which include expenditures for our data center this year. The tax rate for the first quarter was 37.9% compared to 35.7% in the fourth quarter. Our tax rate is higher due to the expiration of the R&D tax credit. Should this tax credit be reinstated, we would expect our tax rate to be lower. The accounts payable balance at March 31 was $7.3 million.

And we 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 development. 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 might have.

We'll go to Tom McCrohan. Please go ahead.

Sorry, Kathy, I couldn't type fast enough. What was the cash frow for operations from the quarter?

$18.1 million.

That was free cash flow or cash flow?

That was cash flow.

Thank you.

We have no further questions.

Thank you, Kathy. So, ladies and gentlemen, despite some of the external conditions we'll face, the strength of the Company has allowed us to stay the course on building new sources of growth. And we have made important strides and definitely feel our efforts are starting to be rewarded. Times like what we've been through enhance the value of our business proposition. Now, before you go, I do want to remind you once more of our annual investor day held on June 16 this year with a dinner the night before on the 15th. So, please, you're invited, and save the date. And is there any other question or we'll say good afternoon.

We have no further questions.

Great. Thank you so much for your attention and for joining us. Have a great afternoon.

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